<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
TCI Satellite Entertainment, Inc.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1352884
------------------------------- ----------
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
8085 South Chester, Suite 300
Englewood, Colorado 80112
------------------------------- ----------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (303) 712-4600
--------------
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Series A Common Stock, $1.00 par value
--------------------------------------
(Title of class)
Series B Common Stock, $1.00 par value
--------------------------------------
(Title of class)
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ------------ ---------------------------------
NO.
- ---
<S> <C> <C>
1. Business. SUMMARY; RISK FACTORS; THE DISTRIBUTION -- Reasons for
the Distribution; THE DISTRIBUTION -- Certain
Consequences of the Distribution; ARRANGEMENTS BETWEEN
TCI AND THE COMPANY AFTER THE DISTRIBUTION; BUSINESS OF
THE COMPANY; MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
2. Financial Information. SUMMARY; RISK FACTORS; SELECTED FINANCIAL DATA;
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS; FINANCIAL
STATEMENTS.
3. Properties. BUSINESS OF THE COMPANY -- Properties.
4. Security Ownership of RISK FACTORS -- Disparate Voting Rights; Substantial
Certain Beneficial Stockholders; MANAGEMENT OF THE COMPANY -- Stock
Owners and Management. Ownership of Management; PRINCIPAL STOCKHOLDERS OF THE
COMPANY.
5. Directors and Executive MANAGEMENT OF THE COMPANY; DESCRIPTION OF COMPANY
Officers. CAPITAL STOCK -- Limitation on Directors' Liability;
Indemnification.
6. Executive Compensation. MANAGEMENT OF THE COMPANY.
7. Certain Relationships SUMMARY; RISK FACTORS -- Relationship with TCI;
and Related Transactions. Potential Conflicts of Interest; RISK
</TABLE>
<PAGE>
<TABLE>
<S> <S>
FACTORS -- Uncertainty Regarding Fulfillment
Agreement; RISK FACTORS -- Dependence on
PRIMESTAR Partners; No Written Distribution
Agreement; ARRANGEMENTS BETWEEN TCI AND THE
COMPANY AFTER THE DISTRIBUTION; THE
DISTRIBUTION; MANAGEMENT OF THE COMPANY.
8. Legal Proceedings. RISK FACTORS -- Dispute over Tempo Option;
BUSINESS OF THE COMPANY -- Legal Proceedings.
9. Market Price of and Dividends on the Registrant's SUMMARY; RISK FACTORS -- Dividends and
Common Equity and Related Stockholder Matters. Dividend Policy; RISK FACTORS -- Absence of
Prior Trading Market; THE DISTRIBUTION;
DESCRIPTION OF COMPANY CAPITAL STOCK.
10. Recent Sales of Unregistered Securities. Not Applicable.
11. Description of Registrant's Securities to be Registered. RISK FACTORS -- Potential Antitakeover
Provisions; DESCRIPTION OF COMPANY CAPITAL
STOCK.
12. Indemnification of Directors and Officers. DESCRIPTION OF COMPANY CAPITAL STOCK --
Limitation on Directors' Liability;
Indemnification.
13. Financial Statements and Supplementary Data. SUMMARY; RISK FACTORS; SELECTED FINANCIAL
DATA; MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS; FINANCIAL STATEMENTS.
14. Changes in and Disagreements with Accountants on Not Applicable.
Accounting and Financial Disclosure.
15. Financial Statements and Exhibits. FINANCIAL STATEMENTS; EXHIBIT INDEX.
</TABLE>
<PAGE>
Preliminary Copy Dated __________, 1996
INFORMATION STATEMENT
TCI SATELLITE ENTERTAINMENT, INC.
8085 South Chester, Suite 300
Englewood, Colorado 80112
(303) 712-4600
This Information Statement is being furnished by Tele-Communications, Inc.,
a Delaware corporation ("TCI"), in connection with the distribution (the
"Distribution") by TCI to the holders of record of shares of Tele-
Communications, Inc. Series A TCI Group Common Stock, $1.00 par value per share
(the "Series A TCI Group Common Stock"), and to the holders of record of shares
of Tele-Communications, Inc. Series B TCI Group Common Stock, $1.00 par value
per share (the "Series B TCI Group Common Stock", and together with the Series A
TCI Group Common Stock, the "TCI Group Common Stock"), of all of the issued and
outstanding common stock (the "Company Common Stock") of TCI Satellite
Entertainment, Inc., a Delaware corporation and a wholly owned subsidiary of TCI
(the "Company"). The Distribution will be made on __________________, 1996 (the
"Distribution Date") as a dividend to the holders of record of TCI Group Common
Stock (such holders, the "TCI Group Stockholders") at the close of business on
__________, 1996 (the "Record Date"), on the basis of one share of the Company's
Series A Common Stock, $1.00 par value per share (the "Series A Common Stock")
for each ten shares of Series A TCI Group Common Stock held of record on the
Record Date, and one share of the Company's Series B Common Stock, $1.00 par
value per share (the "Series B Common Stock") for each ten shares of Series B
TCI Group Common Stock held of record on the Record Date. No certificates or
scrip representing fractional shares of Series A Common Stock or Series B Common
Stock will be issued. Fractions of one-half or greater of a share will be
rounded up and fractions of less than one-half of a share will be rounded down
to the nearest whole number of shares of Series A Common Stock or Series B
Common Stock.
The TCI Group Stockholders will not be required to pay any consideration
for the shares of Company Common Stock they receive in the Distribution. There
is no current public trading market for the Company Common Stock. The shares of
Series A Common Stock and Series B Common Stock to be distributed are expected
to be approved for listing on the Nasdaq National Market upon issuance under the
symbols "TSAT A" and "TSAT B," respectively.
In connection with the Distribution, TCI will cause to be transferred to
the Company and its subsidiaries certain assets and businesses (and the related
liabilities) constituting all of TCI's interests in the business of distributing
multichannel programming services directly to consumers in the United States via
digital satellite, including the rental and sale of customer premises equipment
relating thereto (the "Digital Satellite Business").
In reviewing this Information Statement, stockholders should carefully
consider the matters described under the heading "Risk Factors" beginning on p.
------------
11.
THIS INFORMATION STATEMENT CONTAINS MANY FORWARD-LOOKING STATEMENTS ABOUT
BUSINESS STRATEGIES, MARKET POTENTIAL, FUTURE FINANCIAL PERFORMANCE, NEW SERVICE
LAUNCHES AND OTHER MATTERS. SUCH STATEMENTS INVOLVE MANY RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
STATEMENTS, INCLUDING, WITHOUT LIMITATION, THOSE RISKS AND UNCERTAINTIES
DESCRIBED UNDER THE HEADING "RISK FACTORS," BEGINNING ON P. 11.
------------
_______________________________
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION. WE
ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
_______________________________
THE SECURITIES DESCRIBED HEREIN HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
_______________________________
THE DATE OF THIS INFORMATION STATEMENT IS __________, 1996.
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form 10 (including exhibits, schedules and
amendments thereto, the "Company Form 10") pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act") with respect to the Company Common
Stock. This Information Statement, while forming a part of the Company Form 10,
does not contain all of the information set forth in the Company Form 10.
Reference is hereby made to the Company Form 10 for further information with
respect to the Company and the securities to be distributed to the TCI Group
Stockholders in the Distribution. Statements contained herein concerning the
provisions of documents filed as exhibits to the Company Form 10 are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed with the SEC.
The Company Form 10 is available for inspection and copying at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Regional Offices of the SEC at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such information can be obtained by mail from the Public Reference
Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
Following the Distribution, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports, proxy statements and other information with the SEC that will
be available for inspection and copying at the SEC's public reference facilities
referred to above. Copies of such material can be obtained by mail at
prescribed rates by writing to the Public Reference Branch of the SEC at the
address referred to above. In addition, it is expected that reports, proxy
statements and other information concerning the Company will be available for
inspection at the Nasdaq Stock Market, 1735 K Street, N.W., Washington D.C.
20006.
Questions concerning the Distribution should be directed to Investor
Relations, Tele-Communications, Inc., P.O. Box 5630, Denver, Colorado 80217;
telephone (303) 267-5051. After the Distribution, holders of Company Common
Stock having inquiries related to their investment in the Company should contact
Investor Relations, TCI Satellite Entertainment, Inc., 8085 South Chester, Suite
300, Englewood, Colorado 80112, (303) 712-4600.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ADDITIONAL INFORMATION.........................................................2
SUMMARY........................................................................4
RISK FACTORS..................................................................11
THE DISTRIBUTION..............................................................25
ARRANGEMENTS BETWEEN TCI AND THE COMPANY
AFTER THE DISTRIBUTION........................................................31
CAPITALIZATION................................................................36
SELECTED FINANCIAL DATA.......................................................37
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................38
BUSINESS OF THE COMPANY.......................................................49
REGULATORY MATTERS............................................................74
MANAGEMENT OF THE COMPANY.....................................................79
PRINCIPAL STOCKHOLDERS OF THE COMPANY.........................................95
DESCRIPTION OF COMPANY CAPITAL STOCK..........................................97
INDEPENDENT AUDITORS.........................................................110
GLOSSARY OF TERMS............................................................111
FINANCIAL STATEMENTS.........................................................F-1
</TABLE>
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial information appearing elsewhere in this Information
Statement. References in this Information Statement to "Authorized Units" refer
to the number of active authorized satellite receivers, more than one of which
may be installed in a subscribing household. For definitions of certain terms
used in the satellite industry and this Information Statement, see "Glossary of
-----------
Terms."
- -----
THE COMPANY
The Company was formed in connection with the Distribution to own and
operate certain businesses of the TCI Group, defined below, constituting all of
the TCI Group's interests in the Digital Satellite Business. At the time of the
Distribution, TCI will cause to be transferred to the Company and its
subsidiaries the ownership interests in (i) TCI's business of distributing the
PRIMESTAR(R) programming service ("PRIMESTAR(R)"), known as PRIMESTAR By
TCI, which, as of June 30, 1996, had an installed base of approximately 659,000
Authorized Units, (ii) an aggregate 20.86% partnership interest in PRIMESTAR
Partners, L.P. ("PRIMESTAR Partners" or the "Partnership"), (iii) Tempo
Satellite, Inc. ("Tempo"), which holds the Company's high power satellite
interests, and (iv) TCI's rights under certain agreements with Telesat Canada.
See "Business of the Company."
-----------------------
Unless the context otherwise requires, references in this Information
Statement to "the Company" refer to (i) TCI's collective interests in the
Digital Satellite Business (as described above) before the Distribution Date and
(ii) the Company and its consolidated subsidiaries on and after the Distribution
Date. Additionally, references in this information statement to "TCI" shall
include TCI's consolidated subsidiaries unless the context indicates otherwise.
References to TCI prior to August 4, 1994, refer to TCI's predecessor.
PRIMESTAR Partners was formed by subsidiaries of TCI, several other cable
operators and General Electric Company ("G.E.") in February 1990, under the name
K Prime Partners, L.P., to acquire, originate and/or provide television
programming services for delivery by satellite to subscribers in the continental
U.S. The service is distributed through distributors, all of which are
affiliated with the Partnership's partners other than G.E. The Partnership's
distributors operate in non-exclusive territories assigned by PRIMESTAR Partners
management, which territories generally comprise, among other areas, areas in
and around localities in which affiliates of such distributors have cable
television franchises. TCI, through various subsidiaries, has been engaged in
the business of distributing PRIMESTAR(R) since December 1990. The Company's
predecessor was incorporated in February 1995 to consolidate TCI's
PRIMESTAR(R) distribution business in one subsidiary, and will be merged into
the Company in connection with the Distribution. The Company was incorporated
in Delaware in June 1996 and is currently a wholly owned subsidiary of TCI. The
principal executive office of the Company is at 8085 South Chester, Suite 300,
Englewood, Colorado 80112. Its telephone number is (303) 712-4600.
4
<PAGE>
STRATEGY
The Company's primary objectives are to maintain its market leadership as
one of the premier providers of satellite delivered entertainment programming
and to become one of the major providers of informational services to the home
and business. The Company's strategy will be achieved as follows:
High Quality Programming. The Company offers consumers a wide variety of
high quality programming, delivered digitally for laser-disc quality image and
compact-disc quality sound, for a competitive price. The Company believes that
its image and sound quality is superior to that provided by most existing cable
systems and wireless cable providers, which transmit analog signals to their
subscribers, and that no other current digital satellite system provides better
picture or sound. With the successful launch and commercial operation of a new
satellite, PRIMESTAR(R) will increase its channel offerings from 94 video and
audio channels to over 140 channel offerings, while reducing its dish size to
approximately 27 inches for subscribers in the majority of the U.S. The Company
further believes that its combination of price and services provides consumers
with greater value than the respective price and service offerings of other
current digital satellite service providers. See "Business of the Company --
--------------------------
PRIMESTAR By TCI -- The PRIMESTAR(R) Service," and "Risk Factors -- Risks of
- ----------------------------------------------- ------------------------
Satellite Defect, Loss or Reduced Performance."
- ---------------------------------------------
Continued Subscriber Growth. The Company continues to grow its substantial
customer base through its multiple sales and distribution channels, which
include cable system operators, master sales agents and their sub-agents, direct
sales representatives, telemarketing and consumer retail outlets. The Company
recently began to distribute its services through Radio Shack, one of the
nation's largest consumer electronics retailers. In February 1996, PRIMESTAR
Partners entered into a national agreement with Radio Shack under which
PRIMESTAR(R) is expected to be sold through more than 6,500 Radio Shack stores
nationwide. The Company estimates that when the arrangement is fully
implemented, over 2,500 of these new retail points of sale will be located in
the Company's authorized distribution territories. In addition, the Company
supports its multiple distribution channels with a wide variety of advertising,
marketing and promotional activities. See "Business of the Company -- PRIMESTAR
------------------------------------
By TCI -- Marketing."
- -------------------
Differentiating the Company's Offerings Through Superior Customer Service.
The Company believes that providing outstanding service, convenience and value
is essential in developing long term customer relationships. The Company
offers consumers a "one-stop shopping" service which includes programming,
installation, maintenance, reliable customer service and satellite reception
equipment. The Company maintains its own national call center ("National Call
Center"), providing customers with round-the-clock telephone support for sales,
installation, authorization and billing, as well as to schedule repair and
customer service calls, 365 days per year.
Providing Consumers Many Attractive Alternatives to Equipment Purchases.
The Company's equipment rental program, which includes free maintenance and
repair, provides significant benefits to customers, who are not required to buy
satellite equipment in order to receive the PRIMESTAR(R) service. Because
PRIMESTAR By TCI is marketed as a service, with programming, equipment rental,
maintenance and 24-hour customer service included in the monthly charge, the up-
front costs to new subscribers of PRIMESTAR By TCI are generally lower than the
up-front costs to new subscribers of the Company's competitors, who must
typically purchase and install home satellite dishes ("HSDs"), satellite
receivers and related equipment. Moreover, since the Company generally owns,
services and installs all customer
5
<PAGE>
premises equipment for its rental customers, the Company protects its
subscribers from the inconvenience of equipment failure, maintenance concerns,
obsolete technology, self-installation and expired warranties. In addition, the
Company anticipates offering several buyout options, which will allow the
consumer to reduce the monthly rental fee, and intends to provide consumers the
option to finance their purchase with a reduced initial cash outlay and monthly
payments.
Expanding Commercial Opportunities For Digital Satellite Services. The
Company believes that the commercial marketplace offers a substantial
opportunity for growth and is therefore of strategic importance. The Company
believes that the cable industry is generally perceived by the commercial
marketplace to have failed to adequately meet the needs of commercial
establishments and multiple dwelling units and that the Company and other
digital satellite providers are only beginning to tap this market. With an
enhanced channel capacity in its audio and video entertainment programming,
subject to the successful launch and operation of a new satellite, and the
potential in the future for high speed data services and Internet access
solutions combining digital satellite and landline, for high speed, broad band
delivery of Internet content, the Company anticipates having the ability to
successfully penetrate the commercial marketplace. The Company also intends to
pursue opportunities to provide private network service to businesses, and to
participate in the growing market for distance learning. In that connection,
the Company intends to explore opportunities to work together with At Home
Corporation, a joint venture led by TCI and Kleiner Perkins Caufield & Byers to
deliver interactive content to personal computers, and ETC w/ tci, Inc., a
majority-owned subsidiary of TCI, formed to develop and distribute content and
technology applications for education, training and communications, as well as
other Internet and educational content providers.
Strategic Marketing Alliances. Finally, the Company intends to broaden its
product and service offerings to further complement its existing video services
by forming alliances with strategic partners, such as its existing non-exclusive
relationships with Bose Corporation ("Bose") and Apple Computer, Inc. ("Apple").
See "Business of the Company -- PRIMESTAR By TCI -- Marketing." The Company
--------------------------------------------------------
believes that such alliances can be important not only to expand the market
awareness of the Company's name and service offerings, but also to increase the
Company's potential market by expanding the scope of the use of its product and
services.
Focusing on Customers Currently Underserved by Multichannel Programming.
The Company seeks to maximize penetration in the "underserved" marketplace,
defined by the Company as those areas not passed by cable, or served by cable
systems with fewer than 40 channels. To date, the Company's primary market focus
has been the rural market, which is underserved for variety, choice and
convenience in audio and video entertainment programming. With the launch of a
new satellite, the Company also intends to pursue subscriber growth in the more
urban and suburban markets within its territories.
The Company continues to assess strategies for delivering high power
digital satellite signals to the consumer's home. The Company's ultimate
strategy could include one or a combination of the following options: (i)
implementing a high power direct broadcast satellite ("DBS") system at 82
degrees West Longitude ("W.L.") pursuant to a proposed transaction with Telesat
Canada; (ii) implementing a high power DBS system at 119 degrees W.L. and 166
degrees W.L. under its license issued by the Federal Communications Commission
("FCC"), either as a limited service complementary to off-the-air television,
basic cable and other programming services, or, subject to future advances in
digital channel compression, as a full-service, stand-alone offering; and (iii)
securing additional spectrum capacity through any new opportunities that may
arise. These strategic options may provide the Company the ability to complement
or effectively upgrade its current service. The Company is currently evaluating
the
6
<PAGE>
viability and attractiveness of each of the foregoing options from a regulatory,
economic and technological perspective.
THE DISTRIBUTION
DESCRIPTION OF THE DISTRIBUTION
TCI's Board of Directors (the "TCI Board") has declared a distribution of
all of the shares of Company Common Stock held by TCI to the TCI Group
Stockholders of record at the close of business on the Record Date, without any
consideration being paid by such holders, on the basis of one share of Series A
Common Stock for each ten shares of Series A TCI Group Common Stock, and one
share of Series B Common Stock for each ten shares of Series B TCI Group Common
Stock held by such holders on the Record Date. See "The Distribution --
-------------------
Description of the Distribution." TCI has two other series of common stock
- --------------------------------
outstanding -- the Tele-Communications, Inc. Series A Liberty Media Group Common
Stock, $1.00 par value per share and the Tele-Communications, Inc. Series B
Liberty Media Group Common Stock, $1.00 par value per share (collectively, the
"Liberty Media Group Common Stock"). The Liberty Media Group Common Stock is
intended to reflect the separate performance of TCI's programming and electronic
retailing businesses (the "Liberty Media Group"), and, accordingly, the holders
of Liberty Media Group Common Stock will not participate in the Distribution.
Prior to the Distribution, the Company was a member of the group of TCI
businesses not attributed to the Liberty Media Group (the "TCI Group") and all
of the assets and businesses transferred to the Company were included in the TCI
Group.
REASONS FOR THE DISTRIBUTION
The Distribution has been designed to separate the TCI Group's interests in
the cable distribution business from its interests in the Digital Satellite
Business -- two businesses that use distinct distribution networks to provide
entertainment and other programming potentially to the same customer. The
separation of the TCI Group's Digital Satellite Business from its principal
cable business will permit management of the Company to focus on the development
and expansion of the Digital Satellite Business in a manner best suited to that
business and its market without concern for the objectives of the TCI Group's
cable business. TCI's management also believes that such separation and the
Company's status as a separate public company will allow investors to better
evaluate the merits and outlook of the Company's business and to direct their
investment to their specific area of interest, satellite or cable, or to
continue to retain an interest in both distribution media. The separate market
valuation of the Company should enhance the Company's ability to attract,
motivate and retain quality employees by designing incentive compensation
programs based on the Company's performance and should also enhance the
Company's financial resources by allowing it to issue its own securities to
raise capital and effect acquisitions. See "The Distribution -- Reasons for the
-----------------------------------
Distribution."
- ------------
FEDERAL INCOME TAX CONSEQUENCES
Prior to the Distribution, Baker & Botts, L.L.P., counsel for TCI, will
render an opinion to the effect that the Distribution should qualify as a tax-
free transaction to the TCI Group Stockholders under Section 355 of the Internal
Revenue Code of 1986, as amended (the "Code"), in which case, no gain or loss
will be recognized by (and no amount will be included in the income of) the TCI
Group Stockholders by reason of
7
<PAGE>
their receipt of Company Common Stock pursuant to the Distribution. See "The
---
Distribution -- Federal Income Tax Consequences." The Company has not requested
- -----------------------------------------------
a ruling from the Internal Revenue Service (the "Service") with respect to the
federal income tax consequences of the Distribution.
CERTAIN CONSEQUENCES OF THE DISTRIBUTION
As a result of the Distribution, TCI's interests in the Digital Satellite
Business will be owned and operated by a separate publicly held company. The
TCI Group Stockholders will own the same interests in each of the Company and
TCI that they held in TCI on the Record Date, but in the form of separate
securities, TCI Group Common Stock and Company Common Stock. The Company
expects that the Series A Common Stock and Series B Common Stock will be listed
for trading on the Nasdaq National Market under the symbols "TSAT A" and "TSAT
B," respectively. No prediction can be made, however, as to the extent of the
trading in the stock of the Company, if any, that will occur after the
Distribution, or the prices at which the TCI Group Common Stock or Company
Common Stock will be traded. See "The Distribution -- Certain Consequences of
-------------------------------------------
the Distribution."
- ----------------
RELATIONSHIP BETWEEN TCI AND THE COMPANY AFTER THE DISTRIBUTION
After the Distribution, TCI will make available to the Company for a period
of time certain administrative and other services, and, on or before the
Distribution Date, TCI and the Company will enter into an agreement governing
the charges for these services. On or before the Distribution Date, the Company
will also become a party to the existing tax sharing agreement among TCI and
certain of its subsidiaries (the "Tax Sharing Agreement"), which will provide,
among other things, for the allocation between the Company and the other members
of the TCI consolidated tax group of tax liabilities attributable to periods
prior to the Distribution. In addition, TCI Communications, Inc., a Delaware
corporation and the subsidiary of TCI that owns and operates cable systems in
the U.S. (together with its consolidated subsidiaries, "TCIC"), has historically
provided the Company with installation, maintenance, retrieval and other
customer fulfillment services for certain customers of the Company. TCIC will
continue to provide fulfillment services to the Company following the
Distribution, pursuant to a fulfillment agreement (the "Fulfillment Agreement")
with respect to customers of the PRIMESTAR(R) medium power service.
On or before the Distribution Date, the Company will issue to TCIC a
promissory note in the principal amount of $250,000,000 (the "Company Note"),
representing a portion of the Company's intercompany balance owed to TCIC on
such date. The remainder of such intercompany balance will be assumed by TCI on
or before the Distribution Date, in the form of a capital contribution to the
Company. The Company Note will bear interest at the rate of 10.0% per annum,
compounded quarterly, and will mature on September 30, 2001. Payments of
principal and interest will not be required prior to maturity by the terms of
the Company Note, but the Company Note will be prepayable at any time without
penalty.
Following the Distribution, TCI will continue to be liable under certain
contracts relating to the business of the Company, and, on or before the
Distribution Date, the Company will agree to indemnify TCI for any liability
resulting therefrom. In addition, TCI and the Company will agree on behalf of
themselves and their successors and assigns to certain indemnification
provisions arising primarily from the operation of their respective businesses.
8
<PAGE>
John C. Malone, the President and a member of the TCI Board, is also a
director of the Company. See "Management of the Company -- Directors and
------------------------------------------
Executive Officers."
- ------------------
See "Risk Factors -- Relationship with TCI; Potential Conflicts of
-------------------------------------------------------------
Interest," "Risk Factors --Uncertainty Regarding Fulfillment Agreement" and
- -------- ----------------------------------------------------------
"Arrangements Between TCI and the Company After the Distribution -- Other
- -------------------------------------------------------------------------
Arrangements."
- ------------
TRANSFER AGENT
The transfer agent for the Company Common Stock will be _____________.
DIVIDEND POLICY
The Company does not anticipate declaring and paying cash dividends on the
Company Common Stock in the foreseeable future. The decision whether to apply
any legally available funds to the payment of dividends on the Company Common
Stock will be made by the Board of Directors of the Company (the "Company
Board") from time to time in the exercise of its business judgment, taking into
account the Company's financial conditions, results of operations, existing and
proposed commitments for use of the Company's funds and other relevant factors.
See "Description of Company Capital Stock -- Common Stock -- Dividends."
-----------------------------------------------------------------
RISK FACTORS AND FORWARD LOOKING STATEMENTS
In reviewing this Information Statement, stockholders should carefully
consider the matters described under the heading "Risk Factors" beginning on p.
------------
11.
THIS INFORMATION STATEMENT CONTAINS MANY FORWARD-LOOKING STATEMENTS ABOUT
BUSINESS STRATEGIES, MARKET POTENTIAL, FUTURE FINANCIAL PERFORMANCE, NEW SERVICE
LAUNCHES AND OTHER MATTERS. SUCH STATEMENTS INVOLVE MANY RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
STATEMENTS, INCLUDING, WITHOUT LIMITATION, THOSE RISKS AND UNCERTAINTIES
DESCRIBED UNDER THE HEADING "RISK FACTORS," BEGINNING ON P. 11.
------------
9
<PAGE>
________________________________________________________________________________
SUMMARY SELECTED FINANCIAL AND OTHER DATA
The following table presents summary financial data relating to the
Company's historical financial position as of June 30, 1996, and December 31,
1995 and 1994, and to the Company's historical results of operations for each of
the six month periods ended June 30, 1996 and 1995, and for each of the years in
the three-year period ended December 31, 1995. In addition, the following table
presents summary financial data relating to the Company's historical financial
condition as of June 30, 1996, as adjusted to give effect to the Distribution,
the issuance of the Company Note, and certain related transactions. The
historical financial data for each of the years in the three-year period ended
December 31, 1995, is derived from the Audited Combined Financial Statements of
the Company for the corresponding periods, which combined financial statements
have been audited by KPMG Peat Marwick LLP, independent auditors. The
historical data for the other periods presented has been derived from unaudited
information. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
- ---------------------------------------------------------------------------
Operations" and is qualified in its entirety by reference to the historical
- ----------
combined financial statements, including the notes thereto, of the Company.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
----------------------------- --------------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ----------
amounts in thousands, except per Authorized Unit amounts
<S> <C> <C> <C> <C> <C>
Summary Operating and Other Data:
- --------------------------------
Revenue..................................... $ 193,647 61,611 208,903 30,279 11,679
Operating, selling, general and
administrative expenses................... (186,626) (56,717) (214,117) (25,106) (7,069)
------------ ------------ ------------ ------------ ----------
Operating income (loss) before
depreciation (1)....................... 7,021 4,894 (5,214) 5,173 4,610
Depreciation................................ (53,527) (19,915) (55,488) (14,317) (6,513)
------------ ------------ ------------ ------------ ----------
Operating loss............................ (46,506) (15,021) (60,702) (9,144) (1,903)
Share of loss of PRIMESTAR Partners......... (1,446) (4,988) (8,969) (11,722) (5,524)
Other, net.................................. 15,064 6,973 22,164 7,178 2,593
------------ ------------ ------------ ------------ ----------
Net loss.................................. $ (32,888) (13,036) (47,507) (13,688) (4,834)
============ ============ ============ ============ ==========
Capital expenditures:
Satellite reception equipment............. $ 175,339 139,398 442,782 109,184 14,881
Construction of satellites................ 36,684 43,631 104,128 207,608 71,164
------------ ------------ ------------ ------------ ----------
$ 212,023 183,029 546,910 316,792 86,045
============ ============ ============ ============ ==========
Average monthly revenue per
Authorized Unit (2)....................... $ 44 39 41 28 27
============ ============ ============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1996 As of December 31,
---------------------------- ----------------------------
As Adjusted Historical 1995 1994
------------ ----------- ------------- -----------
amounts in thousands
<S> <C> <C> <C> <C>
Summary Balance Sheet and Other Data:
- ------------------------------------
Property and equipment, net................. $1,047,703 1,047,703 889,220 397,798
============ ============ =========== ===========
Total assets................................ $1,098,177 1,098,177 933,443 410,105
============ ============ =========== ===========
Company Note................................ $ 250,000 -- -- --
============ ============ =========== ===========
Due to PRIMESTAR Partners................... $ 386,219 386,219 382,900 278,772
============ ============ =========== ===========
Equity...................................... $ 361,769 614,750 483,584 120,526
============ ============ =========== ===========
Authorized Units............................ 659 659 535 100
============ ============ =========== ===========
</TABLE>
_____________________________
(1) Operating income before depreciation ("Operating Cash Flow") is a commonly
used measure of value and borrowing capacity. Operating Cash Flow is not
intended to be a substitute for a measure of performance in accordance with
generally accepted accounting principles and should not be relied upon as
such.
(2) Represents average monthly revenue (exclusive of installation revenue)
divided by the average number of Authorized Units.
10
________________________________________________________________________________
<PAGE>
RISK FACTORS
An investment in the Company Common Stock involves certain risks, including
those described below, which can adversely affect the value of the Company
Common Stock. Neither TCI nor the Company makes, nor is any other person
authorized to make, any representation as to the future market value of the
Company Common Stock.
LIMITED OPERATING HISTORY; OPERATING LOSSES OF THE COMPANY
The Company has had a limited history as a separate operating entity. From
1990 to 1995, TCI's business of distributing PRIMESTAR(R) was operated by
TCIC. During this period of time, such business sustained significant operating
losses.
On a combined historical basis, the Company and its predecessors have
sustained significant operating losses in recent periods. The Company's
operating losses were $46,506,000 for the six months ended June 30, 1996, and
$60,702,000, $9,144,000 and $1,903,000 for the years ended December 31, 1995,
1994, and 1993, respectively. The Company had net losses of $32,888,000 for the
six months ended June 30, 1996, and $47,507,000, $13,688,000 and $4,834,000 for
the years ended December 31, 1995, 1994 and 1993, respectively. Improvements in
the Company's results of operations are largely dependent upon its ability to
increase its customer base while maintaining its price structure, reducing the
rate at which subscribers drop the Company's service ("churn") and effectively
managing the Company's costs. No assurance can be given that any such
improvements will occur. In addition, the Company incurs significant sales
commission and installation costs when its customers initially subscribe to the
service. Accordingly, management expects that operating costs will remain high
as a percentage of revenue so long as the Company maintains its rapid growth in
subscribers. The high cost of obtaining new subscribers also magnifies the
negative effects of subscriber churn. See "Selected Financial Data,"
-----------------------
"Management's Discussion and Analysis of Financial Condition and Results of
- ---------------------------------------------------------------------------
Operations" and the historical financial statements, including the notes
- ----------
thereto, of the Company included elsewhere herein.
DEPENDENCE ON ADDITIONAL CAPITAL; SUBSTANTIAL LEVERAGE
In the past, the Company has relied on TCI to meet the majority of the
Company's working capital and liquidity requirements. During the six months
ended June 30, 1996, and the year ended December 31, 1995, TCI made aggregate
advances to the Company of $164,230,000 and $397,529,000, respectively.
Following the Distribution, it is anticipated that TCI will cease to be a source
of long-term financing for the Company, although TCIC has agreed to provide the
Company with a $500,000,000 revolving credit facility on an interim basis,
pending consummation of permanent financing (the "TCIC Credit Facility"). See
"--Relationship with TCI; Potential Conflicts of Interest" and "Arrangements
- --------------------------------------------------------- ------------
Between TCI and the Company After the Distribution -- TCIC Credit Facility."
- --------------------------------------------------------------------------
Pursuant to the TCIC Credit Facility, the Company will be required to use its
best efforts to refinance the TCIC Credit Facility, and to repay all obligations
of the Company under the TCIC Credit Facility, as soon as possible following the
Distribution. The Company will also be obligated to pay to TCIC the
11
<PAGE>
$250,000,000 principal amount and the related accrued interest that will be due
to TCIC pursuant to the Company Note, in accordance with its terms. Although
the terms of the Company Note will not require any payments of principal or
interest prior to maturity, the Company intends that it will use its best
efforts to retire the Company Note as soon as its financial condition reasonably
permits.
Following the Distribution, the Company will require significant additional
capital to meet its operating plan. Such capital will be used primarily to
purchase additional inventory of satellite reception equipment for sale or
rental to subscribers, to finance the cost of installing new customers and to
provide for working capital and other liquidity requirements that may arise. In
addition, the Company may be required to make additional capital contributions
to PRIMESTAR Partners (primarily to finance the Company's share of the
Partnership's working capital deficit), but any such capital contribution is not
currently expected to be substantial. The Company made capital contributions
and advances to PRIMESTAR Partners totaling $12,330,000 and $17,139,000 during
the six months ended June 30, 1996 and the year ended December 31, 1995,
respectively. Finally, depending on the outcome of a number of uncertainties
regarding the two high power satellites currently being constructed for the
Company, it may also be necessary for either the Company or PRIMESTAR Partners
to refinance such satellites. See, "--Alternative Strategies for Deployment of
------------------------------------------
High Power Satellites," "--Risks of Adverse Government Regulations and
- --------------------- ---------------------------------------------
Adjudications" and "--Dispute over Tempo Option," below.
- ------------- ---------------------------
Additionally, the Company is obligated to make purchases of satellite
reception equipment and to pay residual sales commissions to certain master
sales agents. The Company also has significant contingent obligations pursuant
to certain indemnification agreements and other arrangements. See,
"Management's Discussion and Analysis of Financial Condition and Results of
- ---------------------------------------------------------------------------
Operations," and notes 4 and 7 to the Unaudited Combined Financial Statements of
- ----------
the Company.
In order to fund the Company's capital requirements, and to provide
additional liquidity, the Company expects to enter into the TCIC Credit
Facility and to incur significant additional indebtedness in the near future,
through a possible bank financing, institutional private placement, public
offering of debt securities, or a combination of such sources. Although the
Company believes that it will be able to obtain sufficient debt financing from
such sources, there can be no assurance that this will be the case. See,
"Management's Discussion and Analysis of Financial Condition and Results of
- ---------------------------------------------------------------------------
Operations."
- ----------
The Company believes that such external sources of debt financing, together
with any net cash provided by operations, will be sufficient to satisfy its
projected funding requirements for the foreseeable future. However, faster-
than-anticipated subscriber growth or other contingencies may require additional
financing. The Company expects that, if additional financing is needed, it
would seek to obtain such financing through the capital markets, including the
high-yield debt market. No assurance can be given however that such additional
financing would be available on terms satisfactory to the Company, or that
sufficient financing to meet the Company's needs would be available on any
terms.
The degree to which the Company becomes leveraged may adversely affect the
Company's ability to compete effectively against better capitalized competitors
and to withstand downturns in its business or
12
<PAGE>
the economy generally, and could limit its ability to pursue business
opportunities that may be in the interests of the Company and its stockholders.
The Company's ability to service its debt will require continued growth in the
Company's Operating Cash Flow. There can be no assurance that the Company will
be successful in continuing to increase its Operating Cash Flow by a sufficient
magnitude or in a timely manner or in raising additional equity or debt
financing to enable it to meet its debt service requirements. In addition, a
failure of the Company to have adequate access to capital, whether through
internally generated cash flow or its ability to access the capital markets, may
adversely affect the Company's ability, or choice, to launch proposed products
and services in the time frames discussed herein.
COMPETITIVE NATURE OF INDUSTRY
The industry in which the Company operates is highly competitive, and the
Company expects to face strong competition from existing and potential
competitors. The Company's competitors comprise a broad range of companies
engaged in communications and entertainment, including cable operators, other
digital satellite programming distributors, wireless cable operators, television
networks and home video products companies, as well as companies developing new
technologies. Certain of these competitors and potential competitors are well
established companies and have significantly greater financial, marketing and
programming resources than the Company. A number of telephone companies have
also expressed an interest in becoming subscription television providers and/or
have made investments in this industry.
The Company expects to encounter a number of challenges in competing with
cable television providers. Cable operators generally have large installed
customer bases, and many cable operators have significant investments in, and
access to, programming. According to industry sources, cable television service
is currently available to as much as 97% of the approximately 96 million U.S.
television households, and approximately 66% of total U.S. television households
currently subscribe to cable. In order to increase substantially its subscriber
base, the Company will be required to attract customers who currently subscribe
to cable and to develop commercial accounts, including hotels, motels, bars and
restaurants as well as multiple dwelling units. There can be no assurance that
the Company will be able to establish a substantial subscriber base or
successfully attract customers competing with cable operators.
The Company also competes with companies offering programming through
various other satellite broadcasting systems, including DirecTv, Inc.
("DirecTv"), United States Satellite Broadcasting Corporation ("USSB") and
EchoStar Communications Corp. ("EchoStar"), which transmit from high power
satellites and generally use smaller dishes to receive their signals. Alphastar,
Inc. ("Alphastar") began offering medium power service in the second quarter of
1996. A joint venture ("MCI/News Corp.") between MCI Communications, Corp.
("MCI") and The News Corporation Limited ("News Corp.") has announced that it
expects to commence offering high power service by the end of 1997. In addition,
the territories in which the Company is authorized to distribute PRIMESTAR(R)
are assigned on a non-exclusive basis. Accordingly, although only approximately
5% of the distribution territories assigned by PRIMESTAR Partners' management
currently overlap, there can be no assurance that the Company will not in the
future face substantial competition from other existing and/or prospective
authorized distributors of PRIMESTAR(R). There can be no assurance that the
Company will be able to compete successfully against such other current and
prospective providers of digital satellite programming services, some of which
will have access to greater resources and/or have secured the rights to
broadcast from a greater number of satellite transponder
13
<PAGE>
frequencies. See "Business of the Company -- Market for Digital Satellite
-------------------------------------------------------
Services" and "Business of the Company -- Competition."
- -------- --------------------------------------
ABILITY TO MANAGE GROWTH
The Company's business has grown rapidly since 1994, when PRIMESTAR
Partners completed its adoption of digital technology, and must continue to
expand to achieve the Company's business objectives. The Company believes that
such rapid growth has been a factor in the increases it has experienced in both
subscriber churn and bad-debt write-offs. Whether the Company can meet its goal
of increasing its customer base while maintaining its price structure, reducing
its churn rate and managing costs will depend upon, among other things, the
Company's ability to manage its growth effectively. To manage growth
effectively, the Company must continue to develop its internal and external
sales force, installation capability, customer service team and information
systems, maintain its relationships with third party vendors and implement
efficient procedures to mitigate subscriber credit risk. The Company will also
need to continue to grow, train and manage its employee base, and its management
will be required to assume even greater levels of responsibility. If the Company
is unable to manage its growth effectively, the Company's business and results
of operations could be materially adversely effected.
ALTERNATIVE STRATEGIES FOR DEPLOYMENT OF HIGH POWER SATELLITES
Although the Company's current primary focus is the distribution of the
PRIMESTAR(R) medium power programming service, the Company continues to
explore various alternative strategies to participate in the high power segment
of the digital satellite industry. Through Tempo, the Company is a party to a
fixed-price satellite construction agreement with Space Systems/Loral, Inc.
("Loral"), dated as of February 22, 1990 (the "Satellite Construction
Agreement"). Pursuant to the Satellite Construction Agreement, the Company has
agreed to purchase two high power direct broadcast satellites (each, a "Company
Satellite" and together, the "Company Satellites") and has an option to
purchase up to three additional satellites. See "-- Dispute over Tempo Option."
----------------------------
The Company is currently pursuing two parallel strategies for deploying the
Company Satellites.
In May 1996, subject to both American and Canadian regulatory approvals,
the Company entered into an arrangement with Telesat Canada, a Canadian
corporation ("Telesat"), to launch one or both of the Company Satellites into
the 82 degrees W.L. orbital position controlled by Telesat (the "Telesat
Transaction"). The 82 degrees W.L. orbital position is a high power direct
broadcast satellite slot allocated by international agreement to Canada.
Pursuant to the Telesat Transaction, if consummated, the Company will sell the
Company Satellites to Telesat in accordance with the Satellite Purchase
Agreement dated as of May 6, 1996 (the "Satellite Purchase Agreement) between
Tempo and Telesat, and Telesat will simultaneously resell 27 of the 32
transponders on the Company Satellites to the Company, in accordance with the
Operating Services Agreement dated as of May 6, 1996 (the "Operating Services
Agreement") between Telesat and TCI Technology Ventures, Inc. ("TCITV"), a
subsidiary of TCI, which agreement will be assigned by TCITV to the Company
prior to the Distribution. Under certain circumstances, one of the Company
Satellites would be deployed temporarily in the 91 degrees W.L. orbital position
before being moved to 82 degrees W.L., and in such event, that Company Satellite
would not be available to the Company. Although no assurance can be given that
the regulatory approvals necessary for the Telesat Transaction will be obtained
or will be obtained on terms satisfactory to the Company, if such approvals are
received, the Company expects to launch one Company Satellite in December 1996
and to launch the other Company Satellite in
14
<PAGE>
early 1997, pursuant to the Telesat Transaction. See "-- Risks of Adverse
-------------------
Government Regulations and Adjudications."
- ----------------------------------------
Subject to completion of the Telesat Transaction, the Company has exercised
its option under the Satellite Construction Agreement to purchase a third
satellite ("Company Satellite No. 3"). Under those circumstances, Company
Satellite No. 3 would be designated for deployment in the 119 degrees W.L.
orbital position, and another satellite to be constructed by Loral would be
designated for deployment in the 166 degrees W.L. orbital position, pursuant to
Tempo's existing construction permit issued by the FCC, authorizing construction
of a DBS system. See "-- Risks of Adverse Government Regulations and
----------------------------------------------
Adjudications."
- -------------
If the Telesat Transaction is not consummated, the Company currently
intends to deploy one of the Company Satellites in the 119 degrees W.L. orbital
position and to deploy another satellite in the 166 degrees W.L. orbital
position.
In either event, a launch failure or other defect or damage affecting any
such satellite could prevent or postpone the Company's entrance into the high
power segment of the digital satellite industry. In addition, although the
Company is entitled to the benefit of certain limited warranties pursuant to its
agreement with Loral and certain insurance coverage pursuant to its agreements
with Telesat, the insurance coverage provided through the Telesat Transaction is
subject to customary exceptions for acts of war, public insurrection and the
effects of certain weaponry, and such warranties and/or insurance coverage might
not be sufficient to compensate the Company for all of its losses in the event
of a partial or total satellite failure or casualty, even if such failure or
casualty were a covered loss. See "-- Risks of Satellite Defect, Loss or
-------------------------------------
Reduced Performance."
- -------------------
The December 1996 launch window reserved for Tempo by Loral contemplates
that the first Company Satellite will be launched by International Launch
Services ("ILS") on behalf of Lockheed-Khrunichev-Energia, Inc. ("LKE"), a joint
venture between Lockheed Martin Corporation ("Lockheed-Martin") and two Russian
Federation state-owned companies. The proposed launch site is located at the
Baikonur Cosmodrome in Kazakhstan, a territory of the former Soviet Union.
Political and/or economic instability in the former Soviet Union, and political
and other factors affecting the availability of the U.S. export control
authorizations necessary for such a launch, could affect the cost, timing and
advisability of utilizing LKE as a launch provider. Any change in the launch
providers for the Company Satellites could result in delay in the launch of the
Company Satellites.
If either alternative for deploying the Company Satellites is successfully
implemented, and current PRIMESTAR By TCI subscribers are given an opportunity
to obtain service from such high power satellites in lieu of their current
PRIMESTAR(R) service, the Company could incur substantial costs and expenses in
connection with upgrading such customers' satellite receivers, repointing their
HSDs and replacing their low noise block converters ("LNBs"), a component of the
HSD.
No assurance can be given that the Company will not significantly change
the direction of its high power strategy or elect to enter into agreements with
other parties to pursue other high power strategies. No agreement has been
reached with PRIMESTAR Partners concerning the pursuit of the Company's high
power strategy.
15
<PAGE>
RISKS OF SATELLITE DEFECT, LOSS OR REDUCED PERFORMANCE
Satellites are subject to significant risks, including: manufacturing
defects affecting the satellite or its components; launch failure resulting in
damage to, or destruction of, the satellite or incorrect orbital placement; and
damage in orbit caused by asteroids, space debris or electrostatic storms. Such
factors may prevent or limit commercial operation or reduce the satellite's
useful life.
PRIMESTAR Partners currently broadcasts from Satcom K-1 ("K-1"), a medium
power satellite located at 85 degrees W.L. and owned by GE American
Communications, Inc. ("GE Americom"). GE Americom is a subsidiary of G.E. and
the parent company of G.E. Americom Services, Inc. ("GEAS"), a partner of
PRIMESTAR Partners. K-1 is nearing the end of its normal operational life, and
is expected to be replaced ultimately by GE-2 ("GE-2"), a medium power satellite
that GE Americom currently expects to launch in January 1997 for commercial
operation by February 1997. However, GE-2 also serves as the backup for another
GE Americom Satellite, GE-1 ("GE-1"). In the event of a launch failure or defect
or damage affecting the ability of GE Americom to make GE-1 operational, GE-3
("GE-3"), another GE Americom medium power satellite that is still under
construction, would become the replacement for GE-2 and be scheduled for launch
by July 1997. See, "Business of the Company -- PRIMESTAR By TCI -- The
--------------------------------------------------
PRIMESTAR(R) Service."
- --------------------
While approximately 15% of all commercial geosynchronous satellite launches
have resulted in a total or constructive total loss, GE Americom has chosen some
of the most reliable launch vehicles available. GE-1 is expected to be launched
on September 15, 1996, via an Atlas IIA rocket from Cape
16
<PAGE>
Canaveral, Florida. Since 1985, there have been eight launches using this
vehicle, all of which were successful. Provided no delays occur, the launch of
GE-2 is scheduled to be performed on a dedicated Ariane 44L launch vehicle in
January 1997 from French Guyana. Arianespace is generally perceived by the
international launch insurance community to be among the most reliable launch
providers today. Since 1985, there have been 21 Ariane 44L launches, of which
20 were successful. The only launch failure experienced by the Ariane 44L since
1985 occurred on February 22, 1990. There can, however, be no assurance that
such launch vehicles will continue to be as reliable as they have been to date.
Neither the Company nor PRIMESTAR Partners is entitled to the benefit of any
launch insurance relating to the launch of any of GE Americom's satellites.
In addition to the above risks relating to satellites, all satellites have
limited useful lives, which vary as a result of their construction, the
durability of their components, the capability of their solar arrays and
batteries, the amount of stationkeeping fuel remaining once in orbit, the launch
vehicle used and the accuracy of the launch. The minimum design life of GE-2 is
15 years and the minimum design life of both of the Company Satellites is 12
years. There can be no assurance however that any such satellite will achieve
its minimum design life, and the contracts with GE Americom and Loral do not
guarantee the minimum useful life of any such satellite. The Company could be
adversely affected if a satellite used in connection with its business failed
prior to its minimum design life. In addition, the ability of PRIMESTAR
Partners to increase the number of channels in the PRIMESTAR(R) programming
service from 94 to approximately 140 channels is dependent upon the successful
launch of GE-2, and the deployment of the additional channels could be adversely
affected by an operational failure of the satellite's transponders after launch.
See "Business of the Company -- PRIMESTAR By TCI -- The PRIMESTAR(R) Service."
-----------------------------------------------------------------------
RISKS OF ADVERSE GOVERNMENT REGULATIONS AND ADJUDICATIONS
Tempo holds a permit from the FCC (the "Construction Permit") to construct
a DBS system with 11 frequency channels at 119 degrees W.L. and 11 frequency
channels at 166 degrees W.L. The 119 degrees W.L. position is generally visible
to HSDs throughout all fifty states; the 166 degrees is visible only in the
western half of the continental U.S. as well as Alaska and Hawaii. The FCC's DBS
construction permits are conditioned on the satisfaction of ongoing construction
and related obligations. The Construction Permit expires in May 1998, and if
Tempo's satellites are not launched by then, there can be no assurance that an
extension of the construction permit would be granted. In July 1993, Tempo filed
an application with the FCC proposing minor modifications to the technical
designs of its satellites, which remains pending. Approval by the FCC of the
proposed modifications is necessary before Tempo may launch the satellites.
Tempo expects that the FCC would act on the application when Tempo notifies it
of Tempo's intention to launch the satellites. There can be no assurance that
the FCC will grant this application.
The construction and launch of broadcasting satellites and the operation of
satellite broadcasting systems are subject to substantial regulation by the FCC.
FCC rules are subject to change in response to industry developments, new
technology and political considerations. The Company's business and business
prospects could be adversely affected by the adoption of new laws, policies, and
regulations. While Tempo has generally been successful to date with respect to
compliance with regulatory matters, there can be no assurance that the Company
will succeed in obtaining all requisite regulatory approvals for its operations
without the imposition of restrictions on, or adverse consequences to, the
Company. There can also be no
17
<PAGE>
assurance that material adverse changes in regulations affecting the digital
satellite television industry or the Company will not occur in the future.
On March 26, 1996, Western Tele-Communications, Inc. ("WTCI"), a subsidiary
of TCIC, filed an application with the FCC for authorization to construct and
operate an earth station to uplink video programming to the Company Satellites,
which would be launched into a Canadian DBS orbital location (82 degrees W.L.)
and sold to Telesat pursuant to the Telesat Transaction. On July 1, 1996, four
cabinet-level departments of the executive branch of the U.S. government filed a
joint letter with the FCC recommending that the FCC treat the application as
premature and raising concerns regarding the application relating to
international agreement obligations, Canadian content restrictions, Canadian
licensing restrictions and domestic competition policy (the "Executive Branch
Letter"). On July 15, 1996, the FCC dismissed WTCI's application, without
prejudice, on the ground that the application was premature because Canada has
not yet issued licenses to Telesat, which will own and operate the satellite
containing the Company's transponders to which WTCI will uplink. The FCC's order
expressly did not address any of the substantive issues raised by WTCI's
application or by the various petitions to deny WTCI's application that had been
received from the Company's competitors. The FCC indicated, however, that if
WTCI refiled its application, it would take into account concerns raised in the
Executive Branch Letter with respect to the application.
On August 14, 1996, WTCI filed a petition seeking reconsideration on the
ground that, although a formal license has not been issued, Industry Canada, the
government department that regulates communication satellites in Canada, has in
fact issued all the pre-launch authority it customarily grants to satellite
applicants and Telesat has received from Industry Canada its standard support in
principle for its proposal. In addition, WTCI contends that none of the
concerns raised in the Executive Branch Letter should impede grant of WTCI's
application. There can be no assurance, however, that the FCC will respond
favorably to WTCI's petition. Furthermore, although the Company believes that
WTCI's proposal is in the public interest and fully consistent with applicable
FCC rules and policies (as well as applicable treaties and international
agreements), there can be no assurance that the FCC will not deny such
application on substantive grounds when it reconsiders the matter, and the
Company cannot predict whether WTCI will ultimately receive the necessary
authorizations to operate the planned uplink station. Although the FCC is not
bound by the Executive Branch Letter or the positions taken therein, the Company
cannot predict whether the Executive Branch Letter or any subsequent actions
taken by any other government departments will affect the outcome when the FCC
considers WTCI's application on its merits.
In addition to being subject to FCC regulation, operators of satellite
broadcast systems in the U.S. may be affected by imposition of state and/or
local sales taxes on satellite-delivered programming. According to the Satellite
Broadcasting and Communications Association ("SBCA"), several states, including
Maryland, Missouri, North Dakota, New York and Washington have either adopted or
proposed such taxes. Other states are in various stages of considering
proposals that would tax providers of satellite-delivered programming and other
communications providers. The adoption of state imposed sales taxes could have
adverse consequences to the Company's business.
There can be no assurance that additional government regulations affecting
the digital satellite television industry will not occur in the future.
18
<PAGE>
DISPUTE OVER TEMPO OPTION
In February 1990, Tempo entered into an option agreement with PRIMESTAR
Partners (the "Option Agreement"), granting PRIMESTAR Partners the right and
option (the "Tempo Option"), upon exercise, to purchase or lease 100% of the
capacity of the DBS system to be built, launched and operated by Tempo pursuant
to the Construction Permit. Under the Option Agreement, upon the exercise of
the Tempo Option, PRIMESTAR Partners would have been obligated to bear 100% of
the cost of constructing, launching and operating such proposed system. In
connection with the Tempo Option and certain related matters, Tempo and
PRIMESTAR Partners subsequently entered into two letter agreements (the "Tempo
Letter Agreements"), which provided for, among other things, the funding by
PRIMESTAR Partners of milestone and other payments due under the Satellite
Construction Agreement, and certain related costs, through advances by the
Partnership to Tempo. The Partnership financed such advances to Tempo through
borrowings under a bank credit facility (the "PRIMESTAR Credit Facility") which
was in turn supported by letters of credit arranged for by affiliates of the
partners of the Partnership (other than GEAS). At June 30, 1996, the aggregate
funding provided to the Company by PRIMESTAR Partners was $386,219,000, and the
balance due under the PRIMESTAR Credit Facility was $433,000,0000, including
accrued interest.
The Tempo Letter Agreements permitted the Partnership to apply its advances
to Tempo against any payments due under the Tempo Option and required Tempo to
repay such advances (or, in the alternative, to assign to the Partnership all
rights of Tempo relating to the Company Satellites), if the Partnership elected
to stop funding amounts due under the Satellite Construction Agreement or failed
to exercise the Tempo Option within the period provided for in the Tempo Letter
Agreements.
On February 29, 1996, Tempo notified PRIMESTAR Partners by letter that the
failure of PRIMESTAR Partners to effectively exercise the Tempo Option had
resulted in the termination of the Tempo Option pursuant to the Tempo Letter
Agreements. In that connection, Tempo advised the Partnership that, based on
and assuming the effective termination of the Tempo Option as determined by
Tempo, Tempo would reimburse the Partnership for its advances to Tempo by
assuming the Partnership's indebtedness for borrowed money under the PRIMESTAR
Credit Facility, to the extent used to fund such advances.
PRIMESTAR Partners has subsequently notified Tempo that the Partnership
disagrees with the positions advanced by Tempo in the February 29 letter and
subsequent communications and believes that the Partnership has effectively and
irrevocably exercised the Tempo Option. PRIMESTAR Partners has also impeded
Tempo's attempts to repay PRIMESTAR Partners' advances and has asserted certain
rights to the Company Satellites. The Company believes that PRIMESTAR Partners'
claims regarding the Company Satellites and the Tempo Option are without merit,
but there can be no assurance that Tempo's position would prevail in the event
of any litigation regarding this controversy.
Notwithstanding the foregoing, the Company currently intends to offer
PRIMESTAR Partners the right to use the capacity of any DBS system constructed,
launched and operated by Tempo pursuant to the Construction Permit. There can
be no assurance, however, that Tempo and PRIMESTAR Partners will be able to
reach an agreement on the terms of such an arrangement. If Tempo and PRIMESTAR
Partners are unable to reach such an agreement, and if PRIMESTAR Partners
prevails in its claim to certain rights in respect of the Company Satellites,
Tempo and the Company could be adversely affected. Even if Tempo
19
<PAGE>
were ultimately to prevail on the merits in any litigation relating to the
Company Satellites or the Tempo Option, the existence of such a dispute could
potentially consume significant amounts of management time and attention,
interfere with national marketing programs and other joint activities of Tempo
and PRIMESTAR Partners and distract the Company from its primary goals of
increasing its subscriber base and achieving profitability, all of which could
have a material adverse effect on the Company and its operations.
RISK OF TECHNOLOGICAL CHANGES
Technology in the digital satellite television industry is subject to rapid
change, and new technologies are continuously being developed. Some competitors
of the Company may have or may obtain access to proprietary technologies that
are perceived by the market for satellite services as superior to, or more
desirable than, the technology of the Company and/or the technology used in the
PRIMESTAR(R) system. There can be no assurance that the Company and/or PRIMESTAR
Partners could obtain access to any such technology or that the lack of any such
technology would not adversely affect the ability of the Company to compete with
such competitors.
RISK OF SIGNAL PIRACY
In common with all providers of subscription television programming, the
Company faces the risk that the PRIMESTAR(R) programming signal will be obtained
by unauthorized users. If signal piracy became widespread, the Company's
revenues could be adversely affected. While management believes that the
encryption method utilized by PRIMESTAR Partners, which was developed by an
affiliate of General Instrument Corporation ("GI"), has been effective in
minimizing signal piracy, and there have been no published reports of breaches
in PRIMESTAR(R) security, there can be no assurance that changes in technology
will not render less effective the anti-piracy efforts associated with
PRIMESTAR(R).
RELATIONSHIP WITH TCI; POTENTIAL CONFLICTS OF INTEREST
On or before the Distribution Date, the Company and TCI will enter into
various agreements in connection with the Distribution, including the
Reorganization Agreement, the Transition Services Agreement and other agreements
described under "Arrangements Between TCI and the Company After the
--------------------------------------------------
Distribution." These agreements will provide, among other things, for TCI and
- ------------
the Company to indemnify each other from tax and other liabilities relating to
their respective businesses following the Distribution, and for TCI to continue
to provide certain administrative and other services to the Company on a
transitional basis following the Distribution. The terms of the agreements that
will govern the relationship between the Company and TCI were established by TCI
in consultation with the Company's management prior to the Distribution, when
the Company was a wholly-owned subsidiary of TCI, and are not the result of
arms'-length negotiations. Accordingly, although the Company believes that the
terms of these arrangements are reasonable, there can be no assurance that the
terms and conditions of these agreements are not more or less favorable to the
Company than those that might have been obtained from unaffiliated third
parties. In addition, there can be no assurance that comparable services could
be obtained from third parties if the Transition Services Agreement were to be
terminated. Although the Company believes that its relationship with TCI is
excellent, adverse developments or material disputes with TCI following the
Distribution could have a material adverse effect on the Company.
20
<PAGE>
In addition, TCIC has historically provided the Company with certain
customer fulfillment services for certain customers of the Company. The Company
has entered into a Fulfillment Agreement with TCIC pursuant to which TCIC will
continue to provide such customers of the Company with installation, maintenance
and other customer fulfillment services. See "Arrangements Between TCI and the
--------------------------------
Company After the Distribution -- Fulfillment Agreement." Although the Company
- -------------------------------------------------------
believes that the Fulfillment Agreement will provide the Company with
significant benefits, such agreement may result in a potential for conflicts of
interest, since in those parts of its territories served by cable television,
the Company competes for subscribers with cable systems owned and operated by
TCIC. Additionally, through PRIMESTAR Partners, the Company is a customer or
potential customer of programming services affiliated with the Liberty Media
Group.
Currently, John Malone is the Chairman of the Board and a director of the
Company and is also the President and a director of TCI. See "Management of the
-----------------
Company -- Directors and Executive Officers." Dr. Malone is a principal
- -------------------------------------------
stockholder of TCI and will be a principal stockholder of the Company. See
"Principal Stockholders of the Company." TCI's directors and executive officers
-------------------------------------
as a group (17 persons) beneficially owned, as of April 30, 1996, shares of TCI
Group Common Stock representing approximately 14.8% of the shares of TCI Group
Common Stock outstanding and approximately 45.9% of the total voting power of
the shares of TCI Group Common Stock outstanding, and after giving effect to the
Distribution, will beneficially own, as a group, shares of the Company Common
Stock representing approximately 45.9% of the total voting power of the shares
of Company Common Stock outstanding.
No formal policies or guidelines have been adopted by the Company Board to
deal with board actions that may involve actual or potential conflicts of
interest between the Company and TCI. The directors of the Company, however,
have fiduciary obligations under Delaware law to the Company and all of its
stockholders. Dr. Malone will also have fiduciary obligations, when acting as a
TCI director, to TCI and its stockholders.
DEPENDENCE ON PRIMESTAR PARTNERS; POTENTIAL CONFLICTS; NO WRITTEN DISTRIBUTION
AGREEMENT
The Company's relationship with PRIMESTAR Partners is critical to the
Company and its business. The Company is a 20.86% partner in PRIMESTAR Partners
and substantially all the current revenue of the Company is derived from its
activities as a distributor of PRIMESTAR(R) programming and equipment, under the
name PRIMESTAR By TCI.
In addition to the Company and GEAS, the partners of PRIMESTAR Partners
include Cox Satellite, Inc, a subsidiary of Cox Communications, Inc. ("Cox"),
Comcast DBS, Inc., a subsidiary of Comcast Corporation ("Comcast"), Continental
Satellite Company, Inc., a subsidiary of Continental Cablevision, Inc.
("Continental"), New Vision Satellite, a partnership controlled by a subsidiary
of Newhouse Broadcasting Corporation ("Newhouse") and TW Programming Co., a
partnership controlled by a subsidiary of Time Warner Inc. ("Time Warner").
Time Warner has substantial interests, through its subsidiaries and controlled
partnerships, in video programming and distribution, and is the second largest
operator of cable systems in the U.S., after TCI. Cox, Comcast and Continental
also control multiple cable systems. In 1995, the cable systems formerly
controlled by Newhouse were contributed to a partnership controlled by Time
Warner. In 1996, Continental agreed to be acquired by U.S. West Corporation, a
regional bell operating company. Each of Time Warner, Cox, Comcast, Continental
and Newhouse, individually and in joint ventures with
21
<PAGE>
each other, TCI and others, have substantial other interests in the
communications and/or entertainment industries, some of which may potentially
conflict with the business of PRIMESTAR Partners and/or the Company.
Pursuant to the Limited Partnership Agreement of PRIMESTAR Partners dated
as of February 8, 1990, as amended (the "PRIMESTAR Partnership Agreement"), the
business and affairs of the Partnership are managed and controlled by a
committee composed of representatives of the partners and two independent
members (the "Partners Committee"). The Company has two voting representatives
on the Partners Committee, Time Warner has two voting representatives, and Cox,
Comcast, Continental, Newhouse and G.E. each have one. Ordinary decisions of the
Partners Committee require the consent of a majority of the Partners Committee,
including a majority of the representatives of the partners. Certain
extraordinary decisions of the Partners Committee, including, without
limitation, decisions regarding the dissolution, merger or sale of substantially
all assets of the Partnership; the admission of additional partners; calls for
capital contributions; the approval of the annual budget; the appointment or
dismissal of Partnership senior management; the determination of the
Partnership's policies with respect to the distribution of its programming
services; and the selection of satellites (including successor satellite
capacity and the decision whether the Partnership should provide services at
Broadcast Satellite Service or higher frequencies) require, in addition to a
majority vote, the affirmative vote of at least six of the nine partner
representatives on the Partners Committee (assuming that no partner
representative is required to abstain in such vote), or such other vote as shall
be required by the PRIMESTAR Partnership Agreement if one or more partner
representatives are required to abstain in such vote under the terms of the
PRIMESTAR Partnership Agreement because of such partner's, or an affiliate's,
interest in the outcome thereof.
Pursuant to the PRIMESTAR Partnership Agreement, if the Company fails to
pay its share of capital contributions or loans that the partners agree to
require or that are contemplated by budgets or business plans approved by the
partners, or that are otherwise necessary in order to satisfy partnership
commitments, the Company's interest in the Partnership will be diluted and, if
such interest is diluted to less than 5%, its right to vote or exercise certain
other rights may be forfeited. The Company does not anticipate that future
capital calls by the Partnership will be significant. See "--Substantial
-------------
Leverage: Dependence on Additional Capital."
- ------------------------------------------
Although the PRIMESTAR Partnership Agreement contemplates that
PRIMESTAR(R) will be marketed and distributed primarily by affiliates of the
Partnership's partners, there are no written distribution agreements between
PRIMESTAR Partners and any of its distributors. Any dispute between PRIMESTAR
Partners and the Company regarding the Company's right to distribute
PRIMESTAR(R), or any material dispute regarding the terms and conditions of
such distribution rights, could have a material adverse effect on the Company,
and no assurance can be given that such a dispute could not arise in the future.
However, as the Company is currently the largest distributor of PRIMESTAR(R),
serving about 47% of PRIMESTAR Partners' estimated 1.4 million Authorized Units
as of June 30, 1996, the Company does not anticipate that any such dispute would
call into question the Company's right to continue to distribute PRIMESTAR(R).
DISPARATE VOTING RIGHTS; SUBSTANTIAL STOCKHOLDERS
Holders of shares of the Series A Common Stock are entitled to one vote per
share, and holders of shares of the Series B Common Stock are entitled to ten
votes per share, on each matter presented to a vote
22
<PAGE>
of the holders of Company Common Stock. After giving effect to the
Distribution, Bob Magness, John Malone and Kearns-Tribune Corporation ("Kearns-
Tribune") will beneficially own in the aggregate shares of Company Common Stock
that represent approximately 6.2% of the total number of shares of Company
Common Stock outstanding and approximately 51.1% of the voting power of the
shares of Company Common Stock outstanding. See "Principal Stockholders of the
-----------------------------
Company." There are currently no agreements among such persons or between such
- -------
persons and the Company with respect to the ownership, voting or disposition of
shares of Company Common Stock.
DIVIDENDS AND DIVIDEND POLICY
The Company does not anticipate declaring and paying cash dividends on the
Company Common Stock at any time in the foreseeable future. The decision
whether to apply legally available funds to the payment of dividends on the
Company Common Stock will be made by the Company Board from time to time in the
exercise of its business judgment, taking into account, among other things, the
Company's results of operations and financial condition, any then existing or
proposed commitments by the Company for the use of available funds, and the
Company's obligations with respect to the holders of any then outstanding
indebtedness or preferred stock. In addition, the Company may in the future
issue debt securities or preferred stock or enter into loan agreements or other
agreements that restrict the payment of dividends on, and repurchases of, the
Company's Common Stock. See "Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations" and "Description of Company Capital Stock -
- ----------------------------------- --------------------------------------
- - Common Stock -- Dividends."
- ---------------------------
POTENTIAL ANTITAKEOVER PROVISIONS
Certain provisions of the Company Charter and the Company's Bylaws may have
the effect of making more difficult an acquisition of control of the Company in
a transaction not approved by the Company Board. These provisions include the
disparate voting rights of the Series A Common Stock and Series B Common Stock;
provisions giving the Company Board the power to issue up to 5,000,000 shares of
preferred stock, and to fix the rights and preferences thereof, without further
authorization of the Company's common stockholders; the requirement of a
supermajority vote to approve specified actions; and the other provisions
described under "Description of Company Capital Stock -- Antitakeover Effects of
---------------------------------------------------------------
Certain Statutory Provisions and Provisions of the Company Charter and Bylaws."
- -----------------------------------------------------------------------------
In addition, the Company Board is divided into three classes, each of which
serves for a staggered three-year term, which may make it more difficult for a
third party to gain control of the Company Board. Many of these provisions
generally are designed to permit the Company to develop its businesses and
foster its long-term growth without the disruption caused by the threat of a
takeover not deemed by the Company Board to be in the best interests of the
Company and its stockholders. These provisions may also have the effect of
discouraging a third party from making a tender offer or otherwise attempting to
obtain control of the Company even though such an attempt might be economically
beneficial to the Company and its stockholders. See "Description of Company
----------------------
Capital Stock -- Antitakeover Effects of Certain Statutory Provisions and
- -------------------------------------------------------------------------
Provisions of the Company Charter and Bylaws."
- --------------------------------------------
23
<PAGE>
ABSENCE OF PRIOR TRADING MARKET
Prior to the date of this Information Statement, there has been no trading
market for the Company Common Stock and the Company is unable to predict the
extent of the market for the Company Common Stock or the prices at which such
shares will trade. The prices at which the Series A Common Stock and Series B
Common Stock trade will be determined by the marketplace and may be influenced
by many factors, including, among others, investor perception of the Company and
of the business of distributing satellite services and general economic and
market conditions. The prices at which the Company Common Stock trade may
fluctuate broadly.
A "when-issued" trading market in the Series A Common Stock and the Series
B Common Stock may develop on or about the Record Date. The existence of such a
market means that shares can be traded prior to the time certificates are
actually available or issued. Whether or not there is a "when-issued" market
prior to the availability of certificates, until an orderly market for the
Series A Common Stock or Series B Common Stock develops, the prices at which
shares of such stock will trade may be affected by an imbalance of supply and
demand.
Although the Company has applied for the Series A Common Stock and Series B
Common Stock to be listed on the Nasdaq National Market effective concurrently
with the distribution, there can be no assurance that an active trading market
will develop or, if one does develop, that it will be maintained.
FORWARD LOOKING STATEMENTS
This Information Statement contains certain forward-looking statements
regarding business strategies, market potential, future financial performance,
product launches and other matters. Such forward-looking statements inherently
involve many risks and uncertainties that could cause actual results to differ
materially from those projected in such statements. Overall potential risks and
uncertainties include such factors as the continued health of the multichannel
video programming distribution industry, the satellite services industry and
the economy in general; the ability of vendors to deliver required equipment,
software and services; potential changes in law and regulation and adverse
outcomes from regulatory proceedings; changes in the nature of key strategic
relationships with partners and joint venturers; competitor responses to the
Company's products and services; and the overall market acceptance of such
products and services, including acceptance of the pricing of such products and
services.
24
<PAGE>
THE DISTRIBUTION
DESCRIPTION OF THE DISTRIBUTION
The Distribution will be made on the Distribution Date to holders of record
of TCI Group Common Stock at the close of business on the Record Date on the
basis of one share of Series A Common Stock for each ten shares of Series A TCI
Group Common Stock held of record as of such time and one share of Series B
Common Stock for each ten shares of Series B TCI Group Common Stock held of
record as of such time. No certificates or scrip representing fractional shares
of Series A Common Stock or Series B Common Stock will be issued. Fractions of
one-half or larger of a share will be rounded up and fractions of less than one-
half of a share will be rounded down to the nearest whole number of shares of
Series A Common Stock or Series B Common Stock.
At the close of business on the Record Date,[_______] shares of Series A
TCI Group Common Stock and [_______] shares of Series B TCI Group Common Stock
were outstanding, and held of record by [_______] and [_______] holders,
respectively. An aggregate of approximately [58,438,763] shares of Series A
Common Stock and approximately [8,467,550] shares of Series B Common Stock will
be distributed to such holders.
Stock certificates representing the shares of Series A Common Stock and
Series B Common Stock to which the TCI Group Stockholders on the Record Date
were entitled will be delivered to such shareholders in a separate mailing. The
Distribution will not affect the number of shares of TCI Group Common Stock held
by the TCI Group Stockholders. The TCI Group Stockholders are not required to
take any action or pay any consideration in connection with the Distribution.
EXPENSES OF THE DISTRIBUTION
It is estimated that the direct legal, financial advisory, accounting,
printing, mailing and other expenses (including the fees of TCI's and the
Company's transfer agents) will total approximately $_________, and will be
borne 50% by TCI and 50% by the Company. These expenses do not include any of
the costs associated with the time spent by TCI's and the Company's officers and
legal, accounting and other personnel in connection with the Distribution or
other internal costs of TCI or the Company. Upon request, TCI will pay the
reasonable expenses of brokerage firms, custodians, nominees and fiduciaries who
are record holders of TCI shares for forwarding this Information Statement to
the beneficial owners of such shares.
REASONS FOR THE DISTRIBUTION
The Distribution has been designed to separate TCI's interests in the cable
distribution business from its interests in the Digital Satellite Business --
two businesses that use distinct distribution networks to provide programming
and other communications services, potentially to the same customer. The
separation of TCI's Digital Satellite Business from its principal cable business
will permit management of the Company to focus on the development and expansion
of the Digital Satellite Business in a manner best suited to that business and
its market without concern for the objectives of, or competitive effect of such
expansion on, TCI's cable business.
25
<PAGE>
The Distribution, and the Company's subsequent status as a public company,
will allow investors to evaluate better the merits and outlooks of the Company's
Digital Satellite Business. TCI's management believes that, because of the
relative size of the assets and business of the Company compared to that of the
TCI Group as a whole, the value of the Company is largely overlooked by the
investment community. By separating the Company from the TCI Group and allowing
the market to establish a separate valuation for the Company, the Distribution
should, in management's opinion, result in an increase in the long-term value of
the TCI Group Stockholders' current investment in the TCI Group. The
Distribution would also give the TCI Group Stockholders and other potential
investors the opportunity to direct their investment to their specific area of
interest, satellite or cable, or to continue to retain an interest in both
distribution media. The separate market valuation of the Company should also
enhance the Company's ability to attract, motivate and retain high quality
employees by designing effective incentive-based compensation programs based
solely on the Company's performance. Finally, as part of TCI, the Company is
currently one of several businesses competing for the allocation of TCI's
financial resources. As a separate public company, however, the Company would be
able to issue its own securities to raise capital and effect acquisitions.
CERTAIN CONSEQUENCES OF THE DISTRIBUTION
As a result of the Distribution, TCI's interests in the Digital Satellite
Business will be owned and operated by a separate publicly held company. The TCI
Group Stockholders will own the same interest in each of the Company and TCI
that they held in TCI on the Record Date, but in the form of separate
securities, TCI Group Common Stock and Company Common Stock. The Series A Common
Stock and the Series B Common Stock are expected to be approved for listing on
the Nasdaq National Market under the symbols "TSAT A" and "TSAT B,"
respectively. The transfer agent and registrar for the Company Common Stock will
be ____________________.
The Distribution will not affect the number of outstanding shares of TCI
Group Common Stock or the rights of any TCI Group Stockholder with respect
thereto.
RESTRICTIONS ON TRANSFER
Shares of the Company Common Stock distributed to the TCI Group
Stockholders pursuant to the Distribution will be freely transferable under the
Securities Act of 1933, as amended (the "Securities Act"), except for shares
received by any persons who may be deemed to be "affiliates" of the Company as
that term is defined in Rule 144 promulgated under the Securities Act. Persons
who may be deemed to be affiliates of the Company after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with, the Company and may include certain officers and
directors of the Company as well as principal stockholders of the Company.
Persons who are affiliates of the Company will be permitted to sell their shares
of the Company Common Stock only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act, such as the exemptions provided by Section 4(2) of the
Securities Act or Rule 144 thereunder.
26
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following discussion sets forth a summary of the material federal
income tax consequences under the Code, to holders of TCI Group Common Stock
with respect to the receipt of the Company Common Stock pursuant to the
Distribution. The discussion may not address all federal income tax consequences
that may be relevant to particular TCI Group Stockholders, e.g., foreign
persons, dealers in securities and persons who received TCI Group Common Stock
in compensatory transactions. In addition, the discussion does not address any
state, local or foreign tax considerations relative to the Distribution.
ACCORDINGLY, ALL HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.
TCI has not requested a ruling from the Service with respect to the
federal income tax consequences of the Distribution. However, as a condition of
the consummation of the Distribution, TCI will receive an opinion of Baker &
Botts, L.L.P. ("Counsel") that: (i) for federal income tax purposes, the
Distribution should be treated as a tax-free transaction qualifying under
Section 355 of the Code; and (ii) the following discussion insofar as it relates
to the statements of law or legal conclusions is correct in all material
respects.
In rendering the tax opinion, Counsel will rely upon certain
representations and covenants made by TCI, certain of its stockholders and the
Company, including the following: (a) following the Distribution, the holders of
TCI Group Common Stock must, in the aggregate, maintain a substantial continuing
ownership interest in the Company Common Stock they receive in the Distribution;
and (b) the Company must continue its historic business. The tax opinion will be
explicitly conditioned upon the accuracy of such representations and covenants
and upon certain assumptions critical to the Distribution qualifying as a tax-
free spinoff under Section 355 of the Code. The tax opinion does not bind the
Service nor does it preclude the Service from adopting a contrary position from
that taken in the tax opinion. In the event the representations or assumptions
are not accurate or the covenants are breached, then TCI and the Company will be
unable to rely on the tax opinion. Assuming the Distribution qualifies as a tax-
free spinoff under Section 355, the following tax consequences will result:
(1) No gain or loss will be recognized by or includable in the income of a
holder of TCI Group Common Stock solely as a result of the receipt of
Company Common Stock pursuant to the Distribution;
(2) No gain or loss will be recognized by TCI or the Company solely as a
result of the Distribution, except as noted below with respect to
deferred intercompany gains and excess loss accounts;
(3) The tax basis of the TCI Group Common Stock held by a TCI Group
Stockholder immediately before the Distribution will be apportioned
between such TCI Group Common Stock and the Company Common Stock
received by such stockholder in the Distribution based upon the
relative fair market value of such TCI Group Common Stock and Company
Common Stock on the date of the Distribution; and
(4) Assuming that the TCI Group Common Stock held by a TCI Group
Stockholder is held as a capital asset, the holding period for Company
Common Stock received in the Distribution will include the period
during which such TCI Group Common Stock was held.
27
<PAGE>
Notwithstanding the opinion of Counsel referred to above, the application
of Section 355 of the Code to the Distribution is complex and may be subject to
differing interpretation. In particular, the Service may challenge the tax-free
status of the Distribution on the grounds that it lacks an adequate "business
purpose" or that the active business requirement of Section 355(b) of the Code
(which requires the continuation after the Distribution of a business conducted
for at least five years prior to the Distribution) is not satisfied.
Accordingly, there can be no assurance that the Service will not successfully
assert that the Distribution is a taxable event.
If the Distribution does not qualify as a tax-free spinoff under Section
355 of the Code, then: (i) TCI would recognize capital gain equal to the
difference between the fair market value of the Company Common Stock on the date
of the Distribution and TCI's tax basis in such stock; (ii) each stockholder
receiving shares of Company Common Stock in the Distribution may be treated as
having received a distribution equal to the value of the Company Common Stock
received which would be taxable as ordinary income to the extent of TCI's
current and accumulated earnings and profits; (iii) the holding period for
determining capital gain treatment of the Company Common Stock received in the
Distribution would commence on the date of the Distribution; and (iv) each
stockholder would have a tax basis in the shares of Company Common Stock
received in the Distribution equal to the fair market value of such shares.
Corporate stockholders may be eligible for a dividends-received deduction
(subject to certain limitations) with respect to the portion of the Distribution
constituting a dividend, and may be subject to the Code's extraordinary dividend
provisions which, if applicable, would require a reduction in such holder's tax
basis in his or her TCI Group Common Stock to the extent of such deduction.
THE FOREGOING IS A SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSIDERATIONS OF
THE DISTRIBUTION UNDER CURRENT LAW. EACH STOCKHOLDER SHOULD CONSULT HIS OR HER
TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH
STOCKHOLDER, IN LIGHT OF HIS OR HER PERSONAL CIRCUMSTANCES, INCLUDING THE
APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.
TREATMENT OF OUTSTANDING TCI STOCK OPTIONS AND SARS
Certain directors, officers and employees of TCI and its subsidiaries
(including the Company) have been granted options to purchase shares of Series A
TCI Group Common Stock ("TCI Options") and stock appreciation rights with
respect to shares of Series A TCI Group Common Stock ("TCI SARs"). The TCI
Options and TCI SARs have been granted pursuant to various stock plans of TCI
(the "TCI Plans"). The TCI Plans give the committee of the TCI Board that
administers the TCI Plans (the "TCI Plan Committee") the authority to make
equitable adjustments to outstanding TCI Options and TCI SARs in the event of
certain transactions, of which the Distribution is one.
The TCI Plan Committee and the TCI Board have determined that, immediately
prior to the Distribution, each TCI Option will be divided into two separately
exercisable options: (i) an option to purchase Series A Common Stock (an "Add-on
Company Option"), exercisable for the number of shares of Series A Common Stock
that would have been issued in the Distribution in respect of the shares of
Series A TCI Group Common Stock subject to the applicable TCI Option, if such
TCI Option had been exercised in full immediately prior to the Record Date, and
containing substantially equivalent terms as the existing TCI Option, and (ii)
an option to purchase Series A TCI Group Common Stock (an "Adjusted TCI
Option"), exercisable for the same number of shares of Series A TCI Group Common
Stock as the corresponding TCI
28
<PAGE>
Option had been. The per share exercise price of such TCI Option will be
allocated between the Add-on Company Option and the Adjusted TCI Option, and all
other terms of such TCI Option will remain the same in all material respects.
Similar adjustments will be made to the outstanding TCI SARs, resulting in the
holders thereof holding Adjusted TCI SARs and Add-on Company SARs instead of TCI
SARs, effective immediately prior to the Distribution. The foregoing adjustments
will be made pursuant to the anti-dilution provisions of the TCI Plans pursuant
to which the respective TCI Options and TCI SARs were granted.
As a result of the foregoing, certain persons who remain TCI employees or
non-employee directors after the Distribution and certain persons who were TCI
employees prior to the Distribution but become Company employees after the
Distribution will hold both Adjusted TCI Options and separate Add-on Company
Options and/or will hold both Adjusted TCI SARs and separate Add-on Company
SARs. The obligations with respect to the Adjusted TCI Options, Add-on Company
Options, Adjusted TCI SARs and Add-on Company SARs held by TCI employees and
non-employee directors following the Distribution will be obligations solely of
TCI. The obligations with respect to the Adjusted TCI Options, Add-on Company
Options, Adjusted TCI SARs and Add-on Company SARs held by persons who are
Company employees following the Distribution and are no longer TCI employees
will be obligations solely of the Company. Prior to the Distribution, TCI and
the Company will enter into an 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 under such securities.
EFFECTS OF THE DISTRIBUTION ON OUTSTANDING PREFERRED STOCK OF TCI AND TCIC AND
CONVERTIBLE NOTES OF TCI UA, INC.
As a result of the Distribution, the conversion rates of TCI's (i) Series C
Convertible Preferred Stock, (ii) Series D Convertible Preferred Stock (the "TCI
Series D Preferred Stock"), (iii) Series E Redeemable Convertible Preferred
Stock, (iv) Series F Convertible Redeemable Participating Preferred Stock, and
(v) Series G Redeemable Convertible TCI Group Preferred Stock, shall be
adjusted, based on the fair market value of the Company Common Stock issued in
the Distribution, relative to the market price of the Series A TCI Group Common
Stock on the Record Date. Similarly, as a result of the Distribution, the
exchange rate of TCIC's Series A Cumulative Exchangeable Preferred Stock shall
be adjusted, based on the fair market value of the Company Common Stock issued
in the Distribution, relative to the market price of the Series A TCI Group
Common Stock on the Record Date.
In addition, as a result of the Distribution, the conversion mechanism for
the TCI Series D Preferred Stock will be adjusted so that, on conversion, the
holders of TCI Series D Preferred Stock have a right to receive, in addition to
shares of TCI Group Common Stock, the same number of shares of Company Common
Stock that they would have received had they converted their TCI Series D
Preferred Stock to TCI Group Common Stock prior to the Distribution.
Under the Convertible Notes due December 12, 2021 of TCI UA, Inc., the
Distribution will require an adjustment to the conversion mechanism in
accordance with a formula, so that either the conversion price will be reduced,
or holders of such notes will be entitled to receive on conversion shares of
Series A Common Stock in addition to shares of Series A TCI Group Common Stock,
depending on the fair market value of the aggregate amount of Company Common
Stock distributed to holders of Series A TCI Group Common Stock in the
Distribution.
29
<PAGE>
For purposes of each of the above adjustments, the determination of the TCI
Board as to the fair market value of the Company Common Stock distributed in the
Distribution shall be conclusive. See "Arrangements Between TCI and the Company
----------------------------------------
After the Distribution -- Other Arrangements."
- --------------------------------------------
30
<PAGE>
ARRANGEMENTS BETWEEN TCI AND THE COMPANY
AFTER THE DISTRIBUTION
Following the Distribution, the Company and TCI will operate independently,
and neither will have any stock ownership, beneficial or otherwise, in the
other. For the purposes of governing certain of the ongoing relationships
between the Company and TCI after the Distribution, and to provide mechanisms
for an orderly transition, on or before the Distribution Date, the Company and
TCI will enter into various agreements, including the Reorganization Agreement,
the Transition Services Agreement, an amendment to TCI's existing Tax Sharing
Agreement, the Indemnification Agreements and the Trade Name and Service Mark
License Agreement, which are described below. In addition, TCIC will continue to
provide installation, maintenance, retrieval and other customer fulfillment
services for certain customers of the Company, pursuant to the Fulfillment
Agreement described below.
REORGANIZATION AGREEMENT
On or before the Distribution Date, TCI, TCIC and a number of other TCI
subsidiaries, including the Company, will enter into a Reorganization Agreement
(the "Reorganization Agreement"), which will provide for, among other things,
the principal corporate transactions required to effect the Distribution, the
conditions thereto and certain provisions governing the relationship between the
Company and TCI with respect to and resulting from the Distribution.
Certain of the Company's assets relating to the Digital Satellite Business
have historically been owned by subsidiaries of TCI other than the Company and
its predecessors. These assets include the capital stock of Tempo, TCIC's
partnership interests in PRIMESTAR Partners, and TCIC's rights under certain
agreements relating to the Telesat Transaction. The Reorganization Agreement
will provide for the transfer of these assets to the Company and for the
assumption by the Company of related liabilities. No consideration will be
payable by the Company for these transfers, except that two subsidiaries of the
Company will purchase TCIC's partnership interests in PRIMESTAR Partners for
consideration payable by delivery of promissory notes issued by such
subsidiaries (the "K-1 Notes"), which promissory notes will be assumed by TCI on
or before the Distribution Date in the form of a capital contribution to the
Company. The Reorganization Agreement also will provide for certain cross-
indemnities designed to make the Company financially responsible for all
liabilities relating to the Digital Satellite Business prior to the
Distribution, as well as for all liabilities incurred by the Company after the
Distribution, and to make TCI financially responsible for all potential
liabilities of the Company which are not related to the Digital Satellite
Business, including, for example, liabilities arising as a result of the Company
being a subsidiary of TCI. The Reorganization Agreement further will provide for
each of the Company and TCI to preserve the confidentiality of all confidential
or proprietary information of the other party, for five years following the
Distribution, subject to customary exceptions, including disclosures required by
law, court order or government regulation.
Pursuant to the Reorganization Agreement, on or before the Distribution
Date, the Company will issue to TCIC the Company Note, in the principal amount
of $250,000,000, representing a portion of the Company's intercompany balance
owed to TCIC on such date. The Company Note will bear interest at the rate of
10.0% per annum, compounded quarterly, and will mature on September 30, 2001.
Payments of
31
<PAGE>
principal and interest will not be required prior to maturity by the terms of
the Company Note, but the Company Note will be prepayable at any time without
penalty.
Pursuant to the Reorganization Agreement, the remainder of the Company's
intercompany balance owed to TCIC on the Distribution Date, as well as the
indebtedness represented by the K-1 Notes, will be assumed by TCI in the form of
a capital contribution to the Company.
The Reorganization Agreement may be terminated, and the Distribution may be
abandoned, at any time prior to the Distribution Date, by and in the sole
discretion of the TCI Board, without the approval of TCI Group Stockholders or
any other persons. In the event of any such termination or abandonment, TCI will
have no liability to any person under the Reorganization Agreement or any
obligation to effect the Distribution thereafter.
TRANSITION SERVICES AGREEMENT
Pursuant to the Transition Services Agreement between TCI and the Company
(the "Transition Services Agreement"), following the Distribution, TCI will
provide the Company with certain administrative and other services that were
provided by TCI prior to the Distribution. Such services shall include (i) tax
reporting, financial reporting, payroll, employee benefit administration,
workers' compensation administration, telephone, fleet management, package
delivery, management information systems, billing, lock box, remittance
processing and risk management services, (ii) other services typically performed
by TCI's accounting, finance, treasury, corporate, legal, tax, benefits,
insurance, facilities, purchasing, fleet management and advanced information
technology departments, (iii) use of telecommunications and data facilities and
of systems and software developed, acquired or licensed by TCI from time to time
for financial forecasting, budgeting and similar purposes, including without
limitation any such software for use on personal computers, in any case to the
extent available under copyright law or any applicable third-party contract,
(iv) ancillary marketing support services, including, without limitation,
provision of market research regarding competitive information, and (v) such
other management, supervisory, strategic planning or other services as the
Company and TCI may from time to time mutually determine to be necessary or
desirable.
The Company will reimburse TCI quarterly for all direct expenses incurred
by TCI in providing such services and a pro rata share of all indirect expenses
incurred by TCI in connection with providing such services, including a pro rata
share of the salary and other compensation of TCI employees performing services
for the Company, general and administrative overhead expenses and the costs and
expenses of any physical facilities utilized by TCI for the benefit of the
Company. The obligations of TCI to provide services under the Transition
Services Agreement will continue in effect until terminated by either the
Company at any time on not less than 60 days' notice to TCI, or by TCI after the
third anniversary of the Distribution Date on not less than 60 days' notice to
the Company. In addition, TCI may terminate the Transition Services Agreement at
any time following certain changes in control of the Company, and either party
may terminate the agreement if the other party is the subject of certain
bankruptcy or insolvency-related events.
32
<PAGE>
TAX SHARING AGREEMENT
Through the Distribution Date, the Company's results of operations have
been and will be included in TCI's consolidated U.S. federal income tax returns,
in accordance with the existing tax sharing arrangements among TCI and its
consolidated subsidiaries. Effective July 1, 1995, TCI, TCIC and certain other
subsidiaries of TCI entered into a tax sharing agreement (the "Tax Sharing
Agreement"), which formalized such pre-existing tax sharing arrangements and
implemented additional procedures for the allocation of certain consolidated
income tax attributes and the settlement of certain intercompany tax
allocations. The Tax Sharing Agreement encompasses U.S. Federal, state, local
and foreign tax consequences and relies upon the Code and any applicable state,
local and foreign tax law and related regulations. On or before the Distribution
Date, the Tax Sharing Agreement will be amended to provide that the Company will
be treated as if it had been a party to the Tax Sharing Agreement, effective
July 1, 1995. Pursuant to the amended Tax Sharing Agreement, beginning on the
July 1, 1995 effective date, the Company is responsible to TCI for its share of
current consolidated income tax liabilities. TCI is responsible to the Company
to the extent that the Company's income tax attributes generated after the
effective date are utilized by TCI to reduce its consolidated income tax
liabilities. Accordingly, all tax attributes generated by the Company's
operations after the effective date including, but not limited to, net operating
losses, tax credits, deferred intercompany gains, and the tax basis of assets
are inventoried and tracked for the entities comprising the Company.
INDEMNIFICATION AGREEMENTS
On or before the Distribution Date, the Company will enter into
Indemnification Agreements (the ''Indemnification Agreements") with two
subsidiaries of TCI, TCITV and TCI UA 1, Inc. ("TCI UA 1"). The Indemnification
Agreement with TCITV will provide for the Company to indemnify and hold harmless
TCITV and certain related persons from and against any losses, claims and
liabilities arising out of certain agreements relating to the Telesat
Transaction, which TCITV will assign to the Company in connection with the
Distribution. The Indemnification Agreement with TCI UA 1 will provide for the
Company to reimburse TCI UA 1 for any amounts drawn under an irrevocable
transferable letter of credit issued by Chemical Bank for the account of TCI UA
1 (the "TCI UA 1 Letter of Credit"), which supports the PRIMESTAR Credit
Facility obtained by PRIMESTAR Partners to finance advances to Tempo for
payments due in respect of the Company Satellites, and to indemnify and hold
harmless TCI UA 1 and certain related persons from and against any losses,
claims and liabilities arising out of such letter of credit or any drawings
thereunder.
TRADE NAME AND SERVICE MARK LICENSE AGREEMENT
Pursuant to the Trade Name and Service Mark License Agreement (the "License
Agreement"), TCI will grant to the Company, for an initial term of three years
following the Distribution, a non-exclusive non-assignable license to use
certain trade names and service marks specifically identified in the License
Agreement, including the mark "TCI" in the context of the Digital Satellite
Business. The License Agreement will provide, among other things, that all
advertising, promotion and use of certain of TCI's trade names and service marks
by the Company shall be consistent with TCI guidelines and standards, as well as
subject to TCI approval in certain circumstances.
33
<PAGE>
FULFILLMENT AGREEMENT
TCIC has historically provided the Company with certain customer
fulfillment services for PRIMESTAR (R) customers enrolled by the Company's
direct sales force or National Call Center. Charges for such services have been
allocated to the Company by TCIC based on a schedule of standard charges.
Pursuant to the Fulfillment Agreement, TCIC will continue to provide
fulfillment services to the Company following the Distribution with respect to
customers of the PRIMESTAR (R) medium power service. Such services will include
installation, maintenance, retrieval, inventory management and other customer
fulfillment services. The Fulfillment Agreement between the Company and TCIC
will become effective on the first day of the month following the Distribution
Date. Among other matters, the Fulfillment Agreement (i) sets forth the
responsibilities of TCIC with respect to fulfillment services, including
performance standards and penalties for non-performance, (ii) provides for
TCIC's fulfillment sites to be connected to the billing and information systems
used by the Company allowing for on-line scheduling and dispatch of
installation and other service calls, and (iii) provides for standard fees to be
charged to the Company for the various customer fulfillment services to be
provided by TCIC. The Company will retain sole control under the Fulfillment
Agreement to establish the retail prices and other terms and conditions on which
installation and other services will be provided to the Company's customers. The
Fulfillment Agreement also provides that, during the term of the Fulfillment
Agreement, TCIC will not provide fulfillment services to any other Ku-band, Ka-
band, DBS, BSS, FSS, C-band, wireless or other similar or competitive provider
or distributor of television programming services (other than traditional
cable). The Fulfillment Agreement will have an initial term of two years and is
terminable, on 180 days notice to TCIC, by the Company at any time during the
first six months following the Distribution Date. The cost to the Company of the
services provided by TCIC under the Fulfillment Agreement will exceed the
current standard charges allocated to the Company for such services, reflecting
in part the value to the Company, as determined by Company management, of the
performance standards, exclusivity, termination right and certain other
provisions included in the Fulfillment Agreement.
There can be no assurance that the terms of the Fulfillment Agreement are
not more or less favorable than those which could be obtained from unaffiliated
third parties, or that comparable services could be obtained by the Company from
third parties on any terms if the Fulfillment Agreement is terminated. See "Risk
----
Factors -- Relationship with TCI; Potential Conflicts of Interest," "Risk
- ----------------------------------------------------------------- ----
Factors -- Uncertainty Regarding Fulfillment Agreement," and "Management's
- ------------------------------------------------------ ------------
Discussion and Analysis of Financial Condition and Results of Operations."
- ------------------------------------------------------------------------
TCIC CREDIT FACILITY
TCIC has committed to provide the Company with the TCIC Credit Facility,
which will enable the Company to make borrowings during the term of the TCIC
Credit Facility, subject to the terms and conditions thereof. The maximum
available amount under the TCIC Credit Facility from time to time will be
subject to the achievement of certain financial ratios and/or operating
milestones by the Company. The TCIC Credit Facility shall terminate, and all
obligations of the Company thereunder shall be due and payable in full, on
September 30, 2001 provided that the Company shall be required to use its best
--------
efforts to refinance the TCIC Credit Facility
34
<PAGE>
as soon as possible after the Distribution Date. Borrowings under the TCIC
Credit Facility may be used for capital expenditures, working capital and other
general corporate purposes. The terms and conditions of the TCIC Credit Facility
will be set forth in a credit agreement between the Company and TCIC to be
entered into on or before the Distribution Date (the "TCIC Credit Agreement").
It is expected that the TCIC Credit Agreement will contain representations and
warranties, financial and other covenants, conditions to borrowing, events of
default, and remedies, including such terms as the Company and TCIC deem
reasonable under the circumstances. All principal of, and accrued interest on,
all borrowings under the TCIC Credit Facility will be required to be repaid
September 30, 2001, the final maturity of the TCIC Credit Facility, whether or
not a replacement credit facility or other debt financing sufficient to meet
such obligations has then been obtained by the Company. There can be no
assurance that the Company will be able to obtain such a replacement credit
facility or other debt financing on terms acceptable to the Company, or on any
terms, within the time required. If alternative debt financing is not available
to fund the payment of the Company's obligations under the TCIC Credit Facility
when due, the Company could be required to issue equity securities or sell
assets to meet such obligations. Accordingly, the failure of the Company to
refinance the TCIC Credit Facility by the final maturity thereof could have a
material adverse effect on the Company.
OTHER ARRANGEMENTS
On or before the Distribution Date, TCI and the Company will enter into an
agreement (the "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 (i) under Adjusted TCI Options and Add-on Company Options
held after the Distribution Date by their respective employees, (ii) under
certain additional options issued by TCI prior to the Distribution to certain
key employees of TCI, exercisable for shares of Series A Common Stock, and (iii)
in connection with any required adjustments to the TCI Series D Preferred Stock
and the Convertible Notes due December 12, 2021, of TCI UA, Inc., as a result of
the Distribution.
Certain officers of the Company who were officers or directors of TCI
and/or TCIC prior to the Distribution have received undertakings of
indemnification from TCI and/or TCIC. Such undertakings will survive the
Distribution.
In June 1996, 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
Brendan R. Clouston and Larry E. Romrell, executive officers of TCI, of 1.0% of
the net equity of the Company. The TCI Board also approved the acquisition
by Gary S. Howard, an executive officer of TCIC and chief executive officer and
a director of the Company, of 1.0% of the net equity of the Company and the
acquisition by David Beddow, an executive officer of TCITV and a proposed
director of the Company, of 0.5% of the net equity of the Company. The TCI
Board subsequently 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 Messrs. Clouston, Romrell and Howard)
and 0.5% (in the case of Mr. Beddow) of the shares of Series A Common Stock and
Series B Common Stock issued and outstanding on the Distribution Date,
determined on a basis giving effect to the issuance of such options. The
aggregate exercise price for each such option shall be equal to 1.0% (in the
case of each of Messrs. Clouston, Romrell and Howard) and 0.5% (in the case of
Mr. Beddow) of TCI's net investment in the Company as of the June 30, 1996,
grant date, determined on a pro forma basis for the transactions contemplated
--- -----
by the Reorganization Agreement. The options will vest in 20% cumulative
increments on each of the first five anniversaries of the grant date and will be
exercisable for up to ten years following the grant date.
Pursuant to the Reorganization Agreement, in partial consideration for the
capital contribution to be made by TCI to the Company in connection with the
Distribution, the Company intends to issue and bear all obligations under such
options. Mr. Howard's option is expected to be issued under and subject to the
1996 Plan. The options granted to Messrs. Clouston, Romrell and Beddow are not
expected to be issued under the 1996 Plan.
35
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company as of June 30, 1996, and (ii) such historical capitalization, as
adjusted to give effect to the Distribution, the issuance of the Company Note
representing a portion of the intercompany balance owed by the Company to TCIC,
and the capital contribution to the Company resulting from TCI's assumption of
the remaining portion of such intercompany balance. See, "The Distribution" and
----------------
"Arrangements Between TCI and the Company After the Distribution --
------------------------------------------------------------------
Reorganization Agreement." The table should be read in conjunction with the
- ------------------------
historical financial statements, including the notes thereto, of the Company and
"Management's Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations."
- ----------
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------
Historical As adjusted
---------- -----------
amounts in thousands
<S> <C> <C>
Company Note $ -- 250,000
Due to PRIMESTAR Partners 386,219 386,219
Deferred income taxes (1) 15,897 18,878
Other liabilities 81,311 81,311
----------- -----------
Total liabilities 483,427 736,408
----------- -----------
Equity:
Common Stock ($1 par value):
Series A; 185,000,000 shares authorized; [58,437,032] issued -- [58,437]
on an as adjusted basis
Series B; 10,000,000 shares authorized; [8,467,550] issued -- [8,468]
on an as adjusted basis
Additional paid-in capital -- [403,527]
Accumulated deficit (108,663) (108,663)
Due to TCIC 723,413 --
----------- -----------
Total equity 614,750 361,769
----------- -----------
Total liabilities and equity $ 1,098,177 1,098,177
=========== ===========
</TABLE>
(1) Following the Distribution, the Company will become a separate tax paying
entity. In connection therewith, the Company will adjust its deferred
income tax liability to eliminate certain tax attributes which will not be
reflected in the Company's post-Distribution income tax returns. Such
eliminated tax attributes were previously recorded pursuant to a tax
sharing arrangement among the entities included in TCI's consolidated
income tax return. See note 7 to the Audited Combined Financial Statements
of the Company.
36
<PAGE>
SELECTED FINANCIAL DATA
The following table presents summary financial data relating to the
Company's historical financial position and results of operations as of June 30,
1996, and for each of the six month periods ended June 30, 1996 and 1995, and as
of and for each of the years in the five-year period ended December 31, 1995.
The historical financial data for each of the years in the three-year period
ended December 31, 1995, and as of December 31, 1995 and 1994, is derived from
the Audited Combined Financial Statements of the Company for the corresponding
periods, which combined financial statements have been audited by KPMG Peat
Marwick LLP, independent auditors. The historical data for the other periods
presented has been derived from unaudited information. The following information
should be read in conjunction with "Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations" and is qualified in its entirety
- ---------------------------------------------
by reference to the historical combined financial statements, including the
notes thereto, of the Company.
<TABLE>
<CAPTION>
Six months
ended
June 30, Years emded December 31,
-------------------- ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C> <C>
Summary Statement of
--------------------
Operations Data:
---------------
Revenue $ 193,647 61,611 208,903 30,279 11,679 4,614 165
Operating, selling,
general and
administrative
expenses (186,626) (56,717) (214,117) (25,106) (7,069) (2,268) (280)
Depreciation (53,527) (19,915) (55,488) (14,317) (6,513) (2,602) (283)
-------- -------- -------- -------- -------- ------- -------
Operating loss (46,506) (15,021) (60,702) (9,144) (1,903) (256) (398)
Share of losses of
PRIMESTAR Partners (1,446) (4,988) (8,969) (11,722) (5,524) (4,561) (5,146)
Other, net 15,064 6,973 22,164 7,178 2,593 1,581 1,908
--------- -------- -------- -------- -------- ------- -------
Net loss $ (32,888) (13,036) (47,507) (13,688) (4,834) (3,236) (3,636)
========= ======== ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- -------- -------- ------- ------ -------
Summary Balance Sheet amounts in thousands
---------------------
Data:
----
<S> <C> <C> <C> <C> <C> <C>
Property and equipment, $1,047,703 889,220 397,798 95,323 15,791 1,776
net ========== ======== ======= ======= ====== =====
Investment in, and related
advances to
PRIMESTAR $ 28,847 17,963 9,793 19,625 485 213
Partners ========== ======== ======= ======= ====== ======
Total assets $1,098,177 933,443 410,105 116,495 18,583 4,359
========== ======== ======= ======= ====== ======
Due to PRIMESTAR
Partners $ 386,219 382,900 278,772 71,164
========== ======== ======= ======= --- ---
Parent's investment $ 614,750 483,584 120,526 43,349 17,537 4,314
========== ======== ======= ======= ====== ======
</TABLE>
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis provides information concerning
the financial condition and results of operations of the Company and should
be read in conjunction with the Company's historical combined financial
statements.
SUMMARY OF OPERATIONS
As described in greater detail below, the Company reported net losses
of $32,888,000 and $13,036,000 during the six months ended June 30, 1996
and 1995, respectively, and $47,507,000, $13,688,000 and $4,834,000 during
the years ended December 31, 1995, 1994 and 1993, respectively.
Improvements in the Company's results of operations are largely dependent
upon its ability to increase its customer base while maintaining its
pricing structure, reducing subscriber churn and effectively managing the
Company's costs. No assurance can be given that any such improvements will
occur. In addition, the Company incurs significant sales commission and
installation costs when its customers initially subscribe to the service.
Accordingly, management expects that operating costs will remain high as a
percentage of revenue so long as the Company maintains its rapid growth in
subscribers. The high cost of obtaining new subscribers also magnifies the
negative effects of subscriber churn.
Since July 1994, when PRIMESTAR Partners completed its conversion from
an analog to a digital signal, the Company has experienced significant
growth in Authorized Units. In this regard, the number of Authorized Units
was 659,000 and 220,000 at June 30, 1996 and 1995, respectively, and
535,000, 100,000 and 35,000 at December 31, 1995, 1994 and 1993,
respectively. To the extent not otherwise described, increases in the
Company's revenue and operating, selling, general and administrative
expenses, as detailed below, are primarily related to such growth in
Authorized Units. The Company is operating in an increasingly competitive
environment. No assurance can be given that such increasing competition
will not adversely affect the Company's ability to continue to achieve
significant growth in Authorized Units and revenue. See "Risk Factors
------------
Competitive Nature of the Industry," and "Business of the Company --
---------------------------------- ---------------------------
Competition."
-----------
TCIC has historically provided the Company with certain customer
fulfillment services for PRIMESTAR(R) customers enrolled by the Company's
direct sales force or National Call Center. Charges for such services have
been allocated to the Company by TCIC based on a schedule of standard
charges. TCIC will continue to provide fulfillment services to the Company
following the Distribution, pursuant to the Fulfillment Agreement. Such
services will include installation, maintenance, retrieval, inventory
management and other customer fulfillment services. The Fulfillment
Agreement, which will become effective on the first day of the month
following the Distribution Date, provides for, among other matters, (i) the
responsibilities of TCIC with respect to fulfillment services, including
performance standards and penalties for non-performance, (ii) TCIC's
fulfillment sites to be connected to the billing and information
38
<PAGE>
systems used by the Company, allowing for on-line scheduling and dispatch
of installation and other service calls, and (iii) standard fees to be
charged to the Company for the various customer fulfillment services to be
provided by TCIC. The Fulfillment Agreement will have an initial term of
two years, and is terminable, on 180 days notice to TCIC, by the Company at
any time during the first six months following the Distribution Date. There
can be no assurance that the terms of the Fulfillment Agreement are not
more or less favorable than those which could be obtained from unaffiliated
third parties, or that comparable services could be obtained by the Company
from third parties on any terms if the Fulfillment Agreement is terminated.
The cost to the Company of the services provided by TCIC under the
Fulfillment Agreement will exceed the current standard charges allocated to
the Company for such services, reflecting in part the value to the Company,
as determined by Company management, of the performance standards,
exclusivity, termination right and certain other provisions included in the
Fulfillment Agreement. See "Risk Factors-- Relationship with TCI; Potential
------------------------------------------------
Conflicts of Interest" and "Risk Factors Uncertainty Regarding Fulfillment
---------------------- -----------------------------------------------
Agreement."
-----------
Installation charges from TCIC include direct and indirect costs of
performing installations. The Company capitalizes a portion of such charges
based upon amounts charged by unaffiliated third parties to perform similar
services. Following the Distribution, the Company will capitalize the full
amount of installation fees paid to TCIC pursuant to the Fulfillment
Agreement. Assuming (i) the Fulfillment Agreement had been effective on
January 1, 1995, and (ii) the Company had capitalized all installation fees
that would have been paid to TCIC under the Fulfillment Agreement, the
Company's operating losses would have increased (decreased) an estimated
$613,000 and $(7,182,000), and the Company's Operating Cash Flow would have
increased an estimated $4,315,000 and $11,427,000, during the six months
ended June 30, 1996, and the year ended December 31, 1995, respectively.
39
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Certain financial information concerning the Company's operations is
presented below (dollar amounts in thousands):
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------------------------------
1996 1995
--------------------- -------------------
Percentage Percentage
of total of total
Amount revenue Amount revenue
------ ----------- ------ ----------
<S> <C> <C> <C> <C>
Revenue:
Programming and equipment rental $156,870 81% 37,362 61%
Installation 36,777 19 24,249 39
-------- ---- ------- ----
Total revenue 193,647 100 61,611 100
-------- ---- ------- ----
Operating costs and expenses:
Charges from PRIMESTAR Partners:
Programming (57,464) (30) (14,309) (23)
Satellite, marketing and
distribution (29,422) (15) (7,387) (12)
-------- ---- ------- ----
(86,886) (45) (21,696) (35)
Other operating:
Allocations from TCIC (10,505) (5) (7,136) (12)
Other (4,927) (3) (705) (1)
-------- ---- ------- ----
(15,432) (8) (7,841) (13)
Selling, general and administrative:
Selling and marketing (50,569) (26) (18,967) (31)
Bad debt (9,779) (5) (1,432) (2)
Allocations from TCIC (9,576) (5) (2,223) (4)
Other general and administrative (14,384) (7) (4,558) (7)
-------- ---- ------- ----
(84,308) (43) (27,180) (44)
-------- ---- ------- ----
Operating Cash Flow (1) 7,021 4 4,894 8
Depreciation (53,527) (28) (19,915) (32)
-------- ---- ------- ----
Operating loss $(46,506) (24%) (15,021) (24%)
======== ==== ======= ====
</TABLE>
______________________________
(1) Operating Cash Flow is a commonly used measure of value and borrowing
capacity. Operating Cash Flow is not intended to be a substitute for a
measure of performance in accordance with generally accepted
accounting principles and should not be relied upon as such.
Revenue increased $132,036,000 or 214% during the six months ended
June 30, 1996, as compared to the corresponding prior year period.
Exclusive of installation revenue, the Company's average monthly revenue
per Authorized Unit increased from $39 during the 1995 period to $44 during
the 1996 period. Such increase occurred as the positive effects of (i) an
increase in the average monthly revenue derived from premium and pay-per-
view services and (ii) a March 1995 increase in the monthly
40
<PAGE>
equipment rental fee more than offset the effects of a second quarter
promotional campaign that provided certain new customers with one month of
free service.
PRIMESTAR Partners provides programming services to the Company and
other authorized distributors in exchange for a fee based upon the number
of Authorized Units receiving the respective programming services.
PRIMESTAR Partners also arranges for satellite capacity and uplink
services, and provides national marketing and administrative support
services, in exchange for a separate authorization fee from each
distributor, including the Company, based on such distributor's total
number of Authorized Units. The aggregate charges for such programming and
other services increased $65,190,000 or 300% during the six months ended
June 30, 1996, as compared to the corresponding prior year period. The
average aggregate monthly amount per Authorized Unit charged by PRIMESTAR
Partners increased from $22 during the 1995 period to $24 during the 1996
period. For additional information concerning the operations of PRIMESTAR
Partners, see related discussion below.
Other operating costs and expenses, which are primarily comprised of
amounts related to customer fulfillment activities, increased $7,591,000 or
97% during the six months ended June 30, 1996, as compared to the
corresponding prior year period. Most of such operating costs and expenses
were allocated from TCIC to the Company based upon a standard charge for
each of the various customer fulfillment activities performed by TCIC. As
discussed above, TCIC and the Company have entered into a Fulfillment
Agreement with respect to installation, maintenance, retrieval and other
customer fulfillment services to be provided by TCIC following the
Distribution.
Selling, general and administrative expenses increased $57,128,000 or
210% during the six months ended June 30, 1996, as compared to the
corresponding prior year period. Selling and marketing expenses, which
represented 26% of revenue during the 1996 period, include sales
commissions, marketing and advertising expenses, and costs associated with
the operation of a customer service call center. Bad debt expense
represented 5% of revenue during the 1996 period. The Company is attempting
to reduce the percentage of revenue represented by selling, marketing and
bad debt expenses. No assurance can be given that such attempts will be
successful.
General and administrative allocations from TCIC are generally based
upon the estimated cost of the general and administrative services provided
to the Company. Following the Distribution, charges for administrative
services provided by TCIC will be made pursuant to the Transition Services
Agreement. For additional information, see note 2 to the Unaudited Combined
Financial Statements of the Company.
The $33,612,000 or 169% increase in depreciation during the six months
ended June 30, 1996, as compared to the corresponding prior year period, is
the result of increases in the Company's depreciable assets due primarily
to capital expenditures with respect to the Company's satellite reception
equipment.
The Company's share of PRIMESTAR Partners' net losses decreased
$3,542,000 or 71% during the six months ended June 30, 1996, as compared to
the corresponding prior year period. Such decrease
41
<PAGE>
is primarily attributable to a significant increase in the revenue derived
by PRIMESTAR Partners' from the Company and other distributors of PRIMESTAR
Partners' programming. Historically, PRIMESTAR Partners' operating deficits
have been funded by capital contributions from the Company and the other
partners of PRIMESTAR Partners. To the extent that future Authorized Unit
growth does not generate increases in PRIMESTAR Partners' revenue
sufficient to offset its operating costs and expenses, the Company
anticipates that any such operating deficit would be funded by PRIMESTAR
Partners' then existing external sources of liquidity (which may include
capital contributions from the Company and PRIMESTAR Partners' other
partners), or by increases in the above-described programming and
authorization fees charged by PRIMESTAR Partners to the Company and other
authorized distributors.
The Company's income tax benefit was $14,870,000 and $6,830,000 during
the six months ended June 30, 1996 and 1995, respectively. The effective
tax rate associated with such benefits was 31% and 34%, respectively. In
connection with the Distribution, the Company expects to become a party to
the Tax Sharing Agreement that currently exists among TCI, TCIC and certain
other subsidiaries of TCI. The Company's income tax benefits include
intercompany allocations from TCI of current income tax benefits of
$26,333,000 and $6,673,000 during the six months ended June 30, 1996 and
1995, respectively. Following the Distribution the Company will cease to be
a part of the TCI consolidated tax group, and will only be able to realize
current income tax benefits to the extent that the Company generates
taxable income. During the first several years following the Distribution,
the Company believes that it will incur net losses for income tax purposes,
and accordingly, will not be in a position to realize income tax benefits
on a current basis. For additional information, see note 7 to the Audited
Combined Financial Statements of the Company.
42
<PAGE>
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Certain financial information concerning the Company's operations is
presented below (dollar amounts in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------
1995 1994 1993
---------------------- -------------------- ----------------------
Percentage Percentage Percentage
of total of total of total
Amount revenue Amount revenue Amount revenue
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Programming and equipment
rental $ 133,688 64% 18,641 62% 9,075 78%
Installation 75,215 36 11,638 38 2,604 22
--------- ---- ------- ---- ------ ----
Total revenue 208,903 100 30,279 100 11,679 100
Operating costs and expenses:
Programming, satellite,
marketing and distribution
charges from PRIMESTAR
Partners (78,250) (37) (11,632) (38) (4,445) (38)
Other operating:
Allocations from TCIC (15,916) (8) (4,367) (14) (1,577) (14)
Other (1,884) (1) -- -- -- --
--------- ---- ------- ---- ------ ----
(17,800) (9) (4,367) (14) (1,577) (14)
Selling, general and
administrative:
Selling and marketing (81,764) (39) (1,777) (6) (54) --
Bad debt (10,549) (5) (1,529) (5) (30) --
Allocations from TCIC (7,817) (4) (1,080) (4) (795) (7)
Other general and
administrative (17,937) (8) (4,721) (16) (168) (1)
--------- ---- ------- ---- ------ ----
(118,067) (56) (9,107) (31) (1,047) (8)
--------- ---- ------- ---- ------ ----
Operating Cash Flow
(deficit) (5,214) (2) 5,173 17 4,610 40
Depreciation (55,488) (27) (14,317) (47) (6,513) (56)
--------- ---- ------- ---- ------ ----
Operating loss $ (60,702) (29%) (9,144) 30%) (1,903) (16%)
========= ==== ======= ==== ====== ====
</TABLE>
_________________________
(1) Operating Cash Flow is a commonly used measure of value and borrowing
capacity. Operating Cash Flow is not intended to be a substitute for a
measure of performance in accordance with generally accepted
accounting principles and should not be relied upon as such.
Revenue increased $178,624,000 or 590% and $18,600,000 or 159% during
1995 and 1994, as compared to the corresponding prior year period.
Exclusive of installation revenue, the Company's average monthly revenue
per Authorized Unit was $41, $28 and $27 during 1995, 1994 and 1993,
respectively. The 46% increase in the average monthly revenue per
Authorized Unit from 1994 to 1995
43
<PAGE>
is primarily attributable to (i) the full year effect of the higher basic
service rates and the increased availability of premium and pay-per-view
services that followed the July 1994 completion of the conversion from an
analog to a digital signal, and (ii) a March 1995 increase in the monthly
equipment rental fee.
Programming, satellite, marketing and distribution charges from
PRIMESTAR Partners increased $66,618,000 or 573% and $7,187,000 or 162%
during 1995 and 1994, respectively, as compared to the corresponding prior
year periods. The average aggregate monthly amount per Authorized Unit
charged by PRIMESTAR Partners was $24, $17 and $13 during 1995, 1994 and
1993, respectively. In general, such increases reflect the higher
programming, satellite and national marketing expenses that PRIMESTAR
Partners began to incur following the July 1994 completion of the
conversion from an analog to a digital signal.
Other operating expenses increased $13,433,000 or 308% and $2,790,000
or 177% during 1995 and 1994, respectively, as compared to the
corresponding prior year periods. Most of such operating costs and expenses
were allocated from TCIC to the Company based upon a standard charge for
each of the various customer fulfillment activities performed by TCIC. As
discussed above, TCIC and the Company have entered into a Fulfillment
Agreement with respect to installation, maintenance, retrieval and other
customer fulfillment services to be provided by TCIC following the
Distribution.
Selling, general and administrative expenses increased $108,960,000 or
1,196% and $8,060,000 or 770% during 1995 and 1994, respectively, as
compared to the corresponding prior year periods. In 1995, selling and
marketing expenses represented 39% of revenue and bad debt expense
represented 5% of revenue. Such relatively high percentages are
attributable to the Company's efforts to increase its subscriber base.
General and administrative allocations from TCIC are generally based
upon the estimated cost of the general and administrative services provided
to the Company. Following the Distribution, charges for administrative
services provided by TCIC will be made pursuant to the Transition Services
Agreement. For additional information, see note 2 to the Audited Combined
Financial Statements.
The $41,171,000 or 288% and $7,804,000 or 120% increases in
depreciation during 1995 and 1994, respectively, as compared to the
corresponding prior year periods, are the result of increases in the
Company's depreciable assets due primarily to capital expenditures with
respect to the Company's satellite reception equipment.
The Company's 20.86% share of PRIMESTAR Partners' net losses decreased
$2,753,000 or 23% and increased $6,198,000 or 112% during 1995 and 1994,
respectively, as compared to the corresponding prior year periods. For
additional information concerning PRIMESTAR Partners' operations, see
related discussion above.
The Company's income tax benefit was $21,858,000, $6,872,000 and
$2,505,000 during 1995, 1994 and 1993, respectively. The effective tax
rates associated with such benefits were 32%, 33% and
44
<PAGE>
34%, respectively. The Company's income tax benefits include intercompany
allocations from TCI of current income tax benefits of $36,530,000,
$9,611,000 and $3,403,000 during 1995, 1994 and 1993 respectively. As
described above, during the first several years following the Distribution,
the Company believes that it will not be in a position to realize current
income tax benefits. For information concerning the Tax Sharing Agreement,
see note 7 to the Audited Combined Financial Statements of the Company.
LIQUIDITY AND CAPITAL RESOURCES
In recent periods, the Company has relied upon non-interest bearing
advances from TCI in order to fund the majority of the Company's working
capital requirements and capital expenditures. During the six months ended
June 30, 1996, and the year ended December 31, 1995, such advances
aggregated $164,230,000 and $397,529,000, respectively. Following the
Distribution, it is anticipated that TCIC will provide the Company with
funding pursuant to the TCIC Credit Facility, subject to the Company's best
efforts obligations to refinance the TCIC Credit Facility. Following the
termination of the TCIC Credit Facility, whether at maturity or in
connection with any such refinancing, it is not expected that TCI will
continue to be a source of long term financing for the Company. Following
the Distribution, the Company will also be obligated to repay the
$250,000,000 principal amount and the related accrued interest that will be
due to TCIC pursuant to the Company Note. For a description of the terms of
the Company Note and the TCIC Credit Facility, see "Arrangements Between
---------------------
TCI and the Company After the Distribution -- Reorganization Agreement"
-----------------------------------------------------------------------
and "Arrangements Between TCI and the Company After the Distribution
--------------------------------------------------------------------
-- TCIC Credit Facility."
-------------------------
The Company also has relied upon advances from PRIMESTAR Partners to
finance the majority of the cost of constructing the Company Satellites.
Such advances, which aggregate $386,219,000 at June 30, 1996, are reflected
as a liability in the combined balance sheets included in the Company's
historical combined financial statements. The Tempo Letter Agreements
permitted PRIMESTAR Partners to apply such advances against any payments
due under the Tempo Option and required the Company to repay such advances
(or, in the alternative, to assign to PRIMESTAR Partners all rights of the
Company relating to the Company Satellites), if PRIMESTAR Partners elected
to stop funding amounts due under the Satellite Construction Agreement or
failed to exercise the Tempo Option within the periods provided for in the
Tempo Letter Agreements. The Company expects that the amount due to
PRIMESTAR Partners will be settled through the sale or lease of all the
capacity of the Company Satellites, or by the assumption by the Company of
all or a portion of the indebtedness incurred by PRIMESTAR Partners to fund
the advances. PRIMESTAR Partners' indebtedness under the PRIMESTAR Credit
Facility aggregated $433,000,000 at June 30, 1996. The ultimate settlement
of the amounts advanced from PRIMESTAR Partners is dependent, in part, on
the outcome of the uncertainties related to the dispute with PRIMESTAR
Partners and the Telesat Transaction. For additional information concerning
such uncertainties, see "Risk Factors -- Alternative Strategies for
------------------------------------------
Deployment of High Power Satellites," "Risk Factors -- Risks of Adverse
----------------------------------- --------------------------------
Government Regulations and Adjudications," "Risk Factors -- Dispute Over
---------------------------------------- ----------------------------
Tempo Option" and "Business of the Company -- Company Satellites."
------------ ---------------------------------------------
45
<PAGE>
During the six months ended June 30, 1996, and the year ended December
31, 1995, the Company's operating activities provided cash of $61,338,000
and $64,193,000, respectively. Most of the cash provided by the Company's
operating activities during such periods is attributable to the
intercompany allocation of current income tax benefits from TCI, and to
changes in the Company's receivables, prepaids, accruals and payables and
subscriber advance payments ("Operating Assets and Liabilities"). As
described above, during the first several years following the Distribution,
the Company believes that it will not be in a position to realize income
tax benefits on a current basis. In addition, the timing and amount of
changes in the balances of the Company's Operating Assets and Liabilities
are subject to a variety of factors, certain of which are outside of the
control of, or not easily predicted by, the Company. Exclusive of the
effects of intercompany allocations of current income tax benefits, and
changes in the Company's Operating Assets and Liabilities, the Company's
operating activities provided (used) cash of $7,052,000 and $(4,007,000)
during the six months ended June 30, 1996, and year ended December 31,
1995, respectively. For the first several years following the Distribution,
the Company believes that its operating activities will represent a
reliable source of liquidity only to the extent that the Company is able to
generate Operating Cash Flow.
During the six months ended June 30, 1996, and the year ended December
31, 1995, the Company used cash of $36,684,000 and $104,128,000,
respectively, to fund the cost of constructing the Company Satellites and
$175,339,000 and $442,782,000, respectively, to fund (i) the acquisition
and installation of satellite reception equipment and (ii) certain other
capital expenditures. See the combined statements of cash flows included in
the historical combined financial statements of the Company.
At June 30, 1996, the Company's future minimum commitments to purchase
satellite reception equipment aggregated approximately $56,000,000.
As part of the compensation paid to the Company's four master sales
agents, the Company has agreed to pay certain residual sales commissions
equal to a percentage of the programming collected from subscribers
installed by such master sales agents during specified periods following
the initiation of service (generally five years). During the six months
ended June 30, 1996, and the year ended December 31, 1995, residual
payments to such master sales agents aggregated $4,597,000 and $2,178,000,
respectively.
PRIMESTAR Partners currently broadcasts from K-1, a medium power
satellite that is nearing the end of its operational life. Although the
Company believes that a replacement satellite will be successfully deployed
prior to the expiration of K-1's operational life, such deployment is
dependent on a number of factors that are outside of the Company's control
and no assurance can be given as to the successful deployment of a
replacement satellite. The failure to deploy a fully operational
replacement satellite by the end of K-1's operational life could have a
material adverse effect on both the Company and PRIMESTAR Partners. See
"Risk Factors -- Risks of Satellite Defect, Loss or Reduced Performance"
----------------------------------------------------------------------
and "Business of the Company -- PRIMESTAR By TCI -- The PRIMESTAR(R)
---------------------------------------------------------------
Service."
-------
46
<PAGE>
The Company anticipates that it will be required to arrange for the
issuance of a standby letter of credit to support the Company's share of
PRIMESTAR Partners' obligations under a proposed new agreement between the
Partnership and GE Americom, with respect to PRIMESTAR Partners' use of
transponders on a new medium power satellite to be launched by GE Americom.
See "Risk Factors -- Risks of Satellite Defect, Loss or Reduced
----------------------------------------------------------
Performance" and "Business of the Company -- PRIMESTAR By TCI -- The
----------- --------------------------------------------------
PRIMESTAR(R) Service." The original maximum drawable amount of such
--------------------
letter of credit is expected to be approximately $25,000,000, increasing to
$75,000,000 if PRIMESTAR Partners exercises the End-Of-Life Option under
such agreement with GE Americom (as such term is defined below).
TCI UA 1 has arranged for the issuance of the TCI UA 1 Letter of
Credit to support the Company's pro rata share of the PRIMESTAR Credit
Facility. The amount of the TCI UA 1 Letter of Credit was $141,250,000 at
June 30, 1996. Pursuant to one of the Indemnification Agreements to be
entered into by the Company in connection with the Distribution, the
Company will reimburse TCI UA 1 for any amounts drawn under the TCI UA 1
Letter of Credit. See "Arrangements Between TCI and the Company After the
--------------------------------------------------
Distribution -- Indemnification Agreements."
------------------------------------------
At June 30, 1996, the Company had guaranteed approximately $4,200,000
of certain minimum commitments of PRIMESTAR Partners to purchase satellite
reception equipment.
Under the PRIMESTAR Partnership Agreement, the Company has agreed to
fund its share of any capital contributions and/or loans to PRIMESTAR
Partners that might be agreed upon from time to time by the partners of
PRIMESTAR Partners. Additionally, as a general partner of PRIMESTAR
Partners, the Company is liable as a matter of partnership law for all
debts of PRIMESTAR Partners in the event the liabilities of PRIMESTAR
Partners were to exceed its assets. The Company has additional contingent
liabilities related to PRIMESTAR Partners. See note 4 to the Unaudited
Combined Financial Statements of the Company.
Following the Distribution, the Company will require significant
additional capital to meet its operating plan. Such capital will be used
primarily to purchase additional inventory of satellite reception equipment
for sale or rental to subscribers, to finance the cost of installing new
customers and to provide for working capital and other liquidity
requirements that may arise.
In order to fund such capital requirements, and to provide additional
liquidity, the Company expects to enter into the TCIC Credit Facility, and
to incur significant additional indebtedness in the near future, through a
possible bank financing, institutional private placement, public offering
of debt securities, or a combination of such sources. Although the Company
believes that it will be able to obtain sufficient debt financing from such
sources, there can be no assurance that this will be the case. The Company
will have additional indebtedness pursuant to the Company Note.
The Company believes that such external sources of debt financing,
together with any net cash provided by operations, will be sufficient to
satisfy its projected funding requirements for the foreseeable future.
However, faster-than-anticipated subscriber growth or other contingencies
may require additional
47
<PAGE>
financing. The Company expects that, if additional financing is needed, it
would seek to obtain such financing through the capital markets, including
the high-yield debt market. No assurance can be given however that such
additional financing would be available on terms satisfactory to the
Company, or that sufficient financing to meet the Company's needs would be
available on any terms.
The degree to which the Company becomes leveraged may adversely affect
the Company's ability to compete effectively against better capitalized
competitors and to withstand downturns in its business or the economy
generally, and could limit its ability to pursue business opportunities
that may be in the interests of the Company and its stockholders. The
Company's ability to service its debt will require continued growth in the
Company's Operating Cash Flow. There can be no assurance that the Company
will be successful in continuing to increase its Operating Cash Flow by a
sufficient magnitude or in a timely manner or in raising additional equity
or debt financing to enable it to meet its debt service requirements. In
addition, a failure of the Company to have adequate access to capital,
whether through internally generated cash flow or its ability to access the
capital markets, may adversely affect the Company's ability, or choice, to
launch proposed products and services in the time frames discussed herein.
See "Risk Factors -- Substantial Leverage; Dependence on Additional
--------------------------------------------------------------
Capital" and "Risk Factors -- Limited Operating History; Operating Losses
------- -----------------------------------------------------------
of the Company."
--------------
48
<PAGE>
BUSINESS OF THE COMPANY
GENERAL
The Company was formed in connection with the Distribution to own and
operate certain businesses of the TCI Group constituting all of the TCI
Group's interests in the Digital Satellite Business. At the time of the
Distribution, TCI will cause to be transferred to the Company and its
subsidiaries the ownership interests in (i) the business of distributing
PRIMESTAR(R), known as PRIMESTAR By TCI, which as of June 30, 1996 had an
installed base of approximately 659,000 Authorized Units, (ii) an aggregate
20.86% partnership interest in PRIMESTAR Partners, (iii) Tempo, which holds
the Company's high power satellite interests and (iv) TCI's rights under
the Operating Services Agreement and related agreements with Telesat.
TCI, through various subsidiaries, has been engaged in the business of
distributing PRIMESTAR(R) since December 1990. TCI Digital Satellite
Entertainment, Inc., a Colorado corporation ("Digital"), was incorporated
in February 1995 in order to consolidate the PRIMESTAR By TCI distribution
business into one subsidiary. In connection with the Distribution, Digital
was merged with and into the Company, as a means of reincorporating Digital
in Delaware.
OVERVIEW OF DIGITAL SATELLITE TELEVISION INDUSTRY
Digital satellite television services use communications satellites,
broadcasting at Ku-band or higher frequencies, to transmit multichannel
video programming directly to consumers, who receive such signals on home
satellite dishes or HSDs. Such satellites operate in geosynchronous orbit
above the equator, from orbital positions or "slots" allocated by
international agreement to the U.S. and other national governments and
assigned by such governments in accordance with local law. Orbital slots
are designated by their location East or West of the zero meridian,
measured in degrees of longitude, and comprise both a physical location and
an assignment of broadcast spectrum in the applicable frequency band,
divided into 32 frequency channels, each with a useable bandwidth of 24
MHZ./1/ With digital compression technology, each frequency channel can be
converted into five or more analog channels of programming, thereby
enabling the digital satellite service operator to offer a broader variety
of programming choices than analog satellite systems and enabling
subscribers of digital satellite services to receive laser disc-quality
picture and compact disc-quality sound from the satellite.
The operator of a digital satellite television service typically
enters into agreements with programmers, who deliver their programming
content to the digital satellite service operator via commercial
satellites, fiber optics or microwave transmissions. The digital satellite
service operator
____________________
/1/ Such frequency channels are sometimes referred to as
"transponders" because each transponder on a satellite generally
transmits on one of such channels. Technically, a transponder is the
device on a satellite, composed of one or more traveling wave tube
amplifiers and related equipment, that receives and transmits radio
signals.
49
<PAGE>
generally monitors such signals for quality, and may add promotional
messages, public service programming or other system-specific content. The
signals are then digitized, compressed, encrypted and combined with other
programming sharing a given transponder and other necessary data streams
(such as conditional access information). Each transponder's signal is then
uplinked, or transmitted, to the transponder owned or leased by the service
operator on the service's satellite, which receives and transmits the
signal to HSDs configured to receive it.
In order to receive the programming, a subscriber requires (i) a
properly installed HSD, which includes an antenna, dish, LNB and related
equipment; (ii) an integrated receiver/decoder ("IRD," sometimes referred
to herein as the "satellite receiver" or "set-top box"), which receives the
data stream from each broadcasting transponder, separates it into separate
digital programming signals, decrypts and decompresses those signals that
the subscriber is authorized to receive and converts such digital signals
into analog radio frequency signals; and (iii) a television set, to view
and listen to the programming contained in such analog signals. A
subscriber's IRD is generally connected to the digital satellite service
operator's authorization center by telephone, to report the purchase of
premium and pay-per-view channels.
The FCC authorizes two types of satellite services for transmission of
television programming: Broadcast Satellite Service ("BSS"), which operates
at high power (120 to 240 watts per channel) in the Ku-band, and Fixed
Satellite Service ("FSS"), which includes medium power (20 to 100 watts per
channel) services transmitting in the Ku-band, as well as low power
services transmitting in the C-band. Both high power BSS satellites and
medium power FSS satellites are used for digital satellite television
services. High power signals can be received by HSDs of approximately 18
inches in diameter, while medium power signals require HSDs of 27 to 39
inches in diameter (depending on the geographical location of the HSD).
However, both high power and medium power digital satellite services
provide the same high video and audio quality.
MARKET FOR DIGITAL SATELLITE SERVICES
The Company believes that the market for digital satellite products
and services is growing and that there is significant unsatisfied demand
for high quality, reasonably priced television programming. According to
industry sources, there are approximately 96 million television households
in the U.S. and it is estimated that approximately 63 million cable
subscribers pay an average of approximately $33 per month for multichannel
programming services. The Company believes, therefore, that the potential
market in the U.S. for video, audio and data programming services consists
of (i) the approximately 8 to 11 million households that do not have access
to cable television (not "passed by cable"); (ii) the approximately 20 to
21 million households currently passed by cable television systems with
fewer than 40 channels of programming; (iii) other existing cable
subscribers who desire a greater variety of programming, improved video and
audio quality, better customer service and fewer transmission interruptions
and (iv) certain commercial markets, such as restaurants, bars, hotels and
motels, multiple dwelling units, businesses and schools (the "Commercial
Market"). The large base of potential customers will enhance the Company's
ability to achieve its objectives which include, among others, the goal of
significantly increasing its installed base of Authorized Units.
50
<PAGE>
PRIMESTAR Partners estimates that, based on the number of Authorized
Units installed, its share of current digital satellite television
subscribers was approximately 41.6%, as of July 28, 1996, as compared to an
estimated 55.0% share for DirecTv/USSB and an estimated 3.4% share for
EchoStar, as of such date.
The Company believes that the following factors will contribute to the
growth of the market for digital satellite services:
Unserved or Underserved by Cable. Approximately 8 to 11 million
households are not passed by cable and approximately 20 to 21 million
households are in areas served by cable systems with fewer than 40
channels. Although some cable systems with limited channel capacity may be
upgraded to digital technology, allowing additional channels without costly
upgrades of the cable plant, other such systems may not be so easily
upgraded. Due to the substantial capital investment required for wide scale
deployment of fiber-based digital services, several cable companies have
delayed originally-announced deployment schedules. The Company believes
areas served by cable systems which have not been fully upgraded provide a
prime market for digital satellite services.
Commercial Market. The Company believes that digital satellite
services are well suited for hotels, motels, bars, multiple dwelling units
of MDUs, schools and other organizations within the Commercial Market. In
addition to the wide variety of entertainment,, sports, news and other
general programming, the Company expects that some commercial organizations
will provide a market for educational, foreign language, and other niche
video and audio programming, as well as data services.
Demand for More Choice in Television Programming, Reliable Service and
Better Quality Picture and Sound. Prior to the growth of cable television
services, television viewers were offered a relatively limited number of
channels. As the number of channels increased, consumer demand for more
programming choices also increased. As a result, the multichannel video
market has experienced significant growth, both in terms of the number of
content producers creating programming and the number of channels available
to viewers. The Company expects this trend will continue and that consumers
will desire even more programming choices than are available through cable.
The Company believes consumers are also demanding more reliable service and
improved picture quality compared to what has historically been offered by
over-the-air VHF and UHF broadcasters and by cable.
STRATEGY
The Company's primary objectives are to maintain its market leadership
as one of the premier providers of satellite delivered entertainment
programming and to become one of the major providers of informational
services to the home and business. The Company's strategy will be achieved
as follows:
High Quality Programming. The Company offers consumers a wide variety
of high quality programming, delivered digitally for laser-disc quality
image and compact-disc quality sound, for a competitive price. The Company
believes that its image and sound quality is superior to that provided by
most existing cable systems and wireless cable providers, which transmit
analog signals to their
51
<PAGE>
subscribers, and that no other current digital satellite system provides
better picture or sound. With the successful launch and commercial
operation of GE-2, PRIMESTAR(R) will increase its channel offerings from 94
video and audio channels to over 140 channel offerings, while reducing its
dish size to approximately 27 inches for subscribers in the majority of the
U.S. These smaller dishes can be more easily attached to a subscriber's
roof or wall than the dishes currently available to most PRIMESTAR(R)
subscribers. The Company further believes that its combination of price and
services provides consumers with greater value than the respective price
and service offerings of other current digital satellite service providers.
See "-- PRIMESTAR By TCI -- The PRIMESTAR(R) Service," and "Risk Factors --
----------------------------------------------- ---------------
Risks of Satellite Defect, Loss or Reduced Performance."
------------------------------------------------------
Continued Subscriber Growth. The Company continues to grow its
substantial customer base through its multiple sales and distribution
channels, which include cable system operators, master sales agents and
their sub-agents, direct sales representatives, telemarketing and consumer
retail outlets. The Company recently began to distribute its services
through Radio Shack, one of the nation's largest consumer electronics
retailers. In February 1996, PRIMESTAR Partners entered into a national
agreement with Radio Shack under which PRIMESTAR(R) is expected to be sold
through more than 6,500 Radio Shack stores nationwide. The Company
estimates that when the arrangement is fully implemented, over 2,500 of
these new retail points of sale will be located in the Company's authorized
distribution territories. In addition, the Company supports its multiple
distribution channels with a wide variety of advertising, marketing and
promotional activities. See "--PRIMESTAR By TCI --Marketing."
------------------------------
Differentiating the Company's Offerings Through Superior Customer
Service. The Company believes that providing outstanding service,
convenience and value is essential in developing long term customer
relationships. The Company offers consumers a "one-stop shopping" service
which includes programming, installation, maintenance, reliable customer
service and satellite reception equipment. The Company maintains its own
National Call Center, providing customers with round-the-clock telephone
support for sales, installation, authorization and billing, as well as to
schedule repair and customer service calls, 365 days per year.
Providing Consumers Many Attractive Alternatives to Equipment
Purchases. The Company's equipment rental program, which includes free
maintenance and repair, provides significant benefits to customers, who are
not required to buy satellite equipment in order to receive the
PRIMESTAR(R) service. Because PRIMESTAR By TCI is marketed as a service,
with programming, equipment rental, maintenance and 24-hour customer
service included in the monthly charge, the up-front costs to new
subscribers of PRIMESTAR By TCI are generally lower than the up-front costs
to new subscribers of the Company's competitors, who must typically
purchase and install an HSD, satellite receiver and related equipment.
Moreover, since the Company generally owns, services and installs all
customer premises equipment for its rental customers, the Company protects
its subscribers from the inconvenience of equipment failure, maintenance
concerns, obsolete technology, self-installation and expired warranties. In
addition, the Company anticipates offering several buyout options, which
will allow the consumer to reduce the monthly rental fee, and intends to
provide consumers the option to finance their purchase with a reduced
initial cash outlay and monthly payments.
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Expanding Commercial Opportunities For Digital Satellite Services. The
Company believes that the Commercial Market offers a substantial
opportunity for growth and is therefore of strategic importance. The
Company believes that the cable industry is generally perceived by the
Commercial Market to have failed to adequately meet the needs of commercial
establishments and MDUs and that the Company and other digital satellite
providers are only beginning to tap this market. With an enhanced channel
capacity in its audio and video entertainment programming, subject to the
successful launch and operation of GE-2, and the potential in the future
for high speed data services and Internet access solutions combining
digital satellite and landline, for high speed, broad band delivery of
Internet content, the Company anticipates having the ability to
successfully penetrate the Commercial Market. The Company also intends to
pursue opportunities to provide private network service to businesses, and
to participate in the growing market for distance learning. In that
connection, the Company intends to explore opportunities to work together
with At Home Corporation, a joint venture led by TCI and Kleiner Perkins
Caufield & Byers to deliver interactive content to personal computers, and
ETC w/ tci, Inc., a majority-owned subsidiary of TCI, formed to develop
and distribute content and technology applications for education, training
and communications, as well as other Internet and educational content
providers.
Strategic Marketing Alliances. Finally, the Company intends to broaden
its product and service offerings to further complement its existing video
services by forming alliances with strategic partners, such as its existing
non-exclusive relationships with Bose and Apple, discussed below. See "--
--
PRIMESTAR By TCI -- Marketing." The Company believes that such alliances
-----------------------------
can be important not only to expand the market awareness of the Company's
name and service offerings, but also to increase the Company's potential
market by expanding the scope of the use of its product and services.
Focusing on Customers Currently understand by Multichannel
Programming. The Company seeks to maximize penetration in the "underserved"
marketplace, defined by the Company as those areas not passed by cable, or
served by cable systems with fewer than 40 channels. To date, the Company's
primary market focus has been the rural market, which is underserved for
variety, choice and convenience in audio and video entertainment
programming. With the launch of GE-2, the Company also intends to pursue
subscriber growth in the more urban and suburban markets within its
territories.
The Company continues to assess strategies for delivering high power
digital satellite signals to the consumer's home. The Company's ultimate
strategy could include one or a combination of the following options: (i)
implementing a high power DBS system at 82 degrees W.L. pursuant to the
Telesat Transaction; (ii) implementing a high power DBS system at 119
degrees W.L. and 166 degrees W.L. under its FCC license, either as a
limited service complementary to off-the-air television, basic cable and
other programming services, or, subject to future advances in digital
channel compression, as a full-service, stand-alone offering; and (iii)
securing additional spectrum capacity through any new opportunities that
may arise. These strategic options may provide the Company the ability to
complement or effectively upgrade its current service. The Company is
currently evaluating the viability and attractiveness of each of the
foregoing options from a regulatory, economic and technological
perspective.
53
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PRIMESTAR BY TCI
The PRIMESTAR(R) Service. PRIMESTAR Partners was formed as a limited
partnership in 1990 by subsidiaries of TCI, several other cable operators
and G.E. and was the nation's first FSS satellite television system.
Initially, PRIMESTAR Partners' product was an analog service limited to
seven broadcast television superstations, TV Japan and three pay-per-view
stations. In 1994, PRIMESTAR Partners was among the first satellite
television providers to use digital compression technology for superior
delivery of picture and sound. PRIMESTAR Partners currently provides 94
channels of entertainment programming throughout the continental U.S., via
medium power satellite, to HSDs approximately 36 inches in diameter. Early
in 1997, using a new GE Americom satellite, GE-2, PRIMESTAR Partners will
have the capacity to increase its offerings to about 140 channels of
programming while reducing its dish size to approximately 27 inches for
subscribers in the majority of the U.S. These smaller dishes can be
attached more easily to a subscriber's wall or roof.
PRIMESTAR(R) includes a variety of advertiser-supported networks
(sometimes referred to as "basic cable" channels), a broad selection of
movie services, national and regional sports packages and other premium
services, and multiplexed pay-per-view programming. See "-- Programming."
--------------
PRIMESTAR Partners secures its rights to broadcast such programming by
entering into non-exclusive affiliation agreements with programming
vendors. In addition to video services, PRIMESTAR(R) includes digital audio
and data services, including Ingenius, which provides access to news,
business news, stock quotes, sports, weather and entertainment information
to subscribers through their personal computers.
PRIMESTAR Partners currently broadcasts from 14 transponders on K-1, a
medium power Ku-band satellite owned and operated by GE Americom. Digital
satellite television service requires that subscribers install HSDs for a
clear line of sight to the transmitting satellite. K-1 is located at 85
degrees W.L. in the FSS arc and provides coverage to the entire continental
U.S. with favorable "look" angles, meaning that the satellite is viewable
from the entire continental U.S. at angle elevations high enough to
facilitate installation of HSDs in most areas. Additionally, K-1's orbital
location over the East coast of the U.S. is considered favorable because
the signal travels a shorter path through the relatively moist air of the
Eastern sea board, minimizing potential interference from bad weather. The
overall PRIMESTAR(R) system is designed for high availability and operates
consistently without any significant interference approximately 99.8% of
the time. Pursuant to its agreement with GE Americom, up to 10 of PRIMESTAR
Partners' transponders are subject to preemption if transponders on GE
Americom's second FSS satellite, K-2, cease to be operational; however, the
Company does not believe that PRIMESTAR Partners' use of preemptible
transponders is likely to interfere in any material respect with the
operation of the PRIMESTAR(R) service.
PRIMESTAR Partners currently uses proprietary authorization, encryption
and digital compression technology developed by an affiliate of GI. The
Company believes that the compression technology used by PRIMESTAR Partners
produces picture and sound quality comparable to that of other digital
satellite television providers, including those using compression methods
based on the
54
<PAGE>
MPEG-2 digital compression architecture. Uplinking, encoding and
compression services are provided by WTCI, an affiliate of TCI, under an
existing agreement.
In July 1996, PRIMESTAR Partners negotiated an agreement in principle
with GE Americom to obtain the use of up to 24 transponders on GE-2, an FSS
satellite expected to be launched by GE Americom in January 1997 to replace
K-1, which is nearing the end of its useful life. See "Risk Factors --
---------------
Risks of Satellite Defect, Loss or Reduced Performance." The additional
------------------------------------------------------
transponders on GE-2 would enable PRIMESTAR Partners to offer about 140
channels of programming. In addition, the use of higher power transponders
on GE-2, as compared to K-1, is expected to enable PRIMESTAR(R) subscribers
to utilize 27 to 30-inch HSDs, depending on geographic location, rather
than the 36-inch dishes currently required, without a meaningful increase
in signal interference. The Partners' Committee of the Partnership has
unanimously approved the general terms of the proposed agreement with GE
Americom, which would supersede the Partnership's existing agreement with
GE Americom to use 14 transponders on GE-2 for one year from commercial
operation, although no written agreement with respect to such additional
use of GE-2 has been executed.
The proposed agreement with GE Americom is for an initial term of four
years from the date of commercial operation, extendible, at the option of
PRIMESTAR Partners exercised prior to December 31, 1996, for the remainder
of the useful life of GE-2 (the "End-of-Life Option"). Initially, 18 of the
Partnership's transponders on GE-2 will be non-preemptible, and 6
transponders will be preemptible by GE Americom. Preemptible transponders
will be reassigned to restore service to protected customers and services
should such protected customers or services experience satellite failure.
The Company does not believe, however, that, during the early stages of GE-
2's operational life, the use of preemptible transponders by PRIMESTAR
Partners is likely to interfere in any material respect with the operation
of the PRIMESTAR(R) service. Under the proposed agreement with GE Americom,
if PRIMESTAR Partners exercises the End-of-Life Option, GE Americom would
be required to make available another communications satellite, denominated
GE-3, to serve as an in-orbit spare for GE-2, and upon the successful
launch of GE-4 (as described below), the Partnership's transponders would
become protected. GE-3 is currently planned by GE Americom to serve as a
ground spare for GE-2 and another satellite, GE-1. If either GE-1 or GE-2
suffers a launch failure, GE-3 (which is currently expected to be available
for launch in June 1997) will be launched to replace GE-2 (which would
itself be launched to replace GE-1 if GE-1 suffers a launch failure). In
that event, GE-3 will not be available to serve as an in-orbit spare for
GE-2; however, if PRIMESTAR Partners exercises the End-of-Life Option (or
if both GE-1 and GE-2 suffer launch failures), GE Americom would make
available another communications satellite, GE-4, to replace GE-3, sometime
in the second half of 1998. If a launch failure or other defect or damage
affecting GE-1, GE-2 and/or GE-3 were to prevent or materially delay the
commercial operation of any two of such satellites, the business of both
PRIMESTAR Partners and the Company could be materially and adversely
affected.
If, after exercise of the End-of-Life Option and the subsequent
conversion of non-preemptible service and preemptible service to protected
service, PRIMESTAR Partners intends to use more than six of its
transponders for uses other than providing PRIMESTAR(R) service, GE
Americom may reduce service back to non-preemptible or preemptible, as the
case may be. However, if GE-4 is not required
55
<PAGE>
to replace GE-3, GE Americom will launch GE-4 to provide back-up
transponders for certain other GE Americom customers and services that are
currently protected and, in such event, PRIMESTAR Partners' transponders
subject to preemptible service will become subject to non-preemptible
service. If PRIMESTAR Partners exercises the End-of-Life Option, PRIMESTAR
Partners will have a further option to obtain capacity on any successor
satellite to GE-2 launched by GE Americom, after the end of GE-2's useful
life.
As contemplated by the PRIMESTAR Partnership Agreement, the
Partnership does not distribute its programming directly, but utilizes
distributors to market the PRIMESTAR(R) service and contract with
subscribers. Currently, affiliates of each of the Partnership's partners
other than GEAS, including the Company, are authorized distributors of
PRIMESTAR(R) ("Distributors"). However, the PRIMESTAR Partnership Agreement
does not require that Distributors be affiliated with the Partnership's
partners. None of the Distributors currently has a formal written
distribution agreement with PRIMESTAR Partners, although PRIMESTAR Partners
and the Distributors have attempted to negotiate such an agreement from
time to time since 1990. All of the Partnership's distribution arrangements
are currently non-exclusive. The PRIMESTAR Partnership Agreement also
contemplates the possibility that the Partnership may establish a separate
national marketing company to distribute PRIMESTAR(R); however, the
Partnership has not taken any action to create such a national marketing
company, and the creation of such a national marketing company would
require a super-majority vote of the Partners Committee.
The Company and other Distributors set their own retail pricing and
are responsible in their respective territories for installation,
maintenance and retrieval of customer premises equipment, authorization of
subscribers, and billing and collection of monthly and other fees, and bear
all risks of loss relating thereto. The Partnership negotiates and enters
into agreements with programmers, arranges for satellite capacity through
its agreements with GE Americom and is responsible, through its Master
Digital Transmission Agreement with WTCI, for the uplinking and compression
of programming signals. In addition, the Partnership provides marketing and
administrative support, including national advertising and a national toll-
free number, "1-800-PRIMESTAR," that automatically transfers potential
customers to one of the Distributors, based on the potential customers' zip
codes. Potential customers in the Company's service areas who call the "1-
800" number and key in their zip codes are transferred automatically to the
Company's National Call Center. In return for such services, the
Partnership collects from the Distributors a monthly programming fee based
on the number of Authorized Units receiving such programming plus a
separate monthly authorization fee based on each Distributor's total number
of Authorized Units.
The Company markets and distributes the Partnership's equipment and
services to households and businesses in its assigned territories under the
name PRIMESTAR By TCI. The Company's territories as a PRIMESTAR(R)
Distributor comprise communities in the vicinity of TCI's cable television
franchise areas and other areas assigned by the management of PRIMESTAR
Partners, in each case on a non-exclusive basis. The Company's territories
cover approximately 45% of the geographic area of the U.S. and 19,163 zip
codes, as of June 1996. The Company estimates that approximately 38% of the
country's 96.3 million television households reside in the Company's
territories.
56
<PAGE>
Programming. The Company currently offers consumers three primary
programming packages, which provide a wide variety of programming
selections, as detailed in the chart below. The "Prime Family(SM)" package
offers 74 channels of programming with 14 commercial-free premium movie
channels in addition to a selection of other channels. The "Prime
Entertainment(SM)" package offers 64 channels of programming and gives the
customer four commercial-free movie channels as well as a combination of a
number of popular channels. Lastly, the "Prime Value(SM)" package offers
customers 52 channels of expanded programming. Each of the packages
includes a free monthly programming guide. As of June 30, 1996, the monthly
prices for the "Prime Family(SM)" package, the "Prime Entertainment(SM)"
package and the "Prime Value(SM)" package were $44.99, $29.99 and $22.99,
respectively. Most of the Company's customers rent their equipment and pay
an additional $10 monthly charge which includes equipment rental,
maintenance and 24-hour customer service.
The Company also offers 11 channels of pay-per-view movies and events
and niche services on an "a la carte" basis such as ABC, NBC, CBS, FOX,
PBS, The Golf Channel, TV Japan and Ingenius.
The Company's three primary programming packages consist of the
following:
57
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
PRIME VALUE(SM) PRIME ENTERTAINMENT(SM) PRIME FAMILY(SM)
PACKAGE PACKAGE PACKAGE
------- ------- -------
52 CHANNELS 64 CHANNELS 74 CHANNELS
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
A & E All Prime Value Channels All Prime Entertainment Channels
CSPAN 1
Cartoon Plus: Plus:
---- ----
CNBC
CNN Classic Sports Cinemax - Multichannel (2)
Discovery CMT Cinemax Selecciones (2)
Disney (2) CNN International/CNN-FN HBO - Multichannel (3)
ESPN E! HBO en Espanol (3)
Faith & Values Encore
Family Channel Encore Multiplex (2)
Headline News ESPN 2
Learning Channel Sci-Fi
Lifetime STARZ!
MTV TCM
Nickelodeon The Weather Channel
Prevue
QVC
Regional Sports Networks (15)
TBS
TNN
TNT
Univision
USA
Digital Audio Channels (14)
-------------------------------------------------------------------------------------------------------
</TABLE>
As of June 30, 1996, the Company had an installed base of
approximately 659,000 Authorized Units. Subscriptions to the Company's (i)
premier programming package, the "Prime Family(SM)" package, (ii) mid-level
"Prime Entertainment(SM)" package, and (iii) basic "Prime Value(SM)"
package comprised approximately 39%, 26% and 35%, respectively of the
Company's Authorized Units at June 30, 1996. Exclusive of installation
revenue, the Company's average monthly revenue per Authorized Unit was $44
and $41 for the six months ended June 30, 1996 and the year ended December
31, 1995, respectively. At June 30, 1996, the Company's customers
represented approximately 47% of PRIMESTAR Partners' estimated 1.4 million
installed Authorized Units.
The Company contracts with and bills its residential and commercial
subscribers directly for PRIMESTAR(R) services. Residential subscribers may
terminate their service at any time upon notice to the Company while
commercial subscribers must provide 90 days' written notice to the Company
prior to the expiration of their contractual term to terminate their
service. A commercial customer can
58
<PAGE>
terminate the contract prior to the expiration of the contractual term by
paying 75% of the remaining amount due.
In an effort to minimize the Company's churn rate, the Company has
implemented new policies, including a more stringent automatic disconnect
policy for subscriber non-payment and a tightened credit check policy for
new subscribers. The Company also believes that its churn rate is affected
by subscribers' ability to rent, rather than purchase, the PRIMESTAR(R)
satellite reception equipment, which both attracts subscribers unable or
unwilling to make the financial commitment required to purchase such
equipment and reduces a subscriber's cost of dropping the service.
Satellite reception equipment reclaimed from terminating subscribers
is tested, refurbished as necessary and placed back into service. Used
equipment in good working order is used, among other places, in master
antenna and other commercial installations where such equipment is not
visible to the end user.
Distribution. The Company distributes PRIMESTAR(R) services through
multiple distribution channels. The Company's Master Agent Program, direct
sales force, a state-of-the-art National Call Center for orders,
information and customer service and a recently implemented agreement with
Radio Shack form a wide-reaching distribution network. The Company has
engaged four master sales agents, Metron Digital Services, Inc., CVS
Systems, Inc., Resource Electronics, Inc. and Recreation Sports and
Imports, Inc. (collectively, the "Master Agents"), each of which has
extensive experience distributing C-band direct-to-home satellite
equipment. Master Agents generally do not sell directly to customers, but
recruit, train and maintain a network of sub-agents comprised generally of
full service independent satellite retailers in the Company's target
markets, including rural and other areas that are not served or are
underserved by cable television. The sub-agents sell PRIMESTAR(R) services
on behalf of the Company and install, service and maintain customer
premises equipment for the Company's subscribers. Authorization of new
customers is provided by the National Call Center. At June 30, 1996, the
Company's Master Agents had over 1,400 active sub-agents and in the first
six months of 1996 the Master Agent Program accounted for approximately 50%
of the Company's new business.
The Company believes that the Master Agents, who are responsible for
the acts of their sub-agents, are currently able to manage the diverse
network of satellite retailers more effectively than the Company could do
so directly. Master Agents are responsible for maintaining their sub-
agents' inventories of HSDs and other customer premises equipment, which
are provided by the Company on consignment. The Company pays the Master
Agents commissions on equipment leased or sold by their sub-agents, as well
as an installation reimbursement to cover the cost of each new installation
and a 10% commission on monthly programming revenue received from
subscribers enrolled through the Master Agent Program, for a contractually
determined period of time. Master Agents are responsible for compensating
their sub-agents.
The Company's direct sales force solicits potential subscribers by
telephone, makes door-to-door sales calls, sets up booths at special events
and otherwise markets the Company's products and services to customers in
target markets in its authorized distribution areas. At June 30, 1996, the
direct sales
59
<PAGE>
force consisted of approximately 820 employees throughout the Company's
service areas operating out of the Company's five regional offices and
several field offices. To date, the main focus of the direct sales force
has been rural and semi-rural communities. Direct sales employees are paid
pursuant to a tiered compensation plan with varying commission arrangements
based on productivity. New subscriptions obtained by the direct sales force
are referred to the Company's National Call Center for authorization, which
in turn dispatches the new orders to the nearest TCI cable system for
installation.
In order to support its direct sales force, the Company obtains
installation, maintenance, retrieval, inventory management and other
customer fulfillment services from TCIC for Company customers either
enrolled by its direct sales force or National Call Center. TCIC will
continue to provide fulfillment services to the Company following the
Distribution, pursuant to the Fulfillment Agreement. The Fulfillment
Agreement, among other things, sets forth the responsibilities of TCIC with
respect to fulfillment services, including performance standards and
penalties for non-performance, and provides for standard fees to be charged
to the Company for the various customer fulfillment services to be provided
by TCIC. The Company retains sole control under the Fulfillment Agreement
to establish the retail prices and other terms and conditions on which
installation and other services will be provided to the Company's
customers.
The National Call Center, which, as of June 30, 1996, housed more than
450 employees, takes subscription orders and provides both sales support
and customer service. The National Call Center offers customers round-the-
clock telephone support for sales, installation, authorization and billing,
as well as for repair and customer service, 365 days per year. During the
six months ended June 1996, the National Call Center handled over 3.3
million customer service calls and over 400,000 sales calls. In addition,
the Company engages teleservices vendors to assist the Company in providing
these services. The Company trains the employees of these teleservices
vendors and works closely with them to ensure that its existing and
potential subscribers receive quality customer service.
In addition to the Master Agent Program, direct sales force and
National Call Center, the Company has recently begun distributing its
services through certain national consumer electronics retailers. In
February 1996, PRIMESTAR Partners entered into a national agreement with
Radio Shack, one of the nation's largest consumer electronics retailer,
under which PRIMESTAR(R) is expected to be available through more than
6,500 Radio Shack stores nationwide. Under this agreement, Radio Shack is
compensated based on the number of installations generated. The Company
estimates that when the arrangement is fully implemented, over 2,500 of
these new retail points of sale will be in the Company's authorized
distribution territories. The Company's distribution network is further
supported by approximately 900 local market retailers, such as hardware
stores and convenience stores, which promote the Company's services and
further assist the Company in its distribution efforts.
The Company believes that its use of a number of different
distribution channels has been an important factor in the success of its
sales efforts over the past 18 months and will continue to fuel subscriber
growth. During 1995, the Company expanded its points of sale over seven-
fold, from 325 to approximately 2,400. Furthermore, the Company's sub-
agents ranked highest in customer satisfaction in a recent study done by
the SBCA. The Company's sub-agents scored highest for post-sale customer
60
<PAGE>
support and salesperson knowledge of the industry and technology, as well
as programming. Moreover, the SBCA research showed that the Company's
service strategy ranked first as the customer's choice for a "better buying
experience." The Company intends to continue to target multiple
distribution channels and to expand on its existing satellite retailer
distribution network and presence with consumer electronics outlets.
Equipment and Installation. Unlike other digital satellite television
services, PRIMESTAR(R) does not require consumers to purchase or finance
the equipment needed to receive its programming. The Company provides the
HSD, satellite receiver and remote control to subscribers for a monthly
rental fee starting from about $10 per month, including ongoing maintenance
and service. (The monthly equipment rental fee is normally included in a
service package that includes various levels of basic and premium
programming.) Satellite receivers are manufactured by, and packaged with
remote controls purchased by, GI, and HSDs are manufactured by multiple
vendors, under agreements with PRIMESTAR Partners. Pursuant to such
agreements, each Distributor orders and purchases its inventory of customer
premises equipment directly from the vendor, and is responsible for certain
minimum purchases based on forecasts provided to the vendor through
PRIMESTAR Partners.
Approximately 99% of the Company's subscribers currently elect to rent
their equipment from the Company, and the Company believes that the ability
to obtain PRIMESTAR(R) without a large initial cash outlay is a significant
factor in the Company's early acceptance by consumers. However, for those
subscribers who would prefer to own their equipment, the Company offers a
purchase option, which includes both the equipment and installation. In
order to make the purchase option more attractive and provide subscribers
with additional payment choices, the Company will implement a consumer
financing program in September 1996 through an independent financial
institution. Such program will provide for customers to purchase the
satellite reception equipment and one year of programming. Customers who
take part in the Company's consumer finance plan will pay a non-refundable
programming fee but will be able to downgrade to a less expensive package
for a $50.00 administrative fee. The Company believes that an attractive
financing option may provide customers with a greater incentive to purchase
the equipment, increasing revenues and decreasing churn. PRIMESTAR(R)
equipment incorporates proprietary technology and must be purchased from
the Company or another authorized Distributor or retailer.
In addition to monthly fees for programming and the purchase or lease
of equipment, the Company generally charges new subscribers an installation
fee, which is currently $199. In order to insure that HSDs are properly
pointed and aligned to receive the PRIMESTAR(R) signal, the Company
strongly recommends professional installation. The Company also offers
qualified subscribers an opportunity to enter into subscription contracts
that allow for the option of paying their installation fee over time.
Further, from time to time, the Company offers special installation prices
on a promotional basis.
Marketing. The Company engages in extensive local and regional
marketing, advertising and promotional activities to increase consumer
awareness of PRIMESTAR(R), to promote the sale and lease of PRIMESTAR(R)
equipment and to generate subscriptions to PRIMESTAR(R). To complement the
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<PAGE>
national marketing support received from PRIMESTAR Partners, the Company
operates a central advertising strategy that also supports regional
marketing efforts. The Company's advertising strategy focuses on five
important selling points for potential subscribers: (i) program variety,
(ii) good value, (iii) digital quality picture and sound, (iv) no equipment
to buy and (v) on-going equipment maintenance and service at no extra
charge. The Company also provides its network of sub-agents and direct
sales force with marketing support ranging from cooperative advertising
funds to customized advertising campaigns. The Company intends to continue
these efforts in the future.
The Company's current regional and local advertising strategy includes
television, print and radio advertisements, direct mail campaigns, handouts
of brochures and flyers and participation in local events, including the
display of posters, banners and pop-up displays. The Company has engaged a
media agency to provide media counsel and services to aid the Company in
planning, placing and measuring results in regional and local advertising
and media programs. The Company has also engaged an advertising agency to
develop all strategic and creative efforts in advertising and a marketing
fulfillment agency to provide direct mail, collateral materials and other
marketing services .
The Company, from time to time, promotes subscriptions to its
programming service by offering discounts or free services for a limited
period of time. For example, the Company has offered a discount for annual
subscriptions, whereby customers, by paying annually, have been entitled to
get one month for free. In addition, the Company has provided coupons to
new customers which offer programming discounts, providing customers with
the opportunity to try many of the Company's premium services. Finally, the
Company has also provided free pay-per-view movies to new subscribers for a
limited period of time.
The Company engages independent retailers as display representatives
who display promotional materials about the Company. The Company uses such
display representatives to promote its service and to attain customer
referrals. The Company pays the display representative a one time referral
fee for each eligible subscriber who installs the service within sixty days
of the referral.
The Company has initiated a joint marketing alliance with Bose under
the co-brand name "PRIMESTAR/Bose Home Theater systems." Pursuant to this
alliance, the Company and Bose will offer a home theater system which
includes the Bose Companion satellite surround system, a complete surround
sound system designed specifically for use with home satellite systems.
The Company also engages in two joint marketing efforts with TCI.
First, the Company, since March 1996, has been distributing Kid
Control(TM), a child-size remote control unit supplied by TCI. The Kid
Control(TM) units are channel selectors designed solely for children and
help parents monitor and control television viewing. They are pre-
programmed with the most popular children's programming to provide a secure
lineup of age-appropriate entertainment. Second, as a sign of its
commitment to education, the Company, along with TCI, launched the
PRIMESTAR Goes To School program which provides schools not wired for cable
with free access to PRIMESTAR(R) equipment and 500 hours of commercial-free
"Cable in the Classroom" programming per month. This educational package is
offered free of charge. The program is designed to provide educational
programming and data services and offer
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access to training to inner city, rural and other schools that do not have
access to cable and that are within the Company's territories. From its
inception in November 1995 through June 30, 1996, over 1,100 schools have
enrolled in the program.
The Company has also entered into a joint marketing agreement with
Apple, pursuant to which the Company is expected to market and resell
certain Apple products with value-added enhancements for education and home
uses. The Company is authorized to provide schools that obtain PRIMESTAR(R)
with discount coupons toward the purchase of Apple computers, and intends
to work with Apple (and potentially other personal computer vendors) to
bundle home computer sales with PRIMESTAR(R).
The Company intends to continue and increase its joint marketing
efforts to bundle products and services to the marketplace, including cable
service, hardware and video accessories and education-related products. The
Company believes such efforts will assist the Company in maximizing its
potential market share.
Use of PRIMESTAR(R) Name and Marks. The Company markets and
distributes the Partnership's equipment and services to households and
businesses in its assigned territories under the name PRIMESTAR By TCI.
PRIMESTAR(R) is a registered service mark of PRIMESTAR Partners. The
Company believes that it has the right to use the PRIMESTAR(R) name and
certain related trademarks and service marks as a Distributor, in
substantially the same manner as it has been using such name and marks,
pursuant to its existing understandings with PRIMESTAR Partners. However,
the Company does not have a written license to use the PRIMESTAR(R) name
and marks, and there can be no assurance that the Company will be entitled
to continue to use the PRIMESTAR(R) name and marks in the future.
COMPANY SATELLITES
Tempo, a wholly owned subsidiary of the Company, holds a construction
permit issued by the FCC authorizing construction of a DBS system
consisting of two or more satellites delivering DBS service in 11
frequencies at the 119 degrees W.L. orbital position and 11 channels of
such service at the 166 degrees W.L. orbital position. Tempo is also a
party to the Satellite Construction Agreement with Loral, pursuant to which
Loral is currently constructing the Company Satellites on a fixed price
basis.
In May 1996, Tempo agreed to sell the Company Satellites to Telesat,
as part of the proposed Telesat Transaction, pursuant to which Telesat
would purchase the Company Satellites, deploy them in the 82 degrees W.L.
orbital position (a high power DBS slot allocated by international
agreement to Canada) and resell 27 of the 32 transponders on the Company
Satellites to TCITV. TCITV will assign its right to purchase such
transponders (and the related agreement with Telesat) to the Company or a
subsidiary. It is expected that WTCI would provide uplinking and
compression services to the Company in connection with any DBS service to
be operated using the transponders to be purchased from Telesat. If
regulatory and other conditions to the Telesat Transaction are satisfied
and the Telesat Transaction is consummated, the Company currently intends
to offer PRIMESTAR Partners the option to purchase or lease the capacity of
the 27 transponders to be repurchased from Telesat (the "Company
Transponders"),
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on terms to be negotiated. There can, however, be no assurance that such an
agreement would be reached.
If the Telesat Transaction is consummated but the Company and
PRIMESTAR Partners do not reach agreement with respect to the purchase or
lease by PRIMESTAR Partners of all the capacity of the Company
Transponders, the Company will consider other potential uses of the Company
Transponders and/or such capacity, which could include using the Company
Transponders and/or such capacity in connection with another DBS business
opportunity. In that connection, pursuant to an agreement dated as of
February 8, 1990 between the Company and affiliates of certain other
partners of the Partnership (the "Tag-Along Agreement"), the Company may be
required to provide such partner affiliates with an opportunity to
participate in an investment or other transaction relating to such DBS
business opportunity, on terms comparable to those available to the
Company, pro rata in accordance with their respective percentage
--- ----
interests in the Partnership at the time of such offer. See, "--Certain
---------
Agreements -- Tag-Along Agreement." If applicable, the obligations of
---------------------------------
the Company under the Tag-Along Agreement could make it more difficult for
the Company to structure an investment or other transaction relating to any
potential DBS business opportunity on terms satisfactory to the Company, or
on terms as favorable to the Company as those that might otherwise be
available in the absence of such obligations. However, the Company does not
believe that the Tag-Along Agreement or the Company's potential obligations
thereunder are likely to have a material adverse effect on the Company. See
also, "--Certain Agreements -- Partnership Agreement Provisions Regarding
------------------------------------------------------------------
Investment in Similar Businesses."
--------------------------------
The proposed Telesat Transaction is subject to the approval of U.S.
and Canadian regulatory authorities. No assurance can be given that such
regulatory approval will be obtained or will be obtained on terms
satisfactory to the Company. On March 26, 1996, WTCI filed an application
with the FCC for authorization to construct and operate an earth station to
uplink video programming to the Company Satellites which will be launched
into a Canadian DBS orbital location (82 degrees W.L.) pursuant to the
Telesat Transaction. On July 1, 1996, the Executive Branch Letter was filed
with the FCC recommending that the FCC treat the application as premature
and raising concerns regarding the application relating to international
agreement obligations, Canadian content restrictions, Canadian licensing
restrictions, and domestic competition policy. On July 15, 1996, the FCC
dismissed WTCI's application, without prejudice, on the ground that the
application was premature because Canada has not yet issued licenses to
Telesat, which will operate the satellite containing the transponders to
which WTCI will uplink. The FCC's order expressly did not address any of
the substantive issues raised by WTCI's application or by the various
petitions to deny WTCI's application that had been received from the
Company's competitors. The FCC indicated, however, that if WTCI refiled its
application, it would take into account concerns raised by the Executive
Branch Letter with respect to the application.
WTCI filed a petition seeking reconsideration on the ground that,
although a formal license has not been issued, Industry Canada has in fact
issued all the pre-launch authority it customarily grants to satellite
applicants and that Telesat has received from Industry Canada its standard
support in principle for its proposal. In addition, WTCI notes that none of
the concerns raised by the Executive Branch Letter should impede grant of
WTCI's application. There can be no assurance, however, that the FCC
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will respond favorably to the petition. Furthermore, although the Company
believes that WTCI's proposal is in the public interest and fully
consistent with applicable FCC rules and policies (as well as applicable
treaties and international agreements), there can be no assurance that the
FCC will not deny such application on substantive grounds when it
reconsiders the matter, and the Company cannot predict whether WTCI will
ultimately receive the necessary authorizations to operate the planned
uplink station. In addition, although the FCC is not bound by the Executive
Branch Letter or the positions taken therein, the Company cannot predict
whether the Executive Branch Letter or any subsequent actions taken by such
other government departments will affect the outcome at such time as the
FCC considers WTCI's application on its merits. See "Risk Factors -- Risks
---------------------
of Adverse Government Regulations and Adjudications."
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Construction of the Company Satellites is substantially completed.
While no assurance can be given as to the specific launch date, the Company
expects that the first Company Satellite will be launched in December 1996
by ILS on behalf of LKE, using a Proton vehicle, and that the second
Company Satellite will be launched by ILS on behalf of Lockheed-Martin
using an Atlas IIA vehicle in early 1997.
Under Tempo's Satellite Construction Agreement with Loral, Loral is
committed to supply to Tempo a total of five high power satellites
(including the Company Satellites) and other items relating to such
satellites. The Satellite Construction Agreement requires Tempo to pay a
fixed price for the delivery of the Company Satellites and an additional
charge for the purchase of the remaining three satellites. Company
Satellite No. 3, which, subject to consummation of the Telesat Transaction,
has been designated for the 119 degrees W.L. orbital position pursuant to
Tempo's Construction Permit with the FCC, is scheduled to be launched by
May 1998. The fourth satellite is also scheduled to be available for launch
by May 1998 and the fifth satellite is scheduled to be available for launch
by December 1998. In the event of a launch failure affecting either of the
Company Satellites, another satellite to be built by Loral under the
Satellite Construction Agreement could be made available as a replacement,
subject to FCC approval. See "Risk Factors -- Risks of Satellite Defect,
------------------------------------------
Loss or Reduced Performance." Subject to certain limits, Loral must
----------------------------
reimburse Tempo for Tempo's actual and reasonable expenses directly
incurred as a result of any delays in the delivery of satellites.
Pursuant to the Satellite Construction Agreement, following the launch
of a satellite, Loral will conduct in-orbit testing. Delivery of a
satellite takes place upon Tempo's acceptance of such satellite after
completion of in-orbit testing ("Delivery"). The in-orbit useful life of
each satellite is designed to be a minimum of 12 years. If in-orbit testing
confirms that the satellite conforms fully to specifications and the
service life of the satellite will be at least 12 years, Tempo is required
to accept the satellite. If in-orbit testing determines that the satellite
does not fully conform to specifications but at least 50% of its
transponders are functional and the service life of the satellite will be
at least six years, Tempo is required to accept the satellite but is
entitled to receive a proportionate decrease in the purchase price. If
Loral fails to deliver a satellite, it has 29 months to deliver, at its own
expense, a replacement satellite. Loral may make four attempts to launch
the two Company Satellites; however, if the two Company Satellites are not
delivered in such four attempts, Tempo may terminate the Satellite
Construction Agreement. Tempo also may terminate the contract in the event
of two successive satellite failures.
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Loral has warranted that, until the satellites are launched, the
satellites will be free from defects in materials or workmanship and will
meet the applicable performance specifications. In addition, Loral has
warranted that all items other than the satellites delivered under the
Satellite Construction Agreement will be free from defects in materials or
workmanship for one year from the date of their acceptance and will perform
in accordance with the applicable performance specifications. Loral bears
the risk of loss of the Company Satellites until Delivery. Upon Delivery,
title and risk of loss pass to Tempo. However, Loral is obligated to carry
risk insurance on each satellite covering the period from the launch of the
satellite through an operating period of 180 days. Such risk insurance will
cover (i) the cost of any damages due under the Satellite Construction
Agreement; (ii) the cost of delivery of a replacement satellite in the
event of a satellite failure; and (iii) the refund of the full purchase
price for each undelivered Company Satellite if Loral fails to deliver both
Company Satellites after four attempts. Loral is also required to obtain
insurance indemnifying Tempo from any third party claims arising out of the
launch of a satellite.
In accordance with the Satellite Purchase Agreement, pursuant to which
Telesat will purchase the Company Satellites from Tempo, Telesat will pay
an amount equal to the total cost of constructing, launching and placing
into orbit the Company Satellites, including capitalized interest and other
financing costs relating thereto (the "Satellite Purchase Price"). At the
closing of the sale of each Company Satellite, in accordance with the
Operating Services Agreement, the Company, by assignment from TCITV, will
purchase 27 of the 32 transponders on such Company Satellite, for an
initial payment equal to one-half of 27/32nds of the Satellite Purchase
Price for such Company Satellite, which payment will be offset against the
Satellite Purchase Price to be paid at that closing by Telesat. Thereafter,
the Company will pay Telesat a quarterly operating fee for use of the
transponders, including charges for in-orbit insurance and tracking,
telemetry and control of the Company Satellites. The aggregate operating
fee per quarter is fixed for the first 48 quarters, subject to adjustment
based on the actual Satellite Purchase Price for the Company Satellites. If
the Company continues to use the transponders after 48 quarterly payments
have been made, the Company will make quarterly payments to Telesat at a
rate equal to about one-fourth of the previous quarterly payments.
COMPETITION
The business of providing subscription and pay television programming
is highly competitive. The Company faces competition from numerous other
companies offering video, audio and data products and services. The
Company's existing and potential competitors comprise a broad range of
companies engaged in communications and entertainment, including cable
operators, other digital satellite program providers, wireless cable
operators, television networks and home video products companies, as well
as companies developing new technologies. Many of the Company's competitors
have greater financial, marketing and programming resources than the
Company. The Company expects that quality and variety of programming,
quality of picture and service and cost will be the key bases of
competition. See "Risk Factors -- Competitive Nature of Industry."
----------------------------------------------
Cable Television. Cable television is currently available for purchase
by as much as 97% of the approximately 96 million U.S. television
households. The cable television industry is an established
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provider of multichannel programming, with approximately 66% of total U.S.
television households subscribing. Cable systems typically offer 25 to 78
channels of programming at an average monthly subscription price of
approximately $33.
The Company expects to encounter a number of challenges in competing
with cable television providers. First, cable television providers benefit
from their entrenched position in the domestic consumer marketplace.
Second, satellite television systems generally have not found it efficient
to provide any local broadcast programming and, under the Satellite Home
Viewer Act of 1994, cannot provide broadcast network programming to
subscribers except (i) in the grade contour of the particular station
broadcast and (ii) in those limited areas where network programming is
unavailable through local affiliates. Accordingly, most PRIMESTAR(R)
subscribers cannot obtain such programming without utilizing a standard
television antenna (traditional rooftop or set-top antenna) or purchasing
some level of cable service. Third, since reception of digital satellite
signals requires clear line of sight to the satellite, it may not be
possible for some households served by cable to receive PRIMESTAR(R) as a
result of large adjacent structures or other obstacles. In addition to
households lacking a clear line of sight to the satellite, PRIMESTAR(R) is
not available to households in apartment complexes or other multiple
dwelling units that do not facilitate or allow the installation of
satellite television equipment. Fourth, because IRDs are significantly more
expensive than analog cable converters, existing cable operators are able
to offer their subscribers the ability to have fully functional cable on
multiple television sets in a household without additional cost.
The Company believes, however, that it can successfully compete with
cable television providers. While cable companies currently serve a
majority of the U.S. television market, the Company believes many may not
be able to provide the quality and variety of programming offered by
digital satellite service providers until they significantly upgrade their
coaxial systems. Many cable television providers are in the process of
upgrading their systems and other cable operators have announced their
intentions to make significant upgrades. Many proposed upgrades, such as
conversion to digital format, fiber optic cabling, advanced compression
technology and other technological improvements, when fully completed, will
permit cable companies to increase channel capacity, thereby increasing
programming alternatives, and to deliver a better quality signal. However,
although cable companies may offer digital service without major rebuilds
and the first such offerings are expected in late 1996, other upgrades can
require substantial investments of capital and time to complete industry-
wide. As a result, the Company believes that there will be a substantial
delay before cable systems can offer programming services equivalent to
digital satellite television providers on a national basis and that some
cable systems may never be upgraded.
The Company believes that its current strategy of targeting rural and
other unpassed or underserved communities which may avoid head-to-head
competition with major cable television systems, partially offsets the
cable industry's entrenched position in the domestic consumer marketplace.
The Company also believes that anticipated advances of cable television,
such as interactivity and expanded channel capacity, may not be widely
available in the near term at a reasonable cost to the consumer. Moreover,
if the substantial capital costs of those advances, when available, are
passed on to the consumer, it will ultimately enhance the attractiveness of
digital satellite television programming.
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Other Digital Satellite Service Providers. In addition to the Company,
several other companies offer, or are expected to offer, digital satellite
services and are, or will be, positioned to compete with the Company for
home satellite subscribers.
DirecTv successfully launched its first satellite in December 1993,
its second satellite in August 1994 and a third satellite in June 1995 as
an in-orbit spare. The third satellite might also be operated by DirecTv to
provide additional capacity. DirecTv's satellites, which are high power
satellites, are located at 101degree W.L. DirecTv operates 27 transponders
on each of its existing satellites, enabling it to offer over 175 channels
of digital programming. As of July 31, 1996, according to trade
publications, DirecTv served approximately 1.8 million Authorized Units.
AT&T Corp. ("AT&T") and DirecTv have entered into an exclusive
agreement for AT&T to market and distribute DirecTv's DBS service and
related equipment to AT&T's large customer base. As part of the agreement,
AT&T is making an initial investment of approximately $137.5 million to
acquire 2.5% of the equity of DirecTv with an option to increase its
investment up to 30% over five years. This agreement provides a significant
base of potential customers for the DirecTv DBS system and allows AT&T and
DirecTv to offer customers a package of digital entertainment and
communications services. As a result, the Company is at a competitive
disadvantage marketing to these customers. AT&T and DirecTv also announced
plans to jointly develop new multimedia services for DirecTv under the
agreement. In addition, affiliates of the National Rural Telecommunications
Cooperative have acquired territories in rural areas of the U.S. as
distributors of DirecTv programming.
USSB owns and operates five transponders on DirecTv's first satellite
and offers a programming service separate from DirecTv's service, with, as
of December 31, 1995, over 25 channels of premium video programming not
available from DirecTv. Approximately one-half of DirecTv's 1.8 million
Authorized Units receive USSB programming. In addition, USSB has a
construction permit from the FCC that would allow it to build and launch
two high power DBS systems, one at 110 degrees W.L. (with three
transponders) and one at 148 degrees W.L. (with eight transponders). The
110 degrees W.L. orbital location would enable USSB to provide a second
high power DBS service to the continental U.S., although with limited
channel capacity. The 148 degrees W.L. slot would allow USSB to transmit
signals to viewers in Alaska and Hawaii and could provide programming
between the U.S. and the Pacific Rim.
EchoStar launched a high power satellite in December 1995, commenced
national broadcasting of programming channels in March 1996 and, as of June
30, 1996, broadcasts over 100 such channels. It is expected to increase its
program offering to approximately 125 channels when its system is fully
operational. EchoStar was assigned 11 transponders at 119 degrees W.L., the
same orbital location as Tempo, and acquired 10 transponders at such
location, one transponder at 110 degrees W.L. and 11 transponders at 175
degrees W.L. through a merger with DirectSat Corporation. In addition,
EchoStar acquired 24 frequencies at 148 degrees W.L. for $52.3 million in
an FCC auction held in January 1996 for 28 frequencies at the 110 degrees
W.L. orbital location and 24 frequencies at the 148 degrees W.L. orbital
location (the "FCC Auction").
MCI acquired the 28 frequencies at 110 degrees W.L. in the FCC Auction
for $682.5 million. Thereafter, MCI entered into a joint venture with News
Corp. to build and launch a high power digital
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satellite system at 110 degrees W.L. The Company expects the MCI/News Corp.
joint venture to commence broadcasting operations of 175 programming
channels by the end of 1997.
Alphastar commenced offering approximately 150 digital video and audio
channels of programming via a medium power FSS satellite in mid-1996 and
plans to expand to 200 channels by the end of 1997. The Alphastar service
uses MPEG 2/DVB digital compression technology. Alphastar subscribers must
generally use 36 inch satellite dishes, similar in size to those currently
used by PRIMESTAR(R) subscribers.
In addition, potential competitors may provide television programming
at any time by leasing transponders from an existing satellite operator.
However, the number of transponders available for lease on any one
satellite is generally limited, making it difficult to provide sufficient
channels of programming for a viable system.
The Company believes that it can successfully compete with other
digital satellite service providers. Unlike other current suppliers of
digital satellite television, the Company does not require customers to buy
satellite reception equipment. PRIMESTAR By TCI is marketed as a service,
with programming, equipment rental, maintenance, 24-hour customer service,
included in the monthly price, which currently ranges from $32.99 to
$54.99. In addition, each of the PRIMESTAR By TCI programming packages
includes a free monthly programming guide. The up-front costs to new
subscribers of PRIMESTAR By TCI, who are charged only an installation fee
and the first month's programming and equipment rental fees, are generally
lower than the up-front costs to new subscribers of PRIMESTAR(R)'s
competitors, who typically must purchase and install an HSD, IRD and
related equipment. Moreover, since the Company generally owns, services and
installs all home reception equipment, the Company protects its subscribers
from the inconvenience of equipment failure, maintenance concerns, obsolete
technology, self-installation and expired warranties. The Company believes
that when the cost of equipment is factored in, its service is priced
competitively, compared to the respective prices of other current digital
satellite service providers.
C-band Satellite Program Distributors. The Company also competes with
C-band satellite program distributors, such as Netlink USA ("Netlink") and
the Superstar Satellite Entertainment division of United Video Satellite
Group, Inc. ("UVSG"). Netlink is a subsidiary of TCI and a member of the
Liberty Media Group. UVSG is a consolidated subsidiary of TCI that is
included within the TCI Group in which TCI owns 40.5% of the outstanding
shares of common stock (representing 85.5% of the voting power of such
shares). TCI's interests in the C-band satellite business are not being
transferred to the Company in connection with the Distribution.
C-band systems have been popular, (mostly in rural and semi-rural
areas) since the late 1970s, and in the aggregate serve approximately 2.1
million subscribers. However, digital satellite television systems use Ku-
band frequencies that can be received by less expensive systems with
significantly smaller dishes than those used with C-band frequencies. As a
result of the smaller dish size, digital satellite television systems are
more widely accepted by consumers than C-band systems, particularly in
urban areas.
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Wireless Cable Systems. Other potential competitors of the Company are
multi-channel multi-point distribution systems ("MMDS"), which deliver
programming services over microwave channels to subscribers with special
antennas, and other so-called "wireless cable" systems. According to
Wireless Cable Association International, there are currently an estimated
190 wireless cable systems operating in the U.S., serving an estimated
950,000 subscribers, mostly with limited channel, analog service. However,
the number of wireless cable systems is likely to increase as virtually all
markets have been licensed or tentatively licensed, and developments in
digital compression technology will significantly increase the number of
channels and video and audio quality of wireless cable systems. Moreover,
wireless cable systems may provide their customers with local programming,
a potential advantage over digital satellite television systems. In 1995,
several large telephone companies acquired significant ownership in
numerous wireless cable companies. This infusion of money into the wireless
cable industry can be expected to accelerate its growth and its competitive
impact. However, while it is expected that most large wireless operators
backed by local telephone companies will upgrade to digital technology over
the next several years, such upgrades will require the installation of new
digital decoders in customers' homes and modifications to transmission
facilities, at a potentially significant cost. Wireless cable also requires
direct line of sight from the receiver to the transmitter tower, which
creates the potential for substantial interference from terrain, buildings
and foliage.
Telephone Companies. In addition to the DBS system planned by the
MCI/News Corp. joint venture and AT&T's agreement with, and investment in,
DirecTv, certain regional telephone companies and other long distance
telephone companies could become significant competitors in the future, as
they have expressed an interest in becoming subscription television
providers. Furthermore, legislation recently passed by Congress removes
barriers to entry which previously inhibited, or made it more difficult,
for telephone companies to compete in the provision of video programming
and information services, and certain telephone companies have received
authorization to test market video and other services in certain geographic
areas using fiber optic cable and digital compression over existing
telephone lines. However, any telephone company desiring to become a DBS
provider still needs to obtain an FCC license for an available orbital
location, and in order to offer video service, telephone companies may be
required to receive local regulatory approval (i.e., a franchise) similar
to cable operators. Estimates for the timing of wide-scale deployment of
such multichannel video service vary, as several telephone companies have
pushed back originally announced deployment schedules.
As more telephone companies begin to provide cable programming and
other information and communications services to their customers,
additional significant competition for subscribers will develop. Among
other things, telephone companies have an existing relationship with
substantially every household in their service area, substantial financial
resources, and an existing infrastructure and may be able to subsidize the
delivery of programming through their position as the sole source of
telephone service to the home.
VHF/UHF Broadcasters. Most areas of the U.S. are covered by
traditional territorial over-the-air VHF/UHF broadcasters. Consumers can
receive from three to ten channels of over-the-air programming in most
markets. These stations provide local, network and syndicated programming
free of charge, but
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each major market is generally limited in the number of programming
channels. Congress is expected to consider the release of additional
digital spectrum for use by VHF/UHF broadcasters later this year.
CERTAIN AGREEMENTS
The Company is subject to the provisions of certain agreements that
may limit the ability of the Company to engage in, or invest in entities
that engage in, certain businesses, other than through the Partnership.
Tag-Along Agreement. The Company is a party to the Tag-Along
Agreement, originally entered into by and among Cox Enterprises, Inc.,
Comcast, Continental and Newhouse (subsidiaries of each of which are
partners of the Partnership), Tempo, TCIC and TCI Development Corporation,
a subsidiary of TCIC. The Tag-Along Agreement provides that if any party to
the agreement, directly or indirectly through any person controlled by such
party (an "Investing Party"), engages in, or makes an equity investment in
any entity engaging or proposing to engage in, the business of providing
television programming by uplink to BSS or higher frequency domestic
satellite transponders, or otherwise becomes entitled to exercise a
management role with respect to any such entity, at any time that such
party or a person controlled by such party is a partner in the Partnership,
or within one year after it ceases to be a partner, then, subject to
certain exceptions, such party shall provide the other parties with a
written offer to participate in such investment or other transaction on
terms and conditions comparable to those available to the Investing Party,
pro rata in accordance with their respective percentage interests in the
Partnership at the time of such offer. The Tag-Along Agreement further
provides that a party transferring assets to an affiliate of such party
must cause such affiliate to become a party to the Tag-Along Agreement. The
Tag-Along Agreement will terminate upon the termination or dissolution of
the Partnership, or, if earlier, when the parties to the Tag-Along
Agreement and their affiliates cease to be partners of the Partnership.
Partnership Agreement Provisions Regarding Investments in Similar
Businesses. The PRIMESTAR Partnership Agreement provides, among other
things, that if any partner, or an affiliate of a partner, engages in, or
makes an equity investment in any entity engaging or proposing to engage
in, the business of providing television programming by uplink to FSS, BSS
or higher frequency domestic satellite transponders, directly or indirectly
to HSDs, or otherwise becomes entitled to exercise a management role with
respect to any such entity, then such partner (the "Notifying Partner")
shall be required to give notice of such investment or other transaction to
the Partnership and the other partners, and the Partnership, by vote of the
Partners Committee, with the Notifying Partner abstaining, shall have the
right, but not the obligation, to elect one of the following remedies: (i)
to remove the Notifying Partner's representative from the Partners
Committee, in which case the Notifying Partner will no longer be entitled
to make capital contributions to the Partnership (above its initial capital
commitment) or to receive any financial or other information about the
Partnership, other than audited year-end financial statements and tax-
related information; or (ii) to purchase the Notifying Partner's entire
interest in the Partnership for a purchase price equal to the fair market
value thereof, payable in cash or, at the option of the Partnership, for a
combination of cash and a three-year promissory note. Notwithstanding the
foregoing, the Partnership will not have the right to exercise either of
the remedies provided for in the
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immediately preceding sentence if the Notifying Partner, or its affiliate,
acquires an equity interest in an entity that engages in, or proposes to
engage in, the business of uplinking television programming to BSS or
higher frequency domestic satellite transponders, and the Partnership does
not then uplink its programming to BSS or higher frequency transponders and
does not, within 120 days thereafter, make a commitment to such
transmission method comparable to the commitment of such other entity. The
Partnership will also not have the right to exercise either of such
remedies if the Notifying Partner, or its affiliate, offers each other
partner who did not vote against the Partnership making a commitment to
such transmission method, or its affiliate, an opportunity to participate
with the Notifying Partner or its affiliate in its equity interest in such
BSS business.
EMPLOYEES
The Company had approximately 1,500 employees as of June 30, 1996.
None of the Company's employees are represented by a union and the Company
believes its employee relations are good.
TCI currently provides certain administrative and other services to
the Company, including (i) tax reporting, financial reporting, payroll,
employee benefit administration, workers' compensation administration,
telephone, fleet management, package delivery, management information
systems, billing, lock box, remittance processing and risk management
services, (ii) other services typically performed by TCI's accounting,
finance, treasury, corporate, legal, tax, benefits, insurance, facilities,
purchasing, fleet management and advanced information technology
departments, (iii) use of telecommunications and data facilities and of
systems and software developed, acquired or licensed by TCI from time to
time for financial forecasting, budgeting and similar purposes, including
without limitation any such software for use on personal computers, in any
case to the extent available under copyright law or any applicable third-
party contract, (iv) ancillary marketing support services, including,
without limitation, provision of market research regarding competitive
information, and (v) various other management, supervisory, strategic
planning and other support services. See "Arrangements Between TCI and the
--------------------------------
Company After the Distribution -- Transition Services Agreement."
---------------------------------------------------------------
PROPERTIES
The Company owns no real property. The Company has entered into non-
cancelable operating leases for all of its facilities, all of which expire
at various times through 2001. The Company believes that such facilities
are in good condition and are suitable and adequate for its business
operations for the foreseeable future.
The following table sets forth certain information concerning the
Company's principal properties as of August 31, 1996:
72
<PAGE>
<TABLE>
<CAPTION>
Approximate
Square Expiration of
Description/Use Location Footage Lease
<S> <C> <C> <C>
Corporate Headquarters....................... Englewood, Colorado 60,471 6/30/2001
National Call Center......................... Englewood, Colorado 50,009 6/30/2001
Northwest Regional Office.................... Lake Oswego, Oregon 3,236 3/31/1997
Northeast Regional Office.................... State College, Pennsylvania 7,073 8/31/2000
Great Lakes Regional Office.................. St. Charles, Missouri 4,300 2/28/1998
South Central Regional Office................ Farmers Branch, Texas 4,328 8/31/1998
Southeast Regional Office.................... Atlanta, Georgia 3,835 1/31/2000 (1)
Stand-Alone Office........................... Hazelhurst, Georgia 2,300 7/1/2000 (1)
Stand-Alone Office........................... Bogart, Georgia 2,400 5/1/1998 (1)
</TABLE>
_________________
(1) The leases for the Southeast Regional Office and the Stand-Alone
Office located in Bogart, Georgia were entered into by TCI of Georgia,
Inc. and the lease for the Stand-Alone Office in Hazelhurst, Georgia
was entered into by TCI Cablevision of Georgia for the use and benefit
of the Company. The Company pays the rent on these facilities.
The Company leases additional properties as field offices to support its
sales force.
LEGAL PROCEEDINGS
The Company is not a party to any litigation, other than certain legal
proceedings in the ordinary course of business that the Company believes
will not have a material adverse effect on the Company's financial position
or results of operations.
73
<PAGE>
REGULATORY MATTERS
GENERAL
Tempo, as the holder of a U.S. DBS permit, and WTCI, as an applicant
for a new facility to uplink signals to satellites to provide DBS service
to the U.S., are subject to the regulatory authority of the FCC.
Authorizations and permits issued by the FCC are required for the operation
of Tempo's satellites and for its and WTCI's uplink facilities that will be
used to transmit signals to such satellites or, if the Telesat Transaction
is consummated, the Company Transponders. As a distributor of DBS
programming, Tempo and its affiliates may also be affected by numerous laws
and regulations, including the Communications Act of 1934, as amended (the
"Communications Act").
Although the non-technical aspects of high power DBS operations are
generally subject to less regulation than terrestrial broadcasting, some
regulations do apply and others are proposed. For example, high power DBS
operators which control the video programs they distribute, and DBS
licensees or permittees which are licensed as broadcasters, are subject to
equal employment opportunity requirements. Regulations proposed by the FCC
(but not yet adopted) include access requirements for Federal political
candidates, limitations on charges for advertising by political candidates
and (subject to the outcome of a pending constitutional challenge) a
requirement that high power DBS providers reserve 4 to 7 percent of channel
capacity for non-commercial programming of an educational and informational
nature.
While Tempo and WTCI have generally been successful to date with
respect to compliance with regulatory matters, there can be no assurance
that they will succeed in obtaining all requisite regulatory approvals for
their operations without the imposition of restrictions on or other adverse
consequences to Tempo, WTCI or the Company.
FCC PERMITS AND LICENSES
Tempo DBS Construction Permit. Tempo holds a Construction Permit
issued by the FCC authorizing construction of two or more satellites to
operate eleven transponders at an orbital location at 119 degrees W.L. and
eleven transponders at an orbital location at 166 degrees W.L. As the
holder of a DBS permit, Tempo is subject to FCC jurisdiction and review
primarily for: (i) authorization of individual satellites (i.e., meeting
minimum financial, legal, and technical standards) and earth stations; (ii)
avoiding interference with other radio frequency transmitters; (iii)
complying with rules the FCC has established specifically for holders of
U.S. DBS authorizations and receivers; and (iv) complying with applicable
provisions of the Communications Act. The FCC's DBS construction permits
are also conditioned on satisfaction of ongoing construction and related
obligations. The FCC's DBS rules require that a DBS permittee place its
satellites in operation within six years following the initial grant of a
construction permit. Tempo's permit was issued in May 1992, and the permit
would expire in May 1998, absent completion of the system or an approved
extension of time. At present, Tempo must continue to demonstrate that it
is exercising due diligence in progressing toward that goal.
74
<PAGE>
Tempo believes it is currently meeting this requirement through the
Satellite Construction Agreement with Loral, which is currently
constructing the Company Satellites and related ground equipment. If the
Company Satellites are sold to Telesat, as described herein, Tempo has
exercised an option with Loral for the delivery of additional satellites
prior to the expiration of its permit to complete its DBS system at 119
degrees W.L. and 166 degrees W.L.
There can be no assurance that Tempo will be able to comply with the
FCC's due diligence obligations or that the FCC will determine that Tempo
has complied with such due diligence obligations. Tempo's permit and its
compliance with construction due diligence requirements have been contested
in FCC proceedings by current and potential DBS competitors, including
MCI/News Corp., DirecTv, EchoStar, USSB, Dominion Video Satellite, Inc. and
Directsat Corporation. If Tempo is unable to meet the terms of its permit,
it would be necessary to apply to the FCC for an extension of time to
complete its DBS system. Tempo cannot be certain that an extension would be
granted.
In addition to the general conditions placed on DBS permits, Tempo's
permit was originally subject to the condition that in areas served by TCI-
affiliated cable systems, Tempo or any related entities shall not offer or
provide its DBS service (1) to subscribers exclusively or primarily as an
ancillary or supplementary cable service; and (2) in a manner that would
allow subscribers of TCI-affiliated cable systems to receive Tempo's DBS
service under terms and conditions different from those offered or provided
to consumers who are not subscribers to TCI-affiliated cable systems.
In a rulemaking proceeding concluded in December 1995, the FCC removed
the marketing conditions set forth above. DirecTv, however, has appealed
the Commission's decision to the U.S. Court of Appeals for the District of
Columbia Circuit, arguing, among other things, that the Commission's
decision to remove the conditions on Tempo's permit was arbitrary and
capricious. Tempo cannot predict whether the Court of Appeals will uphold
the FCC's order.
In July 1995, WTCI filed an application with the FCC for authorization
to construct and operate an earth station to uplink video programming to
Tempo's proposed DBS system utilizing the 119 degrees W.L. orbital slot.
WTCI expects, but cannot assure, that such application will be approved.
In July 1993, Tempo filed an application with the FCC proposing minor
modifications to the technical design of the satellites. Numerous existing
and potential DBS competitors have opposed Tempo's application. Approval by
the FCC of the proposed modifications is necessary before Tempo may launch
the satellites. Tempo expects that the FCC will act on the application when
Tempo notifies it of Tempo's intention to launch the satellites. Tempo
expects, but cannot assure, that the application will be approved.
Near the expected launch date of its satellites, Tempo will file a
request for final launch authority. Tempo will also be required to file an
application for a license to operate its satellites in orbit. Tempo expects
that the FCC will approve these requests, but cannot assure the ultimate
outcome. FCC licenses must be renewed at the end of each ten-year license
term. FCC licenses are generally renewed in the ordinary course, absent
misconduct by the licensee.
75
<PAGE>
Uplink License Application for Telesat Transaction. On March 26, 1996,
WTCI filed an application with the FCC for authorization to construct and
operate an earth station to uplink video programming to Tempo's
transponders on the Company Satellites, which will be launched into a
Canadian DBS orbital location (82 degrees W.L.) pursuant to the Telesat
Transaction. On July 1, 1996, the Executive Branch Letter was filed with
the FCC recommending that the FCC treat the application as premature and
raising concerns regarding the application relating to international
agreement obligations, Canadian content restrictions, Canadian licensing
restrictions, and domestic competition policy. On July 15, 1996, the FCC
dismissed WTCI's application, without prejudice, on the ground that the
application was premature because Canada had not yet issued licenses to
Telesat, which will operate the satellite containing the transponders to
which WTCI intended to uplink. The FCC's order expressly did not address
any of the substantive issues raised by WTCI's application or by the
various petitions to deny WTCI's application that had been received from
the Company's competitors. The FCC indicated, however, that if WTCI refiled
its application, it would take into account concerns raised in the
Executive Branch Letter with respect to the application.
WTCI filed a petition seeking reconsideration of such dismissal on the
grounds that, althougha formal license had not been issued, Industry Canada
had in fact issued all the pre-launch authority it customarily granted to
satellite applicants, and that Telesat had received from Industry Canada
its standard support in principle for its proposal. In addition, WTCI
contended that none of the concerns raised in the Executive Branch Letter
should impede grant of WTCI's application. There can be no assurance,
however, that the FCC will respond favorably to the petition. Furthermore,
although the Company believes that WTCI's proposal is in the public
interest and fully consistent with applicable FCC rules and policies (as
well as applicable treaties and international agreements), there can be no
assurance that the FCC will not deny such application on substantive
grounds when it reconsiders the matter, and the Company cannot predict
whether WTCI will ultimately receive the necessary authorizations to
operate the planned uplink station. In addition, although the FCC is not
bound by the Executive Branch Letter or the positions taken therein, the
Company cannot predict whether the Executive Branch Letter or any
subsequent actions taken by such other government departments will affect
the outcome at such time as the FCC considers WTCI's application on its
merits. See "Risk Factors -- Risks of Adverse Government Regulations and
-----------------------------------------------------------
Adjudications."
-------------
In May 1996, the FCC adopted a notice of proposed rulemaking ("NPRM"),
known as "DISCO II" (an acronym for "Domestic International Satellite
Consolidation Order") which would provide rules governing access by users
in the U.S. to foreign satellite systems. The notice proposes that the FCC
will license uplink stations to foreign satellites only to the extent that
U.S. satellite systems have effective competitive opportunities to provide
similar services in the foreign market. However, the FCC has tentatively
concluded that the proposed policy, if adopted, would be prospective only
and would not apply to applications properly on file before the release of
the NPRM. As stated above, WTCI filed its application prior to the release
of the NPRM, but the FCC dismissed the application without prejudice.
Although WTCI filed a petition for reconsideration of the FCC's decision,
there can be no assurance that the FCC will act favorably on the petition
and there can be no assurance that WTCI's application will not be subject
to the outcome of the DISCO II proceeding.
76
<PAGE>
RECENT FCC ACTIONS
On October 18, 1995, the FCC upheld a decision by its International
Bureau denying a request by Advanced Communications Corporation ("ACC") for
an extension of its construction permit for channels and orbital
assignments at 110 degrees W.L. and 148 degrees W.L. This was the FCC's
first denial of a request for an extension of a construction permit
deadline. The FCC held that an extension of ACC's permit was not warranted
in view of ACC's failure to achieve any concrete progress toward the actual
construction and operation of its DBS system. ACC's appeal of the decision
to the U.S. Court of Appeals for the District of Columbia Circuit was
denied. A petition for rehearing en banc filed by ACC was also denied.
In a rulemaking proceeding concluded in December 1995, the FCC
announced that it would auction the orbital slots previously held by ACC.
In adopting an auction, the FCC abandoned its previous policy of
reassigning DBS channels through a method of pro rata distribution to other
DBS permittees, without charge. EchoStar and DirecTv appealed the FCC's
decision to the U.S. Court of Appeals for the District of Columbia Circuit.
The case is scheduled for oral argument on October 1, 1996, and its outcome
cannot be predicted. In January 1996, the FCC auctioned 28 channels at 110
degrees W.L. to MCI for $682.5 million, and 24 channels at 148 degrees W.L.
to EchoStar for $52.3 million.
In the December rulemaking, the FCC also adopted several new service
rules for U.S.-licensed DBS operators. The FCC established a requirement
that all new DBS permittees provide service to Alaska and Hawaii if such
service is technically feasible. The FCC also required that all existing
U.S.-licensed DBS permittees provide service to Alaska and Hawaii from at
least one of their currently assigned orbital positions. Finally, the FCC
revised its rules with respect to the use of DBS systems to provide non-DBS
services. The revised rules are expected to make it easier for DBS
permittees to use portions of their satellite capacity for non-DBS services
such as data transfer. Tempo cannot predict how application of these rules
will effect its operations, or the operations of its competitors.
THE TELECOMMUNICATIONS ACT OF 1996
The Telecommunications Act of 1996 ("1996 Telecom Act") clarifies
that the FCC has exclusive jurisdiction over high power DBS service, and
that criminal penalties may be imposed for piracy of high power DBS
signals. The 1996 Telecom Act also preempted local (but not state)
governments from imposing taxes or fees on direct-to-home services,
including DBS, and directed the FCC to promulgate regulations prohibiting
local (including state) governments from maintaining zoning regulations
that restrict the use of DBS receive-only dishes in residential areas. The
FCC has adopted rules it believes comply with the statutory requirement
regarding zoning issues. Finally, the 1996 Telecom Act required that
multichannel video programming distributors such as DBS operators scramble
or block channels providing indecent or sexually explicit adult
programming.
77
<PAGE>
EXPORT REGULATION
Export licensing authorization from either the Department of Commerce
or the Department of State is required for the transport of satellites to
certain foreign countries, including Kazakhstan, the proposed launch site
for the first Company Satellite, and for the exchange of certain
information necessary to prepare the satellites for launch. Although the
Company has been advised by Loral that Loral has received export licensing
authorization from the Department of State with respect to the launch of
the first Company Satellite, there can be no assurance that additional
export licensing authorization from the Department of Commerce will not be
required in connection with such launch. In addition, future launches may
require separate export licensing authorization.
ANTITRUST DECREES
PRIMESTAR Partners and the partners of the Partnership named in the
actions described below are subject to the jurisdiction of the U.S.
District Court for the Southern District of New York to ensure compliance
with two antitrust consent decrees. In United States v. PRIMESTAR Partners,
------------------------------------
L.P., et al., 93 Civ. 3913 (SDNY, 1993) (the "Federal Decree"), the
------------
Partnership and such partners agreed to refrain from (i) enforcing any
provisions of the PRIMESTAR Partnership Agreement that affect the
availability, price, terms or conditions of sale of programming to any
provider of multichannel subscription television or (ii) entering into
certain other agreements restricting the availability of programming
services. The Federal Decree expires in April 1999. In The States of New
-----------------
York, et al. v. PRIMESTAR Partners, L.P., et al., 93 Civ. 3068-3907
------------------------------------------------
(SDNY, 1994) (the "State Decree" and, together with the Federal Decree, the
"Decrees"), the Partnership and such partners agreed, among other things,
to provide access to certain related programming services on reasonable
terms to other digital satellite service and MMDS providers, to make
certain changes to PRIMESTAR Partners' management structure and the
PRIMESTAR Partnership Agreement, and to limit the use of exclusive
programming agreements. The State Decree expires in part in October 1997,
with the remainder expiring on or before October 1, 1999. The Company was
not named as a defendant in either of the above actions, but may be subject
to certain provisions of one or both of the Decrees as a successor-in-
interest to TCI K-1, Inc. and United Artists K-1 Investments, Inc.,
indirect subsidiaries of TCI that were original partners in PRIMESTAR
Partners and named defendants in the actions. The Company believes that it
is currently in compliance with the Decrees in all material respects and
that the Decrees do not currently have a material adverse effect on the
Company or its operations.
78
<PAGE>
79
<PAGE>
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are expected to serve as directors and executive
officers of the Company as of the date of the Distribution:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------ ---------- ------------------------------------------------
<S> <C> <C>
Gary S. Howard 45 President and Chief Executive Officer; Director
Kenneth G. Carroll 41 Senior Vice President and Chief Financial Officer
Lloyd S. Riddle III 35 Senior Vice President and Chief Operating Officer
Christopher Sophinos 44 Senior Vice President
William D. Myers 38 Vice President and Treasurer
John C. Malone 55 Director
David P. Beddow 52 Director
William E. Johnson 55 Director
John W. Goddard 55 Director
</TABLE>
The following is a five-year employment history for the directors and
executive officers of the Company, including any directorships held in
public companies. It is contemplated that Mr. Howard will terminate his
position as Senior Vice President of TCIC effective on the date of the
Distribution.
Gary S. Howard has served as Senior Vice President of TCIC since
October 1994 and President of the Company since February 1995. Mr. Howard
served as Vice President of TCI from December 1991 through October 1994 and
as Senior Vice President of United Artists Entertainment Company from June
1989 to December 1991.
Kenneth G. Carroll has served as Senior Vice President and Chief
Financial Officer of the Company since February 1995. Since December 1994,
Mr. Carroll has served as Vice President of TCI K-1, Inc. and as Vice
President of United Artists K-1 Investments, Inc. From April 1994 through
January 1995, Mr. Carroll served as Vice President of Business Operations
and Chief Financial Officer of Netlink and from July 1992 to May 1994, Mr.
Carroll served as Senior Director of Finance and Business Operations of
Netlink. From 1990 to July 1992, Mr. Carroll served as Vice President of
Finance of Midwest CATV.
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<PAGE>
Lloyd S. Riddle III has served as Senior Vice President and Chief
Operating Officer of the Company since February 1995. Mr. Riddle served as
State Manager of TCI of New York from February 1993 to February 1995, Area
Manager of TCI of Iowa from January 1992 to February 1993 and General
Manager of TCI of St. Charles, MO from January 1990 to January 1992.
Christopher Sophinos has served as Senior Vice President of the
Company since February 1996. Mr. Sophinos has served as the President of
Boats Unlimited since November 1993 and as a director of Sophinos & Sons,
Inc. since November 1993. Mr. Sophinos served as the President of Midwest
CATV, a division of UNR Industries, Inc., from July 1987 to November 1993.
William D. Myers has served as Vice President of TCI Cable Management
Corporation since November 1994. Mr. Myers served as Director of Finance of
TCI from December 1991 to November 1994 and Director of Finance for United
Artists Entertainment Company from September 1990 to December 1991.
John C. Malone has served as Chief Executive Officer and President of
TCI since January 1994. Dr. Malone served as Chief Executive Officer of
TCIC from March 1992 to October 1994 and as President of TCIC from 1973 to
October 1994. Dr. Malone has also served as Chairman of the Board and as a
director of Tele-Communications International, Inc. since May 1995. Dr.
Malone is also a director of TCI, TCIC, Turner Broadcasting System, Inc.,
BET Holdings, Inc., Home Shopping Network, Inc. and The Bank of New York.
David P. Beddow has served as Senior Vice President of TCITV since
February 1995. Mr. Beddow served as Vice President of TCI Technology, Inc.
from June 1993 to February 1995 and as Executive Vice President and Chief
Operating Officer of PRIMESTAR Partners from March 1990 to June 1993. Mr.
Beddow has served as a director of United Video Group, Inc. since January
1996.
William E. Johnson served as Chief Executive Officer for Scientific
Atlanta, Inc. from January 1987 to December 1992, at which time he retired.
Mr. Johnson has served as a director of Intelligent Electronic, Inc. since
November 1994 and as a director of ATX, Inc. since January 1993. Mr.
Johnson was a director of I.C.T. from 1991 to 1993.
John W.Goddard served as President and Chief Executive Officer of the
cable division of Viacom International, Inc. from 1980 through July, 1996,
at which time he retired. Mr Goddard has served as a director of StarSight
Telecast, Inc. since May 1994.
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 be elected
to serve in such capacities until the next annual meeting of the Company
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. There is no family relationship between any of the
directors.
BOARD COMPOSITION
The Company's Charter provides for a classified Board of Directors of
not less than three members, with the exact number of directors to be fixed
by resolution of the Company Board. The Company Board currently consists of
five members. For purposes of determining their terms, directors are
divided into three classes. The Class I director, whose term expires at the
1997 annual stockholders' meeting, is Mr. Beddow. The Class II directors,
whose terms expire at the 1998 annual stockholders' meeting, are Messrs.
Howard and Johnson. The Class III directors, whose terms expire at the 1999
annual stockholders' meeting, are Dr. Malone and Mr. Goddard. Each director
elected at an annual stockholders' meeting will serve for a term ending on
the date of the annual stockholders' meeting held in the third year
following the year of his election or until his earlier death, resignation
or removal.
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<PAGE>
COMMITTEES OF THE COMPANY BOARD
The Company Board will establish an Audit Committee and a Compensation
Committee.
The Audit Committee of the Board, whose members will be Messrs.
Goddard (Committee Chairman) and Johnson, will consist of only non-employee
directors. The Audit Committee will meet periodically with management and
representatives of the Company's independent auditors. The Audit Committee
will review the scope and approach of external audit activities and the
results of such audits and will be responsible for making the annual
recommendation to the Company Board of the firm of independent accountants
to be retained by the Company to perform the annual audit.
The Compensation Committee, whose members will be Messrs. Johnson
(Committee Chairman) and Goddard, will consist of only non-employee
directors. The Compensation Committee will be responsible for recommending
the salaries and compensation programs for executive officers to the
Company Board. This committee will also be responsible for administering
the Company's stock incentive plan and certain other benefit programs. None
of the members of the Compensation Committee will be entitled to
participate in any of the Company's employee benefit plans administered by
the Compensation Committee.
The Company Board may from time to time establish certain other
committees of the Company Board and may fill any vacancies on any committee
of the Company Board as it deems advisable.
COMPENSATION OF DIRECTORS
Members of the Company Board who are also full-time employees of the
Company or TCI, or any of their respective subsidiaries, will not receive
any additional compensation for their services as directors. Directors who
are not full-time employees of the Company or TCI, or any of their
respective subsidiaries, will receive a retainer of $10,000 per year. All
members of the Company Board will also be reimbursed for expenses incurred
to attend any meetings of the Company Board or any committee thereof.
In addition, the Company Board, the TCI Board and TCI, as the
Company's sole stockholder prior to the Distribution, are expected to
approve on or before the Distribution Date, a stock option plan pursuant to
which members of the Company Board who are not employees of the Company
shall be granted options to purchase Series A Common Stock. The 1996
Nonemployee Director Stock Option Plan (the "Nonemployee Director Plan") is
intended to provide directors of the Company who are not employees with an
incentive for their continued service on the Company Board. A total of
[_______] shares of Series A Common Stock have been reserved for issuance
under the Nonemployee Director Plan.
The Nonemployee Director Plan provides that each director who is not
an employee of the Company or any subsidiary of the Company (any such
director hereinafter referred to as a "Nonemployee Director") as of the
date 20 business days after the Distribution Date (the "Determination
Date") shall automatically be granted options to purchase [_______] shares
of Series A Common Stock
82
<PAGE>
on the Determination Date. Thereafter, each individual who becomes a
Nonemployee automatically be granted options to purchase [_______] shares
of Series A Common Stock on the date such person first becomes a
Nonemployee Director. The exercise price of an option will be equal to the
fair market value of the stock on the date of grant.
All shares granted under the Nonemployee Director Plan are subject to
adjustments which shall be made for, among other things, a merger,
recapitalization, reorganization, stock dividend, stock split or other
similar change affecting the number of outstanding shares of Series A
Common Stock of the Company. Each option granted pursuant to the
Nonemployee Director Plan will terminate upon the earliest to occur of (i)
the expiration of ten years following the date upon which the option is
granted; (ii) the expiration of one year following the date upon which the
optionee ceases to be a director for any reason other than voluntary
termination of director status; or (iii) the expiration of three months
following the date on which the optionee voluntarily ceases his status as a
director. Options granted pursuant to the Nonemployee Director Plan are
exercisable, on a cumulative basis, as follows: (i) with respect to 20% of
the total number of shares of Series A Common Stock initially subject to
any option, such option shall be exercisable on the first anniversary of
the date of grant; and (ii) with respect to the remaining shares of Series
A Common Stock subject to any option, such option shall be exercisable with
respect to an additional 20% of the total number of shares initially
subject thereto as of the second, third, fourth and fifth anniversaries of
the date of the grant. An option may be exercised solely by the optionee
during his lifetime or after his death by the person or persons entitled
thereto under his will or the laws of descent and distribution. Generally,
in the event that an optionee voluntarily ceases his or her status as a
director, an option granted to such optionee may be exercised only to the
extent such option was exercisable at the time he or she ceased to serve in
such capacity. In the event that an optionee ceases to serve as a director
for any reason other than voluntary termination of director status, at a
time when an option granted under the Nonemployee Director Plan is still in
force and unexpired, each such unmatured option shall be accelerated. Such
acceleration shall be effective as of the date of termination of director
status and each option so accelerated shall be exercisable in full for so
long as it is still in force and unexpired under the terms of the
Nonemployee Director Plan. Upon the occurrence of a change in control, all
options previously granted and still in force and unexpired under the terms
of the Nonemployee Director Plan shall be accelerated effective as of such
change in control.
It is expected that there will be no other arrangements whereby any
of the Company's directors shall receive compensation for services as a
director during 1996 in addition to or in lieu of that specified by the
arrangements described above.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth information relating to compensation
from the Company (or from TCI or any other subsidiary of TCI) to the
Company's Chief Executive Officer and each of the next most highly
compensated executive officers of the Company other than the Company's
Chief Executive Officer, for services rendered in all capacities to TCI.
83
<PAGE>
The following table is a summary of all forms of compensation paid to
the officers named therein for such services for the fiscal year ended
December 31, 1995 (total of four persons).
SUMMARY COMPENSATION TABLE FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ----------------
RESTRICTED
OTHER ANNUAL STOCK SECURITIES
NAME AND PRINCIPAL POSITION WITH THE COMPENSATION AWARD UNDERLYING ALL OTHER
COMPANY SALARY ($) BONUS ($) ($)(1) ($)(2) OPTIONS/SARS(3) COMPENSATION ($)(4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gary S. Howard (President $262,500 $23,210(5) $ 3,415 $309,375 150,000 $15,000
and Chief Executive Officer)
Lloyd S. Riddle III (Senior Vice
President $123,078 $34,478 $ 1,557 -- 17,500 $13,439
and Chief Operating Officer)
Kenneth G. Carroll (Senior Vice
President $ 98,845 $27,199 $ 861 -- 17,500 $ 3,668
and Chief Financial Officer)
William D. Myers (Vice President and $108,130 -- $ 2,425 -- 10,000 $ 8,839
Treasurer)
</TABLE>
_____
(1) Consists of amounts reimbursed during the year for the payment of
taxes.
(2) Pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan
(the "TCI 1994 Plan"), on December granted 15,000 13, 1995, Gary S.
Howard was restricted shares of Series A TCI Group Common Stock. Such
restricted shares vest as to 50% of such shares on December 13, 1999
and as to the remaining 50% on December 13, 2000. The value of such
restricted shares at the end of 1995 was $298,125. TCI has not paid
cash dividends on the Series A TCI Group Common Stock and does not
anticipate declaring and paying cash dividends on the Series A TCI
Group Common Stock at any time in the foreseeable future.
(3) For additional information regarding this award, see "-- Option and
-------------
SAR Grants of Series A TCI Group in " Common Stock to Company
-------------------------------------------------------------
Executives Last Fiscal Year," below.
----------------------------
(4) All amounts shown in this column represent contributions to the TCI
Employee Stock Purchase Plan of the Company for whom ("ESPP"). All
named executive officers contributions were made in 1995 are fully
vested except for Kenneth G. Carroll who is 45% vested in TCI's
contribution. Directors who are not employees of TCI or the Company
are ineligible to participate in the ESPP. The ESPP, a defined
contribution plan, enables participating employees to acquire a
proprietary interest in TCI and benefits upon retirement. Under the
terms of the ESPP, employees are eligible for participation after one
year of service. The ESPP's normal retirement age is 65 years.
Participants may contribute up to 10% of their compensation and TCI
(by annual resolution of the TCI Board) may contribute up to a
matching 100% of the participants' contributions. The ESPP includes a
salary deferral feature in respect of employee contributions.
Forfeitures (due to participants' withdrawal prior to full vesting)
are used to reduce TCI's otherwise determined contributions.
Generally, participants acquire a vested right in TCI contributions as
follows :
YEARS OF SERVICE VESTING PERCENTAGE
-----------------------------------------------------
Less than 1 0
1-2 20
2-3 30
3-4 45
4-5 60
5-6 80
6 or more 100
Participant contributions are fully vested. Although TCI has not
expressed an intent to terminate the ESPP, it may do so at any time.
The ESPP provides for full immediate vesting of all participants'
rights upon termination.
(5) This amount reflects the amortization of obligations under an
employment contract between Mr. Howard and a prior employer, which
were assumed by TCI in connection with the acquisition of such prior
employer.
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<PAGE>
OPTION AND SAR GRANTS OF SERIES A TCI GROUP COMMON STOCK TO COMPANY
EXECUTIVES IN LAST FISCAL YEAR
The following table discloses information regarding stock options
granted in tandem with stock appreciation rights to the executive officers
named in the above Summary Compensation Table in respect of shares of
Series A TCI Group Common Stock under the Tele-Communications, Inc. 1995
Stock Incentive Plan (the "TCI 1995 Plan").
OPTION AND SAR GRANTS TO PURCHASE SERIES A TCI GROUP COMMON STOCK IN THE
LAST FISCAL YEAR
<TABLE>
<CAPTION>
NO. OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR MARKET PRICE
OPTIONS/SARS EMPLOYEES IN BASE PRICE ON GRANT DATE GRANT DATE
NAME GRANTED 1995 ($/SH) ($/SH) EXPIRATION DATE PRESENT VALUE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gary S. Howard 150,000 (1)(5) $17.00 $20.625(3) August 4, 2005 $2,120,070(4)
Lloyd S. Riddle III 17,500 (2)(5) $17.00 $20.625(3) August 4, 2005 $ 247,342(4)
Kenneth G. Carroll 17,500 (2)(5) $17.00 $20.625(3) August 4, 2005 $ 247,342(4)
William D. Myers 10,000 (2)(5) $17.00 $20.625(3) August 4, 2005 $ 141,338(4)
</TABLE>
____
(1) Mr. Howard's grant, pursuant to the TCI 1995 Plan, of options in
tandem with stock appreciation granted to purchase rights represents
5.4% of the total options Series A TCI Group Common Stock pursuant to
the TCI 1995 Plan and, together with the options granted to purchase
Series A TCI Group Common Stock pursuant to the TCI 1994 Plan and the
Tele-Communications, Inc. 1996 Incentive Plan (the "TCI 1996 Plan"),
represents 2.0% of all options granted in 1995 to purchase Series A
TCI Group Common Stock.
(2) Mr. Riddle's, Mr. Carroll's and Mr. Myers' grants, pursuant to the TCI
1995 Plan, of options in less than 1% of the tandem with stock
appreciation rights represent total options granted to purchase Series
A TCI Group Common Stock pursuant to the TCI 1995 Plan and, together
with the options granted to purchase Series A TCI Group Common Stock
pursuant to the TCI 1994 Plan and the TCI 1996 Plan, represent less
than 1% of all options granted in 1995 to purchase Series A TCI Group
Common Stock.
(3) Represents the closing market price per share of Series A TCI Group
Common Stock on December 13, 1995.
(4) The values shown are based on the Black-Scholes model and are stated
in current annualized dollars on a present value basis. The key
assumptions used in the model for purposes of this calculation include
the following: (a) a 5.65% discount rate; (b) a volatility factor
based upon the historical trading pattern of Series A TCI Group Common
Stock; (c) the 10-year option term; and (d) the closing price of
Series A TCI Group Common Stock on February 8, 1996. The actual value
an executive may realize will depend upon the extent to which the
stock price exceeds the exercise price on the date the option is
exercised. Accordingly, the value, if any, realized by an executive
will not necessarily be the value determined by the model.
(5) On December 13, 1995, pursuant to the TCI 1994 Plan, certain executive
officers of TCI were granted an aggregate of 2,650,000 options in On
December 13 ,1995, pursuant to the TCI tandem with stock appreciation
rights to acquire shares of Series A TCI Group Common Stock. 1995
Plan, certain key employees of TCI were granted an aggregate of
2,757,500 options in tandem with stock appreciation rights to acquire
shares of Series A TCI Group Common Stock. On December 13, 1995,
pursuant to the TCI 1996 Plan, certain executive officers of TCI were
granted an aggregate of 2,000,000 options in tandem with stock
appreciation rights to acquire shares of Series A TCI Group Common
Stock. Each such grant of options with tandem stock appreciation
rights vests evenly over five years with such vesting period beginning
August 4, 1995, first becomes exercisable beginning on August 4, 1996
and expires on August 4, 2005.
The following table provides, for the executives named in the Summary
Compensation Table, information on the number of shares of Series A TCI
Group Common Stock represented by unexercised TCI Options and TCI SARs
owned by them at December 31, 1995, and the value of those TCI Options and
TCI SARs as of the same date.
85
<PAGE>
AGGREGATED TCI OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END TCI OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
DECEMBER 31, AT DECEMBER 31,
VALUE 1995 (#) 1995 ($)
SHARES ACQUIRED REALIZED EXERCISABLE / EXERCISABLE /
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- ---------------- --------------- ------------------- ------------------
<S> <C> <C> <C> <C>
GARY S. HOWARD
Exercisable 9,714 $75,046 95,000 $525,625
Unexercisable -- -- 205,000 $811,875
LLOYD S. RIDDLE III
Exercisable -- -- 4,300 $12,763
Unexercisable -- -- 17,200 $51,050
KENNETH CARROLL
Exercisable -- -- 4,300 $12,763
Unexercisable -- -- 17,200 $51,050
WILLIAM D. MYERS
Exercisable -- -- 3,800 $11,825
Unexercisable -- -- 15,200 $47,300
</TABLE>
THE TCI SATELLITE ENTERTAINMENT, INC. 1996 STOCK INCENTIVE PLAN
General. It is expected that, on or before the Distribution Date, the
Company Board will adopt, and TCI, as the sole stockholder of the Company
prior to the Distribution, will approve, the TCI Satellite Entertainment,
Inc. 1996 Stock Incentive Plan (the "1996 Plan"). The 1996 Plan will
provide for awards to be made in respect of a maximum of 3,200,000 shares
of Series A Common Stock (subject to certain anti-dilution adjustments).
Awards may be made as grants of stock options ("Options"), stock
appreciation rights ("SARs"), restricted shares ("Restricted Shares"),
Stock Units (as defined below), performance awards ("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 1996 Plan.
86
<PAGE>
The 1996 Plan will be administered by the Compensation Committee of
the Company Board, or such other committee as the Company Board may in the
future appoint, which shall comprise at least two persons (the
"Committee"). Each member of the Committee will be a member of the Company
Board who is not an officer of, or otherwise currently employed by, the
Company or any subsidiary, and does not receive compensation for services
to the Company or any subsidiary in any capacity other than as a director,
and is not directly or indirectly a party to any other material transaction
with the Company or any subsidiary, if such compensation or transaction
would prevent such member from being a "non-employee director" with respect
to the 1996 Plan for purposes of Rule 16b-3 promulgated under the Exchange
Act. The Company currently intends to elect to be governed by the 1996
amendments to Rule 16b-3, effective upon the effectiveness of the
Distribution.
The Committee will have broad discretion in administering the 1996
Plan, and is authorized, subject only to the express provisions of the 1996
Plan, to determine the eligible persons to whom Awards may be made, to
determine the terms and conditions (which need not be identical) of each
Award (including the timing of the grant, the type of Award granted, the
pricing and the amount of the Award and terms related to vesting,
exercisability, forfeiture and termination), and to interpret the
provisions of the 1996 Plan and each agreement relating to Awards granted
under the 1996 Plan. The determinations of the Committee are final and
binding upon all participants.
Stock Options. Options granted pursuant to the 1996 Plan may be either
incentive stock options ("Incentive Options") within the meaning of Section
422 of the Code, or nonqualified stock options ("Nonqualified Options"),
which do not qualify under Section 422. The Committee is authorized to
determine whether an Option is an Incentive Option or a Nonqualified
Option.
The exercise price of all Options granted under the 1996 Plan will be
fixed by the Committee, and may be more than, less than or equal to the
fair market value of the Series A Common Stock on the date the Option is
granted. However, the Company does not have any current intention to grant
Options with an exercise price less than the fair market value of the
Series A Common Stock on the date of grant.
The term of each Option will be fixed by the Committee at the time of
grant. Options may be exercised in whole or in part at any time or only
after a period of time or in installments, as determined by the Committee
at the time of grant, and the exercisability of Options may be accelerated
by the Committee.
An Option shall be exercised by written notice to the Committee upon
the terms set forth in the agreement relating thereto and in accordance
with such other procedures as the Committee may establish.
The method of payment of the exercise price of an Option will be
determined by the Committee and may consist of cash, a check, a promissory
note, the surrender of already owned shares of Series A Common Stock or
Series B Common Stock, the withholding of shares of Series A Common Stock
issuable upon exercise of such Option, delivery of a properly executed
exercise notice and irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds required to pay
the exercise price, any combination of the foregoing methods of payment or
such other
87
<PAGE>
consideration and method of payment as may be permitted for the issuance of
shares under Delaware law, subject, in the case of any election by the
holder to pay such exercise price by the withholding of shares of Series A
Common Stock, to the approval of the Committee, which may be given or
denied after any such election is made.
Stock Appreciation Rights. An SAR may be granted under the 1996 Plan
to the holder of an Option (a "related Option") with respect to all or a
portion of the shares of Series A Common Stock subject to the related
Option (a "Tandem SAR") or may be granted separately to an eligible
employee (a "Free Standing SAR"). A Tandem SAR may be granted either
concurrently with the grant of the related Option or, if the related Option
is a Nonqualified Option, at any time thereafter and prior to the complete
exercise, termination, expiration or cancellation of the related Option. A
Tandem SAR will be exercisable only at the time and to the extent that the
related Option is exercisable and may be subject to such additional
limitations on exercisability as the Committee may determine. Upon exercise
of a Tandem SAR, the related Option will be deemed to have been exercised
to the extent of the number of shares of Series A Common Stock with respect
to which such Tandem SAR is exercised. Conversely, upon the exercise or
termination of the related Option, the Tandem SAR will be canceled
automatically to the extent of the number of shares of Series A Common
Stock with respect to which the related Option was so exercised or
terminated. Free Standing SARs will be exercisable at the time, to the
extent and upon the terms and conditions determined by the Committee and
set forth in the agreement relating to the Award.
The base price of a Tandem SAR will be the same as the exercise price
of the related Option unless the Committee provides for a higher base
price. The base price of a Free Standing SAR will not be less than the fair
market value of the Series A Common Stock on the date of grant of the Free
Standing SAR. Upon exercise of a SAR, the holder will be entitled to
receive from the Company, for each share of Series A Common Stock with
respect to which the SAR is exercised, an amount equal to the excess of the
fair market value of a share of Series A Common Stock on the date of
exercise over the base price per share of such SAR. Such amount shall be
paid in cash, shares of Series A Common Stock (valued at their fair market
value on the date of exercise of the SAR) or a combination thereof as
specified in the agreement relating to the Award. Unless the Committee
shall otherwise determine, to the extent a Free Standing SAR is
exercisable, it will be exercised automatically for a cash settlement on
its expiration date.
The agreement relating to an Award of SARs may provide for a limit on
the amount payable to a holder upon exercise of SARs at any time or in the
aggregate, for a limit on the number of SARs that may be exercised by the
holder in whole or in part for cash during any specified period, for a
limit on the time periods during which a holder may exercise SARs and for
such other limits on the rights of the holder and other terms and
conditions as the Committee may determine.
Restricted Shares. At the time of any Award of Restricted Shares, the
Committee will designate a period of time which must elapse (the
"Restriction Period") and may impose such other restrictions, terms and
conditions that must be fulfilled, before the Restricted Shares will become
vested. The Committee may determine that (a) Restricted Shares will be
issued at the beginning of the Restriction
88
<PAGE>
Period, in which case, such shares will constitute issued and outstanding
shares of Series A Common Stock for all corporate purposes or (b)
Restricted Shares will not be issued until the end of the Restriction
Period, in which case the employee will have none of the rights of a
stockholder with respect to the shares of Series A Common Stock covered by
such Award until such shares shall have been issued to such employee at the
end of the Restriction Period. The employee will have the right to vote
Restricted Shares issued at the beginning of the Restriction Period and to
receive such dividends and other distributions as the Committee may, in its
sole discretion, designate that are paid or distributed on such Restricted
Shares, and generally to exercise all other rights as a holder of Series A
Common Stock, except that, until the end of the Restriction Period: (i)
such employee will not be entitled to take possession of the stock
certificates representing the Restricted Shares; (ii) such employee may not
sell, transfer or otherwise dispose of the Restricted Shares; and (iii)
other than such dividends and other distributions as the Committee may
designate, the Company will retain custody of all dividends and
distributions made or declared with respect to the Restricted Shares
("Retained Distributions") and such Retained Distributions shall not bear
interest or be segregated in a separate account. In the case of Restricted
Shares issued at the end of the Restriction Period, the employee will be
entitled to receive, to the extent specified by the Committee only, cash or
property corresponding to all dividends and other distributions (or the
economic equivalent thereof) that would have been paid, made or declared on
such Restricted Shares had such shares been issued at the beginning of the
Restriction Period (collectively, "Dividend Equivalents"), and such
Dividend Equivalents will be paid as specified by the Committee in the
applicable Award agreement. A breach of any restrictions, terms or
conditions established by the Committee with respect to any award of
Restricted Shares will cause a forfeiture of such Restricted Shares and any
Retained Distributions (including any unpaid Dividend Equivalents) with
respect thereto. The 1996 Plan also provides that the Committee may
authorize awards of cash to a holder of Restricted Shares, payable at any
time after the Restricted Shares become vested.
Upon expiration of the applicable Restriction Period and the
satisfaction of any other applicable conditions, all or part of the
Restricted Shares and any Retained Distributions thereon (including any
unpaid Dividend Equivalents) will become vested and all or part of any cash
amount awarded will become payable. Any Restricted Shares and Retained
Distributions thereon (including any unpaid Dividend Equivalents) which do
not so vest will be forfeited.
Stock Units. The 1996 Plan also authorizes the Committee to grant to
eligible employees, either alone or in addition to Options, SARs and
Restricted Shares, awards of Series A Common Stock and other awards that
are valued in whole or in part by reference to, or are otherwise based on,
the value of the Series A Common Stock ("Stock Units"). The Compensation
Committee will determine all terms and conditions of such Awards, including
any restrictions (including restrictions on transfer), deferral periods, or
performance requirements. The provisions of any Award of Stock Units need
not be the same with respect to each recipient and are subject to such
rules as the Compensation Committee may establish at the time of grant.
Performance Awards. Performance Awards consist of grants made to an
eligible person subject to the attainment of one or more performance goals.
A Performance Award will be paid, vested or otherwise deliverable solely
upon the attainment of one or more pre-established, objective performance
89
<PAGE>
goals established by the Compensation Committee prior to the earlier of (i)
90 days after the commencement of the period of service to which the
performance goals relate and (ii) the passage of 25% of the period of
service, and in any event while the outcome is substantially uncertain. A
performance goal may be based upon one or more business criteria that apply
to the eligible person, one or more business units of the Company or the
Company as a whole, and may include any of the following: revenue, net
income, stock price, market share, earnings per share, return on equity,
return on assets or decrease in costs. Subject to the foregoing, the terms,
conditions and limitations applicable to any Performance Award will be
determined by the Compensation Committee.
Any Performance Awards granted under the 1996 Plan will be limited so
that no individual may be granted Performance Awards consisting of cash or
in any other form permitted under the 1996 Plan (other than any Awards
consisting of Options or SARs or otherwise consisting of shares of Common
Stock or units denominated in such shares, or, in either case, additional
cash amounts related to such an Award) in respect of any one-year period
having a value determined on the date of grant in excess of $100,000.
Effect of Termination of Employment. Under the terms of the 1996 Plan,
if the employment of the holder of an Award (which for this purpose
includes the engagement of the holder of an Award as a non-employee
consultant or advisor) terminates by reason of death or total disability,
then, unless the agreement relating to such Award provides otherwise, (a)
all outstanding Options and SARs granted in such Award will become
immediately exercisable in full in respect of the aggregate number of
shares covered thereby, (b) the Restriction Period for all Restricted
Shares granted in such Award will be deemed to have expired and all such
Restricted Shares, any related Retained Distributions and any unpaid
Dividend Equivalents will become vested and any cash amounts payable
pursuant to the related agreement will be adjusted in such manner as may be
provided in such agreement, and (c) all Stock Units granted in such Award
will become vested in full.
Under the terms of the 1996 Plan, if the employment of the holder of
an Award is terminated during the Restriction Period with respect to any
Restricted Shares, or prior to the complete exercise of any Option or SAR
or the vesting or complete exercise of any Stock Units, granted in such
Award, then such Options, SARs and Stock Units will thereafter be
exercisable, and the holder's rights to any such unvested Restricted
Shares, Retained Distributions, unpaid Dividend Equivalents and cash
amounts and any such unvested Stock Units will thereafter vest, only to the
extent provided by the Committee in the agreement relating to such Award,
except that (a) if the holder's employment terminates by reason of death or
total disability then any Option or SAR granted in the Award will remain
exercisable for a period of at least one year after such termination (but
not later than the scheduled expiration of such Option or SAR), (b) no
Option or SAR may be exercised after the scheduled expiration date thereof,
and (c) if the holder's employment is terminated for cause (as defined)
then (i) such employee's rights to all Restricted Shares, Retained
Distributions, unpaid Dividend Equivalents and any cash amounts covered by
such Award will be forfeited immediately and (ii) all Options and SARs and
all unvested or unexercised Stock Units granted in such Award will
immediately terminate.
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<PAGE>
Additional Provisions. Unless otherwise required by the Committee in
the agreement relating to an Award, each Award will vest and become
exercisable in full if the Company Board (or stockholders, if Company Board
approval is not required by law) approves any of the following transactions
(each an "Approved Transaction"): (i) a merger, consolidation or binding
share exchange to which the Company is a party (x) pursuant to which shares
of Series A Common Stock would be converted into or exchanged for cash,
securities or other property (other than a transaction in which the common
stockholders of the Company prior to such transaction have the same
proportionate ownership of the common stock of, and voting power with
respect to, the surviving corporation immediately after such transaction)
or (y) as a result of which the persons who are common stockholders of the
Company prior to such transaction would have less than a majority of the
combined voting power of the outstanding capital stock of the Company
immediately following such transaction; (ii) the sale of substantially all
of the assets of the Company; or (iii) the liquidation or dissolution of
the Company. Options, SARs, or, if applicable, Stock Units not theretofore
exercised will terminate upon consummation of an Approved Transaction. The
Committee will have the discretion, unless otherwise provided in the
agreement relating to a particular Award, to determine that any or all
outstanding Awards of any or all types granted pursuant to the 1996 Plan
will not vest or become exercisable on an accelerated basis in connection
with an Approved Transaction or will not terminate if not exercised prior
to consummation of the Approved Transaction, if action that, in the opinion
of the Committee, is equitable and appropriate is taken by the Company
Board or by the surviving or acquiring corporation, as the case may be, to
assume such Award or substitute a new award therefor that is, as nearly as
may be practicable, equivalent to the old Award.
The Committee may require in the agreement relating to an Award that
if the holder acquires any shares of Series A Common Stock through the
exercise of Options or SARs or through the vesting of Restricted Shares or
Stock Units granted in the Award, then prior to selling or otherwise
transferring any such shares to a third party, such holder must offer to
sell such shares to the Company, at their fair market value, pursuant to a
right of first refusal.
No awards may be granted under the 1996 Plan on or after the tenth
anniversary of its effective date. The Company Board or the Committee may
terminate or amend the 1996 Plan at any time. Without stockholder approval,
no amendment to the 1996 Plan shall increase the number of shares of Series
A Common Stock subject to the 1996 Plan, change the class of persons
eligible to receive Awards under the 1996 Plan, or otherwise materially
increase the benefits accruing to participants under the 1996 Plan. Subject
to the specific terms of the 1996 Plan, the Committee may accelerate any
Award or waive any conditions or restrictions pertaining to such Award at
any time.
EMPLOYEE STOCK PURCHASE PLAN
The Company will establish an employee benefit plan known as the
Qualified Employee Stock Purchase Plan (the "Employee Plan"). The Employee
Plan is intended to be a qualified employee plan under Sections 401(a) and
401(k) of the Code. The basic terms of the Employee Plan are as follows: An
employee must complete one year of service and be at least 18 years of age
to participate in the Employee Plan. Upon commencing participation, the
participant may elect to make pre-tax
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<PAGE>
contributions, after-tax contributions or both to the Employee Plan (the
"Participant Contributions"). All Participant Contributions are made by
payroll deduction and all Participant Contributions may not exceed 10% of
the participant's wages from the Company. Only the first $155,000 (as
adjusted in 1997 and thereafter for cost of living increases) of any
participant's compensation is taken into account for all purposes under the
Employee Plan, as required by law. Pre-tax Participant Contributions are
not subject to income tax when contributed to the Employee Plan, but those
pre-tax Participant Contributions will be subject to FICA taxes when
contributed to the Employee Plan. Those pre-tax Participant Contributions
(and earnings) will be taxed to the participant when the participant
receives a distribution from the Employee Plan. Pre-tax Participant
Contributions are limited to $9,500 for each year (as adjusted for cost of
living increases). After-tax Participant Contributions are subject to
income taxes and FICA taxes when contributed to the Employee Plan, but
earnings on those contributions will not be taxed to the participant until
the participant receives a distribution from the Employee Plan. Participant
Contributions always are 100% vested. All Participant Contributions are
invested in the Company Common Stock.
The Company, in its discretion, may make Company matching
contributions to the Employee Plan for each participant who makes
Participant Contributions. The Company matching contribution may be an
amount up to 100% of the Participant Contributions to the Employee Plan.
All Company contributions to the Employee Plan are invested in the Company
Common Stock. Company contributions to the Employee Plan become vested
according to a vesting schedule that provides for 20% vesting after one
year of service, 30% vesting after two years of service, 45% vesting after
three years of service, 60% vesting after four years of service, 80%
vesting after five years of service and 100% vesting after six years of
service. Service with TCI or any of its subsidiaries prior to the
Distribution Date will be counted toward such vesting schedule. A year of
service will be credited if the participant completes 1,000 hours of
service during the Plan Year. In addition, a participant will be 100%
vested in his Company contributions upon attaining normal retirement age
(age 65), upon becoming totally disabled, or upon the participant's death
while employed with the Company. Company contributions to the Employee Plan
(and earnings on those contributions) on behalf of a participant are not
taxable to the participant until those amounts are distributed from the
Employee Plan. The Company receives a deduction for the amounts it
contributes to the Employee Plan.
A participant can withdraw his Participant Contributions and Company
contributions while he remains employed by the Company only in the
following limited circumstances: Upon attaining age 59 1/2, and if the
participant is 100% vested in his Company contributions, the participant
may request one withdrawal of all or any portion of his Company
contributions account (including earnings on such contributions) and his
pre-tax Participant Contributions account (including earnings on such
contributions). A Participant may withdraw any portion of his after-tax
Participant Contributions at any time but, if the Participant is not yet 59
1/2, a withdrawal of after-tax Participant Contributions will result in the
Participant not being eligible to make any Participant Contributions to the
Employee Plan for a period of six months from the date of the withdrawal.
Upon experiencing a financial hardship, a Participant may request a
withdrawal of his pre-tax Participant Contributions (but not the earnings
on such contributions) in an amount necessary to meet the financial need,
subject to certain limitations.
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Upon terminating employment with the Company, the participant may
receive a distribution of his entire vested account in the Employee Plan.
Distributions will be made in whole shares of the Company Common Stock,
which may be rolled over to an IRA or other qualified plan upon the
election of the participant.
The shares of stock that are attributable to after-tax Participant
Contributions will be distributed to the participant tax-free because that
stock is purchased with after-tax dollars. Subsequent sales of the stock by
the participant may result in taxation to the participant. The appreciation
on all stock generally is not taxed until the shares are sold by the
participant if the participant receives the stock in a lump sum. A 10%
federal penalty tax may be imposed on certain early distributions from the
Employee Plan. The tax is 10% of the taxable amount of the distribution.
STOCK OWNERSHIP OF MANAGEMENT
TCI currently owns all the issued and outstanding shares of capital
stock of the Company. The following table lists the number of shares of
Company Common Stock that are expected to be owned beneficially by each
director, each of the executive officers named in the above Summary
Compensation Table, and all directors and executive officers as a group
immediately following the Distribution, based on their respective holdings
of TCI Group Common Stock as of April 30, 1996, according to data furnished
by the persons named. The number of shares and percentage amounts have been
calculated in each case assuming, solely for purposes of this disclosure,
(x) that the number of shares of TCI Group Common Stock beneficially owned
by such directors and executive officers on the Record Date, and the total
number of shares of TCI Group Common Stock outstanding on the Record Date,
are in each case identical to such amounts on April 30, 1996, and (y) that
the Company Common Stock will be distributed to TCI Group Stockholders on a
1:10 ratio. Shares issuable upon exercise and upon vesting of restricted
shares are deemed to be outstanding for the purpose of computing the
percentage ownership and overall voting power of persons expected to
beneficially own such securities, but have not been deemed to be
outstanding for the purpose of computing the percentage ownership or
overall voting power expected of any other person. Voting power in the
table is computed with respect to a general election of directors. The
number of shares in the table is based on amounts which include interests
of the named directors or executive officers or members of the group of
directors and executive officers in shares held by the trustee of TCI's
ESPP and shares held by the trustee of the United Artist Entertainment
Employee Stock Ownership Plan for their respective accounts. So far as is
known to the Company, the persons indicated below will have sole voting and
investment power with respect to the shares indicated as expected to be
owned by them except for the shares held by the trustee of TCI's ESPP for
the benefit of such person, which shares are voted at the discretion of the
trustee.
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<TABLE>
<CAPTION>
NAME NUMBER OF SHARES BENEFICIALLY OWNED PERCENT OF CLASS(1) VOTING POWER(1)
------------------------- ------------------------------------------ -------------------- ---------------
<S> <C> <C> <C> <C> <C>
DIRECTORS: SERIES A SERIES B SERIES A SERIES B
-------- -------- -------- --------
Gary S. Howard 34,852(2) -- * -- *
John C. Malone 217,203(3) 2,533,208(5) * 29.9% 17.8%
David P. Beddow 32,445(4) -- * -- *
William E. Johnson -- -- -- -- --
John W. Goddard 1,607(6) 1,296 * * *
OTHER NAMED EXECUTIVE OFFICERS:
Kenneth G. Carroll 2,303(7) -- * -- *
Lloyd S. Riddle III 2,674(7) -- * -- *
William D. Myers 2,344(8) -- * -- *
ALL DIRECTORS AND EXECUTIVE [293,428](2)(3)(4) 2,534,504(5) * 29.9% 17.9%
OFFICERS AS A GROUP (nine (6)(7)(8)
PERSONS)
</TABLE>
________
* Less than one percent.
(1) Assuming 58,336,191 shares of Series A Common Stock and 8,468,163
shares of Series B Common Stock outstanding immediately following the
Distribution, based on 583,361,905 shares of Series A TCI Group Common
Stock and 84,681,629 shares of Series B TCI Group Common Stock
outstanding on April 30, 1996.
(2) Assumes the receipt of Add-On Company Options and Add-On Company SARs
in respect of the Options and TCI SARs, following TCI respectively,
and the exercise in full of all such Add-On Company Options on the
Distribution Date, whether or not then exercisable or in-the-money:
(i) stock options granted in tandem with stock appreciation rights in
November of 1992 to acquire 50,000 shares of Series A TCI Group Common
Stock, of which options to acquire 30,000 shares are currently
exercisable; (ii) stock options in tandem with stock appreciation
rights issued in November of 1993 to acquire 50,000 shares of Series A
TCI Group Common Stock, of which options to acquire 25,000 shares are
currently exercisable; (iii) stock options in tandem with stock
appreciation rights granted in November of 1994 to acquire 50,000
shares of Series A TCI Group Common Stock, of which options to acquire
10,000 shares are currently exercisable; and (iv) stock options
granted in tandem with stock appreciation rights in December of 1995
to purchase 150,000 shares of Series A TCI Group Common Stock, of
which options to acquire 30,000 shares are currently exercisable.
Additionally assumes that shares of Series A Common Stock to be issued
in the Distribution in respect of 15,000 restricted shares of Series A
TCI Group Common Stock are issued to Mr. Howard. None of the
restricted shares is currently vested.
(3) Assumes the receipt of Add-On Company Options and Add-On Company SARs
in respect of the Options and TCI SARs, following TCI respectively,
and the exercise in full of all such Add-On Company Options on the
Distribution Date, whether or not then exercisable or in-the-money:
(i) stock options granted in tandem with stock appreciation rights in
November of 1992 to acquire 1,000,000 shares of Series A TCI Group
Common Stock, of which options to acquire 600,000 shares are currently
exercisable; and (ii) stock options granted in tandem with stock
appreciation rights in December of 1995 to acquire 1,000,000 shares of
Series A TCI Group Common Stock, of which options to purchase 200,000
shares are currently exercisable.
(4) Assumes the receipt of Add-On Company Options and Add-On Company SARs
in respect of the following TCI Options and TCI SARs, respectively,
and the exercise in full of all such Add-On Company Options on the
Distribution Date, whether or not then exercisable or in-the-money:
(i) stock options granted in tandem with stock appreciation rights in
November of 1993 to acquire 7,500 shares of Series A TCI Group Common
Stock, of which options to acquire 4,500 shares are currently
exercisable; (ii) stock options granted in tandem with stock
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<PAGE>
appreciation rights in November of 1994 to acquire 50,000 shares of
Series A TCI Group Common Stock, of which options to purchase 10,000
shares are currently exercisable; and (iii) stock options granted in
tandem with stock appreciation rights in December of 1995 to purchase
250,000 shares of Series A TCI Group Common Stock, of which options to
purchase 50,000 shares are currently exercisable. Additionally assumes
that shares of Series A Common to be issued in the Distribution in
respect of 15,000 restricted shares of Series A TCI Group Common Stock
are issued to Mr. Beddow. None of the restricted shares is currently
vested.
(5) Includes 117,300 shares of Series B Common Stock to be held by Dr.
Malone's wife, Mrs. Leslie Malone, but Dr. Malone is expected to
disclaim any beneficial ownership of such shares.
(6) Includes 477 shares of Series A Common Stock to be held by Mr.
Goddard's wife, but Mr.Goddard is expected to disclaim any beneficial
ownership of such shares.
(7) Assumes the receipt of Add-On Company Options and Add-On Company SARs
in respect of the following TCI Options and TCI SARs, respectively,
and the exercise in full of all such Add-On Company Options on the
Distribution Date, whether or not then exercisable or in-the-money:
(i) stock options granted in tandem with stock appreciation rights in
November of 1994 to acquire 9,000 shares of Series A TCI Group Common
Stock, of which options to acquire 1,800 shares of Series A TCI Group
Common Stock are currently exercisable; and (ii) stock options granted
in tandem with stock appreciation rights in December of 1995 to
purchase 10,000 shares of Series A TCI Group Common Stock, of which
options to purchase 3,500 shares of Series A TCI Group Common Stock
are currently exercisable.
(8) Assume the receipt of Add-On Company Options and Add-On Company SARs
in respect of the following TCI Options and TCI SARs, respectively,
and the exercise in full of all such Add-On Company Options on the
Distribution Date, whether or not then exercisable or in-the-money:
(i) stock options granted in tandem with stock appreciation rights in
November of 1994 to acquire 9,000 shares of Series A TCI Group Common
Stock, of which options to acquire 1,800 shares of Series A TCI Group
Common Stock are currently exercisable; and (ii) stock options granted
in tandem with stock appreciation rights in December of 1995 to
purchase 10,000 shares of Series A TCI Group Common Stock, of which
options to purchase 2,000 shares are currently exercisable.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF THE COMPANY
TCI currently owns all of the outstanding shares of Company Common
Stock. The following table lists shareholders expected by the Company to be
the beneficial owners of more than five percent of the outstanding Company
Common Stock upon completion of the Distribution, assuming each such person
continued to own beneficially on the Record Date the same number of shares
of TCI Group Common Stock believed by TCI to be owned beneficially by such
person on April 30, 1996. The number of shares has been calculated in each
case assuming that the Company Common Stock will be distributed to TCI
Group Stockholders on a 1:10 ratio.
<TABLE>
<CAPTION>
NAME AND ADDRESS TITLE NUMBER OF SHARES PERCENT VOTING
OF BENEFICIAL OWNER OF CLASS BENEFICIALLY OWNED OF CLASS (1) POWER (1)
--------------------------- ------------ --------------------- --------------- ------------
<S> <C> <C> <C> <C>
Bob Magness, a Director Series A 562,965(2)(3) * 26.3%
5619 DTC Parkway Series B 3,713,208(2) 43.9%
Englewood, Colorado
John C. Malone, Director Series A 217,203(4) * 17.8%
5619 DTC Parkway Series B 2,533,208(5) 29.9%
Englewood, Colorado
Kearns-Tribune Corporation Series A 879,251 1.5% 7.0%
400 Tribune Building Series B 911,250 10.8%
Salt Lake City, Utah
The Associated Group, Inc. Series A 1,247,998 2.1% 5.8%
200 Gateway Towers Series B 707,185 8.4%
Pittsburgh, Pennsylvania
The Equitable Companies Series A 4,119,345(6) 7.1% 2.9%
Incorporated Series B -- --
787 Seventh Avenue
New York, New York; and
The Mutuelles AXA and AXA
101-100 Terrasse Boieldieu
92042 Paris La Defense
France
The Capital Group Companies, Inc. Series A 3,954,687(7) 6.8% 2.8%
333 South Hope Street Series B -- --
Los Angeles, California
</TABLE>
__________
* Less than one percent.
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<PAGE>
(1) Assuming 58,336,191 shares of Series A Common Stock and 8,468,163
shares of Series B Common Stock outstanding immediately following the
Distribution, based on 583,361,905 shares of Series A TCI Group Common
Stock and 84,681,629 shares of Series B TCI Group Common Stock
outstanding on April 30, 1996.
(2) Mr. Magness, as the executor of the Estate of Betsy Magness, will be
the beneficial owner of all shares of Series A Common Stock and Series
B Common Stock to be held of record by the Estate of Betsy Magness
after the Distribution. The number of shares to be held by Mr. Magness
will include 210,533 shares of Series A Common Stock and 634,621
shares of Series B Common Stock of which Mr. Magness will be
beneficial owner as executor.
(3) Assumes the receipt of Add-On Company Options and Add-On Company SARs
in respect of the following TCI Options and TCI SARs, respectively,
and the exercise in full of all such Add-On Company Options on the
Distribution Date, whether or not then exercisable or in-the-money:
(i) stock options granted in tandem with stock appreciation rights in
November of 1992 to acquire 1,000,000 shares of Series A TCI Group
Common Stock, of which options to acquire 600,000 shares are currently
exercisable; and (ii) stock options granted in tandem with stock
appreciation rights in December of 1995 to acquire 1,000,000 shares of
Series A TCI Group Common Stock, of which options to purchase 200,000
shares are currently exercisable.
(4) See note (3) to the table in "Management of the Company -- Stock
----------------------------------
Ownership of Management."
-----------------------
(5) See note (5) to the table in "Management of the Company -- Stock
----------------------------------
Ownership of Management."
-----------------------
(6) The number of shares in the table is based upon a Schedule 13G, dated
February 9, 1996, filed by the Equitable Companies Incorporated, which
Schedule 13G reflects that said corporation has sole voting power over
30,729,443 shares and shared voting power over 1,002,725 shares of
Series A TCI Group Common Stock.
(7) Certain operating subsidiaries of The Capital Group Companies, Inc.
exercised investment discretion over various institutional accounts
which held, as of December 29, 1995, 39,546,870 shares of Series A TCI
Group Common Stock. Capital Guardian Trust Company, a bank, and one of
such operating companies, exercised investment discretion over
3,636,820 of said shares. Capital Research and Management Company, a
registered investment advisor, and Capital International Limited and
Capital International, SA., other operating subsidiaries, had
investment discretion with respect to 35,565,750, 137,770 and 206,510
shares, respectively, of the above shares. The information set forth
above is based upon a Schedule 13G, dated February 9, 1996, filed by
The Capital Group Companies, Inc. Assumes such arrangements will
continue to apply with regard to the Company Common Stock.
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<PAGE>
DESCRIPTION OF COMPANY CAPITAL STOCK
GENERAL
The following description of the Company's capital stock is intended
as a summary only, does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the applicable provisions of the
Delaware General Corporation Law (the "DGCL") and to the Company Charter
and the Company's Bylaws, both of which have been filed as exhibits to the
Company Form 10 pursuant to the Exchange Act.
The Company will be authorized to issue 195,000,000 shares of common
stock, par value $1.00 per share and 5,000,000 shares of preferred stock,
par value $.01 per share ("Preferred Stock"). The Company Common Stock will
be divided into two series, consisting of 185,000,000 authorized shares of
Series A Common Stock and 10,000,000 authorized shares of Series B Common
Stock. Upon completion of the Distribution, there will be approximately
[58,438,763] shares of Series A Common Stock and [8,467,550] shares of
Series B Common Stock outstanding. No shares of Preferred Stock will be
issued in connection with the Distribution.
COMMON STOCK
The rights of holders of Series A Common Stock and Series B Common
Stock are identical except for voting and conversion rights. All of the
shares of Series A Common Stock and Series B Common Stock distributed to
the TCI Group Stockholders pursuant to the Distribution will be validly
issued, fully paid and nonassessable.
Voting. Each share of Series A Common Stock entitles the holder to one
vote and each share of Series B Common Stock entitles the holder to ten
votes on each matter to be voted upon by the holders of the Company Common
Stock. Except as may otherwise be required by the DGCL or, with respect to
any series of Preferred Stock, as otherwise provided in any resolution of
the Company Board providing for the establishment of such series of
Preferred Stock, the holders of the Series A Common Stock and the holders
of the Series B Common Stock and the holders of each series of Preferred
Stock, if any, entitled to vote thereon will vote as one class on all
matters to be voted on by such stockholders of the Company. Neither the
holders of Series A Common Stock nor the holders of Series B Common Stock
have any rights to vote as a separate class or series on any matter coming
before the stockholders of the Company, except for certain limited series
voting rights provided under the DGCL. Under the DGCL, the approval of the
holders of a majority of the outstanding shares of any class of capital
stock of a corporation, voting separately as a class, is required to
approve any amendment to the charter that would alter or change the powers,
preferences or special rights of the shares of such class so as to affect
them adversely, provided that, if any amendment would alter or change the
powers, preferences or special rights of one or more series of the class so
as to affect them adversely, but would not so affect the entire class, then
only the shares of the series so affected by the amendment would be
entitled to vote thereon separately as a class. The Company Charter does
not provide for cumulative voting in elections of directors of the
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<PAGE>
Company. Under the Company's Bylaws, directors may be elected by a
plurality of the votes of shares present in person or represented by proxy
at the meeting and entitled to vote on the election of officers.
Conversion. Each share of Series B Common Stock is convertible at any
time, at the option of its holder, into one share of Series A Common Stock.
The Series A Common Stock is not convertible into Series B Common Stock.
Dividends. Subject to the preferential rights, if any, of the holders
of outstanding shares of any series of Preferred Stock, dividends may be
paid on the Company Common Stock as determined by the Company Board out of
funds of the Company legally available therefor under the DGCL. Except for
dividends declared or paid as described below under "--Share
Distributions," any dividends paid on the Series A Common Stock or the
Series B Common Stock will be paid only on both series, in equal amounts
per share.
The Company Board will determine its dividend policy with respect to
the Company Common Stock based on the Company's results of operations,
financial condition, capital requirements and other circumstances,
including restrictions that may be contained in agreements pursuant to
which the Company may borrow funds. It is the Company Board's present
intention to retain cash for the operations of the Company and it is not
anticipated that cash dividends will be paid on the Company Common Stock in
the foreseeable future.
Share Distributions. If at any time a distribution paid in Series A
Common Stock or Series B Common Stock or any other securities of the
Company or of any other corporation, partnership, limited liability
company, trust or other legal entity ("Person") (hereinafter sometimes
called a "share distribution") is to be made with respect to the Series A
Common Stock or Series B Common Stock, such share distribution will be
declared and paid only as follows:
(a) a share distribution consisting of shares of Series A Common
Stock (or Convertible Securities that are convertible into, exchangeable
for or evidence the right to purchase shares of Series A Common Stock) to
holders of Series A Common Stock and Series B Common Stock, on an equal per
share basis; or consisting of shares of Series B Common Stock (or
Convertible Securities that are convertible into, exchangeable for or
evidence the right to purchase shares of Series B Common Stock) to holders
of Series A Common Stock and Series B Common Stock, on an equal per share
basis; or consisting of shares of Series A Common Stock (or Convertible
Securities that are convertible into, exchangeable for or evidence the
right to purchase shares of Series A Common Stock) to holders of Series A
Common Stock and, on an equal per share basis, shares of Series B Common
Stock (or Convertible Securities that are convertible into, exchangeable
for or evidence the right to purchase shares of Series B Common Stock) to
holders of Series B Common Stock; and
(b) a share distribution consisting of shares of any class or series
of security of the Company or any other Person other than Series A Common
Stock or Series B Common Stock (or
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<PAGE>
Convertible Securities that are convertible into, exchangeable for or
evidence the right to purchase shares of Series A Common Stock or Series B
Common Stock), either on the basis of a distribution of identical
securities, on an equal per share basis, to holders of Series A Common
Stock and Series B Common Stock or on the basis of a distribution of one
class or series of securities to holders of Series A Common Stock and
another class or series of securities to holders of Series B Common Stock,
provided that the securities so distributed (and, if applicable, the
securities into which the distributed securities are convertible, or for
which they are exchangeable, or which the distributed securities evidence
the right to purchase) do not differ in any respect other than their
relative voting rights and related differences in designation, conversion
and share distribution provisions, with holders of shares of Series B
Common Stock receiving the class or series having the higher relative
voting rights (without regard to whether such rights differ to a greater or
lesser extent than the corresponding differences in voting rights and
related differences in designation, conversion and share distribution
provisions between the Series A Common Stock and the Series B Common
Stock), provided that if the securities so distributed constitute capital
stock of a Subsidiary of the Company, such rights shall not differ to a
greater extent than the corresponding differences in voting rights,
designation, conversion and share distribution provisions between the
Series A Common Stock and the Series B Common Stock, and provided in each
case that such distribution is otherwise made on an equal per share basis.
The term "Convertible Securities" is defined in the Company Charter as
any securities of the Company (other than any series of Company Common
Stock) that are convertible into, exchangeable for or evidence the right to
purchase any shares of any series of Company Common Stock, whether upon
conversion, exercise, exchange, pursuant to anti-dilution provisions of
such securities or otherwise. As used in the Company Charter, the term
"Subsidiary" means, when used with respect to any Person, (i) a corporation
in which such Person and/or one or more Subsidiaries of such Person,
directly or indirectly, owns capital stock having a majority of the voting
power of such corporation's capital stock to elect directors under ordinary
circumstances, and (ii) any other Person (other than a corporation) in
which such Person and/or one or more Subsidiaries of such Person, directly
or indirectly, has (x) a majority ownership interest or (y) the power to
elect or direct the election of a majority of the members of the governing
body of such first-named Person.
The Company Charter provides that the Company shall not reclassify,
subdivide or combine the Series A Common Stock without reclassifying,
subdividing or combining the Series B Common Stock, on an equal per share
basis, and the Company shall not reclassify, subdivide or combine the
Series B Common Stock without reclassifying, subdividing or combining the
Series A Common Stock, on an equal per share basis.
Liquidation Rights. In the event of a liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, after payment
or provision for payment of the debts and other liabilities of the Company
and subject to the preferential rights, if any, of holders of any then
outstanding shares of any series of Preferred Stock, holders of shares of
Series A Common Stock and holders of shares of Series B Common Stock would
be entitled to share ratably in all assets of the Company available for
distribution to holders of Company Common Stock. Neither a consolidation,
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<PAGE>
merger, nor sale of assets will be construed to be a "liquidation",
"dissolution" or "winding up" of the Company.
No Preemptive Rights.Holders of Company Common Stock have no
preemptive rights to subscribe for or purchase additional shares of capital
stock or other obligations or securities convertible into or exercisable
for shares of capital stock that may hereafter be issued by the Company.
PREFERRED STOCK
The Preferred Stock may be divided and issued in one or more series
from time to time as determined by the Company Board, without further
stockholder approval. The Company Board is authorized to establish, by
resolution, the number of shares of each series, the powers, designations,
preferences and relative, participating, optional or other rights of each
such series, and the qualifications, limitations, or restrictions thereof.
All shares of any one series of Preferred Stock are required to be alike in
every particular. Except to the extent otherwise provided in the resolution
or resolutions providing for the issue of any series of Preferred Stock,
the holders of shares of such series will have no voting rights except as
may be required by Delaware law. At the date of this Information Statement,
the Company Board has not authorized the issuance of any shares of
Preferred Stock and the Company has no current plans for the issuance of
any shares of Preferred Stock.
ANTITAKEOVER EFFECTS OF CERTAIN STATUTORY PROVISIONS AND PROVISIONS OF THE
COMPANY CHARTER AND BYLAWS
General. The DGCL, the Company Charter and the Company's Bylaws
contain provisions which may serve to discourage or make difficult a change
in control of the Company without the support of the Company Board or
without meeting various other conditions. These provisions are designed to
enable the Company Board, particularly in the initial years of the
Company's existence as an independent, publicly owned company, to develop
the Company's business in a manner that will foster its long-term growth
without the potential disruption that might be entailed by the threat of a
takeover not deemed by the Company Board to be in the best interests of the
Company and its stockholders. Many of these provisions are also present in
TCI's Restated Certificate of Incorporation or Bylaws.
The principal provisions of the DGCL and the aforementioned corporate
governance documents are outlined below. The following description of these
provisions is intended as a summary only, does not purport to be complete
and is subject to, and qualified in its entirety by reference to, the DGCL,
the Company Charter and the Company's Bylaws.
Antitakeover Legislation. Section 203 of the DGCL, in general,
prohibits a "business combination" between a Delaware corporation and an
"interested stockholder" within three years following the time that such
stockholder became an "interested stockholder" unless (i) prior to such
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<PAGE>
time, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
exclusive of shares owned by directors who are also officers and by certain
employee stock plans, or (iii) at or subsequent to such time, the business
combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
The term "business combination" is defined by the DGCL to include,
among other transactions between the interested stockholder and the
corporation or any direct or indirect majority owned subsidiary thereof, a
merger or consolidation; a sale, pledge, transfer or other disposition
(including as part of a dissolution) of assets having an aggregate market
value equal to 10% or more of either the aggregate market value of all
assets of the corporation on a consolidated basis or the aggregate market
value of all the outstanding stock of the corporation; certain transactions
that would increase the interested stockholder's proportionate share
ownership of the stock of any class or series of the corporation or such
subsidiary; and any receipt by the interested stockholder of the benefit of
any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation or any such subsidiary. In general,
and subject to certain exceptions, an "interested stockholder" is any
person (other than the corporation and any direct or indirect majority
owned subsidiary of the corporation) who is the owner of 15% or more of the
outstanding voting stock (or, in the case of a corporation with classes of
voting stock with disparate voting power, 15% or more of the voting power
of the outstanding voting stock) of the corporation, and the affiliates and
associates of such person. individually or with or through his or its
affiliates or associates, among other things, beneficially owns such stock,
or has the right to acquire such stock (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement or
understanding or upon the exercise of warrants or options or otherwise or
has the right to vote such stock pursuant to any agreement or
understanding, or has an agreement or understanding with the beneficial
owner of such stock for the purpose of acquiring, holding, voting or
disposing of such stock. The restrictions of DGCL Section 203 do not apply
to corporations that have elected, in the manner provided therein, not to
be subject to such section or, with certain exceptions, which do not have a
class of voting stock that is listed on a national securities exchange or
authorized for quotation on an interdealer quotation system of a registered
national securities association or held of record by more than 2,000
stockholders.
The Company Charter does not contain any provision "opting out" of the
application of DGCL Section 203 and the Company has not taken any of the
actions necessary for it to "opt out" of such provision. As a result, the
provisions of Section 203 will remain applicable to transactions between
the Company and any of its "interested stockholders". The Company Board
has, however, approved the following transactions which could result in
certain persons becoming interested stockholders within the meaning of DGCL
Section 203, and by such approval has exempted persons
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<PAGE>
who become interested stockholders as a result of such transactions from
the application of such section: (e) the acquisition of Company Common
Stock by a TCI Group Stockholder pursuant to the Distribution, (f) the
grant of Add-on Company Options to holders of TCI Options and the grant of
Add-on Company SARs to holders of TCI SARs on the Distribution Date and the
issuance of shares of Series A Common Stock upon the exercise thereof, and
(c) the grant of Options and other Awards payable in Series A Common Stock
to employees and directors of the Company under the 1996 Plan and the
Nonemployee Director Plan and the issuance of shares of Series A Common
Stock upon the exercise thereof. See "Management of the Company --
----------------------------
Compensation of Directors," "Management of the Company -- Compensation of
-------------------------------------------------------------------------
Executive Officers," "Management of the Company -- The TCI Satellite
------------------ ----------------------------------------------
Entertainment, Inc. 1996 Stock Incentive Plan" and "The Distribution --
--------------------------------------------- -------------------
Treatment of Outstanding Stock Options and SARs."
-----------------------------------------------
Classified Board of Directors. less than three members, divided into
three classes, as nearly equal in number as possible, serving staggered
three-year terms. The initial terms of the Company's Class I, Class II and
Class III directors expire at the 1997, 1998 and 1999 annual stockholders'
meetings, respectively. Starting with the 1997 annual meeting of
stockholders, one class of directors will be elected each year for a The
Company Charter provides for a Company Board of not three-year term.
At least two annual meetings of stockholders, instead of one, will
generally be required to effect a change in a majority of the Company
Board. The Company believes that such a delay is advantageous to the
Company and its stockholders because it may help ensure that the Company's
directors, if confronted by a stockholder attempting to force a proxy
contest, a tender offer, or an extraordinary corporate transaction, would
have sufficient time to review the proposal as well as any available
alternatives to the proposal and to act in what they believe to be the best
interest of the stockholders. In addition, the Company believes that the
longer time required to elect a majority of a classified Company Board will
help to ensure continuity and stability of the Company's management and
policies. The classification of the Company Board will enhance the ability
of the Company's management to effect the Company's long-term business
strategies and policies as determined by the Company Board because in most
cases a majority of the directors at any given time will have had prior
experience as directors of the Company. The Company believes that this, in
turn, will permit the Company Board to represent more effectively the
interests of all stockholders. The classification provisions will apply to
every election of directors, however, regardless of whether a change in the
composition of the Company Board would be beneficial to the Company and its
stockholders and whether or not a majority of the Company's stockholders
believe that such a change would be desirable.
The classification provisions could also have the effect of
discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to obtain control of the Company, even though
such an attempt might be beneficial to the Company and its stockholders.
The classification of the Company Board could thus increase the likelihood
that incumbent directors will retain their positions. In addition, because
under the Company Charter directors may be removed only for cause, a
classified Company Board would delay stockholders who do not agree
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<PAGE>
with the policies of the Company Board from replacing a majority of the
Company Board for two years, unless they can demonstrate that the directors
should be removed for cause and obtain the requisite vote.
Number of Directors; Removal; Filling Vacancies. The Company Charter
and the Bylaws provide that, subject to the rights of holders of any series
of Preferred Stock to elect additional directors, the number of directors
will be fixed by the Company Board by resolution, but there shall be no
fewer than three directors. The Bylaws provide that the Company Board, by
resolution adopted by the affirmative vote of 75% of the members of the
Company Board then in office, may increase or decrease the number of
directors. In addition, the Company Charter and the Bylaws provide that,
subject to the rights of holders of any series of Preferred Stock,
vacancies on the Company Board may be filled only by the affirmative vote
of a majority of the remaining directors then in office (even though less
than a quorum) or by the sole remaining director. Accordingly, the Company
Board could temporarily prevent any stockholder from obtaining majority
representation on the Company Board by enlarging the size of the Company
Board and filling the new directorships with such stockholder's own
nominees.
Under the DGCL, directors serving on a classified board may be removed
by the stockholders only for cause. Moreover, the Company Charter and the
Bylaws provide that, subject to the rights of holders of any series of
Preferred Stock, directors may be removed for cause only upon the
affirmative vote of holders of at least 66 2/3% 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.
Mergers, Consolidations and Sale of Assets. The Company Charter
provides that, subject to the rights of holders of any series of Preferred
Stock, the affirmative vote of 66 2/3% of the total voting power of the
outstanding Voting Securities, voting together as a single class, is
required to approve (a) a merger or consolidation of the Company with, or
into, another corporation, other than a merger or consolidation which does
not require the consent of stockholders under the DGCL or a merger or
consolidation which has been approved by at least 75% of the members of the
Company Board (in which case, in accordance with the DGCL, the affirmative
vote of a majority in total voting power of the outstanding Voting
Securities would, with certain exceptions, be required for approval), (b)
the sale, lease or exchange of all or substantially all of the property and
assets of the Company or (c) the dissolution of the Company. "Voting
Securities" is currently defined in the Company Charter as the Series A
Common Stock, the Series B Common Stock and any series of Preferred Stock
entitled to vote with the holders of Company Common Stock generally upon
all matters that may be submitted to a vote of stockholders at any annual
meeting or special meeting thereof.
Amendment of the Company Charter and the Bylaws. Under the DGCL, the
stockholders have the right to adopt, amend or repeal the certificate of
incorporation and bylaws of a corporation. In addition, if the certificate
of incorporation so provides, the bylaws may be amended by the board of
directors. The Company Charter provides that the affirmative vote of 66
2/3% in total voting power of the outstanding Voting Securities, voting
together as a single class, is required to approve any
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amendment, alteration or repeal of any provision of the Company Charter or
the addition or insertion of other provisions therein. The Company Charter
further provides that provisions of the Company's Bylaws may be adopted,
amended or repealed by the affirmative vote of (i) 66 2/3% in total voting
power of the outstanding Voting Securities, voting together as a single
class, or (ii) 75% of the members of the Company Board. These voting
requirements will have the effect of making more difficult any amendment by
stockholders of the Company's Bylaws or the Company Charter, even if a
majority of the Company's stockholders believe that such amendment would be
in their best interests.
No Stockholder Action by Written Consent; Special Meetings of
Stockholders. The Company Charter and the Company's Bylaws provide that,
subject to the rights of holders of any series of Preferred Stock,
stockholder action can be taken only at an annual or special meeting of
stockholders and no action may be taken by the written consent of
stockholders in lieu of a meeting. The Company Charter and the Company's
Bylaws provide that, except as otherwise provided by law or in the terms of
any series of Preferred Stock, special meetings of stockholders may be
called by the Secretary of the Company (i) upon the written request of the
holders of not less than 66 2/3% in total voting power of the outstanding
Voting Securities or (ii) at the request of not less than 75% of the
members of the Company Board then in office.
The provisions of the Company Charter and the Company's Bylaws
prohibiting stockholder action by written consent in lieu of a meeting will
prevent the holders of a majority of the voting power of the Company from
using the written consent procedure to take stockholder action, thereby
ensuring that all of the stockholders will have the opportunity to
participate at a duly called meeting in determining future corporate
actions. In addition, the requirement that special meetings of stockholders
be called upon the request of 66 2/3% of the total voting power of the
Voting Securities or 75% of the members of the Company Board will prevent
the calling of a special meeting by the holders of less than the percentage
of the total voting power of the Voting Securities necessary to approve a
merger or consolidation of the Company or an amendment to the Company
Charter or the Bylaws.
These provisions may be deemed to have an antitakeover effect because
such provisions will limit the ability of stockholders to call special
meetings in order to consider a merger or consolidation or amendment to the
Company Charter or the Company's Bylaws and, absent the request of holders
having the voting power required to approve such transactions, will enable
26% of the members of the incumbent Company Board to delay until an annual
meeting stockholder consideration of such matters, even if the holders of a
majority of the outstanding voting power of the Company favored such a
special meeting. Such provisions might also have the effect of making more
difficult the removal of incumbent management (through, for example,
amendments to the Company Charter) at such time as the stockholders might
believe such action to be appropriate.
The Company Board, however, believes that these provisions will
prevent the business of the Company from being disrupted between annual
meetings by the calling of special meetings by stockholders holding less
than the requisite percentage of the voting power of the outstanding Voting
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Securities required to effectuate any such transaction or amendment or by
attempts to take stockholder action by written consent, and will also
provide greater time for consideration of any proposal submitted by a
stockholder to the extent that his or her proposal would be deferred until
the next annual meeting of stockholders. These provisions will not affect
the calling of special meetings of stockholders by 75% of the members of
the Company Board, if in their opinion, there are matters to be acted upon
which are in the interests of the Company and its stockholders.
Advance Notice Provisions for Stockholder Nominations. The Company's
Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors. Nominations of
candidates for election to the Company Board may be made at an annual
meeting of stockholders (i) pursuant to the Company's notice of meeting,
(ii) by, or at the direction of, the Chairman of the Board or the Company
Board or (iii) by a stockholder of the Company who is entitled to vote at
the meeting, has given timely written notice to the Secretary of the
Company in accordance with the procedures set forth in the Bylaws and was a
stockholder of record at the time such notice was given. The Bylaws further
provide that at a special meeting at which directors are to be elected,
nominations of candidates for election to the Company Board can be made
only (i) by, or at the direction of, the Company Board or (ii) by a
stockholder of the Company who has given timely written notice to the
Secretary of the Company.
For notice of stockholder nominations to be made at an annual meeting
to be timely, such notice must be delivered to the Secretary of the Company
not less than 90 days nor more than 120 days prior to the first anniversary
of the preceding year's annual meeting (or if the date of the annual
meeting is advanced by more than 20 days or delayed by more than 70 days
from such anniversary date, not earlier than the 120th day prior to such
annual meeting and not later than the later of (x) the 90th day prior to
such annual meeting and (y) the tenth day after public announcement of the
date of such meeting is first made). For notice of a stockholder nomination
to be made at a special meeting at which directors are to be elected to be
timely, such notice must be delivered to the Secretary not earlier than the
120th day before such special meeting and not later than the later of (x)
the 90th day prior to such special meeting and (y) the tenth day after
public announcement is first made of the date of such special meeting.
A stockholder's notice to the Company proposing to nominate a person
for election as a director must contain certain information, including,
without limitation, the identity and address of the nominating stockholder
and the beneficial owner, if any, on whose behalf the nomination is made,
the series and number of shares of capital stock of the Company which are
owned by such stockholder and beneficial owner, a representation that such
stockholder is entitled to vote at the meeting and intends to appear in
person or by proxy at the meeting to nominate the person specified in the
notice, all information regarding the proposed nominee that would be
required to be included in a proxy statement soliciting proxies for the
proposed nominee and the consent of the nominee to serve as a director of
the Company if so elected. If the Chairman of the Board or other officer
presiding at a meeting determines that a person was not nominated in
accordance with the required procedures, such person will not be eligible
for election as a director.
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The requirement of advance notice of nominations by stockholders will
afford the Company Board a meaningful opportunity to consider the
qualifications of the proposed nominee and, to the extent deemed necessary
or desirable by the Company Board, to inform stockholders about such
qualifications. Although the Company Charter and the Bylaws do not give the
Company Board any power to approve or disapprove stockholder nominations
for the election of directors, they may have the effect of precluding a
contest for the election of directors if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors, without regard
to whether consideration of such nominees might be harmful or beneficial to
the Company and its stockholders.
Voting Rights. Each share of Series A Common Stock entitles the holder
to one vote and each share of Series B Common Stock entitles the holder to
ten votes on each matter presented to stockholders. The Series A Common
Stock and the Series B Common Stock vote together as a single class. deemed
to have an antitakeover effect as such concentration of voting power may
have the effect of discouraging a third party from making a tender offer or
otherwise attempting to obtain control of the Company even though such an
attempt might be economically beneficial to the Company and its
stockholders. In addition, the disparate voting rights of the two series of
Company Common Stock may affect the ability of holders of Series A Common
Stock to change the Company Board or to benefit from transactions that are
opposed by the holders of a significant number of shares of Series B Common
Stock, even though such actions may be in the interests of the holders of a
majority of the shares of Company Common Stock. Because such concentration
of voting power may make it more difficult to and thereby discourage an
effort to acquire the Company, the stockholders may be deprived of an
opportunity to sell their shares in a tender offer or to sell their shares
at a premium over prevailing market prices.
Preferred Stock. The Company Charter authorizes the Company Board to
issue five million shares of Preferred Stock, in one or more series, and to
establish the powers, preferences, rights and privileges thereof to the
full extent permitted by law. The Company believes that the ability of the
Company Board to issue one or more series of Preferred Stock will provide
the Company with increased flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs that
might arise. The authorized shares of Preferred Stock, as well as the
authorized shares of Company Common Stock, will be available for issuance
without further action by the Company's stockholders, unless such action is
required by applicable law or the rules of any stock exchange or automated
quotation system on which the Company's securities may be listed or traded.
If the approval of the Company's stockholders is not required for the
issuance of shares of Preferred Stock or Company Common Stock, the Company
Board does not intend to seek stockholder approval. The Company Board will
make any determination to issue such shares based on its judgment as to the
best interests of the Company and its stockholders. The Company Board, in
so acting, could issue Company Common Stock and/or Preferred Stock in
connection with an attempt to acquire control of the Company or other
transaction, and the terms of such series of Preferred Stock could be
designed to discourage such acquisition attempt or other transaction,
notwithstanding that some, or a majority, of the Company's stockholders
might believe such acquisition or other
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transaction to be in their best interests or that stockholders might
receive a premium for their stock over the then current market price of
such stock as a result thereof.
LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION
The Company Charter provides that, to the fullest extent permitted by
the DGCL as it presently exists or may hereafter be amended, a director
will not be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director. Under existing Delaware law,
directors would not be liable except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (involving
the payment of an unlawful dividend) or (iv) for any transaction from which
the director derived improper personal benefit. While the Company Charter
provides directors with protection from awards for monetary damages for
breach of their duty of care, it does not eliminate such duty. Accordingly,
the Company Charter will have no effect on the availability of equitable
remedies, such as an injunction or rescission, based on a director's breach
of his or her duty of care.
Delaware law contains provisions permitting and, in some situations,
requiring Delaware corporations, such as the Company, to provide
indemnification to their officers and directors for losses and litigation
expenses incurred in connection with their service to the corporation in
those capacities. The Company Charter requires the Company to indemnify and
hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is made
or is threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he, or a person for whom he is
the legal representative, is or was a director or officer of the Company or
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation or of a partnership, joint
venture, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans, against all liability and loss suffered
and expenses (including attorneys' fees) reasonably incurred by such
person. The Company's Bylaws provide that such right of indemnification
applies to the respective heirs, personal representatives and successors in
interest of members of the Company Board and officers of the Company for or
on account of any action performed on behalf of the Company. The Company
Charter also requires the Company to pay the expenses (including attorneys'
fees) incurred by a director or officer in defending any proceeding in
advance of its final disposition upon receipt of an undertaking by the
director or officer to repay all advanced amounts if it should ultimately
be determined that the director or officer is not entitled to
indemnification. If a valid claim for indemnification or payment of
expenses is not paid in full within 60 days after a written claim therefor
has been received by the Company, the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, will be
entitled to be paid the expense of prosecuting such claim. In any such
action, the Company will have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
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The Company Charter provides that the indemnification right stated
therein is not exclusive of any other rights that a person may have or may
in the future acquire under any statute, provision of the Company Charter,
the Bylaws, agreement, vote of stockholders or resolution of disinterested
directors or otherwise. The Company Charter further states that no
amendment, modification or repeal of the above-described Company Charter
provisions shall adversely affect any limitation, right or protection of a
director or officer under such Company Charter provision in respect of any
act or omission occurring prior to the time of such amendment, modification
or repeal.
The Company will enter into indemnification agreements with each of
its directors. The indemnification agreements will generally provide (i)
for the prompt indemnification to the fullest extent permitted by law
against (a) any and all expenses, including attorneys' fees and all other
costs paid or incurred in connection with investigating, preparing to
defend, defending or otherwise participating in, any threatened, pending or
completed action, suit or proceeding related to the fact that such
indemnitee is or was a director, officer, employee, agent or fiduciary of
the Company or is or was serving at the Company's request as a director,
officer, employee, trustee, agent or fiduciary of another entity, or by
reason of anything done or not done by such indemnitee in any such
capacity, and (b) any and all judgments, fines, penalties and amounts paid
in settlement of any claim, unless the "Reviewing Party" (defined as one or
more members of the Company Board or appointee(s) of the Company Board, who
are not parties to the particular claim, or independent legal counsel)
determines that such indemnification is not permitted under applicable law
and (ii) for the prompt advancement of expenses to an indemnitee as well as
the reimbursement by such indemnitee of such advancement to the Company if
the Reviewing Party determines that the indemnitee is not entitled to such
indemnification under applicable law. In addition, the indemnification
agreements will provide (i) a mechanism through which an indemnitee may
seek court relief in the event the Reviewing Party determines that the
indemnitee would not be permitted to be indemnified under applicable law
(and would therefore not be entitled to indemnification or expense
advancement under the indemnification agreement) and (ii) indemnification
against all expenses, including attorneys' fees, and the advancement
thereof, if requested, incurred by the indemnitee in any action brought by
the indemnitee to enforce an indemnity claim or to collect an advancement
of expenses or to recover under a directors' and officers' liability
insurance policy, regardless of whether such action is ultimately
successful or not. Furthermore, the indemnification agreements will provide
that after there has been a "change in control" in the Company (as defined
in the indemnification agreements), other than a change in control approved
by a majority of directors who were directors prior to such change, then,
with respect to all determinations regarding rights to indemnification and
the advancement of expenses, the Company will seek legal advice as to the
right of the indemnitee to indemnification under applicable law only from
independent legal counsel selected by the indemnitee and approved by the
Company.
The indemnification agreements will impose upon the Company the burden
of proving that an indemnitee is not entitled to indemnification in any
particular case and negate certain presumptions that may otherwise be drawn
against an indemnitee seeking indemnification in connection with the
termination of actions in certain circumstances. Indemnitees' rights under
the indemnification agreements are not exclusive of any other rights they
may have under Delaware law,
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the Company's Bylaws or otherwise. Although not requiring the maintenance
of directors' and officers' liability insurance, the indemnification
agreements require that indemnitees be provided with the maximum coverage
available for any director or officer of the Company if there is such a
policy.
The Company may purchase liability insurance policies covering its
directors and officers.
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INDEPENDENT AUDITORS
The Company Board has designated KPMG Peat Marwick LLP as the
Company's independent auditors for the 1996 fiscal year. TCI, as the
Company's sole stockholder, has approved the designation.
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GLOSSARY OF TERMS
1992 Cable Act. Cable Television and Consumer Protection and
Competition Act of 1992.
1996 Plan. TCI Satellite Entertainment, Inc. 1996 Stock Incentive
Plan.
1996 Telecom Act. Telecommunications Act of 1996.
ACC. Advanced Communications Corporation.
Add-on Company Option. Option to purchase Series A Common Stock,
issuable in connection with the Distribution to holders of existing TCI
Options. See "The Distribution -- Treatment of Outstanding TCI Stock
------------------------------------------------------
Options and SARs."
----------------
Adjusted TCI Option. Option to purchase Series A TCI Group Common
Stock, issuable in connection with the Distribution to holders of existing
TCI Options. See "The Distribution -- Treatment of Outstanding TCI Stock
------------------------------------------------------
Options and SARs."
----------------
Alphastar. Alphastar, Inc., a subsidiary of Tee-Com Electronics, Inc.,
a Canadian company.
Apple. Apple Computer, Inc., a California corporation.
AT&T. AT&T Corp.
Authorized Units. Number of active authorized satellite receivers,
more than one of which may be installed in a subscribing household.
Awards. Grants of Options, SARs, Restricted Shares, Stock Units,
Performance Awards or any combination thereof, made pursuant to the 1996
Plan.
Bose. Bose Corporation, a Massachusetts corporation.
box. See "IRD" and "satellite receiver."
--- ------------------
BSS. Broadcast Satellite Service, which operates at high power in the
Ku-band.
churn. Subscriber termination of satellite television service.
Code. Internal Revenue Code of 1986, as amended.
Comcast. Comcast Corporation.
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Commercial Market. Commercial customers and potential customers of
digital satellite television service, such as restaurants, bars, hotels and
motels, multiple dwelling units, businesses and schools.
Committee. Compensation Committee of the Company Board, or such other
committee as the Board may in the future appoint to administer the 1996
Plan.
Communications Act. Communications Act of 1934, as amended.
Company. TCI Satellite Entertainment, Inc., a Delaware corporation and
a wholly owned subsidiary of TCI prior to the Distribution. Unless the
context otherwise requires, also refers to (i) TCI's collective interests
in the Digital Satellite Business before the Distribution Date and (ii) TCI
Satellite Entertainment, Inc. and its consolidated subsidiaries on and
after the Distribution Date.
Company Board. Board of Directors of the Company.
Company Charter. Restated Certificate of Incorporation of the Company.
Company Common Stock. Series A Common Stock and Series B Common Stock.
Company Form 10. Registration Statement on Form 10, including
exhibits, schedules and amendments thereto, filed by the Company with the
SEC.
Company Note. Promissory note to be issued to TCIC by the Company on
or before the Distribution Date in the principal amount of $250,000,000,
representing a portion of the Company's intercompany balance owed to TCIC
on such date.
Company Satellites. Two high power direct broadcast satellites,
currently being constructed by Loral pursuant to the Satellite Construction
Agreement.
Company Satellite No. 3. Satellite which is designated for the 119
Degrees W.L. orbital position pursuant to Tempo's Construction Permit with
the FCC, to be built by Loral under the Satellite Construction Agreement
and scheduled to be launched by May 1998.
Company Transponders. 27 transponders on the Company Satellites to be
repurchased by the Company from Telesat in connection with the Telesat
Transaction.
Construction Permit. Construction permit held by Tempo and issued by
the FCC to build, launch and operate a DBS system.
Continental. Continental Cablevision, Inc.
Counsel. Baker & Botts, L.L.P.
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Cox. Cox Communications, Inc.
DBS. Direct Broadcast Satellite.
Decrees. The State Decree and the Federal Decree.
Delivery. Delivery of a satellite by Loral to Tempo, in accordance
with the Satellite Construction Agreement.
Determination Date. 20 business days after the Distribution Date.
DGCL. Delaware General Corporation Law.
Digital. TCI Digital Satellite Entertainment, Inc., a Colorado
corporation.
Digital compression. Conversion of the standard analog video signal
into a digital signal, and the compression of that signal so as to
facilitate multiple channel transmission through a single transponder.
Digital Satellite Business. Business of distributing multichannel
programming services directly to consumers in the U.S. via digital
satellite, including the rental and sale of customer premises equipment
relating thereto.
DirecTv. DirecTv, Inc., a subsidiary of Hughes Electronics
Corporation, a Delaware corporation.
DISCO II. Domestic International Satellite Consolidation Order, an
NPRM adopted by the FCC in May 1996.
Distribution. Distribution by TCI to the TCI Group Stockholders of all
of the issued and outstanding Company Common Stock.
Distribution Date. ________________________, 1996, the date the
Distribution will be made.
Distributors. Affiliates of each of the partners of PRIMESTAR Partners
other than GEAS, including the Company, who are authorized distributors of
PRIMESTAR(R).
Dividend Equivalents. Cash or property corresponding to all dividends
and distributions (or the economic equivalent thereof) in respect of
Restricted Shares issued at the end of the Restriction Period that would
have been paid, made or declared on such Restricted Shares had such shares
been issued at the beginning of the Restriction Period.
EchoStar. EchoStar Communications Corp., a Nevada corporation.
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Employee Plan. Qualified Employee Stock Purchase Plan to be
established by the Company.
End-of-Life Option. PRIMESTAR Partners' option, exercisable prior to
December 31, 1996, to extend the agreement between PRIMESTAR Partners and
GE Americom with respect to the use of up to 24 transponders on GE-2.
ESPP. TCI Employee Stock Purchase Plan.
Exchange Act. Securities Exchange Act of 1934, as amended.
Executive Branch Letter. Joint letter filed with the FCC by four
cabinet-level departments of the Executive Branch regarding WTCI's
application for FCC authorization to construct and operate an earth station
to uplink video programming to the Company Satellites.
FCC. Federal Communications Commission.
FCC Auction. FCC auction held in January 1996 for 28 frequencies at
the 110 Degrees W.L. orbital location and 24 frequencies at the 148 Degrees
W.L. orbital location.
Federal Decree. Consent decree entered in United States v. PRIMESTAR
--------------------------
Partners, L.P., et al., 93 Civ. 3913 (SDNY, 1993).
------------------------
Free Standing SAR. SAR granted under the 1996 Plan to an eligible
employee who is not the holder of an Option.
FSS. Fixed Satellite Service, which includes medium power services
transmitting in the Ku-band, as well as low power services transmitting in
the C-band.
Fulfillment Agreement. Agreement to be entered into between TCIC and
the Company on or before the Distribution Date, pursuant to which it is
anticipated that TCIC cable systems will continue to provide installation,
maintenance, retrieval, inventory management and other customer fulfillment
services for certain customers of the Company.
G.E. General Electric Company.
GE-1. GE Americom medium power satellite, scheduled for launch in
September 1996 and for which GE-2 serves as the backup.
GE-2. GE Americom medium power satellite that GE Americom currently
expects to launch in 1997 to replace K-1, and make operational in February
1997.
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GE-3. GE Americom medium power satellite that is still under
construction and that would become the replacement for GE-2 and be
available for launch by July 1997 in the event of a launch failure of
defect or damage affecting the ability of GE Americom to make GE-1
operational.
GE Americom. GE American Communications, Inc., a Delaware corporation.
GE Americom is a subsidiary of G.E. and the parent company of GEAS.
GEAS. G.E. Americom Services, Inc., a Delaware corporation and a
partner of PRIMESTAR Partners.
GI. General Instruments Corporation, a Delaware corporation.
HSDs. Home satellite dishes.
homes passed. Homes that can be connected to a cable distribution
system without further extension of the cable distribution network.
ILS. International Launch Services.
Incentive Options. Options granted pursuant to the 1996 Plan which are
incentive stock options within the meaning of Section 422 of the Code.
Indemnification Agreements. Indemnification Agreement between the
Company and TCITV, relating to the Telesat Transaction, and the
Indemnification Agreement between the Company and TCI UA 1, relating to a
letter of credit issued for the account of TCI UA 1, which supports the
PRIMESTAR Credit Facility.
IRD. Integrated receiver/decoder; a set-top satellite television
receiver.
K-1. Satcom K-1, a GE Americom medium power satellite located at 85
Degrees W.L. and owned by GE Americom.
K-1 Notes. Promissory notes to be issued in connection with the
Distribution by two subsidiaries of the Company for the purchase of TCIC's
partnership interests in PRIMESTAR Partners, which promissory notes will be
assumed by TCI on or before the Distribution Date in the form of a capital
contribution to the Company.
Kearns-Tribune. Kearns-Tribune Corporation, a Utah corporation.
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Liberty Media Group. TCI's programming and electronic retailing
businesses.
Liberty Media Group Common Stock. Tele-Communications, Inc. Series A
Liberty Media Group Common Stock, $1.00 par value per share and Tele-
Communications, Inc. Series B Liberty Media Group Common Stock, $1.00 par
value per share.
License Agreement. Trade Name and Service Mark License Agreement by
and between TCI and the Company.
LKE. Lockheed-Khrunichev-Energia, Inc., a joint venture between
Lockheed-Martin and two Russian Federation state-owned companies.
LMDS. Local multi-point distribution service.
LNB. Low noise block converter, a component of HSDs.
Lockheed-Martin. Lockheed Martin Corporation.
Loral. Space Systems/Loral, Inc., a New York corporation.
Master Agents. Four master sales agents engaged by the Company to
distribute PRIMESTAR(R), including Metron Digital Services, Inc., CVS
Systems, Inc., Resource Electronics, Inc. and Recreation Sports and
Imports, Inc.
MCI. MCI Communications Corp., a Delaware corporation.
MCI/News Corp. Joint venture between MCI and News Corp. that expects
to commence offering high power service by the end of 1997.
MMDS. Multi-channel multi-point distribution service; a one-way radio
transmission of television channels over microwave frequencies from a fixed
station transmitting to multiple receiving facilities located at fixed
points.
National Call Center. National call center maintained by the Company
for orders, information and customer service.
Netlink. Netlink USA; a subsidiary of TCI and a member of the Liberty
Media Group.
Newhouse. Newhouse Broadcasting Corporation.
News Corp. The News Corporation Limited, an Australian corporation.
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Nonemployee Director. Director of the Company who is not an employee
of the Company or any subsidiary of the Company.
Nonemployee Director Plan. 1996 Nonemployee Director Stock Option
Plan.
Nonqualified Options. Options granted pursuant to the 1996 Plan, which
are nonqualified stock options under Section 422 of the Code.
NPRM. Notice of proposed rulemaking.
Operating Cash Flow. Operating income before depreciation. Operating
Cash Flow is a commonly used measure of value and borrowing capacity.
Operating Cash Flow is not intended to be a measure of performance in
accordance with generally accepted accounting principles and should not be
relied upon as such.
Operating Services Agreement. Operating Services Agreement between
Telesat and TCITV, dated as of May 6, 1996, entered into in connection with
the Telesat Transaction. Pursuant to the Reorganization Agreement, on or
before the Distribution Date, TCITV will assign its rights and obligations
under the Operating Services Agreement to the Company or a subsidiary, as
contemplated by the Operating Services Agreement.
Option Agreement. Agreement entered into by Tempo and PRIMESTAR
Partners in February 1991, granting PRIMESTAR Partners the Tempo Option.
Options. Stock options granted pursuant to the 1996 Plan.
Participant Contributions. Pre-tax contributions, after-tax
contributions or both made by a participant to the Employee Plan.
Partners Committee. Committee of the Partnership, composed of
representatives of the partners of the Partnership and two independent
members, that manages and controls the business and affairs of PRIMESTAR
Partners pursuant to the PRIMESTAR Partnership Agreement.
Partnership. PRIMESTAR Partners, L.P., a Delaware limited partnership.
passed by cable. With access to cable television.
Performance Awards. Performance awards granted pursuant to the 1996
Plan.
Person. Any corporation (other than the Company), partnership, limited
liability company, trust or other legal entity.
Preferred Stock. Preferred stock, par value $.01 per share, of TCI
Satellite Entertainment, Inc.
PRIMESTAR(R). The PRIMESTAR(R) programming service.
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PRIMESTAR Credit Facility. Bank credit facility obtained by PRIMESTAR
Partners to finance advances to Tempo for payments due in respect of the
Company Satellites under the Satellite Construction Agreement, and
supported by letters of credit arranged for by affiliates of the partners
of the Partnership (other than GEAS).
PRIMESTAR Partners. PRIMESTAR Partners, L.P., a Delaware limited
partnership.
PRIMESTAR Partnership Agreement. Limited Partnership Agreement of
PRIMESTAR Partners (then known as K Prime Partners, L.P.), dated as of
February 8, 1990, as amended.
Record Date. _________________________, 1996.
Reorganization Agreement. Agreement to be entered into on or before
the Distribution Date by TCI, TCIC and a number of other TCI subsidiaries,
including the Company and its subsidiaries, which will provide for, among
other things, the principal corporate transactions required to effect the
Distribution, the conditions thereto and certain provisions governing the
relationship between the Company and TCI with respect to and resulting from
the Distribution.
Restricted Shares. Restricted shares granted pursuant to the 1996
Plan.
Restriction Period. Period of time designated by the Committee at the
time of any Award of Restricted Shares, which must elapse before the
Restricted Shares will become vested.
Retained Distributions. Dividends and distributions made or declared
with respect to Restricted Shares before the end of the Restriction Period,
other than such dividends and other distributions designated by the
Committee.
SARs. Stock appreciation rights granted pursuant to the 1996 Plan.
Satellite Construction Agreement. Fixed-price satellite construction
agreement between Loral and Tempo dated as of February 22, 1990, pursuant
to which the Company has agreed to purchase the Company Satellites and has
an option to purchase up to three additional satellites.
Satellite Purchase Agreement. Satellite Purchase Agreement between
Tempo and Telesat, dated as of May 6, 1996, entered into in connection with
the Telesat Transaction.
Satellite Purchase Price. Price Telesat will pay to Tempo for the
Company Satellites, in accordance with the Satellite Purchase Agreement.
satellite receiver. See, "IRD."
---
SBCA. Satellite Broadcasting and Communications Association.
119
<PAGE>
SEC. Securities and Exchange Commission.
Securities Act. Securities Act of 1933, as amended.
Series A Common Stock. TCI Satellite Entertainment, Inc. Series A
Common Stock, $1.00 par value per share.
Series A Liberty Media Group Common Stock. Tele-Communications, Inc.
Series A Liberty Media Group Common Stock, $1.00 par value per share.
Series A TCI Group Common Stock. Tele-Communications, Inc. Series A
TCI Group Common Stock, $1.00 par value per share.
Series B Common Stock. TCI Satellite Entertainment, Inc. Series B
Common Stock, $1.00 par value per share.
Series B Liberty Media Group Common Stock. Tele-Communications, Inc.
Series B Liberty Media Group Common Stock, $1.00 par value per share.
Series B TCI Group Common Stock. Tele-Communications, Inc. Series B
TCI Group Common Stock, $1.00 par value per share.
Service. Internal Revenue Service.
set-top box. See, "IRD."
---
Share Purchase Agreement. Agreement to be entered into by TCI and the
Company on or before the Distribution Date, 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 (i) under Adjusted TCI Options and
Add-on Company Options held after the Distribution Date by their respective
employees, (ii) under certain additional options issued by TCI prior to the
Distribution to certain key employees of TCI, exercisable for shares of
Series A Common Stock, and (iii) in connection with any required
adjustments to the TCI Series D Preferred Stock and the Convertible Notes
due December 12, 2021 of TCI UA, Inc., as a result of the Distribution.
State Decree. Consent decree entered in The States of New York, et al.
------------------------------
v. PRIMESTAR Partners, L.P., et al., 93 Civ. 3068-3907 (SDNY, 1994).
------------------------------------
Stock Units. Awards of Series A Common Stock and other awards granted
by the Committee under the 1996 Plan that are valued in whole or in part by
reference to, or are otherwise based on, the value of the Series A Common
Stock.
120
<PAGE>
Tag-Along Agreement. Agreement dated as of February 8, 1990,
originally entered into by and among Cox Enterprises, Inc., Comcast,
Continental, Newhouse, Tempo, TCIC and TCI Development Corporation, a
subsidiary of TCI.
Tandem SAR. SAR granted under the 1996 Plan to the holder of an Option
with respect to all or a portion of the shares of Series A Common Stock
subject to the related Option.
Tax Sharing Agreement. The existing Tax Sharing Agreement among TCI,
TCIC and certain other consolidated subsidiaries of TCI. In connection with
the Distribution, the Tax Sharing Agreement will be amended to provide that
the Company will be treated as if it had been a party to the Tax Sharing
Agreement effective July 1, 1995.
TCI. Tele-Communications, Inc., a Delaware corporation.
TCI 1994 Plan. Tele-Communications, Inc. 1994 Stock Incentive Plan.
TCI 1995 Plan. Tele-Communications, Inc. 1995 Stock Incentive Plan.
TCI 1996 Plan. Tele-Communications, Inc. 1996 Incentive Plan.
TCI Board. Board of Directors of TCI.
TCIC. TCI Communications, Inc., a Delaware corporation and the
subsidiary of TCI that owns and operates cable systems in the U.S., and its
consolidated subsidiaries.
TCIC Credit Agreement. Credit agreement between the Company and TCIC,
which will be entered into on or before the Distribution Date and which
will set forth the terms and conditions of the TCIC Credit Facility.
TCIC Credit Facility. $500,000,000 revolving credit facility that TCIC
has agreed to provide the Company on an interim basis, pending the
Company's consummation of permanent financing.
TCI Group. TCI's businesses that are not attributed to the Liberty
Media Group.
TCI Group Common Stock. Series A TCI Group Common Stock and Series B
TCI Group Common Stock.
TCI Group Stockholders. Holders of record of TCI Group Common Stock.
TCI Options. Options to purchase shares of Series A TCI Group Common
Stock.
TCI Plan Committee. Committee of the TCI Board of Directors that
administers the TCI Plans.
121
<PAGE>
TCI Plans. Various stock plans of TCI, other than the TCI 1992 Plan.
TCI SARs. Stock appreciation rights with respect to shares of Series A
TCI Group Common Stock.
TCI Series D Preferred Stock. TCI Series D Convertible Preferred
Stock.
TCITV. TCI Technology Ventures, Inc., a Delaware corporation and a
subsidiary of TCI.
TCI UA 1. TCI UA 1, Inc., a Colorado corporation and a subsidiary of
TCI.
TCI UA 1 Letter of Credit. Irrevocable transferable letter of credit
issued by Chemical Bank for the account of TCI UA 1, which supports the
PRIMESTAR Credit Facility.
Telesat. Telesat Canada, a Canadian corporation.
Telesat Transaction. Proposed transaction between the Company and
Telesat, which provides, among other things, for (i) the launch by Telesat
of one or both of the Company Satellites into the 82 Degrees W.L. orbital
position, (ii) the sale of the Company Satellites to Telesat pursuant to
the Satellite Purchase Agreement, and (iii) the resale by Telesat of 27 of
the 32 transponders on the Company Satellites to the Company or a
subsidiary pursuant to the Operating Services Agreement.
Tempo. Tempo Satellite, Inc., an Oklahoma corporation and a direct,
wholly owned subsidiary of the Company.
Tempo Letter Agreements. Two letter agreements entered into by Tempo
and PRIMESTAR Partners in connection with the Tempo Option and certain
related matters.
Tempo Option. PRIMESTAR Partners' right and option, granted by Tempo
under the Option Agreement, upon exercise, to purchase or lease 100% of the
capacity of a DBS system to be built, launched and operated by Tempo
pursuant to the Construction Permit.
Time Warner. Time Warner, Inc.
Transition Services Agreement. Agreement between TCI and the Company,
pursuant to which, TCI will provide the Company with certain administrative
and other services after the Distribution that were provided by TCI prior
to the Distribution.
transponder. Transmitting device on a communications satellite. For an
analog signal, there is one transmitting channel per transponder. With
digital compression, one transponder can be converted into five or more
analog programming channels.
USSB. United States Satellite Broadcasting Corporation, a Minnesota
corporation.
122
<PAGE>
UVSG. United Video Satellite Group, Inc., an Oklahoma corporation; a
consolidated subsidiary of TCI that is included within the TCI Group in
which TCI owns 40.5% of the outstanding shares of common stock
(representing 85.5% of the voting power of such shares).
Voting Securities. The Series A Common Stock, the Series B Common
Stock and any series of Preferred Stock entitled to vote with the holders
of Company Common Stock generally upon all matters that may be submitted to
a vote of stockholders at any annual meeting or special meeting thereof.
wireless cable. Any of a number of methods of distributing
multichannel video programming by land-based radio frequency transmissions,
including MMDS and LMDS.
W.L. West longitude. Satellite orbital positions are identified by
their position over the equator in degrees of longitude East or West of the
zero meridian.
WTCI. Western Tele-Communications, Inc., a Delaware corporation and a
subsidiary of TCIC.
123
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
"TCI SATCO"
Audited Combined Financial Statements
-------------------------------------
Independent Auditors' Report ............................................F-2
Combined Balance Sheets,
December 31, 1995 and 1994 .............................................F-3
Combined Statements of Operations,
Years ended December 31, 1995, 1994 and 1993 ...........................F-5
Combined Statements of Parent's Investment,
Years ended December 31, 1995, 1994 and 1993 ...........................F-6
Combined Statements of Cash Flows,
Years ended December 31, 1995, 1994 and 1993 ...........................F-7
Notes to Combined Financial Statements,
December 31, 1995, 1994 and 1993 .......................................F-8
Unaudited Combined Financial Statements
----------------------------------------
Combined Balance Sheets,
June 30, 1996 and December 31, 1995 ...................................F-29
Combined Statements of Operations,
Six months ended June 30, 1996 and 1995 ...............................F-31
Combined Statements of Parent's Investment,
Six months ended June 30, 1996 ........................................F-32
Combined Statements of Cash Flows,
Six months ended June 30, 1996 and 1995 ...............................F-33
Notes to Combined Financial Statements,
June 30, 1996 .........................................................F-34
PRIMESTAR PARTNERS, L.P.
Audited Financial Statements
----------------------------
Report of Independent Accountants ......................................F-47
Balance Sheet
December 31, 1995 and 1994 ............................................F-48
Statement of Operations
December 31, 1995, 1994 and 1993 ......................................F-49
Statement of Changes in Partner's Capital
Years ended December 31, 1995, 1994 and 1993 ..........................F-50
Statement of Cash Flows
Years ended December 31, 1995, 1994 and 1993 ..........................F-51
Notes to Financial Statements
December 31, 1995, 1994 and 1993 ......................................F-52
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TCI Communications, Inc.:
We have audited the accompanying combined balance sheets of "TCI SATCO" (a
combination of certain satellite television assets of TCI Communications,
Inc., as defined in note 1) as of December 31, 1995 and 1994, and the
related combined statements of operations, parent's investment, and cash
flows for each of the years in the three-year period ended December 31,
1995. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of "TCI SATCO" as
of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the years in the three-year period ended December
31, 1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
August 5, 1996
F-2
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Combined Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- ---------
Assets amounts in thousands
------
<S> <C> <C>
Cash $ 1,801 --
Accounts receivable 29,192 4,103
Less allowance for doubtful accounts 4,819 1,589
-------- -------
24,373 2,514
-------- -------
Prepaid expenses 86 --
Investment in, and related advances to,
PRIMESTAR Partners L.P., ("PRIMESTAR
Partners") (note 5) 17,963 9,793
Property and equipment, at cost:
Satellite reception systems 550,940 135,190
Support equipment 12,395 425
Cost of satellites under construction (note 6) 382,900 278,772
-------- -------
946,235 414,387
Less accumulated depreciation 57,015 16,589
-------- -------
889,220 397,798
-------- -------
$933,443 410,105
======== =======
</TABLE>
(continued)
F-3
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Combined Balance Sheets, continued
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
Liabilities and Parent's Investment amounts in thousands
-----------------------------------
<S> <C> <C>
Accounts payable $ 11,378 1,168
Accrued charges from PRIMESTAR Partners (note 5) 26,420 4,900
Other accrued expenses 11,483 1,078
Subscriber advance payments 13,244 1,764
Due to PRIMESTAR Partners (note 6) 382,900 278,772
Deferred income taxes (note 7) 4,434 1,897
------- -------
Total liabilities 449,859 289,579
------- -------
Parent's investment:
Accumulated deficit (75,775) (28,268)
Due to TCI Communications, Inc. ("TCIC") (notes 2 and 8) 559,359 148,794
------- -------
Total parent's investment 483,584 120,526
------- -------
Commitments and contingencies (notes 2, 5, 6, 8 and 9)
$933,443 410,105
======== =======
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Combined Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- --------
amounts in thousands
<S> <C> <C> <C>
Revenue:
Programming and equipment rental 133,688 18,641 9,075
Installation 75,215 11,638 2,604
------- ------- ------
208,903 30,279 11,679
------- ------- ------
Operating costs and expenses:
Programming and other charges from
PRIMESTAR Partners (note 5) 78,250 11,632 4,445
Other operating:
TCIC (note 8) 15,916 4,367 1,577
Other 1,884 -- --
Selling, general and administrative:
TCIC (note 8) 7,817 1,080 795
Other 110,250 8,027 252
Depreciation 55,488 14,317 6,513
------- ------- ------
269,605 39,423 13,582
------- ------- ------
Operating loss (60,702) (9,144) (1,903)
Other income (expense):
Share of losses of PRIMESTAR Partners (note 5) (8,969) (11,722) (5,524)
Other, net 306 306 88
------- ------- ------
(8,663) (11,416) (5,436)
------- ------- ------
Loss before income taxes (69,365) (20,560) (7,339)
Income tax benefit (note 7) 21,858 6,872 2,505
------- ------- ------
Net loss $(47,507) (13,688) (4,834)
======== ======= ======
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Combined Statements of Parent's Investment
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Total
Accumulated Due to parent's
deficit TCI investment
--------- ----------- -----------
amounts in thousands
<S> <C> <C> <C>
Balance at January 1, 1993 $ (9,746) 27,283 17,537
Net loss (4,834) -- (4,834)
Allocation of TCIC expenses -- 2,372 2,372
Allocation of TCIC installation costs -- 4,511 4,511
Intercompany income tax allocation -- (3,403) (3,403)
Net cash transfers from TCIC -- 27,166 27,166
------- ------- -------
Balance at December 31, 1993 (14,580) 57,929 43,349
Net loss (13,688) -- (13,688)
Allocation of TCIC expenses -- 5,447 5,447
Allocation of TCIC installation costs -- 15,369 15,369
Intercompany income tax allocation -- (9,611) (9,611)
Net cash transfers from TCIC -- 79,660 79,660
-------- ------- -------
Balance at December 31, 1994 (28,268) 148,794 120,526
Net loss (47,507) -- (47,507)
Allocation of TCIC expenses -- 23,733 23,733
Allocation of TCIC installation costs -- 57,058 57,058
Intercompany income tax allocation -- (36,530) (36,530)
Recognition of deferred tax assets in
connection with intercompany
transfer of certain property and
equipment -- 12,135 12,135
Net cash transfers from TCIC -- 354,169 354,169
-------- ------- -------
Balance at December 31, 1995 $(75,775) 559,359 483,584
======== ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Combined Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ---------
amounts in thousands
(see note 4)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (47,507) (13,688) (4,834)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 55,488 14,317 6,513
Share of losses of PRIMESTAR Partners 8,969 11,722 5,524
Deferred income tax expense 14,672 2,739 898
Other non-cash charges (credits) 901 (87) 449
Changes in operating assets and liabilities:
Change in receivables (21,859) (1,809) (263)
Change in prepaids (86) -- --
Change in accruals and payables 42,135 5,624 764
Change in subscriber advance payments 11,480 1,304 172
--------- ------- --------
Net cash provided by operating activities 64,193 20,122 9,223
--------- ------- --------
Cash flows from investing activities:
Capital expended for construction of satellites (104,128) (207,608) (71,164)
Capital expended for property and equipment (442,782) (109,184) (14,881)
Additional investments in and advances to
PRIMESTAR Partners (17,139) (32,082) (24,664)
Repayment of advances to PRIMESTAR Partners -- 30,192 --
--------- ------- --------
Net cash used in investing activities: (564,049) (318,682) (110,709)
--------- -------- --------
Cash flows from financing activities:
Increase in due to PRIMESTAR Partners 104,128 207,608 71,164
Increase in due to TCIC 397,529 90,952 30,197
--------- ------- --------
Net cash provided by financing activities 501,657 298,560 101,361
--------- ------- --------
Net increase (decrease) in cash 1,801 -- (125)
Cash at beginning of year -- -- 125
--------- ------- --------
Cash at end of year $ 1,801 -- --
========= ======= ========
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statements
December 31, 1995, 1994 and 1993
(1) Basis of Presentation
---------------------
The accompanying combined financial statements of "TCI SATCO"
represent a combination of the historical financial information of
certain satellite television assets of TCIC, a subsidiary of Tele-
Communications, Inc. ("TCI"). Upon consummation of the spinoff
transaction described in note 2, TCI Satellite Entertainment, Inc.
("TSEI") will own the assets that comprise "TCI SATCO," which
assets include (i) a 100% ownership interest in "PRIMESTAR By TCI,"
the TCIC business that distributes the PRIMESTAR(R) programming
service to subscribers within specified areas of the continental
United States, (ii) a 20.86% aggregate ownership interest in PRIMESTAR
Partners, (iii) a 100% ownership interest in Tempo Satellite, Inc.
("Tempo"), and (iv) TCI's rights under certain agreements with Telesat
Canada ("Telesat").
Tempo holds a construction permit issued by the Federal Communications
Commission ("FCC") authorizing construction of a direct broadcast
satellite ("DBS") system. Tempo is also a party to a construction
agreement with Space Systems/Loral, Inc. ("Loral"), pursuant to which
Loral is currently constructing two high power communications
satellites (the "Company Satellites"). PRIMESTAR Partners, which was
formed as a limited partnership in 1990 by subsidiaries of TCIC,
several other cable operators and General Electric Company, broadcasts
satellite entertainment services that are delivered to the home
through PRIMESTAR By TCI and certain other authorized distributors.
In the following text, the "Company" may, as the context requires,
refer to "TCI SATCO" (prior to the completion of the spinoff
transaction described in note 2), TSEI and its consolidated
subsidiaries (subsequent to the completion of the spinoff transaction
described in note 2) or both. Additionally, unless the context
indicates otherwise, references to "TCI" and "TCIC" herein are to TCI
and TCIC and their respective consolidated subsidiaries (other than
the Company).
All significant inter-entity transactions have been eliminated.
As further discussed in note 8, the accompanying combined statements
of operations include allocations of certain costs and expenses of
TCI. Although such allocations are not
(continued)
F-8
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statements
necessarily indicative of the costs that would have been incurred by
the Company on a stand-alone basis, management believes the resulting
allocated amounts are reasonable.
(2) Spinoff Transaction
-------------------
On June 17, 1996, the Board of Directors of TCI (the "TCI Board")
announced its intention to spinoff all the capital stock of the
Company to the holders of Tele-Communications, Inc. Series A TCI Group
Common Stock (the "Series A TCI Group Common Stock") and Tele-
Communications, Inc. Series B TCI Group Common Stock (the "Series B
TCI Group Common Stock" and, together with the Series A TCI Group
Common Stock, the "TCI Group Common Stock"). The spinoff will be
effected as a distribution (the "Distribution") by TCI to holders of
its TCI Group Common Stock of shares of Series A Common Stock of the
Company (the "Series A Common Stock") and Series B Common Stock of the
Company (the "Series B Common Stock"). The Distribution will not
involve the payment of any consideration by the holders of TCI Group
Common Stock (such holders, the "TCI Group Stockholders"), and is
intended to qualify as a tax-free spinoff. The Distribution is
expected to occur in the fourth quarter of 1996, on a date (the
"Distribution Date") to be determined by the TCI Board, and will be
made as a dividend to holders of TCI Group Common Stock of record as
of the close of business on a record date (the "Record Date") to be
determined by the TCI Board.
Stockholders of record of TCI Group Common Stock on the Record Date
will receive one share of Series A Common Stock for each ten shares of
Series A TCI Group Common Stock owned of record at the close of
business on the Record Date and one share of Series B Common Stock for
each ten shares of Series B TCI Group Common Stock owned of record as
of the close of business on the Record Date. Fractional shares will
not be issued. Fractions of one-half or greater of a share will be
rounded up and fractions of less than one-half of a share will be
rounded down to the nearest whole number of shares of Series A Common
Stock and Series B Common Stock.
Following the Distribution, the Company and TCI will operate
independently, and neither will have any stock ownership, beneficial
or otherwise, in the other. For the purposes of governing certain of
the ongoing relationships between the Company and TCI after the
Distribution, and to provide mechanisms for an orderly transition, the
Company and TCI have entered, or prior to the Distribution will enter,
into various agreements, including the
(continued)
F-9
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statements
"Reorganization Agreement", the "Fulfillment Agreement", the "TCIC
Credit Facility", the "Transition Services Agreement", an amendment to
TCI's existing "Tax Sharing Agreement" and the "Indemnification
Agreements."
Reorganization Agreement
------------------------
The Reorganization Agreement provides for the transfer to the Company
of the assets of TCI SATCO, and for the assumption by the Company of
related liabilities. No consideration will be payable by the Company
for these transfers, except that two subsidiaries of the Company will
purchase TCIC's partnership interests in PRIMESTAR Partners for
consideration payable by delivery of promissory notes issued by such
subsidiaries, which notes will be assumed by TCI in connection with
the Distribution, in the form of a capital contribution to the
Company. The Reorganization Agreement will also provide for certain
cross-indemnities designed to make the Company financially responsible
for all liabilities relating to the digital satellite business
conducted by TCI prior to the Distribution, as well as for all
liabilities incurred by the Company after the Distribution, and to
make TCI financially responsible for all potential liabilities of the
Company which are not related to the digital satellite business,
including, for example, liabilities arising as a result of the Company
being a subsidiary of TCI.
The Reorganization Agreement also provides that, prior to the
Distribution, the Company will issue to TCIC a promissory note (the
"Company Note"), in the principal amount of $250,000,000, representing
a portion of the Company's intercompany balance owed to TCIC on such
date. Pursuant to the Reorganization Agreement, the remainder of the
Company's intercompany balance owed to TCIC on the Distribution Date
will be assumed by TCI in the form of a capital contribution to the
Company. The Company Note will bear interest at the rate of 10.0% per
annum, compounded quarterly, and will mature on September 30, 2001.
Payments of principal and interest are not required prior to maturity
by the terms of the Company Note, but the Company Note can be prepaid
at any time without penalty.
Fulfillment Agreement
---------------------
TCIC has historically provided the Company with certain customer
fulfillment services. Charges for such services have been allocated to
the Company by TCIC based on a schedule of standard charges. Pursuant
to the Fulfillment Agreement, TCIC will continue to provide
fulfillment services to the Company following the Distribution with
respect to certain customers of
(continued)
F-10
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statements
the PRIMESTAR(R) medium power service. Such services will include
installation, maintenance, retrieval, inventory management and other
customer fulfillment services. The Fulfillment Agreement, which will
become effective on the first day of the month following the
Distribution Date, provides for, among other matters, (i) the
responsibilities of TCIC with respect to fulfillment services,
including performance standards and penalties for non-performance,
(ii) TCIC's fulfillment sites to be connected to the billing and
information systems used by the Company, allowing for on-line
scheduling and dispatch of installation and other service calls, and
(iii) standard fees to be charged to the Company for the various
customer fulfillment services to be provided by TCIC. The Company will
retain sole control under the Fulfillment Agreement to establish the
retail prices and other terms and conditions on which installation and
other services will be provided to the Company's customers. The
Fulfillment Agreement also provides that, during the term of the
Fulfillment Agreement, TCIC will not provide fulfillment services to
any other Ku-band, Ka-band, DBS, BSS, FSS, C-band, wireless or other
similar or competitive provider or distributor of television
programming services (other than traditional cable). The Fulfillment
Agreement will have an initial term of two years, and is terminable,
on 180 days notice to TCIC, by the Company at any time during the
first six months following the Distribution Date.
There can be no assurance that the terms of the Fulfillment Agreement
are not more or less favorable than those which could be obtained from
unaffiliated third parties, or that comparable services could be
obtained by the Company from third parties on any terms if the
Fulfillment Agreement is terminated. The cost to the Company of the
services provided by TCIC under the Fulfillment Agreement will exceed
the current standard charges allocated to the Company for such
services, reflecting in part the value to the Company, as determined
by Company management of the performance standards, exclusivity,
termination right and certain other provisions included in the
Fulfillment Agreement. See notes 1 and 8.
TCIC Credit Facility
--------------------
TCIC has committed to provide the Company with a $500,000,000
revolving credit facility on an interim basis, pending consummation of
permanent financing ("TCIC Credit Facility"), which will enable the
Company to make borrowings from time to time during the term of the
TCIC Credit Facility, subject to the terms and conditions thereof. The
maximum available amount under the TCIC Credit Facility from time to
time will be subject to the achievement of certain financial ratios
and/or operating milestones by the Company. The TCIC Credit Facility
shall terminate, and all obligations of the Company thereunder shall
be due and payable in full on September 30, 2001, provided that the
--------
Company shall be required to use its best efforts to
(continued)
F-11
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statements
refinance the TCIC Credit Facility as soon as possible after the
Distribution Date. Borrowings under the TCIC Credit Facility may be
used for capital expenditures, working capital and other general
corporate purposes. The terms and conditions of the TCIC Credit
Facility will be set forth in a credit agreement between the Company
and TCIC to be entered into on or before the Distribution Date (the
"TCIC Credit Agreement"). It is expected that the TCIC Credit
Agreement will contain representations and warranties, financial and
other covenants, conditions to borrowing, events of default and
remedies, including such terms as the Company and TCIC deem reasonable
under the circumstances. All principal of and accrued interest on all
borrowings under the TCIC Credit Facility will be required to be
repaid on September 30, 2001, the final maturity of the TCIC Credit
Facility, whether or not a replacement credit facility or other debt
financing sufficient to meet such obligations has then been obtained
by the Company.
Transition Services Agreement
-----------------------------
Pursuant to the Transition Services Agreement between TCIC and the
Company, following the Distribution, TCIC will provide the Company
with certain administrative and other services that were provided by
TCIC prior to the Distribution. The Company will reimburse TCIC
quarterly for all direct expenses incurred by TCIC in providing such
services and the allocable share of all indirect expenses incurred by
TCIC in connection with providing such services. The obligations of
TCIC to provide services under the Transition Services Agreement
generally will continue in effect until terminated by either the
Company at any time on not less than 60 days' notice to TCIC, or by
TCIC after the third anniversary of the Distribution Date on not less
than 60 days' notice to the Company.
Indemnification Agreements
--------------------------
In connection with the Distribution, the Company will enter into
Indemnification Agreements (the ''Indemnification Agreements") with
two subsidiaries of TCI: TCI Technology Ventures, Inc. ("TCITV") and
TCI UA 1, Inc. (the "TCI UA 1"). The Indemnification Agreement with
TCITV will provide for the Company to indemnify and hold harmless
TCITV and certain related persons from and against any losses, claims
and liabilities arising out of certain agreements between TCI and
Telesat, which TCITV will assign to the Company in connection with the
Distribution. See note 6. The Indemnification Agreement with TCI UA 1
will provide for the Company to reimburse TCI UA 1 for any amounts
drawn under an irrevocable transferable letter of credit (the "TCI UA
1 Letter of Credit") issued by
(continued)
F-12
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statements
Chemical Bank for the account of TCI UA 1, which supports the credit
facility obtained by PRIMESTAR Partners to finance advances to Tempo
for payments due in respect of the Company Satellites (the "PRIMESTAR
Credit Facility"), and to indemnify and hold harmless TCI UA 1 and
certain related persons from and against any losses, claims and
liabilities arising out of the TCI UA 1 Letter of Credit or any
drawings thereunder.
Other Arrangements
------------------
In connection with the Distribution, TCI and the Company will enter
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 Distribution Date under
certain stock options and stock appreciation rights held by their
respective employees, and certain other convertible securities. On or
prior to the Distribution, the Company will also enter into an
amendment to TCI's existing "Tax Sharing Agreement." See note 7.
(3) Summary of Significant Accounting Policies
------------------------------------------
Investment in PRIMESTAR Partners
--------------------------------
The Company uses the equity method to account for its investment in
PRIMESTAR Partners. Under this method, the investment, originally
recorded at cost, is adjusted to recognize the Company's share of the
net earnings or losses of PRIMESTAR Partners 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, PRIMESTAR Partners. The Company's share of net earnings or losses
of PRIMESTAR Partners includes the amortization of the difference
between the Company's investment and its share of the net assets of
PRIMESTAR Partners.
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is computed on
a straight-line basis using estimated useful lives of 4 to 8 years for
satellite reception systems and 3 to 10 years for support equipment.
Satellite reception systems include subscriber installation costs,
which costs are depreciated over the estimated average life of a
subscriber (4 years).
(continued)
F-13
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statements
Installation charges from TCIC include direct and indirect costs of
performing installations. The Company capitalizes a portion of such
charges based upon amounts charged by unaffiliated third parties to
perform similar services.
Repairs and maintenance are charged to operations, and betterments and
additions are capitalized. At the time of ordinary retirements, sales
or other dispositions of property, the original cost and cost of
removal of such property are charged to accumulated depreciation, and
salvage, if any, is credited thereto.
The cost of the Company Satellites under construction is comprised of
amounts paid by the Company pursuant to a fixed price construction
contract. See note 6.
In March of 1995, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ("Statement No. 121"), effective for fiscal
years beginning after December 15, 1995. Statement No. 121 requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. The Company adopted Statement No. 121 effective December
31, 1995. Such adoption did not have a significant effect on the
financial position or results of operations of the Company. In
accordance with Statement No. 121, the Company periodically reviews
the carrying amount of its long-lived assets to determine whether
current events or circumstances warrant adjustments to such carrying
amounts. The Company considers historical and expected future net
operating losses to be its primary indicators of potential impairment.
Assets are grouped and evaluated for impairment at the lowest level
for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets ("Assets").
The Company deems Assets to be impaired if the Company is unable to
recover the carrying value of its Assets over their expected remaining
useful life through a forecast of undiscounted future operating cash
flows directly related to the Assets. If Assets are deemed to be
impaired, the loss is measured as the amount by which the carrying
amount of the Assets exceeds their fair values. TCI SATCO generally
measures fair value by considering sales prices for similar assets or
by discounting estimated future cash flows. Considerable management
judgment is necessary to estimate discounted future cash flows.
Accordingly, actual results could vary significantly from such
estimates.
(continued)
F-14
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statements
Revenue Recognition
-------------------
Monthly programming and equipment rental revenue is recognized in the
period that services are delivered. Installation revenue is recognized
in the period the installation services are provided to the extent of
direct selling costs. To date, direct selling costs have exceeded
installation revenue.
Marketing and Direct Selling Costs
----------------------------------
Marketing and direct selling costs are expensed as incurred.
Residual Sales Commissions
--------------------------
Residual sales commissions, which become payable upon the collection
of programming revenue from certain subscribers, are expensed during
the period in which such commissions become payable. See note 9.
Stock Based Compensation
------------------------
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement No. 123") was issued by the FASB
in October 1995. Statement No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans as
well as transactions in which an entity issues its equity instruments
to acquire goods or services from non-employees. The disclosures
required by Statement No. 123, to the extent applicable, will be
included in the notes to future financial statements.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(continued)
F-15
<PAGE>
(4) Supplemental Disclosures to Combined Statements of Cash Flows
-------------------------------------------------------------
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communcation, Inc., as defined in note 1)
Notes to Combined Financial Statements
Cash paid for interest and income taxes was not material during the years
ended December 31, 1995, 1994 and 1993.
With the exception of certain non-cash transactions described in notes 7
and 8, transactions effected through the intercompany account with TCIC
have been considered to be constructive cash receipts and payments for
purposes of the accompanying combined statements of cash flows.
(continued)
F-16
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communcation, Inc., as defined in note 1)
Notes to Combined Financial Statement
(5) Investment in PRIMESTAR Partners
--------------------------------
Summarized unaudited financial information for PRIMESTAR Partners is
as follows (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
Financial Position 1995 1994
------------------ ---------- ---------
<S> <C> <C>
Current assets $ 72,638 39,756
Property and equipment, net 9,990 7,703
Cost of satellites under construction 419,256 289,607
Other assets, net 14,078 7,009
-------- -------
Total assets $515,962 344,075
======== =======
Current liabilities $ 37,911 17,081
PRIMESTAR Credit Facility 419,000 290,000
Other liabilities 7,210 11,178
Partners' capital 51,841 25,816
-------- -------
Total liabilities and partners' capital $515,962 344,075
======== =======
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
Results of Operations 1995 1994 1993
--------------------- --------- -------- --------
<S> <C> <C> <C>
Revenue $ 180,595 27,841 10,861
Operating, selling, general and
administrative expenses (216,100) (78,175) (38,433)
Depreciation and amortization (2,890) (2,700) (1,849)
--------- ------- -------
Operating loss (38,395) (53,034) (29,421)
Other, net (3,642) (2,682) 131
--------- ------- -------
Net loss $ (42,037) (55,716) (29,290)
========= ======= =======
</TABLE>
(continued)
F-17
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communcation, Inc., as defined in note 1)
Notes to Combined Financial Statements
Under the PRIMESTAR Partners limited partnership agreement, the
Company has agreed to fund its share of any capital contributions
and/or loans to PRIMESTAR Partners that might be agreed upon from time
to time by the partners of PRIMESTAR Partners. Additionally, as a
general partner of PRIMESTAR Partners, the Company is liable as a
matter of partnership law for all debts of PRIMESTAR Partners in the
event the liabilities of PRIMESTAR Partners were to exceed its assets.
The PRIMESTAR Credit Facility matures on June 30, 1997 and borrowings
thereunder are collateralized by letters of credit issued by the
general partners or their affiliated designees. See notes 6 and 9.
PRIMESTAR Partners currently broadcasts from Satcom K-1 ("K-1"), a
medium power satellite that is nearing the end of its operational
life. Although the Company believes that a replacement satellite
("Replacement Satellite") will be successfully deployed prior to the
expiration of the operational life of K-1, such deployment is
dependent on a number of factors that are outside of the Company's
control, and no assurance can be given as to the successful deployment
of a Replacement Satellite. The failure to deploy a fully operational
Replacement Satellite by the end of K-1's operational life (or the
operational life of any temporary in-orbit replacement that might be
available) could have a material adverse effect on both the Company
and PRIMESTAR Partners.
PRIMESTAR Partners is obligated to make certain minimum lease payments
throughout the remaining operational life of K-1. Pursuant to a
currently proposed lease agreement with respect to PRIMESTAR Partners'
use of a Replacement Satellite, it is anticipated that PRIMESTAR
Partners will be required to make minimum lease payments for an
initial term of four years from the date of commercial operation,
extendible, at the option of PRIMESTAR Partners exercised prior to
December 31, 1996, for the remainder of the operational life of such
Replacement Satellite (the "End-Of-Life Option"). See note 9.
PRIMESTAR Partners provides programming services to the Company and
other authorized distributors in exchange for a fee based upon the
number of subscribers receiving the respective programming services.
In addition, PRIMESTAR Partners arranges for satellite capacity and
uplink services, and provides national marketing and administrative
support services in exchange for a separate authorization fee. In
April 1994, PRIMESTAR Partners began to separately identify charges
which relate to programming services from those which relate to other
items. During the year ended December 31, 1995, the charges from
(continued)
F-18
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communcation, Inc., as defined in note 1)
Notes to Combined Financial Statements
PRIMESTAR Partners included approximately $53,006,000 for programming
services and $25,244,000 for other items.
(6) Satellites under Construction
-----------------------------
On July 19, 1993, the Company entered into a fixed price contract with
Loral for the construction and launch of the Company Satellites. It is
expected that construction of the Company Satellites will be completed
during 1996 at an aggregate contract price of $487,159,500. Subject to
the uncertainties described below, one Company Satellite is expected
to be launched in December 1996 and the other Company Satellite is
expected to be launched in early 1997.
On February 8, 1990, the Company entered into an option agreement with
PRIMESTAR Partners (the "Option Agreement"), granting PRIMESTAR
Partners the right and option (the "Tempo Option"), upon exercise, to
purchase or lease 100% of the capacity of a DBS system to be built,
launched and operated by the Company pursuant to a construction permit
(the "Construction Permit") issued by the FCC. Under the Option
Agreement, upon the exercise of the Tempo Option, PRIMESTAR Partners
would have been obligated to bear 100% of the cost of constructing,
launching and operating such proposed system. In connection with the
Tempo Option and certain related matters, the Company and PRIMESTAR
Partners subsequently entered into two letter agreements (the "Tempo
Letter Agreements"), which provided for, among other things, the
funding by PRIMESTAR Partners of milestone and other payments due
under the satellite construction agreement between the Company and
Loral (the "Satellite Construction Agreement").
In connection with the Tempo Option and the Tempo Letter Agreements,
PRIMESTAR Partners has advanced the Company's costs associated with
the construction of the Company Satellites. The Tempo Letter
Agreements permitted PRIMESTAR Partners to apply such advances against
any payments due under the Tempo Option and required the Company to
repay such advances (or, in the alternative, to assign to PRIMESTAR
Partners all rights of the Company relating to the Company
Satellites), if PRIMESTAR Partners elected to stop funding amounts due
under the Satellite Construction Agreement or failed to exercise the
Tempo Option within the period provided for in the Tempo Letter
Agreements. The Company expects that the amounts due to PRIMESTAR
Partners, which are reflected as a liability in the accompanying
combined balance sheets, will be settled through the sale or lease of
all the capacity of the Company Satellites, or by the assumption by
the Company of
(continued)
F-19
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communcation, Inc., as defined in note 1)
Notes to Combined Financial Statements
all or a portion of the indebtedness incurred by PRIMESTAR Partners to
fund the advances. PRIMESTAR Partners' indebtedness under the
PRIMESTAR Credit Facility aggregated $419,000,000 at December 31,
1995. The ultimate settlement of the amounts advanced from PRIMESTAR
Partners is dependent on the outcome of the uncertainties related to
the dispute with PRIMESTAR Partners and the proposed transaction with
Telesat, as described below.
On February 29, 1996, the Company notified PRIMESTAR Partners that the
failure of PRIMESTAR Partners to effectively exercise the Tempo Option
had resulted in the termination of the Tempo Option pursuant to the
Tempo Letter Agreements. PRIMESTAR Partners has subsequently notified
the Company that it disagrees with the Company and believes that it
has effectively and irrevocably exercised the Tempo Option. PRIMESTAR
Partners has also impeded the Company's attempts to repay PRIMESTAR
Partners' advances and has asserted certain rights to the two Company
Satellites currently under construction with Loral. Notwithstanding
the foregoing, the Company currently intends to offer PRIMESTAR
Partners the right to use the capacity of any DBS system constructed,
launched and operated by Tempo pursuant to the Construction Permit.
There can be no assurance, however, that Tempo and PRIMESTAR Partners
will be able to reach an agreement on the terms of such an
arrangement. If Tempo and PRIMESTAR Partners are unable to reach such
an agreement, and if PRIMESTAR Partners prevails in its claim to
certain rights in respect of the Company Satellites, Tempo and the
Company could be adversely affected. Although, the Company believes
that PRIMESTAR Partners' claims regarding the Company Satellites and
the Tempo Option are without merit, there can be no assurance that the
Company's position would prevail in the event of any litigation
regarding this controversy.
In May 1996, the Company agreed to sell the Company Satellites to
Telesat, as part of a transaction (the "Telesat Transaction") in which
Telesat would purchase the Company Satellites, deploy them in the 82
Degrees W.L. orbital position (a high power DBS slot allocated by
international agreement with Canada), and resell 27 of the 32
transponders on the Company Satellites to TCITV. In connection with
the Distribution, TCITV's rights and obligations under the proposed
Telesat Transaction will be assigned to the Company. To purchase the
Company Satellites, Telesat will pay an amount equal to the total cost
of constructing, launching and placing into orbit the Company
Satellites, including capitalized interest and other financing costs
relating thereto (the "Satellite Purchase Price"). At the closing for
the sale of each Company Satellite, the Company will purchase 27 of
the 32 transponders on such Company Satellite, for an initial payment
equal to one-half of 27/32nds of the Satellite Purchase Price for such
Company Satellite, which payment will be offset against the Satellite
(continued)
F-20
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communcation, Inc., as defined in note 1)
Notes to Combined Financial Statements
Purchase Price to be paid at that closing by Telesat. Thereafter, the
Company will pay Telesat a quarterly operating fee for use of the
transponders, including charges for in-orbit insurance and tracking,
telemetry and control of the Company Satellites. If the Company continues
to use the transponders after 48 quarterly payments have been made, the
Company will make quarterly payments to Telesat at a rate equal to
approximately one-fourth of the previous quarterly payments.
Consummation of the Telesat Transaction is subject to the approval of
U.S. and Canadian government regulatory authorities and other conditions,
including issuance of an FCC license to uplink signals to the Company
Satellites from the U.S. No assurance can be given that such regulatory
approvals will be obtained on terms satisfactory to the Company.
It is expected that Western Tele-Communications, Inc. ("WTCI"), a
subsidiary of TCI, will hold the uplink license and provide uplinking and
compression services to the Company in connection with any DBS service to
be operated using the transponders to be purchased from Telesat. On
March 26, 1996, WTCI filed an application with the FCC for authorization
to construct and operate an earth station to uplink video programming to
the Company Satellites. On July 15, 1996, the FCC dismissed WTCI's
application, without prejudice, on the basis that, since Canada has not
yet issued licenses for the Company Satellites, the application was
premature. WTCI has filed a petition seeking reconsideration of the
FCC's order on the basis that although a formal license has not been
issued, Industry Canada, the government department that regulates
communication satellites in Canada, has in fact issued all the pre-launch
authority it customarily grants to satellite applicants and Telesat has
received from Industry Canada its standard support in principle for its
proposal. In addition, WTCI contends that none of the concerns raised by
the FCC should impede grant of WTCI's application.
If the Company Satellites are successfully deployed, and current
PRIMESTAR By TCI subscribers are given an opportunity to obtain service
from such high power satellites in lieu of their current PRIMESTAR(R)
service, the Company could incur substantial costs and expenses in
connection with upgrading, replacing and/or repointing such
customers' satellite reception equipment.
Regardless of the outcome of the dispute with PRIMESTAR Partners and the
pending regulatory approvals with respect to the Telesat Transaction, the
Company believes that, although no assurance can be given, alternative
courses of action are available that would allow the Company to recover
the Company's cost of constructing the Company Satellites.
(continued)
F-21
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communcation, Inc., as defined in note 1)
Notes to Combined Financial Statements
(7) Income Taxes
------------
The Company is included in the consolidated Federal and state income
tax returns of TCI. Income tax benefit for the Company is based on
those items in TCI's consolidated calculation applicable to the
Company. Intercompany tax allocation represents an apportionment of
tax expense or benefit (other than deferred taxes) among subsidiaries
of TCI in relation to their respective amounts of taxable earnings or
losses. The payable or receivable arising from the intercompany tax
allocation is recorded as an increase or decrease in "Due to TCIC," as
reflected in the accompanying combined balance sheets.
A tax sharing agreement (the "Tax Sharing Agreement") among TCIC and
certain other subsidiaries of TCI was implemented effective July 1,
1995. The Tax Sharing Agreement formalizes certain of the elements of
a pre-existing tax sharing arrangement and contains additional
provisions regarding the allocation of certain consolidated income tax
attributes and the settlement procedures with respect to the
intercompany allocation of current tax attributes. The Tax Sharing
Agreement encompasses U.S. Federal, state, local and foreign tax
consequences and relies upon the U.S. Internal Revenue Code of 1986 as
amended, and any applicable state, local and foreign tax law and
related regulations. Beginning on the July 1, 1995 effective date,
TCIC is responsible to TCI for its share of current consolidated
income tax liabilities. TCI is responsible to TCIC to the extent that
TCIC's income tax attributes generated after the effective date are
utilized by TCI to reduce its consolidated income tax liabilities.
Accordingly, all tax attributes generated by TCIC's operations after
the effective date including, but not limited to, net operating
losses, tax credits, deferred intercompany gains, and the tax basis of
assets are inventoried and tracked for the entities comprising TCIC.
The Company's intercompany income tax allocation for the six months
ended December 31, 1995, has been calculated in accordance with the
Tax Sharing Agreement, and is not materially different from the
intercompany allocation that would have been calculated under the pre-
existing tax sharing arrangement. In connection with the Distribution,
the Tax Allocation Agreement will be amended to provide that the
Company will be treated as if it had been a party to the Tax Sharing
Agreement, effective July 1, 1995.
(continued)
F-22
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communcation, Inc., as defined in note 1)
Notes to Combined Financial Statements
Income tax benefit (expense) for the years ended December 31, 1995, 1994
and 1993 consists of (amounts in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
<S> <C> <C> <C>
Year ended December 31, 1995:
Intercompany allocation $36,530 -- 36,530
Federal -- (11,040) (11,040)
State and local -- (3,632) (3,632)
------- ------- -------
$36,530 (14,672) 21,858
======= ======= =======
Year ended December 31, 1994:
Intercompany allocation $ 9,611 -- 9,611
Federal -- (2,254) (2,254)
State and local -- (485) (485)
------- ------- -------
$ 9,611 (2,739) 6,872
======= ======= =======
Year ended December 31, 1993:
Intercompany allocation $ 3,403 -- 3,403
Federal -- (739) (739)
State and local -- (159) (159)
------- ------- -------
$ 3,403 (898) 2,505
======= ======= =======
</TABLE>
(continued)
F-23
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communcation, Inc., as defined in note 1)
Notes to Combined Financial Statements
Income tax benefit (expense) differs from the amounts computed by
applying the Federal income tax rate of 35% as a result of the
following (amounts in thousands):
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------------------------
1995 1994 1993
-------- ------ --------
<S> <C> <C> <C>
Computed "expected" tax benefit $24,278 7,196 2,569
State and local income taxes,
net of Federal income
tax benefit (2,361) (315) (103)
Adjustment to deferred tax assets
and liabilities for enacted change
in Federal income tax rate -- -- 43
Other (59) (9) (4)
------- ------ -----
$21,858 6,872 2,505
======= ===== =====
</TABLE>
(continued)
F-24
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statement
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards $ 6,668 821
Investment in PRIMESTAR Partners, due
principally to losses recognized for
financial statement purposes in excess of
losses recognized for income tax purposes 1,049 978
Future deductible amounts principally
due to non-deductible accruals 1,906 629
------- -----
Net deferred tax assets 9,623 2,428
------- -----
Deferred tax liability -
Property and equipment, principally
due to differences in depreciation
net of increase in tax basis resulting from
intercompany transfer 14,057 4,325
------- -----
Net deferred tax liability $ 4,434 1,897
======= =====
</TABLE>
On February 22, 1995, the assets (primarily property and equipment) and
liabilities comprising PRIMESTAR By TCI were transferred from certain
subsidiaries of TCIC to the predecessor of TSEI. In connection
therewith, the Company recorded a non-cash $12,135,000 increase to the
intercompany amount owed to TCIC, and a non-cash $12,135,000 decrease to
the Company's deferred tax liability.
There was no valuation allowance for deferred tax assets as of
December 31, 1995 and 1994.
At December 31, 1995, the Company had net operating loss carry forwards
for income tax purposes aggregating approximately $19,051,000 of which,
if not utilized to reduce taxable income in future periods, $2,347,000
expire in 2006 and $16,704,000 expire in 2010.
(continued)
F-25
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statement
(8) Transactions with Related Parties
---------------------------------
The effects of all transactions between the Company and TCIC have been
reflected as adjustments to the non-interest bearing intercompany
account between the Company and TCIC. For a description of certain
agreements that the Company and TCI will enter into in connection with
the Distribution, see note 2.
TCIC provides certain installation, maintenance, retrieval and other
customer fulfillment services to the Company. The costs associated
with such services have been allocated to the Company based upon a
standard charge for each of the various customer fulfillment
activities performed by TCIC. During the years ended December 31,
1995, 1994 and 1993, the Company's capitalized installation costs
included amounts allocated from TCIC of $57,058,000, $15,369,000 and
$4,511,000, respectively. Maintenance, retrieval and other operating
expenses allocated from TCIC to the Company aggregated $15,916,000,
$4,367,000 and $1,577,000 during the years ended December 31, 1995,
1994 and 1993, respectively. Following the Distribution, charges for
customer fulfillment services provided by TCIC will be made pursuant
to the Fulfillment Agreement. See note 2.
TCIC also provides corporate administrative services to the Company.
Such administrative expenses, which were allocated from TCIC to the
Company based primarily on the estimated cost of providing the
service, aggregated $7,817,000, $1,080,000 and $795,000 during the
years ended December 31, 1995, 1994 and 1993, respectively. Following
the Distribution, charges for administrative services provided by TCIC
will be made pursuant to the Transition Services Agreement. See note
2.
Certain key employees of the Company hold stock options in tandem with
stock appreciation rights with respect to certain common stock of TCI.
Estimates of the compensation related to the options and/or stock
appreciation rights granted to employees of the Company have been
recorded in the accompanying financial statements, but are subject to
future adjustment based upon the market value of the underlying TCI
common stock and, ultimately, on the final determination of market
value when the rights are exercised. Non-cash increases (decreases) to
the Company's share of TCI's estimated stock compensation liability,
which are included in the above-described TCIC administrative expense
allocations, aggregated $901,000, ($87,000) and $449,000 during the
years ended December 31, 1995, 1994 and 1993, respectively. See note
2.
(continued)
F-26
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statement
(9) Commitments and Contingencies
-----------------------------
At December 31, 1995, the Company's future minimum commitments to
purchase satellite reception equipment aggregated approximately
$73,000,000.
In 1994, the Company began to engage master sales agents (the "Master
Agents") to recruit, train and maintain a network of agents to sell
services on behalf of the Company and to install, service and maintain
equipment located at the premises of subscribers. As a part of the
compensation for such services, the Company has agreed to pay certain
residual sales commissions equal to a percentage of the programming
revenue collected from a subscriber installed by a Master Agent during
specified periods following the initiation of service (generally five
years). Residual payments to Master Agents aggregated $2,178,000
during 1995 and were immaterial in prior years.
The Company leases business offices and uses certain equipment under
lease arrangements. Rental expense under such arrangements amounted to
$1,257,000 in 1995 and was immaterial in prior years. It is expected
that, in the normal course of business, expiring leases will be
renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will not be less
than the rental expense incurred during 1995.
As described in note 2, TCI UA 1 has arranged for the issuance of the
TCI UA 1 Letter of Credit to support the Company's pro rata share of
the PRIMESTAR Credit Facility. The amount of the TCI UA 1 Letter of
Credit was $141,250,000 at December 31, 1995. In connection with the
Distribution, the Company will agree to indemnify TCI for any loss,
claim or liability that TCI may incur by reason of the TCI UA 1 Letter
of Credit. See notes 2 and 5.
The Company anticipates that it will also be required to arrange for
the issuance of a standby letter of credit to support the Company's
share of PRIMESTAR Partners' obligations under a proposed new
agreement with respect to PRIMESTAR Partners' use of a Replacement
Satellite. The original maximum drawable amount of such letter of
credit is expected to be approximately $25,000,000, increasing to
approximately $75,000,000 if PRIMESTAR Partners exercises the End-Of-
Life Option, as described in note 5.
At December 31, 1995, the Company had guaranteed approximately
$5,600,000 of certain minimum commitments of PRIMESTAR Partners to
purchase satellite reception equipment.
F-27
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Notes to Combined Financial Statement
The Company has contingent liabilities related to legal proceedings
and other matters arising in the ordinary course of business. 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 combined financial statements.
F-28
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Combined Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- --------------
Assets amounts in thousands
-----
<S> <C> <C>
Cash $ 6,335 1,801
Accounts receivable 19,180 29,192
Less allowance for doubtful accounts 4,241 4,819
----------- -------
14,939 24,373
----------- -------
Prepaid expenses 353 86
Investment in, and related advances to,
PRIMESTAR Partners L.P. ("PRIMESTAR Partners")
(note 4) 28,847 17,963
Property and equipment, at cost:
Satellite reception systems 715,351 550,940
Support equipment 18,129 12,395
Cost of satellites under construction (note 5) 419,584 382,900
----------- -------
1,153,064 946,235
Less accumulated depreciation 105,361 57,015
----------- -------
1,047,703 889,220
----------- -------
$ 1,098,177 933,443
=========== =======
</TABLE>
(continued)
F-29
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Combined Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ --------------
amounts in thousands
<S> <C> <C>
Liabilities and Parent's Investment
-----------------------------------
Accounts payable $ 6,119 11,378
Accrued charges from PRIMESTAR Partners (note 4) 47,056 26,420
Other accrued expenses 10,465 11,483
Subscriber advance payments 17,671 13,244
Due to PRIMESTAR Partners (note 5) 386,219 382,900
Deferred income taxes 15,897 4,434
---------- -------
Total liabilities 483,427 449,859
---------- -------
Parent's investment:
Accumulated deficit (108,663) (75,775)
Due to TCI Communications, Inc. ("TCIC") (notes 2 and 6) 723,413 559,359
---------- -------
Total parent's investment 614,750 483,584
---------- -------
Commitments and contingencies
(notes 2, 4, 5, 6 and 7)
$1,098,177 933,443
========== =======
</TABLE>
See accompanying notes to combined financial statements.
F-30
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Combined Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------
1996 1995
---------- ---------
amounts in thousands
<S> <C> <C>
Revenue:
Programming and equipment rental $156,870 37,362
Installation 36,777 24,249
-------- -------
193,647 61,611
-------- -------
Operating costs and expenses:
Charges from PRIMESTAR Partners (note 4):
Programming 57,464 14,309
Satellite, marketing and distribution 29,422 7,387
Other operating:
TCIC (note 6) 10,505 7,136
Other 4,927 705
Selling, general and administrative:
TCIC (note 6) 9,576 2,223
Other 74,732 24,957
Depreciation 53,527 19,915
-------- -------
240,153 76,632
-------- -------
Operating loss (46,506) (15,021)
Other income (expense):
Share of losses of PRIMESTAR Partners (note 4) (1,446) (4,988)
Other, net 194 143
-------- -------
(1,252) (4,845)
-------- -------
Loss before income taxes (47,758) (19,866)
Income tax benefit 14,870 6,830
-------- -------
Net loss $(32,888) (13,036)
======== =======
</TABLE>
See accompanying notes to combined financial statements.
F-31
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Combined Statements of Parent's Investment
(unaudited)
<TABLE>
<CAPTION>
Total
Accumulated Due to parent's
deficit TCIC investment
----------- -------- ----------
amounts in thousands
<S> <C> <C> <C>
Balance at January 1, 1996 $ (75,775) 559,359 483,584
Net loss (32,888) -- (32,888)
Allocation of TCIC expenses -- 20,081 20,081
Allocation of TCIC installation costs -- 23,319 23,319
Intercompany income tax allocation -- (26,333) (26,333)
Net cash transfers from TCIC -- 146,987 146,987
--------- ------- -------
Balance at June 30, 1996 $(108,663) 723,413 614,750
========= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-32
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets of TCI Communications, Inc., as defined in note 1)
Combined Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------
1996 1995
----------- ---------
amounts in thousands
(see note 3)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (32,888) (13,036)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 53,527 19,915
Share of losses of PRIMESTAR Partners 1,446 4,988
Deferred income tax expense (benefit) 11,463 (157)
Other non-cash charges (credits) (163) 209
Changes in operating assets and liabilities:
Change in receivables 9,434 (8,770)
Change in prepaids (267) (177)
Change in accruals and payables 14,359 15,890
Change in subscriber advance payments 4,427 3,210
--------- --------
Net cash provided by operating activities 61,338 22,072
--------- --------
Cash flows from investing activities:
Capital expended for construction of satellites (36,684) (43,631)
Capital expended for property and equipment (175,339) (139,398)
Additional investments in and loans to
PRIMESTAR Partners (12,330) (7,027)
--------- ---------
Net cash used in investing activities (224,353) (190,056)
--------- --------
Cash flows from financing activities:
Increase in due to PRIMESTAR Partners 3,319 43,631
Increase in due to TCIC 164,230 124,353
--------- --------
Net cash provided by financing activities 167,549 167,984
--------- --------
Net increase in cash 4,534 --
Cash at beginning of year 1,801 --
--------- --------
Cash at end of year $ 6,335 --
========= ========
</TABLE>
See accompanying notes to combined financial statements.
F-33
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assets pf TCI Communications,Inc., as defined in note 1)
Notes to Combined Financial Statements
June 30, 1996
(unaudited)
(1) Basis of Presentation
---------------------
The accompanying combined financial statements of "TCI SATCO"
represent a combination of the historical financial information of
certain satellite television assets of TCIC, a subsidiary of Tele-
Communications, Inc. ("TCI"). Upon consummation of the spinoff
transaction described in note 2, TCI Satellite Entertainment, Inc.
("TSEI") will own the assets that comprise "TCI SATCO," which
assets include (i) a 100% ownership interest in "PRIMESTAR By TCI,"
the TCIC business that distributes the PRIMESTAR(R) programming
service to subscribers within specified areas of the continental
United States, (ii) a 100% ownership interest in Tempo Satellite, Inc.
("Tempo"), (iii) a 20.86% aggregate ownership interest in PRIMESTAR
Partners, and (iv) TCI's rights under certain agreements with Telesat
Canada ("Telesat").
Tempo holds a construction permit issued by the Federal Communications
Commission ("FCC") authorizing construction of a direct broadcast
satellite ("DBS") system. Tempo is also a party to a construction
agreement with Space Systems/Loral, Inc. ("Loral"), pursuant to which
Loral is currently constructing two high power communications
satellites (the "Company Satellites"). PRIMESTAR Partners, which was
formed as a limited partnership in 1990 by subsidiaries of TCIC,
several other cable operators, and General Electric Company,
broadcasts satellite entertainment services that are delivered to the
home through PRIMESTAR By TCI and certain other authorized
distributors.
In the following text, the "Company" may, as the context requires,
refer to "TCI SATCO" (prior to the completion of the spinoff
transaction described in note 2), TSEI and its consolidated
subsidiaries (subsequent to the completion of the spinoff transaction
described in note 2) or both. Additionally, unless the context
indicates otherwise, references to "TCI" and "TCIC" herein are to TCI
and TCIC and their respective consolidated subsidiaries (other than
the "Company").
All significant inter-entity transactions have been eliminated.
As further discussed in note 6, the accompanying combined statements
of operations include allocations of certain costs and expenses of
TCIC. Although such allocations are not
(continued)
F-34
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assests of TCI Communicationc,Inc., as defined in note 1)
Notes to Combined Financial Statements
necessarily indicative of the costs that would have been incurred by
the Company on a stand-alone basis, management believes the resulting
allocated amounts are reasonable.
The accompanying interim financial statements are unaudited but, in
the opinion of management, reflect all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the
results of such periods. The results of operations for any interim
period are not necessarily indicative of results for the full year.
The unaudited interim combined financial statements should be read in
conjunction with the Company's December 31, 1995 audited combined
financial statements and notes thereto.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(2) Spinoff Transaction
-------------------
On June 17, 1996, the Board of Directors of TCI (the "TCI Board")
announced its intention to spinoff all the capital stock of the
Company to the holders of Tele-Communications, Inc. Series A TCI Group
Common Stock (the "Series A TCI Group Common Stock") and Tele-
Communications, Inc. Series B TCI Group Common Stock (the "Series B
TCI Group Common Stock" and, together with the Series A TCI Group
Common Stock, the "TCI Group Common Stock"). The spinoff will be
effected as a distribution (the "Distribution") by TCI to holders of
its TCI Group Common Stock of shares of the Series A Common Stock of
the Company (the "Series A Common Stock") and Series B Common Stock of
the Company (the "Series B Common Stock"). The Distribution will not
involve the payment of any consideration by the holders of TCI Group
Common Stock (such holders, the "TCI Group Stockholders"), and is
intended to qualify as a tax-free spinoff. The Distribution is
expected to occur in the fourth quarter of 1996, on a date (the
"Distribution Date") to be determined by the TCI Board, and will be
made as a dividend to holders of TCI Group Common Stock of record as
of the close of business on a record date (the "Record Date") to be
determined by the TCI Board.
Stockholders of record of TCI Group Common Stock on the Record Date
will receive one share of Series A Common Stock for each ten shares of
Series A TCI Group Common Stock owned of record at the close of
business on the Record Date and one share of Series B
(continued)
F-35
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assests of TCI Communicationc, Inc., as defined in note 1)
Notes to Combined Financial Statements
Common Stock for each ten shares of Series B TCI Group Common Stock
owned of record as of the close of business on the Record Date.
Fractional shares will not be issued. Fractions of one-half or greater
of a share will be rounded up and fractions of less than one-half of a
share will be rounded down to the nearest whole number of shares of
Series A Common Stock and Series B Common Stock.
Following the Distribution, the Company and TCI will operate
independently, and neither will have any stock ownership, beneficial
or otherwise, in the other. For the purposes of governing certain of
the ongoing relationships between the Company and TCI after the
Distribution, and to provide mechanisms for an orderly transition, the
Company and TCI have entered, or prior to the Distribution will enter,
into various agreements, including the "Reorganization Agreement," the
"Fulfillment Agreement," the "TCIC Credit Facility," the "Transition
Services Agreement," an amendment to TCI's existing "Tax Sharing
Agreement" and the "Indemnification Agreements."
Reorganization Agreement
------------------------
The Reorganization Agreement provides for the transfer to the Company
of the assets of TCI SATCO, and for the assumption by the Company of
related liabilities. No consideration will be payable by the Company
for these transfers, except that two subsidiaries of the Company will
purchase TCIC's partnership interests in PRIMESTAR Partners for
consideration payable by delivery of promissory notes issued by such
subsidiaries, which notes will be assumed by TCI in connection with
the Distribution, in the form of a capital contribution to the
Company. The Reorganization Agreement will also provide for certain
cross-indemnities designed to make the Company financially responsible
for all liabilities relating to the digital satellite business
conducted by TCI prior to the Distribution, as well as for all
liabilities incurred by the Company after the Distribution, and to
make TCI financially responsible for all potential liabilities of the
Company which are not related to the digital satellite business,
including, for example, liabilities arising as a result of the Company
being a subsidiary of TCI.
The Reorganization Agreement also provides that, prior to the
Distribution, the Company will issue to TCIC a promissory note (the
"Company Note"), in the principal amount of $250,000,000, representing
a portion of the Company's intercompany balance owed to TCIC on such
date. Pursuant to the Reorganization Agreement, the remainder of the
Company's intercompany balance owed to TCIC on the Distribution Date
will be assumed by TCI in the
(continued)
F-36
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assests of TCI Communicationc, Inc., as defined in note 1)
Notes to Combined Financial Statements
form of a capital contribution to the Company. The Company Note will
bear interest at the rate of 10.0% per annum, compounded quarterly,
and will mature on September 30, 2001. Payments of principal and
interest are not required prior to maturity by the terms of the
Company Note, but the Company Note can be prepaid at any time without
penalty.
Fulfillment Agreement
---------------------
TCIC has historically provided the Company with certain customer
fulfillment services. Charges for such services have been allocated to
the Company by TCIC based on a schedule of standard charges. Pursuant
to the Fulfillment Agreement, TCIC will continue to provide
fulfillment services to the Company following the Distribution with
respect to certain customers of the PRIMESTAR(R) medium power service.
Such services will include installation, maintenance, retrieval,
inventory management and other customer fulfillment services. The
Fulfillment Agreement, which will become effective on the first day of
the month following the Distribution Date, provides for, among other
matters, (i) the responsibilities of TCIC with respect to fulfillment
services, including performance standards and penalties for non-
performance, (ii) TCIC's fulfillment sites to be connected to the
billing and information systems used by the Company, allowing for on-
line scheduling and dispatch of installation and other service calls,
and (iii) standard fees to be charged to the Company for the various
customer fulfillment services to be provided by TCIC. The Company will
retain sole control under the Fulfillment Agreement to establish the
retail prices and other terms and conditions on which installation and
other services will be provided to the Company's customers. The
Fulfillment Agreement also provides that, during the term of the
Fulfillment Agreement, TCIC will not provide fulfillment services to
any other Ku-band, Ka-band, DBS, BSS, FSS, C-band, wireless or other
similar or competitive provider or distributor of television
programming services (other than traditional cable). The Fulfillment
Agreement will have an initial term of two years, and is terminable,
on 180 days notice to TCIC, by the Company at any time during the
first six months following the Distribution Date.
There can be no assurance that the terms of the Fulfillment Agreement
are not more or less favorable than those which could be obtained from
unaffiliated third parties, or that comparable services could be
obtained by the Company from third parties on any terms if the
Fulfillment Agreement is terminated. The cost to the Company of the
services provided by TCIC under the Fulfillment Agreement will exceed
the current standard charges allocated to the Company for such
services, reflecting in part the value to the Company, as determined
by Company management, of the performance standards, exclusivity,
termination right and certain other provisions included in the
Fulfillment Agreement. See notes 1 and 6.
(continued)
F-37
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assests of TCI Communicationc, Inc., as defined in note 1)
Notes to Combined Financial Statements
TCIC Credit Facility
--------------------
TCIC has committed to provide the Company with a $500,000,000
revolving credit facility, on an interim basis, pending consummation
of permanent financing ("TCI Credit Facility"), which will enable the
Company to make borrowings from time to time during the term of the
TCIC Credit Facility, subject to the terms and conditions thereof. The
maximum available amount under the TCIC Credit Facility from time to
time will be subject to the achievement of certain financial ratios
and/or operating milestones by the Company. The TCIC Credit Facility
shall terminate, and all obligations of the Company thereunder shall
be due and payable in full on September 30, 2001, provided that the
--------
Company shall be required to use its best efforts to refinance the
TCIC Credit Facility as soon as possible after the Distribution Date.
Borrowings under the TCIC Credit Facility may be used for capital
expenditures, working capital and other general corporate purposes.
The terms and conditions of the TCIC Credit Facility will be set forth
in a credit agreement between the Company and TCIC to be entered into
on or before the Distribution Date (the "TCIC Credit Agreement"). It
is expected that the TCIC Credit Agreement will contain
representations and warranties, financial and other covenants,
conditions to borrowing, events of default and remedies, including
such terms as the Company and TCIC deem reasonable under the
circumstances. All principal of and accrued interest on all borrowings
under the TCIC Credit Facility will be required to be repaid on
September 30, 2001, the final maturity of the TCIC Credit Facility,
whether or not a replacement credit facility or other debt financing
sufficient to meet such obligations has then been obtained by the
Company.
Transition Services Agreement
-----------------------------
Pursuant to the Transition Services Agreement between TCIC and the
Company, following the Distribution, TCIC will provide the Company
with certain administrative and other services that were provided by
TCIC prior to the Distribution. The Company will reimburse TCIC
quarterly for all direct expenses incurred by TCIC in providing such
services and the allocable share of all indirect expenses incurred by
TCIC in connection with providing such services. The obligations of
TCIC to provide services under the Transition Services Agreement
generally will continue in effect until terminated by either the
Company at any time on not less than 60 days' notice to TCIC, or by
TCIC after the third anniversary of the Distribution Date on not less
than 60 days' notice to the Company.
(continued)
F-38
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assests of TCI Communicationc, Inc., as defined in note 1)
Notes to Combined Financial Statements
Indemnification Agreements
--------------------------
In connection with the Distribution, the Company will enter into
Indemnification Agreements (the ''Indemnification Agreements") with
two subsidiaries of TCI: TCI Technology Ventures, Inc. ("TCITV") and
TCI UA 1, Inc. ("TCI UA 1"). The Indemnification Agreement with TCITV
will provide for the Company to indemnify and hold harmless TCITV and
certain related persons from and against any losses, claims and
liabilities arising out of certain agreements between TCI and Telesat,
which TCITV will assign to the Company in connection with the
Distribution. See note 6. The Indemnification Agreement with TCI UA 1
will provide for the Company to reimburse TCI UA 1 for any amounts
drawn under an irrevocable transferable letter of credit (the "TCI UA
1 Letter of Credit") issued by Chemical Bank for the account of TCI UA
1, which supports the credit facility obtained by PRIMESTAR Partners
to finance advances to Tempo for payments due in respect of the
Company Satellites (the "PRIMESTAR Credit Facility"), and to indemnify
and hold harmless TCI UA 1 and certain related persons from and
against any losses, claims and liabilities arising out of the TCI UA 1
Letter of Credit or any drawings thereunder.
Other Arrangements
------------------
In connection with the Distribution, TCI and the Company will enter
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 Distribution Date under
certain stock options and stock appreciation rights held by their
respective employees, and convertible securities. On or prior to the
Distribution, the Company will also enter into an amendment to TCI's
existing "Tax Sharing Agreement." See note 6.
(3) Supplemental Disclosures to Combined Statements of Cash Flows
-------------------------------------------------------------
Cash paid for interest and income taxes was not material during the
six months ended June 30, 1996 and 1995.
See note 6 for a description of certain non-cash activities.
(continued)
F-39
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assests of TCI Communicationc, Inc., as defined in note 1)
Notes to Combined Financial Statements
(4) Investment in PRIMESTAR Partners
--------------------------------
Summarized unaudited operating information for PRIMESTAR Partners is
as follows (amounts in thousands):
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Results of Operations
---------------------
Revenue $ 185,981 58,322
Operating, selling, general and
administrative expenses (191,571) (81,039)
Depreciation and amortization (1,626) (1,381)
--------- ---------
Operating loss (7,216) (24,098)
Other income, net $ 765 666
--------- ---------
Net loss $ (6,451) (23,432)
========= =========
</TABLE>
Under the PRIMESTAR Partners limited partnership agreement, the
Company has agreed to fund its share of any capital contributions
and/or loans to PRIMESTAR Partners that might be agreed upon from time
to time by the partners of PRIMESTAR Partners. Additionally, as a
general partner of PRIMESTAR Partners, the Company is liable as a
matter of partnership law for all debts of PRIMESTAR Partners in the
event the liabilities of PRIMESTAR Partners were to exceed its assets.
PRIMESTAR Partners' indebtedness under the PRIMESTAR Credit Facility
aggregated $433,000,000 at June 30, 1996. The PRIMESTAR Credit
Facility matures on June 30, 1997 and borrowings thereunder are
collateralized by letters of credit issued by the general partners or
their affiliated designees. See notes 5 and 7.
PRIMESTAR Partners currently broadcasts from Satcom K-1 ("K-1"), a
medium power satellite that is nearing the end of its operational
life. Although the Company believes that a replacement satellite
("Replacement Satellite") will be successfully deployed prior to the
(continued)
F-40
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assests of TCI Communicationc, Inc., as defined in note 1)
Notes to Combined Financial Statements
expiration of the operational life of K-1, such deployment is
dependent on a number of factors that are outside of the Company's
control and no assurance can be given as to the successful deployment
of a Replacement Satellite. The failure to deploy a fully operational
Replacement Satellite by the end of K-1's operational life (or the
operational life of any temporary in-orbit replacement that might be
available) could have a material adverse effect on both the Company
and PRIMESTAR Partners.
PRIMESTAR Partners is obligated to make certain minimum lease payments
throughout the remaining operational life of K-1. Pursuant to a
currently proposed lease agreement with respect to PRIMESTAR Partners'
use of a Replacement Satellite, it is anticipated that PRIMESTAR
Partners will be required to make minimum lease payments for an
initial term of four years from the date of commercial operation,
extendible, at the option of PRIMESTAR Partners exercised prior to
December 31, 1996, for the remainder of the operational life of such
Replacement Satellite (the "End-Of-Life Option"). See note 7.
PRIMESTAR Partners provides programming services to the Company and
other authorized distributors in exchange for a fee based upon the
number of subscribers receiving the respective programming services.
In addition, PRIMESTAR Partners arranges for satellite capacity and
uplink services, and provides national marketing and administrative
support services in exchange for a separate authorization fee.
(5) Satellites under Construction
-----------------------------
On July 19, 1993, the Company entered into a fixed price contract with
Loral for the construction and launch of the Company Satellites. It is
expected that construction of the Company Satellites will be completed
during 1996 at an aggregate contract price of $487,159,500. Subject to
the uncertainties described below, one Company Satellite is expected
to be launched in December 1996 and the other Company Satellite is
expected to be launched in early 1997.
On February 8, 1990, the Company entered into an option agreement with
PRIMESTAR Partners (the "Option Agreement"), granting PRIMESTAR
Partners the right and option (the "Tempo Option"), upon exercise, to
purchase or lease 100% of the capacity of a DBS system to be built,
launched and operated by the Company pursuant to a construction permit
(the "Construction Permit") issued by the FCC. Under the Option
Agreement, upon the exercise of the Tempo Option, PRIMESTAR Partners
would have been obligated to bear 100% of the cost of constructing,
launching and operating such proposed system. In connection with the
Tempo Option and certain related matters, the Company and PRIMESTAR
Partners
(continued)
F-41
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assests of TCI Communicationc, Inc., as defined in note 1)
Notes to Combined Financial Statements
subsequently entered into two letter agreements (the "Tempo Letter
Agreements"), which provided for, among other things, the funding by
PRIMESTAR Partners of milestone and other payments due under the
satellite construction agreement between the Company and Loral (the
"Satellite Construction Agreement").
In connection with the Tempo Option and the Tempo Letter Agreements,
PRIMESTAR Partners has advanced the majority of the Company's costs
associated with the construction of the Company Satellites. The Tempo
Letter Agreements permitted PRIMESTAR Partners to apply such advances
against any payments due under the Tempo Option and required the
Company to repay such advances (or, in the alternative, to assign to
PRIMESTAR Partners all rights of the Company relating to the Company
Satellites), if PRIMESTAR Partners elected to stop funding amounts due
under the Satellite Construction Agreement or failed to exercise the
Tempo Option within the period provided for in the Tempo Letter
Agreements. The Company expects that the amounts due to PRIMESTAR
Partners, which are reflected as a liability in the accompanying
combined balance sheets, will be settled through the sale or lease of
all the capacity of the Company Satellites, or by the assumption by
the Company of all or a portion of the indebtedness incurred by
PRIMESTAR Partners to fund the advances. PRIMESTAR Partners'
indebtedness under the PRIMESTAR Credit Facility aggregated
$433,000,000 at June 30, 1996. The ultimate settlement of the amounts
advanced from PRIMESTAR Partners is dependent upon the outcome of the
uncertainties related to the dispute with PRIMESTAR Partners and the
proposed transaction with Telesat, as described below.
On February 29, 1996, the Company notified PRIMESTAR Partners that the
failure of PRIMESTAR Partners to effectively exercise the Tempo Option
had resulted in the termination of the Tempo Option pursuant to the
Tempo Letter Agreements. PRIMESTAR Partners has subsequently notified
the Company that it disagrees with the Company and believes that it
has effectively and irrevocably exercised the Tempo Option. PRIMESTAR
Partners has also impeded the Company's attempts to repay PRIMESTAR
Partners' advances and has asserted certain rights to the two Company
Satellites currently under construction with Loral. Notwithstanding
the foregoing, the Company currently intends to offer PRIMESTAR
Partners the right to use the capacity of any DBS system constructed,
launched and operated by Tempo pursuant to the Construction Permit.
There can be no assurance, however, that Tempo and PRIMESTAR Partners
will be able to reach an agreement on the terms of such an
arrangement. If Tempo and PRIMESTAR Partners are unable to reach such
an agreement, and if PRIMESTAR Partners prevails in its claim to
certain rights in respect of the Company Satellites, Tempo and the
Company could be adversely affected. Although
(continued)
F-42
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assests of TCI Communicationc, Inc., as defined in note 1)
Notes to Combined Financial Statements
the Company believes that PRIMESTAR Partners' claims regarding the
Company Satellites and the Tempo Option are without merit, there can
be no assurance that the Company's position would prevail in the event
of any litigation regarding this controversy.
In May 1996, the Company agreed to sell the Company Satellites to
Telesat, as part of a transaction (the "Telesat Transaction") in which
Telesat would purchase the Company Satellites, deploy them in the 82
degrees W.L. orbital position (a high power DBS slot allocated by
international agreement with Canada), and resell 27 of the 32
transponders on the Company Satellites to TCITV. In connection with
the Distribution, TCITV 's rights and obligations under the proposed
Telesat Transaction will be assigned to the Company. To purchase the
Company Satellites, Telesat will pay an amount equal to the total cost
of constructing, launching and placing into orbit the Company
Satellites, including capitalized interest and other financing costs
relating thereto (the "Satellite Purchase Price"). At the closing for
the sale of each Company Satellite, it is anticipated that the Company
will purchase 27 of the 32 transponders on such Company Satellite, for
an initial payment equal to one-half of 27/32nds of the Satellite
Purchase Price for such Company Satellite, which payment will be
offset against the Satellite Purchase Price to be paid at that closing
by Telesat. Thereafter, it is anticipated that the Company will pay
Telesat a quarterly operating fee for use of the transponders,
including charges for in-orbit insurance and tracking, telemetry and
control of the Company Satellites. If the Company continues to use the
transponders after 48 quarterly payments have been made, the Company
will make quarterly payments to Telesat at a rate equal to
approximately one-fourth of the previous quarterly payments.
Consummation of the Telesat Transaction is subject to the approval of
U.S. and Canadian government regulatory authorities and other
conditions, including issuance of an FCC license to uplink signals to
the Company Satellites from the U.S. No assurance can be given that
such regulatory approvals will be obtained on terms satisfactory to
the Company.
It is expected that Western Tele-Communications, Inc. ("WTCI"), a
subsidiary of TCI, will hold the uplink license and provide uplinking
and compression services to the Company in connection with any DBS
service to be operated using the transponders to be purchased from
Telesat. On March 26, 1996, WTCI filed an application with the FCC for
authorization to construct and operate an earth station to uplink
video programming to the Company Satellites. On July 15, 1996, the FCC
dismissed WTCI's application, without prejudice, on the basis that,
since Canada has not yet issued licenses for the Company Satellites,
the application was premature. WTCI has filed a petition seeking
reconsideration of the FCC's order on the basis that although a formal
license has not been issued, Industry Canada, the government
department that regulates communication satellites in Canada, has in
fact issued all the pre-launch authority it customarily grants to
satellite applicants and Telesat has
(continued)
F-43
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assests of TCI Communicationc, Inc., as defined in note 1)
Notes to Combined Financial Statements
received from Industry Canada its standard support in principle for
its proposal. In addition, WTCI contends that none of the concerns
raised by the FCC should impede grant of WTCI's application.
If the Company Satellites are successfully deployed, and current
PRIMESTAR By TCI subscribers are given an opportunity to obtain
service from such high power satellites in lieu of their current
PRIMESTAR(R) service, the Company could incur substantial costs and
expenses in connection with upgrading, replacing and/or repointing
such customers' satellite reception equipment.
Regardless of the outcome of the dispute with PRIMESTAR Partners and
the pending regulatory approvals with respect to the Telesat
Transaction, the Company believes that, although no assurance can be
given, alternative courses of action exist that would allow the
Company to recover the Company's cost of constructing the Company
Satellites.
(6) Transactions with Related Parties
---------------------------------
The effects of all transactions between the Company and TCIC have been
reflected as adjustments to the non-interest bearing intercompany
account between the Company and TCIC. For a description of certain
agreements that the Company and TCI will enter into in connection with
the Distribution, see note 2.
TCIC provides certain installation, maintenance, retrieval and other
customer fulfillment services to the Company. The costs associated
with such services have been allocated to the Company based upon a
standard charge for each of the various customer fulfillment
activities performed by TCIC. During the six months ended June 30,
1996 and 1995, the Company's capitalized installation costs included
amounts allocated from TCIC of $23,319,000 and $23,485,000,
respectively. Maintenance, retrieval and other operating expenses
allocated from TCIC to the Company aggregated $10,505,000 and
$7,136,000 during the six months ended June 30, 1996 and 1995,
respectively. Following the Distribution, charges for customer
fulfillment services provided by TCIC will be made pursuant to the
Fulfillment Agreement.
TCIC also provides corporate administrative services to the Company.
Such administrative expenses, which were allocated from TCIC to the
Company based primarily on the estimated cost of providing the
service, aggregated $9,576,000 and $2,223,000 during the six months
ended June 30, 1996 and 1995, respectively. Following the
Distribution, charges for
(continued)
F-44
<PAGE>
"TCI SATCO"
(A combination of certain satellite television
assests of TCI Communicationc, Inc., as defined in note 1)
Notes to Combined Financial Statements
administrative services provided by TCIC will be made pursuant to the
Transition Services Agreement. See note 2.
Certain key employees of the Company hold stock options in tandem with
stock appreciation rights with respect to certain common stock of TCI.
Estimates of the compensation related to the options and/or stock
appreciation rights granted to employees of the Company have been
recorded in the accompanying financial statements, but are subject to
future adjustment based upon the market value of the underlying TCI
common stock and, ultimately, on the final determination of market
value when the rights are exercised. Non-cash increases (decreases) to
the Company's share of TCI's estimated stock compensation liability,
which are included in the above-described TCIC administrative expense
allocations, aggregated $(176,000) and $209,000 during the six months
ended June 30, 1996 and 1995, respectively.
A tax sharing agreement (the "Tax Sharing Agreement") among TCIC and
certain other subsidiaries of TCI was implemented effective July 1,
1995. The Tax Sharing Agreement formalizes certain of the elements of
a pre-existing tax sharing arrangement and contains additional
provisions regarding the allocation of certain consolidated income tax
attributes and the settlement procedures with respect to the
intercompany allocation of current tax attributes. The Tax Sharing
Agreement encompasses U.S. Federal, state, local and foreign tax
consequences and relies upon the U.S. Internal Revenue Code of 1986 as
amended, and any applicable state, local and foreign tax law and
related regulations. Beginning on the July 1, 1995 effective date,
TCIC is responsible to TCI for its share of current consolidated
income tax liabilities. TCI is responsible to TCIC to the extent that
TCIC's income tax attributes generated after the effective date are
utilized by TCI to reduce its consolidated income tax liabilities.
Accordingly, all tax attributes generated by TCIC's operations after
the effective date including, but not limited to, net operating
losses, tax credits, deferred intercompany gains and the tax basis of
assets are inventoried and tracked for the entities comprising TCIC.
The Company's intercompany income tax allocation for the six months
ended June 30, 1996, has been calculated in accordance with the Tax
Sharing Agreement, and is not materially different from the
intercompany allocation that would have been calculated under the pre-
existing tax sharing arrangement. In connection with the Distribution,
the Tax Sharing Agreement will be amended to provide that the Company
will be treated as if it had been a party to the Tax Sharing Agreement
effective July 1, 1995.
On February 22, 1995, the assets (primarily property and equipment)
and liabilities comprising PRIMESTAR By TCI were transferred from
certain subsidiaries of TCIC to the predecessor of TSEI. In
connection therewith, the Company recorded a non-cash
(continued)
F-45
<PAGE>
$12,135,000 increase to the intercompany amount owed to TCIC, and a
non-cash $12,135,000 decrease to the Company's deferred tax liability.
(7) Commitments and Contingencies
-----------------------------
At June 30, 1996, the Company's future minimum commitments to purchase
satellite reception equipment aggregated approximately $56,000,000.
In 1994, the Company began to engage master sales agents (the "Master
Agents") to recruit, train and maintain a network of sub-agents to
sell services on behalf of the Company and to install, service and
maintain equipment located at the premises of the subscribers. As a
part of the compensation paid for such services, the Company has
agreed to pay certain residual sales commissions equal to a percentage
of the programming revenue collected from a subscriber installed by a
Master Agent during specified periods following the initiation of
service (generally five years). Residual payments to Master Agents
aggregated $4,597,000 and $400,000 during the six months ended June
30, 1996 and 1995, respectively.
As described in note 2, TCI UA 1 has arranged for the issuance of the
TCI UA 1 Letter of Credit to support the Company's pro rata share of
the PRIMESTAR Credit Facility. The amount of the TCI UA 1 Letter of
Credit was $141,250,000 at June 30, 1996. In connection with the
Distribution, the Company will agree to indemnify TCI for any loss,
claim or liability that TCI may incur by reason of the TCI UA 1 Letter
of Credit. See notes 2 and 4.
The Company anticipates that it will also be required to arrange for
the issuance of a standby letter of credit to support the Company's
share of PRIMESTAR Partners' obligations under a proposed new
agreement with respect to PRIMESTAR Partners' use of a Replacement
Satellite. The original maximum drawable amount of such letter of
credit is expected to be approximately $25,000,000, increasing to
approximately $75,000,000 if PRIMESTAR Partners exercises the End-Of-
Life Option, as described in note 4.
At June 30, 1996, the Company had guaranteed approximately $4,200,000
of certain minimum commitments of PRIMESTAR Partners to purchase
satellite reception equipment.
The Company has contingent liabilities related to legal proceedings
and other matters arising in the ordinary course of business. 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 combined financial statements.
F-46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
PRIMESTAR Partners, L.P.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' capital and of cash flows present fairly, in
all material respects, the financial position of PRIMESTAR Partners, L.P. at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As described in Note 2 to the
financial statements, the Partnership has suffered recurring losses from
operations and its 1996 operating budget reflects cash requirements in excess of
the current aggregate capital commitment of its partners. These matters raise
substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
March 11, 1996, except as to Note 16,
which is as of April 25, 1996
F-47
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Balance Sheet
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,956 $ 25,970
Restricted cash 689 391
Accounts receivable, related parties, net 60,444 12,199
Prepaid and other current assets 549 1,196
--------- ---------
Total current assets 72,638 39,756
Property and equipment, net 9,990 7,703
Costs of satellites under construction (notes 6 and 15) 419,256 289,607
Deposits 73 830
Deferred financing fees, net 684 1,262
Other assets, net 13,321 4,917
--------- ---------
$ 515,962 $ 344,075
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and other accrued expenses $ 33,822 $ 14,621
Accrued payroll 2,373 1,222
Accrued interest 1,716 1,238
--------- ---------
Total current liabilities 37,911 17,081
Borrowings under long-term credit facility 419,000 290,000
Deferred rent - related party 7,210 11,178
--------- ---------
Total liabilities 464,121 318,259
--------- ---------
Commitments and contingencies
Partners' capital:
Contributed capital 251,968 183,906
Accumulated loss (200,127) (158,090)
--------- ---------
Total partners' capital 51,841 25,816
--------- ---------
$ 515,962 $ 344,075
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Statement of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income:
Subscriber revenues, related parties $180,595 $ 27,841 $ 10,861
Interest 1,252 405 131
-------- -------- --------
181,847 28,246 10,992
-------- -------- --------
Expenses:
Operating 147,948 41,832 22,469
Selling, general and administrative 68,152 36,343 15,964
Depreciation and amortization 2,890 2,700 1,849
Interest expense 8 61
Loss on deferred option payments 4,886 1,767
Loss on disposal of property and equipment 1,259
-------- -------- --------
223,884 83,962 40,282
-------- -------- --------
Net loss $(42,037) $(55,716) $(29,290)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Statement of Changes in Partner's Capital
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Contributed Accumulated
capital loss Total
----------- ----------- -----
(in thousands)
<S> <C> <C> <C>
Balance at December 31, 1992 $ 71,206 $ (73,084) $ (1,878)
Capital contributions 34,400 34,400
Net loss (29,290) (29,290)
-------- --------- --------
Balance at December 31, 1993 105,606 (102,374) 3,232
Capital contributions 78,300 78,300
Net loss (55,716) (55,716)
-------- --------- --------
Balance at December 31, 1994 183,906 (158,090) 25,816
Capital contributions 68,062 68,062
Net loss (42,037) (42,037)
-------- --------- --------
Balance at December 31, 1995 $251,968 $(200,127) $ 51,841
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Statement of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (42,037) $ (55,716) $(29,290)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 2,890 2,700 1,849
Loss on deferred option payments 4,886 1,767
Loss on disposal of property and equipment 1,259
Change in assets and liabilities:
Accounts receivable, related parties (48,245) (10,379) (570)
Deposits 757 (808)
Prepaid and other assets (13,024) (1,220) (564)
Accounts payable, accrued expenses, and
accrued interest 20,830 10,611 1,299
Deferred rent (3,968) (2,598) (590)
--------- --------- ---------
Net cash used in operating activities (77,911) (54,384) (27,866)
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment and payments
on satellite construction (133,867) (224,097) (72,336)
--------- --------- ---------
Cash flows from financing activities:
Increase in deferred financing fees (1,573) (160)
Loans from partners 48,184 71,164
Repayment of loans from partners (119,348)
Capital contributions 68,062 78,300 34,400
Borrowings under credit facility 129,000 290,000
Increase in restricted cash (298) (391)
--------- --------- ---------
Net cash provided by financing activities 196,764 295,172 105,404
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (15,014) 16,691 5,202
Cash and cash equivalents at beginning of year 25,970 9,279 4,077
--------- --------- ---------
Cash and cash equivalents at end of year $ 10,956 $ 25,970 $ 9,279
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(dollars in thousands)
(1) Organization and Business
FORMATION:
PRIMESTAR Partners, L.P. (the Partnership), was formed on February 8,
1990 as a Delaware limited partnership.
The purpose of the Partnership is to engage in the business of
acquiring, originating and/or providing television programming
services delivered by satellite to subscribers through a network of
distributors throughout the continental United States. Presently,
there are approximately 630 such distributors, all of which are owned
by the Partnership's partners.
CAPITAL CONTRIBUTIONS:
In accordance with the limited partnership agreement (the Agreement),
capital contributions by the partners are required as follows:
. Cash contributions: Nine of the Partnership's ten partners made
initial contributions of an aggregate $38,000 in cash. Eight of
those nine partners and one former partner have contributed an
additional aggregate $207,300 in cash as of December 31, 1995 and
have agreed to make minimum additional aggregate cash contributions
of $24,000 (see note 17).
. In-kind contribution: In return for an initial 15% ownership
interest in the Partnership, a partner leased certain satellite
transponders to the Partnership at below market rates. This in-kind
contribution was recorded at its estimated fair market value of
$6,700 as of the inception of the Partnership. (See notes 7 and
12.)
DISTRIBUTIONS AND ALLOCATIONS:
Net profits and net losses are allocated to each partner in accordance
with their stated per centage ownership interests, as defined by the
Agreement. The amount of annual cash distributions, if any, is
determined by the Partners Committee. Such distributions are made to
the partners on a pro rata basis, in accordance with partners'
respective stated percentage ownership interests as of the date of
such distributions. Liquidation distributions and distributions of any
net proceeds from capital transactions are made pro rata to partners
with positive capital account balances (as defined), until such
balances have been reduced to zero;
F-52
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
the balance of such distributions, if any, is distributed pro rata in
proportion to the partners' stated percentage ownership interests. For
purposes of all distributions and allocations, respective partners'
percentage ownership interests are determined as outlined in the
Agreement.
(2) Summary of Significant Accounting Policies and Liquidity
BASIS OF ACCOUNTING AND LIQUIDITY:
The Partnership prepares its financial statements on the accrual basis
of accounting. The financial statements have been prepared assuming
that the Partnership will continue as a going concern. The Partnership
has suffered recurring losses from operations and its 1996 operating
budget reflects cash requirements which are in excess of the current
aggregate capital commitment of its partners. These matters raise
substantial doubt about the Partnership's ability to continue as a
going concern. Management believes that the Partnership has adequate
capital to continue normal operating activity through approximately
May 1996. (See note 17.) Presently, the partners determine the amount
of additional capital commitments on a quarterly basis.
REVENUE RECOGNITION:
Subscriber revenues are billed to distributors and recognized when
related programming services are delivered. Included in accounts
receivable at December 31, 1995 and 1994 is $27,244 and $5,811,
respectively, of unbilled programming services.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents are defined as short-term, highly liquid
investments with original maturities of three months or less.
Restricted cash represents unexpended borrowings under the credit
facility which must be used for the satellite construction project and
interest and fees associated with the credit facility.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of the assets (5 - 7 years) using the
straight-line method. Maintenance and repairs are expensed as incurred
and the cost of betterments are capitalized.
F-53
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
INTANGIBLE ASSETS:
The intangible asset associated with the in-kind capital contribution
is being amortized over the term of the related lease agreement (see
note 7).
DEFERRED FINANCING FEES:
Deferred financing fees of $1,732 at December 31, 1995 and 1994,
relate to securing of the credit facility associated with the
satellite construction project (see note 8). Fees are being amortized
over the life of the credit facility. Amortization expense was $577
and $470 for the years ended December 31, 1995 and 1994, respectively.
See note 6 regarding capitalization of deferred financing fees.
INCOME TAX REPORTING:
Federal and state income taxes are payable by the individual partners;
therefore, no provision or liability for income taxes is reflected in
the financial statements. Differences between bases of assets and
liabilities for tax and financial reporting purposes result primarily
from expensing of option payments, capitalization of startup costs and
recognition of expense relating to operating leases for tax purposes.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
LONG-LIVED ASSETS:
The Partnership plans to adopt Statement of Financial Accounting
Standards No. 121 (FAS 121), "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of" in 1996. FAS 121
establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
intangibles to be disposed of. Under FAS 121, the Partnership will
periodically review its long-lived assets to assess recoverability
through a non-discounted cash flow analysis and any perceived
impairment will be charged to operations in
F-54
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
the period such impairment becomes evident. The Partnership does not
expect a material effect to result from the adoption of FAS 121.
(3) Accounts Receivable - Related Parties
Accounts receivable, related parties, represent amounts due from
distributors, all of whom are owned by the partners, for programming
services. The partners and distributors are engaged in the business of
providing television programming through cable and satellite to
subscribers. Sales to the 5 largest of these distributors represented
approximately 9%, 11% and 17% of the Partnership's subscriber revenues
for 1995, 1994 and 1993, respectively. The allowance for doubtful
accounts was $812 and $146 at December 31, 1995 and 1994,
respectively.
(4) Notes Receivable
On November 15, 1990, the Partnership assumed from a partner two
revolving credit promis sory notes (the "Notes'') related to amounts
due from a third party. In connection with the assumption, the
Partnership agreed to reimburse the partner for the total of all
advances made to date under the Notes plus accrued interest on such
advances at a rate of 10% per annum. Such reimbursement totaled
approximately $767 and was paid in January 1991. The Partnership also
advanced approximately $151 to the third party. Because of uncertainty
regarding the ultimate collectibility of aggregate advances, the
Company had recorded a reserve for the full amount of the notes.
Under the terms of the revolving credit promissory note with one of
the third parties, the principal balance and all unpaid, accrued
interest is due and payable in the event the third party enters into
an agreement to transfer its DBS construction permit or license.
During 1994, one of the third parties entered into an agreement to
transfer the permit and, as a result, in 1995, the Partnership
recovered $450 representing principal of $375 and interest of $75
through the repayment date. The balance of the remaining Note and
related reserve as of December 31, 1995 is approximately $543.
F-55
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
(5) Property and Equipment
Property and equipment at December 31, 1995 and 1994 comprise the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Construction-in-progress - engineering laboratory $ 416
Control center, compression equipment 7,807 $ 6,082
Other furniture and equipment 5,540 3,463
------- -------
13,763 9,545
Accumulated depreciation (3,773) (1,842)
------- -------
$ 9,990 $ 7,703
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994 and
1993 was $1,932, $1,271 and $891, respectively.
(6) Costs of Satellites Under Construction
In 1993, through various arrangements entered into with and by a
wholly-owned subsidiary of a partner (the "Related Party"), the
Partnership obtained the rights to a fixed price contract with Space
Systems/Loral, Inc. for the construction and launch of two satellites.
Under that arrangement, each satellite could be constructed either as
a Fixed Satellite Service (FSS) or Broadcast Satellite Service (BSS)
system and would provide the Partnership in the range of 100-200
channels. The expected cost of the three year construction and
subsequent launch of the satellites was to range from $450,000 to
$482,000 (excluding capitalized interest), depending on whether the
satellites were ultimately finished as FSS or BSS spacecraft. Under
the Partnership's original plan, receipt of necessary authorizations
from the Federal Communications Commission ("FCC") for orbital
locations desired by the Partnership would be the major factor which
determined the satellites' final construction specifics. As discussed
in note 7, the Partnership has discontinued the dual build program and
has decided to build two BSS satellites. Through December 31, 1995 and
1994, the Partnership has reimbursed the Related Party $382,900 and
$278,772, respectively, for the construction of the satellites (see
note 15).
F-56
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
The total amount of interest cost (including amortization of deferred
financing fees and commitment fees) capitalized in conjunction with
the satellite construction project for the years ended December 31,
1995, 1994 and 1993 was $25,521, $10,432 and $403, respectively.
Satellites are subject to significant risks, including manufacturing
defects affecting the satellite or its components; launch failure
resulting in damage to, or destruction of, the satellite, or incorrect
orbital placement; and damage in orbit caused by asteroids, space
debris or electrostatic storms. Such factors may prevent or limit
commercial operation or reduce the satellite's useful life.
The satellite currently being used by the Partnership is nearing the
end of its operational life, and is expected to be replaced by another
medium power satellite that an affiliate of a Partner currently
expects to launch in January 1997.
(7) Other Assets
Other assets at December 31, 1995 and 1994 comprise the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Bargain element of transponder
lease (see note 12) $ 6,706 $ 6,706
Less: accumulated amortization (5,747) (4,790)
------- -------
Net 959 1,916
Deferred option payments 3,001
Prepaid transponder space 12,362
------- -------
$13,321 $ 4,917
======= =======
</TABLE>
In 1990, the Partnership entered into an option agreement with the
Related Party. The Related Party ultimately became a FCC authorized
BSS satellite licensee with a permit to construct and operate BSS
satellites within an 11 channel authorization. The option agreement
requires the Partnership to pay the Related Party actual costs
incurred by the Related Party related to the agreement, not to exceed
$2,000. Under the option agreement, the Partnership retains exclusive
rights to lease or purchase all channel capacity in satellite
locations allocated to the Related Party under the FCC permit. Within
120 days of the exercise of the option, the Partnership shall pay an
additional $1,000 to the Related Party and use its best efforts to
negotiate and execute an agreement to lease or buy the channel
capacity. The Partnership is also required to pay the Related Party
$1,000 if the Partnership leases, acquires or enters into a legally
binding
F-57
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
commitment or option for similar channel capacity from another party
without exercising the option with the Related Party. Since the option
agreement is considered an integral part of the Partnership's strategy
to upgrade the distribution of its programming from the low-powered
satellite presently in use to high-power satellite technology,
cumulative payments under the option agreement are capitalized and are
to be assigned to the cost of the leased or purchased channel capacity
and amortized over the life of the leased or purchased asset.
In 1994, an affiliate of the Related Party entered into a proposed
merger agreement with another FCC BSS licensee which controlled a BSS
construction permit and 27 channel authorization at another location.
The Partnership agreed to reimburse and otherwise make the Related
Party whole for the associated cost, interest and tax expense incurred
by the Related Party (whether by merger or by lease) in having the 27
channel capacity available for its use. Through December 31, 1995, the
Partnership has capitalized as reimbursement of costs to the Related
Party approximately $4,900, of which $4,600 remains in accounts
payable. Costs related to this transaction were to be assigned to the
cost of the leased or purchased channel capacity.
Based on representations made by the Related Party (and its
affiliates), the Partnership, as a beneficiary in this transaction,
formally resolved in 1994 to (1) elect that its K-1 successor
satellite program (see note 6) would be at BSS with the utilization of
either the 11 or 27 channel authorizations; (2) terminate the FSS/BSS
dual build program; and (3) subject to certain conditions, to
reimburse the Related Party for the associated cost, interest and tax
expense incurred by the Related Party (whether by merger or lease) in
having the 27 authorizations available for the Partnership's use.
As a result of the above, management determined that it is unlikely
that the Partnership will pursue channel capacity at both satellite
locations. Accordingly, approximately $1,800 was established as a
reserve on amounts capitalized under the agreement in 1994.
In October 1995, the FCC terminated the license held by the FCC BSS
licensee and subsequently sold such license at public auction to
another party. The Partnership, the Related Party and the BSS licensee
are currently engaged in appeal of the FCC's decision. (See note 17.)
Accordingly, approximately $4,900 was established as a reserve on
amounts capitalized under the agreement in 1995.
In 1995, the Partnership entered into an agreement with an affiliate
of a Partner for the lease of transponder space beginning in 1997 on
an unlaunched satellite. Payments of $12,362 were made in 1995 and
recorded in other assets and additional payments of $16,198 will be
made
F-58
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
in 1996. Prior to October 1996, subject to the occurrence of certain
events, the Partnership may cancel the agreement with a refund of all
payments made.
(8) Credit Facility
On March 9, 1994, the Partnership entered into a $565,000 credit
facility with a consortium of 25 banks to provide financing for the
construction and launch of the satellites as described in note 6. The
facility matures June 30, 1997 and borrowings are collateralized by
letters of credit issued by each of the general partners (or an
affiliate) (the Partners/Partner Affiliates)(see note 15). Borrowings
bear interest, at the option of the Partnership, at a rate per annum
equal to any of the following:
1. The greater of the following (the "Alternate Base Rate")
(i) The prime rate of Chemical Bank
(ii) The weighted average of the rates for overnight funds plus
0.5%; or
(iii) The secondary market rate for three-month certificates of
deposit plus 1%;
2. The sum of (a) 7/16% plus (b) LIBOR for interest periods of one,
two, three, six or, if made available by each of the banks, twelve
months; or
3. The sum of (a) 9/16% plus (b) the CD rate for certificates of
deposit having a term of 30, 60, 90 or 180 days.
Interest is payable, to the extent bearing interest based on the
Alternate Base Rate, quarterly, in arrears and to the extent bearing
interest based on LIBOR or the CD rate, on the last day of the
applicable interest period (and, in the case of a CD or LIBOR rate
loan having an interest period longer than 90 days or three months,
respectively, at intervals of 90 days and three months, respectively,
after the first day of such interest period). Borrowings and
prepayments shall be in the amount of $5,000 in the case of LIBOR and
CD rate loans and $1,000 in the case of Alternate Base Rate loans, or
in each case, any greater multiple of $1,000. The Partnership will pay
quarterly, in arrears, a commitment fee of 3/16% per annum on the
daily unused portion of the facility.
At December 31, 1995 and 1994, borrowings outstanding totaled $419,000
and $290,000, respectively, which bear interest at rates ranging from
6.13% to 7.88% and mature at varying dates through March 28, 1996
(subsequently extended through June 1996). As borrowings mature, the
Partnership intends to refinance them under the same facility as
provided by the agreements, therefore, borrowings have been classified
as long-term (see note 15).
F-59
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
Interest expense for the years ended December 31, 1995 and 1994
totaled $24,511 and $8,435, respectively. Commitment fees for the
years ended December 31, 1995 and 1994 totaled $419 and $573,
respectively. The interest expense and commitment fees were
capitalized into costs of satellites under construction.
(9) Disclosures about Fair Value of Financial Instruments
Financial instruments that are subject to fair value disclosure
requirements are carried in the financial statements at amounts that
approximate fair value. The fair value of the Partnership's borrowings
under the credit facility was estimated based on the quoted market
prices for the same or similar issues or on the current rates offered
to the Partnership for debt of the same remaining maturities at
December 31, 1995 and 1994, respectively.
(10) Notes Payable, Related Parties
The Partnership entered into Promissory Notes, payable to the
Partners/ Partner Affiliates of the Partnership for the purpose of
providing bridge financing for the construction and launch of up to
two satellites (see note 6). The total amount of the Notes entered
into was $48,184 during 1994. In March 1994, these Notes and related
interest of $1,400 were repaid in full with borrowings under the
credit facility described in note 8.
(11) Related Party Transactions
A subsidiary of a partner provides satellite uplink services to the
Partnership. Total payments for such services were approximately
$10,581, $5,610 and $1,282 in 1995, 1994 and 1993, respectively.
See notes 1, 2, 3, 4, 6, 7, 8, 10, 12, 15 and 17 for additional
related party transactions.
(12) Commitments
The Partnership has long-term lease commitments for office space,
equipment and trans ponders (see note 7) which are accounted for as
operating leases.
F-60
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
At December 31, 1995, future minimum lease payment commitments under
these leases, excluding amounts described in note 7, are as follows:
<TABLE>
<CAPTION>
Year Transponders Other
---- ------------ -----
<S> <C> <C>
1996 $30,800 $1,368
1997 1,391
1998 1,387
1999 794
2000 242
------- ------
Total minimum rentals $30,800 $5,182
======= ======
</TABLE>
The transponder lease arrangement provides for fixed payments, as well
as payments which escalate over the term of the lease; further, the
agreement provides for a deferral of payments until later years. The
Partnership recognizes the expense related to this agreement by
amortizing the total commitments on a straight-line basis. Deferred
rent-related party in the accompanying balance sheet represents the
difference between the straight-line amortization and cash payments.
In addition to the fixed minimum rentals above, the transponder lease
includes variable charges, based upon the number of subscribers to the
Partnership's programming service, of one dollar per subscriber per
month for all subscribers up to and including 750,000 subscribers,
fifty cents per subscriber per month for all subscribers over 750,000
up to a maximum of 2,000,000 subscribers, and no variable charge with
respect to any subscribers over 2,000,000. Such variable charges for
the years ended December 31, 1995, 1994 and 1993 were approximately
$5,550, $1,035 and $660, respectively.
Rent expense under operating leases for the years ended December 31,
1995, 1994 and 1993 was approximately $23,500, $22,208 and $16,730,
respectively.
The Partnership has commitments to purchase equipment for use by its
subscribers in receiving satellite transmissions. At December 31,
1995, future minimum purchase commitments under this agreement, which
certain of the Partners have guaranteed, are approximately $12,000.
(13) Benefit Plans
In 1991, the Partnership established a 401(k) Retirement Savings Plan
covering substantially all employees who have completed one year of
service. The Plan permits eligible employees to contribute up to 10%
of their annual pre-tax compensation and the Partnership makes
F-61
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
matching contributions of up to 50% of participants first 5% of annual
pre-tax compensation. The Partnership may also make discretionary
contributions to the Plan. The Partnership's contributions to the Plan
for the years ended December 31, 1995, 1994 and 1993 totaled
approximately $80, $61 and $53, respectively.
In 1995, the Partnership adopted a Long-Term Incentive Compensation
Program for senior management. The program awards units with a value
of $1 based upon meeting certain performance objectives. Awarded units
vest pro rata at the end of years three through five subsequent to the
year of award. As of December 31, 1995, 2,115 units have been awarded
with a value of $2,115 of which approximately $471 represents
compensation expense through December 31, 1995. No units are vested at
December 31, 1995. Unit holders have the option to convert all or a
part of their accumulated and unpaid awards to common stock at the
initial offering price in the event of a public offering for the
Partnership.
(14) Litigation and Contingent Liabilities
The Antitrust Division of the Department of Justice and the antitrust
bureaus of several states began a formal investigation into the
affairs of the Partnership in 1990. The Partnership complied with the
discovery demands and cooperated in the investigations. On June 9,
1993, complaints and consent judgments were filed by the Department of
Justice and the attorneys general of forty states in the federal court
for the Southern District of New York alleging violations of federal
and state antitrust law by the Partnership and the partners in
PRIMESTAR Partners. Five additional states and the District of
Columbia filed similar complaints in the same court on August 18,
1993. The defendants agreed to settle the allegations in all the
complaints for, and the Partnership paid, $4,750, without any
admission of wrongdoing. Final consent judgments were entered by the
District Court (over the objections of certain third parties and
attempted intervenors) in all of the state actions on September 14,
1993. The time to appeal the judgments in the state actions has
expired. The final consent judgment in the Department of Justice
matter was entered by the District Court (over the objections of
certain third parties) on April 5, 1994. The time to appeal the
judgment expired on June 4, 1994.
On March 16, 1994, the Partnership received a Civil Investigative
Demand (CID) from the Antitrust Division of the Department of Justice
(DOJ) relative to the DOJ's investigation of "agreements in restraint
of trade and attempted monopolization in markets relating to the
delivery of analog and digital video programming." The CID issued by
the DOJ does not identify the Partnership as the subject of the
investigation or indicate the entities being investigated as possible
participants in the alleged agreements. Management does not believe
that the Partnership has engaged in any unlawful conduct. The
Partnership, nonetheless,
F-62
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
cooperated with the DOJ in its investigation and provided certain
documents, responded to interrogatories proposed by the DOJ and made
certain employees available for depositions. Although the DOJ staff
preliminarily found a Section 1 Sherman Act violation in July, 1995,
upon further review, the DOJ informed the Partnership on January 24,
1996 that it had concluded that it would not take any further action
at that time nor did it presently intend to institute any legal
proceedings against the Partnership. The DOJ further informed the
Partnership that the investigation would remain open and that it would
continue to monitor developments in this area.
The Partnership, along with several other satellite carriers, is in
discussion with national broadcast television networks and their
affiliates concerning compliance with the Satellite Home Viewer Act of
1994 which amended the Satellite Home Viewer Act of 1988. At present,
those discussions which focus on reporting and signal measurement
issues do not appear to involve any matter that would constitute a
material loss contingency. In complying with the Act, the Partnership
is required to discontinue network service to certain of its
subscribers who are able to receive network services over-the-air. The
Satellite Home Viewer Act, as amended, does provide for remedies for
infringement under the Copyright Act of 1976, as amended, under
certain circumstances. The remedies are per claim and such remedies
can include actual damages, injunctions, and statutory damages.
Statutory damages per claim are limited to five dollars per subscriber
per month or $250 in a six-month period. At present, the Partnership
is unable to determine upon what basis such damages would be
calculated or what their amount might be; however, the Partnership has
received approximately 114,000 challenges from 350 network affiliates.
Currently, in response to such challenges, the Partnership has
disconnected 40,000 subscribers. None of the networks or affiliates
has asserted any claim for damages under applicable law against the
Partnership, and based upon discussions with the representative of the
networks and their affiliates, at this time, management and legal
counsel do not believe such assertions are likely. Management believes
that this matter will not materially affect the Partnership's results
of operations or financial position or cash flows.
See notes 15 and 16.
(15) Subsequent Event - Tempo Option Agreement
On February 29, 1996, the Partnership received notification from the
Related Party which notification positioned that, assuming the Tempo
Option Agreement dated February 8, 1990 had expired, the Related
Party: a) had determined to proceed with a direct broadcast satellite
system under the BSS Construction Agreement between the Related Party
and Space Systems/ Loral (see note 6); b) had issued a stop work order
under the BSS Construction Agreement; c) would reimburse the
Partnership for progress payments, milestone payments and termination
F-63
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
liability payments under the BSS Construction Agreement as well as
payments to Telesat or a similar organization under the BSS
Construction Agreement for consulting and monitoring services; d)
would hold the Partnership and its partners harmless for all
indebtedness for amounts borrowed by the Partnership under its credit
facility to the extent used to fund such payments (see note 8); and e)
would arrange for the cancellation of all promissory notes and/or
other instruments evidencing such indebtedness and the release of all
letters of credit posted by the Partnership or any Funding Partner.
The Partnership believes that the Related Party's assumption that the
Option Agreement has terminated is without foundation and directed the
Related Party to withdraw any stop work order that has been issued.
(Management's understanding, based on representations made by the
Related Party, is that the stop work order was immediately rescinded
after its issuance.) The Partnership subsequently informed the Related
Party that it intends to continue to make payments related to the
satellite construction program, and, to the extent not invoiced, the
Partnership will make payments of amounts it estimates in good faith
will otherwise be due.
The Partnership and the Related Party have exchanged additional
correspondences detailing the legal and factual basis for their
respective claims, with the Partnership taking the position that,
notwithstanding the Related Party's assertion, the Option Agreement
has in fact been exercised unconditionally. At present, neither the
Related Party or the Partnership have indicated what next steps will
be taken in this matter. Therefore, management is unable at this time
to assess the impact, if any, of this matter on the Partnership's
results of operations or financial position or cash flows.
(16) Subsequent Events - Litigation and Contingent Liabilities
On April 16, 1996, the Partnership was served with a complaint from a
third party, now pending in the United States District Court. The
Plaintiff claims that the Partnership has infringed a patent on an
"audio storage and distribution system," supposedly involving the
Partnership's digital satellite TV systems. No specific amount of
damages is claimed, but the plaintiff requests compensatory damages
(trebled), attorneys' fees and costs, and injunctive relief. This is
one of at least 18 similar cases pending against different defendants.
The Partnership has made a claim for indemnification against a
subsidiary of the equipment provider, which sold the systems in
question to the Partnership. Management is unable at this time to
assess the impact, if any, of the aforesaid claim on the Partnership's
results of operations or financial position or cash flows.
On April 25, 1996, the Partnership received oral notification of a
claim from a third party for alleged patent infringement in an
unspecified amount or, in the alternative, a claim for past and future
license fees in an amount to be negotiated, arising out of the
Partnership's (and its distributors) utilization of DigiCipher
Equipment for the provision of the Partnership's service
F-64
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
to its distributors (and their customers). The Partnership intends to
make a claim for indemnification against the supplier of the
DigiCipher Equipment to the Partnership. Management is unable at this
time to assess the impact, if any, of the aforesaid claim on the
Partnership's results of operations or financial position or cash
flows.
(17) Unaudited Subsequent Events
SUBSEQUENT CAPITAL CONTRIBUTIONS AND BORROWINGS:
The Partnership received an additional $53,000 in capital
contributions during the period from January 1, 1996 through July 31,
1996. The Partnership also borrowed an additional $19,000 under its
line of credit during the period from January 1, 1996 through July 31,
1996. The notes payable which matured through June 1996 have been
extended to various dates through November 1996. Management currently
believes that the Partnership has adequate capital to continue normal
operating activity through November 1996.
LITIGATION AND CONTINGENT LIABILITIES:
As described in Note 14, in complying with the Satellite Home Viewer
Act of 1994, the Partnership is required to discontinue network
service to certain of its subscribers who are able to receive network
services over the air. Through August 1996, the Partnership has
received approximately 310,000 challenges from 350 network affiliates.
In response to such challenges, the Partnership has disconnected
70,000 subscribers. None of the networks or affiliates has asserted
any claim for damages under applicable law against the Partnership.
However, public announcements by the National Association of
Broadcasters, representing the affiliates and networks, indicated that
they would mount a legal campaign to enforce the Act against
violators, but no legal action has been commenced against the
Partnership. Management believes that this matter will not materially
affect the Partnership's results of operations, financial position or
cash flows.
OPTION AGREEMENT:
As described in Note 7, the Partnership, the Related Party and the BSS
licensee appealed the FCC's decision to terminate the license held by
the BSS licensee. The appellate court denied the appeal.
F-65
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
(dollars in thousands)
TEMPO OPTION AGREEMENT:
The Related Party has represented to management that it has entered
into an arrangement with a Canadian company to sell the satellites
under construction, and subject to both U.S. and Canadian regulatory
approvals, to launch one or both of the satellites into one or more
orbital positions controlled directly or indirectly by the Canadian
company (see notes 6 and 15). Despite such representation, the
Partnership's position with respect to its legal claim regarding the
ownership and control of the satellites has not changed.
F-66
<PAGE>
INDEX TO EXHIBITS
Exhibit
- -------
No.
- ---
2.1 Form of Reorganization Agreement, dated as of ______________, 1996,
among Tele-Communications, Inc. ("TCI"), TCI Communications,
Inc.("TCIC"), Tempo Enterprises, Inc. ("Enterprises"), TCI Technology
Ventures, Inc. ("TCITV"), TCI Digital Satellite Entertainment, Inc.
("Digital"), TCI K-1, Inc. ("TCI K-1"), United Artists K-1
Investments, Inc. ("UA K-1"), TCISE Partner 1, Inc. ("TCISE 1"), TCISE
Partner 2, Inc. ("TCISE 2") and TCI Satellite Entertainment, Inc. (the
"Company").
2.2 Form of Trade Name and Service Mark License Agreement dated as of
_______________, 1996, between TCI and the Company.
2.3 Form of Transition Services Agreement dated as of ________________,
1996, between TCI and the Company.
2.4 Fulfillment Agreement dated as of August 30, 1996, between TCIC
and the Company.
2.5 Tax Sharing Agreement effective July 1, 1995, among TCIC and certain
other subsidiaries of TCI.*
2.5.1 [Amendment dated ____________ to the Tax Sharing Agreement effective
July 1, 1995.]**
2.6 [Credit Agreement dated as of ________________, 1996, between TCIC and
the Company, with respect to the TCIC Credit Facility.]**
2.7 Form of Share Purchase Agreement dated as of ________________, 1996,
between TCI and the Company.
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1 Specimen form of certificate representing shares of Series A Common
Stock of the Company.
4.2 Specimen form of certificate representing shares of Series B Common
Stock of the Company.
4.3 TPO-1-290 BSS Construction Agreement dated as of February 22, 1990,
between Tempo and Space Systems/Loral, Inc.
- ----------------------
* Incorporated by reference to the Registration Statement on Form S-1 of
Tele-Communications International, Inc. filed with the Securities and
Exchange Commission on December 15, 1995 (Registration No. 33-80491).
** To be filed by amendment.
<PAGE>
4.4 Satellite Purchase Agreement dated as of May 6, 1996, between Tempo
and Telesat Canada ("Telesat").
4.5 Operating Services Agreement dated as of May 6, 1996, between TCITV
and Telesat.
4.6 Limited Partnership Agreement dated February 8, 1990, among ATC
Satellite Inc., Comcast DBS, Inc., Continental Satellite Company,
Inc., Cox Satellite, Inc., G.E. Americom Services, Inc., New Vision
Satellite, TCI K-1, UA K-1, Viacom K-Band, Inc. and Warner Cable SSD,
Inc.
4.6.1 Amendment to Limited Partnership Agreement dated September 1,
1993.
4.6.2 Amendment to Limited Partnership Agreement dated December 15,
1993.
4.7 Tag Along Agreement dated as of February 8, 1990, among Cox
Enterprises, Inc., Comcast Corporation, Continental Cablevision, Inc.,
Newhouse Broadcasting Corporation, Tempo, TCI Development Corporation
and TCI.
4.8 Option Agreement dated February 8, 1990, between Tempo and K Prime
Partners, L.P.
4.9 Letter Agreement dated July 30, 1993, between Tempo and PRIMESTAR
Partners, L.P. relating to FSS.
4.10 Letter Agreement dated July 30, 1993, between Tempo and PRIMESTAR
Partners, L.P. relating to BSS.
4.11 Amended and Restated Reimbursement Agreement dated March 1, 1995,
between TCI UA 1, Inc., Chemical Bank and The Toronto Dominion Bank.
10.1 Form of Indemnification Agreement dated as of ________________, 1996,
by and between the Company and TCI UA 1, Inc.
10.2 Form of Indemnification Agreement dated as of ________________, 1996,
by and between the Company and TCI Technology Ventures, Inc.
10.3 TCI Satellite Entertainment, Inc. 1996 Stock Incentive Plan.
10.4 1996 Nonemployee Director Stock Option Plan.
10.5 Form of Qualified Employee Stock Purchase Plan.
<PAGE>
21 List of subsidiaries of the Company.
<PAGE>
EXHIBIT 2.1
-----------
[FORM OF]
REORGANIZATION AGREEMENT
among
TELE-COMMUNICATIONS, INC.
TCI COMMUNICATIONS, INC.
TEMPO ENTERPRISES, INC.
TCI TECHNOLOGY VENTURES, INC.
TCI DIGITAL SATELLITE ENTERTAINMENT, INC.
TCI K-1, INC.
UNITED ARTISTS K-1 INVESTMENTS, INC.
TCISE PARTNER 1, INC.
TCISE PARTNER 2, INC.
and
TCI SATELLITE ENTERTAINMENT, INC.
Dated as of __________, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
THE MERGERS
Section 1.1 The Mergers...................................................................................... 2
Section 1.2 Effective Time of The Mergers.................................................................... 2
Section 1.3 Effect of The Mergers............................................................................ 3
Section 1.4 Certificate of Incorporation and By-laws......................................................... 3
Section 1.5 Directors And Officers of Surviving Corporation.................................................. 4
Section 1.6 Conversion of Securities......................................................................... 4
ARTICLE II
CONTRIBUTION TO CAPITAL OF THE COMPANY BY TCIC
Section 2.1 Contribution..................................................................................... 5
Section 2.2 IRS Classification............................................................................... 5
ARTICLE III
SALES OF PARTNERSHIP INTERESTS
BY TCI K-1 TO SUB 1 AND BY UA K-1 TO SUB 2
Section 3.1 Sales of Partnership Interests................................................................... 5
Section 3.2 Purchase Price................................................................................... 5
Section 3.3 Assumption of Liabilities........................................................................ 6
ARTICLE IV
ISSUANCE OF PROMISSORY NOTE BY THE COMPANY TO TCIC............................................................... 6
ARTICLE V
SPINOFF OF THE COMPANY TO TCI.................................................................................... 6
ARTICLE VI
CAPITAL CONTRIBUTION TO THE COMPANY.............................................................................. 7
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII
ASSIGNMENT AND ASSUMPTION OF
OPERATING SERVICES AGREEMENT............................................................................... 8
ARTICLE VIII
DISTRIBUTION OF THE COMPANY COMMON STOCK
TO ITS TCI GROUP STOCKHOLDERS
Section 8.1 Amended and Restated Certificate of Incorporation of the Company................................... 8
Section 8.2 Reclassification of Company Common Stock........................................................... 8
Section 8.3 The Distribution................................................................................... 8
Section 8.4 Conditions to the Distribution..................................................................... 9
Section 8.5 Treatment of Outstanding Options and SARs.......................................................... 9
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Section 9.1 Representations And Warranties of the Parties......................................................11
Section 9.2 Additional Representations and Warranties of TCIC..................................................12
Section 9.3 Additional Representations and Warranties of the Company, Sub 1 and
Sub 2..............................................................................................12
ARTICLE X
COVENANTS
Section 10.1 Cross-Indemnities..................................................................................13
Section 10.2 Further Assurances.................................................................................14
Section 10.3 Specific Performance...............................................................................14
Section 10.4 Access to Information..............................................................................14
Section 10.5 Confidentiality....................................................................................15
ARTICLE XI
CLOSING
Section 11.1 Closing............................................................................................16
Section 11.2 Conditions to Closing..............................................................................16
Section 11.3 Deliveries at Closing..............................................................................17
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE XII
TERMINATION
Section 12.1 Termination........................................................................................20
Section 12.2 Effect of Termination..............................................................................20
ARTICLE XIII
MISCELLANEOUS
Section 13.1 No Third-Party Rights..............................................................................20
Section 13.2 Notices............................................................................................21
Section 13.3 Entire Agreement...................................................................................21
Section 13.4 Amendment, Modification or Waiver..................................................................21
Section 13.5 Binding Effect; Benefit; Successors And Assigns....................................................22
Section 13.6 Costs And Expenses.................................................................................22
Section 13.7 Severability.......................................................................................22
Section 13.8 Miscellaneous......................................................................................22
</TABLE>
EXHIBIT A -- Form of Subsidiary Notes
EXHIBIT B -- Form of Company Note
EXHIBIT C -- Form of Company Charter
EXHIBIT D -- Form of Company Stock Option Agreement
SCHEDULE 8.1(b) -- Certain Agreements
SCHEDULE 8.5(d) -- Company Stock Options
iii
<PAGE>
INDEX TO DEFINITIONS
The following terms used in this Agreement are defined in the sections
indicated:
TERM SECTION
- ------------------------ ---------------
Add-on Company Option Section 8.5(a)
Adjusted TCI Option Section 8.5(a)
Agents Section 10.5(a)
Agreement Preamble
Assumed Liabilities Section 3.3(b)
Certificates of Merger Section 1.2
Closing Section 11.1
Closing Date Section 11.1
Code Section 2.2
Colorado Act Section 1.1(a)
Company Preamble
Company Charter Section 8.1
Company Common Stock Section 8.3(a)
Company Note Article IV
Company Stock Options Section 8.5(d)
Delaware Act Section 1.1(a)
Digital Preamble
Digital Constituent Corporations Section 1.1(a)
Digital Merger Section 1.1(a)
Digital Satellite Assets Section 10.1(b)
Digital Satellite Business Recitals
Digital Stock Section 1.6(a)(ii)
Digital Surviving Corporation Section 1.1(a)
disclosing Party Section 10.5(b)
Distribution Recitals
Distribution Date Section 8.3(b)
Effective Time Section 1.2
Enterprises Preamble
Enterprises Constituent Corporations Section 1.1(b)
Enterprises Merger Section 1.1(b)
Enterprises Surviving Corporation Section 1.1(b)
Grant Date Section 8.5(d)
Interests Section 3.1(b)
Losses Section 10.1
Mergers Section 1.1(b)
Oklahoma Act Section 1.1(b)
Operating Services Agreement Article VII
Partnership Section 3.1(a)
Partnership Agreement Section 3.1(a)
Party Section 10.4(a)
Proprietary Information Section 10.5(b)
iv
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receiving Party Section 10.5(b)
Reclassification Section 8.2
Record Date Section 8.3(b)
Series A Common Stock Section 8.2
Series A TCI Group Common Stock Recitals
Series B Common Stock Section 8.2
Series B TCI Group Common Stock Recitals
Sub 1 Preamble
Sub 1 Note Section 3.2
Sub 2 Preamble
Sub 2 Note Section 3.2
Subsidiary Notes Section 3.2
TCI Preamble
TCI Board Section 8.4(a)
TCIC Preamble
TCI Group Common Stock Section 8.3(a)
TCI Group Stockholders Section 8.3(a)
TCI K-1 Preamble
TCI K-1 Assumed Liabilities Section 3.3(a)
TCI K-1 Interest Section 3.1(a)
TCI Options Section 8.5(a)
TCI Plans Section 8.5(a)
TCI SARs Section 8.5(a)
TCITV Preamble
Telesat Article VII
Tempo Recitals
Tempo Shares Section 2.1
Tempo Stock Section 2.1
Transponders Article VII
UA K-1 Preamble
UA K-1 Assumed Liabilities Section 3.3(b)
UA K-1 Interest Section 3.1(b)
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REORGANIZATION AGREEMENT
Reorganization Agreement (this "Agreement"), dated as of ________ __,
1996, among Tele-Communications, Inc., a Delaware corporation ("TCI"), TCI
Communications, Inc., a Delaware corporation ("TCIC"), Tempo Enterprises, Inc.,
an Oklahoma corporation ("Enterprises"), TCI Technology Ventures, Inc., a
Delaware corporation ("TCITV"), TCI Digital Satellite Entertainment, Inc., a
Colorado corporation ("Digital"), TCI K-1, Inc., a Colorado corporation ("TCI K-
1"), United Artists K-1 Investments, Inc., a Colorado corporation ("UA K-1"),
TCISE Partner 1, Inc., a Colorado corporation ("Sub 1"), TCISE Partner 2, Inc.,
a Colorado corporation ("Sub 2") and TCI Satellite Entertainment, Inc., a
Delaware corporation (the "Company").
RECITALS
A. Each of the parties to this agreement other than TCI is a direct
or indirect subsidiary of TCI. The parties desire to effect the transactions
set forth in this Agreement in connection with a plan to reorganize and spin off
TCI's interests in the business of distributing multichannel programing services
directly to consumers in the United States via digital broadcast satellite,
including the rental and sale of customer premises equipment relating thereto
(the "Digital Satellite Business"), which plan was adopted by TCI's Board of
Directors on June 17, 1996. Upon the consummation of the transactions provided
for herein, subject to regulatory approval and certain other conditions, TCI
intends to distribute (the "Distribution") all the capital stock of the Company
to the holders of record of shares of Tele-Communications, Inc. Series A TCI
Group Common Stock, par value $1.00 per share (the "Series A TCI Group Common
Stock"), and Tele-Communications, Inc. Series B TCI Group Common Stock, par
value $1.00 per share (the "Series B TCI Group Common Stock" and together with
the Series A TCI Group Common Stock, the "TCI Group Common Stock").
B. TCIC and TCITV are subsidiaries of TCI.
C. Enterprises and Digital are direct wholly-owned subsidiaries
of TCIC.
D. Tempo Satellite, Inc., an Oklahoma corporation ("Tempo"), is
a direct wholly-owned subsidiary of Enterprises.
E. TCI K-1 and UA K-1 are indirect wholly-owned subsidiaries of
TCIC.
F. The Company is a direct wholly-owned subsidiary of Digital. Sub
1 and Sub 2 are direct wholly-owned subsidiaries of the Company. The Company,
Sub 1 and Sub 2 were formed in connection with this Agreement and have not
previously conducted any business, except as incidental to their organization
and the execution and delivery of this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGERS
SECTION 1.1 THE MERGERS.
(a) In accordance with and subject to the provisions of this
Agreement, the Business Corporation Act of the State of Colorado (the "Colorado
Act") and the General Corporation Law of the State of Delaware (the "Delaware
Act"), at the Effective Time of the Mergers, Digital shall be merged with and
into the Company and the separate existence of Digital shall cease, and the
Company shall continue as the surviving corporation (sometimes referred to
herein as the "Digital Surviving Corporation") under the laws of the State of
Delaware (the "Digital Merger"). The Company and Digital are sometimes referred
to collectively herein as "the Digital Constituent Corporations." The Digital
Merger is intended to be a "short form" merger pursuant to section 253 of the
Delaware Act and section 7-111-104 of the Colorado Act.
(b) In accordance with and subject to the provisions of this
Agreement, the General Corporation Act of the State of Oklahoma (the "Oklahoma
Act") and the Delaware Act, at the Effective Time of the Mergers, Enterprises
shall be merged with and into TCIC, and the separate existence of Enterprises
shall cease, and TCIC shall continue as the surviving corporation (sometimes
referred to herein as the "Enterprises Surviving Corporation") under the laws of
the State of Delaware (the "Enterprises Merger" and, together with the Digital
Merger, the "Mergers"). TCIC and Enterprises are sometimes referred to
collectively herein as the "Enterprises Constituent Corporations." The
Enterprises Merger is intended to be a "short form" merger pursuant to section
253 of the Delaware Act and section 1083 of the Oklahoma Act.
SECTION 1.2 EFFECTIVE TIME OF THE MERGERS.
Subject to the provisions of this Agreement, as soon as practicable on
or after the Closing Date, the parties to the Mergers shall file such
certificates of merger, articles of merger or other appropriate documents (in
any case, the "Certificates of Merger") executed in accordance with the relevant
provisions of the Delaware Act and the Colorado Act or the Oklahoma Act, as the
case may be, as shall be necessary or desirable in connection with the Mergers.
Each Merger shall become effective at the time specified in the applicable
Certificate of Merger, which specified time shall be the same in each
Certificate of Merger (the time the Mergers become effective being the
"Effective Time of the Mergers").
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SECTION 1.3 EFFECT OF THE MERGERS.
(a) From and after the Effective Time of the Mergers, the Digital
Merger will have the effects set forth in section 259 of the Delaware Act and,
to the extent applicable, section 7-111-106 of the Colorado Act. If, at any
time after the Effective Time of the Mergers, the Digital Surviving Corporation
determines that any deeds, bills of sale, assignments, assurances or any other
actions or things are necessary or desirable to vest, perfect or confirm of
record or otherwise in the Digital Surviving Corporation its rights, title and
interests in, to or under any of the rights, properties or assets of either of
the Digital Constituent Corporations, or otherwise to carry out the intent and
purposes of the Digital Merger, the officers and directors of the Digital
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of each of the Digital Constituent Corporations, all such deeds,
bills of sale, assignments and assurances, and to take and do, in the name and
on behalf of each of the Digital Constituent Corporations, all such other
actions and things, as may be necessary or desirable to vest, perfect or confirm
any and all rights, title and interests in, to and under such rights, properties
or assets in the Digital Surviving Corporation or otherwise to carry out the
intent and purposes of the Digital Merger.
(b) From and after the Effective Time of the Mergers, the Enterprises
Merger will have the effects set forth in section 259 of the Delaware Act and,
to the extent applicable, sections 1088 and 1090 of the Oklahoma Act. If, at
any time after the Effective Time of the Mergers, the Enterprises Surviving
Corporation determines that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to vest, perfect or
confirm of record or otherwise in the Enterprises Surviving Corporation its
rights, title and interests in, to or under any of the rights, properties or
assets of either of the Enterprises Constituent Corporations, or otherwise to
carry out the intent and purposes of the Enterprises Merger, the officers and
directors of the Enterprises Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of each of the Enterprises
Constituent Corporations, all such deeds, bills of sale, assignments and
assurances, and to take and do, in the name and on behalf of each of the
Enterprises Constituent Corporations, all such other actions and things, as may
be necessary or desirable to vest, perfect or confirm any and all rights, title
and interests in, to and under such rights, properties or assets in the
Enterprises Surviving Corporation or otherwise to carry out the intent and
purposes of the Enterprises Merger.
SECTION 1.4 CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) Digital Merger. At the Effective Time of the Mergers, the
--------------
certificate of incorporation of the Company, as in effect immediately prior to
such time, shall be the certificate of incorporation of the Digital Surviving
Corporation until thereafter altered, amended or repealed as provided therein or
in the Delaware Act. The by-laws of the Company, as in effect at the Effective
Time of the Mergers, shall be the by-laws of the Digital Surviving Corporation
until thereafter altered, amended or repealed as provided therein or in the
Delaware Act or in the certificate of incorporation of the Digital Surviving
Corporation.
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(b) Enterprises Merger. At the Effective Time of the Mergers, the
------------------
certificate of incorporation of TCIC, as in effect immediately prior to such
time, shall be the certificate of incorporation of the Enterprises Surviving
Corporation until thereafter altered, amended or repealed as provided therein or
in the Delaware Act. The by-laws of TCIC, as in effect at the Effective Time of
the Mergers, shall be the by-laws of the Enterprises Surviving Corporation until
thereafter altered, amended or repealed as provided therein or in the Delaware
Act or in the certificate of incorporation of the Enterprises Surviving
Corporation.
SECTION 1.5 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
(a) The directors of the Company and TCIC immediately prior to the
Effective Time of the Mergers shall be the directors of the Digital Surviving
Corporation and the Enterprises Surviving Corporation, respectively, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
(b) The officers of the Company and TCIC immediately prior to the
Effective Time of the Mergers shall be the officers of the Digital Surviving
Corporation and the Enterprises Surviving Corporation, respectively, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
SECTION 1.6 CONVERSION OF SECURITIES.
(a) Digital Merger. At the Effective Time of the Mergers, subject
--------------
and pursuant to the terms of this Agreement and the Delaware Act, by virtue of
the Digital Merger and without any action on the part of the Digital Constituent
Corporations or any other person, (i) each issued and outstanding share of
capital stock of the Company as of immediately prior to the Effective Time of
the Mergers, all of which is owned beneficially and of record by Digital, and
each share of such capital stock of the Company that is then held by the Company
as treasury stock, if any, shall be canceled and retired without consideration,
(ii) each issued and outstanding share of the common stock, par value $1.00 per
share, of Digital as of immediately prior to the Effective Time of the Mergers
(the "Digital Stock"), shall be converted into one share of common stock, par
value $1.00 per share, of the Digital Surviving Corporation, and (iii) any
shares of Digital Stock then held by Digital as treasury stock shall be canceled
and retired without consideration.
(b) Enterprises Merger. At the Effective Time of the Mergers,
------------------
subject and pursuant to the terms of this Agreement and the Delaware Act, by
virtue of the Enterprises Merger and without any action on the part of the
Enterprises Constituent Corporations or any other person, (i) each issued and
outstanding share of capital stock of TCIC, and each share of capital stock of
TCIC then held by TCIC as treasury stock, if any, shall remain issued and
outstanding and shall not be affected in any way by the Enterprises Merger and
(ii) each share of capital stock of Enterprises then issued and outstanding or
held by Enterprises in its treasury shall be canceled and retired without
consideration.
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<PAGE>
ARTICLE II
CONTRIBUTION TO CAPITAL OF THE COMPANY BY TCIC
SECTION 2.1 CONTRIBUTION.
TCIC hereby agrees to grant, assign, transfer, deliver and convey to
the Company at the Closing, effective immediately following the Effective Time
of the Mergers, as a contribution to capital and without further consideration,
1,000 shares (the "Tempo Shares") of the common stock, par value $1.00 per
share, of Tempo (the "Tempo Stock"), which shares constitute all the issued and
outstanding shares of capital stock of Tempo. The Company hereby agrees to
acquire, accept and receive all of TCIC's rights, title and interests in and to
the Tempo Shares.
SECTION 2.2 IRS CLASSIFICATION.
The conveyance contemplated by this Article II is being undertaken by
the parties pursuant to Section 368(a)(1)(D) of the Internal Revenue Code of
1986, as amended (the "Code").
ARTICLE III
SALES OF PARTNERSHIP INTERESTS
BY TCI K-1 TO SUB 1 AND BY UA K-1 TO SUB 2
SECTION 3.1 SALES OF PARTNERSHIP INTERESTS.
(a) TCI K-1 hereby agrees to sell, assign, transfer, deliver and
convey to Sub 1 at the Closing all rights, title and interests of TCI K-1 in and
to its general and limited partnership interests (the "TCI K-1 Interest") in
PRIMESTAR Partners, L.P. (the "Partnership"), including, without limitation, its
rights under the Limited Partnership Agreement of the Partnership dated as of
February 8, 1990, as amended (the "Partnership Agreement").
(b) UA K-1 hereby agrees to sell, assign, transfer, deliver and
convey to Sub 2 at the Closing all rights, title and interests of UA K-1 in and
to its general and limited partnership interests (the "UA K-1 Interest" and,
collectively with the TCI K-1 Interest, the "Interests") in the Partnership,
including, without limitation, its rights under the Partnership Agreement.
SECTION 3.2 PURCHASE PRICE.
In consideration for the respective Interests, at the Closing, Sub 1
hereby agrees to deliver to TCI K-1 a promissory note, substantially in the form
of Exhibit A attached hereto (the "Sub 1 Note"), in the original principal
amount of $________, and Sub 2 hereby agrees to deliver
5
<PAGE>
to UA K-1 a promissory note, substantially in the form of Exhibit A attached
hereto (the "Sub 2 Note" and, together with the Sub 1 Note, the "Subsidiary
Notes"), in the original principal amount of $________.
SECTION 3.3 ASSUMPTION OF LIABILITIES.
(a) In connection with the sale of the TCI K-1 Interest as
contemplated hereby, and in further consideration thereof, Sub 1 hereby agrees
to be bound by all applicable provisions of the Partnership Agreement and to
assume and to perform and discharge, or cause to be performed and discharged,
when due any and all obligations and liabilities of TCI K-1 that were incurred
by TCI K-1 as a partner of the Partnership, including without limitation all
liabilities of TCI K-1 under the Partnership Agreement, whether such liabilities
(hereinafter collectively referred to as the "TCI K-1 Assumed Liabilities") are
known or unknown, accrued or unaccrued, liquidated or unliquidated in amount,
fixed or contingent, due or to become due, existing or inchoate, and whether
arising on or before or after the date hereof.
(b) In connection with the sale of the UA K-1 Interest as
contemplated hereby, and in further consideration thereof, Sub 2 hereby agrees
to be bound by all applicable provisions of the Partnership Agreement and to
assume and to perform and discharge, or cause to be performed and discharged,
when due any and all obligations and liabilities of UA K-1 that were incurred by
UA K-1 as a partner of the Partnership, including without limitation all
liabilities of UA K-1 under the Partnership Agreement, whether such liabilities
(hereinafter referred to as the "UA K-1 Assumed Liabilities" and, collectively
with the TCI K-1 Assumed Liabilities, the "Assumed Liabilities") are known or
unknown, accrued or unaccrued, liquidated or unliquidated in amount, fixed or
contingent, due or to become due, existing or inchoate, and whether arising on
or before or after the date hereof.
ARTICLE IV
ISSUANCE OF PROMISSORY NOTE BY THE COMPANY TO TCIC
At the Closing, immediately following the consummation of the
transactions provided for in Articles I, II and III of this Agreement, the
Company shall deliver to TCIC a promissory note, substantially in the form
attached hereto as Exhibit B (the "Company Note"), in an amount equal to the
intercompany balance between the Company and TCIC and/or any of TCIC's other
consolidated subsidiaries as of the Closing Date, in satisfaction of such
intercompany balance.
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<PAGE>
ARTICLE V
SPINOFF OF THE COMPANY TO TCI
At the Closing, immediately following delivery of the Company Note by the
Company to TCIC pursuant to Article IV hereof, TCIC shall distribute to TCI, as
a tax-free spinoff, all the issued and outstanding capital stock of the Company.
ARTICLE VI
CAPITAL CONTRIBUTION TO THE COMPANY
At the Closing, immediately following the consummation of the transaction
provided for in Article V of this Agreement, TCI shall make a capital
contribution to the Company in an amount equal to the excess of (a) the
aggregate principal amounts of the Company Note and the Subsidiary Notes over
(b) $250,000,000 (such excess, the "Contribution Amount"). Such capital
contribution shall be effected by TCI assuming indebtedness of the Company
and/or its subsidiaries as follows:
(a) At the Closing, TCI shall assume, by novation, a portion of the
indebtedness represented by the Subsidiary Notes and Company Note equal in the
aggregate to the Contribution Amount. Such assumption of indebtedness shall be
applied first against the Subsidiary Notes, and then against the Company Note,
to the extent that the Contribution Amount exceeds the aggregate principal
amount of the Subsidiary Notes.
(b) Upon the assumption of indebtedness and novation provided for in
paragraph (a) of this Article VI:
(i) the Company Note and the Subsidiary Notes shall be
canceled and retired;
(ii) TCI shall issue its promissory notes to TCIC, TCI K-1
and UA K-1 in the respective principal amounts of the indebtedness to
such entities assumed by TCI, which notes shall be in substantially
the forms of the Company Note and the Subsidiary Notes, as the case
may be, or in such other form or forms as TCI and the payees shall
agree; and
(iii) the Company shall issue to TCIC a substitute promissory
note, substantially in the form of the Company Note so canceled and
retired, in the principal amount of $250,000,000.
7
<PAGE>
ARTICLE VI
ASSIGNMENT AND ASSUMPTION OF
OPERATING SERVICES AGREEMENT
TCITV hereby agrees to assign and delegate in full to the Company (or,
at the election of the Company, Tempo), and the Company (or Tempo, as
applicable) hereby agrees to assume, at the Closing, all rights and obligations
of TCITV under the Operating Services Agreement dated as of May 6, 1996 (the
"Operating Services Agreement"), between TCITV and Telesat Canada, a Canadian
corporation ("Telesat").
ARTICLE VII
DISTRIBUTION OF THE COMPANY COMMON STOCK
TO THE TCI GROUP STOCKHOLDERS
SECTION 7.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE COMPANY.
Following the Closing and prior to the Distribution (i) the Company
will cause the Certificate of Incorporation of the Company to be amended and
restated, substantially in the form attached hereto as Exhibit C (the "Company
Charter"), (ii) TCI, as the sole stockholder of the Company, will approve the
Company Charter and (iii) the Company will cause the Company Charter to be filed
in the State of Delaware, in accordance with the Delaware Act.
SECTION 7.2 RECLASSIFICATION OF COMPANY COMMON STOCK.
Immediately following the amendment and restatement of the Certificate
of Incorporation of the Company as provided in Section 8.1, the Company will
reclassify (the "Reclassification") all of the issued and outstanding common
stock of the Company, which at such time will consist of 1,000 shares of common
stock owned by TCI, into that number of shares of Series A Common Stock, par
value $1.00 per share, of the Company (the "Series A Common Stock") and that
number of shares of Series B Common Stock, par value $1.00 per share, of the
Company (the "Series B Common Stock") as shall in the aggregate be sufficient to
effect the Distribution in accordance with Section 8.3 hereof.
SECTION 7.3 THE DISTRIBUTION.
(a) On the Distribution Date, after giving effect to the
Reclassification as provided in Section 8.2, and subject to the conditions to
the Distribution set forth in Section 8.4, TCI shall distribute to the holders
of record of TCI Group Common Stock at the close of business on the Record Date,
other than TCI of any subsidiary of TCI (such holders, the "TCI Group
8
<PAGE>
Stockholders"), as a dividend, all the issued and outstanding shares of Series A
Common Stock and Series B Common Stock (collectively, the "Company Common
Stock"), on the basis of one share of Series A Common Stock for each ten shares
of Series A TCI Group Common Stock held of record on the Record Date and one
share of Series B Common Stock for each ten shares of Series B TCI Group Common
Stock held of record on the Record Date, rounded for each TCI Group Stockholder
as provided in Section 8.3(c).
(b) The TCI Board shall have the authority (i) to declare or refrain
from declaring the Distribution, (ii) to establish or change the record date for
the Distribution (the "Record Date"), (iii) to establish or change the date on
which the Distribution will be effective (the "Distribution Date") and (iv) to
establish or change the procedures for effecting the Distribution, subject to
this Agreement and the Delaware Act.
(c) Anything contained herein to the contrary notwithstanding, TCI
will not issue fractional shares of Company Common Stock in connection with the
Distribution. Fractions of one-half or greater of a share will be rounded up
and fractions of less than one-half of a share will be rounded down to the
nearest whole number of shares of Series A Common Stock or Series B Common
Stock, as applicable, on a holder-by-holder basis.
SECTION 7.4 CONDITIONS TO THE DISTRIBUTION.
It shall be a condition to the effectiveness of the Distribution that,
(a) on or before the Record Date, the Board of Directors of TCI (the "TCI
Board") shall have taken all necessary corporate action to establish the Record
Date and the Distribution Date and to declare the Distribution in accordance
with the certificate of incorporation and by-laws of TCI and the Delaware Act,
(b) prior to the Distribution, Baker & Botts, L.L.P., counsel for TCI, shall
have rendered an opinion to the effect that the Distribution should qualify as a
tax-free transaction to the TCI Group Stockholders under Section 355 of the
Code, and (c) prior to the Distribution, the registration statement of the
Company on Form 10 with respect to the registration under the Securities
Exchange Act of 1934 of the Series A Common Stock and the Series B Common Stock
shall have become effective, and such effectiveness shall not on the
Distribution Date be stayed or suspended.
SECTION 7.5 TREATMENT OF OUTSTANDING OPTIONS AND SARS.
(a) Certain directors, officers and employees of TCI and its
subsidiaries (including the Company) have been granted options to purchase
shares of Series A TCI Group Common Stock ("TCI Options") and stock appreciation
rights with respect to shares of Series A TCI Group Common Stock ("TCI SARs").
The TCI Options and TCI SARs have been granted pursuant to various stock plans
of TCI (the "TCI Plans"). The TCI Plans give the committee of the TCI Board
that administers the TCI Plans (the "TCI Plan Committee") the authority to make
equitable adjustments to outstanding TCI Options and TCI SARs in the event of
certain transactions, of which the Distribution is one.
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<PAGE>
(b) Subject to the approval of the TCI Plan Committee and the TCI
Board, immediately prior to the Distribution, each TCI Option shall be divided
into two separately exercisable options: (i) an option to purchase Series A
Common Stock (an "Add-on Company Option"), exercisable for the number of shares
of Series A Common Stock that would have been issued in the Distribution in
respect of the shares of Series A TCI Group Common Stock subject to the
applicable TCI Option, if such TCI Option had been exercised in full immediately
prior to the Record Date, and containing substantially equivalent terms as the
existing TCI Option, and (ii) an option to purchase Series A TCI Group Common
Stock (an "Adjusted TCI Option"), exercisable for the same number of shares of
Series A TCI Group Common Stock as the corresponding TCI Option had been. The
per share exercise price of such TCI Option shall be allocated between the Add-
on Company Option and the Adjusted TCI Option, and all other terms of such TCI
Option shall remain the same in all material respects. Similar adjustments
shall be made to the outstanding TCI SARs, resulting in the holders thereof
holding Adjusted TCI SARs and Add-on Company SARs instead of TCI SARs, effective
immediately prior to the Distribution. The foregoing adjustments shall be made
pursuant to the anti-dilution provisions of the TCI Plans pursuant to which the
respective TCI Options and TCI SARs were granted.
(c) As a result of the foregoing, certain persons who remain TCI
employees or non-employee directors after the Distribution and certain persons
who were TCI employees prior to the Distribution but become Company employees
after the Distribution will hold both Adjusted TCI Options and separate Add-on
Company Options and/or will hold both Adjusted TCI SARs and separate Add-on
Company SARs. The obligations with respect to the Adjusted TCI Options, Add-on
Company Options, Adjusted TCI SARs and Add-on Company SARs held by TCI employees
and non-employee directors following the Distribution shall be obligations
solely of TCI. The obligations with respect to the Adjusted TCI Options, Add-on
Company Options, Adjusted TCI SARs and Add-on Company SARs held by persons who
are Company employees following the Distribution and are no longer TCI employees
shall be obligations solely of the Company. Prior to the Distribution, TCI and
the Company shall enter into an 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 under such securities.
(d) In June 1996, the TCI Board and the Compensation Committee of the
TCI Board authorized and approved the grant to each of the persons set forth on
Schedule 8.5(d) attached hereto, effective as of June 30, 1996, (the "Grant
Date"), of an option to purchase that number of shares of Series A Common Stock
set forth opposite the name of such person on such Schedule 8.5(d), at an
exercise price determined in accordance with, and on such other terms and
conditions as are set forth in, such Schedule 8.5(d) (such options collectively,
the "Company Stock Options"). In consideration of the agreement of TCI to make
the capital contribution to the Company provided for in Article VI hereof, the
Company hereby agrees to assume the obligations of TCI under the Company Stock
Options. In that connection, on or before the Distribution Date, the Company
shall issue to each of the persons set forth in Schedule 8.5(d) a stock option
agreement substantially in the form of Exhibit
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D attached hereto, dated as of the Grant Date and otherwise having the terms and
conditions set forth in Schedule 8.5(d). During the term of the Company Stock
Options TCI shall notify the Company promptly upon any termination of the
employment with TCI and its subsidiaries of any of the persons set forth on
Schedule 8.5(d), and shall promptly provide the Company with all other
information as the Company shall reasonably request to assist the Company in
administering the Company Stock Options in accordance with their terms.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
SECTION 8.1 REPRESENTATIONS AND WARRANTIES OF THE PARTIES.
Each of the parties hereto, severally as to itself and not jointly,
hereby represents and warrants to each of the other parties as follows:
(a) Organization and Qualification. Such party is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the state of
its incorporation, has all requisite corporate power and authority to own, lease
or operate its properties and to conduct the business heretofore conducted by
it, and is duly qualified and in good standing to do business in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except in such jurisdictions where the failure to be so qualified and in good
standing would not have a material adverse effect on its business, financial
condition or results of operations.
(b) Authorization and Validity of Agreement. Such party has all
---------------------------------------
requisite corporate power and authority to execute, deliver and perform this
Agreement. The execution, delivery and performance by such party of this
Agreement and the consummation by it of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of such party
and, to the extent required by law, its stockholders, and no other corporate
action on its part is necessary to authorize the execution and delivery by such
party of this Agreement and the consummation by it of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
such party, and is a valid and binding obligation of such party, enforceable in
accordance with its terms (except as enforceability may be limited by laws
affecting creditors' rights generally, or by principles governing the
availability of equitable remedies).
(c) No Approvals or Notices Required; No Conflict with Instruments.
--------------------------------------------------------------
The execution, delivery and performance by such party of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
conflict with or result in a breach or violation of any of the terms or
provisions of, constitute a default under, or result in the creation of any
lien, charge or encumbrance upon any of its assets pursuant to the terms of, the
charter or bylaws of such
11
<PAGE>
party, any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which it is a party or by which it or any of its assets are
bound, or any law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court having jurisdiction over it or
its properties.
SECTION 8.2 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF TCIC.
TCIC hereby represents and warrants to the Company, Sub 1 and
Sub 2 as follows:
(a) TCI K-1 is the sole record and beneficial owner of the TCI K-1
Interest and, upon the transfer thereof to Sub 1, Sub 1 will acquire all rights,
title and interests of TCI K-1 in and to the TCI K-1 Interest, free and clear of
any liens, claims and encumbrances.
(b) UA K-1 is the sole record and beneficial owner of the UA K-1
Interest and, upon the transfer thereof to Sub 2, Sub 2 will acquire all rights,
title and interests of UA K-1 in and to the UA K-1 Interest, free and clear of
any liens, claims and encumbrances.
(c) The authorized capital stock of Tempo consists of 50,000 shares of
Tempo Stock, of which 1,000 shares have been duly issued and are outstanding.
The Tempo Shares have been duly authorized and validly issued, are fully paid,
nonassessable and free from preemptive rights, and constitute all of the issued
and outstanding shares of Tempo capital stock. As of the date of this
Agreement, the Tempo Shares are owned beneficially and of record by Enterprises,
free and clear of any and all liens, claims and encumbrances. Upon the
consummation of the Enterprises Merger and the contribution of the Tempo Shares
to the Company in accordance with Section 2.1, the Company will acquire from
TCIC good and marketable title to, and sole record and beneficial ownership of,
the Tempo Shares, free and clear of all liens, claims and encumbrances.
(d) As of immediately prior to the Effective Time of the Mergers: (i)
all the issued and outstanding shares of capital stock of Enterprises, and all
the issued and outstanding shares of capital stock of Digital, are owned,
beneficially and of record, by TCIC; and (ii) all the issued and outstanding
shares of capital stock of the Company are owned, beneficially and of record, by
Digital.
SECTION 8.3 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE COMPANY, SUB 1
AND SUB 2.
Each of the Company, Sub 1 and Sub 2 hereby represents and warrants to
each of the other parties that it has been given full access to and ample
opportunity to review and investigate all financial and other information in
connection with the transactions contemplated hereby as it has deemed necessary
to make an informed investment decision and has availed itself of such access
and opportunity to the full extent that it desired. In determining to enter
into this Agreement and consummate the transactions contemplated hereby, it has
not relied upon any representation,
12
<PAGE>
warranty, promise or agreement other than those expressly contained herein, and
no other representation, warranty, promise or agreement has been made or shall
be implied.
ARTICLE IX
COVENANTS
SECTION 9.1 CROSS-INDEMNITIES.
(a) Each of the parties hereby covenants and agrees to indemnify and
hold harmless each of the other parties hereto and their respective
subsidiaries, officers and directors, from and against any and all losses,
liabilities, claims, damages, costs and expenses (including attorneys' fees and
disbursements and other reasonable professional fees and disbursements, whether
or not litigation is instituted) (collectively, "Losses") based upon, arising
out of or resulting from any breach of any representation, warranty or covenant
of such party contained herein.
(b) In addition to the indemnification provided for in Section
10.1(a), and except as otherwise expressly provided herein or in any of the
agreements set forth on Schedule 10.1(b) hereto:
(i) the Company and its subsidiaries hereby covenant and agree to
indemnify and hold harmless TCI and its subsidiaries and their respective
officers, directors, employees and agents, from and against (A) the Assumed
Liabilities, (B) any and all other Losses arising out of or resulting from the
operation by the Company, its subsidiaries, or any of their respective
predecessors of the Digital Satellite Business or the ownership by the Company,
its subsidiaries, or any of their respective predecessors of any assets used
primarily therein (collectively the "Digital Satellite Assets"), whether before
or after the Distribution and (C) any and all Losses arising out of or resulting
from the business, affairs, assets or liabilities of the Company and its
subsidiaries following the Distribution; and
(ii) TCI and its subsidiaries hereby covenant and agree to indemnify
and hold harmless the Company and its subsidiaries and their respective
officers, directors, employees and agents, from and against (A) any and all
Losses arising out of or resulting from (1) the operation by TCI, its
subsidiaries or any of their respective predecessors of any business other than
the Digital Satellite Business, (2) the ownership by TCI, its subsidiaries or
any of their respective predecessors of any assets other than the Digital
Satellite Assets, or (3) any other activity of TCI, its subsidiaries or any of
their respective predecessors, or any other reason or thing, not related to the
operation of the Digital Satellite Business or the ownership of any Digital
Satellite Assets, in any such case whether before or after the Distribution and
(B) any and all other Losses arising out of or resulting from the business,
affairs, assets or liabilities of TCI and its subsidiaries following the
Distribution.
13
<PAGE>
(c) Any party seeking indemnification hereunder will give prompt
notice to the other party of any claim as to which indemnification is sought,
and will give the indemnifying party the right to control, at its own expense,
the conduct of any such claim, and any litigation arising out of such claim. An
indemnifying party shall not be liable for any settlement of any action or claim
effected without its consent, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, the party seeking indemnification hereunder shall
have the right, at its own expense, to participate in (but not control) the
defense of any third-party claim giving rise to a claim of indemnification
hereunder, and shall have the right to control (with counsel of its own choice
and at the expense of the indemnifying party) the defense of any such third
party claim if such third party claim shall seek any material non-monetary
damages or criminal penalties, or if the indemnifying party shall also be a
party or potential party to such claim (or another claim based on substantially
similar facts) and the party seeking indemnification shall have received an
opinion of counsel stating that the party seeking indemnification has
substantive defenses to such claim that are different from and potentially
inconsistent with those available to the indemnifying party.
SECTION 9.2 FURTHER ASSURANCES.
Each of the parties hereto covenants and agrees to make, execute,
acknowledge and deliver such instruments, agreements, consents, assurances and
documents, and take all such actions, as any other party may reasonably request
and as may reasonably be required in order to effectuate the purposes and
intents of this Agreement and to carry out the terms hereof, including, without
limitation, to vest in the Company the record and beneficial ownership of all of
the capital stock of Tempo and to vest in Sub 1 and Sub 2 respectively the
record and beneficial ownership of all rights, title and interests in and to the
TCI K-1 Interest and the UA K-1 Interest (including, without limitation, the
admission of Sub 1 and Sub 2 as limited and general partners in the Partnership,
in accordance with Section 10.04 of the Partnership Agreement).
SECTION 9.3 SPECIFIC PERFORMANCE.
Each of the parties hereto hereby acknowledges that the benefits to
the other parties of the performance by such party of its obligations to be
performed under this Agreement at and after the Closing are unique, that the
other parties hereto are willing to enter into this Agreement only upon
performance by such party of such obligations and that monetary damages may not
afford adequate remedy for failure to perform any of such obligations.
Accordingly, each of the parties hereto hereby consents to specific performance
of its obligations hereunder to be performed at or after the Closing and waives
any requirement for securing or posting of any bond in connection with the
obtaining by the other party or parties of any injunctive or other equitable
relief to enforce its or their rights hereunder.
14
<PAGE>
SECTION 9.4 ACCESS TO INFORMATION.
(a) Each of (x) the Company and its subsidiaries and (y) TCI and its
subsidiaries (each, a "Party") shall provide to the other Party, at any time
before or after the Closing Date, upon written request and on a reasonable
schedule to be agreed by the Parties, any information in the possession or under
the control of a Party that the requesting Party reasonably needs (i) to comply
with reporting, filing or other requirements imposed on the requesting Party by
a federal, state or local judicial, regulatory, administrative or taxing
authority having jurisdiction over the requesting Party or (ii) to enable the
requesting Party to implement the transactions contemplated hereby, including
but not limited to performing its obligations under this Agreement.
(b) Any information owned by a Party that is provided to the other
Party pursuant to Section 10.4(a) shall remain the property of the providing
Party. Nothing contained in this Agreement shall be construed as granting or
conferring rights of license or otherwise in any such information.
(c) The Party requesting any information under this Section 10.4 shall
reimburse the other Party for the reasonable costs, if any, of creating,
gathering and copying such information, to the extent that such costs are
incurred for the benefit of the requesting Party. No Party shall have any
liability to the other Party in the event that any information exchanged or
provided pursuant to this Agreement that is an estimate or forecast, or is based
on an estimate or forecast, is found to be inaccurate, absent willful misconduct
by the Party providing such information.
SECTION 9.5 CONFIDENTIALITY.
(a) Each of the Parties shall keep confidential for five years
following the Closing Date (or for five years following disclosure, whichever is
longer), and shall use reasonable efforts to cause its officers, directors,
employees, affiliates and agents (collectively, "Agents") to keep confidential
during such five year period, all Proprietary Information (as defined below) of
the other Party, in each case to the extent permitted by law.
(b) "Proprietary Information" means any proprietary ideas, plans and
information, including information of a technological or business nature, of a
Party (in this context, the "disclosing Party") (including all trade secrets,
technology, intellectual property, data, summaries, reports, or mailing lists,
in whatever form or media whatsoever, including oral communications, and however
produced or reproduced), that is marked proprietary or confidential, or that
bears a marking of like import, or that the disclosing Party states is to be
considered proprietary or confidential, or that a reasonable and prudent person
would consider proprietary or confidential under the circumstances of its
disclosure. In addition, all information of the types referred to in the
immediately preceding sentence that is used by the Company and its subsidiaries
on or prior to the Closing Date and that is maintained by TCI or the Company or
any of their respective subsidiaries as proprietary or confidential, or that a
reasonable and prudent person would consider proprietary
15
<PAGE>
or confidential under the circumstances, shall constitute Proprietary
Information of the Company for all purposes of this Section 10.5.
Notwithstanding the foregoing, information of a disclosing Party will not
constitute Proprietary Information (and the other Party (in this context, the
"receiving Party") shall have no obligation with respect thereto), to the extent
such information: (i) is approved for release by prior written authorization of
the disclosing Party; (ii) is disclosed in order to comply with a judicial order
issued by a court of competent jurisdiction, or to comply with government laws
or regulations, in which event the receiving Party shall give prior written
notice to the disclosing Party of such disclosure as soon as practicable and
shall cooperate with the disclosing Party in using commercially reasonable
efforts to obtain an appropriate protective order or equivalent, and provided
that the information shall continue to be Proprietary Information to the extent
it is covered by such protective order or equivalent; (iii) is disclosed to the
receiving Party or the receiving Party's Agents on a non-confidential basis by a
person other than the disclosing Party or its Agents that, to the receiving
Party's knowledge, is not restricted from disclosing such information to the
receiving Party by any contractual, fiduciary or other legal obligation; or (iv)
is independently developed after the Closing Date by the receiving Party or its
Agents.
ARTICLE X
CLOSING
SECTION 10.1 CLOSING.
Unless this Agreement shall have been terminated and the transactions
contemplated by this Agreement abandoned pursuant to the provisions of Article
XII hereto, and subject to the satisfaction of all conditions set forth in
Section 11.2 (or waiver of such conditions to the extent such conditions may be
waived), the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of TCI, at 5619 DTC Parkway,
Englewood, Colorado 80111, at a mutually acceptable time and date (the "Closing
Date") .
SECTION 10.2 CONDITIONS TO CLOSING.
(a) The obligations of the parties hereto to complete the
transactions provided for herein are conditioned upon the following:
(i) the receipt and continued validity of all third party consents or
waivers required to be obtained in connection with the transactions contemplated
by this Agreement; and
(ii) the receipt and continued validity of all consents, approvals,
orders, licenses or permits required to be received from the FCC and the
regulations of the FCC relating thereto in connection with the transfer of
control of or of an ownership interest in any of the businesses of the parties
hereto in which the Company (or any of its subsidiaries)
16
<PAGE>
would have a direct or indirect interest upon consummation of the transactions
provided for herein;
[The parties hereto acknowledge that all consents, waivers, orders and approvals
referred to above have been obtained as of the date hereof.]
(b) The performance by each party hereto of its obligations hereunder is
further conditioned upon:
(i) the performance by each other party of its covenants and
agreements contained herein to the extent such are required to be performed at
or prior to the Closing; and
(ii) the representations and warranties of the other parties herein
being true and complete in all material respects as of the Closing Date with the
same force and effect as if made at and as of the Closing Date.
SECTION 10.3 DELIVERIES AT CLOSING.
(a) TCI. At the Closing, TCI shall deliver to the appropriate party
---
or parties:
(i) promissory notes to TCIC,TCI K-1 and UA K-1, pursuant to
Article VI, paragraph (b)(ii), hereof; and
(ii) certified copies of resolutions of its Board of Directors
authorizing the execution, delivery and performance by TCI of this Agreement,
which resolutions shall be in full force and effect at and as of the Closing.
(b) TCIC. At the Closing, TCIC shall deliver to the appropriate
----
party or parties:
(i) executed certificates of ownership and merger in respect of the
Enterprises Merger pursuant to section 253(a) of the Delaware Act and section
1083-A of the Oklahoma Act;
(ii) stock certificates evidencing the Tempo Shares, duly endorsed in
blank or accompanied by stock powers duly executed in blank, all in proper form
for transfer to the Company; and
(iii) certified copies of resolutions of its Board of Directors
authorizing the execution, delivery and performance by TCIC of this Agreement,
and the consummation of the Enterprises Merger as provided herein, which
resolutions shall be in full force and effect at and as of the Closing.
17
<PAGE>
(c) The Company. At the Closing, the Company shall deliver to the
-----------
appropriate party or parties:
(i) executed articles of merger in respect of the Digital Merger
pursuant to section 7-111-105(1) of the Colorado Act;
(ii) the Company Note and a substitute promissory note pursuant to
Article VI, paragraph (b)(iii), hereof;
(iii) such instruments evidencing the assumption by the Company (or
Tempo, as applicable) of all obligations of TCITV under the Operating Services
Agreement, or such other documents, as in any case shall reasonably be requested
by Telesat or by any other party hereto, in order to effect the assignment and
assumption of the Operating Services Agreement as contemplated by Article VII
hereof; and
(iv) certified copies of resolutions of its Board of Directors
authorizing the execution, delivery and performance by the Company of this
Agreement, and the consummation of the Digital Merger as provided herein, which
resolutions shall be in full force and effect at and as of the Closing.
(d) Enterprises. At the Closing, Enterprises shall deliver to each
-----------
other party certified copies of resolutions of its Board of Directors
authorizing execution, delivery and performance by Enterprises of this
Agreement, and the consummation of the Enterprises Merger as provided herein,
which resolutions shall be in full force and effect at and as of the Closing.
(e) Digital. At the Closing, Digital shall deliver to the
-------
appropriate party or parties:
(i) an executed certificate of ownership and merger in respect of the
Digital Merger pursuant to section 253(a) of the Delaware Act; and
(ii) certified copies of (A) resolutions of the Board of Directors of
Digital, authorizing the execution, delivery and performance by Digital of this
Agreement and the consummation of the Digital Merger as provided herein, and (B)
resolutions of TCIC, as sole stockholder of Digital, approving the Digital
Merger pursuant to section 7-111-104(3) of the Colorado Act, which resolutions
shall be in full force and effect at and as of the Closing.
(f) TCI K-1. At the Closing, TCI K-1 shall deliver to the
-------
appropriate party or parties:
(i) such bills of sale, assignments and other documents and
instruments of transfer as shall be necessary or desirable under the Partnership
Agreement or otherwise
18
<PAGE>
or as shall reasonably be requested by any other party hereto in order to
effectively vest in Sub 1 all rights, title and interests of TCI K-1 to the TCI
K-1 Interest; and
(ii) certified copies of resolutions of the Board of Directors of TCI
K-1 authorizing the execution, delivery and performance by TCI K-1 of this
Agreement, which resolutions shall be in full force and effect at and as of the
Closing.
(g) UA K-1. At the Closing, UA K-1 shall deliver to the
------
appropriate party or parties:
(i) such bills of sale, assignments and other documents and
instruments of transfer as shall be necessary or desirable under the Partnership
Agreement or otherwise or as shall reasonably be requested by any other party
hereto in order to effectively vest in Sub 2 all rights, title and interests of
UA K-1 to the UA K-1 Interest; and
(ii) certified copies of resolutions of the Board of Directors of UA
K-1 authorizing the execution, delivery and performance by UA K-1 of this
Agreement, which resolutions shall be in full force and effect at and as of the
Closing.
(h) Sub 1. At the Closing, Sub 1 shall deliver to the appropriate
-----
party or parties:
(i) the Sub 1 Note;
(ii) such instruments evidencing Sub 1's assumption of the TCI K-1
Assumed Liabilities as shall reasonably be requested by any other party hereto;
and
(iii) certified copies of resolutions of the Board of Directors of
Sub 1 authorizing the execution, delivery and performance by Sub 1 of this
Agreement, which resolutions shall be in full force and effect at and as of the
Closing.
(i) Sub 2. At the Closing, Sub 2 shall deliver to the appropriate
-----
party or parties:
(i) the Sub 2 Note;
(ii) such instruments evidencing Sub 2's assumption of the UA K-1
Assumed Liabilities as shall reasonably be requested by any other party hereto;
and
(iii) certified copies of resolutions of the Board of Directors of
Sub 2 authorizing the execution, delivery and performance by Sub 2 of this
Agreement, which resolutions shall be in full force and effect at and as of the
Closing.
19
<PAGE>
(j) TCITV. At the Closing, TCITV shall deliver to the appropriate
-----
party or parties:
(i) such assignments and other documents and instruments of transfer
as shall be necessary or desirable under the Operating Services Agreement and
related agreements or otherwise or as shall reasonably be requested by Telesat
or by any other party hereto in order to effectively vest in the Company (or
Tempo, as applicable) all rights of TCITV under the Operating Services Agreement
and any related agreements between TCITV and Telesat; and
(ii) certified copies of resolutions of the Board of Directors of
TCITV authorizing the execution, delivery and performance by TCITV of this
Agreement, which resolutions shall be in full force and effect at and as of the
Closing.
ARTICLE XI
TERMINATION
SECTION 11.1 TERMINATION.
This Agreement may be terminated and the transactions contemplated by
this Agreement may be abandoned at any time prior to the Closing Date:
(i) by TCI for any reason; or
(ii) by any other party hereto if such party shall have discovered any
material error, misstatement or omission in any of the representations or
warranties of any other party hereto, any other party shall have otherwise
breached in any material respect any such representation or warranty, any such
representation or warranty shall not be true and complete in all material
respects at and as of the Closing Date with the same effect as if made at and as
of such time, or any other party hereto shall fail to comply in any material
respect with any of the terms, covenants, conditions or agreements contained in
this Agreement to be complied with or performed by any such party at or prior to
the Closing Date.
SECTION 11.2 EFFECT OF TERMINATION.
In the event of termination of this Agreement as provided by Section
12.1, this Agreement shall forthwith become void and the parties hereto shall
have no obligation or liability to each other with respect to the transactions
contemplated hereby. Upon any such termination, upon the request of TCI, the
parties shall cause the boards of directors of one or both of the Digital
Constituent Corporations and of one or both of the Enterprises Constituent
Corporations to take such actions as may be required to terminate their
respective agreements of merger contained herein.
20
<PAGE>
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 NO THIRD-PARTY RIGHTS.
Nothing expressed or referred to in this Agreement is intended or
shall be construed to give any person or entity other than the parties hereto
any legal or equitable right, remedy or claim under or with respect to this
Agreement, or any provision hereof, it being the intention of the parties hereto
that this Agreement and all of its provisions and conditions are for the sole
and exclusive benefit of the parties to this Agreement and for the benefit of no
other person or entity.
SECTION 12.2 NOTICES.
All notices and communications hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or mailed, certified
or registered mail with postage prepaid, or sent by telegram or confirmed telex
or facsimile, addressed as follows:
if to TCI, TCIC, Tele-Communications, Inc.
TCITV, TCI K-1, 5619 DTC Parkway
UA K-1, Englewood, Colorado 80111
or Enterprises: Facsimile (303) 488-3245
Attention: Stephen M. Brett, Esq., Executive Vice
President, General Counsel and Secretary
if to Digital, TCI Satellite Entertainment, Inc.
the Company, 8085 South Chester, Suite 300
Sub 1 or Sub 2: Englewood, Colorado 80112
Facsimile (303) 712-4977
Attention: Gary S. Howard, President
or to such other address (or to the attention of such other person) as the
parties may hereafter designate in writing. All such notices and communications
shall be deemed to have been received on the date of delivery or the third
business day after the mailing thereof, except that any notice of a change of
address shall be effective only upon actual receipt thereof.
SECTION 12.3 ENTIRE AGREEMENT.
This Agreement (including the Exhibits attached hereto) constitutes
the entire agreement among the parties hereto and supersedes all prior
agreements and understandings, oral and written, among the parties hereto with
respect to the subject matter hereof.
21
<PAGE>
SECTION 12.4 AMENDMENT, MODIFICATION OR WAIVER.
Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated other than by agreement in writing signed by the
parties hereto. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instance shall be
deemed or construed as a further or continuing waiver of any such term,
provision or condition of this Agreement or any other term, provision or
condition of this Agreement; but any party hereto may waive its rights in any
particular instance by written instrument of waiver.
SECTION 12.5 BINDING EFFECT; BENEFIT; SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns, provided that this
--------
Agreement may not be assigned by any of the parties hereto without the prior
written consent of the other parties hereto.
SECTION 12.6 COSTS AND EXPENSES.
All costs and expenses incurred in connection with the authorization,
preparation and consummation of this Agreement and the transactions contemplated
hereby shall be borne one-half by the Company and one-half by TCI, unless the
parties shall otherwise agree.
SECTION 12.7 SEVERABILITY.
It is the intention of the parties hereto that the provisions of this
Agreement shall be enforced to the fullest extent permissible under all
applicable laws and public policies, but that the unenforceability of any
provision hereof (or the modification of any provision hereof to conform with
such laws or public policies, as provided in the next sentence) shall not render
unenforceable or impair the remainder of this Agreement. Accordingly, if any
provision shall be determined to be invalid or unenforceable either in whole or
in part, this Agreement shall be deemed amended to delete or modify, as
necessary, the invalid or unenforceable provisions and to alter the balance of
this Agreement in order to render the same valid and enforceable, consistent (to
the fullest extent possible) with the intent and purposes hereof.
SECTION 12.8 MISCELLANEOUS.
The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. This Agreement constitutes the entire agreement, and supersedes all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof. This Agreement may be executed in
one or more counterparts, each of which will be deemed an original, and all of
which together shall constitute one and the same instrument. This Agreement and
the legal relations among the parties hereto shall be governed in all respects,
including validity, interpretation and effect, by the laws of
22
<PAGE>
the State of Delaware, without regard to the conflict of laws rules thereof
(except to the extent that (x) provisions of the Colorado Act shall be
mandatorily applicable to the Digital Merger or this Agreement and (y)
provisions of the Oklahoma Act shall be mandatorily applicable to the
Enterprises Merger or this Agreement).
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
TELE-COMMUNICATIONS, INC. TCI K-1, INC.
By: By:
---------------------------- ----------------------------
Name: Name:
Title: Title:
TCI COMMUNICATIONS, INC. UNITED ARTISTS K-1 INVESTMENTS, INC.
By: By:
---------------------------- ----------------------------
Name: Name:
Title: Title:
TEMPO ENTERPRISES, INC. TCISE PARTNER 1, INC.
By: By:
---------------------------- ----------------------------
Name: Name:
Title: Title:
TCI DIGITAL SATELLITE TCISE PARTNER 2, INC.
ENTERTAINMENT, INC.
By:
By: ----------------------------
---------------------------- Name:
Name: Title:
Title:
TCI TECHNOLOGY VENTURES, INC. TCI SATELLITE ENTERTAINMENT, INC.
By: By:
---------------------------- ----------------------------
Name: Name:
Title: Title:
24
<PAGE>
EXHIBIT A
Form of Subsidiary Note
-----------------------
[Intentionally Omitted]
A-1
<PAGE>
EXHIBIT B
Form of Company Note
--------------------
[Intentionally Omitted]
B-1
<PAGE>
EXHIBIT C
Form of Company Charter
-----------------------
[Intentionally Omitted]
C-1
<PAGE>
EXHIBIT D
Form of Company Stock Option Agreement
--------------------------------------
[Intentionally Omitted]
C-1
<PAGE>
SCHEDULE 8.5(d)
Company Stock Options
---------------------
[Intentionally Omitted]
C-1
<PAGE>
SCHEDULE 10.1(b)
Certain Agreements
------------------
(1)Transition Services Agreement dated as of _____________, 1996,
between Tele-Communications, Inc. ("TCI") and TCI Satellite Entertainment, Inc.
(the "Company").
(2)Trade Name and Service Mark License Agreement dated as of
_____________, 1996, between TCI and the Company.
(3)Tax Sharing Agreement dated as of July 1, 1995, among TCI, TCIC and
the other parties thereto, as amended.
(4)Indemnification Agreement dated as of _____________, 1996, between
TCI UA 1, Inc. and the Company.
(5)Indemnification Agreement dated as of _____________, 1996, between
TCI Technology Ventures, Inc. and the Company.
(6)Fulfillment Agreement dated as of September __, 1996, between TCI
Communications, Inc. and the Company.
S-1
<PAGE>
EXHIBIT 2.2
[Form of]
TRADE NAME AND SERVICE MARK LICENSE AGREEMENT
Trade Name and Service Mark License Agreement (this "Agreement")
dated as of __________ ___, 1996, between Tele-Communications, Inc., a Delaware
corporation ("TCI"), and TCI Satellite Entertainment, Inc., a Delaware
corporation (the "Company").
RECITALS
A. TCI owns all the issued and outstanding capital stock of the
Company (the "Company Stock").
B. TCI intends to distribute (the "Distribution") the Company
Stock to the holders of its Tele-Communications, Inc. Series A TCI Group Common
Stock and Tele-Communications, Inc. Series B TCI Group Common Stock. As a result
of the Distribution, the Company will cease to be a subsidiary of TCI, and TCI
and the Company will be separate public companies.
C. This Agreement sets forth the terms and conditions on which,
for a period following the Distribution, the Company shall have the right to use
the names "TCI" and "Tempo" and certain other trademarks and service marks of
TCI in connection with the Digital Satellite Business.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms have the corresponding
meanings:
(a) "Digital Satellite Business" means the business of
--------------------------
distributing multichannel programing services directly to consumers in the
Territory via communications satellite broadcasting at Ku-band or higher
frequencies, including the rental and sale of customer premises equipment
relating thereto.
(b) "Effective Date" means the effective date of the
--------------
Distribution.
(c) "Marks" means (i) the service marks and trademarks described
-----
on Exhibit A, in each case for use only in the Territory in connection with the
Digital Satellite Business, and (ii) any other service marks or trademarks added
by amendment to this Agreement.
(d) "Names" means the corporate and trade names "TCI" and
-----
"Tempo," when used in conjunction with the word "Satellite," and as otherwise
provided in Section 2 hereof, in the United States and every other jurisdiction
in the in the Territory.
<PAGE>
EXHIBIT 2.2
(e) "Term" means the period of time commencing on the Effective
----
Date and expiring on the third anniversary of the Effective Date, subject to
earlier termination (i) in accordance with Section 16 hereof, or (ii) upon
notice by the Company to TCI that the Company has completely ceased using the
Names and Marks.
(f) "Territory" means the United States and each other
---------
jurisdiction within the limits set forth in Exhibit B hereto.
SECTION 2. GRANT OF LICENSE.
Subject to the terms and conditions set forth herein, TCI hereby
grants to the Company for the Term a non-exclusive license (the "License"):
(a) to use the names "TCI" and "Tempo" in its corporate name
and/or in the names of its wholly-owned subsidiaries, and in any trade
or fictitious names in any or all jurisdictions in the Territory, in,
and only in, any of the following manners: (A) in the names "TCI
Satellite Entertainment, Inc." and "Tempo Satellite, Inc."; (B)
otherwise in conjunction with the word "Satellite", and without the
words "Cable" or "International"; (C) in the name "PRIMESTAR By TCI,"
with or without any corporate or other identifier such as "Inc.,"
"Corp.," "L.P." or "L.L.C.," and (D) in such other manner as to which
TCI shall have given its prior written consent, which consent may be
granted or withheld by TCI in its sole and absolute discretion; and
(b) to use the Marks, in the United States and any other
jurisdiction in the Territory, solely for the purpose of conducting
the Digital Sattelite Business, subject to any and all legal
requirements and TCI policy limitations on such use that may arise
from time to time in, or with respect to, any such jurisdiction,
including but not limited to the TCI Graphics Standards Guide, as
amended from time to time.
The License is non-assignable and may be revoked by TCI as provided herein. The
Company shall not have the right to grant sublicenses hereunder, except to its
wholly-owned subsidiaries.
SECTION 3. FULLY-PAID LICENSE.
The License is fully-paid, and no additional consideration or
royalty is required to be paid by the Company hereunder.
-2-
<PAGE>
EXHIBIT 2.2
SECTION 4. REPRESENTATIONS AND WARRANTIES OF TCI.
TCI hereby represents and warrants to the Company as follows: TCI
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. It has all requisite corporate power and
authority to enter into and perform this Agreement and the transactions
contemplated hereby. All requisite corporate action on the part of TCI has been
taken to authorize the execution and delivery of this Agreement and the grant of
the License hereunder. This Agreement is a valid and binding obligation of TCI,
enforceable in accordance with its terms. The execution and delivery of this
Agreement by TCI and the consummation of the transactions contemplated hereby do
not violate the provisions of TCI's certificate of incorporation or by-laws or,
to the best knowledge of TCI, the provisions of any material indenture,
agreement, evidence of indebtedness or other instrument to which TCI is a party
or by which it or any of the Names or Marks are bound.
SECTION 5. NO OTHER REPRESENTATIONS OR WARRANTIES OF TCI.
The Company acknowledges that TCI has made no warranties or
representations, other than as set forth in Section 4 hereof, to induce the
Company to enter into this Agreement, including, without limitation, any
representation, warranty or statement with respect to the validity,
enforceability or coverage of the Names or Marks, or any of them, with or
without respect to the Digital Satellite Business, or the validity,
enforceability or coverage of any other trade name, trademark or service mark of
TCI, in the United States or any other jurisdiction. The Company further
acknowledges that it is aware that the Names or Marks may not have been
registered or otherwise qualified or preserved under the laws of the United
States or of any other jurisdiction.
SECTION 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
The Company hereby represents, warrants and covenants to TCI as
follows:
(a) Organization; Corporation Authority. The Company is a
-----------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. It has all requisite corporate power and authority to
own and operate its properties, to carry on the Digital Sattelite Business, and
to enter into and perform this Agreement and the transactions contemplated
hereby. All requisite corporate action on the part of the Company has been taken
to authorize the execution and delivery of this Agreement and the performance by
the Company of its obligations hereunder. This Agreement is a valid and binding
obligation of the Company, enforceable in accordance with its terms. The
execution and delivery of this Agreement by the Company and the consummation of
the transactions contemplated hereby do not violate the provisions of the
Company's certificate of incorporation or by-laws, or to the best knowledge of
the Company, the provisions of any material indenture, agreement, evidence of
indebtedness or other instrument to which the Company is a party or by which it
or its property is bound.
-3-
<PAGE>
(b) Covenant Not to Contest. The Company shall not raise or cause
-----------------------
to be raised any questions concerning or objections to the validity of the Names
or Marks, or any other trade names, trademarks, service marks or other names or
marks of TCI, in the United States or any other jurisdiction in the world
(collectively, the "Other Marks"), or to any registrations thereof, or to the
proprietary rights of TCI thereto, on any grounds whatsoever.
(c) Use or Registration of Trademarks: The Company shall not:
---------------------------------
(i) use the Names or Marks, or any term, name, design,
image, script, device or mark colorably similar thereto (a "Similar
Mark"), except as specifically permitted herein;
(ii) seek to register the Names or Marks, or any Similar
Mark, in the United States or any other jurisdiction; or
(iii) use the Names or Marks in conjunction or combination
with any other trade name, trademark, service mark or other mark, or
any other term, name, design, image, script or device, except as
otherwise expressly provided herein.
(d) Trademark Use. In using the Names or Marks, the Company shall
-------------
use its diligent best efforts to avoid:
(i) any impairment of TCI's rights, titles and interests
therein and thereto, and all goodwill associated therewith; and
(ii) any confusion, deception or mistake of the purchasing
public with respect to the source or origin or standards of quality of
any products or services bearing the Names or Marks;
and shall use the Names or Marks in the United States and each other
jurisdiction in the Territory only in a manner that is in compliance with the
laws and regulations of such jurisdiction.
SECTION 7. NO OTHER RIGHTS OF THE COMPANY IN THE NAMES OR MARKS.
The Company acknowledges that it does not have any right, title or
interest in the Names or Marks other than its rights under the License as set
forth herein. The Names or Marks and all Other Marks are the sole property of
TCI, and any and all uses by the Company of the Names or Marks, or any Other
Mark, any place in the world, shall inure to the benefit of TCI, whether or not
any such use is in compliance with this Agreement. In no event shall any such
use create or vest in favor of the Company any right, title or interest in the
Names or Marks, any Other Mark or any other property or goodwill of TCI, or be
deemed or construed to have created or vested any such right, title or interest.
To the extent that any jurisdiction shall find or hold as a matter of law or
otherwise that such use has created or vested in the Company any right, title or
interest in or to the Names or Marks
-4-
<PAGE>
or any Other Mark, the Company, upon the request of TCI, shall execute and
deliver to TCI appropriate assignments to vest such right, title and interest in
TCI.
SECTION 8. NON-EXCLUSIVE LICENSE.
The License is non-exclusive. Nothing in this Agreement shall be
construed to limit the right of TCI to use or to grant a license to use the
Names or Marks or any Other Marks for any products or services, in the United
States or any other jurisdiction within or without the Territory, even though
such products or services are shipped, sold or offered in the same channels of
trade as those of the Company.
SECTION 9. MARKING.
The Company shall place the following notice prominently on all
advertising, promotional and other materials, labels, packaging materials or the
like bearing or containing the Marks:
"'TCI' and the 'Illuminating the Globe' design are the
registered marks of, and are used under license granted by,
Tele-Communications, Inc."
Notwithstanding the foregoing, the Company has the right to use the Names and
Marks orally as well as in writing in various media.
SECTION 10. ASSISTANCE IN REGISTRATION.
At TCI's reasonable request, the Company shall, at the Company's
own expense, assist TCI in the procurement or maintenance of any registrations
for the Names or Marks in any jurisdiction in the Territory and in any other
jurisdiction as TCI shall reasonably request by providing any information
available from the Company and executing any documents necessary or advisable
therefor in the sole discretion of TCI. The Company shall record the License in
any jurisdiction in which such recordation is required by statute or is
advisable in the sole discretion of TCI. Upon the prior written consent of TCI,
which consent may be granted or withheld by TCI in its sole and absolute
discretion, the Company may seek to register or qualify any or all Names and
Marks under the laws of any jurisdiction in the Territory; provided, however,
-------- -------
that the Company shall bear (and, as applicable, reimburse TCI for) all costs
and expenses incurred by the Company or TCI in connection with any such
registration or qualification, or the procurement and/or maintenance thereof.
-5-
<PAGE>
EXHIBIT 2.2
SECTION 11. INFRINGEMENT BY THIRD PARTIES.
(a) The Company shall promptly notify TCI of any adverse uses
confusingly similar to the Names or Marks in connection with the Digital
Satellite Business and shall take no other action of any kind with respect
thereto without the express prior written authorization of TCI.
(b) The ultimate determination of whether or not legal action
shall be taken in any case shall lie exclusively with and at the sole discretion
of TCI.
(c) In the event that TCI in its sole discretion decides to
institute legal action, TCI shall pay the costs of any such legal action. The
Company shall cooperate in any action instituted or defended by TCI under this
Section 11 or Section 12 by providing any documents in its possession and
control, by making available its personnel familiar with relevant facts, and
otherwise as TCI shall reasonably request. Except as otherwise expressly
provided in Section 12, the Company shall pay its own legal and other expenses,
except that the Company shall be reimbursed by TCI for any out-of-pocket travel,
lodging and subsistence expenses necessarily and reasonably incurred by the
Company's personnel in connection with any action instituted or defended by TCI
under this Agreement, if incurred at the written request of TCI.
SECTION 12. INDEMNIFICATION BY THE COMPANY.
The Company shall indemnify TCI and hold TCI harmless from any and
all claims, suits, losses and damages (including, without limitation, reasonable
fees and expenses of counsel and reasonable settlement costs) arising out of:
(a) any breach by the Company of any obligation of the
Company under this Agreement; or
(b) any claim that any trade name, trademark, service mark
or other mark used by the Company infringes any name, mark or right of
any other person, except to the extent that such claim is based solely
on the Company's use of the Names and Marks in the United States or
any other jurisdiction in connection with the Digital Satellite
Business in accordance with this Agreement.
SECTION 13. QUALITY STANDARDS.
The products or services bearing the Names or Marks shipped or
offered by the Company shall be of a high standard and of such style, appearance
and quality as to be adequate and suited to their exploitation to the best
advantage and to the protection and enhancement of the Names and Marks and the
goodwill pertaining thereto, and all products shall be manufactured, sold and
distributed and all services shall be offered and performed in accordance with
applicable laws, and such products and services shall not reflect adversely upon
the good name of TCI or any of its programs or the Names, Marks or any Other
Marks. To this end, all advertising, promotion and use
-6-
<PAGE>
of the Names and Marks by the Company shall be consistent with TCI guidelines
and standards as may be issued from time to time by TCI and provided to the
Company. In the conduct of the business and activities of the Company under the
Names or Marks, the Company shall adhere to the highest ethical standards
pertaining to the Company's business and operations, and shall do nothing that
could in any way be injurious or detrimental to the Names or Marks or in any way
damage the goodwill symbolized by the Names or Marks and shall make available to
TCI any requested information necessary for TCI to evaluate such goodwill and
reputation. TCI has provided to the Company a copy of the TCI guidelines issued
with respect to the advertising, promotion and use of the Names and Marks
(including notices and legends to be used in connection therewith) as currently
in effect on the date hereof, which guidelines the Company shall follow. TCI
shall have the right to exercise control as to the standards and quality of the
products and services produced, sold or offered for sale in connection with the
Names or Marks.
SECTION 14. INSPECTION.
The Company shall permit TCI's authorized representatives to have
access to its premises for the purpose of inspecting the Company's products and
services and shall furnish, at TCI's request, materials used in connection with
the Names or Marks for the purpose of insuring that the Company is complying
with TCI's quality standards and this Agreement.
SECTION 15. ADVERTISING AND PROMOTIONAL MATERIALS.
Upon request of TCI, the Company shall furnish to TCI free of cost,
for its approval, a reasonable number of samples of each type of advertising and
promotional materials or the like used for any products or services offered by
the Company bearing the Names or Marks
SECTION 16. TERM OF THIS AGREEMENT; TERMINATION.
(a) This Agreement and the License will terminate at the end of
the Term, unless sooner terminated pursuant to the provisions hereof.
(b) This Agreement and the License may be terminated by either
party (the "Terminating Party") on 60 days' prior written notice to the other
party (the "Defaulting Party"), if (i) the Defaulting Party shall be in material
default of a material obligation of such party under this Agreement, (ii) such
default shall be incapable of being cured, or shall have continued for not less
than 30 days after the Defaulting Party shall have received written notice
thereof from the Terminating Party, and (iii) the Terminating Party shall be in
material compliance with all material obligations of the Terminating Party under
this Agreement.
(c) This Agreement and the License shall terminate, immediately
and automatically, whether or not notice shall have been given to the Company,
upon the occurrence of any of the following events: (i) the bankruptcy or
insolvency of the Company; (ii) the appointment of a receiver of the Company or
any of its assets; (iii) the making by the Company of an assignment
-7-
<PAGE>
EXHIBIT 2.2
for the benefit of creditors; or (iv) the institution of proceedings for a
reorganization, bankruptcy, dissolution or winding-up of the Company, or any
similar proceeding under the laws of any jurisdiction to which the Company may
be subject.
(d) This Agreement and the License may be terminated by TCI,
immediately upon written notice to the Company if, in TCI's sole judgment, which
shall be reasonably exercised, the Company's continued use of the Names or Marks
would materially jeopardize or be detrimental to the valuable goodwill and
reputation which TCI enjoys worldwide in the Names or Marks.
SECTION 17. NON-USE OF NAMES AND MARKS UPON TERMINATION.
Upon the termination of this Agreement or the License for any
reason whatsoever, the Company shall immediately discontinue the use of, and
thereafter refraining from using, the Names, Marks, or any Similar Mark, as a
company name or trade name or part thereof, or otherwise in connection with the
business and activities of the Company or the sale or marketing of any products
or services, in the United States or any other jurisdiction; provided, however,
-------- -------
that, during the six month period immediately following any such termination
(other than a termination of the Term upon the third anniversary of the
Effective Date as provided in Section 1(e) hereof), the Company may complete its
performance under any contract entered into by the Company in the ordinary
course of business prior to notice of any such termination, so long as the
Company complies with its obligations set forth herein as if this Agreement
continued in full force and effect. Upon termination of this Agreement or the
License, upon the written request of TCI, the Company shall destroy or deliver
to TCI, at the Company's expense, any and all advertising, promotional and other
materials, labels, packaging materials or the like bearing or containing the
Names or Marks, as TCI in its sole discretion shall determine.
SECTION 18. INJUNCTIVE RELIEF UPON TERMINATION.
The Company acknowledges that any failure by the Company to comply
with its obligations under Section 17 upon the termination of this Agreement or
the License will result in immediate and irreparable injury to TCI, and that, in
addition to any provable damages and the right to recover the costs and expenses
of any related litigation, TCI shall be entitled to equitable relief by way of
temporary and permanent injunctions and such other further relief as any court
with jurisdiction may deem appropriate.
SECTION 19. ASSIGNMENT.
The Company shall not assign this Agreement or the License, or any
rights of the Company hereunder. TCI may assign or otherwise transfer this
Agreement and its rights hereunder to any direct or indirect affiliate of TCI,
or otherwise upon the sale or other transfer of TCI's entire business, or of
that part of TCI's business to which the License relates, or the sale of the
Marks, provided that any successor or assignee of TCI agrees to be bound by the
terms and provisions of this Agreement.
-8-
<PAGE>
EXHIBIT 2.2
SECTION 20. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The representations, warranties, covenants, acknowledgments and
agreements of the parties set forth in this Agreement shall survive the
execution and delivery of this Agreement and shall be effective during the term
of this Agreement and the License; and the obligations of the Company under
Sections 5, 6, 7, 8, 9, 13, 14, 18 and 19, and the obligations of TCI under
Sections 4 and 12, shall survive the termination of this Agreement or the
License for any reason whatsoever, including, without limitation, any breach of
this Agreement by either TCI or the Company.
SECTION 21. MISCELLANEOUS.
(a) Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all previous negotiations, commitments and writings with respect
to such subject matter.
(b) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with (i) the laws of the State of Colorado applicable to
contracts executed in and to be performed in that state and (ii) as applicable,
the Federal laws of the United States of America.
(c) Notices. All notices, requests, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed to
have been duly given: (i) on the date of service if served personally on the
party to whom notices is to be given; (ii) on the day of transmission if sent
via facsimile transmission to the facsimile number given below, and telephonic
confirmation of receipt is obtained promptly after completion of transmission;
(iii) on the day after sending by Federal Express or similar overnight courier
or the Express Mail service maintained by the United States Postal Service; or
(iv) on the fifth day after mailing, if mailed to the party to whom notice is to
be given, by first class mail, registered or certified, postage prepaid and
properly addressed, to the party as follows:
If to TCI:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
Telecopy: (303) 488-3245
-9-
<PAGE>
If to the Company:
TCI Satellite Entertainment, Inc.
8085 South Chester, Suite 300
Englewood, Colorado 80112
Facsimile (303) 712-4977
Attention: Gary S. Howard, President
A party may change its address for the purpose of this Section by
giving the other party written notice of its new address in the manner set forth
above.
(d) Amendment. This Agreement may not be amended or modified in
---------
any respect except by a written agreement signed by the parties hereto.
(e) Successors and Assigns; No Third-Party Beneficiaries. This
----------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Nothing contained in
this Agreement is intended to confer upon any other persons other than the
parties hereto or their respective successors and permitted assigns, any rights
or remedies, except as otherwise expressly set forth herein.
(f) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be an original instrument and all of which together shall
constitute a single contract.
(g) No Waiver. No waiver by either party hereto of any term or
---------
condition of this Agreement, in any one or more instances, shall operate as a
waiver of such term or condition at any other time.
(h) Interpretation. The section headings contained in this
--------------
Agreement are solely for the purpose of reference and do not constitute a part
of this Agreement.
(i) Severability. If any provision of this Agreement shall be
------------
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if not
containing the particular invalid or unenforceable provisions, and the rights
and obligations of each party shall be construed and enforced accordingly.
(j) No Joint Venture. Nothing contained herein shall constitute
----------------
either party an employee, agent or partner of, or joint venturer with, the other
party.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.
TELE-COMMUNICATIONS, INC.
By: ____________________
Name:
Title:
TCI SATELLITE ENTERTAINMENT, INC.
By: ____________________
Name:
Title:
-11-
<PAGE>
EXHIBIT A
Marks
-----
<TABLE>
<CAPTION>
U.S. Registration Date Registered
Description Number in U.S.
- ----------- ----------------- ---------------
<S> <C> <C>
1. "TCI" 1,244,804 7/ 5/83
2. "TCI" [1,840,915] [ 6/21/94]
3. DESIGN: "Illuminating The [1,731,665] [11/10/92]
Globe" (See Attachment #1)
4. "Tempo"
5. "PRIMESTAR By TCI"
</TABLE>
-12-
<PAGE>
EXHIBIT 2.3
[ Form of ]
TRANSITION SERVICES AGREEMENT
Transition Services Agreement (this "Agreement"), dated as of
_________________ ______,1996, between Tele-Communications, Inc., a Delaware
corporation ("TCI"), and TCI Satellite Entertainment, Inc., a Delaware
corporation (the "Company").
RECITALS
A. TCI owns all the issued and outstanding capital stock of the
Company (the "Company Stock").
B. TCI intends to distribute (the "Distribution") the Company
Stock to the holders of its Tele-Communications, Inc. Series A TCI Group Common
Stock and Tele-Communications, Inc. Series B TCI Group Common Stock. As a result
of the Distribution, the Company will cease to be a subsidiary of TCI, and TCI
and the Company will be separate public companies.
C. This Agreement sets forth the general terms upon which, for a
period following the Distribution, TCI will continue to provide to the Company
certain services currently being provided to the Company by TCI.
NOW, THEREFORE, in consideration of the mutual covenants contained
in this Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, TCI and the Company hereby agree
as follows:
SECTION 1. SERVICES.
(a) Agreement to Provide Services. At the request of the
-----------------------------
Company, TCI shall provide services to the Company for the administration and
operation of the businesses of the Company and its subsidiaries and affiliates
and shall devote thereto such time as may be necessary for the proper and
efficient administration and operation of such businesses. The services to be
provided by TCI to the Company pursuant to this Agreement (collectively, the
"Services") shall include such of the following services as the Company may
request from time to time:
(i) tax reporting, financial reporting, payroll, employee
benefit administration, workers' compensation administration,
telephone, fleet management, package delivery, management
information systems, billing, lock box, remittance processing,
and risk management services;
<PAGE>
EXHIBIT 2.3
(ii) other services typically performed by TCI's accounting,
finance, treasury, corporate, legal, tax, benefits, insurance,
facilities, purchasing, fleet management and advanced information
technology department personnel;
(iii) use of telecommunications and data facilities and of
systems and software developed, acquired or licensed by TCI from
time to time for financial forecasting, budgeting and similar
purposes, including without limitation any such software for use on
personal computers, in any case to the extent available under
copyright law or any applicable third-party contract;
(iv) ancillary marketing support services, including,
without limitation, provision of market research regarding
competitive information; and
(iv) such other management, supervisory, strategic planning
or other services as the Company and TCI may from time to time
mutually determine to be necessary or desirable.
(b) Compensation for Services. As compensation for Services
-------------------------
rendered to the Company pursuant to this Agreement, the Company shall reimburse
TCI for: (i) all direct expenses incurred by TCI in providing such Services,
provided that the incurrence of such expenses is consistent with practices
generally followed by TCI in managing or operating its own business and the
businesses of its subsidiaries and affiliates and (ii) the Company's pro rata
share of TCI's indirect expenses attributable to the provision of Services
hereunder, based on a determination by TCI management of the usage by the
Company of such Services during the relevant period. Such indirect expenses
shall include a pro rata share of (A) the salaries and other compensation of
TCI's officers and employees who perform Services for the Company, (B) general
and administrative overhead expenses, and (C) the costs and expenses of TCI's
physical facilities that are utilized by TCI's employees and contractors for the
benefit of the Company. TCI shall keep true, complete and accurate books of
account containing such particulars as may be necessary for the purpose of
calculating the above costs. Reimbursement amounts shall be billed quarterly by
TCI and shall be due and payable in full within 30 days after receipt of
invoice.
SECTION 2. TERM.
(a) Commencement. This Agreement shall become effective
------------
immediately upon the effectiveness of the Distribution.
(b) Termination. The obligations of TCI to provide Services to
-----------
the Company as provided in Section 1 hereof shall remain in effect until
terminated:
(i) by the Company at any time on not less than 60
days' prior written notice to TCI;
-2-
<PAGE>
EXHIBIT 2.3
(ii) by TCI at any time after three years from the
effective date of the Distribution on not less than 60 days' prior
written notice to the Company;
(iii) by TCI, upon written notice to the Company, if
any person or group (other than TCI, any subsidiary of TCI or any
Controlling Person of the Company or TCI) acquires beneficial
ownership of shares of capital stock representing 50% or more, by
voting power, of the outstanding shares of voting capital stock of
the Company; or
(iv) by either party, upon written notice to the other
party, if such other party shall file a petition in bankruptcy or
insolvency, or a petition for reorganization or adjustment of debts
or for the appointment of a receiver or trustee of all or a
substantial portion of its property, or shall make an assignment
for the benefit of creditors, or if a petition in bankruptcy or
other petition described in this paragraph shall be filed against
such other party and shall not be discharged within 120 days
thereafter.
For purposes of this Section 2(b), the term "beneficial ownership" shall be
defined and construed in accordance with Rule 13d-3 of the Securities Exchange
Act of 1934 (the "Exchange Act") and the term "group" shall be defined and
construed in accordance with Section 13(d) of the Exchange Act. In addition, for
purposes of this Section 2(b), "Controlling Person" shall mean as to any person
each of (1) the Chairman of the Board of such person as of the date of this
Agreement, (2) the President of such person as of the date of this Agreement,
(3) each of the directors of such person as of the date of this Agreement, (4)
the respective family members, estates and heirs of each of the persons referred
to in clauses (1) through (3) above and any trust or other investment vehicle
for the primary benefit of any of such persons or their respective family
members or heirs, (5) Kearns-Tribune Corporation, a Delaware corporation or any
successor thereto by merger or consolidation and (6) the trustee under the
qualified employee stock purchase plan or any successor plan of such person. As
used with respect to any person, the term "family member" means the spouse,
siblings and lineal descendants of such person. The trustee under the qualified
employee stock purchase plan or any successor plan of any person shall be deemed
to have beneficial ownership of all shares of common stock of such person held
under the plan, whether or not allocated to or vested in participants' accounts.
In the event of any termination of this Agreement, each party shall remain
liable for all obligations of such party accrued hereunder prior to the date of
such termination, including, without limitation, all obligations of the Company
to reimburse TCI for services provided hereunder, as provided in Section 1(b)
hereof. The provisions of Section 3 of this Agreement shall survive
indefinitely, notwithstanding any termination hereof.
-3-
<PAGE>
EXHIBIT 2.3
SECTION 3. LIMITATION OF LIABILITY.
TCI, its affiliates, directors, officers, employees, agents and
permitted assigns (each, a "TCI Party" and, together, the "TCI Parties") shall
not be liable (whether such liability is direct or indirect, in contract or tort
or otherwise) to the Company or any of the Company's affiliates, directors,
officers, employees, agents, securityholders, auditors or permitted assigns, for
any liabilities, claims, damages, losses or expenses (including, without
limitation, any special, indirect, incidental or consequential damages)
("Losses") arising out of, related to, or in connection with the Services or
this Agreement, except to the extent that such Losses result from the gross
negligence or willful misconduct of TCI, in which case TCI's liability shall be
limited to a refund of that portion of the amounts actually paid by the Company
hereunder which, as determined by TCI, represented the cost to the Company of
the Services in question. The Company hereby agrees to indemnify and hold
harmless the TCI Parties from and against any and all Losses (including, without
limitation, reasonable fees and expenses of counsel) incurred by any TCI Party
arising out of or in connection with or by reason of this Agreement or any
Services provided by TCI hereunder, other than any liability of TCI to refund
amounts paid by the Company as contemplated by the preceding sentence.
SECTION 4. MISCELLANEOUS.
(a) Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all previous agreements, negotiations, understandings and
commitments with respect to such subject matter, whether or not in writing.
(b) Governing Law. This Agreement and the legal relations
-------------
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of Colorado, without regard to conflicts of laws rules
thereof.
(c) Notices. All notices, demands and other communications under
-------
this Agreement shall be in writing and shall be deemed to have been duly given:
(i) on the day of service if served personally on the party to whom notices is
to be given; (ii) on the day of transmission if sent via facsimile transmission
to the facsimile number given below, and telephonic confirmation of receipt is
obtained promptly after completion of transmission; (iii) on the day of delivery
by Federal Express or similar overnight courier; or (iv) on the third day after
mailing, if mailed to the party to whom notice is to be given, by United States
first class mail, registered or certified, postage prepaid and properly
addressed, to the party as follows:
-4-
<PAGE>
If to TCI:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
Facsimile: (303) 488-3245
If to the Company:
TCI Satellite Entertainment, Inc.
8085 South Chester, Suite 300
Englewood, Colorado 80112
Attention: Gary S. Howard, President
Facsimile: (303) 712-4977
with a separate copy to the Company's Corporate Counsel at the same
address.
Any party may change its address for the purpose of this Section by giving the
other party written notice of its new address in the manner set forth above.
(d) Amendment. This Agreement may not be amended or modified in
---------
any respect except by a written agreement signed by the parties hereto.
(e) Successors and Assigns; No Third-Party Beneficiaries. This
----------------------------------------------------
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Neither this Agreement nor any of the rights, interests and
obligations hereunder shall be assigned by either party hereto, by operation of
law or otherwise, without the prior written consent of the other party. Nothing
contained in this Agreement, except as expressly set forth, is intended to
confer upon any other persons other than the parties hereto and their respective
successors and permitted assigns, any rights or remedies.
(f) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) No Waiver. No waiver by either party hereto of any term or
---------
condition of this Agreement, in any one or more instances, shall operate as a
waiver of such term or condition at any other time.
(h) Relations between the Parties. The parties are independent
-----------------------------
contractors. Nothing in this Agreement shall constitute either party, or any of
such party's officers,
-5-
<PAGE>
directors, agents or employees, a partner, agent or employee of, or joint
venturer with, the other party.
(i) Severability. If any provision of this Agreement shall be
------------
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if not
containing the particular invalid or unenforceable provisions, and the rights
and obligations of each party shall be construed and enforced accordingly.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first written above.
TELE-COMMUNICATIONS, INC.
By: ______________________________
Name:
Title:
TCI SATELLITE ENTERTAINMENT, INC.
By: ______________________________
Name:
Title:
-6-
<PAGE>
EXHIBIT 2.4
-----------
THIS DOCUMENT HAS BEEN REDACTED IN ACCORDANCE WITH RULE 24b-2(b) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. A COMPLETE COPY OF THIS EXHIBIT,
WITHOUT OMISSIONS, HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
OMISSIONS ARE INDICATED HEREIN WITH [*****].
FULFILLMENT AGREEMENT
---------------------
This Fulfillment Agreement (including all Exhibits and Schedules hereto,
this "Agreement") is entered into this 30th day of August, 1996 between TCI
Satellite Entertainment, Inc., a Delaware corporation ("Satellite") and TCI
Communications, Inc., a Delaware corporation ("TCI"); provided, that is shall
not be effective (the "Effective Date") until the first day of the calendar
month immediately following the Distribution Date (as defined below in Section
9).
RECITALS
--------
A. Satellite is engaged in the business of distributing Ku-band direct
broadcast satellite ("DBS") television programming known as PRIMESTAR(R) (the
"Programming Services") in specified areas of the United States (the
"Territory").
B. TCI is the owner, directly or indirectly, of cable television systems
located throughout the United States (the "Systems").
C. Satellite desires and engage TCI to perform installation and service
work with respect to medium power Ku-band DBS equipment (including any
associated products Satellite and TCI agree that TCI shall install, the
"Equipment") sold and leased by Satellite in the Territory for the reception of
the Programming Services and to perform the other services specified herein.
AGREEMENT
---------
1. Solicitation of Orders for Programming Services and Equipment; Other
--------------------------------------------------------------------
Responsibilities of Satellite.
- -----------------------------
a. Satellite agrees to actively solicit orders for and make direct sales
and leases of the Programming Services and Equipment to qualified subscribers in
the Territory ("Satellite Subscribers"). TCI agrees that each System will
provide at the System's expense, adequate office space at the System and use of
office facilities (including telephone and facsimile access) for employees of
Satellite to complete the sales or lease process with respect to orders for
Programming Services and Equipment solicited by Satellite. Notwithstanding the
foregoing,
<PAGE>
Satellite agrees that TCI shall not be obligated to materially
increase the office space or facilities provided by it beyond the level of
office space and facilities provided by it to Satellite during the 12 months
preceding the date of this Agreement.
b. This Agreement is entered into based on the Territory in which Satellite
distributes the Programming Services as of the date of this Agreement. If
Satellite's Territory for distribution of the Programming Services hereafter
changes, Satellite and TCI agree to negotiate in good faith to amend this
Agreement to provide for the Systems to perform installation, maintenance and
other service calls (as defined in Section 3) in such revised Territory.
c. TCI agrees that each System will prominently display at its System
office promotional materials for the Programming Services and Equipment, such
promotional materials to be provided by Satellite. TCI acknowledges that the
Systems are not authorized to solicit sales of the Programming Services or sales
or leases of the Equipment on behalf of Satellite (including, without
limitation, door-to-door solicitation). Notwithstanding the foregoing, TCI
agrees that each System will establish point-of-purchase capability for taking
orders for the Programming Services and Equipment from persons who walk into a
System's office for such purpose; provided, that no sale may be completed by a
System unless such System has obtained a credit check and other approvals from
Satellite in accordance with procedures established by Satellite from time to
time. With respect to any such sale or lease to a qualified subscriber residing
in the Territory that is completed and approved by Satellite, TCI will be paid a
commission as specified on EXHIBIT A.
d. Satellite shall be responsible for the authorization of all Satellite
Subscribers in coordination with the Systems. Satellite agrees to provide and
manage a central phone center for customer services support, authorizations and
System related service support.
e. Satellite agrees to provide each System with 30 days notice of major
advertising campaigns to be run in such System's area. At least 30 days prior
to January 1, 1997 and January 1, 1998, Satellite will provide each System with
a budget showing Satellite's budgeted installations for such System for each
month of the following calendar year. Such budgets may be reasonably amended by
Satellite from time to time as to any month by giving the affected Systems 30
days written notice prior to the first day of the changed month.
2. CSG Interface and Other System Expenses.
---------------------------------------
a. TCI agrees that each System will, at the System's expense, acquire,
install and maintain on-line access to Satellite's CSG billing System ("CSG"),
including acquiring, installing and maintaining compatible computers, modems,
printers, data lines and other equipment and materials necessary to establish
and maintain such on-line access for purposes of inputting nd receiving work
orders and other information from Satellite. With respect to each sale or lease
of Equipment solicited by it for which Satellite desires TCI to perform the
installation of Equipment, Satellite will forward to the appropriate System
through CSG, an installation work order, including a scheduled date for
installation with the Satellite Subscriber, specifying morning or afternoon
2
<PAGE>
general time frame for installation. Satellite will also forward work orders to
the Systems through CSG for all other services ordered by Satellite hereunder,
including maintenance and service calls, disconnect and equipment recovery
calls, satellite repoints and IRD upgrade calls, dish relocation calls and such
other services as may be requested by Satellite from time to time.
b. All agreements to be signed by Satellite Subscribers must be on forms
supplied by Satellite at the Systems' expense, which forms may not be modified
by TCI or the Systems without Satellite's prior written approval. TCI agrees
that the Systems will order from Satellite at the System's expense all forms to
be signed by Satellite Subscribers, as specified by Satellite from time to time
(the "Satellite Forms"). With respect to each service provided by the Systems
hereunder, TCI agrees that the Systems will complete and obtain signed copies of
the applicable Satellite Forms, will process such Satellite Forms through CSG
and will file the hard copies of such Satellite Forms in accordance with
Satellite procedures. TCI agrees that the Systems will promptly report the
resolution of each work order placed by Satellite through CSG in accordance with
Satellite procedures.
c. TCI agrees that each System will provide at its own expense, all office
space and supplies, office overhead (such as telephone and facsimile expense),
labor, skills, tools and other equipment and materials (including concrete,
cable, etc.) necessary to perform its obligations under this Agreement in a
timely manner. In addition, TCI will be charged $10,000 for customer
consolidation costs for each SPA merger or change made at the request of TCI.
3. Installations, Maintenance and Other Service Calls by Systems. TCI
-------------------------------------------------------------
agrees that each System will install Equipment at, and make maintenance and
other service calls to, the homes of Satellite Subscribers designated by
Satellite and at schools, commercial establishments and other locations
designated by Satellite. "Other service calls" includes, without limitation,
disconnect and equipment recovery calls, satellite repoints and IRD upgrade
calls, and dish relocation calls. TCI acknowledges that this Agreement is non-
exclusive and that TCI and the Systems are not guaranteed any amount of
installations or maintenance or other service calls. All installations of
Equipment and all maintenance and other service calls will be performed in
accordance with the following provisions:
a. All services provided by TCI and the Systems pursuant to this Agreement
will be performed by fully qualified and fully trained administrative,
installation, maintenance and service personnel. Each System agrees to develop
and implement at the Systems' expense, adequate training programs based on
specifications provided by Satellite from time to time.
b. All services provided by TCI and the Systems pursuant to this Agreement
will be performed in a good workmanlike manner in accordance with Satellite's
specifications supplied to the Systems from time to time.
3
<PAGE>
c. Each System is responsible for performing installations and making
maintenance and other services calls only in its designated SPA as of the date
of this Agreement or as such SPA may hereafter be changed with the consent of
TCI.
d. All installations will be completed within 72 hours following a
System's receipt from Satellite of the work order for such installation.
e. All maintenance and other service calls requested by Satellite (other
than equipment recovery as to which the provisions of Section 2.q will apply and
other than satellite repoints and IRD upgrades as to which the time period for
performances shall be mutually agreed upon), will be made within 24 hours
following a request by Satellite. TCI agrees that System personnel performing
installations, maintenance or other service calls with have fully supplied
trucks and will be trained and equipped to resolved any installation,
maintenance or service issue.
f. System personnel must show up for all scheduled installation,
maintenance and other service call appointments at the scheduled time, even if
they are unable to confirm the appointment with the Satellite Subscriber on the
scheduled date. If a Satellite Subscriber is not at home at the time of a
scheduled appointment, the System shall leave a missed appointment door hanger
on the Satellite Subscriber's door.
g. Each System will obtain appropriate information and required locations
services with respect to the location of buried cables and utilities prior to
performing any excavation or underground work and will locate, expose and
protect from damage all existing underground facilities, including electrical,
telephone, water, gas, sewer or other utilities. All locations services must be
performed in a timely manner to enable the Systems to meet 72 hours installation
requirement set forth above.
h. In all instances where a phone line is available, whether working or,
not the installer shall use the phone line to connect each and every PRIMESTAR
IRD in the Satellite Subscriber's home. The installer will make every effort to
have the PRIMESTAR IRD successfully pass a phone test and receive an impulse
authorization. At least 90% of the installations done by or on behalf of a
System each month must be in the impulse mode.
i. All installers and maintenance and service personnel will carry the
same personal identification carried by other System personnel and will adhere
to the same identification procedures and standards followed by other System
personnel when they are contacting or performing services for System subscribers
at their homes. In addition, installers and maintenance personnel will present
a professional appearance at all times (hair should be neat, facial hair trimmed
appropriately) and will wear TCI uniforms.
j. System vehicles used in installations or maintenance or other service
calls will bear the TCI logo on such vehicle.
4
<PAGE>
k. The Systems shall provide each Satellite Subscriber at the time of
installation with such documents and other materials as may be specified by and
furnished by Satellite from time to time (e.g., Satellite may institute a
program whereby Satellite Subscribers would receive incentives to display signs
regarding PRIMESTAR in their yards and the installers would be required to place
such signs in the yard at the time of installation).
l. Each Satellite Subscriber will be provided at the time of installation
with adequate customer education regarding the Programming Services and
Equipment as specified by Satellite. During each maintenance or other service
call, System personnel will provide Satellite Subscribers with adequate
education regarding the nature of the problem leading to the maintenance or
other service call and the resolution of such problem.
m. Upon completion of an installation, maintenance or other service call,
each System will remove all of its tools, equipment and materials from the area
and will leave the area clean and ready for use.
n. Each System warrants that such System's work will conform to
Satellite's standards.
o. Each System will take all reasonable safety measures in the performance
of its installation and other services hereunder and will report promptly to
Satellite in writing each known incident in the course of its installations or
performance of other services hereunder resulting in property damage.
p. On a monthly basis, each System shall quality inspect 10% of the
installations made by such System during the preceding calendar month using the
form attached hereto as EXHIBIT B, as the same may be reasonably modified by
Satellite from time to time effective upon written notice to the Systems, and
shall maker necessary repairs based on such inspections (the reports regarding
such inspections shall be made available to Satellite upon request).
q. The Systems will pick up Equipment from a Satellite Subscriber within
ten days following a request for pick-up from Satellite. If a System is unable
to recover Equipment located in the home of a Satellite Subscriber at the time
it recovers the Equipment located outside of the home, the System shall leave a
UPS shipping box and billing slip for the Satellite Subscriber to return the
unrecovered Equipment to Satellite at Satellite's expense or shall follow such
other procedures as may be specified by Satellite from time to time.
r. At no time will the number of terminated Satellite Subscribers with an
"unrecovered Equipment" in a System exceed the number (the "Maximum Permitted
Unrecovered Number") that is equal to 4% of the total IRDs in such System's SPA
for such month. "Unrecovered Equipment" means any IRD, LNB or satellite dish in
the hands of a voluntarily or involuntarily terminated subscriber that has not
been recovered by a System within ten days following a pick-up request by
Satellite. If a System exceeds its Maximum Permitted Unrecovered Number during
a
5
<PAGE>
given month, the total amount payable to such System for that month shall be
reduced by an amount equal to $10 per month for each terminated Satellite
Subscriber in possession of unrecovered Equipment that is in excess of the
Maximum Permitted Unrecovered Number.
4. Additional Responsibilities of Systems.
--------------------------------------
a. TCI agrees that each System will keep adequate books and records
regarding its performance of its obligations under this Agreement (including
tracking the number of installations ordered, canceled and completed) and will
make such books and records available to Satellite upon request.
b. TCI agrees that each System will have adequate System representatives
available at all times during normal business hours for communication with
Satellite and Satellite Subscribers, including administrative System personnel
to coordinate with Satellite personnel regarding completion of the sales or
lease process and scheduling of installation. In addition, TCI agrees that each
System will provide Satellite at the time of execution of this Agreement with a
list of persons whom Satellite may call outside of regular business hours to
coordinate installations and service problems. All such contact persons shall
be available on a 24 hour per day basis.
c. TCI agrees that each System will comply with all reasonable Satellite
policies and procedures as furnished to the Systems from time to time.
d. TCI agrees that System personnel will not make any warranties or
representations regarding the Programming Services or Equipment that are
inconsistent with or more extensive than the warranties and representations
provided by Satellite in its forms and agreements.
e. TCI agrees that each System will obtain and maintain licenses or
authorizations from appropriate regulatory bodies necessary to perform the
System's obligations under this Agreement and will ensure that all
subcontractors are likewise so licensed.
5. Equipment:
---------
a. Each System will store at its expense, adequate amounts of Equipment
and such other materials as the Systems is required by Satellite to deliver to
Satellite Subscribers from time to time and will order additional units of
Equipment and other materials as required. Satellite will fill all System orders
for Equipment within two weeks following a written request from a System. Each
System will provide secure facilities for storage of Equipment and other
materials to be delivered to Satellite Subscribers and will be liable to
Satellite for any damage to, or loss or theft of, Equipment or other materials
in its possession.
b. Satellite will retain title to all Equipment pending sale to a
Satellite Subscriber.
6
<PAGE>
c. TCI agrees that each System will maintain a perpetual inventory system
for all Equipment under the direction of a designated person in charge of
inventory and will reconcile such perpetual inventory system to the physical
inventory on a monthly basis. Each System will provide inventory reports on a
monthly basis in a format specified by Satellite (or more frequently upon
request) which reports shall detail the number of units of Equipment received,
shipped and transferred by such System, the number of broken units, the number
of units allocated to it which are under repair, the number of units in its
possession which are pre-authorized, and such additional information as may be
requested by Satellite.
d. TCI agrees that neither any System nor any of their subcontractors,
agents, servants, employees or representatives shall damage, tamper with, take
apart or otherwise make or permit any modifications or alterations to any of the
Equipment without the prior written consent of Satellite. TCI hereby
acknowledges that any modification or alteration to the Equipment to permit the
unauthorized reception of Programming Services is a violation of federal and
some state laws and may subject TCI or the Systems to criminal and/or civil
prosecution.
6. Pricing of, and Payments for, Programming Services,
Equipment and other Services.
- ----------------------------
a. All Programming Services, Equipment, installation and maintenance and
other services will be offered to Satellite Subscribers and potential Satellite
Subscribers only at such prices ("Retail Prices") and upon such terms and
conditions as are specified by Satellite. Without limiting the foregoing, the
Systems are not authorized to offer any promotions without the prior written
approval of Satellite and the cost to Satellite of any such unauthorized
promotions will be charged to the Systems. Without prior approval from
Satellite, the Systems are not authorized to issue Satellite Subscriber credits
or refunds in excess of $15.00 (the "Threshold Amount"). If a System receives a
request from a Satellite Subscriber for a credit or refund in excess of the
Threshold Amount, the System will initiate a call to Satellite's central phone
center and Satellite personnel will resolve such request. Satellite may change
the Threshold Amount upon 30 days prior written notice to TCI.
b. At the time of installation each System will collect from the Satellite
Subscriber in cash, by check made payable to Satellite, or by VISA or Master
Card (all processing of credit card orders to be done by Satellite), the
installation fee prescribed by Satellite and either the Retail Price for
purchase of the Equipment and the Programming Services in the case of a purchase
transaction or the first month's Retail Price for lease of the Equipment and the
Programming Services in the case of a lease transaction, together with any sales
tax applicable thereto.
c. All financing of the Retail Price for installation, the Equipment or
the Programming Services will be done by Satellite. TCI agrees that the Systems
will be responsible for obtaining completed, signed financing forms from
Satellite Subscribers and will follow all applicable procedures established by
Satellite from time to time with respect to Satellite's consumer
7
<PAGE>
financing program. Billing to and collection from Satellite Subscribers after
the initial payments described above shall be performed by Satellite.
d. The Systems shall follow procedures established by Satellite from time
to time for the collection of payments due from Satellite Subscribers with
respect to maintenance or other service calls.
e. Each System will remit to Satellite at the System's expense on the
business day following its receipt of such funds (such remittance to be made to
the location and in accordance with procedures specified by Satellite), all
amounts collected by it from Satellite Subscribers.
7. Fees Payable by Satellite.
-------------------------
a. Subject to the limitations set forth below, each System will be
entitled to a payment from Satellite with respect to (i) each installation it
completes for a qualified Satellite Subscriber residing in the Territory, (ii)
each maintenance or other service call it makes to a qualified Satellite
Subscriber residing in the Territory, (iii) each sale or lease of the Equipment
which it makes at its System office to a qualified Satellite Subscriber residing
in the Territory and which sale or lease is approved by Satellite and (iv) each
other service described on EXHIBIT A.
---------
b. All amounts payable to the Systems hereunder ("Payments") are described
on EXHIBIT A and such amounts will be the full and total compensation due to the
---------
Systems for any services provided by them (material costs and other expenses
incurred by the Systems in the performance of installations, maintenance and
other service calls are included in the Payments described on EXHIBIT A). The
---------
Equipment recovery Payment specified on EXHIBIT A is payable only upon return of
---------
all Equipment (IRD, LNB and satellite dish) of the Satellite Subscriber to
Satellite and no amount shall be paid in respect of a partial recovery. The
amounts specified on EXHIBIT A are only applicable to individual installations
---------
for, and services provided to, residential Satellite Subscribers. The parties
agree to negotiate in good faith regarding the amounts to be paid to the Systems
with respect to services provided hereunder to schools, commercial
establishments, multiple dwelling units and other locations.
c. A System will not be entitled to a Payment with respect to (a) any
installation order where the installation is not completed for any reason,
including a cancellation by the Satellite Subscriber at the door or (b) any
installation with respect to which a refund is issued by Satellite if the reason
for the refund is unsatisfactory installation.
d. If during a given calendar month either (1) fewer than [*****]% of the
installations completed by a System were completed within 72 hours following the
System's receipt of the installation work order from Satellite, or (2) fewer
than [*****]% of the maintenance and other service calls made by such System
were made within 24 hours following the System's receipt of such maintenance and
other service call orders from Satellite (other than equipment
8
<PAGE>
recovery calls as to which the time period is ten days from receipt of
Satellite's order and other than satellite repoints and IRD upgrades as to which
the time period for performance shall be mutually agreed upon), the total
Payment due to the System for such month for all services provided pursuant to
this Agreement shall be reduced by [*****]%. The foregoing penalty shall not
apply to a System for any month during which the number of work orders placed by
Satellite with such System for installations exceeds by [*****]% or more the
amount budgeted by Satellite for installations for such System in the budget
delivered to such System pursuant to Section 1 (for 1996, the applicable budget
for each System shall be the existing budget delivered by Satellite to the such
System).
e. In addition, Satellite will deduct from the amounts owed to TCI
hereunder, any amount owed by TCI to Satellite hereunder and any amount that
Satellite credits, refunds or pays out to a Satellite Subscriber that arises out
of the services performed by TCI and the Systems hereunder, including, without
limitation, credits or refunds issued by Satellite as a result of a missed
installation maintenance or other service call appointment or as a result of
damages claimed by a Satellite Subscriber arising out of an installation,
maintenance or other service call. If the amount owed by Satellite to TCI for a
given month is not sufficient to cover the amount owned to Satellite by TCI for
such month, TCI shall pay the difference to Satellite within 30 days following
its receipt of an invoice therefor from Satellite.
f. Payments will be made on a monthly basis with respect to installations,
maintenance and other services performed by a System during the preceding
corporate accounting period.
g. Satellite represents to TCI that the Payments to be made to TCI
hereunder do not include and are not intended to represent payments to TCI for
anything other than services performed hereunder (e.g., the Payments do not
----
include payments for general and administrative costs, debt repayments,
dividends, etc.).
8. Subcontractors: Liens.
----------------------
a. Any subcontractors hired by a System must enter into an installation
agreement with the System in a form approved by Satellite.
b. Each System will manage its subcontractors and will be responsible for
compliance by its subcontractors with all of the terms and conditions of this
Agreement applicable to TCI and the Systems in the performance of their
obligations under this Agreement; provided, that in lieu of displaying the TCI
logo required under Section 3 to be displayed on vehicles and uniforms,
subcontractors shall display a logo that identifies them as contractors for TCI,
provided further that the exclusivity provisions of Section 10 shall not apply
to subcontractors.
c. The Systems shall pay before delinquency all costs for work done or
caused to be done by the Systems pursuant to this Agreement that could result in
any lien or encumbrance on Satellite's property or on any property where
services are performed hereunder
9
<PAGE>
(collectively the "Property"). The Systems shall keep the title to the Property
free of any lien or encumbrance in respect of the work performed by the Systems
and shall indemnify and hold harmless Satellite, its employees, agents and
affiliates against any claim, loss, cost, demand and legal or other expense
arising out of the supply of materials, services or labor for the work performed
by the Systems hereunder. TCI and the Systems shall immediately notify Satellite
of any such lien or claim of lien of which it has knowledge, and shall cause the
lien to be removed within five days, failing which Satellite may take such
action as it deems necessary to remove the lien, and with the entire cost
thereof (i) to be immediately due and payable by TCI or (ii) to be deducted from
any amount payable to TCI or the Systems hereunder.
9. Term. The term of this Agreement shall be for two years beginning on
----
the Effective Date; provided, that this Agreement will terminate without further
action on the part of either party hereto if the Effective Date has not occurred
by December 31, 1997. During the six month period following the first date on
which shares of Satellite are distributed as a dividend to holders of record of
Series A TCI Group Common Stock, $1.00 par value per share and Series B TCI
Group Common Stock, $1.00 par value per share (the "Distribution Date"),
Satellite shall have the option to terminate this Agreement by sending written
notice to TCI during such six month period, such termination to be effective 180
days following the giving of such written notice by Satellite.
10. Exclusivity. TCI agrees that the Systems shall not perform
-----------
installations or maintenance or other service calls for any other provider or
distributor of Ku-band, DBS, BSS, FSS, C-band or wireless television programming
services or for any other similar or competitive provider or distributor of
television programming services (other than traditional cable) during the term
of this Agreement. Satellite represents to TCI that the Payments provided for
in this Agreement are comparable to the payments Satellite would pay and intends
to pay to other installers who agree to similar exclusivity and performance
provisions.
11. Other Products. TCI agrees to negotiate in good faith with Satellite
--------------
regarding the provision by the Systems of installation and other services
specified herein with respect to other products related to the Equipment, such
as Bose surround sound, remote controls, off air antennas, test equipment and
PRIMESTAR related personal computer applications.
12. Defaults and Remedies. In the event a System is in anticipatory
---------------------
breach of this Agreement or has failed to comply with any material term or
provision of this Agreement, Satellite shall have the right at its option to (i)
perform or cause to be performed any one or more of such System's obligations,
in which case, Satellite shall be entitled to obtain from the System or deduct
from any amount payable to the System, an amount equal to any increased cost
incurred by Satellite in performing or obtaining the performance of the System's
obligations hereunder, or (ii) terminate this Agreement as to such System by
notice in writing to TCI, in which event the terminated System shall, subject to
the right of Satellite to recover damages pursuant to this Section, be paid for
all work adequately performed prior to the date of termination in accordance
with the conditions for payment set forth in this Agreement.
10
<PAGE>
13. Conformance to All Laws. Satellite, TCI and the Systems shall comply
-----------------------
with all applicable federal, state, county and municipal laws, codes, rules,
regulations in the performance of its obligations under this Agreement,
including in the case of TCI and the Systems, obtaining all of the necessary
licenses and permits required of the System by the municipality and state in
which the work is being performed and complying with the Occupational Safety and
Health Act.
14. Taxes.
-----
a. The Systems shall be responsible for the collection from Satellite
Subscribers of all sales and use taxes which apply to any payments collected by
the Systems hereunder. The Systems shall be responsible for determining the
amount of taxes which need to be collected from Satellite Subscribers and will
collect such taxes at the time of sale or lease and remit them to Satellite
pursuant to Satellite's procedures. Satellite agrees that it will timely remit
to the proper governmental authority all taxes collected by the Systems
hereunder.
b. All taxes that may be levied on TCI or the Systems for services
provided under this Agreement or otherwise shall be the sole responsibility to
TCI and the Systems, including all applicable taxes on payments made by
Satellite to the Systems pursuant to this Agreement.
c. Neither TCI nor the Systems shall contest the levying or assessment of
any tax related to the services provided hereunder without Satellite's prior
written consent.
15. Insurance. From and after the date of this Agreement:
---------
a. Each System and, unless otherwise agreed by Satellite in writing, each
subcontractor, shall obtain and maintain insurance with coverage and limits as
follows:
(i) Workers Compensation and Occupational Disease Insurance: At statutory
-------------------------------------------------------
limits as provided by the state in which the System's obligations are to be
performed, and Employer's Liability Insurance with limits of not less than
$100,000.00 per employee per accident for Bodily Injury by Accident $100,000.00
per employee per occupational disease and $500,000.00 for all occupational
diseases.
(ii) Commercial General Liability Insurance: Coverage Operations and
--------------------------------------
Premises Liability; Independent Contractors; Completed Operations; Product
Liability; Contractual Liability; Personal Injury; Property Damage caused by
explosion, collapse and underground damage; and Broad-Form Property Damage. The
limits of such liability insurance shall be no less than $1,000,000.00 combined
single limit of liability.
(iii) Comprehensive Automobile Liability Insurance: Covering all owned,
--------------------------------------------
hired or no n-owned vehicles, including the loading or unloading thereof, with
limits of no
11
<PAGE>
less than $1,000,000.00 combined single limit of liability for automobile bodily
injury and/or property damage.
(iv) Umbrella or Excess Liability Insurance: Covering the items set forth
--------------------------------------
in (a) (insofar as it relates to Employer's Liability Insurance), (b) and (c)
above with a policy limit of not less than $2,000,000.00.
b. All such insurance shall be carried in companies reasonably
satisfactory to Satellite and licensed to do business in the jurisdiction where
the obligations of TCI and the Systems under this Agreement are to be performed,
and the liability policies shall be primary coverage and shall name Satellite,
its subsidiaries, employees and affiliates as additional insureds.
c. Each system shall have available for examination by Satellite upon
request, certificates evidencing the insurance required hereunder, and proof of
the additional insured status of Satellite, its subsidiaries, its employees and
affiliates. No System shall allow any subcontractor to commence work until such
subcontractor has obtained the same insurance coverage required of TCI and the
Systems hereunder.
d. Each policy shall provide that it will not be canceled or materially
amended except after 30 days advance written notice to Satellite, mailed to the
address indicated herein, and the policy, policy endorsements or certificates of
insurance shall so state.
16. Assignment. Neither party may assign its rights and obligations under
----------
this Agreement, including without limitation in the case of TCI and the Systems,
its accounts receivable, without the written consent of the other party;
provided however, that the Agreement may be assigned by Satellite (i) to an
affiliate or (ii) to any purchaser of substantially all of Satellite's assets.
Any purported assignment to a third party in violation of this Section shall be
void effective as of the date the attempted assignment was made, and the other
party shall have the right immediately to terminate this Agreement upon notice
of such attempted assignment without consent.
17. Indemnification. TCI shall indemnify, defend and hold harmless
---------------
Satellite, its officers, directors, employees, agents and affiliates, of and
from any and all costs, expenses, liability, claims, judgments, lawsuits and
demands (including attorneys' fees) arising out of (i) the performance or breach
by TCI, the Systems or any subcontractor of their obligations under this
Agreement, (ii) the negligence or other wrongdoing on the part of any employee,
agent, servant or representative of TCI or the Systems or any subcontractor in
connection with the performance of its obligations under this Agreement, (iii)
the termination, disturbance, interruption or other interference with services
of any type of utility or other public or private facility damaged, harmed or
disturbed, or caused to be disturbed, by TCI, the Systems, any subcontractor or
any of their agents, servants, employees or representatives and (iv) any acts or
omissions of TCI or the Systems which would cause the independent contractor
status as provided in Section 18 to be breached, and for any claims by third
parties for acts or omissions committed by TCI or the Systems as an alleged
agent of Satellite. This section shall survive the termination of the Agreement.
Satellite shall indemnify,
12
<PAGE>
defend and hold harmless TCI, its officers, directors, employees, agents and
affiliates, of and from any and all costs, expenses, liability, claims,
judgments, lawsuits and demands (including attorneys' fees) arising out of (i)
the performance or breach by Satellite of its obligations under this Agreement,
or (ii) the negligence or other wrongdoing on the part of any employee, agent,
servant or representative of Satellite in connection with the performance of its
obligations under this Agreement.
18. Independent Contractor. It is specifically agreed and understood
----------------------
between the parties hereto that TCI and the Systems are independent contractors
and that neither TCI nor the Systems are agents or employees of Satellite as
these terms are legally defined. The duties and responsibilities of TCI and the
Systems are as contained in this Agreement. To the extent not inconsistent with
this Agreement, TCI and the Systems shall be free of control by Satellite.
19. Notices. Any notices pursuant to this Agreement shall be validly
-------
given or served if in writing and sent by registered or certified mail, postage
prepaid, to the following addresses:
If to Satellite, to:
TCI Satellite Entertainment, Inc.
8085 South Chester, Suite 300
Englewood, CO 80112
ATTN: Scott R. Brown, Vice President - Operations
Telephone: (303) 712-4750
Fax No.: (303) 712-4979
With Copies to same address:
ATTN: Lloyd S. Riddle, Senior Vice President and Chief Operating
Officer
Telephone: (303) 712-4603
Fax No.: (303) 712-4979
ATTN: Pamela Strauss, Esq.
Telephone: (303) 712-4618
Fax No.: (303) 712-4974
If to TCI, to:
TCI Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
13
<PAGE>
ATTN: Barry P. Marshall, Executive Vice President and Chief
Operating Officer
Telephone: (303) 267-4731
Fax No.: (303) 488-3210
With Copies to same address:
ATTN: Tom VanBockern
Telephone: (303) 267-4732
Fax No.: (303) 488-3210
ATTN: Legal Department
Telephone: (303) 267-5500
Fax No.: (303) 488-3245
or to such other addresses as either party may designate to the other in
writing. Delivery of any notice shall be deemed to be effective on the date set
forth on the receipt of registered or certified mail.
20. Waiver. The waiver by either party of a breach or violation of any
------
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach or violation.
21. Integration. This writing represents the entire agreement and
-----------
understanding of the parties with respect to the subject matter hereof; it may
not be altered or amended except by an agreement in writing signed by both
parties. Notwithstanding the foregoing, the October 17, 1995 letter agreement
between Satellite (as successor to TCI Digital Satellite Entertainment, Inc.)
And TCI shall remain in effect until the Effective Date.
22. Choice of Law. This Agreement has been made in and its validity,
-------------
performance and effect shall be determined in accordance with the laws of the
state in which Satellite is located.
23. Headings. The headings of paragraphs in this Agreement are for
--------
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
24. Proprietary Information and Confidentiality.
-------------------------------------------
a. The parties acknowledge and agree that all right and title in and to
information, documentation, materials, methods, techniques, concepts and
theories developed by Satellite with respect to its engineering, marketing,
installation and operational activities relating to the DBS television
programming industry and Satellite's customer base thereunder shall belong to
Satellite and its affiliates and is either non-public, confidential or
proprietary in nature, including
14
<PAGE>
"trade secrets" ("Proprietary Information"), and TCI's or the System's use,
duplication or display of same, in any manner whatsoever, in whole or in part,
shall require the prior written approval of Satellite. Further, TCI and the
Systems shall turn over to Satellite any and all tangible and intangible
documents, photocopies, materials, records, prints, drawings, tapes, diskettes,
and technical concepts relating in any way to the Proprietary Information within
10 days after termination of this Agreement.
b. TCI agrees that it and the Systems will treat all Proprietary
Information as confidential, the disclosure of which would be detrimental to
Satellite and, when gained from any source, all such Proprietary Information
shall be held by TCI and the Systems and their subcontractors and affiliates,
and their agents, servants, employees and representatives, in strictest
confidence and not revealed to any third party during the term of this Agreement
or at any time thereafter, without the prior written consent of Satellite.
25. No Inference Against Author. No provision of this Agreement shall be
---------------------------
interpreted against any party because such party or its legal representative
drafted such provisions.
26. Severability. If any part of any provision of this Agreement is
------------
invalid or unenforceable under applicable law, the provision shall be
ineffective only to the extent of such invalidity or unenforceability without in
any way affecting the remaining parts of the provision or this Agreement.
27. Miscellaneous. TCI agrees that it will give a copy of this Agreement
-------------
to each System and that the Systems will be familiar with the terms of this
Agreement. The provisions of this Agreement will apply to a System only so long
as it is owned by TCI. TCI agrees to give written notice to Satellite promptly
following TCI's entering into a definitive agreement regarding the sale or other
disposition of any System. TCI will cooperate with Satellite regarding the
transition of fulfillment services for such System's SPA to another provider
designated by Satellite.
TCI Satellite Entertainment, Inc.
By: /s/ Lloyd S. Riddle
------------------------------
Name: Lloyd S. Riddle
Title: Senior Vice President and
Chief Operating Officer
TCI Communications, Inc.
By: /s/ Barry P. Marshall
------------------------------
Name: Barry P. Marshall
Title: Executive Vice President
and Chief Operating Officer
15
<PAGE>
EXHIBIT 2.7
-----------
[FORM OF]
SHARE PURCHASE AGREEMENT
Share Purchase Agreement (this "Agreement"), dated as of
, 1996, between Tele-Communications, Inc., a Delaware corporation ("TCI"), and
TCI Satellite Entertainment, Inc., a Delaware corporation ("TCISE").
RECITALS
A. TCI has granted to certain of its employees and directors options
("TCI Employee Options") to purchase shares of Series A Common Stock, par value
$1.00 per share, of TCISE ("TCISE Stock") and TCISE has granted to certain of
its employees and directors options ("TCISE Employee Options") to purchase
shares of Tele-Communications, Inc. Series A TCI Group Common Stock, par value
$1.00 per share, of TCI ("TCI Stock"). The TCI Employee Options are sole and
separate obligations of TCI and the TCISE Employee Options are sole and separate
obligations of TCISE.
B. This Agreement is intended to provide for (i) the right of TCI to
purchase from TCISE and the obligation of TCISE to sell to TCI shares of TCISE
Stock, from time to time, in such amounts as required to satisfy TCI's
obligations under the TCI Employee Options and (ii) the right of TCISE to
purchase from TCI and the obligation of TCI to sell to TCISE shares of TCI
Stock, from time to time, in such amounts as required to satisfy TCISE's
obligations under the TCISE Employee Options.
NOW, THEREFORE, in consideration of the mutual covenants contained in
the Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree:
SECTION 1 CALL RIGHTS.
Immediately upon notice to TCI or TCISE (a "Purchaser"), as
applicable, by an employee of such Purchaser that such employee is exercising a
TCI Employee Option or TCISE Employee Option, as applicable (an "Employee
Exercise Notice"), the Purchaser shall have the right, exercisable upon written
notice (a "Call Notice") thereof, given at any time within ten business days
after receipt of such Employee Exercise Notice to require the other of TCISE or
TCI (the "Issuer") to sell to the Purchaser, at the Purchase Price (as defined
below) per share as of the Date of such Call Notice, the number of shares of
TCISE Stock or TCI Stock, as applicable, that are issuable upon such exercise,
as indicated in such Employee Exercise Notice.
<PAGE>
SECTION 2 CALL NOTICES.
(a) Notice. A Call Notice shall state the number of shares to be
------
purchased pursuant to Section 1 above, the date upon which the sale of shares of
TCI Stock or TCISE Stock subject thereto shall take place (which shall be at
least three and not more than five business days after the date of such Call
Notice), the name or names of the persons to whom such shares are to be issued
and the Purchase Price per share of such shares. The Purchaser shall attach to
each Call Notice a copy of each Employee Exercise Notice to which such Call
Notice relates.
(b) Purchase Price. The "Purchase Price" of a share of TCI Stock or
--------------
TCISE Stock, as applicable, as of any date, shall be the average of the daily
closing prices for such stock for the most recent period of ten trading days on
which such stock trades immediately preceding such date, appropriately adjusted
to take into account the actual occurrence, during the period following the
first of such ten trading days and ending on such date, of any stock dividends,
splits, reverse splits, combinations and the like. The closing price for each
day shall be the last reported sale price regular way (or if no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, regular way) on the composite tape, or if the applicable securities are
not quoted on the composite tape, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on which such
securities are listed or admitted to trading or, if the applicable securities
are not listed or admitted to trading on any such exchange, then the closing
sale price (or the average of the quoted closing bid and asked prices if no sale
is reported) as reported by NASDAQ or any comparable system, or if the
applicable securities are not quoted on NASDAQ or any comparable system, the
average of the closing bid and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc. selected by the Purchaser. The
Issuer shall have one business day to confirm the Purchase Price as set forth in
the Call Notice. If the Issuer in good faith disputes the Purchase Price set
forth in the Call Notice, such dispute must be given by written notice to the
Purchaser on the first business day following the date of the Call Notice which
notice shall state the amount which the Issuer believes to be the correct
Purchase Price. If the Purchaser and the Issuer have not agreed on the amount
of the Purchase Price by 5:00 p.m. Mountain Standard Time of the day immediately
prior to the date of the sale, the Purchase Price shall be the average of the
amounts noticed by the Purchaser and the Issuer.
(c) Designees. The Purchaser may require the shares to be issued
---------
pursuant to Section 1 above in either the Purchaser's name or in the name of its
designee or designees. If the Purchaser requests the issuance of the shares to
be made in the name of the Purchaser's designee or designees, such designee or
designees shall be the employee or employees of such Purchaser named in the
Employee Exercise Notice(s) to which the Call Notice relates.
<PAGE>
SECTION 3 REPRESENTATIONS AND WARRANTIES.
(a) Purchasers. Each Purchaser represents and warrants that it shall
----------
give a Call Notice and purchase shares under this Agreement only in such amounts
and at such times as required by the exercise of TCI Employee Options or TCISE
Employee Options, as applicable.
(b) Issuers. Each Issuer represents and warrants that:
-------
(i) all of the shares of TCI Stock or TCISE Stock, as applicable,
sold pursuant to this Agreement shall be duly and validly authorized
by the Issuer and, upon the issuance and delivery of such shares
against payment therefor by the Purchaser, such shares will be duly
and validly issued and fully paid and non-assessable; and
(ii) all of the shares of TCI Stock or TCISE Stock, as applicable,
sold pursuant to this Agreement are, or at the time of issuance will
be, registered under the Securities Act of 1933, as amended (the
"Securities Act"), or are, or at the time of issuance will be, exempt
from such registration pursuant to Rule 144 of the general rules and
regulations under the Securities Act.
SECTION 4 MISCELLANEOUS.
(a) Successors and Assigns. This Agreement and the rights, interests
----------------------
or obligations hereunder shall not be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other party. Any assignment or delegation in contravention of this
Agreement shall be void and shall not relieve the assigning or delegating party
of any obligation hereunder. Subject to the foregoing provisions of this
Section 4(a), this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns.
(b) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
(c) Notices. All notices and other communications required or
-------
permitted to be given by any provision of this Agreement shall be in writing and
sent, for same day delivery, by hand or by facsimile transmission (with
acknowledgment received), charges prepaid and addressed to the intended
recipient as follows, or to such other address or number as may be specified
from time to time by like notice to the parties:
<PAGE>
(i) If to TCI:
Tele-Communications,Inc.
5619 DTC Parkway
Englewood, CO 80111-3000
Telecopy: (303) 488-3245
Attention: General Counsel
(ii) If to TCISE:
TCI Satellite Entertainment, Inc.
8085 South Chester #300
Englewood, CO 80112
Telecopy: (303)712-4974
Attention: Corporate Counsel
(d) Headings. The section headings used in this Agreement are for
--------
reference purposes only and shall not affect the meaning or interpretation of
any term or provision of this Agreement.
Dated: __________, 1996
TELE-COMMUNICATIONS, INC.
By:_____________________________
Name:
Title:
TCI SATELLITE ENTERTAINMENT, INC.
By:_____________________________
Name:
Title:
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
TCI SATELLITE ENTERTAINMENT, INC.
______________
TCI Satellite Entertainment, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
(1) The name of the Corporation is TCI Satellite Entertainment, Inc.
The original Certificate of Incorporation of the Corporation was filed on
___________, 1996. The name under which the Corporation was originally
incorporated is TCI Satellite Entertainment, Inc.
(2) This Restated Certificate of Incorporation restates and amends
the Certificate of Incorporation of the Corporation.
(3) Pursuant to Sections 242 and 245 of the General Corporation Law
of the State of Delaware, the text of the Certificate of Incorporation is
hereby restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation is TCI Satellite Entertainment, Inc. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE
The location of the Corporation's registered office in the State of
Delaware is the office of The Prentice-Hall Corporation System, Inc., 1013
Centre Road, Wilmington, New Castle, Delaware 19805, and the name of its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
<PAGE>
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is _______________________ ( ) shares, which shall
be divided into the following classes:
(a) _______________________ ( ) shares shall be of a class
designated Common Stock, par value $1.00 per share ("Common Stock"), such class
to be divided into series as provided in Section A of this Article IV; and
(b) _______________________ ( ) shares shall be of a class
designated Preferred Stock, par value $.01 per share ("Preferred Stock"), such
class to be issuable in series as provided in Section B of this Article IV.
The description of the Common Stock and the Preferred Stock of the
Corporation, and the relative rights, preferences and limitations thereof, or
the method of fixing and establishing the same, are as hereinafter in this
Article IV set forth:
SECTION A
SERIES A COMMON STOCK AND SERIES B COMMON STOCK
_______________________ ( ) shares of Common Stock shall be of a
series designated as Series A Common Stock (the "Series A Common Stock") and
_______________________ ( ) shares of Common Stock shall be of a series
designated as Series B Common Stock (the "Series B Common Stock").
Each share of Series A Common Stock and each share of Series B Common Stock
shall, except as otherwise provided in this Section A, be identical in all
respects and shall have equal rights, powers and privileges.
1. Voting Rights.
-------------
Holders of Series A Common Stock shall be entitled to one vote for each
share of such stock held, and holders of Series B Common Stock shall be entitled
to ten votes for each share of such stock held, on all matters presented to such
stockholders. Except as may otherwise be required by
-2-
<PAGE>
the laws of the State of Delaware or, with respect to any series of Preferred
Stock, in any resolution or resolutions providing for the establishment of such
series pursuant to authority vested in the Board of Directors by Article IV,
Section B, of this Restated Certificate of Incorporation (as it may from time to
time hereafter be amended or restated, the "Certificate"), the holders of
outstanding shares of Series A Common Stock, the holders of outstanding shares
of Series B Common Stock and the holders of outstanding shares of each series of
Preferred Stock entitled to vote thereon, if any, shall vote as one class with
respect to the election of directors and with respect to all other matters to be
voted on by stockholders of the Corporation (including, without limitation, any
proposed amendment to this Certificate that would increase the number of
authorized shares of Common Stock or of Series A Common Stock or Series B
Common Stock or of any other class or series of stock or decrease the number of
authorized shares of any class or series of stock (but not below the number of
shares thereof then outstanding)), and no separate vote or consent of the
holders of shares of Series A Common Stock, the holders of shares of Series B
Common Stock or the holders of shares of any such series of Preferred Stock
shall be required for the approval of any such matter.
2. Conversion Rights.
-----------------
Each share of Series B Common Stock shall be convertible, at the option of
the holder thereof, into one share of Series A Common Stock. Any such conversion
may be effected by any holder of Series B Common Stock by surrendering such
holder's certificate or certificates for the Series B Common Stock to be
converted, duly endorsed, at the office of the Corporation or any transfer agent
for the Series B Common Stock, together with a written notice to the Corporation
at such office that such holder elects to convert all or a specified number of
shares of Series B Common Stock represented by such certificate and stating the
name or names in which such holder desires the certificate or certificates for
Series A Common Stock to be issued. If so required by the Corporation, any
certificate for shares surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the holder of such shares or the duly authorized representative of such
holder. Promptly thereafter, the Corporation shall issue and deliver to such
holder or such holder's nominee or nominees, a certificate or certificates for
the number of shares of Series A Common Stock to which such holder shall be
entitled as herein provided. Such conversion shall be deemed to have been made
at the close of business on the date of receipt by the Corporation or any such
transfer agent of the certificate or certificates, notice and, if required,
instruments of transfer referred to above, and the person or persons entitled to
receive the Series A Common Stock issuable on such conversion shall be treated
for all purposes as the record holder or holders of such Series A Common Stock
on that date. A number of shares of Series A Common Stock equal to the number of
shares of Series B Common Stock outstanding from time to time shall be set aside
and reserved for issuance upon conversion of shares of Series B Common Stock.
Shares of Series B Common Stock that have been converted hereunder shall become
treasury shares that may be issued or retired by resolution of the Board of
Directors. Shares of Series A Common Stock shall not be convertible into shares
of Series B Common Stock.
-3-
<PAGE>
3. Dividends.
---------
Subject to paragraph 4 of this Section A, whenever a dividend is paid to
the holders of Series A Common Stock, the Corporation also shall pay to the
holders of Series B Common Stock a dividend per share equal to the dividend per
share paid to the holders of the Series A Common Stock, and whenever a dividend
is paid to the holders of Series B Common Stock, the Corporation also shall pay
to the holders of the Series A Common Stock a dividend per share equal to the
dividend per share paid to the holders of the Series B Common Stock. Dividends
shall be payable only as and when declared by the Board of Directors of the
Corporation out of assets of the Corporation legally available therefor.
4. Share Distributions.
-------------------
If at any time a distribution paid in Series A Common Stock or Series B
Common Stock or any other securities of the Corporation or of any other
corporation, partnership, limited liability company, trust or other legal entity
("Person") (hereinafter sometimes called a "share distribution") is to be made
with respect to the Series A Common Stock or Series B Common Stock, such share
distribution may be declared and paid only as follows:
(a) a share distribution consisting of shares of Series A Common
Stock (or Convertible Securities that are convertible into, exchangeable for or
evidence the right to purchase shares of Series A Common Stock) to holders of
Series A Common Stock and Series B Common Stock, on an equal per share basis; or
consisting of shares of Series B Common Stock (or Convertible Securities that
are convertible into, exchangeable for or evidence the right to purchase shares
of Series B Common Stock) to holders of Series A Common Stock and Series B
Common Stock, on an equal per share basis; or consisting of shares of Series A
Common Stock (or Convertible Securities that are convertible into, exchangeable
for or evidence the right to purchase shares of Series A Common Stock) to
holders of Series A Common Stock and, on an equal per share basis, shares of
Series B Common Stock (or Convertible Securities that are convertible into,
exchangeable for or evidence the right to purchase shares of Series B Common
Stock) to holders of Series B Common Stock; and
(b) a share distribution consisting of shares of any class or series
of securities of the Corporation or any other Person other than Series A Common
Stock or Series B Common Stock (or Convertible Securities that are convertible
into, exchangeable for or evidence the right to purchase shares of Series A
Common Stock or Series B Common Stock), either on the basis of a distribution of
identical securities, on an equal per share basis, to holders of Series A Common
Stock and Series B Common Stock or on the basis of a distribution of one class
or series of securities to holders of Series A Common Stock and another class or
series of securities to holders of Series B Common Stock, provided that the
securities so distributed (and, if applicable, the securities into which the
distributed securities are convertible, or for which they are exchangeable, or
which the distributed securities evidence the right to purchase) do not differ
in any respect other than their relative voting rights and related differences
in designation, conversion and share distribution provisions, with holders of
shares of Series B Common Stock receiving the class or series having
-4-
<PAGE>
the higher relative voting rights (without regard to whether such rights differ
to a greater or lesser extent than the corresponding differences in voting
rights and related differences in designation, conversion and share distribution
provisions between the Series A Common Stock and the Series B Common Stock),
provided that if the securities so distributed constitute capital stock of a
Subsidiary of the Corporation, such rights shall not differ to a greater extent
than the corresponding differences in voting rights, designation, conversion and
share distribution provisions between the Series A Common Stock and the Series B
Common Stock, and provided in each case that such distribution is otherwise made
on an equal per share basis.
As used herein, the term "Convertible Securities" means any securities of
the Corporation (other than any series of Common Stock) that are convertible
into, exchangeable for or evidence to right to purchase any shares of any series
of Common Stock, whether upon conversion, exercise, exchange, pursuant to anti-
dilution provisions of such securities or otherwise. As used herein, the term
"Subsidiary" means, when used with respect to any Person, (i) a corporation in
which such Person and/or one or more Subsidiaries of such Person, directly or
indirectly, owns capital stock having a majority of the voting power of such
corporation's capital stock to elect directors under ordinary circumstances, and
(ii) any other Person (other than a corporation) in which such Person and/or one
or more Subsidiaries of such Person, directly or indirectly, has (x) a majority
ownership interest or (y) the power to elect or direct the election of a
majority of the members of the governing body of such first-named Person.
The Corporation shall not reclassify, subdivide or combine the Series A
Common Stock without reclassifying, subdividing or combining the Series B Common
Stock, on an equal per share basis, and the Corporation shall not reclassify,
subdivide or combine the Series B Common Stock without reclassifying,
subdividing or combining the Series A Common Stock, on an equal per share basis.
5. Liquidation and Dissolution.
---------------------------
In the event of a liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and liabilities of the Corporation and subject to the prior
payment in full of the preferential amounts to which any series of Preferred
Stock is entitled, the holders of shares of Series A Common Stock and the
holders of shares of Series B Common Stock shall share equally, on a share for
share basis, in the assets of the Corporation remaining for distribution to its
common stockholders. Neither the consolidation or merger of the Corporation with
or into any other Person or Persons nor the sale, transfer or lease of all or
substantially all of the assets of the Corporation shall itself be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this paragraph 5.
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<PAGE>
SECTION B
PREFERRED STOCK
The Preferred Stock may be divided and issued in one or more series from
time to time, with such powers, designations, preferences and relative,
participating, optional or other rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in a resolution or
resolutions providing for the issue of each such series adopted by the Board of
Directors (a "Preferred Stock Designation"). The Board of Directors, in the
Preferred Stock Designation with respect to a series of Preferred Stock (a copy
of which shall be filed and recorded as required by law), shall fix the rights,
powers and preferences of such series, including, but not limited to, the
following:
(i) the distinctive serial designations and the division of such
shares into series and the number of shares of a particular series, which
may be increased or decreased, but not below the number of shares thereof
then outstanding, by a certificate made, signed, filed and recorded as
required by law;
(ii) the dividend rate or amounts, if any, for the particular
series, the date or dates from which dividends on all shares of such series
shall be cumulative, if dividends on stock of the particular series shall
be cumulative, and the relative rights of priority, if any, or
participation, if any, with respect to payment of dividends on shares of
such series;
(iii) the rights of the shares of each series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of each series;
(iv) the right, if any, of the holders of a particular series to
convert or exchange such stock into or for other classes or series of a
class of stock or indebtedness of the Corporation or of another Person, and
the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the Board of Directors may determine;
(v) the voting rights, if any, of the holders of a particular
series;
(vi) the terms and conditions, if any, for the Corporation to
purchase or redeem shares of a particular series; and
(vii) any other relative rights, powers, preferences and limitations
of a particular series.
The Board of Directors is authorized to exercise its authority with respect
to fixing and designating various series of the Preferred Stock and determining
the relative rights, powers and preferences thereof to the full extent permitted
by applicable law, subject to any stockholder vote
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<PAGE>
that may be required by this Certificate. All shares of any one series of the
Preferred Stock shall be alike in every particular. Except to the extent
otherwise expressly provided in the Preferred Stock Designation for a series of
Preferred Stock, the holders of shares of such series shall have no voting
rights except as may be required by the laws of the State of Delaware. Further,
unless otherwise expressly provided in the Preferred Stock Designation for a
series of Preferred Stock, no consent or vote of the holders of shares of
Preferred Stock or any series thereof shall be required for any amendment to
this Certificate that would increase the number of authorized shares of
Preferred Stock or the number of authorized shares of any series thereof or
decrease the number of authorized shares of Preferred Stock or the number of
authorized shares of any series thereof (but not below the number of authorized
shares of Preferred Stock or such series, as the case may be, then outstanding).
Except as may be provided by the Board of Directors in a Preferred Stock
Designation or by law, shares of any series of Preferred Stock that have been
redeemed (whether through the operation of a sinking fund or otherwise) or
purchased by the Corporation, or which, if convertible or exchangeable, have
been converted into or exchanged for shares of stock of any other class or
classes shall have the status of authorized and unissued shares of Preferred
Stock and may be reissued as a part of the series of which they were originally
a part or may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors or as part of any
other series of Preferred Stock.
SECTION C
UNCLAIMED DIVIDENDS
Any and all right, title, interest and claim in or to any dividends
declared by the Corporation, whether in cash, stock or otherwise, which are
unclaimed for a period of four years after the close of business on the payment
date, shall be and be deemed extinguished and abandoned; and such unclaimed
dividends in the possession of the Corporation, its transfer agent or other
agents or depositories, shall at such time become the absolute property of the
Corporation, free and clear of any and all claims of any Persons whatsoever.
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<PAGE>
ARTICLE V
DIRECTORS
SECTION A
NUMBER OF DIRECTORS
The governing body of the Corporation shall be a Board of Directors.
Subject to any rights of the holders of any series of Preferred Stock to elect
additional directors, the number of directors shall not be less than three (3)
and the exact number of directors shall be fixed by the Board of Directors by
resolution. Election of directors need not be by written ballot.
SECTION B
CLASSIFICATION OF THE BOARD
Except as otherwise fixed by or pursuant to the provisions of Article IV
hereof relating to the rights of the holders of any series of Preferred Stock to
separately elect additional directors, which additional directors are not
required to be classified pursuant to the terms of such series of Preferred
Stock, the Board of Directors of the Corporation shall be divided into three
classes: Class I, Class II and Class III. Each class shall consist, as nearly as
possible, of a number of directors equal to one-third (33 1/3%) of the then
authorized number of members of the Board of Directors. The term of office of
the initial Class I directors shall expire at the annual meeting of stockholders
in 1997; the term of office of the initial Class II directors shall expire at
the annual meeting of stockholders in 1998; and the term of office of the
initial Class III directors shall expire at the annual meeting of stockholders
in 1999. At each annual meeting of stockholders of the Corporation the
successors of that class of directors whose term expires at that meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election. The
directors of each class will hold office until their respective successors are
elected and qualified.
SECTION C
REMOVAL OF DIRECTORS
Subject to the rights of the holders of any series of Preferred Stock,
directors may be removed from office only for cause (as hereinafter defined)
upon the affirmative vote of the holders of at least 66 2/3% 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. Except as may otherwise be
provided by law, "cause" for removal, for
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<PAGE>
purposes of this Section C, shall exist only if: (i) 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; (ii) such director has become mentally incompetent, whether or not so
adjudicated, which mental incompetence directly affects his ability as a
director of the Corporation, as determined by at least 66 2/3% of the members of
the Board of Directors then in office (other than such director); or (iii) such
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.
SECTION D
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Subject to the rights of holders of any series of Preferred Stock,
vacancies on the Board of Directors resulting from death, resignation, removal,
disqualification or other cause, and newly created directorships resulting from
any increase in the number of directors on the Board of Directors, shall be
filled by the affirmative vote of a majority of the remaining directors then in
office (even though less than a quorum) or by the sole remaining director. Any
director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the class of directors in which the vacancy
occurred or to which the new directorship is apportioned, and until such
director's successor shall have been elected and qualified. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director, except as may be provided in a Preferred Stock
Designation with respect to any additional director elected by the holders of
the applicable series of Preferred Stock.
SECTION E
LIMITATION ON LIABILITY AND INDEMNIFICATION
1. Limitation On Liability.
-----------------------
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or may hereafter be amended, a director of the Corporation shall
not be liable to the Corporation or any of its stockholders for monetary damages
for breach of fiduciary duty as a director. Any repeal or modification of this
paragraph 1 shall be prospective only and shall not adversely affect any
limitation, right or protection of a director of the Corporation existing at the
time of such repeal or modification.
2. Indemnification.
---------------
(a) RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be
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<PAGE>
amended, any person who was or is made or is threatened to be made a party or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding") by reason of the fact that he,
or a person for whom he is the legal representative, is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans, against all liability
and loss suffered and expenses (including attorneys' fees) reasonably incurred
by such person. Such right of indemnification shall inure whether or not the
claim asserted is based on matters which antedate the adoption of this Section
E. The Corporation shall be required to indemnify or make advances to a person
in connection with a proceeding (or part thereof) initiated by such person only
if the proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
(b) PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees) incurred by a director or officer in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this paragraph or otherwise.
(c) CLAIMS. If a claim for indemnification or payment of expenses
under this paragraph is not paid in full within 60 days after a written claim
therefor has been received by the Corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the Corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
(d) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this paragraph shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of this Certificate, the
Bylaws, agreement, vote of stockholders or resolution of disinterested directors
or otherwise.
(e) OTHER INDEMNIFICATION. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit entity.
3. Amendment or Repeal.
-------------------
Any amendment, modification or repeal of the foregoing provisions of this
Section E shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
amendment, modification or repeal.
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<PAGE>
SECTION F
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors, by action taken by the
affirmative vote of not less than 75% of the members of the Board of Directors
then in office, is hereby expressly authorized and empowered to adopt, amend or
repeal any provision of the Bylaws of this Corporation.
ARTICLE VI
TERM
The term of existence of this Corporation shall be perpetual.
ARTICLE VII
STOCK NOT ASSESSABLE
The capital stock of this Corporation shall not be assessable. It shall be
issued as fully paid, and the private property of the stockholders shall not be
liable for the debts, obligations or liabilities of this Corporation. This
Certificate shall not be subject to amendment in this respect.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS
SECTION A
ANNUAL AND SPECIAL MEETINGS
Subject to the rights of the holders of any series of Preferred Stock,
stockholder action may be taken only at an annual or special meeting. Except as
otherwise provided in the terms of any series of Preferred Stock or unless
otherwise prescribed by law or by another provision of this Certificate, special
meetings of the stockholders of the Corporation, for any purpose or purposes,
shall be called by the Secretary of the Corporation (i) upon the written request
of the holders of not less than 66 2/3% of the total voting power of the
outstanding Voting Securities (as hereinafter defined) or (ii) at the request of
at least 75% of the members of the Board of Directors then in office.
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<PAGE>
The term "Voting Securities" shall include the Series A Common Stock, the Series
B Common Stock and any series of Preferred Stock entitled to vote with the
holders of Common Stock generally upon all matters that may be submitted to a
vote of stockholders at any annual meeting or special meeting thereof.
SECTION B
ACTION WITHOUT A MEETING
Except as otherwise provided in the terms of any series of Preferred Stock,
no action required to be taken or which may be taken at any annual meeting or
special meeting of stockholders may be taken without a meeting, and the power of
stockholders to consent in writing, without a meeting, to the taking of any
action is specifically denied.
ARTICLE IX
ACTIONS REQUIRING SUPERMAJORITY STOCKHOLDER VOTE
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 total voting power of
the then outstanding Voting Securities (as defined in Section A of Article VIII
of this Certificate), voting together as a single class at a meeting
specifically called for such purpose, shall be required in order for the
Corporation to take any action to authorize:
(a) the amendment, alteration or repeal of any provision of this
Certificate or the addition or insertion of other provisions herein;
(b) the adoption, amendment or repeal of any provision of the Bylaws
of the Corporation; provided, however, that this clause (b) shall not apply to,
and no vote of the stockholders of the Corporation shall be required to
authorize, the adoption, amendment or repeal of any provision of the Bylaws of
the Corporation by the Board of Directors in accordance with the power conferred
upon it pursuant to Section F of Article V of this Certificate;
(c) the merger or consolidation of this Corporation with or into any
other corporation; provided, however, that this clause (c) shall not apply to
any merger or consolidation (i) as to which the laws of the State of Delaware,
as then in effect, do not require the consent of this Corporation's
stockholders, or (ii) which at least 75% of the members of the Board of
Directors then in office have approved;
(d) the sale, lease or exchange of all, or substantially all, of the
property and assets of the Corporation; or
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<PAGE>
(e) the dissolution of the Corporation.
All rights at any time conferred upon the stockholders of the Corporation
pursuant to this Certificate are granted subject to the provisions of this
Article IX.
ARTICLE X
CERTAIN COMPROMISES OR ARRANGEMENTS
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under Section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for the Corporation under Section 279 of
Title 8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has signed this Restated Certificate of
Incorporation this _______ day of __________, 1996.
TCI SATELLITE ENTERTAINMENT, INC.
______________________________
Name:
Title: President
ATTEST:
By: _____________________
Name:
Title: Secretary
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<PAGE>
EXHIBIT 3.2
BYLAWS
of
TCI Satellite Entertainment Inc.
As adopted ______________, 1996
<PAGE>
TCI SATELLITE ENTERTAINMENT INC.
A DELAWARE CORPORATION
BYLAWS
________________________
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting.
--------------
An annual meeting of stockholders for the purpose of electing
directors and of transacting such other business as may come before it shall be
held each year at such date, time, and place, either within or without the State
of Delaware, as may be specified by the Board of Directors in the notice of
meeting.
Section 1.2 Special Meetings.
----------------
Except as otherwise provided in the terms of any series of preferred
stock or unless otherwise provided by law or by the Certificate of
Incorporation, special meetings of stockholders of the Corporation, for any
purpose or purposes, shall be called by the Secretary of the Corporation only
(i) upon written request of the holders of not less than 66 2/3% of the total
voting power of the outstanding capital stock of the Corporation entitled to
vote at such meeting or (ii) at the request of not less than 75% of the members
of the Board of Directors then in office. Special meetings of
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stockholders for any purpose or purposes may be held at such time and place
either within or without the State of Delaware as may be stated in the notice of
meeting.
Section 1.3 Notice of Meetings.
------------------
Written notice of stockholders meetings, stating the place, date, and
hour thereof, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by the Chairman of the Board, the
President, any Vice President, the Secretary, or an Assistant Secretary, to each
stockholder entitled to vote thereat at least ten days but not more than sixty
days before the date of the meeting, unless a different period is prescribed by
law.
Section 1.4 Notice of Nominations for the Election of Directors.
---------------------------------------------------
1.4.1 Annual Meetings of Stockholders.
-------------------------------
(a) Nominations of persons for election to the Board of Directors
of the Corporation may be made at an annual meeting of stockholders (i) pursuant
to the Corporation's notice of meeting delivered pursuant to Section 1.3 of
these Bylaws, (ii) by or at the direction of the Chairman of the Board or the
Board of Directors or (iii) by any stockholder of the Corporation who is
entitled to vote at the meeting, who complied with the notice procedures set
forth in this Bylaw and who was a stockholder of record at the time such notice
is delivered to the Secretary of the Corporation.
(b) For nominations to be properly made at an annual meeting by a
stockholder pursuant to clause (iii) of Section 1.4.1(a) of this Bylaw, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Corporation not less than
ninety days nor more than one hundred twenty days prior to the first anniversary
of the preceding
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year's annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than twenty days, or delayed by more than
seventy days, from such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the one hundred twentieth day prior to
such annual meeting and not later than the close of business on the later of the
ninetieth day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected; and
(b) as to the stockholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made (i) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner, (ii) the series and number of shares of the Corporation which
are of record and owned beneficially by such stockholder and such beneficial
owner and (iii) a representation that such stockholder is entitled to vote at
the meeting and intends to appear in person or proxy at the meeting to nominate
the person specified in the notice.
1.4.2 Special Meetings of Stockholders.
--------------------------------
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting pursuant to Section 1.3 of these Bylaws.
Nominations of persons for election to the Board of Directors may be
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<PAGE>
made at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the direction of
the Board of Directors or (b) by any stockholder of the Corporation who is
entitled to vote at the meeting, who complied with the notice procedures set
forth in this Bylaw and who was a stockholder of record at the time such notice
is delivered to the Secretary of the Corporation. For nominations to be
properly made at such a special meeting by a stockholder pursuant to clause (b)
of the preceding sentence, the stockholder must have given timely written notice
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the one hundred twentieth day prior to such special
meeting and not later than the close of business on the later of the ninetieth
day prior to such special meeting or the tenth day following the day on which
public announcement is first made of the date of the special meeting.
1.4.3 General.
-------
(a) Only persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors.
Except as otherwise provided by law, the Certificate of Incorporation or these
Bylaws, the chairman of the meeting shall have the power and duty to determine
whether a nomination was made in accordance with the procedures set forth in
this Bylaw and, if any proposed nomination is not in compliance with this Bylaw,
to declare that such defective nomination shall be disregarded.
(b) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with Securities and Exchange Commission pursuant to Section 13, 14
or 15(d) of the Exchange Act.
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(c) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Section 1.5 Quorum.
------
Subject to the rights of the holders of any series of preferred stock
and except as otherwise provided by law or in the Certificate of Incorporation
or these Bylaws, at any meeting of stockholders, the holders of a majority in
total voting power of the outstanding shares of stock entitled to vote at the
meeting shall be present or represented by proxy in order to constitute a quorum
for the transaction of any business. In the absence of a quorum, the holders of
a majority in total voting power of the shares that are present in person or by
proxy or the chairman of the meeting may adjourn the meeting from time to time
in the manner provided in Section 1.6 of these Bylaws until a quorum shall
attend.
Section 1.6 Adjournment.
-----------
Any meeting of stockholders, annual or special, may adjourn from time
to time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
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Section 1.7 Organization.
------------
The Chairman of the Board, or in his absence the President, or in
their absence any Vice President, shall call to order meetings of stockholders
and shall act as chairman of such meetings. The Board of Directors or, if the
Board fails to act, the stockholders, may appoint any stockholder, director, or
officer of the Corporation to act as chairman of any meeting in the absence of
the Chairman of the Board, the President and all Vice Presidents.
The Secretary shall act as secretary of all meetings of stockholders,
but, in the absence of the Secretary, the chairman of the meeting may appoint
any other person to act as secretary of the meeting.
Section 1.8 Voting.
------
Subject to the rights of the holders of any series of preferred stock
and except as otherwise provided by law, the Certificate of Incorporation or
these Bylaws and except for the election of directors, at any meeting duly
called and held at which a quorum is present, the affirmative vote of a majority
of the combined voting power of the shares present in person or represented by
proxy at the meeting and entitled to vote on the subject matter shall be the act
of the stockholders. Subject to the rights of the holders of any series of
preferred stock, at any meeting duly called and held for the election of
directors at which a quorum is present, directors shall be elected by a
plurality of the combined voting power of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors.
Section 1.9 Voting List.
-----------
(a) A complete list of the stockholders of the Corporation
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number
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and series of shares registered in the name of each stockholder shall be
prepared by the officer who has charge of the stock ledger of the Corporation at
least 10 days before every meeting of stockholders. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
(b) Upon the willful neglect or refusal of the directors to produce
such a list at any meeting for the election of directors, they shall be
ineligible for election to any office at such meeting.
(c) The stock ledger shall be the only evidence as to who are the
stockholders entitled to vote in person or by proxy at any meeting of
stockholders or entitled to examine the stock ledger, the list required by this
section or the books of the Corporation.
Section 1.10 Stockholder Action Without a Meeting.
------------------------------------
Subject to the rights of the holders of any series of preferred stock,
stockholder action may be taken only at an annual or special meeting. Except as
otherwise provided in the terms of any series of preferred stock, no action
required to be taken or which may be taken at any annual meeting or special
meeting of stockholders may be taken without a meeting, and the power of
stockholders to consent in writing, without a meeting, is specifically denied.
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<PAGE>
Section 1.11. Inspectors of Election.
----------------------
The Corporation may, and shall if required by law, in advance of any
meeting of stockholders, appoint one or more inspectors of election, who may be
employees of the Corporation, to act at the meeting or any adjournment thereof
and to make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. In
the event that no inspector so appointed or designated is able to act at a
meeting of stockholders, the person presiding at the meeting shall appoint one
or more inspectors to act at the meeting. Each inspector, before entering upon
the discharge of his or her duties, shall take and sign an oath to execute
faithfully the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspector or inspectors so appointed or
designated shall (i) ascertain the number of outstanding shares of capital stock
of the Corporation and the voting power of each such share, (ii) determine the
shares of capital stock of the Corporation represented at the meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares of capital stock of the Corporation
represented at the meeting and such inspectors' count of all votes and ballots.
Such certification and report shall specify such other information as may be
required by law. In determining the validity and counting of proxies and
ballots cast at any meeting of stockholders of the Corporation, the inspectors
may consider such information as is permitted by applicable law. No person who
is a candidate for an office at an election may serve as an inspector at such
election.
8
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office.
-------------------------
(a) The governing body of this Corporation shall be a Board of
Directors. Subject to any rights of the holders of any series of preferred
stock to elect additional directors, the Board of Directors shall be comprised
of not less than three (3) members. The Board of Directors, by resolution
adopted by the affirmative vote of 75% of the members of the Board of Directors
then in office, may increase or decrease the number of directors. Directors
need not be stockholders of the Corporation.
(b) Except as otherwise fixed by the Certificate of Incorporation
relating to the rights of the holders of any series of preferred stock to
separately elect additional directors, which additional directors are not
required to be classified pursuant to the terms of such series of preferred
stock, the Board of Directors shall be divided into three classes: Class I,
Class II and Class III. Each class shall consist, as nearly as possible, of a
number of directors equal to one-third (33 1/3%) of the then authorized number
of members of the Board of Directors. The term of office of the initial Class I
directors shall expire at the annual meeting of stockholders in 1997; the term
of office of the initial Class II directors shall expire at the annual meeting
of stockholders in 1998; and the term of office of the initial Class III
directors shall expire at the annual meeting of stockholders in 1999. At each
annual meeting of stockholders of the Corporation the successors of that class
of directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the annual meting of stockholders held in the third year
following the year of their election. The directors of each class will serve
until their respective successors are elected and qualified.
9
<PAGE>
Section 2.2 Resignations.
------------
Any director of the Corporation, or any member of any committee, may
resign at any time by giving written notice to the Board of Directors, the
Chairman of the Board, the President or Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time be
not specified therein, then upon receipt thereof. The acceptance of such
resignation shall not be necessary to make it effective unless otherwise stated
therein.
Section 2.3 Removal of Directors.
--------------------
Subject to the rights of the holders of any series of preferred stock,
directors may be removed from office only for cause (as hereinafter defined),
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 the
Corporation entitled to vote thereon, voting together as a single class. Except
as may otherwise be provided by law, "cause" for removal, for purposes of this
Section, shall exist only if: (i) 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; (ii)
such director has became mentally incompetent, whether or not so adjudicated,
which mental incompetence directly affects his ability as a director of the
Corporation, 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 (iii) such 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.
10
<PAGE>
Section 2.4 Newly Created Directorships and Vacancies.
-----------------------------------------
Subject to the rights of the holders of any series of preferred stock,
vacancies on the Board of Directors resulting from death, resignation, removal,
disqualification or other cause, and newly created directorships resulting from
any increase in the number of directors on the Board of Directors, shall be
filled by the affirmative vote of a majority of the remaining directors then in
office (even though less than a quorum) or by the sole remaining director. Any
director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the class of directors in which the vacancy
occurred or to which the new directorship is apportioned, and until such
director's successor shall have been elected and qualified. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director, except as may be provided in the terms of any series
of preferred stock with respect to any additional director elected by the
holders of such series of preferred stock.
Section 2.5 Chairman of the Board.
---------------------
The directors shall elect one of their members to be Chairman of the
Board of Directors. He shall perform such duties as may from time to time be
assigned to him by the Board of Directors. The Chairman of the Board shall be
subject to the control of and may be removed from such office by the Board of
Directors.
Section 2.6 Meetings.
--------
The annual meeting of the Board of Directors, for the election of
officers and the transaction of such other business as may come before the
meeting, shall be held either (a) without notice at the same place as, and
immediately following, the annual meeting of the stockholders or
11
<PAGE>
(b) as soon as practicable after the annual meeting of stockholders on such date
and at such time and place as the Board of Directors determines.
Notice of each regular meeting shall be furnished in writing to each
member of the Board of Directors not less than five days in advance of said
meeting, unless such notice requirement is waived in writing by each member. No
notice need be given of the meeting immediately following an annual meeting of
stockholders.
Special meetings of the Board of Directors shall be held at such time
and place as shall be designated in the notice of the meeting. Special meetings
of the Board of Directors may be called by the Chairman of the Board, and shall
be called by the President or Secretary of the Corporation upon the written
request of not less than 75% of the members of the Board of Directors then in
office.
Section 2.7 Notice of Special Meetings.
--------------------------
The Secretary, or in his absence any other officer of the Corporation,
shall give each director notice of the time and place of holding of special
meetings of the Board of Directors by mail at least 10 days before the meeting,
or by facsimile, telegram, cable, or personal service at least three days before
the meeting unless such notice requirement is waived in writing by each member.
Unless otherwise stated in the notice thereof, any and all business may be
transacted at any meeting without specification of such business in the notice.
Section 2.8 Quorum and Organization of Meetings.
-----------------------------------
A majority of the total number of members of the Board of Directors as
constituted from time to time shall constitute a quorum for the transaction of
business, but, if at any meeting of the Board of Directors (whether or not
adjourned from a previous meeting) there shall be less than
12
<PAGE>
a quorum present, a majority of those present may adjourn the meeting to another
time and place, and the meeting may be held as adjourned without further notice
or waiver. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, a majority of the directors present at any
meeting at which a quorum is present may decide any question brought before such
meeting. Meetings shall be presided over by the Chairman of the Board or in his
absence by such other person as the directors may select. The Board of
Directors shall keep written minutes of its meetings. The Secretary of the
Corporation shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.9 Indemnification.
---------------
The Corporation shall indemnify members of the Board of Directors and
officers of the Corporation and their respective heirs, personal representatives
and successors in interest for or on account of any action performed on behalf
of the Corporation, to the fullest extent permitted by the laws of the State of
Delaware and the Certificate of Incorporation, as now or hereafter in effect.
Section 2.10 Executive Committee of the Board of Directors.
---------------------------------------------
The Board of Directors, by the affirmative vote of not less than 75%
of the members of the Board of Directors then in office, may designate an
executive committee, all of whose members shall be directors, to manage and
operate the affairs of the Corporation or particular properties or enterprises
of the Corporation. Subject to the limitations of the law of the State of
Delaware and the Certificate of Incorporation, such executive committee shall
exercise all powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation including, but not limited to, the
power and authority to authorize the issuance of shares of common stock in an
amount not in excess of such number of shares as shall be specifically
13
<PAGE>
authorized from time to time by the Board of Directors in respect of a
particular transaction. The executive committee shall keep minutes of its
meetings and report to the Board of Directors not less often than quarterly on
its activities and shall be responsible to the Board of Directors for the
conduct of the enterprises and affairs entrusted to it.
Section 2.11 Other Committees of the Board of Directors.
------------------------------------------
The Board of Directors may by resolution establish committees other
than an executive committee and shall specify with particularity the powers and
duties of any such committee. Subject to the limitations of the laws of the
State of Delaware and the Certificate of Incorporation, any such committee shall
exercise all powers and authority specifically granted to it by the Board of
Directors, which powers may include the authority to authorize the issuance of
shares of common stock of the Corporation in an amount not in excess of such
number of shares as shall be specifically authorized from time to time by the
Board of Directors in respect of a particular transaction. Such committees
shall serve at the pleasure of the Board; keep minutes of their meetings; and
have such names as the Board of Directors by resolution may determine and shall
be responsible to the Board of Directors for the conduct of the enterprises and
affairs entrusted to them.
Section 2.12 Committees Generally.
--------------------
The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of such committee. In the absence or disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Each committee that
may be established by the
14
<PAGE>
Board of Directors pursuant to these Bylaws may fix its own rules and
procedures. Notice of meetings of committees, other than of regular meetings
provided for by such rules, shall be given to committee members.
Section 2.13 Directors' Compensation.
-----------------------
Directors shall receive such compensation for attendance at any
meetings of the Board and any expenses incidental to the performance of their
duties as the Board of Directors shall determine by resolution. Such
compensation may be in addition to any compensation received by the members of
the Board of Directors in any other capacity.
Section 2.14 Action Without Meeting.
----------------------
Nothing contained in these Bylaws shall be deemed to restrict the
power of members of the Board of Directors or any committee designated by the
Board to take any action required or permitted to be taken by them without a
meeting.
Section 2.15 Telephone Meetings.
------------------
Nothing contained in these Bylaws shall be deemed to restrict the
power of members of the Board of Directors, or any committee designated by the
Board of Directors, to participate in a meeting of the Board of Directors, or
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
15
<PAGE>
ARTICLE III
OFFICERS
Section 3.1 Executive Officers.
------------------
The officers of the Corporation shall be a Chairman of the Board, a
President, one or more Vice Presidents, a Treasurer and a Secretary, each of
whom shall be elected by the Board of Directors. The Chairman of the Board and
the President shall be elected from among the members of the Board of Directors.
The Board of Directors may elect or appoint from time to time such other or
additional officers as in its opinion are desirable for the conduct of the
business of the Corporation. Subject to Section 3.3, each officer shall hold
office until the first meeting of the Board of Directors following the next
annual meeting of stockholders following their respective election. Any person
may hold at one time two or more offices; provided, however, that the President
-------- -------
shall not hold any other office except that of Chairman of the Board.
Section 3.2 Powers and Duties of Officers.
-----------------------------
The Chairman of the Board shall have overall responsibility for the
management and direction of the business and affairs of the Corporation and
shall exercise such duties as customarily pertain to the office of Chairman of
the Board and such other duties as may be prescribed from time to time by the
Board of Directors. He shall be the senior officer of the Corporation and in
case of the inability or failure of the President to perform his duties, he
shall perform the duties of the President. He may appoint and terminate the
appointment or election of officers, agents, or employees other than those
appointed or elected by the Board of Directors. He may sign, execute and
deliver, in the name of the Corporation, powers of attorney, contracts, bonds
and other obligations which implement policies established by the Board of
Directors. The Chairman of the
16
<PAGE>
Board shall preside at all meetings of stockholders and of the Board of
Directors at which he is present, and shall perform such other duties as may be
prescribed from time to time by the Board of Directors or these Bylaws.
The President shall be the chief executive officer of the Corporation,
with responsibility for the active direction of the daily business of the
Corporation, and shall exercise such duties as customarily pertain to the office
of President and chief executive officer and such other duties as may be
prescribed from time to time by the Board of Directors. He may appoint and
terminate the appointment or election of officers, agents, or employees other
than those appointed or elected by the Board of Directors or the Chairman of the
Board. He may sign, execute and deliver, in the name of the Corporation, powers
of attorney, contracts, bonds and other obligations which implement policies
established by the Board of Directors. In the absence or disability of the
Chairman of the Board, the President shall perform the duties and exercise the
powers of the Chairman of the Board.
Vice Presidents shall have such powers and perform such duties as may
be assigned to them by the Chairman of the Board, the President, the executive
committee, if any, or the Board of Directors. A Vice President may sign and
execute contracts and other obligations pertaining to the regular course of his
duties which implement policies established by the Board of Directors.
The Treasurer shall be the chief financial officer of the Corporation.
Unless the Board of Directors otherwise declares by resolution, the Treasurer
shall have general custody of all the funds and securities of the Corporation
and general supervision of the collection and disbursement of funds of the
Corporation. He shall endorse for collection on behalf of the Corporation
checks, notes and other obligations, and shall deposit the same to the credit of
the
17
<PAGE>
Corporation in such bank or banks or depository as the Board of Directors may
designate. He may sign, with the Chairman of the Board, the President, or such
other person or persons as may be designated for the purpose by the Board of
Directors, all bills of exchange or promissory notes of the Corporation. He
shall enter or cause to be entered regularly in the books of the Corporation a
full and accurate account of all moneys received and paid by him on account of
the Corporation; shall at all reasonable times exhibit his books and accounts to
any director of the Corporation upon application at the office of the
Corporation during business hours; and, whenever required by the Board of
Directors or the President, shall render a statement of his accounts. He shall
perform such other duties as may be prescribed from time to time by the Board of
Directors or by these Bylaws. He may be required to give bond for the faithful
performance of his duties in such sum and with such surety as shall be approved
by the Board of Directors. Any Assistant Treasurer shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
The Secretary shall keep the minutes of all meetings of the
stockholders and of the Board of Directors. The Secretary shall cause notice to
be given of meetings of stockholders, of the Board of Directors, and of any
committee appointed by the Board of Directors. He shall have custody of the
corporate seal, minutes and records relating to the conduct and acts of the
stockholders and Board of Directors, which shall, at all reasonable times, be
open to the examination of any director. The Secretary or any Assistant
Secretary may certify the record of proceedings of the meetings of the
stockholders or of the Board of Directors or resolutions adopted at such
meetings; may sign or attest certificates, statements or reports required to be
filed with governmental
18
<PAGE>
bodies or officials; may sign acknowledgments of instruments; may give notices
of meetings; and shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
Section 3.3 Resignations; Removals.
----------------------
(a) Any officer of the Corporation may resign at any time, subject
to any rights or obligations under any then existing contracts between such
officer and the Corporation, by giving written notice to the Board of Directors,
the Chairman of the Board, the President or the Secretary of the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
time be not specified therein, then upon receipt thereof. The acceptance of such
resignation shall not be necessary to make it effective unless otherwise stated
therein.
(b) The Board of Directors at any meeting thereof, or by written
consent, at any time, may, to the extent permitted by law, remove with or
without cause from office or terminate the employment of any officer, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
(c) Any vacancy in the office of any officer through death,
resignation, removal, disqualification, or other cause may be filled at any time
by the Board of Directors or if such officer was appointed by the Chairman of
the Board or the President, then by the Chairman of the Board or the President,
as applicable.
Section 3.4 Bank Accounts.
-------------
In addition to such bank accounts as may be authorized in the usual
manner by resolution of the Board of Directors, the Treasurer, with approval of
the Chairman of the Board or the President, may authorize such bank accounts to
be opened or maintained in the name and on
19
<PAGE>
behalf of the Corporation as he may deem necessary or appropriate, provided
payments from such bank accounts are to be made upon and according to the check
of the Corporation, which may be signed jointly or singularly by either the
manual or facsimile signature or signatures of such officers or bonded employees
of the Corporation as shall be specified in the written instructions of the
Treasurer or Assistant Treasurer of the Corporation with the approval of the
Chairman of the Board or the President of the Corporation.
Section 3.5 Proxies.
-------
Unless otherwise provided in the Certificate of Incorporation or
directed by the Board of Directors, the Chairman of the Board or the President
or their designees shall have full power and authority on behalf of the
Corporation to attend and to vote upon all matters and resolutions at any
meeting of stockholders of any corporation in which this Corporation may hold
stock, and may exercise on behalf of this Corporation any and all of the rights
and powers incident to the ownership of such stock at any such meeting, whether
regular or special, and at all adjournments thereof, and shall have power and
authority to execute and deliver proxies and consents on behalf of this
Corporation in connection with the exercise by this Corporation of the rights
and powers incident to the ownership of such stock, with full power of
substitution or revocation.
ARTICLE IV
CAPITAL STOCK
Section 4.1 Stock Certificates.
------------------
Each stockholder of the Corporation shall be entitled to a certificate
certifying the series and number of shares represented thereby and in such form,
not inconsistent with the law of
20
<PAGE>
the State of Delaware or the Certificate of Incorporation of the Corporation, as
the Board of Directors may from time to time prescribe.
The certificates of stock shall be signed by the Chairman of the
Board, the President or any Vice President and by the Secretary or any Assistant
Secretary or the Treasurer or any Assistant Treasurer of the Corporation, and
sealed with the seal of the Corporation. Such seal may be a facsimile, engraved
or printed. Where any certificate is manually signed by a transfer agent or by
a registrar, the signatures of any officers upon such certificate may be
facsimiles, engraved or printed. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon any
certificate shall have ceased to be such before the certificate is issued, it
may be issued by the Corporation with the same effect as if such officer,
transfer agent or registrar had not ceased to be such at the time of its
issuance.
Section 4.2 Transfer of Shares.
------------------
(a) Shares of the capital stock of the Corporation may be
transferred on the books of the Corporation only by the holder of such shares or
by his duly authorized attorney, upon the surrender to the Corporation or its
transfer agent of the certificate representing such stock properly endorsed.
(b) The person in whose name shares of stock stand on the books of
the Corporation shall be deemed by the Corporation to be the owner thereof for
all purposes, and the Corporation shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Delaware.
21
<PAGE>
Section 4.3 Fixing Record Date.
------------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not be more than
sixty nor less than ten days before the date of such meeting; and (b) in the
case of any other action, shall not be more than sixty days prior to such other
action. If no record date is fixed: (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; and (ii) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
22
<PAGE>
Section 4.4 Lost Certificates.
-----------------
The Board of Directors or any transfer agent of the Corporation may
direct a new certificate or certificates representing stock of the Corporation
to be issued in place of any certificate or certificates theretofore issued by
the Corporation, alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors (or any transfer agent of the Corporation
authorized to do so by a resolution of the Board of Directors) may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to give the Corporation a bond in such sum as the Board of
Directors (or any transfer agent so authorized) shall direct to indemnify the
Corporation against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed or
the issuance of such new certificates, and such requirement may be general or
confined to specific instances.
Section 4.5 Transfer Agent and Registrar.
----------------------------
The Board of Directors may appoint one or more transfer agents and one
or more registrars and may require all certificates for shares to bear the
manual or facsimile signature or signatures of any of them.
Section 4.6 Regulations.
-----------
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer,
registration, cancellation, and replacement of certificates representing stock
of the Corporation.
23
<PAGE>
ARTICLE V
GENERAL PROVISIONS
Section 5.1 Offices.
-------
The Corporation shall maintain a registered office in the State of
Delaware as required by law. The Corporation may also have offices in such
other places, either within or without the State of Delaware, as the Board of
Directors may from time to time designate or as the business of the Corporation
may require.
Section 5.2 Corporate Seal.
--------------
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal" and
"Delaware."
Section 5.3 Fiscal Year.
-----------
The fiscal year of the Corporation shall be determined by resolution
of the Board of Directors.
Section 5.4 Notices and Waivers Thereof.
---------------------------
Whenever any notice whatever is required by law, the Certificate of
Incorporation, or these Bylaws to be given to any stockholder, director or
officer, such notice, except as otherwise provided by law, may be given
personally, or by mail, or, in the case of directors or officers, by telegram,
cable or facsimile transmission, addressed to such address as appears on the
books of the Corporation. Any notice given by telegram, cable or facsimile
transmission shall be deemed to have been given when it shall have been
transmitted and any notice given by mail shall be deemed to have been given
three business days after it shall have been deposited in the United States mail
with postage thereon prepaid.
24
<PAGE>
Whenever any notice is required to be given by law, the Certificate of
Incorporation, or these Bylaws, a written waiver thereof, signed by the person
entitled to such notice, whether before or after the meeting or the time stated
therein, shall be deemed equivalent in all respects to such notice to the full
extent permitted by law.
Section 5.5 Saving Clause.
-------------
These Bylaws are subject to the provisions of the Certificate of
Incorporation and applicable law. In the event any provision of these Bylaws is
inconsistent with the Certificate of Incorporation or the corporate laws of the
State of Delaware, such provision shall be invalid to the extent only of such
conflict, and such conflict shall not affect the validity of any other provision
of these Bylaws.
Section 5.6 Amendments.
----------
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors, by action taken by the
affirmative vote of not less than 75% of the members of the Board of Directors
then in office, is hereby expressly authorized and empowered to adopt, amend or
repeal any provision of the Bylaws of this Corporation.
Subject to the rights of the holders of any series of preferred stock,
these Bylaws may be adopted, amended or repealed by 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 the Corporation entitled to vote thereon; provided,
however, that this paragraph shall not apply to, and no vote of the stockholders
of the Corporation shall be required to authorize, the adoption, amendment or
repeal of any provision of the Bylaws by the Board of Directors in accordance
with the preceding paragraph.
25
<PAGE>
EXHIBIT 4.1
[LOGO]
TCI SATELLITE ENTERTAINMENT, INC. TCI SATELLITE ENTERTAINMENT, INC.
SERIES A COMMON STOCK SERIES A COMMON STOCK
NUMBER SHARES
TCI SATELLITE ENTERTAINMENT, INC.
INCORPORATED UNDER THE LAWS OF CUSIP
THE STATE OF DELAWARE
SERIES A COMMON STOCK
This certifies that ______________
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES A COMMON STOCK OF THE PAR
VALUE OF $1 PER SHARE OF
________________________________________________________________________
TCI SATELLITE ENTERTAINMENT, INC. ________________________________________
_____________________ (the "Corporation") transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this Certificate properly endorsed. The Corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof of the Corporation
and the qualifications, limitations or restrictions of such preferences
and/or rights. This Certificate is not valid unless countersigned by the
Transfer Agent and Registrar of the Corporation.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
Secretary President
[SEAL]
COUNTERSIGNED: TRANSFER AGENT
AND REGISTRAR
BY
Authorized Signature
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT-
_________________custodian_______________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with right of
survivorship and not as tenants under Uniform Gifts to Minors
in common
Act ___________________________________
(State)
Additional abbreviations may also be used though not in the above list
For Value received, _________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________
- --------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------
________________________________________________________
________________________________________________________
________________________________________________________
______________________________________________________________________
Shares of the capital stock represented by the within Certificate, and
____________________________________________
do hereby irrevocably constitute and appoint
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the Premises.
Dated, _________________________
X
-----------------------------------------------------------------
X
-----------------------------------------------------------------
</TABLE>
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
By
________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 4.2
[LOGO]
TCI SATELLITE ENTERTAINMENT, INC. TCI SATELLITE ENTERTAINMENT, INC.
SERIES B COMMON STOCK SERIES B COMMON STOCK
NUMBER SHARES
TCI SATELLITE ENTERTAINMENT, INC.
INCORPORATED UNDER THE LAWS OF CUSIP
THE STATE OF DELAWARE
SERIES B COMMON STOCK
This certifies that ______________
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES B COMMON STOCK OF THE PAR
VALUE OF $1 PER SHARE OF
____________________TCI SATELLITE ENTERTAINMENT, INC.____________________
(the "Corporation") transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. The Corporation will furnish without
charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights
of each class of stock or series thereof of the Corporation and the
qualifications, limitations or restrictions of such preferences and/or
rights. This Certificate is not valid unless countersigned by the Transfer
Agent and Registrar of the Corporation.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
Secretary President
[SEAL]
COUNTERSIGNED: TRANSFER AGENT
AND REGISTRAR
BY
Authorized Signature
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT- ______________custodian______________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with right of
survivorship and not as tenants under Uniform Gifts to Minors
in common
Act__________________________________________
(State)
Additional abbreviations may also be used though not in the above list
</TABLE>
For Value received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------
- -------------------------------------------------------------------------------
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
______________________________________________________Shares of the capital
stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint________________________________________________________
_____________________________________________Attorney to transfer the said stock
on the books of the within-named Corporation with full power of substitution in
the premises.
Dated, _______________________
X
---------------------------------------------------------
X
---------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
By
__________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 4.3
THIS DOCUMENT HAS BEEN REDACTED IN ACCORDANCE WITH RULE 24B-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. A COMPLETE COPY OF THIS EXHIBIT,
WITHOUT OMISSIONS, HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
OMISSIONS ARE INDICATED HEREIN WITH [*****].
CONTRACT AMENDMENT NO. 4
TO
CONTRACT NO. TPO-1-290
BETWEEN
TEMPO SATELLITE, INC.
AND
SPACE SYSTEMS/LORAL, INC.
FOR
TEMPO DIRECT BROADCAST SATELLITE SYSTEM (DBSS)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 1. DEFINITIONS....................................................... 2
ARTICLE 2. SCOPE OF WORK..................................................... 7
2.1. Provision of Services and Materials............................... 7
2.1.1.The Sub-1 Exhibits.......................................... 7
2.1.2.The Sub -2 Exhibits......................................... 7
2.2. Election of Exhibits.............................................. 8
2.3. Launch Agencies................................................... 8
ARTICLE 3. DELIVERABLE ITEMS AND DELIVERY SCHEDULE........................... 9
3.1. Deliverable Items................................................. 9
ARTICLE 4. PRICE............................................................ 10
4.1. Delivery Price................................................... 10
4.2. Taxes and Duties................................................. 11
ARTICLE 5. PAYMENTS......................................................... 12
5.1. Payment Plan..................................................... 12
5.2. Payment Conditions............................................... 12
5.3. Guaranties....................................................... 13
5.4. Payment Deferral................................................. 14
5.5. Purchaser Financing.............................................. 15
ARTICLE 6. PURCHASER FURNISHED ITEMS........................................ 15
6.1. Facilities for In-Orbit Testing.................................. 15
6.2. Satellite Quarterly Reports...................................... 16
ARTICLE 7. FUNCTIONS NOTE THE RESPONSIBILITY OF PARTIES..................... 17
7.1. Radio Frequency Coordination..................................... 17
7.2. Interface and Interconnections................................... 17
7.3. General.......................................................... 17
ARTICLE 8. ACCESS TO WORK IN PROGRESS....................................... 17
8.1. Work in Progress at Contractor's Plant........................... 17
8.2. Work Progress at Subcontractors' Plants.......................... 18
8.3. Purchaser's Resident Representatives............................. 18
8.4. Competition...................................................... 19
8.5. Interference with Operations..................................... 19
ARTICLE 9. PRE-SHIPMENT INSPECTION.......................................... 19
9.1. Time, Place and Notice of Inspection............................. 19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
9.2. Pre-Shipment Inspection.......................................... 20
9.3. Pending Waivers.................................................. 20
9.4. Purchaser's Inspection Agents.................................... 20
9.5. Inspection Results............................................... 21
9.6. Inspection Equipment and Facilities.............................. 21
9.7. Warranty Obligations............................................. 22
9.8. Repaired or Replaced Items....................................... 22
ARTICLE 10. SATELLITE ACCEPTANCE............................................. 22
10.1. Satellite Acceptance Procedure................................... 22
10.2. Unqualified Acceptance........................................... 23
10.3. Qualified Acceptance............................................. 23
10.4. Satellite Replacement............................................ 23
ARTICLE 11. ACCEPTANCE INSPECTION FOR DELIVERABLE ITEMS OTHER
THAN SATELLITES.................................................. 25
11.1. Inspection....................................................... 25
11.2. Pending Waivers.................................................. 25
11.3. Purchaser's Inspection Agents.................................... 26
11.4. Acceptance Inspection Results.................................... 26
11.5. Acceptance Inspection; Equipment and Facilities.................. 26
11.6. Warranty Obligations............................................. 27
ARTICLE 12. SHIPMENT, DELIVERY, TITLE, RISK OF LOSS AND CIP.................. 27
12.1. Satellites....................................................... 27
12.2. Deliverable Items Other than Satellites.......................... 27
12.3. Carriage and Insurance Paid...................................... 28
12.4. Transfer to Third Parties........................................ 28
ARTICLE 13. ORBITAL PERFORMANCE INCENTIVES................................... 28
13.1. General.......................................................... 28
13.2. Advance Payment; Unqualified Acceptance.......................... 29
13.3. Advance Payment; Qualified Acceptance............................ 29
13.4. Daily Rate of Orbital Performance Incentives..................... 30
13.5. On-Board Redundancy.............................................. 31
13.6. Orbital Storage.................................................. 31
13.7. Temporary Outages................................................ 31
13.8. Purchaser's Change to Inclined Orbit Operation................... 32
13.9. Satellite Failure After IOT...................................... 32
13.10. Payments......................................................... 33
13.11. Negligent Operation of the Satellite............................. 33
13.12. Access to In-Orbit Data and Measurements......................... 34
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 14. WARRANTY PAYBACK................................................. 34
14.1. Warranty Payback Payments........................................ 34
14.2. Parental Guaranty................................................ 34
ARTICLE 15. WARRANTY......................................................... 35
15.1. Terms and Period of Warranty..................................... 35
15.2. Repair or Replacement............................................ 36
ARTICLE 16. FORCE MAJEURE.................................................... 37
ARTICLE 17. PURCHASER DELAY OF WORK.......................................... 39
ARTICLE 18. PATENT INDEMNITY................................................. 39
18.1. Indemnification.................................................. 39
18.2. Infringing Equipment............................................. 40
18.3. Combinations and Modifications................................... 40
ARTICLE 19. INDEMNITY -- PERSONAL INJURY/PROPERTY DAMAGE..................... 41
19.1. Contractor's Indemnification of Purchaser........................ 41
19.2. Purchaser's Indemnification of Contractor........................ 41
ARTICLE 20. TERMINATION FOR CONVENIENCE...................................... 42
20.1. Reimbursement of Contractor...................................... 42
20.2. Partial Termination.............................................. 43
20.3. Title Transfer................................................... 43
20.4. Termination Liability............................................ 44
ARTICLE 21. PENALTIES FOR LATE DELIVERY OF SATELLITE......................... 44
21.1. Reimbursement for Satellite Delivery Delay....................... 44
21.2. Invoice for Reimbursement........................................ 45
21.3. Exclusive Damages................................................ 46
ARTICLE 22.DEFAULT........................................................... 46
22.1. Failure to Perform by Contractor................................. 46
22.2. Termination Liability............................................ 46
22.3. Payment for Incomplete Items..................................... 47
22.4. Special Termination.............................................. 47
22.5...Contractor Termination........................................... 48
ARTICLE 23. DAMAGES.......................................................... 49
23.1. Qualified Acceptance............................................. 49
23.2. Calculation of Damages........................................... 49
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 24. ARBITRATION...................................................... 49
ARTICLE 25. CORRECTIVE MEASURES IN UNLAUNCHED SATELLITES..................... 50
ARTICLE 26. RISK INSURANCE................................................... 50
26.1. Insurance........................................................ 50
26.2. Risk Insurance Aspects........................................... 51
26.3. Third Party Indemnity Insurance.................................. 51
ARTICLE 27. INTER-PARTY WAIVER OF THIRD PARTY LIABILITY...................... 51
ARTICLE 28. ADDITIONAL SATELLITES OPTION..................................... 52
28.1. Additional Satellites............................................ 52
28.2. Option Prices.................................................... 52
28.3. Escalation....................................................... 54
28.4. Payment Plan..................................................... 54
28.5. Terms and Conditions............................................. 55
ARTICLE 29. GROUND STATION EQUIPMENT OPTION.................................. 55
29.1. Ground Station Equipment......................................... 55
29.2. Ground Station Equipment not Provided by Contractor.............. 55
29.3. Options for Selected Ground Station Equipment.................... 56
29.4. Terms and Conditions............................................. 57
ARTICLE 30. SATELLITE LONG LEAD PARTS OPTION................................. 57
30.1. Satellite Long Lead Parts........................................ 57
30.2. Spare Parts...................................................... 58
30.3. Credit........................................................... 58
ARTICLE 31. GROUND STORAGE OPTION............................................ 58
31.1. Notification..................................................... 58
31.2. Storage Location................................................. 59
31.3. Storage Prices................................................... 59
31.4. Payments......................................................... 59
31.5. Title and Risk of Loss........................................... 60
31.6. Notification of Intention to Launch a Previously Stored
Satellite....................................................... 60
31.7. Orbital Performance Incentives................................... 60
31.8. Storage Period................................................... 61
31.9. Stored Satellite Refurbishment................................... 61
31.10. Terms and Conditions............................................. 61
ARTICLE 32. STOP-WORK ORDER.................................................. 62
32.1. Stop-Work Order.................................................. 62
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
32.2. Resumption of Work............................................... 62
32.3. Stop Work Order Claims........................................... 63
ARTICLE 33. TERMINATION IN THE EVENT OF TWO SUCCESSIVE SATELLITE
FAILURES (OPTION)................................................ 63
33.1. Notice of Option................................................. 63
33.2. Termination...................................................... 63
33.3. Rebate of Payments............................................... 64
33.4. Non-Election..................................................... 64
33.5. Sole Remedy...................................................... 64
ARTICLE 34. LAUNCH VEHICLE COST SHARING OPTION............................... 65
34.1. Launch on a PROTON Launch Vehicle................................ 65
34.2. Calculation of Price Reduction................................... 65
ARTICLE 35. OPTION FOR ALTERNATE ORBITAL LOCATIONS........................... 66
35.1. Alternate Delivery Location...................................... 66
35.2. Option........................................................... 66
35.3. Option Price..................................................... 66
35.4. Payment Plan..................................................... 67
35.5. Terms and Conditions............................................. 67
ARTICLE 36. SATELLITE SIMULATOR OPTION....................................... 67
36.1. Satellite Simulator and Training................................. 67
36.2. Price............................................................ 68
36.3. Terms and Conditions............................................. 68
ARTICLE 37. DISCLOSURE AND HANDLING OF PROPRIETARY INFORMATION............... 68
ARTICLE 38. RIGHTS IN DATA................................................... 69
38.1. Deliverable Data................................................. 69
38.2. Other Data....................................................... 69
38.3. No Additional Obligation......................................... 70
ARTICLE 39. AUTHORITY OF PURCHASER REPRESENTATIVE............................ 70
ARTICLE 40. PUBLIC RELEASE OF INFORMATION.................................... 71
ARTICLE 41. NOTICES.......................................................... 71
41.1. Written Notification............................................. 71
41.2. Change of Address................................................ 72
ARTICLE 42. ORDER OF PRECEDENCE.............................................. 72
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
ARTICLE 43. GENERAL........................................... 73
43.1. Limitation of Liability........................... 73
43.2. Binding Effect; Assignment........................ 74
43.3. Severability...................................... 75
43.4. Waiver............................................ 75
43.5. Intentionally Omitted............................. 76
43.6. Gender; Captions.................................. 76
43.7. Relationships of the Parties...................... 76
43.8. Amendment......................................... 76
43.9. Entire Agreement.................................. 77
43.10. Standard of Conduct............................... 77
43.11. Construction...................................... 77
43.12. "Including"....................................... 77
43.13. Counterparts...................................... 78
43.14. Applicable Law.................................... 78
43.15. Survival.......................................... 78
ARTICLE 44. ATTACHMENTS....................................... 78
</TABLE>
vi
<PAGE>
Contract Amendment Number 4
for
TEMPO DIRECT BROADCAST SATELLITES
PREAMBLE
The Parties have determined that it is in the best interest of the
Program to proceed on the basis of delivery two Satellites in-orbit inclusive of
launch services, mission operation support through in-orbit testing, training,
documentation, and other options and services for the TEMPO Direct Broadcast
Satellite System, and such a change in requirements has significantly altered
the terms of the original contract. Therefore, the purpose of this Contract
Amendment Number 4 is to amend and restate in their entirety the terms and
conditions of Contract Number TPO-1-290.
This Contract is entered into as of the 22nd day of February, 1990
(the "Effective Date of Contract") between TEMPO Satellite, Inc., a corporation
organized and existing under the laws of the State of Oklahoma, having an office
and place of business at 5619 DTC Parkway, Englewood, Colorado 80237
(hereinafter referred to as the "Purchaser") and Space Systems/Loral, Inc., a
corporation organized and existing under the laws of the State of Delaware,
having an office and place of business at 3825 Fabian Way, Palo Alto, California
94303 (hereinafter referred to as the "Contractor").
1
<PAGE>
WITNESSETH
- ----------
WHEREAS, Purchaser desires to procure Satellites, associated ground
equipment and certain services from Contractor for use on the TEMPO Direct
Broadcast Satellite System, and
WHEREAS, Contractor is willing to furnish such Satellites,
associated ground equipment and certain services as stated herein in
consideration of the price and other terms and conditions of this Contract.
NOW, THEREFORE, the Parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
-----------
The following terms shall have the meanings assigned to them in this
Contract:
1.1. "Acceptance" with respect to any Deliverable Item other than
Satellites shall be as defined in Article 11 hereof. "Acceptance"
with respect to Satellites shall be defined in Section 10.2 and 10.3
hereof.
1.2. "BLS" means the Bureau of Labor Statistics.
1.3. "CIP" shall have the meaning set forth in Section 12.3 hereof.
1.4. "Contract" means this amended, restated and executed Contract, its
Exhibits and its Attachments, plus any amendments thereto, to which
the Parties agree in writing.
1.5. "Contractor" means Space Systems/Loral, Inc.
2
<PAGE>
1.6. "Deferral" shall have the meaning set forth in Section 5.4 hereof.
1.7. "Deliverable Data" shall have the meaning set forth in Exhibit A
hereto.
1.8. "Deliverable Items" shall have the meaning set forth in Section 3.1
hereof.
1.9. "Delivery" for Deliverable Items other than Satellites shall occur
upon Acceptance as confirmed in writing by Purchaser as described in
Section 12.2 hereof. "Delivery" for Satellites shall be as defined
in Section 12.1 hereof.
1.10. "Effective Date of Contract" means February 22, 1990.
1.11. "Effective Date of Grant" means May 1, 1992, the date on which the
FCC awarded a construction permit to Purchaser.
1.12. "Execution Date" means July 19, 1993.
1.13. "FCC" means the Federal Communications Commission or any successor
agency or governmental authority.
1.14. "Firm Fixed Price" shall have the meaning set forth in Section 4.1
hereof.
1.15. "Force Majeure" shall have the meaning set forth in Article 16
hereof.
1.16. "Ground Station Equipment" means the satellite control facilities
equipment described in Section 29.1 hereof.
1.17. "Ground Storage" of a Satellite means a condition where the
Satellite or its component parts are secured in a controlled
environment for preservation on the ground.
1.18. "In-Orbit Testing" or "IOT" means the testing of a Satellite after
Launch as more fully described in the Program Test Plan.
1.19. "Item" means a unit of the deliverable hardware.
3
<PAGE>
1.20. "Launch" of a Satellite means the launch as defined in the
applicable Launch Services Agreement.
1.21. "Launch Agency" means three stage expendable launch vehicle
providers which are responsible for the Launch Sites and conducting
the Launch of the Satellites on behalf of Contractor.
1.22. "Launch Services Agreement" means the contract between Contractor
and a Launch Agency which provides for Launch of Satellites.
1.23. "Launch Site" means the launch site at Eastern Missile and Space
Center (EMSC), Cape Canaveral, Florida, or the ARIANE Launch
Facility, Kourou, French Guiana, or such other launch site selected
by Contractor, which will be used by a Launch Agency for purposes of
launching a Satellite.
1.24. "Launch Support" means those services provided by Contractor,
pursuant to Exhibit A, the Statement of Work hereto, in support of a
Launch by a Launch Agency.
1.25. "Launch Vehicle" means an Atlas or ARIANE expendable launch vehicle
or such other launch vehicle selected by Purchaser.
1.26. "Mission Operations Support Services" means the services performed
by Contractor including orbit raising of the Satellite and In-Orbit
Testing of the Satellite.
1.27. "Non-Disclosure Agreement" means the non-disclosure agreement in the
form of Attachment B hereto.
4
<PAGE>
1.28. "Orbital Incentive Performance Period" means the 4380 consecutive
days commencing on the day following the completion of Acceptance
and Delivery of a Satellite.
1.29. "Orbital Performance Incentives" means monies that may be earned by
Contractor based on performance of each Satellite on-orbit, as may
be adjusted pursuant to Section 13.3 hereof. For Satellite No. 1 and
Satellite No. 2 (or their replacements), the Orbital Performance
Incentives are designated in the Payment Plan as milestone M-63 and
milestone M-66.
1.30. "Orbital Storage" means any period of time of intentional non-use by
Purchaser of a Satellite that has been Launched and is capable of
performing in accordance with the Performance Specification.
1.31. "Party" or "Parties" means Purchaser and/or Contractor who are the
principals to this Contract.
1.32. "Payment Plan" means, within the context of the Article using the
term, the applicable payment plan attached hereto as Attachment A.
1.33. "Performance Specification" means the performance specification
attached hereto as Exhibit B.
1.34. "Primary Parties" shall have the meaning set forth in Section 18.1
hereof.
1.35. "Program Test Plan" means the satellite program test plan attached
hereto as Exhibit D.
1.36. "Purchaser" means TEMPO Satellite, Inc., its designee or permitted
assignee.
5
<PAGE>
1.37. "Resurrected Transponder" shall have the meaning set forth in
Section 13.3 hereof.
1.38. "Satellite" means a communications satellite which is manufactured
by Contractor and Delivered to Purchaser pursuant to this Contract.
1.39. "Satellite Anomaly" shall have the meaning set forth in Section 6.2
hereof.
1.40. "Satellite Failure" means a Satellite (I) that, at the completion of
the In-Orbit Testing, is determined to have a Service Life of fewer
than six (6) years or (ii) that, at any point in time, has fewer
than fifty percent (50%) of its transponders which meet the criteria
of the Performance Specification.
1.41. "Satellite Simulator" means the simulator referred to in Article 36.
1.42. "Service Life" means the in-orbit useful life of any Satellite.
1.43. "Statement of Work" means the statement of work attached hereto as
Exhibit A.
1.44. "Sub-1 Exhibits" means those Exhibits listed in Section 2.1.1
hereof. Exhibits A-1, B-1 and C-1 are the same as Exhibits A, B and
C previously delivered to Purchaser in connection with this
Contract.
1.45. "Sub-2 Exhibits" means those Exhibits listed in Section 2.1.2
hereof.
1.46. "TWTA" means a traveling wave tube amplifier.
1.47. "Warranty Payback" means the method of repayment by Contractor to
Purchaser of the unearned Orbital Performance Incentives pursuant to
Article 14 hereof.
6
<PAGE>
ARTICLE 2. SCOPE OF WORK
-------------
2.1 Provision of Services and Materials.
-----------------------------------
Contractor shall provide the necessary personnel, material, services
and facilities, to manufacture, test and deliver on-orbit, two
Satellites in accordance with the Performance Specification, Exhibit
B to this Contract, to perform the services described in Exhibit A,
Statement of Work, to the extent specified in this Contract, and to
perform the work required hereunder in accordance with the Exhibits
listed below, which are attached hereto and make a part hereof:
2.1.1. The Sub-1 Exhibits.
------------------
Exhibit A-1, TEMPO Direct Broadcast Satellite System (DBSS),
Statement of Work, dated January 12, 1990; Exhibit B-1,
TEMPO DBS System Performance Specification, dated January
12, 1990; Exhibit C-1, Product Assurance Program Plan, dated
July 1989; and Exhibit D-1, Program Test Plan (deliverable
under Exhibit A-1, Annex 2).
2.1.2. The Sub -2 Exhibits.
-------------------
Exhibit A-2, entitled TEMPO Director Broadcast Satellite
System (DBSS), Statement of Work and dated June 17, 1993;
Exhibit B-2, entitled TEMPO Direct Broadcast Satellite
System (DBSS), BSS Satellite Specification and dated June
17, 1993; Exhibit C-2, entitled TEMPO Direct Broadcast
Satellite System (DBSS), BSS Product Assurance Plan and
dated June 17, 1993; and
7
<PAGE>
Exhibit D-2, entitled TEMPO Direct Broadcast Satellite
System (DBSS), BSS Satellite Program Test Plan and dated
June 17, 1993.
2.2. Election of Exhibits.
--------------------
Contractor shall perform its obligations under this Contract in
accordance with the Sub-1 Exhibits until such time as Purchaser
directs Contractor in writing to perform its obligations in
accordance with the Sub-2 Exhibits. Purchaser shall not direct
Contractor to proceed under the Sub-2 Exhibits until Purchaser has
received any necessary authority from the FCC to have constructed
satellites having the specifications set forth in Exhibit B-2. Until
such time as Purchaser notifies Contractor to perform its
obligations in accordance with the Sub-2 Exhibits, all references to
Exhibits in this Contract shall be deemed to be references to the
Sub-1 Exhibits, and after Purchaser has notified Contractor to
perform its obligations in accordance with the Sub-2 Exhibits, all
references to Exhibits in this Contract shall be deemed to be
references to the Sub-2 Exhibits.
2.3. Launch Agencies.
---------------
Contractor and Purchaser recognize the critical need of Purchaser to
have at least one Satellite purchased under this Contract
operational by October 1996 and that the availability of reliable
Launch Vehicles is essential to timely Delivery. Therefore,
Contractor shall have the right to choose which Launch Agency
launches Satellites No. 1 and No. 2; provided, however, that subject
to the provisions of Article 34 hereof, one Satellite must be
launched using an [*****]
8
<PAGE>
Launch Vehicle and the other Satellite must be launched using
[*****] Launch Vehicle, unless the Parties otherwise mutually agree.
ARTICLE 3. DELIVERABLE ITEMS AND DELIVERY SCHEDULE
---------------------------------------
3.1. Deliverable Items.
-----------------
The equipment, services and documentation to be delivered and the
corresponding delivery schedule under this Contract are as follows
(collectively, the "Deliverable Items"):
<TABLE>
<CAPTION>
Item Description Delivery Schedule Delivery Location
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Satellite No. 1 [*****] [*****]
2. Satellite No. 2 [*****] [*****]
3. Two-Channel [*****] TBD
Transponder Simulator
4. Technical Training of [*****] TBD
operational staff
designated by Purchaser
5. Technical Data and [*****] TBD
Documentation
6. Satellite Simulator [*****] TBD
7. Additional Satellites [*****] TBD
8. Ground Station [*****] TBD
Equipment
9. Satellite Long Lead Parts [*****] TBD
10. Ground Storage [*****] TBD
</TABLE>
9
<PAGE>
ARTICLE 4. PRICE
-----
4.1. Delivery Price.
--------------
The Firm Fixed Price to be paid by Purchaser to Contractor for the
Deliverable Items 1 through 4, set forth in Section 3.1 hereof for
the scope of work detailed in Exhibit A, Statement of Work, is
[*****]. The prices for those Deliverable Items subject to an option
under this Contract are described in the particular Articles which
set forth those options. The Parties hereby acknowledge that
Purchaser has paid, and Contractor has received, the amount of
[*****] in consideration for the study phase of the TEMPO Direct
Broadcast Satellite System. Contractor hereby waives all rights to
the payment in the amount of [*****] payable by Purchaser to
Contractor pursuant to Amendment No. 3 of this Contract which
amendment has been superseded in its entirety. It is further agreed
that the Firm Fixed Price includes [*****] for two flight TWTAs to
be used in the Two-Channel Transponder Simulator, and Contractor
shall use reasonable efforts to obtain these TWTAs at a lower cost,
the difference being rebated to Purchaser in the form of a credit
against the Firm Fixed Price. The itemization of the Firm Fixed
Price is as follows:
10
<PAGE>
<TABLE>
<CAPTION>
Item Description Amount
- -------------------------------------------------------------------------------------------
<S> <C> <C>
1. Satellite No. 1 [*****]
---------------
(as described in Section 2.3.1 of Exhibit A)
(Item price includes all design, manufacturing, tests,
documentation, Orbital Performance Incentives, Launch and
placement into assigned orbital location, Launch Vehicles,
Launch Support, Mission Operation Support Services, In-Orbit
Testing, all costs of shipment and transportation and launch risk
insurance.)
2. Satellite No. 2 [*****]
---------------
(as described in Section 2.3.1 of Exhibit A)
(Item price includes all design, manufacturing, tests,
documentation, Orbital Performance Incentives, Launch and
placement into assigned orbital location, Launch Vehicles,
Launch Support, Mission Operation Support Services, In-Orbit
Testing, all costs of shipment and transportation and launch risk
insurance.)
3. Two-Channel Transponder Simulator [*****]
---------------------------------
(as described in Section 2.7 of Exhibit A)
4. Technical Training of Operational Staff [*****]
---------------------------------------
(as described in Section 2.3.5 of Exhibit A)
</TABLE>
4.2. Taxes and Duties. Tariffs, duties, taxes, or other charges levied
----------------
by any taxing authority on the goods, equipment, materials or effort
covered by this Contract shall be paid by Contractor.
11
<PAGE>
ARTICLE 5. PAYMENTS
--------
5.1. Payment Plan.
------------
Payments by Purchaser to Contractor of the Firm Fixed Prices set
forth in Article 4 hereof shall be in accordance with the Payment
Plan set forth in Attachment A hereto. In the event that Purchaser
exercises any of the options under this Contract, Purchaser shall
make payments for such options in accordance with the Payment
Plan(s) which are subsets under Attachment A hereto.
5.2. Payment Conditions.
------------------
All payments due from Purchaser in particular months pursuant to
Attachment A hereto shall be due on the twenty-fifth (25th) day of
the payment month indicated in Attachment A hereto. Contractor shall
submit an invoice for the applicable amount thirty (30) days prior
to the due date. All payments due Purchaser upon the completion of a
milestone described in Attachment A shall be due twenty-five (25)
days after submission of an invoice by Contractor, including all
necessary documentation evidencing that the milestone has been met.
In the event that Purchaser does not make payment by the due date,
Purchaser shall pay Contractor interest at the rate of LIBOR + 2%
(30 day rate) per annum on the unpaid balance until such time as
payment is made by Purchaser. All payments to Contractor from
Purchaser shall be in United States Dollars and shall be made by
electronic funds transfer to the following account or other such
accounts as Contractor may specify from time to time in written
notices to Purchaser:
12
<PAGE>
[*****]
5.3. Guaranties.
----------
On the Execution Date, Purchaser shall provide to Contractor written
guaranties substantially in the form of Attachment D hereto from
entities specified in Attachment D, and a letter of credit on behalf
of [*****]., which guaranty the payment of any amounts due
to Contractor pursuant to this Article 5 in the proportionate
amounts set forth in Attachment D. The guaranties and letter of
credit, and any and all obligations of any guarantor [*****]
hereunder, shall terminate, without further action by guarantor,
[*****] or any other party, upon (i) the date that the agreement
between Contractor and Purchaser pertaining to the purchase and sale
of satellites, ground equipment or services for a fixed satellite
service system (Contract No. TPO-1-693, dated July 19, 1993) becomes
effective pursuant to Section 1.2 thereof; (ii) any transfer of work
in progress under this Contract to a fixed satellite system at the
direction of Purchaser; or (iii) termination of the Deferral (as
that term is defined in Section 5.4 hereof) by reason of [*****]
obtaining construction financing to fund the payments due to
Contractor under this Contract as and when such payments become due,
provided, however, that if such construction financing is obtained
in an amount less than the Firm Fixed Price, the guaranties shall
not terminate, but the amount for which each of the guarantors
[*****] is obligated under its respective guaranty (and the letter
of credit) shall be reduced to its respective proportionate amount
(as set forth in each guaranty and the letter of credit) of the
total amount by which the
13
<PAGE>
Firm Fixed Price exceeds the total amount of the construction
financing. Except for amounts deferred under Section 5.4 hereof, in
the event that an invoice duly submitted by Contractor in accordance
with the Payment Plan has gone unpaid for a period of thirty (30)
days, Contractor shall have the right to require the guarantors of
Purchaser's obligation (and Newchannels Corp.) to pay the amount
outstanding pursuant to the terms of their respective guaranties
(and the letter of credit). In the event that the amount of be paid
to Contractor is in dispute and the issue has been referred to
arbitration, Contractor shall not be permitted to invoke the
guaranties (and the letter of credit) as to the sum in dispute until
a judgment has been rendered by the arbitrator requiring Purchaser
to pay a certain amount to Contractor, which amount shall be
tendered to Contractor inclusive of interest at the rate of LIBOR +
2% (30 day rate) per annum as provided in Section 5.2 hereof.
5.4. Payment Deferral.
----------------
In recognition of Purchaser's intention to obtain construction
project financing, Contractor shall defer the progress and milestone
payments specified in this Article 5 and Attachment A (the
"Deferral"). The Deferral shall apply to all payments for a period
of up to ninety (90) days after the Execution Date. Deferred
payments shall accrue interest at the rate of LIBOR + 2% (30 day
rate) per annum on the unpaid amounts, and will be subject to
guaranty described in Section 5.3 hereof. The Parties acknowledge
that it may take longer than ninety (90) days to put in place the
construction financing for this project. In the event
14
<PAGE>
that it is necessary to extend the Deferral, the Parties will
cooperate in developing a mutually agreeable approach for the
extension.
5.5. Purchaser Financing. It is the Purchaser's intention to obtain
-------------------
construction financing for the project which is the subject of this
Contract. Contractor acknowledges that in the process of obtaining
such financing and/or as a continuing condition of such financing,
Purchaser may be required to comply with certain requests or
requirements of the potential or actual lenders, including supplying
information related to this Contract. Contractor covenants that it
will provide Purchaser or its potential lenders with such
information, documentation and assistance as the Purchaser may
reasonably request, and will otherwise cooperate with Purchaser in
any reasonable manner requested by Purchaser or its potential or
actual lender for the purpose of obtaining construction financing,
including any commercially reasonable amendments to this Contract
that may be reasonably requested by such lender which do not result
in financial detriment to Contractor.
ARTICLE 6. PURCHASER FURNISHED ITEMS
-------------------------
6.1. Facilities for In-Orbit Testing.
-------------------------------
Purchaser shall make available to Contractor the use of Purchaser's
designated satellite control facilities and access to the
communications uplink facility for the purposes of In-Orbit Testing
of the Satellite(s). The radio frequency equipment to be supplied by
Purchaser at the communications uplink facility is identified in
Attachment F to this Contract. Such equipment is to be available for
Contractor's
15
<PAGE>
use sixty (60) days prior to Launch. Purchaser and Contractor will
conduct a radio frequency equipment meeting one hundred and eighty
days (180) days prior to Launch to confirm the availability of such
equipment.
6.2. Satellite Quarterly Reports.
---------------------------
Purchaser shall provide to Contractor, no less frequently than
quarterly during the Service Life of the Satellites, an informal
letter report which shall describe the general health and operating
status of the Satellite(s) and specifically identify any defined
Satellite Anomalies. For the purpose of this Article 6, a Satellite
Anomaly means any on-orbit occurrence that was not anticipated in
the Satellite Orbital Operation Handbook delivered to Purchaser
pursuant to Annex 2 of Exhibit A. At Purchaser's request, Contractor
shall investigate any Satellite Anomaly and use its best efforts to
correct such Satellite Anomaly. Purchaser shall provide and/or give
access to any data Contractor may require for investigation and/or
correction of any Satellite Anomaly. Further, Purchaser shall grant
reasonable access to ground stations and the Satellite as Contractor
might require for investigation and/or correction of any Satellite
Anomaly.
ARTICLE 7. FUNCTIONS NOTE THE RESPONSIBILITY OF PARTIES
--------------------------------------------
7.1. Radio Frequency Coordination.
----------------------------
Contractor is not responsible for radio frequencies coordination, or
the preparation of filings for International Telecommunications
Union/International Frequency Registration Board (ITU/IFRB)
registration or FCC requirements; provided, however, that Contractor
shall render assistance to Purchaser and its designees as
16
<PAGE>
may be reasonably requested in connection with their filings with
the FCC or other governmental agencies.
7.2. Interface and Interconnections.
------------------------------
Contractor shall not be responsible for any interface and
interconnections of the Satellites, including but not limited to
connecting terrestrial facilities, voice and teletype switches.
7.3. General.
-------
Neither Party shall be responsible for any undertakings not
expressly and specifically set forth in this Contract as being the
assigned responsibility of such Party.
ARTICLE 8. ACCESS TO WORK IN PROGRESS
--------------------------
8.1. Work in Progress at Contractor's Plant.
--------------------------------------
For the purpose of observing the quality and progress of
Contractor's performance of work, a limited number of Purchaser's
personnel and consultants shall be allowed to observe work being
performed at the system level and above for the Satellites and other
Deliverable Items at Contractor's plant. Such observation shall
occur during normal working hours and during other hours that are
reasonable under the circumstances. For purposes of scheduling
meetings and program reviews between Purchaser's and Contractor's
personnel, Purchaser shall coordinate with Contractor reasonably in
advance of such meetings or program reviews.
17
<PAGE>
8.2. Work Progress at Subcontractors' Plants.
---------------------------------------
To the extent permitted by Contractor's major subcontractors (for
the purpose of this Article 8, subcontractors supplying services or
goods valued in excess of [*****] in connection with any Satellite),
Contractor shall allow Purchaser's personnel and consultants access
to work being performed pursuant to this Contract in subcontractors'
plants in connection with any Satellite for the purpose of observing
the quality and progress of subcontractor's performance of work,
subject to the right of Contractor to accompany Purchaser on any
visit to a subcontractor's plant. Contractor will use its best
efforts in subcontracting to obtain permission for such access to
subcontractors' facilities as described in this Section 8.2.
8.3. Purchaser's Resident Representatives.
------------------------------------
For the purpose of monitoring the progress of this Contract,
Contractor shall provide office facilities for a limited number of
resident Purchaser's personnel (or its consultants) during the
course of this Contract, and for the period covered by the exercise
of any option for additional Satellites provided pursuant to Article
28 hereof. The office facilities to be provided shall include
without limitation a reasonable about of office space, office
furniture, regular parking facilities, local telephone service,
access to copy machines and access to facsimile machines.
8.4. Competition.
-----------
Purchaser's consultants shall not be selected from companies or
entities which are in direct competition with Contractor to produce
items such as those being
18
<PAGE>
manufactured hereunder. Purchaser shall formally advise Contractor
of the names, title/function, business relationship and employer of
its intended consultants and arrange for these consultants to
execute a confidentiality agreement directly with Contractor
substantially the same as the Non-disclosure Agreement attached
hereto as Attachment B.
8.5. Interference with Operations.
----------------------------
Purchaser shall exercise its rights to access work in progress under
this Article 8 so that it does not unreasonably interfere with
Contractor's normal business operations or Contractor's performance
of its obligations under this Contract.
ARTICLE 9. PRE-SHIPMENT INSPECTION
-----------------------
9.1. Time, Place and Notice of Inspection.
------------------------------------
With respect to Satellite(s), the pre-shipment inspection shall take
place at a date and time mutually agreeable to the Parties, but for
Satellite No. 1, not later than one (1) month prior to shipment.
With respect to all other Deliverable Items, Contractor shall notify
Purchaser in writing at least thirty (30) days prior to the date
when the Deliverable Item covered thereby will become ready for
inspection, and the schedule for inspection times and locations
shall be determined by mutual agreement of the Parties to ascertain
whether the Deliverable Item conforms to the Performance
Specification.
19
<PAGE>
9.2. Pre-Shipment Inspection.
-----------------------
The purpose of the pre-shipment inspection is to determine through
ground tests and analyses whether the completed Deliverable Item(s)
conform to the standards and requirements of the Performance
Specification. The pre-shipment inspection shall be performed in
accordance with the procedures described in Section 2.2.4 of Exhibit
A.
9.3. Pending Waivers.
---------------
Waivers for deviations from the Performance Specification for
Deliverable Items shall be submitted to Purchaser promptly as and
when they occur. Any waivers still pending at the time of pre-
shipment inspection shall be presented to Purchaser at the
commencement of the pre-shipment inspection. The Parties shall
negotiate mutually agreeable consideration for approval of any
waivers. Shipment of Satellites is contingent upon all waivers being
approved by Purchaser, and the Performance Specification, as
modified by any waivers approved by Purchaser, shall constitute the
performance baseline of the applicable Satellite for purposes of
Acceptance and the determination of damages and Orbital Performance
Incentives.
9.4. Purchaser's Inspection Agents.
-----------------------------
Purchaser may, upon giving prior notice to Contractor, cause any
agent(s) designated by Purchaser to conduct such pre-shipment
inspection in whole or in part; provided, however, that such
agent(s) will not be selected from companies or entities which are
in direct competition with Contractor to produce items such as
20
<PAGE>
those being manufactured hereunder. Purchaser shall formally advise
Contractor of the names, title/function, business relationship and
employers of its intended agents and arrange for these agents to
execute a confidentiality agreement directly with Contractor
substantially the same as the Non-disclosure Agreement attached
hereto as Attachment B.
9.5. Inspection Results.
------------------
Upon completion of pre-shipment inspection, Purchaser shall promptly
notify Contractor of the results thereof in writing. In the event
Contractor receives a notice of rejection from Purchaser for any
Deliverable Items, Contractor shall, if it is directed to do so by
Purchaser, correct or repair the Deliverable Item and submit it for
reinspection by Purchaser after having corrected and/or repaired all
defects.
9.6. Inspection Equipment and Facilities.
-----------------------------------
Contractor shall make available to Purchaser or its agents such
equipment and facilities as Purchaser may require to conduct any
pre-shipment inspections. All expenses in connection with such
assistance, as well as transportation to and from the inspection
site, any and all losses resulting from any deterioration, wear and
tear, and damage in the process of any pre-shipment inspection, and
any other expenses and losses incurred due to implementation of such
pre-shipment inspections shall be borne by Contractor, except for
such expenses and losses that may be incurred due to any willful or
negligent act by Purchaser. All expenses
21
<PAGE>
that may be required for Purchaser to dispatch its personnel for
pre-shipment inspections, including travel and living expenses,
shall be borne by Purchaser.
9.7. Warranty Obligations.
--------------------
In no event shall Contractor be released from any of its warranty
obligations as set forth in Article 15 hereof as a result of any
Deliverable Item having successfully passed the pre-shipment
inspection set forth in this Article 9.
9.8. Repaired or Replaced Items.
--------------------------
The provisions of this Article 9 shall apply to corrected, repaired
or replaced items Delivered in place of rejected, damaged, or
defective Deliverable Items.
ARTICLE 10. SATELLITE ACCEPTANCE
--------------------
10.1. Satellite Acceptance Procedure.
------------------------------
Following the successful completion of pre-shipment inspection of
any Satellite, Contractor shall proceed with the Launch of the
Satellite. Thirty (30) days prior to Launch of the Satellite,
Contractor shall notify Purchaser of the IOT schedule. Purchaser may
observe the IOT at Contractor's site. When IOT has been completed,
Contractor shall submit to Purchaser the test results, together with
a certification by Contractor that the Satellite meets the
Acceptance criteria described in Section 10.2 or 10.3 hereof, or
with an explanation of the criteria that the Satellite does not
meet. Contractor and Purchaser shall hold an acceptance review (as
defined in Exhibit A), and Purchaser shall either accept the
Satellite in accordance with Section 10.2 or Section 10.3 hereof if
Purchaser is reasonably
22
<PAGE>
satisfied with the IOT results and Contractor's certification, or
reject the Satellite as a Satellite Failure, in which event the
provisions of 10.4 hereof shall apply.
10.2. Unqualified Acceptance.
----------------------
Purchaser shall be obligated to accept in writing without
qualification a Satellite only if (I) the Satellite has successfully
passed the Program Test Plan, (ii) it has been verified at the
acceptance review that the Satellite's Service Life will be at least
twelve (12) years, (iii) the Satellite satisfies all the
requirements specified in the Performance Specification and (iv) all
of the transponders on the Satellite perform in accordance with the
Performance Specification.
10.3. Qualified Acceptance.
--------------------
Purchaser shall be obligated to accept in writing a Satellite when
it has been verified at the acceptance review that, although it does
not fully satisfy the requisite acceptance conditions set forth in
Section 10.2 hereof, its Service Life will be at least six (6) years
and fifty percent (50%) or more of the transponders meet the
criteria of the Performance Specification. Purchase may claim
damages against Contractor as set forth in Article 23 for any
Satellite which it is required to accept pursuant to this Section
10.3.
10.4. Satellite Replacement.
---------------------
Contractor is obligated to make four (4) attempts to deliver two (2)
Satellites on-orbit that satisfy the criteria of Sections 10.2 and
10.3 hereof. If there is a Satellite Failure of Satellite No. 1 and
Delivery has not yet occurred for such Satellite, or in the event
Satellite No. 1 fails to be placed into its assigned orbital
23
<PAGE>
location, Contractor shall, at its risk and expense, deliver to
Purchaser a replacement Satellite on-orbit no later than [*****]
after the date of Satellite Failure. The preceding sentence also
applies to Satellite No. 2. If a replacement Satellite launched
pursuant to the two (2) immediately preceding sentences is a
Satellite Failure prior to Delivery, or if such Satellite fails to
be placed into its assigned orbital location, and Contractor has not
fulfilled its obligation to make [*****] attempts to deliver [*****]
Satellites, Contractor shall, at its risk and expense, deliver to
Purchaser another replacement Satellite on-orbit no later than
twenty-nine (29) months after the date of the replacement Satellite
Failure. Purchaser may, at its option, use Satellite(s) which have
not been accepted pursuant to Section 10.2 or 10.3 hereof consistent
with the salvage and use measurers available in Contractor's
satellite risk insurance policy. Contractor shall review its
satellite risk insurance policies with Purchaser prior to execution
of the policies and shall use reasonable efforts to maximize the
usefulness, for the Purchaser, of the salvage and use measures
available under the policy. The provisions of Sections 10.1, 10.2
and 10.3 hereof shall apply to the replacement satellite(s) set
froth in this Section 10.4. Subject to the provisions of Article 33
and Section 22.4 hereof, only if after four (4) attempts, Contractor
fails to deliver two (2) Satellites on-orbit which satisfy the
acceptance criteria in Section 10.2 or Section 10.3 hereof,
Purchaser may terminate this Contract upon written notice to
Contractor, and Purchaser shall receive [*****] (as set forth in
Section 4.1 hereof) less (i) [*****] (ii) the unpaid Orbital
Performance Incentive payments for such Satellite
24
<PAGE>
for each Satellite that experiences a Satellite Failure in-orbit, up
to a maximum of [*****] Satellites. Alternatively, Purchaser may
terminate this Contract upon the terms described in Article 33
hereof.
ARTICLE 11. ACCEPTANCE INSPECTION FOR DELIVERABLE ITEMS OTHER THAN SATELLITES
-----------------------------------------------------------------
11.1. Inspection.
----------
With respect to all Deliverable Items other than Satellites,
Purchaser, within thirty (30) days after delivery of a Deliverable
Item to Purchaser's facility, shall perform acceptance inspection in
accordance with the procedures described in Section 2.2.7 of Exhibit
A. The purpose of the acceptance inspection is to determine whether
the completed and delivered Deliverable Item(s) conform to the
standards and requirements of the Performance Specification.
11.2. Pending Waivers.
---------------
Waivers for deviation of Deliverable Items (other than Satellites)
from the Performance Specification shall be submitted to Purchaser
promptly as and when they occur. Any waivers still pending at the
time of acceptance inspection shall be presented to Purchaser. The
Parties shall negotiate mutually agreeable consideration for
approval of any waivers. Acceptance of any Deliverable Items (other
than Satellites) is contingent upon all waivers being approved by
Purchaser.
25
<PAGE>
11.3. Purchaser's Inspection Agents.
-----------------------------
Purchaser may, upon giving prior notice to Contractor, cause any
agent(s) designated by Purchaser to conduct such acceptance
inspection in whole or in part; provided, however, that such
agent(s) will not be selected from companies or entities which are
in direct competition with Contractor to produce items such as those
being manufactured hereunder. Purchaser shall formally advise
Contractor of the names, title/function, business relationship and
employers of its intended agents and arrange for these agents to
execute a confidentiality agreement directly with Contractor
substantially the same as the Non-disclosure Agreement attached
hereto as Attachment B.
11.4. Acceptance Inspection Results.
-----------------------------
Upon completion of acceptance inspection, Purchaser shall promptly
notify Contractor of the results thereof in writing. In the event
Contractor receives a notice of rejection from Purchaser for any
Deliverable Items (other than Satellites), Contractor shall, if it
is directed to do so by Purchaser, correct or repair the Deliverable
Item and submit it for reinspection by Purchaser after having
corrected and/or repaired all defects.
11.5. Acceptance Inspection; Equipment and Facilities.
-----------------------------------------------
Contractor shall make available to Purchaser or its agents such
equipment and facilities as Purchaser may require to conduct any
acceptance inspections. All expenses in connection with such
assistance, as well as any and all losses resulting from any
deterioration, wear and tear, and damage in the process of any
26
<PAGE>
acceptance inspection, and any other expenses and losses incurred
due to implementation of such acceptance inspections shall be borne
by Contractor, except for such expenses and losses that may be
incurred due to any willful or negligent act by Purchaser. All
expenses that may be required for Purchaser to dispatch its
personnel for acceptance inspections, including travel and living
expenses, shall be borne by Purchaser.
11.6. Warranty Obligations.
--------------------
In no event shall Contractor be released from any of its warranty
obligations as set forth in Article 15 hereof as a result of any
Deliverable Item having successfully passed the acceptance
inspection set forth in this Article 11.
ARTICLE 12. SHIPMENT, DELIVERY, TITLE, RISK OF LOSS AND CIP
-----------------------------------------------
12.1. Satellites.
----------
Risk of loss and title to each Satellite shall pass from Contractor
to Purchaser upon Delivery. Delivery shall occur upon Acceptance in
writing pursuant to Section 10.2 or 10.3 hereof, and delivery of a
bill of sale in form and substance satisfactory to Purchaser,
including a warranty of good and marketable title to each Satellite,
free and clear of any claims, security interests, liens and
encumbrances.
12.2. Deliverable Items Other than Satellites.
---------------------------------------
Risk of loss and title to all Deliverable Items other than
Satellites shall pass from Contractor to Purchaser upon Acceptance
as confirmed in writing by Purchaser pursuant to Section 11.4.
Delivery of all Deliverable Items other than Satellites
27
<PAGE>
shall occur upon Acceptance and delivery of a bill of sale in form
and substance acceptable to Purchaser, including a warranty of good
and marketable title to such Deliverable Items, free and clear of
any claims, security interests, liens and encumbrances.
12.3. Carriage and Insurance Paid.
---------------------------
The Carriage and Insurance Paid ("CIP") for all deliverable hardware
items specified in Section 3.1 hereof shall be at the location where
title passes. All deliverable data and documentation specified in
Article 3.1 hereof and in Annex 2 of Exhibit A shall be delivered
CIP, Purchaser's designated delivery sites.
12.4. Transfer to Third Parties.
-------------------------
Purchaser may direct Contractor to transfer title of any Deliverable
Item directly to a third party designated by Purchaser; provided,
however, that Purchaser shall arrange for the third party designee
to execute a confidentiality agreement directly with Contractor
substantially the same as the Non-disclosure Agreement attached
hereto as Attachment B, and provided further that in no event shall
such a designation release Purchaser from its obligations hereunder
(unless otherwise provided in Section 43.2 hereof).
ARTICLE 13. ORBITAL PERFORMANCE INCENTIVES
------------------------------
13.1. General.
-------
The Orbital Performance Incentives shall be paid in accordance with
milestones M-63 and M-66 as described in the Payment Plan and shall
be considered an advance payment. [*****] For the purpose of
calculating Orbital Performance
28
<PAGE>
Incentives, the first day of the Orbital Incentive Performance
Period shall be deemed to commence at midnight Greenwich Mean Time
on the first day after Delivery and such day shall last for twenty-
four (24) hours. If the performance of the Satellite changes over
the Service Life of the Satellite, the Parties shall adjust the
amount of Orbital Performance Incentive earned in accordance with
the provisions of Section 13.4 hereof. [*****]
13.2. Advance Payment; Unqualified Acceptance.
---------------------------------------
Upon Acceptance of Satellite No.1 and Satellite No.2 (or their
replacements) pursuant to Section 10.2 hereof, Contractor shall be
paid a total amount of [*****] payment for the Orbital Performance
Incentives for each Satellite.
13.3. Advance Payment; Qualified Acceptance.
-------------------------------------
Upon Acceptance of a Satellite pursuant to Section 10.3 hereof, the
amount of advance payment for the Orbital Performance Incentives to
be paid to Contractor for Satellites No. 1 and No. 2 or their
replacements shall be adjusted in accordance with the following
formula:
T = number of Transponders meeting the Performance
Specification
P = [*****]
D = number of days of expected Service Life, [*****]
AOPI = Adjusted Orbital Performance Incentives
AOPI = P x (T/[*****] x (D/[*****]
In the event that a Satellite transponder that did not perform in
accordance with the Performance Specification on the date of the
advance payment subsequently
29
<PAGE>
begins performing in accordance with the Performance Specification
(a "Resurrected Transponder"), [*****]
R = number of Resurrected Transponders
[*****] x R x ([*****]- number of days since Delivery).
13.4. Daily Rate of Orbital Performance Incentives.
--------------------------------------------
For Satellites accepted by Purchaser pursuant to Section 10.2
hereof, Contractor shall earn Orbital Performance Incentives at a
daily rate of [*****] and [*****] per transponder for each day that
a transponder operates in accordance with Performance Specification
up to a maximum of [*****] days. For Satellites accepted by
Purchaser pursuant to Section 10.3 hereof, Contractor shall accrue
and be entitled to earn Orbital Performance Incentives at a daily
rate of [*****] per transponder for each day that a transponder
operates in accordance with performance Specification, but in no
event shall contractor be entitled to earn more than the total of
the advance payment made pursuant to Section 13.3 hereof. Any
amounts of the Orbital Performance Incentive paid in advance and
subsequently not earned by Contractor shall be returned to Purchaser
as a Warranty Payback in accordance with Article 14 hereof.
13.5. On-Board Redundancy.
-------------------
The use of any Satellite on-board redundancy to maintain service
shall not in and of itself be deemed to constitute less than
satisfactory operation under this Article 13, and use of such
redundancy shall be deemed normal operating procedure so long as the
Performance Specification is met by such Satellite.
13.6. Orbital Storage.
---------------
30
<PAGE>
If Purchaser places a Satellite in Orbital Storage, Contractor shall
continue to earn Orbital Performance Incentives at the same daily
rate as Contractor was earning prior to the Satellite being placed
in Orbital Storage for the balance of the Orbital Incentive
Performance Period. If a Satellite is returned to service following
a period of Orbital Storage, the daily Orbital Performance Incentive
amount shall be earned based on the performance of the Satellite
consistent with Section 13.4 hereof.
13.7. Temporary Outages.
-----------------
For purposes of determining whether Contractor has earned an Orbital
Performance Incentive for any transponder on any day, in the event
that a transponder fails to perform in accordance with the
Performance Specification for a period of time in excess of [*****]
seconds during in-orbit operation, Contractor shall forfeit the
daily amount of Orbital Performance Incentive for each transponder
and each day in which such outage occurs. At such time as the
transponder resumes operation in accordance with the Performance
Specification, Contractor shall resume earning Orbital Performance
Incentives at the appropriate daily rate, beginning the next day
following the day in which the outage occurred, for each day in
which the transponder functions in accordance with the Performance
Specification with no outrages in excess of [*****] seconds. If,
after Acceptance, a transponder fails to meet the requirements of
the Performance Specification of a period of [*****] and Purchaser
declares it a transponder failure, Purchaser [*****]- number of days
between Acceptance and Purchaser
31
<PAGE>
declaration of transponder failure.) Any amounts of the Orbital
Performance Incentives forfeited by Contractor pursuant to this
Section 13.7, shall be [*****] hereof.
13.8. Purchaser's Change to Inclined Orbit Operation.
----------------------------------------------
If, during the Orbital Incentive Performance Period, Purchaser
changes the mode of operation of a Satellite to inclined orbit
operation, Contractor shall be entitled to earn the Orbital
Performance Incentives at the same daily rate as Contractor was
earning prior to the date of such change. The change to inclined
orbital operation shall not extend the Orbital Incentive Performance
Period.
13.9. Satellite Failure After IOT.
---------------------------
Upon the occurrence of a Satellite Failure after IOT, Contractor
shall not be entitled to earn Orbital Performance Incentives, and
shall have no claim against Purchaser regarding such Orbital
Performance Incentives. Any unearned amount of the Orbital
Performance Incentives as of the date of Satellite Failure shall
[*****] hereof. In the event of a Satellite Failure after Delivery
of such Satellite, Contractor shall not be subject to the provisions
of Article 10.4 hereof.
13.10. Payments.
--------
Any amount payable to Contractor under this Article 13 shall be paid
as provided in Article 5 hereof. Contractor's right to Orbital
Performance Incentives under this Article 13 with respect to any
Satellite accepted pursuant to Article 10 prior to termination of
this Contract in accordance with either Article 20 or Article 22
hereof, shall not be affected by such termination.
32
<PAGE>
13.11. Negligent Operation of the Satellite.
------------------------------------
If, solely because of negligence on the part of Purchaser or
Purchaser's representatives, consultants or subcontractors in the
operation of, testing of, or communication with, a Satellite, such
Satellite operates in a manner that is not in accordance with the
Performance Specification, Contractor shall continue to earn Orbital
Performance Incentives at the same rate as determined prior to the
occurrence of the degraded performance caused by Purchaser, or
Purchaser's representatives, consultants or subcontractors for the
remaining period of the Orbital Performance Incentive Period,
subject to any reduction in the Orbital Performance Incentive
resulting from subsequent operation of the Satellite below the
Performance Specification for reasons other than the negligence of
Purchaser or Purchaser's representatives, consultants or
subcontractors.
13.12. Access to In-Orbit Data and Measurements.
----------------------------------------
Over the Service Life of a Satellite, Contractor shall have access
to the Satellite data archives necessary to ascertain Satellite
performance conditions. All measurements, computations and analyses
performed to determine whether a reduction in the orbital incentive
amounts earned by Contractor is warranted shall take into account
tolerances for measurement accuracy of the measurement equipment.
33
<PAGE>
ARTICLE 14. [*****]
14.1. [*****].
[*****] interest at a rate of LIBOR + 2% (30 day rate) per annum on
the unpaid balance until such time as payment is made by [*****]
14.2 Parental Guaranty.
-----------------
Thirty (30) days prior to the Launch of any Satellite procured
hereunder, [*****] shall provide to [*****] a written guaranty from
an entity acceptable to Purchaser which guarantees the payment of
any amounts which [*****] hereof. In the event that an invoice duly
submitted by [*****] has gone unpaid for a period of thirty (30)
days, [*****] shall have the right to require the guarantor(s) of
[*****] obligation to pay the amount outstanding pursuant to the
terms of the guaranty which shall be substantially in the form of
Attachment E hereto. In the event that the amount to be returned to
[*****] is in dispute and the issue has been referred to
arbitration, [*****] shall not be permitted to invoke the guaranty
until a judgment has been rendered by the arbitrator requiring
[*****] to return any unearned amount of the Orbital Performance
Incentives to [*****], which amount shall be tendered to [*****]
inclusive of interest at the rate of LIBOR + 2% (30 day rate) per
annum.
ARTICLE 15. WARRANTY
--------
15.1. Terms and Period of Warranty.
----------------------------
Contractor warrants that until the Launch of any Satellite, such
Satellite shall be free from any defects in material or workmanship
and shall meet the Performance
34
<PAGE>
Specification (as the Performance Specification may have been
modified pursuant to Section 9.3 hereof) in every respect.
Contractor warrants that the Deliverable Items other than Satellites
shall perform in accordance with the Performance Specification and
other requirements of this Contract, and will be free from defects
in materials and workmanship for a period of one (1) year after the
date of Acceptance.
15.2 Repair or Replacement.
---------------------
a. With respect to Deliverable Items other than Satellites,
during the one (1) year warranty period, any defect
discovered by Purchaser shall be remedied by Contractor at
Contractor's expense by repair or replacement of the
defective component at Contractor's election. Contractor
shall determine if repair or replacement is required to be
performed at Contractor's plant. Purchaser shall ship to
Contractor's designated facility any defective Deliverable
Items (other than Satellites) requiring repair and
replacement. Contractor shall be responsible for the cost of
shipment (including any taxes, duties) for defective
Deliverable Items (other than Satellites) shipped to
Contractor, and the cost of shipment for return or repaired
or replacement equipment shipped to Purchaser. Title and
risk of loss for defective Deliverable Items (other than
Satellites) shall transfer to Contractor upon delivery of
such Deliverable Items to the shipping carrier by Purchaser,
and title and risk of loss shall transfer to Purchaser for
35
<PAGE>
returned repair or replacement equipment upon receipt of such
equipment by Purchaser.
b. With respect to Deliverable Items other than Satellites, if the
defect is not covered by the warranty, Purchaser shall pay
Contractor the cost of repairs or replacement, the transportation
charges and a mutually agreed upon profit; provided, however,
that Contractor shall repair the Transponder Simulator [*****]
after Delivery. Such repair cost shall be invoiced to Purchaser
pursuant to the provisions of Section 5.2 hereof. Subsequent to
the one (1) year warranty period, Purchaser shall pay the
transportation costs for return of the Satellite Simulator to
Contractor as well as the return to Purchaser after repair.
c. The warranty under this Article 15 shall not apply if adjustment,
repair, or parts replacement is required because of accident,
unusual physical or electrical stress, negligence, misuse,
failure of environmental control prescribed in operations and
maintenance manuals, repair or alterations by other than
Contractor, or causes other than ordinary uses. Further, the
warranty is contingent upon Contractor being given access, if
required, to delivered equipment at Purchaser's facility in order
to effect any repair and/or replacement.
ARTICLE 16. FORCE MAJEURE
-------------
The term "Force Majeure" means fire, casualty, flood, earthquake,
strikes, riots, embargoes, war, any future law, order, regulation,
ordinance or other act of
36
<PAGE>
government, delays in transportation, energy shortages or material
shortages beyond a Party's reasonable control or other events of a
similar nature and magnitude beyond the reasonable control of either
a Party or its supplier and subcontractor and without the fault or
negligence of either a Party or its suppliers and subcontractors. If
the performance of this Contract is prevented, restricted or
interfered with by reason of Force Majeure, (i) the Party whose
performance is prevented, restricted or interfered with shall give
prompt written notice to the other Party of the event, and, to the
extent that such enumerated condition was beyond the control of such
Party, such Party shall be excused from performance to the extent
delayed or prevented by Force Majeure; provided, however, that the
Party whose performance is prevented or delayed shall, when possible
without material financial penalty, take reasonable steps to avoid
or remove such causes of nonperformance, including without
limitation taking all reasonable steps to obtain alternative sources
of supplies, components and raw materials, and shall continue
performance whenever and to the extent such causes are removed; and
(ii) if it appears that a time for delivery or performance scheduled
pursuant to this Contract shall be extended for more than one
hundred eighty (180) days due to Force Majeure, the Party receiving
notice under subsection (i) above shall have the right to terminate,
by written notice to the other Party, any portion of this Contract
covering the delayed performance, and upon such termination, the
rights, obligations and liabilities of all Parties with respect to
such portion of this Contract shall thereupon terminate, except to
the extent such rights, obligations
37
<PAGE>
and liabilities are intended to survive pursuant to this Contract in
accordance with Section 43.15 hereof. In the event of a termination
pursuant to this Article 16, the Parties shall negotiate in good
faith to allocate the costs of the termination giving effect to
equitable factors, including without limitation the availability of
insurance proceeds to either Party.
ARTICLE 17. PURCHASER DELAY OF WORK
-----------------------
If the performance of all or any part of the work required by this
Contract is delayed or interrupted (except for Force Majeure) by
Purchaser's failure to perform its contractual obligations within
the time specified in this Contract or within a reasonable time if
no time is specified, or an act by Purchaser that unreasonably
interferes with Contractor's performance of its obligations under
this Contract, this Contract shall be equitably adjusted in the
price, performance requirements, schedule, and/or any other affected
terms of this Contract.
ARTICLE 18. PATENT INDEMNITY
----------------
18.1. Indemnification.
---------------
Subject to the limitations of Section 43.1 hereof, Contractor, at
its own expense, shall defend, indemnify and hold harmless
Purchaser, its permitted assignees, PRIMESTAR Partners, L.P. and its
partners, the FCC licensee(s) of the Satellite(s) (collectively, the
"Primary Parties"), and any entities controlling, controlled by or
under common control with any of the Primary Parties and their
respective officers and directors, or any of them, from and against
any claim or suit based on an allegation that the manufacture of any
Deliverable Item or the normal intended use, lease or sale of any
Deliverable Item
38
<PAGE>
infringes letters patent, copyright, mask work, trademark, service
mark, trade name or other intellectual property rights
(collectively, "Intellectual Property Claim(s)") and shall pay any
royalties and other losses, damages (increased, actual or
statutory), liabilities, costs (including court costs and reasonable
attorneys fees) related to or resulting from such Intellectual
Property Claim; provided that Purchaser promptly notifies Contractor
in writing of any such Intellectual Property Claim and gives
Contractor authority and such assistance and information requested
by Contractor as is available to Purchaser for the defense of such
Intellectual Property Claim.
18.2. Infringing Equipment.
--------------------
If the manufacture of any Deliverable Item or the normal intended
use, lease or sale of any Deliverable Item under this Contract is
enjoined as a result of an Intellectual Property Claim or is
otherwise prohibited, Contractor shall (i) resolve the matter so
that the injunction or prohibition no longer pertains, (ii) procure
for Purchaser the right to use the infringing item or (iii) modify
the infringing item so that it becomes noninfringing while remaining
in compliance with the Performance Specification in all respects. If
Contractor is unable to accomplish (i), (ii) or (iii), Purchaser
shall have right to terminate this Contract, return the Deliverable
Item to Contractor, and receive a refund of the price of such
Deliverable Item (less a reasonable allowance for depreciation).
18.3. Combinations and Modifications.
------------------------------
39
<PAGE>
Contractor shall have no liability under this Article 18 for any
Intellectual Property Claim arising solely from (i) use of
Deliverable Items in combination with other items, unless Contractor
sold, made or specifically recommended them as a combination, or the
specific combination would be necessary for use of the Deliverable
Item in the normal course of events in connection with the use of
Deliverable Items or (ii) modifications of Deliverable Items after
Delivery, unless Contractor made or specifically recommended the
modification, or the modification constitutes normal repair,
replacement or implementation of Contractor provided options and
enhancements for the Deliverable Items sold hereunder.
ARTICLE 19. INDEMNITY -- PERSONAL INJURY/PROPERTY DAMAGE
--------------------------------------------
19.1. Contractor's Indemnification of Purchaser.
-----------------------------------------
Contractor shall defend, indemnify and hold harmless the Primary
Parties and any entities controlling, controlled by or under common
control with any of the Primary Parties from any loss, damage,
claim, liability, cost and expense (including court costs and
reasonable attorneys' fees) (collectively, "Damages") caused by,
relating to or arising from third party claims for personal injury
or third party property damage (including claims arising out of
Contractor's relationships with its employees, suppliers,
subcontractors, agents and consultants) resulting from or related to
(i) Contractor's performance under this Contract, (ii) Contractor's
material misrepresentation, breach of warranty or covenant, default,
40
<PAGE>
nonfulfillment of Contractor's obligations under this Contract or
(iii) any negligent act or omission or willful misconduct of
Contractor.
19.2. Purchaser's Indemnification of Contractor.
-----------------------------------------
Purchaser shall defend, indemnify and hold harmless Contractor from
any Damages caused by, relating to or arising from third party
claims for personal injury or third party property damage (including
claims arising out of Purchaser's relationships with its employees,
suppliers, subcontractors, agents and consultants) resulting from or
related to (i) Purchaser's performance under this Contract, (ii)
Purchaser's material misrepresentation, breach of warrant or
covenant, default, nonfulfillment of Purchaser's obligations under
this Contract or (iii) any negligent act or omission of willful
misconduct of Purchaser.
ARTICLE 20. TERMINATION FOR CONVENIENCE
---------------------------
20.1. Reimbursement of Contractor.
---------------------------
Purchaser may terminate this Contract without cause in whole or in
part by giving Contractor written notice. In the event of such
termination, Contractor will cease work as directed in the
termination notice. Contractor shall submit its claim for the work
performed in connection with the terminated portion of this
Contract, and for its termination costs plus a reasonable profit as
provided in items (a) - (e) of this Section 20.1. Except as
otherwise set forth in Section 20.4 hereto, if Purchaser terminates
this Contract pursuant to this Section 20.1, Contractor may provide
an invoice to Purchaser, and be paid at the termination settlement,
for:
41
<PAGE>
a. Price for Deliverable Items completed prior to the termination
and accepted by Purchaser before or after termination for which
payment has not been made by Purchaser.
b. Actual out-of-pocket costs incurred by Contractor in
performance of work on terminated Deliverable Items which have
not been accepted by Purchaser.
c. Actual out-of-pocket costs incurred by Contractor in completing
the termination process.
d. Actual out-of-pocket costs incurred by Contractor in settling
claims of subcontractors and other suppliers and vendors in
connection with the termination; provided that Contractor shall
use its bests efforts to minimize such costs.
e. A mutually agreed upon profit for items (b), (c) and (d) above
to be negotiated by Purchaser and Contractor at the time of
termination.
20.2. Partial Termination.
-------------------
If the termination by Purchaser is partial, the price for the non-
terminated portion of this Contract shall be increased by an amount
equal to the additional costs, if any, which must be borne by such
portion because of the partial termination, plus a mutually agreed
upon profit on such additional costs.
20.3. Title Transfer.
--------------
In the event of a termination pursuant to this Article 20, a
termination settlement shall be held at a mutually agreeable time
and place no later than sixty (60) days
42
<PAGE>
after submission of the claim from Contractor. After completion of
the termination settlement, Contractor may submit an invoice to
Purchaser for payment pursuant to Section 5.2 hereof. At or prior to
the termination settlement, Contractor shall provide Purchaser with
such documentation of the costs set forth in Sections 20.1 and 20.2
hereof as Purchaser may reasonably request. At the termination
settlement, Contractor shall transfer title at Contractor's or
subcontractor's plant to Purchaser for all Deliverable Items
included in Section 20.1(a), and all other partially completed or
incomplete Deliverable Items for which Contractor is entitled to
payment under this Article 20 at the time of the termination
settlement. Notwithstanding the above, Purchaser may direct
Contractor to dispose of the residual property as a result of a
termination under this Article 20 for the purpose of receiving a
price refund or an offset against Contractor's termination claim.
Upon receipt of such direction, Contractor, shall on a best efforts
basis, attempt to sell the residual property and provide a refund to
Purchaser or an offset against Contractor's termination claim, less
any reasonable selling expenses.
20.4. Termination Liability.
---------------------
Notwithstanding any other provisions of this Article 20, in the
event Purchaser terminates this Contract in full during the eighteen
(18) month period after the Execution Date, Purchaser's maximum
liability for termination will be as specified in Attachment C
hereof. After the eighteen (18) month period described in the
preceding sentence, upon Purchaser's request, Contractor shall
prepare and
43
<PAGE>
promptly deliver to Purchaser an estimate of the cost of termination
of this Contract pursuant to Section 20.1 or 20.2 hereof, as the
case may be.
ARTICLE 21. PENALTIES FOR LATE DELIVERY OF SATELLITE
----------------------------------------
21.1. Reimbursement for Satellite Delivery Delay.
------------------------------------------
If one of the two (2) Satellites is not delivered by the last day of
the [*****] after the Execution Date, and such delay is not due to
Force Majeure, then Contractor shall reimburse Purchaser for actual
and reasonable expenses directly incurred due to Satellite Delivery
delay, including without limitation [*****] by Purchaser during the
period of the delay. Such reimbursement shall not exceed [*****] per
month for each of [*****]. In aggregate, such reimbursement shall
not exceed [*****]. The maximum period for which reimbursement for
Satellite Delivery delay shall apply is from the first day of the
[*****] month through the [*****] month after the Execution Date. In
no event shall the limitation on reimbursement described in this
Section 21.1 be applicable to any actual and reasonable expenses
incurred by Purchaser due to delayed Satellite Delivery resulting
from Contractor's gross negligence or willful misconduct.
21.2. Invoice for Reimbursement.
-------------------------
Purchaser shall submit an invoice to Contractor for the expenses
described in Section 21.1 hereof and shall provide to Contractor in
a timely manner, copies of written evidence as substantiation of
expenses set forth in the invoice. Contractor shall pay the amounts
set forth in the invoice within thirty (30) days after the date of
invoice; provided, however, that if Contractor notifies Purchaser of
a good faith
44
<PAGE>
dispute of any item set forth in such invoice within five (5) days
of its receipt; Contractor may withhold payment only with respect to
the disputed item until such time as the dispute is resolved.
21.3. Exclusive Damages.
-----------------
If the Delivery of a Satellite is delayed for other than Force
Majeure and Purchaser does not terminate this Contract for default
pursuant to Article 22, the compensation contemplated by this
Article 21 shall be the sole compensation to which Purchaser shall
be entitled for such Delivery delay.
ARTICLE 22. DEFAULT
-------
22.1. Failure to Perform by Contractor.
--------------------------------
If Contractor (i) fails to deliver the Deliverable Items or perform
the work under this Contract within the time frames specified herein
(or any extension thereof approved in writing by Purchaser) or (ii)
fails to prosecute the work hereunder thereby endangering
performance of this Contract, or (iii) fails to perform any of the
other material provisions of this Contract, and in each case does
not cure such failure within thirty (30) days (or such longer period
as authorized in writing by Purchaser) after receipt from Purchaser
of written notice of such failure, Purchaser may terminate this
Contract in whole or in part by written notice of default.
22.2. Termination Liability.
---------------------
In the event of termination pursuant to Section 22.1 hereof,
Contractor shall be reimbursed for the terminated work as follows:
(i) at the price set forth in this Contract for delivered items for
which a line item price exists and (ii) at the cost
45
<PAGE>
incurred for (a) completed items not yet delivered, (for which no
line item price exists), (b) partially completed items/services, or
work-in-progress, and (c) completed items that have been delivered
to Purchaser for which no line item price exists less (iii) the
proceeds of any undelivered items or work-in-progress that
Contractor, at Purchaser's direction, has transferred to another
effort or returned to supplier.
22.3. Payment for Incomplete Items.
----------------------------
To the extent that this Contract is terminated under Section 22.1
hereof, Purchaser may require that all partially completed items be
delivered by Contractor as directed by Purchaser and that Contractor
pay Purchaser all costs reasonably incurred by Purchaser to have
such items completed by other responsible contractors, to the extent
such costs exceed the total amount which Purchaser would have had to
pay Contractor for such items had Contractor completed this Contract
as required. If, after termination, it is finally determined by
arbitration pursuant to Article 24 hereof that Contractor was not in
default, or that the default was excusable, the rights and
obligations of the Parties shall be the same as if the termination
had occurred under Article 20.
22.4. Special Termination.
-------------------
If Contractor fails to deliver any Satellite [*****] month after the
Execution Date, Purchaser may terminate this Contract by written
notice and all amounts previously paid by Purchaser for any
Deliverable Items that have not been delivered at the time of
termination shall be refunded to Purchaser within thirty
46
<PAGE>
(30) days after the date of termination and Purchaser shall have no
further obligations to Contractor under this Contract. The preceding
sentence shall not apply if the failure to deliver any Satellite
[*****] is due to two successive Satellite Failures which would give
rise to Purchaser's right to terminate this Contract pursuant to
Section 33.2 or Section 33.4 hereof.
22.5. Contractor Termination.
----------------------
By giving written notice to Purchaser of its intention to do so,
Contractor may terminate this Contract for Purchaser's failure to
comply with any material provision of this Contract and such notice
shall set forth which provision is being violated and a reasonably
detailed explanation of the claimed failure to comply. Such
termination shall become effective should Purchaser fail to correct
such nonperformance within thirty (30) days (or such longer period
as agreed to by Contractor) after receipt of such notice in writing
from Contractor. In the event of termination pursuant to this
Section 22.5, Contractor shall be paid as if the termination were
for convenience pursuant to Article 20 hereof. If, after
termination, it is finally determined by arbitration pursuant to
Article 24 hereof that Purchaser was not in default, Contractor
shall be liable to Purchaser for damages resulting from Contractor's
wrongful termination of this Contract.
47
<PAGE>
ARTICLE 23. DAMAGES
-------
23.1. Qualified Acceptance.
--------------------
In the event Purchaser accepts any Satellite (including replacement
Satellites) pursuant to Section 10.3 hereof, Contractor shall pay
damages to Purchaser in accordance with this Article 23.
23.2. Calculation of Damages.
----------------------
The damages set forth in Section 23.1 hereof shall be calculated
based on the price of the relevant Satellite for which there has
been qualified Acceptance pursuant to Section 10.3, but the amount
of damages shall not exceed the amount Purchaser paid for the such
Satellite. Calculations of damages shall be made pursuant to the
following formula:
T = Number of transponders on relevant Satellite for which there
has been qualified Acceptance pursuant to Section 10.3 that
meet Performance Specification.
P = Price in Section 4.1 attributable to the relevant Satellite for
which there has been qualified Acceptance pursuant to Section
10.3 (excluding the Orbital Performance Incentives)
D = Number of days of expected Service Life, not to exceed [*****]
days.
Damages = P x (1 - T/[*****] x D/[*****]
Any Satellite which has not been accepted by Purchaser under Section
10.2 or 10.3 hereof shall be considered a Satellite Failure.
ARTICLE 24. ARBITRATION
-----------
Any disputes which may arise between the Parties with respect to
performance of obligations or interpretation of this Contract, which
cannot be settled by
48
<PAGE>
negotiation between the Parties themselves within a period of one
hundred eighty (180) days, shall be submitted for settlement or
arbitration to the American Arbitration Association ("AAA") in Los
Angeles, California, in accordance with the rules of conciliation
and arbitration of the AAA using three arbitrators, whose decision
shall be final and binding on the Parties. In resolving any dispute,
the arbitrators shall apply the laws of the State of New York with
respect to all matters, including the interpretation of the terms
and conditions of this Contract.
ARTICLE 25. CORRECTIVE MEASURES IN UNLAUNCHED SATELLITES.
--------------------------------------------
If the data available from a launched Satellite shows that Satellite
performance departs from that specified in Exhibits A and B as may
be modified pursuant to Section 9.3, Contractor shall, at its sole
cost, take appropriate corrective measures in all unlaunched
Satellites so as to eliminate therefrom the deficiencies noted in
the launched Satellite.
ARTICLE 26. RISK INSURANCE
--------------
26.1. Insurance.
---------
Contractor shall obtain insurance for each Satellite applicable from
Launch through Acceptance. Contractor shall use its best efforts to
obtain the insurer's written agreement to waive all rights of
subrogation against Purchaser and against Contractor's major
subcontractors. Contractor shall indemnify and hold harmless
Purchaser from and against all costs, expenses or losses of
Purchaser resulting, directly or indirectly, from any subrogation
action brought by the Satellite insurers.
49
<PAGE>
26.2. Risk Insurance Aspects.
----------------------
Contractor shall obtain risk insurance coverage [*****] (including
the amount that would be payable to Purchaser if it elects its
option under Section 33.2 hereof). In terms of replacing satellites,
the insurance policy [*****].
26.3. Third Party Indemnity Insurance.
-------------------------------
With respect to third party indemnity liability insurance for claims
arising out of the Launch of a Satellite, Contractor shall obtain
insurance that insures Purchaser against third party claims to the
same extent as Contractor is insured and such insurance proceeds
shall be Purchaser's sole compensation for third party claims
arising out of the Launch of a Satellite.
ARTICLE 27. INTER-PARTY WAIVER OF THIRD PARTY LIABILITY
-------------------------------------------
Purchaser, on behalf of itself and its officers, employees,
affiliates, agents, insurers, owners and customers, agrees to accept
the inter-party waiver and related indemnity provisions required by
the applicable Launch Services Agreement for a Launch. Copies of
these provisions will be furnished to Purchaser for review prior to
and upon execution of the Launch Services Agreement. In addition,
Purchaser agrees that, except as provided in Articles 10, 11, 13,
14, 19, 21, 22, 23 and 33 hereof, it will waive claims against
Contractor and its owners, officers, affiliates, subsidiaries,
employees, agents, insurers and suppliers at any tier arising out of
the defective or late performance or the nonperformance of the
Launch Services Agreement, unless such defective or late performance
or nonperformance is due solely to the gross negligence or willful
misconduct of Contractor.
50
<PAGE>
ARTICLE 28. ADDITIONAL SATELLITES OPTION
----------------------------
28.1. Additional Satellites.
---------------------
Purchaser may, at its option to be exercised in writing at any time
and as specified below, order Contractor to produce and deliver up
to three (3) additional Satellites substantially identical to the
Satellites being furnished pursuant to Article 3 hereof. The three
optional Satellites may be ordered [*****] after the Execution Date.
If ordered separately, each shall be delivered to the Launch Site
[*****] after Purchaser's exercise of this option. However, in no
event shall the first optional Satellite be deliverable [*****]
after the Delivery of the last Satellite to be furnished pursuant to
Article 3. Further, in no event shall Contractor be required to
deliver after Delivery of the preceding optional Satellite.
28.2. Option Prices.
-------------
The prices for the three optional Satellites are set forth in the
pricing schedule below. Prices are stated in [*****] and may be
adjusted by Contractor in accordance with Section 28.3 hereof if the
Execution Date does not occur prior to June 15, 1993.
<TABLE>
<CAPTION>
No. of Ordered Ordered
Satellites [*****] [*****]
Ordered After Execution After Execution
Date Date
-----------------------------------------------
<S> <C> <C>
[*****] [*****] [*****]
[*****] [*****] [*****]
[*****] [*****] [*****]
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
No. of Ordered
Satellites [*****]
Ordered After Execution
Date
-----------------------------
<S> <C>
[*****] [*****]
[*****] [*****]
[*****] [*****]
</TABLE>
This option may be exercised at different times within the [*****]
period specified above, for up to a total of [*****]. The per
satellite price is dependent upon the number of Satellites ordered
at any one time. The above option prices include all design,
manufacturing, tests, documentation, Orbital Performance Incentives,
Launch and placement into assigned orbital location, Launch Support,
Launch Vehicles, Mission Operating Support Services, In-Orbit
Testing, all shipping costs and transportation and launch risk
insurance.
28.3. Escalation.
----------
The prices set forth in this Article 28 shall be escalated from the
Execution Date to the date of order in accordance with the formula
below:
[*****]
where
[*****]
52
<PAGE>
[*****]
28.4. Payment Plan.
------------
If Purchaser elects to purchase additional Satellites under this
Article 28, Purchaser shall make payments to Contractor for such
Satellites in accordance with the payment plan set forth in
Attachment A. The total price for each additional Satellite
purchased under this Contract shall be payable [*****] payments, the
exact milestones of such payment plan may be mutually agreed to by
the Parties within thirty (30) days after Contractor's receipt of
Purchaser's notice of election of this option.
28.5. Terms and Conditions.
--------------------
In the event that the options provided for under this Article 28 are
exercised by Purchaser, the terms and conditions of this Contract
shall be applicable to the Satellites purchased pursuant to the
option.
ARTICLE 29. GROUND STATION EQUIPMENT OPTION
-------------------------------
29.1. Ground Station Equipment.
------------------------
Purchaser may, at its option to be exercised in writing up to six
(6) months after the Execution Date, order Contractor to produce and
deliver two (2) sets of satellite control facility equipment
(telemetry, command and ranging equipment and software) including
two (2) years of spares for delivery twenty-four (24) months after
exercise of this option, and training of Purchaser's personnel as
53
<PAGE>
provided for in Section 2.3.3 of Exhibit A ("Ground Station
Equipment"), to a location in the United States designated by
Purchaser. If Purchaser elects to exercise this option, Purchaser
shall diligently provide to Contractor any documentation with
respect to Purchaser's designated site reasonably required by
Contractor. The price for the delivery of the above Ground Station
Equipment and training as described in Exhibit A is [*****]. Payment
shall be made in accordance with the Payment Plan for this option
included in Attachment A.
29.2. Ground Station Equipment not Provided by Contractor.
---------------------------------------------------
In the event Purchaser elects to contract for ground station
equipment with an entity other than Contractor, Contractor shall be
obligated to provided coordination, requirements development,
training and support, to Purchaser and Purchaser's selected
contractor for a price and subject to terms and conditions mutually
agreeable to the Parties.
29.3. Options for Selected Ground Station Equipment.
---------------------------------------------
Purchaser may, at its option to be exercised in writing up to six
(6) months after the Execution Date, order Contractor to deliver up
to six (6) units of any of the below noted equipment, each unit at
the noted purchase price:
<TABLE>
<CAPTION>
Unit Price
----------
<S> <C>
[*****] [*****]
[*****] [*****]
[*****] [*****]
</TABLE>
54
<PAGE>
In addition, Purchaser may, at its option to be exercised in writing
up to six (6) months after the Execution Date, order Contractor to
produce and deliver satellite control facility (SCF) Software. The
price for the delivery of such software is [*****]. A short
description of requirements for each of the above items of equipment
is contained in Attachment G. Payment shall be made in accordance
with the Payment Plan (Unit Price) for these options included in
Attachment G. Prior to Purchaser's exercise of any of the options in
this Section 29.3, the Parties shall agree on detail requirements
and delivery schedule(s) and such information shall be reflected in
Purchaser's option exercise letter.
29.4. Terms and Conditions.
--------------------
In the event that the options provided for under this Article 29 are
exercised by Purchaser, the terms and conditions of this Contract
shall be applicable to the equipment purchased pursuant to the
options.
ARTICLE 30. SATELLITE LONG LEAD PARTS OPTION
--------------------------------
30.1. Satellite Long Lead Parts.
-------------------------
Purchaser, at its option to be exercised in writing [*****] after
the Execution Date, may direct Contractor to procure long lead parts
for any Satellite to be delivered hereunder (or any other satellite
ordered from time to time by Purchaser from Contractor), other than
Satellite No.1 and Satellite No. 2. The price for the long lead
parts is [*****] and payments shall be made in accordance with the
Payment Plan for this option included in Attachment A. If Purchaser
directs Contractor to use the long lead parts for a replacement
Satellite described in
55
<PAGE>
Section 10.4 hereof, the Delivery schedule for such replacement
Satellite shall be reduced from [*****]. If Purchaser directs
Contractor to use the long lead parts for an additional satellite
described in Article 28 hereof, the Delivery schedule for such
Satellite shall be reduced from [*****]. The direction of Purchaser
to use such parts for an additional Satellite ordered under Article
28 hereof shall not obligate Contractor to deliver such Satellite
[*****] after the Delivery of any other Satellite to be delivered
pursuant to Article 3 hereof.
30.2. Spare Parts.
-----------
If Purchaser elects to exercise the option in this Article 30, but
never orders an additional Satellite pursuant to Article 28 hereof,
and Contractor is not obligated to deliver a replacement Satellite,
Purchaser at its option may (i) direct Contractor to deliver the
parts to a delivery destination designated by Purchaser, (ii)
authorize Contractor to use all or any part of the parts, in which
event Contractor shall compensate Purchaser for the fair market
value of the parts it retains for its use or (iii) direct Contractor
to dispose of the parts as residual property in accordance with the
procedures described in Section 20.3 hereof.
30.3. Credit.
------
If Purchaser has exercised its option under this Article 30, and
Contractor uses the parts for an additional Satellite, Purchaser
shall be entitled to a [*****] credit against the purchase price of
such Satellite.
56
<PAGE>
ARTICLE 31. GROUND STORAGE OPTION
---------------------
31.1. Notification.
------------
Prior to the shipment of a Satellite to the Launch Site, Purchaser,
at its option to be exercised no later than [*****] to the projected
Delivery date of a Satellite, may direct Contractor to store a
Satellite [*****].
31.2. Storage Location.
----------------
Ground Storage shall be performed at a Contractor controlled
facility and shall be conducted in accordance with the Satellite
Storage Plan delivered to Purchaser pursuant to Annex 2 of Exhibit
A.
31.3. Storage Prices.
--------------
The price for Ground Storage of a Satellite shall be [*****] for the
Satellite verification tests to be conducted upon removal of the
Satellite from Ground Storage plus [*****] per month storage cost
while the Satellite is in Ground Storage.
31.4. Payments.
--------
If the Ground Storage option is exercised, the payment schedule
shall be as follows: the first monthly payment for Ground Storage
costs shall be due thirty (30) days after the date the Satellite is
stored and continuing monthly until Purchaser directs Contractor to
remove the Satellite from Ground Storage, conduct the verification
tests and ship the Satellite to the Launch Site. Payment for the
verification testing shall be due thirty (30) days after Purchaser's
receipt of Contractor's invoice for such testing. In addition,
Purchaser shall pay Contractor
57
<PAGE>
its reasonable actual out of the pocket costs for launch services
and insurance in excess of the costs Contractor would have incurred
if Purchaser had not directed Ground Storage of the Satellite.
Payments under this Article 31 shall be made by wire transfer as set
forth in Article 5 hereof.
31.5. Title and Risk of Loss.
----------------------
Title and risk of loss to a Satellite delivered for Ground Storage
shall remain with Contractor at the storage site and notwithstanding
the provisions of Article 15 hereof, Contractor shall assume full
responsibility for any loss or damage to the Satellite during Ground
Storage.
31.6. Notification of Intention to Launch a Previously Stored Satellite.
-----------------------------------------------------------------
Purchaser shall notify Contractor in writing that a Satellite in
Ground Storage should be removed from Ground Storage and delivered
on-orbit subject to the availability of a Launch Vehicle. This
notification must be received by Contractor [*****] prior to the
scheduled date for Delivery of the Satellite. Failure to notify
Contractor in a timely manner will result in an adjustment to the
Delivery schedule for such Satellite.
31.7. Orbital Performance Incentives.
------------------------------
In the event that Purchaser elects to exercise the Ground Storage
option provided in this Article 31, after direction from Purchaser
to place the Satellite in Ground Storage, Purchaser shall pay
interest to Contractor at a rate of LIBOR + 2% (30 day rate) per
annum on the amount of Orbital Performance Incentives specified in
Section 13.2 hereof for the period of Ground Storage. Following the
Delivery on-
58
<PAGE>
orbit of a previously stored Satellite, the provisions of Article 13
hereof shall apply to Contractor's right to be paid and earn Orbital
Performance Incentives.
31.8. Storage Period.
--------------
If a Satellite is stored for [*****], Contractor shall have no
further responsibility for that Satellite (except as provided in
Section 31.9 hereof) and Purchaser shall provide Contractor with
directions for delivery and disposition of the Satellite. Purchaser
shall pay Contractor the full amount of the Orbital Performance
Incentives specified in Article 13 hereof. Contractor shall refund
any Launch Vehicle costs less any costs associated with termination
of the Launch Services Agreement.
31.9. Stored Satellite Refurbishment.
------------------------------
For a Satellite stored for [*****], Purchaser may notify Contractor
of its desire to have such Satellite refurbished or to continue
ground storage. Within sixty (60) days after receipt of Purchaser's
notice electing refurbishment or continued ground storage,
Contractor shall provide Purchaser with (I) a plan for refurbishment
and a retest plan to recertify the Satellite as launch worthy or
(ii) a plan for continued ground storage, in either case together
with proposed adjustments to the applicable provisions of this
Contract.
31.10. Terms and Conditions.
--------------------
In the event that the options provided for under this Article 31 are
exercised by Purchaser, the terms and conditions of this Contract
shall be applicable to the services purchased pursuant to these
options.
59
<PAGE>
ARTICLE 32. STOP-WORK ORDER
---------------
32.1. Stop-Work Order.
---------------
Purchaser may, at any time, by written order to Contractor, require
Contractor to stop all, or any part, of the work called by this
Contract for a period of [*****] after the order is delivered to
Contractor, and for any further period to which the Parties may
agree. The order shall be specifically identified as a stop-work
order issued under this Article 32 and the work to be stopped will
also be identified. Upon receipt of the stop-work order, Contractor
shall immediately comply with its terms and take all reasonable
steps to minimize the incurrence of costs allocable to the work
covered by the order during the period of stop-work order. If the
Purchaser anticipates the issuance of a stop-work order, the
Purchaser may so notify Contractor and, after receiving the
requisite information concerning the anticipated length of delay and
the work to be delayed, Contractor shall provide an estimate of the
claim that would be asserted pursuant to Section 32.3 hereof.
32.2. Resumption of Work.
------------------
If Purchaser cancels the stop-work order within a [*****] after the
stop-work order is delivered to Contractor, or within any extension
of that period to which the Parties shall have agreed, Contractor
shall resume work. In the event a stop-work order is issued under
this Article 32 and the period of the order or any extension thereof
expires, then Contractor shall resume work.
60
<PAGE>
32.3. Stop Work Order Claims.
----------------------
Purchaser shall make an equitable adjustment in the delivery
schedule or contract price, or both and this Contract shall be
modified, in writing, if the stop-work order results in an impact to
the delivery schedule, or in Contractor's cost. Contractor shall
assert its rights to an adjustment within sixty (60) days, or any
extension to which the Parties have agreed, after the end of the
period of work stoppage.
ARTICLE 33. TERMINATION IN THE EVENT OF TWO SUCCESSIVE SATELLITE FAILURES
-------------------------------------------------------------
(OPTION)
--------
33.1. Notice of Option.
----------------
Purchaser, within [*****] after the Execution Date, may exercise an
option to terminate this Contract as provided in this Article 33. As
consideration for this option, Purchaser shall pay Contractor
[*****] in accordance with the Payment Plan set forth in Attachment
A.
33.2. Termination.
-----------
If Purchaser exercises the option and pays the amount specified in
Section 33.1 hereof, then in the event of two successive Satellite
Failures, Purchaser may within thirty (30) days after the second
Satellite Failure terminate this Contract by giving written notice
of termination to Contractor; provided, however, that the [*****]
Satellite described in Section 10.4 hereof shall commence on the
earlier of (I) the date of Purchaser's notice that it is not
terminating this Contract hereunder or (ii) the expiration of the
[*****] period.
33.3. Rebate of Payments.
------------------
61
<PAGE>
Within ninety (90) days of receipt of a notice of termination
pursuant to Section 33.2 hereof, Contractor shall rebate to
Purchaser the price of the relevant undelivered Satellites as set
forth in Section 4.1 hereof, less any amount of the price of the
relevant undelivered Satellite unpaid by Purchaser and less the
amount of any unpaid Orbital Performance Incentive. Any expense
incurred by Contractor in performing its obligation to replace
Satellites No. 1 and No. 2 shall be settled in accordance with
Article 20 hereof.
33.4. Non-Election
------------
If Purchaser does not elect the option described in Section 33.1
hereof, in the event of two successive Satellite Failures, Purchaser
may terminate this Contract and receive for the relevant undelivered
Satellite a rebate equal to the insurance proceeds less any amount
of the unpaid purchase price for the relevant undelivered Satellite.
Any expense incurred by Contractor in performing its obligations to
replace Satellites No. 1 and No. 2 shall be settled in accordance
with Article 20 hereof.
33.5. Sole Remedy.
-----------
If Purchaser terminates this Contract pursuant to this Article 33,
Contractor's rebate of the relevant undelivered Satellite price
pursuant to this Article 33 shall be the sole compensation to
Purchaser in the event of two successive Satellite Failures.
62
<PAGE>
ARTICLE 34. LAUNCH VEHICLE COST SHARING OPTION
----------------------------------
34.1. Launch on a PROTON Launch Vehicle.
---------------------------------
The Firm Fixed Price specified in Section 4.1 hereof contemplates
the Launch of one Satellite on an [*****] Launch Vehicle and the
Launch of one Satellite on an [*****] Launch Vehicle for Satellites
No. 1 and No. 2. In the event Contractor and Purchaser mutually
agree to replace either Launch Vehicle with a launch on a [*****]
Launch Vehicle, the price set forth in Section 4.1 hereof for the
relevant Satellite, shall be reduced by an amount [*****] of the
amount by which the price of the [*****] Launch is less than the
price of the replaced [*****] Launch. The price reduction stated
herein shall be offset by [*****] of any additional actual and
reasonable direct costs incurred by Contractor associated with the
Launch on a [*****] Launch Vehicle.
34.2. Calculation of Price Reduction.
------------------------------
For purposes of determining the price reduction in Section 34.1
hereof, the price basis [*****].
ARTICLE 35. OPTION FOR ALTERNATE ORBITAL LOCATIONS
--------------------------------------
35.1. Alternate Delivery Location.
---------------------------
Purchaser, at no additional cost, may direct, at any time [*****]
after Execution Date that the place of delivery of either Satellite
No.1 or Satellite No. 2 be changed to a geostationary longitude
Delivery location other than that specified in Section 3.1 hereof.
Any alternative geostationary longitude Delivery location
63
<PAGE>
selected by Purchaser must be authorized by the FCC or other
appropriate governmental authority.
35.2. Option.
------
Purchaser may, at its option to be exercised [*****] after the
Execution Date, advise Contractor, in writing, that Purchaser will
select an additional specific geostationary longitude Delivery
location for either or both of the two Satellites as provided in
this Article 35. It is understood by the Parties that Contractor's
antenna design and fabrication effort to accommodate an additional
Delivery location will be conducted in parallel to the basic design
until such time as Purchaser notifies Contractor, in writing, of the
final selection of the Delivery location.
35.3. Option Price.
------------
In the event that Purchaser decides to exercise the option pursuant
to Section 35.2 above, Purchaser shall have up to [*****] after the
Execution Date to specify the selected Delivery location. The prices
noted below are a function of when Purchaser finally selects the
Delivery location of either or both of the two (2) Satellites.
64
<PAGE>
<TABLE>
<CAPTION>
[*****] [*****] [*****]
Months After Months After Months After
Execution Execution Date Execution Date
Date
----------------------------------------------
<S> <C> <C> <C>
Per [*****] [*****] [*****]
Satellite:
- ----------
Both Satellites [*****] [*****] [*****]
(within 4 degrees of
each other)
- -----------
</TABLE>
35.4. Payment Plan.
------------
The payment plan for this option is contained in Attachment A.
35.5. Terms and Conditions.
--------------------
In the event the option provided for under this Article 35 is
exercised by the Purchaser, the terms and conditions of this
Contract shall apply.
ARTICLE 36. SATELLITE SIMULATOR OPTION
--------------------------
36.1 Satellite Simulator and Training.
--------------------------------
Purchaser, at its option to be exercised in writing [*****] after
the Execution Date, may order Contractor to produce and deliver a
Satellite Simulator to a location in the United States designated by
Purchaser within twenty-four (24) months after exercise of the
option described in this Article 36. As part of this option,
Purchaser may direct Contractor to train Purchaser's personnel and
consultants as provided for in Exhibit A at the location designated
by Purchaser contemporaneously with delivery of the Satellite
Simulator. Subsequent to the completion of the Contractor's warranty
obligations pursuant to Article 15 hereof,
65
<PAGE>
Contractor shall repair the Satellite Simulator for [*****] years at
cost. Such repair costs will be invoiced to Purchaser for payment
pursuant to the provisions of section 5.2 hereof. Subsequent to the
one (1) year warranty period, Purchaser shall pay the transportation
costs for return of the Satellite Simulator to Contractor as well as
its return to Purchaser after repair.
36.2. Price.
-----
For the delivery of the Satellite Simulator and training of
Purchaser's personnel and consultants, Purchaser shall pay
Contractor [*****]. The payment plan for this option, exclusive of
repair costs, is contained in Attachment A hereto.
36.3. Terms and Conditions.
--------------------
In the event that the option provided for under this Article 36 is
exercised by Purchaser, the terms and conditions of this Contract
shall be applicable to the Satellite Simulator purchased pursuant to
this option.
ARTICLE 37. DISCLOSURE AND HANDLING OF PROPRIETARY INFORMATION
--------------------------------------------------
The Parties recognize that in the performance of obligations under
this Contract, it may be necessary to exchange selected company
proprietary, competition sensitive or trade secret information
(hereinafter referred to as "Proprietary Information"). For this
purpose, the Parties have executed a Non-Disclosure Agreement which
is identified as, and attached to this Contract as, Attachment B.
The confidentiality obligations imposed on the Parties with regard
to data provided under this Contract shall survive the termination,
for whatever reason, of this Contract in accordance with the
requirements of Attachment B.
66
<PAGE>
ARTICLE 38. RIGHTS IN DATA
--------------
38.1. Deliverable Data.
----------------
Contractor shall retain all rights, title and interest in any
Contractor data utilized or developed by Contractor during the
performance of this Contract. Purchaser's officers, directors,
agents, affiliates, employees, consultants and representatives shall
have the nonexclusive right to use the Deliverable Data for the
purpose of establishing, operating and maintaining the TEMPO Direct
Broadcast Satellite System and for no other purpose. Purchaser's
officers, directors, agents, affiliates, employees, consultants, and
representatives shall not disclose Deliverable Data to other
companies, organizations or persons without the express written
consent of Contractor.
38.2. Other Data.
----------
All other non-proprietary data marked confidential to which
Purchaser may have access to in the course of Contractor's
performance of this Contract shall remain the property of Contractor
or its subcontractors and shall not be duplicated, used, or
disclosed to persons other than Purchaser's officers, directors,
agents, affiliates, employees, consultants or representatives and
shall be used solely to assist Purchaser in establishing, operating
and maintaining the TEMPO Direct Broadcast Satellite System.
67
<PAGE>
38.3. No Additional Obligation.
------------------------
Nothing contained in this Article 38 shall require Contractor to
provide any data beyond that set forth in Exhibit A.
ARTICLE 39. AUTHORITY OF PURCHASER REPRESENTATIVE
-------------------------------------
No request, notice, authorization, direction or order received by
Contractor and issued either pursuant to an article of this
Contract, to a provision of any document incorporated in this
Contract by reference, or otherwise, shall be binding upon either
Contractor or Purchaser, unless issued or confirmed in writing by,
Purchaser or by its authorized representative. Designations of
authorized representatives (i) shall be in writing, signed by
Purchaser's executive, and (ii) shall define the scope and
limitations of the authorized representatives' authorities. A copy
of each such designation and of each modification or cancellation
thereof, shall be furnished to Contractor. Contractor shall
immediately notify, in writing, Purchaser or its authorized
representative whenever a request, notice, authorization, direction
or order has been received from a representative of Purchaser other
than David P. Beddow or his authorized representative, which, by the
lack of authorization on the part of the issuing Purchaser's
representative, would require an amendment to this Contract within
the meaning of this Article 39, or an increase in the contract
amount or amount allotted to this Contract, or which, but for such
lack of authorization, would otherwise be the basis for a
modification of the Statement of Work, delivery or performance
schedule, price or any other terms and conditions of this Contract.
68
<PAGE>
ARTICLE 40. PUBLIC RELEASE OF INFORMATION
-----------------------------
Within a reasonable time prior to the issuance of news releases,
articles, brochures, advertisements, prepared speeches and other
information releases concerning the work performed hereunder by
Contractor, a subcontractor or any employee or a consultant of
either, Contractor shall obtain the written approval of Purchaser
concerning the content and timing of such releases. Purchaser's
approval will not be unreasonably delayed or denied.
ARTICLE 41. NOTICES
-------
41.1. Written Notification.
--------------------
Any notice(s) or correspondence required or permitted to be given or
made hereunder shall be in writing (except where oral notice is
specifically authorized). Wherever one Party is required or
permitted to give written notice to the other pursuant to this
Contract, such notice(s) shall be deemed to be duly given on the
earliest of (i) actual receipt, irrespective of whether sent by
post, telex, cable, facsimile transmission (followed by mailing of a
hard copy), overnight courier or other method, or (ii) on the
seventh (7th) day after the mailing by registered or certified mail,
return receipt requested, postage prepaid and addressed as follows:
In the case of Purchaser: TEMPO Satellite, Inc.
c/o Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000
Attn: Mr. David Beddow
Telecopy No.: (303) 488-3217
With a separately
delivered copy to: Purchaser's legal department.
69
<PAGE>
And a separately
delivered copy to: PRIMESTAR Partners, L.P.
100 North Presidential Blvd.
Bala Cynwyd, PA 19004
Attn: General Counsel
Telecopy No.: (215) 660-6112
In the case of Contractor: Space Systems/LORAL
3825 Fabian Way
Palo Alto, CA 94303-4697
Attn: TEMPO Contract Manager
Telecopy No.: (415) 852-5656
Alternate: Daniel E. Collins
Telecopy No.: (415) 852-5656
41.2. Change of Address.
-----------------
Either Party from time to time may change its notice address and/or
the Parties to be notified by giving the other Party written notice
(as provided above) of the new address and/or Parties and the date
upon which the change shall become effective.
ARTICLE 42. ORDER OF PRECEDENCE
-------------------
In the event of conflict between this Contract and the Exhibits
hereto, the following order of decreasing precedence shall apply:
. Contract
. Exhibit A
. Exhibit B
. Exhibit C
. Exhibit D
70
<PAGE>
ARTICLE 43. GENERAL
-------
43.1. Limitation of Liability.
------------------------
NEITHER PARTY SHALL BE LIABLE DIRECTLY OR INDIRECTLY TO THE OTHER OR
TO PERMITTED ASSIGNEES OR SUCCESSOR OWNERS OF THE SATELLITE (S) FOR
ANY AMOUNTS (INCLUDING ANY SUCH AMOUNTS CLAIMED BY THIRD PARTIES)
REPRESENTING LOSS OF PROFITS, LOSS OF BUSINESS, OR INDIRECT,
SPECIAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES (EXCLUDING ANY
DAMAGES FOR WHICH CONTRACTOR BECOMES OBLIGATED TO INDEMNIFY
PURCHASER PURSUANT TO ARTICLE 18 WHICH DAMAGES ARE OF A TYPE
TYPICALLY AWARDED FOR INTELLECTUAL PROPERTY CLAIMS TO COMPENSATE
CLAIMANT FOR THE VALUE OF THE USE OF INTELLECTUAL PROPERTY AT ISSUE,
INCLUDING LOST ROYALTIES OR LICENSE FEES), ARISING FROM THE
PERFORMANCE OR NONPERFORMANCE OF THIS CONTRACT OR ANY ACTS OR
OMISSIONS ASSOCIATED THEREWITH OR RELATED TO THE USE OF ANY ITEMS OR
SERVICES FURNISHED HEREUNDER, WHETHER THE BASIS OF THE LIABILITY IS
BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT
LIABILITY), STATUTES OR ANY OTHER LEGAL THEORY, UNLESS SUCH ACT OR
OMISSION ARISES FROM THE NON-CLAIMING PARTY'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT. PURCHASER
71
<PAGE>
SHALL USE ITS BEST EFFORTS, WHEN NEGOTIATING AGREEMENTS WITH
SATELLITE USERS AND OTHER PARTIES HAVING A FINANCIAL INTEREST IN THE
OPERATION AND USE OF THE SATELLITES, TO OBTAIN SUCH PARTY'S
AGREEMENT TO AN EQUIVALENT LIMITATION OF LIABILITY WITH RESPECT TO
CONTRACTOR AND ITS SUBCONTRACTORS AND SUPPLIERS AT ANY TIER;
PROVIDED, HOWEVER, THAT PURCHASER SHALL HAVE NO LIABILITY TO
CONTRACTOR FOR PURCHASER'S FAILURE TO OBTAIN SUCH LIMITATIONS OF
LIABILITY.
43.2. Binding Effect; Assignment.
--------------------------
This Contract shall be binding on and inure to the benefit of the
Parties and their respective successors and assigns. Except as
otherwise provided herein, this Contract may not be assigned, either
in whole or in part, by either Party without the express written
approval of the other Party; provided that such approval shall not
be unreasonably withheld and provided further that this Section 43.2
does not restrict Contractor from utilizing subsidiaries, its other
divisions or stockholder companies to manufacture subsystems or
components of the Satellites or other hardware, nor does it restrict
Purchaser from assigning this Contract to any entity that, directly
or indirectly, controls, is controlled by or is under common control
with Purchaser. Either Party may assign security interests in their
respective rights hereunder to lenders that provide financing for
the performance by such Party under this Contract. In the event
either Party is sold to or merged into
72
<PAGE>
another company, its responsibilities under this Contract shall not
be altered and the successor shall become liable for performance of
this Contract.
43.3. Severability.
------------
If any provision of this Contract is declared or found to be
illegal, unenforceable or void, the Parties shall negotiate in good
faith to agree upon a substitute provision that is legal and
enforceable and is as nearly as possible consistent with the
intentions underlying the original provision. If the remainder of
this Contract is not materially affected by such declaration or
finding and is capable of substantial performance, then the
remainder shall be enforced to the extent permitted by law.
43.4. Waiver.
------
No delay or omission by either Party to exercise any right or power
shall impair any such right or power or be construed to be a waiver
thereof. No payment of money by any person or entity shall be
construed as a waiver of any right or power under this Contract. A
waiver by any Party of any of the covenants, conditions or contracts
to be performed by the other or any breach thereof shall not be
construed to be a waiver of any succeeding breach thereof or of any
other covenant, condition or contract herein contained. No change,
waiver or discharge hereof shall be valid unless in writing and
signed by an authorized representative of the Party against which
such change, waiver or discharge is sought to be enforced.
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<PAGE>
43.5. Intentionally Omitted.
---------------------
43.6. Gender; Captions.
----------------
As used herein, the singular shall include the plural and the plural
may refer to only the singular. The use of any gender shall be
applicable to all genders. The use of any gender shall be applicable
to all genders. The captions contained herein are for purposes of
convenience only and are not a part of this Contract.
43.7. Relationships of the Parties.
----------------------------
It is expressly understood that Contractor, on the one hand, and
Purchaser, on the other hand, intend by this Contract to establish
the relationship of independent contractors, and do not intend to
undertake the relationship of principal and agent or to create a
joint venture or partnership between them or their respective
successors in interests. Neither Contractor, on the one hand, nor
Purchaser, on the other hand, shall have any authority to create or
assume, in the name or on behalf of the other Party, any obligation,
expressed or implied, nor to act or purport to act as the agent or
the legally empowered representative of the other Party hereto for
any purpose whatsoever.
43.8. Amendment.
---------
Any modification, amendment or change to this Contract shall become
effective only upon the execution in writing by the Parties of an
amendment to this Contract setting forth such modification,
amendment or change.
74
<PAGE>
43.9. Entire Agreement.
----------------
This Contract, including all Exhibits and Attachments hereto,
represents the entire understanding and agreement between the
Parties hereto with respect to the subject matter hereof, supersedes
all prior negotiations and agreements with respect to the subject
matter hereof, and can be modified, amended, supplemented or changed
only by an agreement in writing which makes specific reference to
this Contract and which is signed by both Contractor and Purchaser.
43.10. Standard of Conduct.
-------------------
Both Parties agree that all their actions in carrying out the
provisions of this Contract shall be in compliance with applicable
laws and regulations and neither Party will pay or accept bribes,
kickbacks or other illegal payments, or engage in unlawful conduct.
43.11. Construction.
------------
This Contract, the Exhibits and the Attachments hereto have been
drafted jointly by the Parties and in the event of any ambiguities
in the language hereof, there shall be no inference drawn in favor
or against either Party.
43.12. "Including".
---------
Whenever the terms "including" or "include" are used in this
Contract in connection with a list of items within a particular
classification (whether or not the term is followed by the phrase
"but not limited to" or words of similar effect), that list shall be
interpreted to be illustrative only, and shall not be interpreted as
a limitation on, or an exclusive list of, the items within that
classification.
75
<PAGE>
43.13. Counterparts.
------------
This Contract may be signed in any number of counterparts with the
same effect as if the signature(s) on each counterpart were upon the
same instrument.
43.14. Applicable Law.
--------------
This Contract shall be interpreted, construed and governed, and the
rights of the Parties shall be determined, in all respects,
according to the laws of the State of New York.
43.15. Survival.
--------
Termination or expiration of this Contract for any reason shall not
release either Party from any liabilities or obligations set forth
in this Contract which (i) the Parties have expressly agreed shall
survive any such termination or expiration, including the
obligations in Articles 13, 14, 15, 18, 19, 26, 27, 37 and 38 or
(ii) remain to be performed or by their nature would be intended to
be applicable following any such termination or expiration.
ARTICLE 44. ATTACHMENTS
-----------
The following Attachments are incorporated in this Contract:
Attachment A Payment Plan
B Non-Disclosure Agreement
C Termination Liability Schedule
D Form of Limited Guaranty (BSS)
E Form of Parental Guaranty (Contractor)
76
<PAGE>
F RF Equipment for BSS Satellite In-Orbit Test to be
Provided by Purchaser
G Ground Station Equipment
IN WITNESS THEREOF, the Parties have executed this Contact as of the Execution
Date.
SPACE SYSTEMS/LORAL, INC. TEMPO SATELLITE, INC.
_________________________ ____________________________
Title: President Title: _____________________
Date: _____________ Date: ______________
77
<PAGE>
CONTRACT AMENDMENT NO. 5
TO
CONTRACT NO. TPO-1-290
BETWEEN
TEMPO SATELLITE, INC.
AND
SPACE SYSTEMS/LORAL, INC.
FOR
TEMPO DIRECT BROADCAST SATELLITE SYSTEM (DBSS)
THIS CONTRACT AMENDMENT NO. 5 (the "Amendment") is entered into effective
as of the 30th day of July, 1993 between TEMPO SATELLITE, INC. (the "Purchaser")
and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No. TPO-1-290
dated February 22, 1990, as amended by the parties thereto, most recently
pursuant to Contract Amendment No. 4 dated as of July 19, 1993 (as so amended,
the "Contract").
WHEREAS, Contractor and Purchaser desire to further amend the Contract.
NOW, THEREFORE, in consideration of the mutual covenants and conditions in
this Amendment and in the Agreement, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. The following Paragraph 20.5 is hereby added to the Contract:
--------------
20.5 Payment Default Certificate From PRIMESTAR Partners, L.P. In the
---------------------------------------------------------
event Contractor receives a certificate and termination notice from
PRIMESTAR Partners, L.P. ("PRIMESTAR") substantially in the form of
Attachment I attached to this Contract (the "Certificate"), Purchaser shall
------------
be deemed to have duly elected to terminate this Contract in its entirety
pursuant to this Article 20, without further action by Contractor,
Purchaser, PRIMESTAR or any other party, effective as of the date
Contractor receives such Certificate. In such event, Contractor shall
transfer all right, title and interest in and to assets, in the manner
required in this Article 20, to PRIMESTAR in lieu of Purchaser, make all
payments to be made by Contractor under this Article 20 to PRIMESTAR in
lieu of Purchaser, and shall perform all of its other obligations under
this Article 20 for the benefit of PRIMESTAR in lieu of Purchaser, in all
cases as if PRIMESTAR were substituted for Purchaser under this Article 20,
all pursuant to any directions thereafter provided by PRIMESTAR (to the
extent such directions do not conflict with this Article 20).
1
<PAGE>
2. The provisions of this Amendment may not be terminated or modified
except upon the execution in writing by the Parties and by PRIMESTAR of a
document setting forth such termination or modification. Purchaser and
Contractor acknowledge that PRIMESTAR has the right to enforce the provisions of
this Amendment.
3. The form of Certificate attached to this Amendment as Exhibit A is
---------
hereby added to the Contract as Attachment I thereto.
------------
4. All capitalized terms in this Amendment, not otherwise defined
herein, shall have the meanings ascribed to them in the Contract.
5. The Contract, as modified by the express terms of this Amendment, is
hereby ratified and affirmed by Purchaser and Contractor, and shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the date first above written.
PURCHASER:
TEMPO SATELLITE, INC.
By: ___________________________________
Gary S. Howard
Vice President
CONTRACTOR:
SPACE SYSTEMS/LORAL, INC.
By: ___________________________________
Name: C.P.DeWitt
-----------------------------------
Title: Vice President
-----------------------------------
Finance & Administration
-----------------------------------
2
<PAGE>
CONTRACT AMENDMENT NO. 6
TO
CONTRACT NO. TPO-1-290
BETWEEN
TEMPO SATELLITE, INC.
AND
SPACE SYSTEMS/LORAL, INC.
FOR
TEMPO DIRECT BROADCAST SATELLITE SYSTEM (DBSS)
THIS CONTRACT AMENDMENT NO. 6 (the "Amendment") is entered into effective
as of the 7th day of September, 1993 between TEMPO SATELLITE, INC. (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No. TPO-1-290
dated February 22, 1990, as amended by the parties thereto, most recently
pursuant to Contract Amendment No. 5 dated as of July 30, 1993 (as so amended,
the "Contract").
WHEREAS, Contractor and Purchaser desire to further amend the Contract.
NOW, THEREFORE, in consideration of the mutual covenants and conditions in
this Amendment and in the Agreement, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. The pages from Exhibit B-2 to the Contract, attached to this Amendment
-----------
as Exhibit A and incorporated herein by reference, are hereby substituted for
---------
existing pages in Exhibit B-2, in their entirety, as follows:
-----------
<TABLE>
<CAPTION>
Existing Pages Substituted Pages (Attached)
-------------- ----------------------------
<S> <C>
1-3 1-3
3-3 3-3
3-5 3-5 and 3-5a
3-9 3-9 and 3-9a
3-19 3-19
3-20 3-20
</TABLE>
1
<PAGE>
2. All capitalized terms in this Amendment, not otherwise defined herein,
shall have the meanings ascribed to them in the Contract.
3. The Contract, as modified by the express terms of this Amendment, is
hereby ratified and affirmed by Purchaser and Contractor, and shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the date first above written.
PURCHASER:
TEMPO SATELLITE, INC.
By: __________________________________
Name: David P. Beddow
----------------------------------
Title: Vice President
----------------------------------
CONTRACTOR:
SPACE SYSTEMS/LORAL, INC.
By: ___________________________________
Name: C.P.DeWitt
-----------------------------------
Title: Vice President
-----------------------------------
Finance & Administration
-----------------------------------
2
<PAGE>
CONTRACT AMENDMENT NO. 7
TO
CONTRACT NO. TPO-1-290
BETWEEN
TEMPO SATELLITE, INC.
AND
SPACE SYSTEMS/LORAL, INC.
FOR
TEMPO DIRECT BROADCAST SATELLITE SYSTEM (DBSS)
THIS CONTRACT AMENDMENT NO. 7 (the "Amendment") is entered into effective
as of the 14th day of October, 1993 between TEMPO SATELLITE, INC. (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No. TPO-1-290
dated February 22, 1990, as amended by the parties thereto, most recently
pursuant to Contract Amendment No.6 dated as of September 7, 1993 (as so
amended, the "Contract").
WHEREAS, Contractor and Purchaser desire to further amend the Contract.
NOW, THEREFORE, in consideration of the mutual covenants and conditions in
this Amendment and in the Agreement, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Pointing Accuracy Specification Amendments. Page 2-3 from Exhibit B-2
------------------------------------------ -----------
to the Contract, attached to this Amendment as Exhibit A and incorporated herein
---------
by reference, is hereby substituted for the existing Page 2-3 in Exhibit B-2 in
-----------
its entirety.
2. Defined Terms. All capitalized terms in this Amendment, not otherwise
-------------
defined herein, shall have the meanings ascribed to them in the Contract.
3. Ratification and Affirmation. The Contract, as modified by the
----------------------------
express terms of this Amendment, is hereby ratified and affirmed by Purchaser
and Contractor, and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the date first above written.
1
<PAGE>
PURCHASER:
TEMPO SATELLITE, INC.
By: ___________________________________
Name: David P. Beddow
-----------------------------------
Title: Vice Predisent
-----------------------------------
CONTRACTOR:
SPACE SYSTEMS/LORAL, INC.
By: ___________________________________
Name: C.P. DeWitt
-----------------------------------
Title: Vice President
-----------------------------------
Finance & Administration
-----------------------------------
2
<PAGE>
CONTRACT AMENDMENT NO. 8
TO
CONTRACT NO. TPO-1-290
BETWEEN
TEMPO SATELLITE, INC.
AND
SPACE SYSTEMS/LORAL, INC.
FOR
TEMPO DIRECT BROADCAST SATELLITE SYSTEM (DBSS)
THIS CONTRACT AMENDMENT NO. 8 (the "Amendment") is entered into effective
as of the 17th day of June, 1994, between TEMPO SATELLITE, INC. (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No. TPO-1-290
dated February 22, 1990, as amended by the parties thereto, most recently
pursuant to Contract Amendment No. 7 dated as of October 14, 1993 (as so
amended, the "Contract").
WHEREAS, Contractor and Purchaser desire to further amend the Contract.
NOW, THEREFORE, in consideration of the mutual covenants and conditions in
this Amendment and in the Agreement, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Exhibit B-2 Substitution. Exhibit B-2 to the Contract (the "Old
------------------------ -----------
Exhibit B-2") is hereby deleted in its entirety, and replaced with the version
- -----------
of Exhibit B-2 attached to this Amendment as Exhibit A and incorporated herein
----------- ---------
by reference (the "New Exhibit B-2").
-----------
2. Description of Exhibit B-2 Changes. Without limiting the generality
----------------------------------
of the Exhibit B-2 substitution contemplated in Paragraph 1 of this Amendment,
----------- -----------
the following describes certain features of New Exhibit B-2 that differ from Old
-----------
Exhibit B-2:
- -----------
<TABLE>
<CAPTION>
PAGE NUMBERS IN
FEATURES IN NEW EXHIBIT B-2 NEW EXHIBIT B-2
--------------------------- ---------------
<S> <C> <C>
a. Incorporates a separate receive antenna to the BSS 1-1, 1-2 and 1-3
spacecraft to maintain the EIRP and G/T
specification.
b. Revises the command receiver to operate at both 5-1(b), 5-1(c), 5-5
17GHz and 14GHz for the BSS spacecraft. and 5-6
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBERS IN
FEATURES IN NEW EXHIBIT B-2 NEW EXHIBIT B-2
--------------------------- ---------------
<S> <C> <C>
c. Modifies the TT&C antenna system to incorporate 5-1(b) and 5-4
wider angled omni antennas for the BSS spacecraft.
d. Incorporates TT&C coverage on the communication 1-2, 1-3, 5-1, 5-1(a),
receive antenna on the BSS spacecraft. 5-1(b), 5-5 and 5-5(a)
e. Revises performance of Channel 2 frequency 3-19, 3-19(a), 3-20
response and group delay on the BSS spacecraft to and 3-20(a)
incorporate the directional filter required for the
TT&C.
f. Adds block diagram defining the new TT&C design 5-1(b)
for the BSS spacecraft.
g. Assigns TT&C frequencies for the BSS spacecraft 5-1(c), 5-4 and 5-6
and revises the frequency plan.
h. Revises the on-axis EIRP for the telemetry beacon to 5-4
7dBW left hand circular polarization for the BSS
spacecraft, and revises the edge of coverage EIRP to
3dBW.
i. Revises the command uplink saturated flux density to 5-1 and 5-5
minus 91.8 dBW/m/2/ using the on-axis
communication receive antenna, and revises the
TT&C to ranging saturated flux density to minus 87
dBW/m/2/ using the on-axis communication receive
antenna.
j. Incorporates a specification to adjust, by ground 5-3 and 5-6
command, for aging variations of the command
receive center frequency on the BSS spacecraft.
k. Incorporates a specification to enable or disable, by 5-6
ground command, the command receiver AFC
functions on the BSS spacecraft.
l. Revises the command receiver to bit detector 5-1b and 5-6
interface to include switches in the cross-strap
connection.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBERS IN
FEATURES IN NEW EXHIBIT B-2 NEW EXHIBIT B-2
--------------------------- ---------------
<S> <C> <C>
m. Revises the TWTA redundancy switch arrangement 1-2
to include redundancy of channel amplifiers as shown
in payload block diagram in Figure 1.2.
n. Revises specification to provide compatibility with 1-1 and 2-1
Proton launch vehicle.
o. Revises EIRP city tables to incorporate optimization 3-6 and 3-10
of polygon EIRP values and revises city EIRP values
in accordance with final polygon EIRP.
p. Revises communications frequency plan to include 3-4
TT&C frequencies.
q. Revises the block diagram of payload gain 3-2
distribution, Figure 3-1, for proper levels.
r. Revises the allowable variation in SFD between any 3-16
two transponders in the event of two failed receivers
on the same equipment deck from 3.7dB to 4.2dB.
s. Revises the allowable AM/PM conversion 3-21, 3-21a
specification.
t. Revises telemetry transmitter specification to 5-4
incorporate from one to three subcarriers, selectable
by ground command.
u. Incorporates a loop stress voltage in the telemetry 5-6
for monitoring tuning of the command receiver
center frequency.
v. Defined the demarcation for transponder input and 3-1a
output sections.
w. Updated contents, illustrations and tables. iii, iv, vi
</TABLE>
The foregoing descriptions of New Exhibit B-2 are solely for ease of reference.
-----------
In the event of any inconsistency between the descriptions of New Exhibit B-2
-----------
set forth in this Paragraph 2, and New Exhibit B-2, the language in New Exhibit
----------- ----------- -------
B-2 shall govern.
- ---
3. Defined Terms. All capitalized terms in this Amendment, not otherwise
-------------
defined herein, shall have the meanings ascribed to them in the Contract.
3
<PAGE>
4. Ratification and Affirmation. The Contract, as modified by the
----------------------------
express terms of this Amendment, is hereby ratified and affirmed by Purchaser
and Contractor, and shall remain in full force and effect.
5. Counterparts. This Amendment may be executed in one or more
------------
counterparts, all of which taken together shall constitute the Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the date first above written.
PURCHASER:
TEMPO SATELLITE, INC.
By: ___________________________________
Name: David P. Beddow
Title: Vice President
CONTRACTOR:
SPACE SYSTEMS/LORAL, INC.
By: ___________________________________
Name: C.P.DeWitt
Title: Vice President,
Finance & Administration
4
<PAGE>
CONTRACT AMENDMENT NO. 9
TO
CONTRACT NO. TPO-1-290
BETWEEN
TEMPO SATELLITE, INC.
AND
SPACE SYSTEMS/LORAL, INC.
FOR
TEMPO DIRECT BROADCAST SATELLITE SYSTEM (DBSS)
THIS CONTRACT AMENDMENT NO. 9 (the "Amendment") is entered into effective
as of the 15th day of July, 1994, between TEMPO SATELLITE, INC. (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No. TPO-1-290
dated February 22, 1990, as amended by the parties thereto, most recently
pursuant to Contract Amendment No. 8 dated as of June 17, 1994 (as so amended,
the "Contract").
WHEREAS, Contractor and Purchaser desire to further amend the Contract.
NOW, THEREFORE, in consideration of the mutual covenants and conditions in
this Amendment and in the Contract, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Launch Vehicles. Notwithstanding any provision in Section 34.1 or
--------------- ------------
elsewhere in the Contract to the contrary, the [*****] Launch Vehicle is hereby
replaced with a launch on a [*****] Launch Vehicle, with no resulting reductions
or other modifications to the price set forth in Section 4.1.
-----------
2. Dual Path. At all times during the term of the Contract prior to and
---------
including the Dual Path Termination Date (as hereinafter defined), Contractor,
at Contractor's sole expense, shall maintain a dual path to support the
construction, launch and delivery of satellites and the delivery of ground
equipment and services contemplated in Contract No. TPO-1-693 dated July 19,
1993 (the "FSS Contract"), between Contractor and Purchaser, and shall otherwise
take any and all actions necessary to timely fulfill all of Contractor's
obligations under the FSS Contract as if the FSS Contract were in full force and
effect, simultaneously with the performance of Contractor's obligations under
the Contract. For the purposes of the Contract and this Amendment, "Dual Path
Termination Date" shall be defined as the date that is the earlier to occur of
the following: (i) July 31, 1994; (ii) the date that the FSS Contract actually
becomes effective pursuant to Section 1.2 thereof; or (iii) any transfer of work
-----------
in progress under the Contract to a fixed satellite system at the direction of
Purchaser.
5
<PAGE>
3. Price Increase. In consideration of Contractor's dual path efforts
--------------
under the Contract, the Firm Fixed Price set forth in Section 4.1 of the
-----------
Contract shall be increased by [*****] from [*****] to [*****] which [*****]
increase shall be invoiced in the same manner as all other installments of the
Firm Fixed Price, and shall be due and payable in three equal installments, each
in the amount of [*****] in June 1994, July, 1994 and August 1994 respectively.
4. Defined Terms. All capitalized terms in this Amendment, not otherwise
-------------
defined herein, shall have the meanings ascribed to them in the Contract.
5. Ratification and Affirmation. The Contract, as modified by the
----------------------------
express terms of this Amendment, is hereby ratified and affirmed by Purchaser
and Contractor, and shall remain in full force and effect.
6. Counterparts. This Amendment may be executed in one or more
------------
counterparts, all of which taken together shall constitute the Amendment.
IN WITNESS THEREOF, the parties have executed this Amendment effective as
of the date first above written.
PURCHASER:
TEMPO SATELLITE, INC.
By: ____________________________________
David P. Beddow, Vice President
CONTRACTOR:
SPACE SYSTEMS/LORAL, INC.
By: ____________________________________
C.P. DeWitt, Vice President,
Finance & Administration
6
<PAGE>
CONTRACT AMENDMENT NO. 10
TO
CONTRACT NO. TPO-1-290
BETWEEN
TEMPO SATELLITE, INC.
AND
SPACE SYSTEMS/LORAL, INC.
FOR
TEMPO DIRECT BROADCAST SATELLITE SYSTEM (DBSS)
THIS CONTRACT AMENDMENT NO. 10 (the "Amendment") is entered into effective
as of the 29/th/ day of September, 1994, between TEMPO SATELLITE, INC. (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No. TPO-1-290
dated February 22, 1990, as amended by the parties thereto, most recently
pursuant to Contract Amendment No. 9 dated as of July 15, 1994 (as so amended,
the "Contract");
WHEREAS, the Contract currently provides for Satellite No. 1 delivery to
geostationary longitude location 119 degrees W. L. and Satellite No. 2 delivery
to geostationary longitude location 166 degrees W.L.;
WHEREAS, Purchaser's affiliate, Tempo DBS, Inc ("TDBS"), and Advanced
Communications Corporation ("ACC") have filed an application with the Federal
Communication Commission ("FCC") requesting consent to the assignment of the
direct broadcast satellite construction permit held by ACC to TDBS; and
WHEREAS, Contractor and Purchaser, subject to FCC approval of the pending
application of TDBS, desire to further amend the Contract to have Satellite No.
1 and Satellite No. 2 delivered to geostationary longitude location 110 degrees
W.L. and to order three additional satellites to be delivered to geostationary
longitude locations 119 degrees, 166 degrees and 148 degrees W.L., respectively,
all in the manner set forth in this Amendment.
NOW THEREFORE, in consideration of the mutual covenants and conditions in
this Amendment and in the Contract, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Alternate Orbital Location. The Purchaser hereby exercises its option
pursuant to Article 35 of the Contract and designates the alternate
geostationary longitude Delivery location for both Satellite No. 1 and Satellite
No. 2 to be 110 degrees W.L., and Contractor agrees to such alternate orbital
location election notwithstanding any provision in Article 35 to the contrary.
1
<PAGE>
2. Additional Satellites. The Purchaser exercises its option pursuant to
Article 28 of the Contract, subject to FCC approval, to purchase additional
satellites for Delivery as follows: (a) Satellite No. 3 for Delivery by May,
1998 at 119 degrees W.L.; (b) Satellite No. 4 for Delivery by May, 1998 at 166
degrees W.L.; and (c) Satellite No. 5 for Delivery by December 1998 at 148
degrees W.L., and Contractor agrees to construct such additional satellites
pursuant to such Delivery dates notwithstanding any provision in Article 28 to
the contrary.
3. Price Increase. Notwithstanding any provision in Article 35 or
elsewhere in the Contract to the contrary, in consideration of the Purchaser's
exercise of the alternate orbital location option pursuant to paragraph 1 of
this Amendment, Purchaser shall pay Contractor, the sum of [*****] Contractor
shall invoice Purchaser for accumulated payments due to date under the Contract
Attachment A - Option For Alternate Orbital Location (2 Satellites), Article 35,
Payment Plan less the amount of [*****] and thereafter invoice the Purchaser in
accordance with the "Decision in Mth 13-24" column of the payment plan.
Notwithstanding any provision in Article 28 or elsewhere in the Contract to the
contrary, in consideration of Purchaser's order of additional satellites
pursuant to paragraph 2 of this Amendment, Contractor acknowledges that, for the
purposes of payment under the Contract Attachment A- Additional Satellites
Option, Article 28, [*****] the Date of Order (DO) shall be deemed to occur
sixty (60) days following the date on which Purchaser has received the necessary
FCC authority to construct the relevant additional satellites. Purchaser
further acknowledges that the Delivery dates specified in paragraph 2 of this
Amendment are subject to the Purchaser obtaining timely regulatory approval.
4. Exhibits. The attached exhibits are hereby incorporated and made part
of this Amendment.
Exhibit A-2, Statement of Work for 110 degrees West
Exhibit A-2, Statement of Work for 148 degrees West
Exhibit B-2, BSS Satellite Specification for 110 degrees West
Exhibit B-2, BSS Satellite Specification for 148 degrees West
Exhibit C-2 BSS Product Assurance Plan for 110 degrees West
Exhibit C-2 BSS Product Assurance Plan for 148 degrees West
Exhibit D-2 BSS Satellite Program Test Plan for 110 degrees West
Exhibit D-2 BSS Satellite Program Test Plan for 148 degrees West
5. Defined Terms. All capitalized terms in this Amendment, not otherwise
defined herein, shall have the same meanings ascribed to them in the Contract.
6. Ratification and Affirmation. The Contract, as modified by the
express terms of this Amendment, is hereby ratified and affirmed by Purchaser
and Contractor, and shall remain in full force and effect.
7. Counterparts. This Amendment may be executed in one or more
counterparts, all of which taken together shall constitute the Amendment.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the date first above written.
PURCHASER: CONTRACTOR:
TEMPO SATELLITE, INC. SPACE SYSTEMS/LORAL, INC.
By:______________________________ By:________________________________
David P. Beddow, Vice President C.P. DeWitt, Vice President
Finance & Administration
3
<PAGE>
CONTRACT AMENDMENT NO. 11
TO
CONTRACTS NO. TPO-1-290
BETWEEN
TEMPO SATELLITE INC.
AND
SPACE SYSTEMS/LORAL
FOR
TEMPO DIRECT SATELLITE SYSTEMS
THIS CONTRACT AMENDMENT NO. 11 (the "Amendment") is entered into effective
as of the 30th day of May 1995, between TEMPO SATELLITE, INC. (the "Purchaser")
and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No. TPO-1-290
dated July 19, 1993, as amended by the parties thereto, most recently pursuant
to Contract Amendment No. 10 dated September 29, 1994 (as so amended, the
"Contracts"),
WHEREAS, Contractor and Purchaser have agreed to proceed immediately with
the design, analysis, fabrication and test of six (6) sets of antennas
(excluding the 110 degrees receive antenna) to support four (4) orbital
locations at 61.5 degrees, 110 degrees, 119 degrees and 166 degrees with an
anticipated Contract Amendment date of June 24, 1995 pending Purchaser's final
assessment of TEMPO satellite design and locations, (The 61.5 degrees and 166
degrees antennas will be designed to cover both 61.5 degrees and 166 degrees in
one design.)
WHEREAS, Purchaser has notified Contractor that it shall select the final
designs of the TEMPO satellites on or about June 15, 1995,
WHEREAS, Contract and Purchaser have agreed that Purchaser's total
liability for the effort to be provided by Contractor through June 30, 1995, in
this Amendment, shall be [*****] and such amount reflects only the termination
liability for the efforts to be provided by this Amendment through June 30,
1995,
WHEREAS, Contractor and Purchaser have agreed that the effort to be
provided by this Amendment includes: Contractor initiation of (a) in-house
efforts on six (6) Sets of Antennas, engineering and planning and (b)
procurement of long lead items (e.g., Antenna molds, Cray rental and graphite),
WHEREAS, Contractor and Purchaser agree that subsequent to the final design
selection by Purchaser, an equitable adjustment to the affected terms and
conditions of the Tempo Contract, including schedule, schedule penalties, and/or
price (including insurance effect), as may be applicable, will be negotiated and
subject of a separate modification to the TEMPO BSS Contract;
1
<PAGE>
and, TEMPO shall be credited for the price of this amendment in the subsequent
amendment, and such amendment shall not duplicate any efforts to be provided by
this Amendment,
WHEREAS, Contractor and Purchaser desire to amend the BSS Contract price to
reflect an increase in the BSS Contract price of $1,000,000;
NOW THEREFORE, in consideration of the mutual covenants and conditions in
this Amendment and in the Contract, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Design Effort. Contractor shall immediately commence design efforts
-------------
for six (6) sets of antennas from the effective date of this Amendment through
June 24, 1995.
2. Price Increase. In consideration of Contractor's efforts under the
--------------
Contract, the Firm Fixed Price set forth in Section 4.1 of the Contract shall be
increased by [*****] from [*****] to [*****] which [*****] increase shall be
invoiced in the same manner as all other installments of the Firm Fixed Price,
and shall be due and payable in one payment in July 1995.
3. Defined Terms. All capitalized terms in this Amendment, not otherwise
-------------
defined herein, shall have the meanings ascribed to them in the Contracts.
4. Ratification and Affirmation. The Contracts, as modified by the
----------------------------
express terms of this Amendment, are hereby ratified and affirmed by Purchaser
and Contractor, and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the date first above written.
CONTRACTOR: PURCHASER:
SPACE SYSTEMS/LORAL, INC. TEMPO SATELLITE, INC.
By: __________________________ By: _________________________
Name: C.P. DeWitt Name: David P. Beddow
-------------------------- -------------------------
Title: Vice President, Title: Vice President
-------------------------- -------------------------
Finance & Administration
--------------------------
2
<PAGE>
CONTRACT AMENDMENT NO. 12 TO CONTRACT NO. TPO-1-290
BETWEEN TEMPO SATELLITE, INC. AND SPACE SYSTEMS/LORAL, INC.
FOR TEMPO DIRECT BROADCAST SATELLITE SYSTEM (DBSS)
THIS CONTRACT AMENDMENT NO. 12 (the "Amendment") is entered into
effective as of the 11th day of August, 1995, between TEMPO SATELLITE, INC.
(the "Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No. TPO-1-290
dated February 22, 1990, as amended by the parties thereto, most recently
pursuant to Contract Amendment No. 11 dated May 30, 1995 (as so amended, the
"Contract"); and
WHEREAS, Contractor and Purchaser have agreed to Amendment No. 11 to
negotiate an equitable adjustment to the affected terms and conditions of the
Tempo Contract;
NOW THEREFORE, in consideration of the mutual covenants and conditions in
this Amendment and in the Contract, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Antenna Construction. Contractor shall proceed with the design,
analysis, fabrication and test of four (4) transmit antennas for the 110
degreesW. L. orbital location (the "110 degrees Antenna Option") and undertake
such as work as may be necessary to be able to complete four (4) transmit and
two (2) receive antennas for the 119 degreesW. L. orbital location (the "119
degrees Antenna Option"), provided the notification of a change from 110 degrees
to 119 degrees orbital location is provided, in writing, to the Contractor by
the Purchaser no later than October 1, 1995.
2. Price Increase. Notwithstanding any provision in the Contract to the
contrary, in consideration of the 110 degrees Antenna Option the Firm Fixed
Price set forth in Section 4.1 of the Contract and amended by Amendment No. 11
shall be increased by [*****] from [*****] to [*****] which [*****] increase
shall be invoiced in the same manner as all other installments of the Firm Fixed
Price, and shall be due and payable on the following schedule.
1
<PAGE>
110 degrees OPTION ANTENNA PAYMENT SCHEDULE
-------------------------------------------
<TABLE>
<CAPTION>
=====================================================================
<S> <C>
Amendment No. 11
Firm Fixed Price [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
Amendment No. 12
Firm Fixed Price [*****]
=====================================================================
</TABLE>
If the notification of a change from the 110 degrees to 119 degrees orbital
location is given, in writing, to the Contractor by the Purchaser no later than
October 1, 1995, thereby exercising the 119 degrees Antenna Option, the Firm
Fixed Price set forth in Section 4.1 of the Contract and amended by Amendment
no. 11 shall be increased by [*****] from [*****] to [*****] which [*****]
increase shall be invoiced in the same manner as all other installments of the
Firm Fixed Price, and shall be due and payable on the following schedule.
2
<PAGE>
119 degrees OPTION ANTENNA PAYMENT SCHEDULE
-------------------------------------------
<TABLE>
<CAPTION>
=====================================================================
<S> <C>
Amendment No. 11
Firm Fixed Price [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
[*****] [*****]
- --------------------------------------------
Amendment No. 12
Firm Fixed Price [*****]
=====================================================================
</TABLE>
3. Schedule. Attached as Exhibit A to this Amendment No. 12 is the
schedule for Satellite No. 1 (FM-1) and Satellite No. 2 (FM-2) delivered to
geostationary longitude location 110 degrees W.L. or 119 degrees W.L. The
Purchase shall provide the Contractor with approval of antenna patterns within
five (5) working days of submittal of the patterns by the Contractor to the
Purchaser. Notwithstanding any provision in Article 21 or elsewhere in the
Contract to the contrary, the Contractor and the Purchaser agree to change the
first sentence of Section 21.1, Reimbursement for Satellite Delivery Delay, is
------------------------------------------
hereby amended to change [*****] after Execution to [*****] after Execution".
4. Defined Terms. All capitalized terms in this Amendment, not otherwise
defined herein, shall have the same meanings ascribed to them in the Contract.
5. Ratification and Affirmation. The Contract, as modified by the
express terms of this Amendment, is hereby ratified and affirmed by Purchaser
and Contractor, and shall remain in full force and effect.
6. Counterparts. This Amendment may be executed in one or more
counterparts, all of which taken together shall constitute the Amendment.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the date first above written.
PURCHASER: CONTRACTOR:
TEMPO SATELLITE, INC. SPACE SYSTEMS/LORAL, INC.
By:______________________________ By:________________________________
David P. Beddow, Vice President C. P. DeWitt, Vice President
Finance & Administration
4
<PAGE>
CONTRACT AMENDMENT NO. 13 TO CONTRACT NO. TPO-1-290
BETWEEN TEMPO SATELLITE, INC. AND SPACE SYSTEMS/LORAL, INC.
FOR TEMPO DIRECT BROADCAST SATELLITE SYSTEM (DBSS)
THIS CONTRACT AMENDMENT NO. 13 (the "Amendment") is entered into effective
as of the 15th day of March, 1996, between TEMPO SATELLITE, INC. (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No. TPO-1-290
dated February 22, 1990, as amended by the parties thereto, most recently
pursuant to Contract Amendment No. 12 dated as of August 11, 1995 (as so
amended, the "Contract"); and
WHEREAS, Contractor and Purchaser have agreed to proceed immediately with
(i) the design, analysis, fabrication and test of six (6) antennas to support an
orbital location of 82 degrees W.L. (the "Optional Parts") and (ii) termination
of all partial design efforts associate with the orbital location of 61.5
degrees,
NOW, THEREFORE, in consideration of the mutual covenants and conditions in
this Amendment and in the Contract, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Optional Parts - Antennas. Contractor shall proceed with the design,
-------------------------
analysis, fabrication and test of four (4) transmit antennas and two (2) receive
antennas for the 82 degrees W.L. Orbital location. The Contract Specification
document, Exhibit B-2, is hereby amended and replaced in its entirety by the
Exhibit B-2 document dated "23 February 1996 FINAL" and attached hereto. The
Contractor shall, upon written instructions from the Purchaser, such
instructions to be given no later than June 1, 1996, install either the 82
degrees Antenna Option antennas or the 110 degrees (revised) Antenna Option
antennas on Tempo Flight 1 or Flight 2, as the case may be. Current schedule
assessments for Tempo Flight 1 or Flight 2 are attached hereto. Should
Purchaser, by written notification to the Contractor, direct the launch of
Flight 1 or Flight 2 to be delayed, then the June 1, 1996 notification date will
be changed by mutual agreement.
2. Launch Options. The Contractor has obtained confirmation a new launch
--------------
window, November 1 - 30, 1996, for the Proton launch vehicle. The Purchaser
agrees to the new launch window which is provided to Contractor and Purchaser at
no additional cost by International Launch Services ("ILS") on behalf of
Lockheed-Khrunichev-Energia, Inc. ("LKEI"). The currently scheduled launch
window for the Atlas IIA launch vehicle is September 17 through October 17,
1996. The Contractor has confirmed an option, to be exercised no later than
March 30, 1996, for a new Atlas IIA launch window, March 1, 1997 through April
1, 1997. The Purchaser agrees to the new launch window option which is provided
to Contractor and Purchaser at a price of [*****] by ILS on behalf of Lockheed
Martin Commercial Launch Services. The Contractor shall, prior to March 30,
1996, or at least five (5) days prior to any date to which the exercise of the
Atlas IIA
1
<PAGE>
option is postponed by mutual agreement, provide the Purchaser with an itemized
list of any additional cost to be incurred by the delay in the Atlas IIA launch.
3. Price Increase. Notwithstanding any provision in the Contract to the
--------------
contrary, in consideration of the 82 degrees Antenna Option and the Atlas IIA
launch window option the Firm Fixed Price set forth in Section 4.1 of the
Contract shall be increased by [*****] from [*****] to [*****] which [*****]
increase shall be invoiced in the same manner as all other installments of the
Firm Fixed Price, and shall be due and payable on the following schedule.
82 degrees OPTION ANTENNA PAYMENT SCHEDULE
------------------------------------------
<TABLE>
<CAPTION>
=============================================================================
<S> <C>
Firm Fixed Price DEFINED IN TABLE BELOW [*****]
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
Amendment No. 13 [*****]
Firm Fixed Price
=============================================================================
</TABLE>
CALCULATION OF FIRM FIXED PRICE PRIOR TO AMENDMENT NO. 13
---------------------------------------------------------
<TABLE>
<CAPTION>
=============================================================================
<S> <C>
BSS Firm Fixed Price as of Amendment #4 [*****]
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
[*****] [*****]
- -------------------------------------------
AMENDMENT NO. 12 as of Amendment #12 [*****]
=============================================================================
</TABLE>
2
<PAGE>
If Purchaser terminates, by written notice, the 110 degrees Option Antenna, as
defined in Amendment No. 12 and FM-1 and/or FM-2 are launched with antennas
designed for an orbital location other than the 110 degrees W.L. BSS orbital
location the Contractor (i) acknowledges that the antennas may not be used on
any other satellite program without the written consent of the Purchaser, shall
use its best efforts to use the Purchaser's 110 degrees Option Antennas on any
subsequent BSS satellite construction program for 110 degrees, and (iii.a)
---
refund to the Purchaser the sum of [*****], within thirty (30) days of the date
on which any set of 110 degrees Option Antenna is mounted on any satellite which
is not the subject of the Contract, or (iii.b) refund to the Purchaser the sum
--
of [*****] within thirty--(30) days of the date on which any set of 110 degrees
antenna where the antenna Pattern design work and/or antenna mold which is the
subject of this Contract is used in the design and construction of such a 110
degrees antenna, is mounted on any satellite which is not the subject of the
Contract.
If Purchaser terminates, by written notice, the 82 degrees Option Antenna, as
defined in this Amendment No. 13, (i) on or before April 1, 1996, the obligation
of the Purchaser to make the 82 degrees Option Antenna payments for May through
August 1996, as defined in the table above, shall also terminate and the
Amendment No. 13 Firm Fixed Price shall be adjusted accordingly, or (ii) on or
before May 1, 1996, the obligation of the Purchaser to make the 82 degrees
Option Antenna payments for June and August 1996, as defined in the table above,
shall also terminate and the Amendment No. 13 Firm Fixed Price shall be adjusted
accordingly.
4. Schedule. Attached to this Amendment No. 13 are the schedules for
--------
Tempo Flights 1 and 2 to be delivered to the geostationary longitude location 82
degrees or 110 degrees W.L. Purchaser has provided Contractor with approval of
antenna patterns within five (5) working days of submittal of the patterns by
Contractor to Purchaser. The Delivery of F-1 an F-2 are contingent upon
availability of the Proton and Atlas IIA launch vehicle. Notwithstanding any
provision in Article 21, as amended by Amendment No. 12 or elsewhere in the
Contract to the contrary, Contractor and Purchaser agree to change the first
sentence of Section 21.1, Reimbursement for Satellite Delivery Delay, to read
[*****] after Execution or [*****]
5. Defined Terms. All capitalized terms in this Amendment, not otherwise
-------------
defined herein, shall have the same meanings ascribed to them in the Contract.
6. Ratification and Affirmation. The Contract, as modified by the
----------------------------
express terms of this Amendment, is hereby ratified and affirmed by Purchaser
and Contractor, and shall remain in full force and effect.
7. Counterparts. This Amendment may be executed in one or more
------------
counterparts, all of which taken together shall constitute the Amendment.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the date first above written.
PURCHASER: CONTRACTOR
TEMPO SATELLITE, INC. SPACE SYSTEMS/LORAL, INC.
By: ____________________________ By: ________________________
David P. Beddow, Vice President C.P. DeWitt, Vice President
Finance & Administration
4
<PAGE>
CONTRACT AMENDMENT NO. 14 TO CONTRACT No. TPO-1-290
BETWEEN TEMPO SATELLITE, INC. AND SPACE SYSTEMS/LORAL, INC.
FOR TEMPO DIRECT BROADCAST SATELLITE SYSTEM (DBSS)
THIS CONTRACT AMENDMENT NO. 14 (the "Amendment") is entered into effective
as of the 6th day of May, 1996, between TEMPO SATELLITE, INC. (the "Purchaser")
and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are parties to Contract No. TPO-1-290
dated February 22, 1990, as amended by the parties thereto, most recently
pursuant to Contract Amendment No. 13 dated as of March 15, 1996 (as so amended,
the "Contract"); and
WHEREAS, Contractor and Purchaser have agreed that Contractor shall provide
insurance for Purchaser's Satellite launch and a one hundred eighty (180) day
initial operations period (the "Insurance Coverage"), as more fully described in
Attachment A - SATELLITE LAUNCH AND INITIAL OPERATIONS INSURANCE POLICY (the
"Policy"); and
WHEREAS, Contractor and Purchaser have agreed that Purchaser's total
liability for the Insurance Coverage provided by the Contractor under this
Amendment shall remain unchanged.
NOW, THEREFORE, in consideration of the mutual covenants and conditions in
this Amendment and in the Contract, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Insurance Coverage. Contractor shall obtain Insurance Coverage
------------------
for each of the Purchaser's Satellites including launch and an initial operating
period of one hundred eighty (180) days from launch of the satellite (the
"Period"). Subsequent to in-orbit testing and Acceptance or Qualified
Acceptance, the Purchaser shall have the exclusive right to use and operate the
Satellite(s); provided, however, that Contractor shall remain as designated Loss
Payee of the Insurance Coverage policy for the duration of the one hundred
eighty (180) day period from launch of the satellite.
2. Warranty and Damages. If a Partial Loss occurs during the Period for
--------------------
which an insurance claim is honored, Damages will be paid to the Purchaser by
the Contractor in accordance with Article 23 of the Contract, such payment to be
adjusted only to take into account the Deductible under the Policy. The Policy
Deductible is five percent (5%). Nothing in this Amendment alters the
Contractor's obligation to the Purchaser as to Warranty Payback under Articles
13 and 14 of the Contract. If during the Period Satellite fails to meet the
criteria for Qualified Acceptance, the Contractor's obligations under Article
10, Section 4 and Article 33, as the case may be, shall apply.
3. Defined Terms. All capitalized terms in this Amendment, not otherwise
-------------
defined herein, shall have the same meanings ascribed to them in the Contract.
1
<PAGE>
4. Ratification and Affirmation. The Contract, as modified by the
----------------------------
express terms of this Amendment, is hereby ratified and affirmed by Purchaser
and Contractor, and shall remain in full force and effect.
5. Counterparts. This Amendment may be executed in one or more
------------
counterparts, all of which taken together shall constitute the Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the date first above written.
PURCHASER: CONTRACTOR
TEMPO SATELLITE, INC. SPACE SYSTEMS/LORAL, INC.
By: _____________________________ By: ____________________________
David P. Beddow, Vice President C.P. DeWitt, Vice President
Finace & Admisnistration
2
<PAGE>
CONTRACT AMENDMENT NO. 15 TO CONTRACT NO. TPO-1-290
BETWEEN TEMPO SATELLITE, INC. AND SPACE SYSTEMS/LORAL, INC.
FOR TEMPO DIRECT BROADCAST SATELLITE SYSTEM (DBSS)
THIS CONTRACT AMENDMENT NO. 15 (the "Amendment") is entered into effective
as of the 12/th/ day of June, 1996, between TEMPO SATELLITE INC. (the
"Purchaser") and SPACE SYSTEMS/LORAL, INC. (the "Contractor").
WHEREAS, Contractor and Purchaser are the parties to Contract NO. TPO-1-290
dated February 22, 1990, as amended by the paries thereto, most recently
pursuant to Contract Amendment No. 14 dated as of May 6, 1995 (as so amended,
the "Contract"); and
WHEREAS, Contractor and Purchaser have agreed to new terms regarding the
continuation of the fabrication and test of three (3) antennas to support an
orbital location of 119 degrees W.L.
NOW THEREFORE, in consideration of the mutual covenants and conditions in
this Amendment and in the Contract, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. 119 degrees Antenna Continuation for Flight 2. Contractor shall
--------------------------------------------
proceed with the fabrication and test of two (2) transmit antennas and one (1)
receive antennas for the 119 degrees W.L. orbital location, as previously
designed and analyzed in accordance with the Contract Specification. The
Contractor shall, upon written instructions from the Purchaser, such
instructions to be given [*****], install either the 119 degrees or 82 degrees
Antenna Option antennas or the 110 degrees (revised) Antenna Option antennas on
Tempo Flight 2, currently scheduled to be launched on an Atlas IIA vehicle in
February/March 1997 launch window. Schedule attached - Tempo 2, 6/21/96.
2. Flight 1. The Contractor shall, upon written instructions from the
--------
Purchaser, such instructions to be given [*****], install either the 82 degrees
Antenna Option antennas or the 110 degrees (revised) Antenna Option antennas on
Tempo Flight 2, currently scheduled to be launched on a Proton vehicle in the
December 1996 launch window.
3. Price Increase. Notwithstanding any provision in the Contract to the
--------------
contrary, in consideration of maintaining the flexibility for antenna usage as
stated above, the Firm Fixed Price set forth in Section 4.1 of the Contract
shall be increased by [*****] from [*****] to [*****] which [*****] increase
shall be invoiced in the same manner as all other installments of the Firm Fixed
Price, and shall be due and payable on the following schedule.
1
<PAGE>
<TABLE>
<CAPTION>
119DEGRESS ANTENNA CONTINUATION PAYMENT SCHEDULE
- -----------------------------------------------------------------
Firm Fixed Price Defined in Table Below [*****]
<S> <C> <C>
[*****] [*****]
- -----------------------------------------
[*****] [*****]
- -----------------------------------------
[*****] [*****]
- -----------------------==================
[*****] [*****]
- -----------------------------------------========================
Amendment No. 15
Firm Fixed Price [*****]
=================================================================
</TABLE>
CALCULATION OF FIRM FIXED PRICE PRIOR TO AMENDMENT NO. 15
---------------------------------------------------------
=================================================================
<TABLE>
<CAPTION>
BSS Firm Fixed Price As of Amendment #4 [*****]
<S> <C> <C>
- -----------------------------------------
[*****] [*****]
- -----------------------------------------
[*****] [*****]
- -----------------------------------------
[*****] [*****]
- -----------------------------------------
[*****] [*****]
- -----------------------------------------
[*****] [*****]
- -----------------------------------------
[*****] [*****]
- -----------------------------------------
[*****] [*****]
- -----------------------------------------
[*****] [*****]
- -----------------------------------------
[*****] [*****]
====================
[*****] [*****]
- -----------------------------------------========================
Amendment No. 14 [*****]
=================================================================
</TABLE>
4. Defined Terms. All capitalized items in this Amendment, not otherwise
-------------
defined herein, shall have the same meanings ascribed to them in the Contract.
2
<PAGE>
5. Ratification and Affirmation. The Contract, as modified by the express
----------------------------
terms of this Amendment, is hereby ratified and affirmed by Purchaser and
Contractor, and shall remain in full force and effect.
6. Counterparts. This Amendment may be executed in one or more
------------
counterparts, all of which taken together shall constitute the Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the date first above written.
PURCHASER: CONTRACTOR:
TEMPO SATELLITE, INC SPACE SYSTEMS/LORAL, INC.
By: _________________________________ By: ______________________________
David P. Beddow, Vice President C. P. DeWitt, Vice President
Finance & Administration
3
<PAGE>
CONFIDENTIALITY AGREEMENT
THIS AGREEMENT is made and entered into this 18 day of May, 1993, by and between
PRIMESTAR PARTNERS and SPACE SYSTEMS/LORAL ("SS/L").
WITNESSETH:
-----------
In consideration of the mutual covenants and promises set forth herein,
PrimeStar Partners and SS/L agree as follows:
1. ACKNOWLEDGMENT of CONFIDENTIAL INFORMATION. PrimeStar Partners and SS/L
------------------------------------------
(the "Parties") acknowledge and agree that CONFIDENTIAL INFORMATION is
claimed to be proprietary to and a valuable trade secret of each of the
Parties and that any unauthorized use thereof may cause irreparable harm
and loss to such Party. "CONFIDENTIAL INFORMATION" means all information,
documentation, terms, conditions and compensation arrangements disclosed in
writing, or made available by one Party to the other, which is clearly
marked as being confidential or proprietary, including, but not limited to,
business, present and future plans, present and future products and
policies of each Party.
"CONFIDENTIAL INFORMATION" does not include information or documentation
which (1) was acquired by a Party before the contemplated discussions and
when such Party was under no obligation to keep such information
confidential; (2) is or becomes publicly known through no wrongful act of a
Party hereto; (3) is received from a third person or entity who is legally
entitled to possession of such information; (4) is developed by a Party
other than in the course of performance of contractual obligations under
any contract between the Parties; or (5) was given orally, unless it is so
designated at the time of disclosure and is summarized and identified as
such in writing within thirty (30) days after disclosure.
2. OBLIGATIONS OF NONDISCLOSURE. In consideration of the disclosure to each
----------------------------
other of CONFIDENTIAL INFORMATION, the Parties agree to treat such
CONFIDENTIAL INFORMATION in the same manner and degree of care as it would
its own CONFIDENTIAL INFORMATION, and to undertake the following additional
obligations with respect thereto:
(a) to use CONFIDENTIAL INFORMATION only for the purposes of determining
whether the Parties will pursue further negotiations, and in the
performance of any subsequent contractual obligations, if any;
(b) not to copy, in whole or in part, CONFIDENTIAL INFORMATION, except as
required to review such information;
1
<PAGE>
(c) to limit dissemination of CONFIDENTIAL INFORMATION to:
(I) SS/L PrimeStar
---- ---------
D.E. Collins David Beddow
W.R. Avellino Marc Evans
C.L. Thom John Cusick
E.M. Hunter Thad Mazurczyk
W.E. Schweickert
N.J. Barberis
(ii) those of each Party's employees who have a need to know to
perform the limited tasks set forth in item (a) above; and
(iii) not to disclose CONFIDENTIAL INFORMATION outside of the
receiving Party, other than to a Partys' attorneys or
accountants or a Partys' related affiliates or individual
partners as the case may be;
(d) to return any written CONFIDENTIAL INFORMATION, including all copies
and records thereof, to the disclosing Party upon request.
3. SURVIVAL. The restrictions and obligations of Paragraph 2 of this Agreement
--------
shall survive any expiration, termination or cancellation of this Agreement
or of any other agreement between the Parties, and shall continue to bind
the Parties, their successors, heirs and assigns, for a period of three
years from the date hereof.
4. GOVERNING LAW. This Agreement shall be construed and enforced in accordance
-------------
with the laws of the State of Colorado.
5. LEGALLY REQUIRED DISCLOSURE. If a Party of any of its representatives
---------------------------
becomes legally compelled to disclose any of the CONFIDENTIAL INFORMATION,
such Party agrees to provide the Party which provided the CONFIDENTIAL
INFORMATION with prompt notice of such requirement and to cooperate with
the Party which provided the CONFIDENTIAL INFORMATION in seeking to obtain
a protective order or other arrangement pursuant to which the
confidentiality of the CONFIDENTIAL INFORMATION is preserved. If such an
order or arrangement is not obtained, the Party to which the CONFIDENTIAL
INFORMATION is provided agrees that it and its representatives will
disclose only that portion of the CONFIDENTIAL INFORMATION as is legally
required.
6. NO AGENCY. Neither this Agreement nor the disclosure or receipt of
---------
CONFIDENTIAL INFORMATION shall constitute or imply any promise or intention
to enter into a partnership, agency or joint venture between the parties,
to make or purchase any
2
<PAGE>
products or services by either party, or to make any commitment by either
party with respect to the present or future marketing of any product or
service.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
by their duly authorized representatives.
PRIMESTAR
By:_____________________
Name:___________________
Title:__________________
Date:___________________
SPACESYSTEMS/LORAL
By:_____________________
Name:Daniel E. Collins
-------------------
Title:Executive Director
------------------
Date:18 May 1993
-------------------
3
<PAGE>
EXHIBIT 4.4
THIS DOCUMENT HAS BEEN REDACTED IN ACCORDANCE WITH RULE 24b-2(b) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. A COMPLETE COPY OF THIS EXHIBIT,
WITHOUT OMISSIONS, HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
OMISSIONS ARE INDICATED HEREIN WITH [*****].
================================================================================
SATELLITE PURCHASE AGREEMENT
BY AND BETWEEN
TEMPO SATELLITE, INC.,
AND
TELESAT CANADA
DATED AS OF MAY 6, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
Section 1. Definitions.......................................................... 1
1.1 Affiliate....................................................... 1
1.2 Amendment No. 13................................................ 1
1.3 Amendment No. 13 Performance Specifications..................... 2
1.4 Business Day.................................................... 2
1.5 Closing......................................................... 2
1.6 Closing Date.................................................... 2
1.7 Construction Financing Agreements............................... 2
1.8 CRTC............................................................ 2
1.9 DBS............................................................. 2
1.10 Deliverable Items............................................... 2
1.11 Dollars($)...................................................... 2
1.12 Encumbrance..................................................... 2
1.13 FCC............................................................. 2
1.14 First Closing................................................... 3
1.15 First Launched Satellite........................................ 3
1.16 First Successfully Delivered Satellite.......................... 3
1.17 Force Majeure................................................... 3
1.18 Governmental Authority.......................................... 3
1.19 Canada.......................................................... 3
1.20 Industry Canada License Fee..................................... 3
1.21 Legal Requirement............................................... 3
1.22 Loral Side Agreement............................................ 3
1.23 Operating Services Agreement.................................... 3
1.24 Permitted Encumbrances.......................................... 3
1.25 Person.......................................................... 4
1.26 Primestar....................................................... 4
1.27 Purchase Price of First Successfully Delivered Satellite........ 4
1.28 Purchase Price of Second Successfully Delivered Satellite....... 5
1.29 Radio Authorization............................................. 6
1.30 Required Consents............................................... 6
1.31 Satellite Purchase Price........................................ 6
1.32 Second Closing.................................................. 6
1.33 Second Launched Satellite....................................... 6
1.34 Second Successfully Delivered Satellite......................... 6
1.35 Shipment Date................................................... 6
1.36 Successful Delivery............................................. 6
1.37 Telesat Agreements.............................................. 6
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1.38 Telesat Authorization Certificate.................................. 6
1.39 Telesat Required Consents.......................................... 7
1.40 Tempo Required Consents............................................ 7
1.41 TCI................................................................ 7
1.42 Transponder Purchase Price......................................... 7
1.43 Other Definitions.................................................. 8
Section 2. Launch of Satellites; ITU/IFRB Registration.............................. 9
2.1 Launch of Satellites............................................... 9
2.2 ITU/IFRB Registration.............................................. 9
2.3 Use of Satellite Pending Closing...................................10
Section 3. Purchase and Sale of the Satellites......................................10
3.1 Purchase and Sale of First Successfully Delivered Satellite........10
3.2 Purchase and Sale of Second Successfully Delivered Satellite.......10
3.3 Payment of Satellite Purchase Price................................11
Section 4. Issues Under BSS Construction Agreement..................................11
4.1 Pre-Shipment Inspections...........................................11
4.2 Satellite Acceptance...............................................12
4.3 Acceptance Inspection of Other Deliverable Items...................12
4.4 Amendments to BSS Construction Agreement...........................12
4.5 Successor Satellites...............................................13
Section 5. Representations and Warranties of Telesat................................13
5.1 Organization and Qualification.....................................13
5.2 Authority and Validity.............................................14
5.3 No Breach or Violation.............................................14
5.4 Legal Proceedings..................................................14
5.5 Finders and Brokers................................................15
Section 6. Representations and Warranties of Tempo..................................15
6.1 Organization.......................................................15
6.2 Authority and Validity.............................................15
6.3 No Breach or Violation.............................................15
6.4 Ownership of Satellites............................................16
6.5 Finders and Brokers................................................16
6.6 Legal Proceedings..................................................16
6.7 Construction Financing Agreement...................................16
6.8 BSS Construction Agreement.........................................16
</TABLE>
(ii)
<PAGE>
<TABLE>
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Section 7. Warranties and Limitation of Liability...................................17
7.1 Disclaimer of Warranties...........................................17
7.2 Limitation of Liability............................................17
Section 8. Additional Covenants.....................................................18
8.1 Required Consents; Industry Canada License Fees....................18
8.2 Maintenance of Required Consents...................................18
8.3 HSR Notification...................................................19
8.4 Notification of Certain Matters....................................19
8.5 Transfer Taxes.....................................................19
8.6 Updated Schedules..................................................19
8.7 Satisfaction of Conditions.........................................20
8.8 Confidentiality Regarding Terms and Existence of Agreement.........20
8.9 91 degrees Orbital Location........................................20
Section 9. Closing..................................................................21
9.1 Pre-Closing........................................................21
9.2 Closing as to First Successfully Delivered Satellite...............22
9.3 Closing as to Second Successfully Delivered Satellite..............23
9.4 Location of Closing................................................23
Section 10. Conditions to Closing....................................................23
10.1 Conditions to the Obligations of the Parties.......................23
10.2 Conditions to the Obligations of Telesat...........................24
10.3 Conditions to Obligations of Tempo.................................25
Section 11. Termination..............................................................26
11.1 Termination Prior to First Closing.................................26
11.2 Termination Following First Closing................................28
11.3 Liabilities in Event of Termination................................28
11.4 Procedure Upon Termination.........................................29
Section 12. Survival of Covenants, Representations and Warranties; Indemnification...29
12.1 Survival of Covenants, Representations an Warrantie After Closing..29
12.2 Indemnification by Telesat.........................................29
12.3 Indemnification by Tempo...........................................29
12.4 Third Party Claims.................................................30
12.5 Limitations on Certain Indemnification Obligations - Telesat.......31
12.6 Limitations on Certain Indemnification Obligations - Tempo.........31
</TABLE>
(iii)
<PAGE>
<TABLE>
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<S> <C> <C>
Section 13. Miscellaneous............................................................31
13.1 Parties Obligated and Benefited...................................31
13.2 Notices...........................................................32
13.3 Attorneys' Fees...................................................33
13.4 Right to Specific Performance.....................................33
13.5 Waiver............................................................33
13.6 Captions..........................................................33
13.7 Choice of Law.....................................................33
13.8 Terms.............................................................34
13.9 Rights Cumulative.................................................34
13.10 Further Actions...................................................34
13.11 Time..............................................................34
13.12 Counterparts......................................................34
13.13 Entire Agreement..................................................34
13.14 Severability......................................................34
13.15 Construction......................................................35
13.16 Expenses..........................................................35
13.17 Waiver of Tax Warranties..........................................35
13.18 Characterization of this Transaction..............................35
</TABLE>
(v)
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
- --------
A - Amendment No. 13 to BSS Construction Agreement
B - Assignment Agreement
C - 91 degrees Term Sheet
D - Loral Side Agreement
SCHEDULES
- ---------
1 - Telesat Required Consents
2 - Tempo Required Consents
3 - Telesat Proceedings and Judgments
4 - Tempo Proceedings and Judgments
5 - Conflicts
(v)
<PAGE>
SATELLITE PURCHASE AGREEMENT
----------------------------
This Satellite Purchase Agreement (this "Agreement") is made as of
the 6th day of May, 1996, by and between Tempo Satellite, Inc., an Oklahoma
corporation ("Tempo"), on the one hand, and Telesat Canada, a corporation
continued and existing under the laws of Canada ("Telesat"), on the other (each
of Tempo and Telesat being referred to individually as a "Party" and
collectively as the "Parties").
RECITALS
--------
A. Tempo has entered into Contract No. TPO-1-290 as amended and
restated in its entirety by Contract Amendment No. 4, as further amended by
Amendments No. 5 through No. 13 and any other amendments hereafter entered into
(Amendments No. 5 through No. 13 and any additional amendments being separately
referred to herein from time to time as the "Amendments," and, together with
Contract Amendment No. 4, as the "BSS Construction Agreement") with Space
Systems/Loral, Inc. ("Loral"), which agreement provides for the construction,
launch and deployment of two satellites which together will contain transponder
capacity appropriate for the broadcast of 32 channels at the 82 degrees West
orbital location (each, a "Satellite" and together, the "Satellites").
B. Tempo and Telesat desire to enter in this Agreement to
provide for the sale of the Satellites to Telesat.
AGREEMENT
---------
In consideration of the above recitals and the mutual agreements
stated in this Agreement, the Parties agree as follows:
SECTION 1. DEFINITIONS.
In addition to terms defined elsewhere in this Agreement, the
following terms with initial capital letters, when used in this Agreement, will
have the meanings set forth below:
1.1 Affiliate. With respect to any Person, any other Person
---------
controlling, controlled by, or under common control with, such Person, with
"control" for such purpose meaning the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
1.2 Amendment No. 13. Amendment No. 13 to the BSS Construction
----------------
Agreement, attached hereto as EXHIBIT A.
-1-
<PAGE>
1.3 Amendment No. 13 Performance Specifications. The performance
-------------------------------------------
specifications of the Satellites for the 82 degrees West orbital location, as
such performance specifications are defined in Amendment No. 13.
1.4 Business Day. Any day other than Saturday, Sunday or a day on
------------
which banking institutions in Toronto, Ontario, or Denver, Colorado are required
or authorized to be closed.
1.5 Closing. The First Closing and/or the Second Closing, as
-------
applicable.
1.6 Closing Date. The First Closing Date and/or the Second
-------------
Closing Date, as application.
1.7 Construction Financing Agreements. (a) Credit Agreement dated
---------------------------------
as of March 9, 1994 among Primestar, The Bank of New York, Chemical Bank and
Citibank, N.A., as Managing Agent, the Bank of New York as Documentation Agent,
Chemical Bank as Administrative Agent and the Banks signatory thereto, as
amended or extended and (b) any other credit facility or arrangement the
proceeds of which are used to finance or refinance the payment of any item
included in the Satellite Purchase Price, including any third-party replacement
or supplemental credit facility to the credit agreement referred to in paragraph
(a) and including any internal financing arrangement which is at rates and on
terms no less favorable to the borrower than those contained in either the
credit agreement referred to in paragraph (a) or in any third-party replacement
or supplemental credit agreement to the credit agreement referred to in
paragraph (a).
1.8 CRTC. Canadian Radio-television and Telecommunications
----
Commission.
1.9 DBS. Direct Broadcast Service.
---
1.10 Deliverable Items. As defined in the BSS Construction
-----------------
Agreement; provided, that Deliverable Items for purposes of this Agreement does
not include the Satellites or any additional satellites ordered or deliverable
under the BSS Construction Agreement.
1.11 Dollars($). All references in this Agreement to "Dollars" or
----------
"$" shall be deemed to be references to United States dollars.
1.12 Encumbrance. Any mortgage, lien, security interest, security
-----------
agreement, conditional sale or other title retention agreement, limitation,
pledge, option, charge, assessment, restrictive agreement, restriction,
encumbrance, adverse interest, restriction on transfer or any exception to or
defect in title or other ownership interest (including reservations, rights of
way, possibilities of reverter, restrictive covenants, leases and licenses).
1.13 FCC. The Federal Communications Commission.
---
-2-
<PAGE>
1.14 First Closing. The consummation of the transactions
-------------
contemplated by Section 3.1, the date of which is referred to as the First
Closing Date.
1.15 First Launched Satellite. The first satellite that Loral
------------------------
attempts to launch under the BSS Construction Agreement, whether or not
Successfully Delivered.
1.16 First Successfully Delivered Satellite. The first Satellite
--------------------------------------
launched pursuant to the BSS Construction Agreement which is accepted by Tempo
pursuant to Section 10.2 or Section 10.3 of the BSS Construction Agreement,
including, if applicable, a replacement Satellite as contemplated by Section
10.4 of the BSS Construction Agreement.
1.17 Force Majeure. Acts of God; meteors; fire, flood, weather, or
-------------
other catastrophes; other circumstances in the space environment over which the
parties have no control; Legal Requirements arising after the date of this
Agreement; national emergencies, insurrections, riots, wars, or strikes,
lockouts, work stoppages or other labor difficulties.
1.18 Governmental Authority. (i) The United States of America,
----------------------
(ii) Canada, (iii) any state, commonwealth, territory, province or possession of
the United States of America or of Canada and any political subdivision thereof
(including counties, municipalities and the like), (iv) any foreign (as to the
United States of America or Canada) sovereign entity and any political
subdivision thereof or (v) any agency, authority or instrumentality of any of
the foregoing, including any court, tribunal, department, bureau, commission or
board.
1.19 Industry Canada. A department of the Federal Government of
---------------
Canada which has, among other things, the responsibility for assigning the
Canadian orbital slots.
1.20 Industry Canada License Fee. The annual license fee payable
---------------------------
to Industry Canada for use of the 82degrees West orbital location for
two Satellites.
1.21 Legal Requirement. Any applicable statute, ordinance, code,
-----------------
law, rule, regulation, order or other requirement, standard or procedure, in
each case to the extent having the force of law, enacted, adopted or applied by
any Governmental Authority, including judicial decisions applying common law or
interpreting any other Legal Requirement.
1.22 Loral Side Agreement. The memorandum of agreement to be
--------------------
entered into among Tempo, Loral and Telesat, as amended or extended.
1.23 Operating Services Agreement. The operating services
----------------------------
agreement between Telesat and TCI dated of even date herewith, as amended or
extended.
1.24 Permitted Encumbrances. Rights reserved to any Governmental
----------------------
Authority to regulate the Satellites.
-3-
<PAGE>
1.25 Person. Any natural person, corporation, partnership, trust,
------
unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
1.26 Primestar. Primestar Partners, L.P., a Delaware limited
---------
partnership.
1.27 Purchase Price of First Successfully Delivered Satellite. An
--------------------------------------------------------
amount equal to the aggregate of the following:
(a) all amounts paid or payable to Loral under the BSS
Construction Agreement with respect to (i) the First Successfully Delivered
Satellite (which shall include 50% of any amounts paid or payable under the
Amendments and 50% of any other amounts paid or payable under the BSS
Construction Agreement which are not attributable to a specific Satellite)
[*****] payable under Article 13 of the BSS Construction Agreement) and (ii)
Items 3 and 4 described in Section 4.1 of the BSS Construction Agreement;
(b) all amounts paid or payable under the Telesat
Agreements with respect to the period up to and including the date that is 10
days prior to the First Closing Date;
(c) 50% of interest charges and other financing costs paid
or payable by Tempo, Primestar or their respective Affiliates under the
Construction Financing Agreements with respect to the period up to and including
the date that is 10 days prior to First Closing Date; and
(d) [*****], representing amounts paid by Tempo,
Primestar or their respective Affiliates to Loral prior to execution of the BSS
Construction Agreement in connection with the Satellites;
less
(i) the amount of any damages paid to
Tempo,primestar or their respective Affiliates by Loral pursuant to Article 23
of the BSS Construction Agreement in respect of the First Successfully
Delivered Satellite;
(ii) the amount of any [*****] of the BSS
Construction Agreement in respect of the First Successfully Delivered Satellite
prior to the First Closing Date;
(iii) the amount of any reimbursement by Loral to
Tempo, Primestar or their respective Affiliates pursuant to Article 21 of the
BSS Construction Agreement in respect of the First Successfully Delivered
Satellite; provided, that no reduction shall be made
-4-
<PAGE>
in respect of any payment by Loral for alternative satellite facilities acquired
by Tempo as a result of a delay in Satellite delivery; and
(iv) any late payment or interest charges and any
other amounts paid by Tempo, Primestar or their respective Affiliates under
either the BSS Construction Agreement or any Construction Financing Agreement as
a result of a default under any such agreement.
1.28 Purchase Price of Second Successfully Delivered Satellite. An
---------------------------------------------------------
amount equal to the aggregate of the following:
(a) all amounts paid or payable to Loral under the BSS
Construction Agreement (after reducing such amount by the amount of any
reduction in the Orbital Performance Incentives payable under Article 13 of the
BSS Construction Agreement);
(b) all amounts paid or payable to Telesat under the
Telesat Agreements; and
(c) all interest charges and other financing costs paid or
payable by Tempo, Primestar or their respective Affiliates under the
Construction Financing Agreements;
in each case to the extent not previously paid by Telesat as part of the
Purchase Price of First Successfully Delivered Satellite;
less
(i) the amount of any damages paid to Tempo,
Primestar or their respective Affiliates by Loral pursuant to Article 23 of the
BSS Construction Agreement;
(ii) the amount of any [**************************]
of the BSS Construction Agreement in respect of the Second
Successfully Delivered Satellite prior to the Second Closing Date;
(iii) the amount of any reimbursement by Loral to
Tempo, Primestar or their respective Affiliates pursuant to Article 21 of the
BSS Construction Agreement; provided, that no reduction shall be made in respect
of any payment by Loral for alternative satellite facilities acquired by Tempo
as a result of a delay in Satellite delivery; and
(iv) any late payment or interest charges and any
other amounts paid by Tempo, Primestar or their respective Affiliates under
either the BSS Construction Agreement or any Construction Financing Agreement as
a result of a default under any such agreement;
-5-
<PAGE>
in each case to the extent not applied in reduction of part of the Purchase
Price of First Successfully Delivered Satellite.
1.29 Radio Authorization. The authorization of the Minister of
-------------------
Industry (Canada) pursuant to the Radiocommunication Act (Canada) to use the
broadcast satellite system position at the 82degrees West orbital location.
1.30 Required Consents. The Telesat Required Consents and the
-----------------
Tempo Required Consents.
1.31 Satellite Purchase Price. The Purchase Price of First
------------------------
Successfully Delivered Satellite or the Purchase Price of Second Successfully
Delivered Satellite, as applicable.
1.32 Second Closing. The consummation of the transactions
--------------
contemplated by Section 3.2, the date of which is referred to as the Second
Closing Date.
1.33 Second Launched Satellite. The second satellite that Loral
-------------------------
attempts to launch under the BSS Construction Agreement, whether or not
Successfully Delivered.
1.34 Second Successfully Delivered Satellite. The second Satellite
---------------------------------------
launched pursuant to the BSS Construction Agreement which is accepted by Tempo
pursuant to Section 10.2 or Section 10.3 of the BSS Construction Agreement,
including, if applicable, a replacement Satellite as contemplated by Section
10.4 of the BSS Construction Agreement.
1.35 Shipment Date. The date on which Loral ships a Satellite to
-------------
its Launch Site (as defined in the BSS Construction Agreement).
1.36 Successful Delivery. A Satellite has been launched and
-------------------
accepted by Tempo pursuant to Section 10.2 or Section 10.3 of the BSS
Construction Agreement.
1.37 Telesat Agreements. The following agreements between Telesat
------------------
and Tempo: (a) Consulting Agreement dated as of November 16, 1990, and amended
as of June 1, 1991 and September 28, 1992, (b) Technical Assistance Agreement
dated as of December 31, 1992 and (c) Consulting Agreement dated as of August
12, 1993.
1.38 Telesat Authorization Certificate. A certificate of Telesat
---------------------------------
in form and substance satisfactory to Tempo certifying that as of the date of
delivery of such certificate, Telesat has full and unconditional authority
under applicable Legal Requirements to authorize Loral to launch the Satellites
into the 82 degrees West orbital location, to thereafter own and operate the
Satellites at such location in accordance with the terms of this Agreement and
the Operating Services Agreement, and to permit the use by TCI of the
transponders to be sold to it in accordance with the terms of, and for the
purposes contemplated by, the Operating Services
-6-
<PAGE>
Agreement. If Tempo in its sole discretion hereafter agrees in writing to the
delivery by Telesat of a certificate pursuant to Section 9.1.2 or Section 10.3.6
that contains certifications different than those set forth in the immediately
preceding sentence, the form of such certificate as agreed to by Tempo shall
thereafter be the Telesat Authorization Certificate.
1.39 Telesat Required Consents. All notifications, licenses,
-------------------------
permits, authorizations, approvals and consents under Legal Requirements and
other third-party consents (including, without limiting the generality of the
foregoing, any Industry Canada and CRTC requirements, notifications, licenses,
authorizations, approvals and or consents) required for Telesat to consummate
the transactions contemplated by, and to perform its obligations under, this
Agreement and the Operating Services Agreement, including those required for (a)
Telesat to perform its obligations under Section 2 of this Agreement and to
permit the transactions described in Section 2 of the Operating Services
Agreement, (b) Telesat to purchase the Satellites and to thereafter own and
operate the Satellites at the 82degrees West orbital location, and (c) Telesat
to sell transponders on the Satellites to TCI in accordance with the terms of
the Operating Services Agreement and TCI to purchase and use such transponders
under Canadian Legal Requirements to transmit television programming and other
services into the United States; provided, that any notifications, licenses,
permits, authorizations, approvals and consents required under United States
Legal Requirements for TCI to so purchase and use such transponders are Tempo
Required Consents, not Telesat Required Consents.
1.40 Tempo Required Consents. All notifications, licenses,
-----------------------
permits, authorizations, approvals and consents under Legal Requirements and
other third-party consents (including, without limiting the generality of the
foregoing, any FCC requirements, notifications, licenses, authorizations,
approvals and or consents) required for Tempo to consummate the transactions
contemplated by, and to perform its obligations under, this Agreement and for
TCI to consummate the transactions contemplated by, and to perform its
obligations under, the Operating Services Agreement, including those required
for (a) Tempo to sell the Satellites to Telesat, and (b) TCI to purchase
transponders on the Satellites in accordance with the terms of the Operating
Services Agreement and to use such transponders to transmit television
programming and other services into the United States; provided, that any
notifications, licenses, permits, authorizations, approvals and consents
required under Canadian Legal Requirements for TCI to so purchase and use such
transponders are Telesat Required Consents, not Tempo Required Consents.
1.41 TCI. TCI Technology Ventures, Inc., a corporation
---
incorporated and existing under the laws of the State of Delaware.
1.42 Transponder Purchase Price.
--------------------------
(a) Subject to Sections 1.42(b) and (c), the
Transponder Purchase Price for each Satellite will be an amount equal to:
-7-
<PAGE>
Satellite Purchase Price of such Satellite x 27
------------------------------------------ --
2 32
(b) If the First Successfully Delivered Satellite is being
operated in the 16 transponder mode at the time it is sold to Telesat, the
Transponder Purchase Price in respect of the First Successfully Delivered
Satellite will be an amount equal to:
Purchase Price of First Successfully Delivered Satellite x 14
-------------------------------------------------------- --
2 16
(c) If the First Successfully Delivered Satellite is being
operated in the 16 transponder mode at the time the Second Successfully
Delivered Satellite is sold to Telesat pursuant to Section 3.2, the Transponder
Purchase Price in respect of the Second Successfully Delivered Satellite will be
an amount equal to:
Purchase Price of Second Successfully Delivered Satellite x 13
--------------------------------------------------------- --
2 16
1.43 Other Definitions. The following terms are defined in the Sections
-----------------
indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Action 12.4
Agreement Preamble
Amendments Recitals
Anniversary Date 11.1(d)
Article 9 4.1
Article 10 4.1
Article 11 4.3
Article 33 Notice 4.5
Article 33 Option 4.5
Assignment Agreement 3.1
BSS Construction Agreement Recitals
HSR Act 8.3
Indemnified Party 12.4
Indemnifying Party 12.4
In-Orbit Testing 2.1(b)
Loral Recitals
Party or Parties Preamble
Pre-Closing 9.1
Satellite or Satellites Recitals
</TABLE>
-8-
<PAGE>
Second Anniversary Date 11.2(c)
Telesat Preamble
Telesat Damages 12.6
Telesat Indemnitees 12.3
Tempo Preamble
Tempo Damages 12.5
Tempo Indemnitees 12.2
Term Sheet 8.9
TT&C Ground Station Equipment 4.3
Two-Channel Transponder Simulator 3.1
SECTION 2. LAUNCH OF SATELLITES; ITU/IFRB REGISTRATION.
2.1 Launch of Satellites.
--------------------
(a) Telesat agrees that Loral may launch the Satellites
into the 82DEGREES West orbital location at any time after the Telesat Required
Consents have been obtained and Telesat has delivered to Tempo the Telesat
Authorization Certificate.
(b) Tempo agrees that it remains responsible under the BSS
Construction Agreement (i) to give Loral access to Tempo's communications uplink
facility in the United States for the purposes of In-Orbit Testing (as defined
in the BSS Construction Agreement) of the First Launched Satellite and the
Second Launched Satellite, (ii) at least 60 days prior to the launch of the
First Launched Satellite and the Second Launched Satellite, to supply at Tempo's
communications uplink facility in the United States, the radio frequency
equipment identified in Attachment F to the BSS Construction Agreement as being
provided by Tempo and (iii) to meet with Loral at least 180 days prior to launch
of the First Launched Satellite and the Second Launched Satellite to confirm the
availability of the radio frequency equipment which Tempo is obligated to
provide.
(c) With respect to any Satellites launched under the BSS
Construction Agreement after the First Launched Satellite and the Second
Launched Satellite, Telesat agrees (i) that it will give Loral access to
Telesat's communications uplink facility for the purposes of In-Orbit Testing
(as defined in the BSS Construction Agreement) of each such Satellite, (ii) at
least 60 days prior to the launch of each such Satellite, to supply at the
communications uplink facility at its cost, the radio frequency equipment
identified in Attachment F to the BSS Construction Agreement as being provided
by Tempo and (iii) to meet with Loral at least 180 days prior to launch of each
such Satellite to confirm the availability of the radio frequency equipment
which Telesat is obligated to provide.
2.2 ITU/IFRB Registration. Telesat is responsible for supporting
---------------------
Industry Canada with radio frequencies coordination and the preparation of
filings for International Telecommunications Union/International Frequency
Registration Board (ITU/IFRB) registration
-9-
<PAGE>
with respect to the Satellites. Telesat will submit all such ITU/IFRB filings to
Tempo reasonably in advance of making such filings with Industry Canada for
Tempo's review and comment and will not make any such filings without Tempo's
written consent to the contents of such filings; provided that Tempo shall
confirm in writing the giving or denial of the consent to the contents of such
filing within three Business Days of the receipt thereof. If Tempo shall not
have given or denied such consent within such three Business Day period, Tempo
shall be deemed to have consented to the contents of such filing. If Tempo
shall deny such consent within such period, it shall specify with reasonable
particularity the reasons for such denial. If any ITU/IFRB filing with respect
to the Satellites contains modifications from the nominal plan (filed with the
ITU/IFRB) that alter the in-orbit Performance Specifications (including the
Amendment No. 13 Performance Specifications) of the Satellites, the Performance
Specifications (including the Amendment No. 13 Performance Specifications) will
be adjusted to take into account the deviations from the nominal plan for the
purposes of applying the Performance Specifications (including the Amendment No.
13 Performance Specifications) under this Agreement.[*****]
2.3 Use of Satellite Pending Closing. Tempo acknowledges and
--------------------------------
agrees to the provisions of Sections 2.2 and 2.4 of the Operating Services
Agreement with respect to the use of the Satellites pending Closing.
SECTION 3. PURCHASE AND SALE OF THE SATELLITES.
Subject to the terms and conditions set forth in this Agreement,
the Parties will effect the purchase and sale of the Satellites and the
Deliverable Items as follows:
3.1 Purchase and Sale of First Successfully Delivered Satellite.
-----------------------------------------------------------
In consideration of, and in exchange for, payment by Telesat of the Purchase
Price of First Successfully Delivered Satellite, Tempo will sell, convey, assign
and transfer to Telesat on the First Closing Date, all of Tempo's right, title
and interest in, to and under the First Successfully Delivered Satellite and the
Deliverable Items transferred to it by Loral on or before the First Closing Date
other than the Two-Channel Transponder Simulator identified as Item 3 in Section
4.1 of the BSS Construction Agreement (the "Two-Channel Transponder Simulator"),
free and clear of all Encumbrances, except Permitted Encumbrances, such
assignment to be effected pursuant to an Assignment Agreement in the form
attached to this Agreement as EXHIBIT B (the "Assignment Agreement"). Tempo is
not assigning to Telesat any of its rights or obligations under the Construction
Financing Agreements or the BSS Construction Agreement except to the extent
certain rights of Tempo under the BSS Construction Agreement are extended or
assigned to Telesat pursuant to the Loral Side Agreement.
3.2 Purchase and Sale of Second Successfully Delivered Satellite.
------------------------------------------------------------
If the BSS Construction Agreement continues in effect following the First
Closing Date, on the Second Closing Date Tempo will sell, convey, assign and
transfer to Telesat in consideration of and in
-10-
<PAGE>
exchange for, payment by Telesat of the Purchase Price of Second Successfully
Delivered Satellite, all of Tempo's right, title and interest in, to and under
the Second Successfully Delivered Satellite and the Deliverable Items
transferred to it by Loral on or before such Second Closing Date and not
previously assigned to Telesat pursuant to Section 3.1, free and clear of all
Encumbrances, except Permitted Encumbrances, such assignment to be effected
pursuant to an Assignment Agreement.
3.3 Payment of Satellite Purchase Price. Telesat will pay to
-----------------------------------
Tempo by wire transfer of immediately available funds on the First Closing Date
and, if applicable, on the Second Closing Date, an amount equal to the Satellite
Purchase Price for the Satellite being sold to Telesat on such date minus the
Transponder Purchase Price for the Transponders being sold to TCI on such date.
Tempo hereby agrees that on each Closing Date, Telesat may offset an amount of
the Satellite Purchase Price equal to, and against, the amount of the
Transponder Purchase Price payable by TCI to Telesat on such Closing Date and
Telesat hereby agrees that TCI may offset the amount of the Transponder Purchase
Price payable by TCI to Telesat on such Closing Date against an equal amount of
the Satellite Purchase Price payable by Telesat to Tempo on such date.
SECTION 4. ISSUES UNDER BSS CONSTRUCTION AGREEMENT.
4.1 Pre-Shipment Inspections. Pursuant to Article 9 of the BSS
------------------------
Construction Agreement ("Article 9"), Tempo has certain rights with respect to
pre-shipment inspection of the Satellites and the Deliverable Items. Tempo
agrees to allow Telesat to be present at all pre-shipment inspections which
occur after the date of this Agreement and to consult in good faith with Telesat
regarding the content of any notices, waivers, reports or other communications
to be delivered to Loral pursuant to Article 9; provided, that Tempo shall
retain final authority with respect to all decisions and communications to be
made under Article 9 and Telesat's approval shall not be required with respect
to any such decisions or communications other than with respect to any waiver
under the BSS Construction Agreement that (i) would have a material adverse
effect on achieving a mission life of at least 12 years and 100% of the
transponders and payload and bus redundancy availability; (ii) would cause an
adverse deviation from the Amendment No. 13 Performance Specifications for
sidelobe isolation, antenna beam pointing accuracy, attitude control, tracking,
telemetry and command requirements that would materially impair Telesat's
ability to operate the Satellites or impair Telesat's ability to operate the
Satellites within the limits of the Legal Requirements and Required Consents; or
(iii) would cause a material adverse deviation from the Amendment No. 13
Performance Specifications for saturation flux density operating in both the
automatic level control and fixed gain modes, antenna cross-polarization
isolation, spurious outputs, multipaction and passive intermodulation products,
and EIRP and G/T polygons and city tables, all to the extent that such
deviations from the Amendment No. 13 Performance Specifications would prevent
Telesat, pursuant to Section 3 of the Operating Services Agreement, from
designating five transponders that meet the Amendment No. 13 Performance
Specifications as Telesat Transponders, were the Satellites to be accepted
pursuant to Article 10 of the BSS Construction Agreement ("Article 10").
-11-
<PAGE>
4.2 Satellite Acceptance. Pursuant to Article 10, Tempo has
--------------------
certain rights with respect to acceptance of the Satellites. Tempo agrees to
allow Telesat to be present at In-Orbit Testing of the Satellites and at
acceptance review sessions with respect to the Satellites and to consult in good
faith with Telesat regarding the content of any notices, waivers, reports or
other communications to be delivered to Loral pursuant to Article 10; provided,
that Tempo shall retain final authority with respect to all decisions and
communications to be made under Article 10 and Telesat's approval shall not be
required with respect to any such decisions or communications other than with
respect to any waiver under the BSS Construction Agreement that (i) would have a
material adverse effect on achieving a mission life of at least six years and
50% of the transponders and payload and bus redundancy availability; (ii) would
cause an adverse deviation from the Amendment No. 13 Performance Specifications
for sidelobe isolation, antenna beam pointing accuracy, attitude control,
tracking, telemetry and command requirements that would materially impair
Telesat's ability to operate the Satellites or impair Telesat's ability to
operate the Satellites within the limits of the Legal Requirements and Required
Consents; or (iii) would cause a material adverse deviation from the Amendment
No. 13 Performance Specifications for saturation flux density operating in both
the automatic level control and fixed gain modes, antenna cross-polarization
isolation, spurious outputs, multipaction and passive intermodulation products,
and EIRP and G/T polygons and city tables, all to the extent that such
deviations from the Amendment No. 13 Performance Specifications would prevent
Telesat, pursuant to Section 3 of the Operating Services Agreement, from
designating five transponders that meet the Amendment No. 13 Performance
Specifications as Telesat Transponders, were the Satellites to be accepted
pursuant to Article 10.
4.3 Acceptance Inspection of Other Deliverable Items. Pursuant to
------------------------------------------------
Article 11 of the BSS Construction Agreement ("Article 11"), Tempo has certain
rights with respect to acceptance inspection for the Deliverable Items. Tempo
agrees to allow Telesat to be present at all inspections and acceptance review
sessions with respect to the Deliverable Items which occur after the date of
this Agreement and to consult with Telesat regarding the content of any notices,
waivers, reports or other communications to be delivered to Loral pursuant to
Article 11; provided, that, except with respect to TT&C Ground Station Equipment
(as defined in the BSS Construction Agreement and as to which Telesat shall have
final authority), Tempo shall retain final authority with respect to all
decisions and communications to be made under Article 11 and Telesat's approval
shall not be required with respect to any such decisions or communications.
4.4 Amendments to BSS Construction Agreement. Tempo agrees that
----------------------------------------
it will not amend the BSS Construction Agreement without the prior written
consent of Telesat if such amendment (i) would have a material adverse effect on
achieving a mission life of at least 12 years and 100% of the transponders and
payload and bus redundancy availability; (ii) would cause an adverse deviation
from the Amendment No. 13 Performance Specifications for sidelobe isolation,
antenna beam pointing accuracy, attitude control, tracking, telemetry and
command requirements that would materially impair Telesat's ability to operate
the Satellites or impair Telesat's ability to operate the Satellites within the
limits of the Legal Requirements and Required Consents; or (iii) would cause a
material adverse deviation from the Amendment No.
-12-
<PAGE>
13 Performance Specifications for saturation flux density operating in both the
automatic level control and fixed gain modes, antenna cross-polarization
isolation, spurious outputs, multipaction and passive intermodulation products,
and EIRP and G/T polygons and city tables, all to the extent that such
deviations from the Amendment No. 13 Performance Specifications would prevent
Telesat, pursuant to Section 3 of the Operating Services Agreement, from
designating five transponders that meet the Amendment No. 13 Performance
Specifications as Telesat Transponders, were the Satellites to be accepted
pursuant to Article 10 of the BSS Construction Agreement. Tempo agrees that it
will deliver a copy of each Amendment to the BSS Construction Agreement entered
into after the date hereof to Telesat.
4.5 Successor Satellites. Pursuant to Article 33 of the BSS
--------------------
Construction Agreement, Tempo has the option (the "Article 33 Option") to
terminate the BSS Construction Agreement in the event of two successive
satellite failures thereunder. If Tempo desires to exercise the Article 33
Option, it shall give prompt written notice (the "Article 33 Notice") to Telesat
regarding its decision prior to its exercise of such option. Telesat shall then
have the option to cause Tempo not to exercise the Article 33 Option and instead
to cause Loral to build a replacement satellite in accordance with the terms of
the BSS Construction Agreement. The option granted to Telesat in this Section
4.5 must be exercised by written notice to Tempo given within five Business Days
following Tempo's giving of the Article 33 Notice and the exercise of such
option must be accompanied by [*****] for one Satellite if the Article 33
Option becomes exercisable after one Satellite has been Successfully Delivered
or for two Satellites if the Article 33 Option becomes exercisable before
Successful Delivery of any Satellite, in each case to the extent already paid by
Tempo. Following exercise by Telesat of the option granted to it in this Section
4.5, this Agreement and the Operating Services Agreement shall continue in
effect.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF TELESAT.
To induce Tempo to enter into this Agreement, Telesat represents
and warrants to Tempo, as of the date of this Agreement and as of the First and
Second Closing Dates with respect to each Satellite, except with respect to
representations and warranties made as of a specific date, as follows:
5.1 Organization and Qualification. Telesat is a corporation,
------------------------------
validly existing and in good standing under the laws of Canada and has all
requisite corporate power and authority to carry on its business as currently
conducted and to own, lease, use and operate its assets, except where the
failure to have such power and authority would not have a material adverse
effect on Telesat or its ability to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement. Telesat has
delivered to Tempo complete and correct copies of the Articles of Continuance
and Bylaws of Telesat, which Articles of Continuance and Bylaws have not been
amended, modified or rescinded and are in full force and effect.
-13-
<PAGE>
5.2 Authority and Validity. Subject to obtaining the approval
----------------------
of the board of directors of Telesat, Telesat has all requisite corporate power
and authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement. Subject to
obtaining the consent of Telesat's board of directors, the execution and
delivery by Telesat of, the performance by Telesat of its obligations under, and
the consummation by Telesat of the transactions contemplated by, this Agreement
have been duly authorized by all requisite corporate action of Telesat. Telesat
will deliver to Tempo on or before May 27, 1996, complete and correct copies of
resolutions, certified by Telesat's secretary, authorizing such execution,
delivery, performance and consummation, which have been duly adopted by
Telesat's board of directors, and which have not been amended, modified or
rescinded and are in full force and effect. Subject to obtaining the approval
of the board of directors of Telesat, this Agreement has been duly executed and
delivered by Telesat and is the valid and binding obligation of Telesat,
enforceable against Telesat in accordance with its terms, except insofar as
enforceability may be affected by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect affecting
creditors' rights generally or by principles governing the availability of
equitable remedies.
5.3 No Breach or Violation. Subject to obtaining the Telesat
----------------------
Required Consents, including those listed on SCHEDULE 1, the execution, delivery
and performance of this Agreement by Telesat will not: (a) violate any
provision of the Articles of Continuance or Bylaws of Telesat; (b) violate any
Legal Requirement; (c) require any consent, approval or authorization of, or any
filing with or notice to, any Person; or (d) (i) violate, conflict with or
constitute a breach of or default under (without regard to requirements of
notice, passage of time or elections of any Person), (ii) permit or result in
the termination, suspension or modification of, (iii) result in the acceleration
of (or give any Person the right to accelerate) the performance of Telesat
under, or (iv) result in the creation or imposition of any Encumbrance under,
any instrument or other agreement to which Telesat is a party or by which
Telesat or any of its assets is bound or affected, except for purposes of
clauses (b) or (d) such violations, conflicts, breaches, defaults, terminations,
suspensions, modifications and accelerations as would not, individually or in
the aggregate, have a material adverse effect on the ability of Telesat to
perform its obligations under this Agreement. SCHEDULE 1 lists all Telesat
Required Consents of which Telesat is aware as of the date of this Agreement.
5.4 Legal Proceedings. Except as set forth on SCHEDULE 3, except
-----------------
as may affect the DBS industry generally, and except with respect to any filings
made with the CRTC or Industry Canada opposing Telesat's applications for CRTC
authorization of the transactions contemplated by this Agreement and for a Radio
Authorization for the 82 degrees West orbital location, there is no judgment or
order outstanding, or any action, suit, complaint, proceeding or investigation
by or before any Governmental Authority or any arbitrator pending against
Telesat or its assets, or to Telesat's best knowledge, threatened against
Telesat or its assets, which, if adversely determined, would be reasonably
expected to have a material adverse effect on the ability of Telesat to
consummate the transactions contemplated by this Agreement or the Operating
Services Agreement.
-14-
<PAGE>
5.5 Finders and Brokers. Neither Telesat nor any of its
-------------------
Affiliates has employed any financial advisor, broker or finder or incurred any
liability for any financial advisory, brokerage, finder's or similar fee or
commission in connection with the transactions contemplated by this Agreement or
the Operating Services Agreement for which Tempo or any of its Affiliates could
be liable.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF TEMPO.
To induce Telesat to enter into this Agreement, Tempo represents
and warrants to Telesat, as of the date of this Agreement and as of the First
and Second Closing Dates, except representations and warranties made as of a
specific date as follows:
6.1 Organization. Tempo is a corporation duly organized, validly
------------
existing and in good standing under the laws of its state of incorporation and
has all requisite corporate power and authority to carry on its business as
currently conducted and to own, lease, use and operate its assets, except where
the failure to have such power and authority would not have a material adverse
effect on Tempo. Tempo has delivered to Telesat complete and correct copies of
the Articles or Certificate of Incorporation and Bylaws of Tempo, which Articles
or Certificate of Incorporation and Bylaws have not been amended, modified or
rescinded and are in full force and effect.
6.2 Authority and Validity. Subject to obtaining the approval of
----------------------
the board of directors of Tempo, Tempo has all requisite corporate power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement. Subject to
obtaining the approval of the board of directors of Tempo, the execution and
delivery by Tempo of, the performance by Tempo of its obligations under, and the
consummation by Tempo of the transactions contemplated by, this Agreement have
been duly authorized by all requisite corporate action of Tempo. Tempo will
deliver to Telesat on or before May 27, 1996, complete and correct copies of
resolutions, certified by Tempo's secretary, authorizing such execution,
delivery, performance and consummation, which have been duly adopted by Tempo's
board of directors and which have not been amended, modified or rescinded and
are in full force and effect. Subject to obtaining the approval of the board of
directors of Tempo, this Agreement has been duly executed and delivered by Tempo
and is the valid and binding obligation of Tempo, enforceable against Tempo in
accordance with its terms, except insofar as enforceability may be affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect affecting creditors' rights generally or by
principles governing the availability of equitable remedies
6.3 No Breach or Violation. Subject to obtaining the Tempo
----------------------
Required Consents, including those listed on SCHEDULE 2, the execution, delivery
and performance of this Agreement by Tempo will not: (a) violate any provision
of the charter or bylaws of Tempo; (b) violate any Legal Requirement; (c)
subject to the obligations of Tele-Communications, Inc. under the agreement
described on SCHEDULE 5, require any consent, approval or authorization of,
-15-
<PAGE>
or any filing with or notice to, any Person; or (d) (i) violate, conflict with
or constitute a breach of or default under (without regard to requirements of
notice, passage of time or elections of any Person), (ii) permit or result in
the termination, suspension or modification of, (iii) result in the acceleration
of (or give any Person the right to accelerate) the performance of Tempo under,
or (iv) result in the creation or imposition of any Encumbrance under, any
instrument or other agreement to which Tempo is a party or by which Tempo or any
of its assets is bound or affected, except for purposes of clauses (b) or (d)
such violations, conflicts, breaches, defaults, terminations, suspensions,
modifications and accelerations as would not, individually or in the aggregate,
have a material adverse effect on Tempo, or on the ability of Tempo to perform
its obligations under this Agreement. SCHEDULE 2 lists all Tempo Required
Consents of which Tempo is aware as of the date of this Agreement.
6.4 Ownership of Satellites. On each Closing Date, Tempo will be
-----------------------
the legal and beneficial owner of the Satellite(s) which are being sold to
Telesat on such Closing Date, free and clear of all Encumbrances of any kind or
nature, except Permitted Encumbrances.
6.5 Finders and Brokers. Neither Tempo nor any of its Affiliates
-------------------
has employed any financial advisor, broker or finder or incurred any liability
for any financial advisory, brokerage, finder's or similar fee or commission in
connection with the transactions contemplated by this Agreement or the Operating
Services Agreement for which Telesat or any of its Affiliates could be liable.
6.6 Legal Proceedings. Except as set forth on SCHEDULE 4, except
-----------------
as may affect the DBS industry generally, and except with respect to any filings
made with the FCC opposing Tempo's or TCI's application for a license to uplink
to the Satellites, there is no judgment or order outstanding, or any action,
suit, complaint, proceeding or investigation by or before any Governmental
Authority or any arbitrator pending against Tempo or its assets, or to Tempo's
best knowledge, threatened against Tempo or its assets, which, if adversely
determined, would be reasonably expected to have a material adverse effect on
the ability of Tempo to consummate the transactions contemplated by this
Agreement or the Operating Services Agreement.
6.7 Construction Financing Agreement. All borrowings under the
--------------------------------
Construction Financing Agreements have been and will be used to finance or
refinance the payment of amounts or items included in the Satellite Purchase
Price.
6.8 BSS Construction Agreement. Tempo is not in breach or default
--------------------------
of any of its obligations under the BSS Construction Agreement where such breach
or default would have a material adverse effect on the ability of Tempo to
perform its obligations under this Agreement or on the ability of TCI to perform
the Operating Services Agreement.
-16-
<PAGE>
SECTION 7. WARRANTIES AND LIMITATION OF LIABILITY.
7.1 Disclaimer of Warranties. ANY AND ALL EXPRESS AND IMPLIED
------------------------
WARRANTIES WITH RESPECT TO THE SATELLITES, THE TRANSPONDERS THEREON, AND THE
DELIVERABLE ITEMS, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR ANY PURPOSE OR USE, ARE EXPRESSLY EXCLUDED AND DISCLAIMED. IT
EXPRESSLY IS AGREED THAT TEMPO HAS NO OBLIGATIONS OR LIABILITIES FOR ANY FAILURE
OF A SATELLITE OR ANY TRANSPONDER THEREON TO PERFORM IN ACCORDANCE WITH THE
PERFORMANCE SPECIFICATIONS OR FOR ANY FAILURE OF A DELIVERABLE ITEM TO PERFORM
(INCLUDING, WITHOUT LIMITATION, LIABILITY ARISING FROM NEGLIGENCE). IT
EXPRESSLY IS AGREED THAT TELESAT'S EXCLUSIVE REMEDIES FOR ANY FAILURE OF A
SATELLITE OR ANY TRANSPONDER THEREON ARE LIMITED TO REMEDIES AGAINST LORAL AS
SET FORTH IN THE LORAL SIDE AGREEMENT AND ALL OTHER REMEDIES OF ANY KIND ARE
EXPRESSLY EXCLUDED.
7.2 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE
-----------------------
DIRECTLY OR INDIRECTLY TO THE OTHER OR TO ANY PERMITTED ASSIGNEES OR SUCCESSOR
OWNERS OF THE SATELLITE(S) OR ANY TRANSPONDERS ON THE SATELLITES OR ANY
DELIVERABLE ITEMS FOR ANY AMOUNTS (INCLUDING ANY SUCH AMOUNTS CLAIMED BY THIRD
PARTIES) REPRESENTING LOSS OF PROFITS, LOSS OF BUSINESS, OR INDIRECT, SPECIAL,
EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING FROM THE PERFORMANCE OR
NONPERFORMANCE OF THIS CONTRACT OR ANY ACTS OR OMISSIONS ASSOCIATED THEREWITH OR
RELATED TO THE USE OF ANY ITEMS OR SERVICES FURNISHED HEREUNDER, WHETHER THE
BASIS OF THE LIABILITY IS BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE AND
STRICT LIABILITY), STATUTES OR ANY OTHER LEGAL THEORY, UNLESS SUCH ACT OR
OMISSION ARISES FROM THE NON-CLAIMING PARTY'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. TELESAT AGREES TO AN EQUIVALENT LIMITATION OF LIABILITY WITH RESPECT
TO LORAL. EACH PARTY SHALL USE ITS BEST EFFORTS, WHEN NEGOTIATING AGREEMENTS
WITH SATELLITE OR TRANSPONDER USERS AND OTHER PARTIES HAVING A FINANCIAL
INTEREST IN THE OPERATION AND USE OF THE SATELLITES OR THE TRANSPONDERS ON THE
SATELLITES, TO OBTAIN SUCH PARTY'S AGREEMENT TO AN EQUIVALENT LIMITATION OF
LIABILITY WITH RESPECT TO LORAL AND THE OTHER PARTY HERETO AND THEIR
SUBCONTRACTORS AND SUPPLIERS AT ANY TIER; PROVIDED, HOWEVER, THAT NEITHER PARTY
SHALL HAVE ANY LIABILITY TO THE OTHER PARTY FOR ITS FAILURE TO OBTAIN SUCH
LIMITATIONS OF LIABILITY.
WITHOUT LIMITING THE FOREGOING, IN NO EVENT SHALL TEMPO BE LIABLE FOR ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER FORESEEABLE
-17-
<PAGE>
OR NOT, OCCASIONED BY ANY DEFECT IN THE SATELLITES, THE TRANSPONDERS ON THE
SATELLITES, THE DELIVERABLE ITEMS, DELAY IN DELIVERY OF THE SATELLITES, FAILURE
OF THE SATELLITES, THE TRANSPONDERS ON THE SATELLITES OR THE DELIVERABLE ITEMS
TO PERFORM OR ANY OTHER CAUSE WHATSOEVER. TEMPO MAKES NO WARRANTY, EXPRESS OR
IMPLIED, TO ANY OTHER PERSON OR ENTITY CONCERNING THE SATELLITES, THE
TRANSPONDERS ON THE SATELLITES OR THE DELIVERABLE ITEMS.
SECTION 8. ADDITIONAL COVENANTS.
8.1 Required Consents; Industry Canada License Fees. Telesat will
-----------------------------------------------
diligently pursue and negotiate in good faith with the CRTC to obtain the
consent of the CRTC on or before May 31, 1996 on terms reasonably satisfactory
to Telesat and Tempo and will diligently attempt to satisfy the conditions of
Industry Canada set forth in its letter dated February 27, 1996 to the extent
capable of or appropriate for satisfaction on or before May 31, 1996. Tempo
will diligently pursue and negotiate in good faith with the FCC to obtain a
license to uplink to the Satellites on or before May 31, 1996. Telesat will
provide to TCI on or before May 31, 1996 its proposed form of the Telesat
Authorization Certificate. Telesat will use its best efforts to reach
agreement with Industry Canada as to the actual Industry Canada License Fee by
May 31, 1996.
8.2 Maintenance of Required Consents. Each Party will take all
--------------------------------
steps necessary or proper to preserve, renew and maintain in full force and
effect its Required Consents once they are obtained and to comply with the same,
including the defense of any action brought by a Governmental Authority with
respect to its Required Consents. After each applicable Closing Date, each Party
will apply for any additional authorizations, permits, licenses or consents
necessary to carry out its obligations hereunder, including, in the case of
Telesat, modifications and additions to the Telesat Required Consents from
Canadian Governmental Authorities or Persons as may be necessary to enable Tempo
to use the Tempo Transponders to transmit television programming and other
services into the United States and will comply with all applicable Legal
Requirements necessary to perform its obligations hereunder. Each Party will
give prompt written notice to the other Party of (a) the issuance of any
citation or order relating to its Required Consents that would have a material
adverse effect on its ability to perform its obligations under this Agreement,
(b) any lapse, suspension, revocation, rescission or other termination of its
Required Consents, (c) any notice to such Party of an alleged breach or
violation by such Party or any other Person of its Required Consents, (d) any
proceedings related to such Party's Required Consents if the outcome of such
proceedings could have a material adverse effect on such Party's ability to
perform its obligations hereunder or (e) any refusal of any Person to grant,
renew or extend such Party's Required Consents. Each Party will provide copies
to the other party of any and all applications, filings, requests for
modifications or other documents to be submitted to any Governmental Authority
in connection with the Required Consents and will give the other Party an
opportunity to comment on any aspects of the same that affect such Party
reasonably prior to their submission, and simultaneously with submission
thereof, will provide a copy thereof to such Party.
-18-
<PAGE>
8.3 HSR Notification. As soon as practicable after the execution
----------------
of this Agreement, but in any event no later than 30 days after such execution
(or, if later, 15 days after the date on which such filing requirements become
applicable), the ultimate parent entity of each of Tempo and Telesat will
complete and file, or cause to be completed and filed, any notification and
report required to be filed in connection with the transactions contemplated
under this Agreement and the Operating Services Agreement, under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Each of
the Parties will take any additional action that may be necessary, proper or
advisable, will cooperate to prevent inconsistencies between their respective
filings and will furnish to each other such necessary information and reasonable
assistance as the other may reasonably request in connection with its
preparation of necessary filings or submissions under the HSR Act. The Parties
shall take all commercially reasonable actions to respond promptly to any
requests for additional information from any Governmental Authority in
connection with the HSR Act. Tempo and Telesat will each pay one-half of any
required filing fee under the HSR Act.
8.4 Notification of Certain Matters. Each of Tempo and Telesat
-------------------------------
will promptly notify the other from time to time up to Closing of any fact,
event, circumstance or action (a) which, if known on the date of this Agreement,
would have been required to be disclosed to the other pursuant to this Agreement
or (b) the existence or occurrence of which would cause any of Tempo's or
Telesat's, as the case may be, representations or warranties under this
Agreement not to be correct and complete in any material respect if they were
made as of such date.
8.5 Transfer Taxes. Telesat will be responsible for the payment
--------------
of any federal, provincial or local sales, use, transfer, excise, documentary or
license taxes or fees or any other charge (including filing fees) imposed by any
Canadian Governmental Authority with respect to the transfer of the Satellites
and the Deliverable Items pursuant to this Agreement; provided, that in no event
will Telesat be responsible for the payment of any income taxes to which Tempo
may be subject. Tempo will be responsible for the payment of any federal, state
or local sales, use, transfer, excise, documentary or license taxes or fees or
any other charge (including filing fees) imposed by any United States
Governmental Authority with respect to the transfer of the Satellites and the
Deliverable Items pursuant to this Agreement; provided, that in no event will
Tempo be responsible for the payment of any income taxes to which Telesat may be
subject.
8.6 Updated Schedules. Not less than 5 nor more than 10 Business
-----------------
Days prior to the Pre-Closing and each Closing, Telesat will deliver to Tempo
revised copies of SCHEDULES 1 AND 3 and Tempo will deliver to Telesat revised
copies of SCHEDULES 2, 4 AND 5 which shall have been updated to show any changes
occurring between the date of this Agreement and the date of delivery; provided,
however, that for purposes of the Parties' representations and warranties and
covenants in this Agreement, all references to the Schedules will mean the
version of the Schedules attached to this Agreement on the date of signing.
-19-
<PAGE>
8.7 Satisfaction of Conditions. Each Party will assist the other
--------------------------
Party in satisfying the conditions to the obligations of the other Party to
consummate the transactions contemplated by this Agreement, as set forth in
Section 10, provided, that, in the case of the Required Consents, such Required
Consents are on terms and conditions reasonably satisfactory to each Party.
Without limiting the foregoing, each Party agrees to assist the other Party in
its efforts to obtain the Required Consents applicable to such Party.
8.8 Confidentiality Regarding Terms and Existence of Agreement.
----------------------------------------------------------
None of the Parties will issue any press release or make any other public
announcement regarding this Agreement or the transactions contemplated hereby
without the consent of the other Party, such consent not to be unreasonably
delayed or denied. Each Party will hold, and will cause its employees,
consultants, advisors and agents to hold, in confidence, the existence and terms
of this Agreement, except to the extent the existence or terms of this Agreement
are or become a matter of public record, and any non-public information
concerning any other Party obtained pursuant to this Agreement. Notwithstanding
the preceding, a Party may disclose such information to the extent required by
any Legal Requirement (including disclosure requirements under federal,
provincial and state securities laws) or as a condition of obtaining any
Required Consent, but the Party proposing to disclose such information will
first notify and consult with the other Parties concerning the proposed
disclosure, to the extent reasonably feasible. Each Party also may disclose such
information to employees, consultants, advisors, agents and actual or potential
lenders whose knowledge is necessary to facilitate the consummation of the
transactions contemplated by this Agreement; provided that such representatives
will be required to observe the terms of this Section 8.8. Each Party's
obligation to hold information in confidence will be satisfied if it exercises
the same care with respect to such information as it would exercise to preserve
the confidentiality of its own similar information.
8.9 91 degrees Orbital Location. Tempo and TCI have submitted a
---------------------------
term sheet Telesat which outlines the financial terms on which TCI would be
willing to permit the Second Successfully Delivered Satellite to be launched
into the 91degrees West orbital location for a period ending no later than July
1, 1999 (the "Term Sheet"). The Term Sheet is attached to this Agreement as
EXHIBIT C. If Telesat notifies Tempo by May 15, 1996 that it wishes to proceed
with the deal outlined in the Term Sheet, Tempo agrees to negotiate in good
faith, and to cause TCI to negotiate in good faith, with Telesat to reach a
written agreement with Telesat by May 31, 1996 that contains (i) substantially
the terms set forth in the Term Sheet and such other terms and conditions as are
customary in transactions of the type contemplated by the Term Sheet and are
consistent with the relevant terms and conditions in the Operating Services
Agreement and (ii) such modifications to this Agreement and the Operating
Services Agreement as may be required to effect the result that the obligations
of the parties to such agreements with respect to the Satellite being launched
into the 91 degrees West orbital slot will, except with respect to financial
terms, mirror the obligations the Party has under this Agreement and the
Operating Services Agreement with respect to the Satellite being launched into
the 82 degrees West orbital slot. The intention of Telesat, TCI and Tempo is
that TCI's obligations under the Operating Services Agreement will not increase
as a result of the transaction between TCI and Telesat described in the Term
Sheet.
-20-
<PAGE>
SECTION 9. CLOSING.
9.1 Pre-Closing. At least five days prior to the Shipment Date
-----------
for each Satellite, the Parties will conduct a pre-closing ("Pre-Closing") in
for accordance with the provisions of this Section 9.1. If all conditions
specified in Section 10 to the obligations of the Parties to consummate the
transactions contemplated by this Agreement have not been satisfied as of the
Pre-Closing Date and could not be satisfied if Closing were to occur on the date
of such Pre-Closing (assuming that Successfully Delivery of the Satellite with
respect to which such Pre-Closing is being held had occurred), Tempo will have
no obligation to instruct Loral to ship such Satellite to its Launch Site or to
launch such Satellite into the 82degrees West orbital location unless the Party
or Parties entitled to waive any unsatisfied conditions have waived such
conditions in writing. Unless the Parties otherwise agree, and notwithstanding
any provision to the contrary in this Agreement, any condition to a Party's
obligations under this Agreement or the Operating Services Agreement or to TCI's
obligations under the Operating Services Agreement that such Party or TCI waives
in writing as of the Pre-Closing Date will, to the extent so waived, no longer
be a condition to such Party's or TCI's obligation to close the transactions
contemplated by this Agreement or the Operating Services Agreement. If a Party
is aware as of a Pre-Closing Date of an unsatisfied condition to its obligations
under this Agreement or the Operating Services Agreement and does not then
notify the other Party of the existence of such unsatisfied condition, the non-
notifying Party shall be deemed to have waived such condition as of the Pre-
Closing Date, with the same effect specified in the preceding sentence for
written waivers.
9.1.1 The conditions to Telesat's obligations set forth in
Section 10.2 will be deemed to be capable of being satisfied as of a Pre-Closing
Date if on such Pre-Closing Date: (a) Tempo in all material respects has
performed and complied with, or could if Closing were then to occur perform and
comply with, each obligation, agreement, covenant and condition required by this
Agreement to be performed or complied with by Tempo prior to or at the Closing,
(b) all representations and warranties of Tempo contained in this Agreement are,
if specifically qualified by materiality, true in all respects and, if not so
qualified, true in all material respects, in each case on and as of the Pre-
Closing Date with the same effect as if made on and as of the Pre-Closing Date,
except for changes permitted or contemplated by this Agreement or the Operating
Services Agreement and except with respect to representations and warranties
made as of a specific date; (c) the BSS Construction Agreement is in full force
and effect and no waivers under or amendments to the BSS Construction Agreement
for which the consent of Telesat is required under Section 4 of this Agreement
have been made or entered into without the consent of Telesat; (d) Tempo
delivers to Telesat on such Pre-Closing Date a certificate of the President or
Vice President of Tempo certifying as to the matters in (a), (b) and (c); (e)
TCI in all material respects has performed and complied with, or could if
Closing were then to occur perform and comply with, each obligation, agreement,
covenant and condition required by the Operating Services Agreement to be
performed or complied with by TCI prior to or at the Closing; (f) all
representations and warranties of TCI contained in the Operating Services
Agreement are, if specifically qualified by materiality, true in all respects
and, if not so qualified, true in all material respects, in each case on and as
of the Pre-Closing Date with the
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same effect as if made on and as of the Pre-Closing Date, except for changes
permitted or contemplated by this Agreement or the Operating Services Agreement
and except with respect to representations and warranties made as of a specific
date; (g) TCI delivers to Telesat on such Pre-Closing Date a certificate of the
President or Vice President of TCI certifying as to the matters in (e) and (f);
(h) Tempo delivers to Telesat (i) complete and correct copies of all Tempo
Required Consents; (ii) the opinions required under Section 10.2.5, dated as of
the Pre-Closing Date; and (iii) its written agreement to deliver to Telesat on
the Closing Date such documents as Telesat has requested in writing be delivered
pursuant to Section 10.2.8.
9.1.2 The conditions to Tempo's obligations set forth in
Section 10.3 will be deemed to be capable of being satisfied as of a Pre-Closing
Date if on such Pre-Closing Date: (a) Telesat delivers evidence satisfactory to
Tempo acting reasonably that Telesat will have funds on the Closing Date that
are in an amount equal to the Purchase Price of First Successfully Delivered
Satellite minus the Transponder Purchase Price payable by TCI for the
transponders to be acquired by it on the First Successfully Delivered Satellite
or, if such Pre-Closing Date is for the Second Closing, the Purchase Price of
Second Successfully Delivered Satellite minus the Transponder Purchase Price
payable by TCI on the Second Closing Date; (b) Telesat in all material respects
has performed and complied with, or could if Closing were then to occur perform
and comply with, each obligation, agreement, covenant and condition required by
this Agreement or the Operating Services Agreement to be performed or complied
with by Telesat prior to the Closing; (c) all representations and warranties of
Telesat contained in this Agreement and the Operating Services Agreement are, if
specifically qualified by materiality, true in all respects and, if not so
qualified, true in all material respects, in each case on and as of the Pre-
Closing Date with the same effect as if made on and as of the Pre-Closing Date,
except for changes permitted or contemplated by this Agreement or the Operating
Services Agreement and except with respect to representations and warranties
made as of a specific date; (d) Telesat delivers to Tempo a certificate of the
President or Vice President of Telesat certifying as to the matters in (a), (b)
and (c); and (e) Telesat delivers to Tempo complete and correct copies of (i)
all Telesat Required Consents and the Telesat Authorization Certificate
certifying that the matters covered by such certificate are true as of the Pre-
Closing Date; (ii) the opinions required under Section 10.3.5, dated as of the
Pre-Closing Date; and (iii) its written agreement to deliver to Tempo on the
Closing Date such documents as Tempo has requested in writing be delivered
pursuant to Section 10.3.7.
9.2 Closing as to First Successfully Delivered Satellite. The
----------------------------------------------------
First Closing shall occur for the First Successfully Delivered Satellite and the
related Deliverable Items on the 180th day after the launch of such Satellite if
(i) such Satellite has then been Successfully Delivered; (ii) title to such
Satellite has transferred from Loral to Tempo on or before such date; and (iii)
all other conditions to the First Closing contained in this Agreement (other
than those based on acts to be performed at the First Closing), including the
obtaining of the Required Consents, have been satisfied or waived.
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9.3 Closing as to Second Successfully Delivered Satellite. The
-----------------------------------------------------
Second Closing shall occur for the Second Successfully Delivered Satellite and
the related Deliverable Items on the 180th day after the launch of such
Satellite if (i) such Satellite has then been Successfully Delivered; (ii) title
to such Satellite has transferred from Loral to Tempo on or before such date;
and (iii) all other conditions to the Second Closing contained in this Agreement
(other than those based on acts to be performed at the Second Closing),
including the obtaining of the Required Consents, have been satisfied or waived.
9.4 Location of Closing. All Pre-Closings, the First Closing and,
-------------------
if applicable, the Second Closing, will be held at 10:00 a.m. local time at the
offices of Stikeman, Elliott in Toronto, or will be conducted by mail or at such
place and time as Tempo and Telesat may agree.
SECTION 10. CONDITIONS TO CLOSING.
10.1 Conditions to the Obligations of the Parties. The obligations
--------------------------------------------
of each Party to consummate the transactions contemplated by this Agreement to
take place at each Closing are subject to the satisfaction at or prior to each
Closing Date of each of the following conditions or the waiver in writing by
both Parties of such conditions:
10.1.1 All filings required under the HSR Act shall have
been made and the applicable waiting period shall have expired or been earlier
terminated without the receipt of any objection or the commencement or threat of
any litigation by a Governmental Authority of competent jurisdiction, which has
not been previously resolved, to restrain the consummation of the transactions
contemplated by this Agreement or the Operating Services Agreement.
10.1.2 All Required Consents shall have been obtained on
terms and conditions reasonably satisfactory to both Telesat and Tempo and shall
remain in full force and effect on the applicable Closing Date and no facts or
conditions shall exist which would constitute grounds for any Governmental
Authority to suspend, revoke or annul any Required Consent.
10.1.3 No action, suit or proceeding is pending or
threatened by or before any Governmental Authority and no Legal Requirement or
interpretation thereof shall have been enacted, promulgated or deemed applicable
after the date hereof and no order, decree, writ or injunction shall have been
issued after the date hereof and remain in effect on the applicable Closing Date
by any Governmental Authority which would or does restrain, enjoin, prohibit or
otherwise make illegal (a) the consummation of the transactions contemplated by
this Agreement or the Operating Services Agreement or (b) the intended use by
TCI of the transponders to be purchased by it to transmit television programming
and other services into the United States or (c) the use by any Canadian DBS
Provider of the Telesat Transponders (as defined in the Operating Services
Agreement) to transmit television programming and other services into
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Canada, in each case other than any arrangement to which any Party or an
Affiliate of any Party has entered into voluntarily.
10.2 Conditions to the Obligations of Telesat. The obligations of
----------------------------------------
Telesat to consummate the transactions contemplated by this Agreement to take
place at each Closing are subject to the satisfaction at or prior to each
Closing Date of each of the following conditions or the waiver in writing by
Telesat of such conditions:
10.2.1 All of the conditions to the obligations of Telesat to
consummate the transactions contemplated by the Operating Services Agreement
shall have been satisfied or be capable of being satisfied if closing thereunder
were to then occur.
10.2.2 All representations and warranties of Tempo contained
in this Agreement and of TCI contained in the Operating Services Agreement shall
be, if specifically qualified by materiality, true in all respects and, if not
so qualified, shall be true in all material respects, in each case on and as of
the Closing Date with the same effect as if made on and as of the Closing Date,
except for changes permitted or contemplated by this Agreement or the Operating
Services Agreement and except with respect to representations and warranties
made as of a specific date.
10.2.3 Tempo in all material respects shall have performed
and complied with each obligation, agreement, covenant and condition required by
this Agreement to be performed or complied with by Tempo at or prior to the
Closing and TCI in all material respects shall have performed and complied with
each obligation, agreement, covenant and condition required by the Operating
Services Agreement to be performed or complied with by TCI at or prior to the
Closing.
10.2.4 TCI shall have executed and delivered to Telesat the
Assignment Agreement and the Security Agreement.
10.2.5 Telesat shall have received the opinions of corporate
counsel and communications counsel for Tempo and TCI with respect to matters
customarily covered in opinions given with respect to transactions of the type
contemplated by this Agreement, dated the Closing Date, in form and substance
reasonably satisfactory to Telesat, it being agreed that the forms of opinion
accepted by Telesat at Pre-Closing will be deemed to be acceptable for Closing
purposes as well.
10.2.6 Tempo shall have delivered to Telesat complete and
correct copies of the Tempo Required Consents.
10.2.7 The BSS Construction Agreement shall be in full force
and effect and no waivers under or amendments to the BSS Construction Agreement
for which the consent
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of Telesat is required under Section 4 of this Agreement shall have been made or
entered into without the consent of Telesat.
10.2.8 Tempo shall have delivered to Telesat such other
documents as Telesat may reasonably and customarily have requested in writing
prior to the Pre-Closing Date for such Closing in connection with the
transactions contemplated by this Agreement and the Operating Services
Agreement.
10.3 Conditions to Obligations of Tempo. The obligation of Tempo
----------------------------------
to consummate the transactions contemplated by this Agreement to take place at
each Closing are subject to the satisfaction at or prior to each Closing Date of
each of the following conditions or the waiver by Tempo in writing of such
conditions:
10.3.1 All of the conditions to the obligations of TCI to
consummate the transactions contemplated by the Operating Services Agreement
shall have been satisfied or be capable of being satisfied if closing thereunder
were to then occur.
10.3.2 Tempo shall have received the Satellite Purchase Price
in accordance with the provisions of Section 3 of this Agreement.
10.3.3 All representations and warranties of Telesat
contained in this Agreement and the Operating Services Agreement shall be, if
specifically qualified by materiality, true and correct in all respects and, if
not so qualified, shall be true and correct in all material respects, in each
case on and as of the Closing Date with the same effect as if made on and as of
the Closing Date, except for changes permitted or contemplated by this Agreement
or the Operating Services Agreement and except with respect to representations
and warranties made as of a specific date.
10.3.4 Telesat in all material respects shall have performed
and complied with each obligation, agreement, covenant and condition required by
this Agreement or the Operating Services Agreement to be performed or complied
with by Telesat at or prior to the Closing.
10.3.5 Tempo shall have received the opinions of corporate
counsel and communications counsel for Telesat with respect to matters
customarily covered in opinions given with respect to transactions of the type
contemplated by this Agreement, dated the Closing Date, in form and substance
reasonably satisfactory to Tempo, it being agreed that the form of opinion
accepted by Tempo at Pre-Closing will be deemed to be acceptable for Closing
purposes as well.
10.3.6 Telesat shall have delivered to Tempo complete and
correct copies of the Telesat Required Consents, and the Telesat Authorization
Certificate signed by the President of Telesat and dated the Closing Date.
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<PAGE>
10.3.7 Telesat shall have delivered to Tempo such other
documents as Tempo may reasonably and customarily have requested in writing
prior to the Pre-Closing Date for such Closing in connection with the
transactions contemplated by this Agreement and the Operating Services
Agreement.
SECTION 11. TERMINATION.
11.1 Termination Prior to First Closing. This Agreement may be
----------------------------------
terminated and the transactions contemplated by this Agreement may be abandoned
at any time prior to the First Closing:
(a) by the mutual written consent of Tempo and Telesat; or
(b) (i) by either Party if Exhibit F to the Operating
Services Agreement is not agreed to by both Parties by May 31, 1996, it being
agreed that if Exhibit F is not agreed to by May 31, 1996 but neither Party
terminates this Agreement on such date, the right of termination set forth in
this Section 11.1(b)(i) will continue unless and until the Parties agree to
Exhibit F; (ii) by either Party if the amount of the final Industry Canada
License Fee is not determined by May 31, 1996 and the Parties have not by then
agreed on an amendment to this Agreement regarding the allocation of that
portion of the Industry Canada License Fee [*****], it being agreed that if this
Agreement is terminable pursuant to this Section 11.1(b)(ii) on May 31, 1996 but
neither Party terminates this Agreement on such date, the right of termination
set forth in this Section 11.1(b)(ii) will continue unless and until the final
Industry Canada License Fee [*****] or the parties agree to an amendment to this
Agreement regarding the allocation of that portion of the Industry Canada
License Fee [*****] ; (iii) by either Party if the final Industry Canada License
Fee is determined by May 31, 1996 [*****] unless the Parties have agreed to an
amendment to this Agreement by May 31, 1996 with respect to the allocation
between the Parties of that portion of the Industry Canada License Fee [*****]
it being agreed that if this Agreement is terminable pursuant to this Section
11.1(b)(iii) on May 31, 1996 but neither Party terminates this Agreement on such
date, the right of termination set forth in this Section 11.1(b)(iii) will
continue unless and until the parties agree to an amendment to this Agreement
regarding the allocation of that portion, if any, of the Industry Canada License
Fee [*****] ; (iv) by either Party if Telesat has not delivered to Tempo by May
27, 1996, correct and complete copies of resolutions of the board of directors
of Telesat, certified by Telesat's secretary, authorizing the execution,
delivery and performance by Telesat of this Agreement, the Operating Services
Agreement, the Loral Side Agreement and all other documents, instruments and
agreements to be delivered by Telesat in connection with such agreements, it
being agreed that if such resolutions are not delivered to Tempo by May 27, 1996
but neither Party terminates this Agreement on such date, the right of
termination set forth in this Section 11.1(b)(iv) will continue unless and until
Telesat delivers such resolutions to Tempo; and (v) by Tempo if Telesat has not
delivered to it on or before May 31, 1996, the Telesat Authorization Certificate
signed by the President of Telesat, it being agreed
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<PAGE>
that if the Telesat Authorization Certificate is not delivered to Tempo by May
31, 1996 but Tempo does not terminate this Agreement on such date, the right of
termination set forth in this Section 11.1(b)(v) will continue unless and until
Telesat delivers the Telesat Authorization Certificate to Tempo; or
(c) (i) by either Party if Tempo has not delivered to Telesat
by May 27, 1996, correct and complete copies of resolutions of the board of
directors of Tempo, certified by Tempo's secretary, authorizing the execution,
delivery and performance by Tempo of this Agreement, the Loral Side Agreement
and all other documents, instruments and agreements to be delivered by Tempo in
connection with such agreements and correct and complete copies of resolutions
of the board of directors of TCI, certified by TCI's secretary, authorizing the
execution, delivery and performance by TCI of the Operating Services Agreement
and all other documents, instruments and agreements to be delivered by TCI in
connection therewith, it being agreed that if such resolutions are not delivered
to Telesat by May 27, 1996 but neither Party terminates this Agreement on such
date, the right of termination set forth in this Section 11.1(c)(i) will
continue unless and until Tempo delivers such resolutions to Telesat; (ii) by
Telesat, if Tempo has not delivered to Telesat by May 31, 1996, evidence that
Tempo or TCI has obtained a license from the FCC to uplink to the Satellites
upon launch, it being agreed that if such evidence is not delivered to Telesat
by May 31, 1996 but Telesat does not terminate this Agreement on such date, the
right of termination set forth in this Section 11.1(c)(ii) will continue unless
and until Tempo delivers such evidence to Telesat and (iii) by Telesat if the
Loral Side Agreement substantially in the form attached hereto as EXHIBIT D is
not signed by Loral on or before May 10, 1996, it being agreed that if the Loral
Side Agreement is not signed by Loral by May 10, 1996 but Telesat does not
terminate this Agreement on such date, the right of termination set forth in
this Section 11.1(c)(iii) will continue unless and until the Loral Side
Agreement is signed by Loral (either in the form of EXHIBIT D or as modified
with the consent of Telesat, not to be unreasonably withheld); or
(d) by either Tempo or Telesat if the transactions
contemplated by this Agreement to take place at the First Closing have not been
consummated on or before the date which is eighteen months from the date of this
Agreement (the "Anniversary Date") for any reason other than (i) a material
breach or default by such Party in the performance of any of its obligations
under this Agreement or the Operating Services Agreement or by TCI in the
performance of any of its obligations under the Operating Services Agreement;
(ii) the failure of any representation or warranty of such Party in this
Agreement or the Operating Services Agreement (or of TCI in the Operating
Services Agreement) that is specifically qualified by materiality to be true in
all respects or the failure of any such representation and warranty that is not
so qualified to be true in all material respects, (iii) the failure of Loral to
Successfully Deliver at least one Satellite by the Anniversary Date if Tempo has
not terminated the BSS Construction Agreement as of such date and is pursuing
its rights thereunder to have Loral construct replacement Satellites thereunder,
or (iv) the occurrence of an event of Force Majeure; provided, that if the First
Closing has not occurred by the Anniversary Date because of an event of Force
Majeure, the Parties shall negotiate in good faith for a period of six months
following the
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<PAGE>
Anniversary Date to modify the terms of this Agreement to overcome such event of
Force Majeure while preserving each Party's economic interest; or
(e) automatically, if the BSS Construction Agreement is
terminated prior to the First Closing.
11.2 Termination Following First Closing. This Agreement may be
-----------------------------------
terminated as to the Second Closing and the transactions contemplated by Section
3.2 may be abandoned at any time after the First Closing but prior to the Second
Closing:
(a) by the mutual written consent of Tempo and Telesat; or
(b) by Tempo if at any time after the First Closing the BSS
Construction Agreement is terminated other than as a result of a material breach
or default by Tempo under such agreement or Tempo elects in accordance with its
rights under the BSS Construction Agreement to discontinue pursuing its rights
to have Loral construct replacement Satellites thereunder; or
(c) by either Tempo or Telesat if the transactions
contemplated by this Agreement to take place at the Second Closing have not been
consummated on or before the date which is one year from the date of the First
Closing (the "Second Anniversary Date") for any reason other than (i) a material
breach or default by such Party in the performance of any of its obligations
under this Agreement or the Operating Services Agreement or by TCI in the
performance of any of its obligations under the Operating Services Agreement,
(ii) the failure of any representation or warranty of such Party in this
Agreement or the Operating Services Agreement (or of TCI in the Operating
Services Agreement) that is specifically qualified by materiality to be true in
all respects or the failure of any such representation and warranty that is not
so qualified to be true in all material respects; (iii) the failure of Loral to
Successfully Deliver a second Satellite by the Second Anniversary Date if Tempo
has not terminated the BSS Construction Agreement as of such date and is
pursuing its rights thereunder to have Loral construct replacement Satellites,
or (iv) the occurrence of an event of Force Majeure; provided, that if the
Second Closing has not occurred by the Second Anniversary Date because of an
event of Force Majeure, the Parties shall negotiate in good faith for a period
of six months following the Second Anniversary Date to modify the terms of this
Agreement to overcome such event of Force Majeure while preserving each Party's
economic interest.
11.3 Liabilities in Event of Termination. Upon any termination of
-----------------------------------
this agreement pursuant to Section 11.1(a), (b) or (c) the Parties shall have no
further obligations or liabilities to each other hereunder except pursuant to
Section 8.8. The termination or expiration of this Agreement for any other
reason will in no way limit any obligation or liability of either Party based on
or arising from a breach or default by such Party with respect to any of its
representations, warranties, or any of its covenants or agreements contained in
this Agreement which by their terms were to be performed prior to the date of
termination or expiration, nor shall
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any such termination or expiration release either Party from its liabilities or
obligations under Section 8.8 or Section.12.2, 12.3 or 12.4 of this Agreement to
the extent applicable to obligations arising prior to termination.
11.4 Procedure Upon Termination. In the event of the termination
--------------------------
of this Agreement by Tempo or Telesat pursuant to this Section, notice of such
termination will promptly be given by the terminating Party to the other
Parties.
SECTION 12. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.
12.1 Survival of Covenants, Representations and Warranties After
-----------------------------------------------------------
Closing. The representations, warranties and covenants of the Parties contained
- -------
in this Agreement and in the documents and instruments to be delivered by the
Parties pursuant to this Agreement will survive the First Closing and the Second
Closing and will continue in full force and effect without limitation.
12.2 Indemnification by Telesat. Subject to the limitations on
--------------------------
liability set forth in Section 7 of this Agreement, Telesat will indemnify,
defend and hold harmless Tempo and its shareholders and their respective
Affiliates, and the shareholders, directors, officers, employees, agents,
successors and assigns of any of such Persons (the "Tempo Indemnitees"), from
and against:
(a) all losses, damages, liabilities, deficiencies or
obligations of or to any of the Tempo Indemnitees resulting from or arising out
of (i) any representation or warranty made by Telesat in this Agreement not
being true and accurate in all material respects when made or, in the case of
any representation or warranty which is qualified by its terms by a materiality
requirement, not being true and accurate when made, (ii) any material breach of
any covenant, agreement or obligation of Telesat contained in this Agreement or
the Loral Side Agreement, or, in the case of any agreement, covenant or
obligation contained in this Agreement or the Loral Side Agreement which is
qualified by a limitation that performance need only be material, any breach of
such agreement, covenant or obligation, including any claim by Loral against
Tempo which arises out of the same, (iii) any matter described on SCHEDULE 3;
and
(b) all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including settlement costs and reasonable legal, accounting, experts' and other
fees, costs and expenses) incident or relating to or resulting from any of the
foregoing.
12.3 Indemnification by Tempo . Subject to the limitations on
-------------------------
liability set forth in Section 7 of this Agreement, Tempo will indemnify, defend
and hold harmless Telesat and its shareholders and their respective Affiliates,
and the shareholders, directors, officers, employees, agents, successors and
assigns of any of such Persons (the "Telesat Indemnitees"), from and against:
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<PAGE>
(a) all losses, damages, liabilities, deficiencies or
obligations of or to any of the Telesat Indemnitees resulting from or arising
out of (i) any representation or warranty made Tempo in this Agreement not being
true and accurate in all material respects when made or, in the case of any
representation or warranty which is qualified by its terms by a materiality
requirement, not being true and accurate when made, (ii) any material breach of
any covenant, agreement or obligation of Tempo contained in this Agreement or
the Loral Side Agreement, or, in the case of any agreement, covenant or
obligation contained in this Agreement or the Loral Side Agreement which is
qualified by a limitation that performance need only be material, any breach of
such agreement, covenant or obligation, including any claim by Loral against
Telesat which arises out of the same, (iii) any matter described on SCHEDULE 4;
and
(b) all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including settlement costs and reasonable legal, accounting, experts' and other
fees, costs and expenses) incident or relating to or resulting from any of the
foregoing.
12.4 Third Party Claims. Promptly after the receipt by any Person
------------------
entitled to indemnification hereunder of notice of any claim, action, suit or
proceeding by any Person who is not a Party to this Agreement (collectively, an
"Action"), which Action is subject to indemnification under this Agreement, such
Person (the "Indemnified Party") will give reasonable written notice to the
Party from whom indemnification is claimed (the "Indemnifying Party"). The
Indemnified Party will be entitled, at the sole expense and liability of the
Indemnifying Party, to exercise full control of the defense, compromise or
settlement of any such Action unless the Indemnifying Party, within a reasonable
time after the giving of such notice by the Indemnified Party, (a) notifies the
Indemnified Party in writing of the Indemnifying Party's intention to assume
such defense, (b) provides evidence reasonably satisfactory to the Indemnified
Party of the Indemnifying Party's ability to pay the amount, if any, for which
the Indemnified Party may be liable as a result of such Action and (c) retains
legal counsel reasonably satisfactory to the Indemnified Party to conduct the
defense of such Action. The other Party will cooperate with the Party assuming
the defense, compromise or settlement of any such Action in accordance with this
Agreement in any manner that such Party reasonably may request. If the
Indemnifying Party so assumes the defense of any such Action, the Indemnified
Party will have the right to employ separate counsel and to participate in (but
not control) the defense, compromise or settlement of the Action, but the fees
and expenses of such counsel will be at the expense of the Indemnified Party
unless (i) the Indemnifying Party has agreed to pay such fees and expenses, (ii)
any relief other than the payment of money damages is sought against the
Indemnified Party or (iii) the Indemnified Party will have been advised by its
counsel that there may be one or more defenses available to it which are
different from or additional to those available to the Indemnifying Party, and
in any such case that portion of the fees and expenses of such separate counsel
that are reasonably related to matters covered by the indemnity provided in this
Section will be paid by the Indemnifying Party. No Indemnified Party will
settle or compromise any such Action for which it is entitled to indemnification
under this Agreement without the prior written consent of the Indemnifying
Party, unless the Indemnifying Party has
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failed, after reasonable notice, to undertake control of such Action in the
manner provided in this Section. No Indemnifying Party will settle or
compromise any such Action (A) in which any relief other than the payment of
money damages is sought against any Indemnified Party or (B) in the case of any
Action relating to the Indemnified Party's liability for any tax, if the effect
of such settlement would be an increase in the liability of the Indemnified
Party for the payment of any tax for any period beginning after the applicable
Closing Date, unless the Indemnified Party consents in writing to such
compromise or settlement.
12.5 Limitations on Certain Indemnification Obligations - Telesat.
------------------------------------------------------------
Telesat will not be liable for indemnification arising under Section 12.2 for
(a) any losses, damages, liabilities, deficiencies or obligations of or to any
of the Tempo Indemnitees or (b) any claims, actions, suits, proceedings,
demands, judgments, assessments, fines, interest, penalties, costs and expenses
(including settlement costs and reasonable legal, accounting, experts' and other
fees, costs and expenses) incident or relating to or resulting from any of the
foregoing (the items described in clauses (a) and (b) collectively being
referred to for purposes of this Section as "Tempo Damages") unless the amount
of Tempo Damages for which Telesat would, but for the provisions of this
Section, be liable exceeds, on an aggregate basis, [*****], in which case
Telesat will be liable for all such Tempo Damages, up to a maximum aggregable
amount for all Tempo Damages of [*****], which will be due and payable within 15
days after Telesat's receipt of a statement therefor.
12.6 Limitations on Certain Indemnification Obligations - Tempo.
----------------------------------------------------------
Tempo will not be liable for indemnification arising under Section 12.3 for (a)
any losses, damages, liabilities, deficiencies or obligations of or to any of
the Telesat Indemnitees or (b) any claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including settlement costs and reasonable legal, accounting, experts' and other
fees, costs and expenses) incident or relating to or resulting from any of the
foregoing (the items described in clauses (a) and (b) collectively being
referred to for purposes of this Section as "Telesat Damages") unless the amount
of Telesat Damages for which Tempo would, but for the provisions of this
Section, be liable exceeds, on an aggregate basis, [*****] in which case Tempo
will be liable for all such Telesat Damages, up to a maximum aggregable amount
for all Telesat Damages of [*****], which will be due and payable within 15 days
after Tempo's receipt of a statement therefor.
SECTION 13. MISCELLANEOUS.
13.1 Parties Obligated and Benefited. Subject to the limitations
-------------------------------
set forth below, this Agreement will be binding upon the Parties and their
respective assigns and successors in interest and will inure solely to the
benefit of the Parties and their respective assigns and successors in interest,
and no other Person will be entitled to any of the benefits conferred by this
Agreement. Without the prior written consent of the other Parties, no Party will
assign any of its rights under this Agreement or delegate any of its duties
under this Agreement, provided that Tempo may, without the consent of any other
Party, assign or delegate all of its
-31-
<PAGE>
rights and obligations under this Agreement to Primestar or any Affiliate of
Tempo; provided that Tempo gives prior written notice to Telesat and delivers to
Telesat an assumption agreement of such assignee pursuant to which such assignee
assumes the obligations of Tempo under this Agreement and provided further that
in the event of such an assignment, Tempo will not be released from its
obligations under this Agreement. Without the prior written consent of Telesat,
Tempo agrees that it will not assign its rights under the BSS Construction
Agreement to acquire the Satellites; provided that Tempo may, without the
consent of Telesat, assign such rights to Primestar or any Affiliate of Tempo if
an assignment of this Agreement pursuant to the preceding sentence is also made
to such assignee.
13.2 Notices. Any notice, request, demand, waiver or other
-------
communication required or permitted to be given under this Agreement will be in
writing and will be deemed to have been duly given only if delivered in person
or by first class, prepaid, registered or certified mail, or sent by courier or
by overnight delivery service, or, if receipt is confirmed, by telecopier:
To Tempo at:
National Digital Television Center
4100 East Dry Creek Road
Littleton, CO 80122
Attention: David P. Beddow
Telephone: (303) 486-3815
Telecopy: (303) 486-3890
With copies to:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
Attention: Legal Department
Telephone: (303) 267-5500
Telecopy: (303) 488-3245
-32-
<PAGE>
To Telesat at:
1601 Telesat Court
Gloucester, Ontario
CANADA K1B 5P4
Attention: Secretary
Telephone: 613-748-0123
Telecopy: 613-748-8784
Any Party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section. All
notices will be deemed to have been received on the date of delivery or on the
third Business Day after mailing in accordance with this Section, except that
any notice of a change of address will be effective only upon actual receipt.
13.3 Attorneys' Fees. In the event of any action or suit based
---------------
upon or arising out of any alleged breach by any Party of any representation,
warranty, covenant or agreement contained in this Agreement, the prevailing
Party will be entitled to recover reasonable attorneys' fees and other costs of
such action or suit from the other Parties.
13.4 Right to Specific Performance. The Parties acknowledge that
-----------------------------
the unique nature of the Satellites renders money damages an inadequate remedy
for the breach by Tempo of its obligations under this Agreement, and the Parties
agree that in the event of such breach, Telesat will, upon proper action
instituted by it, be entitled to a decree of specific performance of this
Agreement.
13.5 Waiver. This Agreement or any of its provisions may not be
------
waived except in writing. The failure of any Party to enforce any right arising
under this Agreement on one or more occasions will not operate as a waiver of
that or any other right on that or any other occasion.
13.6 Captions. The section captions contained in this Agreement
--------
are for convenience only and do not constitute a part of this Agreement.
13.7 CHOICE OF LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES
-------------
UNDER IT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAWS RULES OF THE STATE OF
NEW YORK; PROVIDED THAT ANY PROVISION OF THIS AGREEMENT WHICH IS IDENTICAL TO A
PROVISION ALSO SET FORTH IN THE OPERATING SERVICES AGREEMENT WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ONTARIO AND THE
LAWS OF CANADA
-33-
<PAGE>
APPLICABLE THEREIN WITHOUT REGARD TO THE CONFLICTS OF LAWS RULES OF THE PROVINCE
OF ONTARIO.
13.8 Terms. Terms used with initial capital letters will have the
-----
meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. The word "include" and derivatives of that word are
used in this Agreement in an illustrative sense rather than limiting sense and
the word "or" is not exclusive.
13.9 Rights Cumulative. Subject to the limitations on liability
-----------------
and remedies set forth in Section 7 of this Agreement, all rights and remedies
of each of the Parties under this Agreement will be cumulative, and the exercise
of one or more rights or remedies will not preclude the exercise of any other
right or remedy available under this Agreement or applicable law.
13.10 Further Actions. The Parties will execute and deliver to the
---------------
other, from time to time at or after the Closings, for no additional
consideration, such further assignments, certificates, instruments, records, or
other documents, assurances or things as may be reasonably necessary to give
full effect to this Agreement and to allow each Party fully to enjoy and
exercise the rights accorded and acquired by it under this Agreement, if such
requested further action will not impose any expense or material additional
obligations on the Party from whom such further action is requested.
13.11 Time. Time is of the essence under this Agreement. If the
----
last day permitted for the giving of any notice or the performance of any act
required or permitted under this Agreement falls on a day which is not a
Business Day, the time for the giving of such notice or the performance of such
act will be extended to the next succeeding Business Day.
13.12 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed an original.
13.13 Entire Agreement. References to this Agreement include the
----------------
Schedules, Exhibits and Attachment referred to in this Agreement, which are
incorporated in and constitute a part of this Agreement. This Agreement
supersedes all prior oral or written agreements and understandings between the
Parties with respect to the sale of the Satellites to Telesat. This Agreement
does not affect or supersede the Telesat Agreements or the Loral Side Agreement.
This Agreement may not be amended or modified except by a writing signed by the
Parties.
13.14 Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable will be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the remaining
rights of the Person intended to be benefitted by such provision or any other
provisions of this Agreement.
-34-
<PAGE>
13.15 Construction. This Agreement has been negotiated by Tempo,
------------
Telesat and their respective legal counsel, and legal or equitable principles
that might require the construction of this Agreement or any provision of this
Agreement against the Party drafting this Agreement will not apply in any
construction or interpretation of this Agreement.
13.16 Expenses. Except as set forth in the second sentence of this
--------
Section 13.16 and as otherwise expressly provided in this Agreement, each Party
will pay all of its own expenses, including attorneys' and accountants' fees, in
connection with the negotiation of this Agreement, the performance of its
obligations and the consummation of the transactions contemplated by this
Agreement. Tempo will reimburse Telesat for its reasonable outside legal
expenses associated with this Agreement if Tempo unilaterally terminates this
Agreement after Telesat delivers to Tempo the executed Telesat Authorization
Certificate and while such certificate remains in full force and effect;
provided, that the foregoing shall not apply if Tempo terminates this Agreement
following a material breach by Telesat or if this Agreement is terminated
pursuant to Section 11.1(b), Section 11.1(d) or Section 11.2.
13.17 Waiver of Tax Warranties. No Party makes any representation
------------------------
or warranty, express or implied, with respect to the tax implications of any
aspect of the transactions contemplated under this Agreement on any other Party
to this Agreement and all Parties expressly disclaim any such representation or
warranty with respect to any tax consequences arising under this Agreement. Each
Party has relied solely on its own tax advisors with respect to the tax
implications of the transactions contemplated under this Agreement.
Notwithstanding the provisions of this Section 13.17, each Party may fully rely
on the representations, warranties and covenants expressly made in this
Agreement, which will not be deemed waived or affected by this Section 13.17.
13.18 Characterization of this Transaction. The Parties hereby
------------------------------------
agree that the transactions contemplated by this Agreement and the Operating
Services Agreement will be recorded and reported for all purposes, including
without limitation for tax purposes, as (i) the acquisition by Telesat of the
Satellites for an amount equal to the Satellite Purchase Price; (ii) the
disposition by Telesat, and the acquisition by TCI, of TCI Transponders (as
defined in the Operating Services Agreement) for an amount equal to the
Transponder Purchase Price; and (iii) the undertaking by TCI to subscribe for
and pay quarterly operating fees, for 48 consecutive quarters, in consideration
of the services provided by Telesat under the Operating Services Agreement.
-35-
<PAGE>
The Parties have executed this Agreement as of the day and year
first above written.
TEMPO SATELLITE, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
TELESAT CANADA
By:___________________________________
Name:_________________________________
Title:________________________________
-36-
<PAGE>
SCHEDULE 1
----------
TELESAT REQUIRED CONSENTS
-------------------------
1. Radio Authorization
2. CRTC
3. Approval of the Board of Directors of Telesat
<PAGE>
SCHEDULE 2
----------
TEMPO REQUIRED CONSENTS
-----------------------
1. License from FCC to uplink or other uplinking arrangements
2. Export license
3. Approval of the Board of Directors of Tempo and TCI
<PAGE>
SCHEDULE 3
----------
TELESAT PROCEEDINGS AND JUDGMENTS
---------------------------------
None.
<PAGE>
SCHEDULE 4
----------
TEMPO PROCEEDINGS AND JUDGMENTS
-------------------------------
None.
<PAGE>
SCHEDULE 5
----------
CONFLICTS
---------
Capacity Purchase Agreement dated as of the 16th day of September, 1994 by and
among Tele-Communications, Inc., Advanced Communications Corporation ("ACC"),
and Daniel H. Garner, sole shareholder of ACC.
<PAGE>
EXHIBIT A
---------
AMENDMENT NO. 13 TO THE BSS CONSTRUCTION AGREEMENT
---------------------------------------------------
<PAGE>
EXHIBIT B
---------
ASSIGNMENT
----------
This Assignment (this "Assignment") is made as of the ____ day of
____________, 199__, by Tempo Satellite, Inc., an Oklahoma corporation
("Assignor"), in favor of Telesat Canada, a corporation continued and existing
under the laws of Canada ("Assignee").
RECITALS
This Assignment is delivered pursuant to the requirements of the
satellite purchase agreement dated as of May 6, 1996 between Assignor and
Assignee (the "Satellite Purchase Agreement"). Capitalized terms not otherwise
defined herein shall have the meanings given to such terms in the Satellite
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the consideration specified in the Satellite
Purchase Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor does hereby convey,
grant, bargain, sell, transfer, and assign unto Assignee, its successors and
assigns, all of the right, title and interest of Assignee in and to [the First
Successfully Delivered Satellite][the Second Successfully Delivered Satellite]
and the Deliverable Items transferred to Assignor on or before the first Closing
Date by Loral, free and clear of all Encumbrances, except Permitted
Encumbrances.
ANY AND ALL EXPRESS AND IMPLIED WARRANTIES WITH RESPECT TO THE
SATELLITES, THE TRANSPONDERS THEREON, AND THE DELIVERABLE ITEMS, INCLUDING, BUT
NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR USE,
ARE EXPRESSLY EXCLUDED AND DISCLAIMED.
Nothing contained in this Assignment shall increase the liability of
Assignor to Assignee beyond the liability that Assignor has under the Satellite
Purchase Agreement and any action brought by Assignee with respect to this
Assignment shall be subject to the limitations on liabilities and remedies set
forth in the Satellite Purchase Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Assignment
effective as of the date first written above.
ASSIGNOR:
TEMPO SATELLITE, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:-------------------------------------
<PAGE>
EXHIBIT C
---------
TERM SHEET
----------
PROJECTS: Purchase and operation of a Direct Broadcast Satellite System in
- --------
the [*****] with short-term use of the second, successful satellite in the 91
degrees W.L. orbital position.
PARTICIPANTS:Telesat Canada, TCI Technology Ventures, Inc. ("TCI"), Tempo
- ------------
Satellite, Inc. ("Tempo"), Canadian Participant #1, Telquest Inc., Canadian
Participant #2
CONCEPT: Telesat Canada and TCI will negotiate in good faith to enter into
- -------
an agreement with respect to the short-term use of the second, successful
satellite in the [*****] by Telesat, such agreement to contain substantially the
financial terms set forth in this Term Sheet (as such terms relate to Telesat
Canada and TCI) and such other terms and conditions as are customary in
transactions of the type contemplated by this Term Sheet and are consistent with
the relevant terms and conditions in the Operating Services Agreement. Neither
TCI nor Tempo will be a party to the agreements or transactions described herein
insofar as they relate to Canadian Participant #1, Canadian Participant #2 or
Telquest, such transactions being described herein for convenience. TCI's
obligations under the Operating Services Agreement will not increase as a result
of the transactions between TCI and Telesat described herein. Telesat Canada,
TCI and Tempo will negotiate in good faith such modifications to the Satellite
Purchase Agreement and the Operating Services Agreement as may be required to
effect the result that the obligations of the parties to such agreements with
respect to the Satellite being launched into the 91 degrees West orbital slot
will, except with respect to financial terms, mirror the obligations such
parties have under the Satellite Purchase Agreement and the Operating Services
Agreement with respect to the Satellite being launched into the [*****].
SATELLITES: DBS I Launch in November, 1996 to be located at [*****}
- ----------
DBS II Launch in February, 1997 to initially be located at [*****]
(if DBS I Launch is successful) and relocated to [*****] before July, 1999.
Telesat will use its best efforts to provide a Telesat satellite at [*****] as
early as possible.
OWNERSHIP: TCI 27 transponders on each of DBS I and DBS II
- ---------
Canadian Participant #1 5 transponders on each of DBS I and DBS II
Telesat Canada Satellite Bus Operator
GUARANTEE SATELLITE: Telesat Canada will retain a security interest in the
- -------------------
transponders to be sold to TCI and Canadian Participant #1 and will have a
parental guarantee from TCI as defined in the Operating Services Agreement.
<PAGE>
INVESTMENT: Assuming total system cost of [*****] including all construction
- ----------
cost, financing charges, etc. as defined in the Satellite Purchase Agreement:
<TABLE>
<CAPTION>
<S> <C>
DBS I
-----
TCI [*****]
Canadian Participant #1 [*****]
Telesat Canada [*****]
-------
[*****]
DBS II
------
TCI [*****]
Canadian Participant #1 [*****]
Telesat Canada [*****]
-------
[*****]
</TABLE>
INVESTMENT PAYMENTS: DBS I (1) Telesat shall pay Tempo Satellite [*****] upon
- ------------------- -----
delivery of the in-orbit satellite (2) Simultaneously, TCI shall pay Telesat
[*****] for 27 transponders and Canadian Participant #1 shall pay Telesat
[*****] for 5 transponders.
DBS II (1) Telesat shall pay Tempo Satellite [*****]
------
million upon delivery of the in-orbit satellite (2) Simultaneously, TCI shall
pay Telesat [*****] million for 27 transponders and Canadian Participant #1
shall pay Telesat [*****] for 5 transponders.
QUARTERLY PAYMENTS TO TELESAT CANADA
<TABLE>
<CAPTION>
<S> <C>
DBS I
-----
TCI [*****]
Canadian Participant #1 [*****]
DBS II
------
TCI [*****]
Canadian Participant #1 [*****]
</TABLE>
INTERIM (LEASE) ARRANGEMENTS: DBS II - For a period beginning with the
- ---------------------------- ------
operational date of the satellite at [*****] and ending on or before July 1,
1999, TCI and Canadian Participant #1, shall provide (lease), to Telesat, 32 low
power transponders in the [*****]:
TCI 27 low-power transponders
Canadian Participant #1 5 low-power transponders
<PAGE>
For a period beginning with the operational date of the satellite at 91 degrees
and ending on or before July 1, 1999, Telesat shall provide (lease), to Telquest
and Canadian Participant #2, 32 low power transponders:
Telquest 22 low-power transponders
Canadian Participant #2 10 low-power transponders
In the event of a failure of 10 or more transponders on DBS I, TCI/Canadian
Participant #1 shall have the right to pre-empt Telesat's use of the 32 low-
power transponders.
LEASE PAYMENTS: DBS II - For a period beginning with the operational date of
- -------------- ------
the satellite at [*****] and ending on or before July 1, 1999 Telesat shall
make quarterly lease payments as follows:
<TABLE>
<S> <C>
TCI [*****]
Canadian Participant #1 [*****]
</TABLE>
<PAGE>
EXHIBIT D
---------
LORAL SIDE AGREEMENT
--------------------
<PAGE>
EXHIBIT 4.5
THIS DOCUMENT HAS BEEN REDACTED IN ACCORDANCE WITH RULE 24B-2(b) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. A COMPLETE COPY OF THIS EXHIBIT,
WITHOUT OMISSIONS, HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
OMISSIONS ARE INDICATED HEREIN WITH [*****].
================================================================================
OPERATING SERVICES AGREEMENT
BY AND BETWEEN
TCI TECHNOLOGY VENTURES, INC.
AND
TELESAT CANADA
DATED AS OF MAY 6, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. Definitions.............................................1
1.1 Affiliate.........................................2
1.2 Business Day......................................2
1.3 Canadian DBS Provider.............................2
1.4 Closing...........................................2
1.5 Closing Date......................................2
1.6 Confidential Information..........................2
1.7 Construction Financing Agreements.................2
1.8 CRTC..............................................3
1.9 DBS...............................................3
1.10 Deliverable Items.................................3
1.11 Dollars ($).......................................3
1.12 Encumbrance.......................................3
1.13 FCC...............................................3
1.14 First Closing.....................................3
1.15 First Launched Satellite..........................3
1.16 First Successfully Delivered Satellite............3
1.17 Force Majeure.....................................3
1.18 Governmental Authority............................3
1.19 Industry Canada...................................4
1.20 Legal Requirement.................................4
1.21 Loral Side Agreement..............................4
1.22 Performance Specifications........................4
1.23 Permitted Encumbrances............................4
1.24 Person............................................4
1.25 Primestar.........................................4
1.26 Purchase Price of First Successfully Delivered
Satellite.........................................4
1.27 Purchase Price of Second Successfully
Delivered Satellite...............................5
1.28 Radio Authorization...............................6
1.29 Required Consents.................................6
1.30 Satellite Failure.................................6
1.31 Satellite Purchase Price..........................7
1.32 Second Closing....................................7
1.33 Second Launched Satellite.........................7
1.34 Second Successfully Delivered Satellite...........7
1.35 Spare TWTA........................................7
1.36 Successful Delivery...............................7
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
1.37 Telesat Access Requirements.......................7
1.38 Telesat Agreements................................7
1.39 Telesat Insurance.................................7
1.40 Telesat Required Consents.........................7
1.41 Telesat Share.....................................8
1.42 Tempo Required Consents...........................8
1.43 Third Party.......................................8
1.44 Third Party Offer.................................8
1.45 Transfer..........................................8
1.46 Transponder.......................................8
1.47 Transponder Failure...............................8
1.48 Transponder Purchase Price........................9
1.49 TWTA Spurious Switch-Off ("TSSO").................9
1.50 Other Definitions................................10
Section 2. Interim Use and Operation of Satellites;
Options Regarding 32 Transponder Mode..................11
2.1 Operation of First Successfully Delivered
Initial Designation by TCI of 16 Transponder Mode
or 32 Transponder Satellite Pending First Closing;
Mode.............................................11
2.2 Use of First Successfully Delivered Satellite
Pending First Closing............................12
2.3 Option Regarding Conversion to 32 Transponder
Closing Mode Following First Closing.............12
2.4 Delivered Satellite Pending......................13
Section 3. Designation of Telesat Transponders....................14
3.1 Designation of Telesat Transponders..............14
Section 4. Purchase and Sale of Satellite Transponders............14
4.1 Purchase and Sale of Transponders on First
Successfully Delivered Satellite.................14
4.2 Title to, and Status of, TCI Transponder.........15
4.3 Payment of Transponder Purchase Price............15
Section 5 Term...................................................16
Section 6. Telesat Transponders...................................16
6.1 Sale of Telesat Transponders to Canadian DBS
Providers........................................16
6.2 Newly Available Telesat Transponders.............17
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
6.3 Sale of Telesat Transponders to Third Parties
Pursuant to Right of First Refusal...............18
6.4 Treatment of Transferred Telesat Transponders....18
Section 7. Operation of Satellite.................................19
7.1 Operation of the Satellite.......................19
7.2 Compliance with Law..............................19
7.3 Operating Costs..................................19
7.4 Satellite Operations.............................19
7.5 Telesat Reports..................................20
7.6 Payment of Operating Fees........................20
7.7 Prepaid Operating Fees; Warranty Paybacks;
Payments in Respect of Resurrected Transponders..22
7.8 Effect of Satellite or Transponder Failure.......23
7.9 Guarantee........................................24
7.10 Payments after Completion of Operating Fees......25
Section 8. Use of TCI Transponders................................25
8.1 Use of TCI Transponders..........................25
8.2 Encryption.......................................25
8.3 Radio Transmissions..............................25
8.4 Frequency Plans..................................25
8.5 Uplinking........................................26
8.6 Content of Communications........................26
8.7 Compliance with Law..............................26
8.8 Compliance with Telesat Access Requirements......26
Section 9. Transponder Restoration Procedures.....................26
9.1 Designated TWTs..................................26
9.2 Notice of Transponder Failure....................26
9.3 Use of Spare TWTAs...............................26
9.4 Continued Use of Failed Transponder..............27
Section 10. Representations and Warranties of Telesat..............27
10.1 Organization and Qualification...................27
10.2 Authority and Validity...........................27
10.3 No Breach or Violation...........................28
Section 11. Representations and Warranties of TCI..................28
11.1 Organization.....................................28
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
11.2 Authority and Validity...........................28
11.3 No Breach or Violation...........................29
Section 12. Warranties and Limitation of Liability.................29
12.1 Disclaimer of Warranties and Limitation of
Liablity.........................................29
12.2 Injunctive Relief................................29
12.3 Negligent Operation of the Satellite.............30
12.4 Force Majeure....................................30
12.5 Limitation of Liability..........................30
Section 13. Additional Covenants...................................31
13.1 Conduct of Business..............................31
13.2 Maintenance of Required Consents.................31
13.3 Notification of Certain Matters..................32
13.4 Transfer Taxes...................................32
13.5 Satisfaction of Conditions.......................32
13.6 Confidentiality Regarding Terms and Existence
Informationof Agreement; Confidential
13.7 No Liens, Use or Transfer........................34
13.8 No Merger, etc...................................34
13.9 Satellite Failure; Successor Satellites;
of a Single Satellite Replacement Satellites and
Operation........................................34
13.10 Insurance........................................35
13.11 Warranty Payback Claims Against Loral............36
13.12 Warranty Claims Against Loral....................37
13.13 Indemnity Claims Against Loral...................38
13.14 Exhibits.........................................39
Section 14 Closing................................................39
Section 15. Conditions to Closing..................................39
15.1 Conditions to the Obligations of the Parties.....39
15.2 Conditions to Obligations of TCI.................39
15.3 Conditions to Obligations of Telesat.............40
Section 16. Termination............................................40
16.1 Termination Prior to First Closing...............40
16.2 Termination Following First Closing..............40
16.3 Liabilities in Event of Termination..............40
16.4 Post-Closing Termination by Telesat..............40
</TABLE>
(iv)
<PAGE>
<TABLE>
Page
----
<S> <C> <C> <C>
16.5 Post-Closing Termination by TCI..................42
16.6 Rights and Remedies..............................42
Section 17. Indemnification........................................43
17.1 Indemnification by Telesat.......................43
17.2 Indemnification by TCI...........................43
17.3 Third Party Claims...............................44
Section 18. Miscellaneous..........................................45
18.1 Private Parties..................................45
18.2 Parties Obligated and Benefited..................45
18.3 Notices..........................................46
18.4 Attorneys' Fees..................................47
18.5 Right to Specific Performance....................47
18.6 Waiver...........................................47
18.7 Captions.........................................47
18.8 Choice of Law....................................47
18.9 Terms............................................48
18.10 Rights Cumulative................................48
18.11 Further Actions..................................48
18.12 Time.............................................48
18.13 Counterparts.....................................48
18.14 Entire Agreement.................................49
18.15 Severability.....................................49
18.16 Construction.....................................49
18.17 Expenses.........................................49
18.18 Counting of Days.................................49
18.19 Waiver of Tax Warranties.........................49
18.20 Characterization of this Transaction.............50
18.21 Quiet Enjoyment..................................50
18.22 No Joint Venture.................................50
</TABLE>
(v)
<PAGE>
LIST OF EXHIBITS
EXHIBITS
A - Assignment Agreement
B - Guarantee
C - Telesat Access Requirements
D - Amortization Schedule
E - Security Agreement
F - TT&C Plan
(vi)
<PAGE>
OPERATING SERVICES AGREEMENT
----------------------------
This Operating Services Agreement (this "Agreement") is made as of the
6th day of May, 1996, by and between TCI Technology Ventures, Inc., a Delaware
corporation ("TCI"), on the one hand, and Telesat Canada, a corporation
continued and existing under the laws of Canada ("Telesat") on the other (each
of TCI and Telesat being referred to individually as a "Party" and collectively
as the "Parties").
RECITALS
--------
A. Tempo Satellite, Inc., an Oklahoma corporation ("Tempo") has
entered into Contract No. TPO-1-290 as amended and restated in its entirety by
Contract Amendment No. 4, as further amended by Amendments No. 5 through No. 13
and any other amendments hereafter entered into (Amendments No. 5 through No. 13
and any additional amendments being separately referred to herein from time to
time as the "Amendments," and, together with Contract Amendment No. 4, as the
"BSS Construction Agreement") with Space Systems/Loral, Inc. ("Loral"), which
agreement provides for the construction, launch and deployment of two satellites
which together will contain transponder capacity appropriate for the broadcast
of 32 channels at the 82 West orbital location (each, a "Satellite" and
together, the "Satellites").
B. Tempo and Telesat have entered into a Satellite Purchase Agreement
dated of even date herewith (the "Satellite Purchase Agreement") which provides
for the sale of the Satellites to Telesat in exchange for the consideration
specified therein.
C. TCI and Telesat desire to enter in this Agreement to provide for
the sale by Telesat to TCI of specified transponders on the Satellites upon
closing of the Satellite Purchase Agreement in exchange for the Transponder
Purchase Price and the operation and maintenance by Telesat of the Satellites in
connection with the use by TCI of its Transponders in return for the
consideration specified herein.
AGREEMENT
---------
In consideration of the above recitals and the mutual agreements
stated in this Agreement, the Parties agree as follows:
SECTION 1. DEFINITIONS.
Unless otherwise defined in this Agreement, capitalized terms used
herein shall have the respective meanings set forth in the Satellite Purchase
Agreement. In addition to terms defined elsewhere in this Agreement, the
following terms with initial capital letters, when used in this Agreement, will
have the meanings set forth below:
<PAGE>
1.1 Affiliate. With respect to any Person, any other Person
---------
controlling, controlled by, or under common control with, such Person, with
"control" for such purpose meaning the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
1.2 Business Day. Any day other than Saturday, Sunday or a day on
------------
which banking institutions in Toronto, Ontario or in Denver, Colorado are
required or authorized to be closed.
1.3 Canadian DBS Provider. A Canadian company providing, or at the
---------------------
relevant time providing, direct broadcast satellite services in, but not limited
to, Canada.
1.4 Closing. The First Closing and/or the Second Closing, as
-------
applicable.
1.5 Closing Date. The First Closing Date and/or the Second Closing
------------
Date, as applicable.
1.6 Confidential Information. All information disclosed by one
------------------------
Party to the other Party or its Affiliates in connection with this Agreement,
including information provided pursuant to the Non-Disclosure Agreement dated as
of November 23, 1995; provided, that such information shall satisfy the
following criteria in order to constitute "Confidential Information": if
disclosed in written or other tangible format, such information shall be
accompanied by reasonably prominent "Confidential" or similar legends; or if
disclosed orally or by way of observation, such information shall be described
by the disclosing Party as Confidential Information at the time of disclosure,
and shall be confirmed as such in a written memorandum sent to the other Party
within 30 days after such disclosure. Notwithstanding the foregoing, the term
"Confidential Information" shall not include any information which: (v) was
previously known to the Party receiving such Confidential Information if such
Party can prove such prior knowledge by bona fide documentation dated prior to
the time of disclosure by the disclosing Party and the receiving Party did not
learn such information from a person whom the receiving Party knew was under a
duty to the disclosing Party not to disclose the information; or (w) is or
becomes part of the public domain; or (x) the receiving Party receives from an
independent third party whom the receiving Party knows is under no obligation to
the disclosing Party not to disclose it; or (y) is independently developed by
the receiving Party as evidenced by documentation dated prior to the time of
disclosure by the disclosing Party.
1.7 Construction Financing Agreements. (a) Credit Agreement dated
---------------------------------
as of March 9, 1994 among Primestar, The Bank of New York, Chemical Bank and
Citibank, N.A., as Managing Agent, the Bank of New York as Documentation Agent,
Chemical Bank as Administrative Agent and the Banks signatory thereto, as
amended or extended and (b) any other credit facility or arrangement the
proceeds of which are used to finance or refinance the payment of any item
included in the Satellite Purchase Price, including any third-party replacement
or
-2-
<PAGE>
supplemental credit facility to the credit agreement referred to in paragraph
(a) and including any internal financing arrangement which is at rates and on
terms no less favorable to the borrower than those contained in either the
credit agreement referred to in paragraph (a) or in any third-party replacement
or supplemental credit agreement to the credit agreement referred to in
paragraph (a).
1.8 CRTC. Canadian Radio-television and Telecommunications
----
Commission.
1.9 DBS. Direct Broadcast Service.
---
1.10 Deliverable Items. As defined in the BSS Construction
-----------------
Agreement; provided, that Deliverable Items for purposes of this Agreement does
not include the Satellites or any additional satellites ordered or deliverable
under the BSS Construction Agreement.
1.11 Dollars ($). All references herein to "Dollars" or "$" shall be
-----------
deemed to be references to United States dollars.
1.12 Encumbrance. Any mortgage, lien, security interest, security
-----------
agreement, conditional sale or other title retention agreement, limitation,
pledge, option, charge, assessment, restrictive agreement, restriction,
encumbrance, adverse interest, restriction on transfer or any exception to or
defect in title or other ownership interest (including reservations, rights of
way, possibilities of reverter, restrictive covenants, leases and licenses).
1.13 FCC. The Federal Communications Commission.
---
1.14 First Closing. The consummation of the transactions
-------------
contemplated by Section 4.1, the date of which is referred to as the First
Closing Date.
1.15 First Launched Satellite. The first satellite that Loral
------------------------
attempts to launch under the BSS Construction Agreement, whether or not
Successfully Delivered.
1.16 First Successfully Delivered Satellite. The first Satellite
--------------------------------------
launched pursuant to the BSS Construction Agreement which is accepted by Tempo
pursuant to Section 10.2 or Section 10.3 of the BSS Construction Agreement,
including, if applicable, a replacement Satellite as contemplated by Section
10.4 of the BSS Construction Agreement.
1.17 Force Majeure. Acts of God; meteors; fire, flood, weather, or
-------------
other catastrophes; other circumstances in the space environment over which the
Parties have no control; Legal Requirements arising after the date of this
Agreement; national emergencies, insurrections, riots, wars, or strikes,
lockouts, work stoppages or other labor difficulties.
1.18 Governmental Authority. (i) The United States of America, (ii)
----------------------
Canada, (iii) any state, commonwealth, territory, province or possession of the
United States of America
-3-
<PAGE>
or of Canada and any political subdivision thereof (including counties,
municipalities and the like), (iv) any foreign (as to the United States of
America or Canada) sovereign entity and any political subdivision thereof or (v)
any agency, authority or instrumentality of any of the foregoing, including any
court, tribunal, department, bureau, commission or board.
1.19 Industry Canada. A department of the Federal Government of
---------------
Canada which has, among other things, the responsibility for assigning the
Canadian orbital slots.
1.20 Legal Requirement. Any applicable statute, ordinance, code,
-----------------
law, rule, regulation, order or other requirement, standard or procedure, in
each case to the extent having the force of law, enacted, adopted or applied by
any Governmental Authority, including judicial decisions applying common law or
interpreting any other Legal Requirement.
1.21 Loral Side Agreement. The memorandum of agreement to be
--------------------
entered into among Tempo, Loral and Telesat, as amended or extended.
1.22 Performance Specifications. The Satellite performance
--------------------------
specifications defined in the BSS Construction Agreement, as amended.
1.23 Permitted Encumbrances. Rights reserved to any Governmental
----------------------
Authority to regulate the Satellites.
1.24 Person. Any natural person, corporation, partnership, trust,
------
unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
1.25 Primestar. Primestar Partners, L.P., a Delaware limited
---------
partnership.
1.26 Purchase Price of First Successfully Delivered Satellite. An
--------------------------------------------------------
amount equal to the aggregate of the following:
(a) all amounts paid or payable to Loral under the BSS
Construction Agreement with respect to (i) the First Successfully Delivered
Satellite (which shall include 50% of any amounts paid or payable under the
Amendments and 50% of any other amounts paid or payable under the BSS
Construction Agreement which are not attributable to a specific Satellite)
[******] payable under Article 13 of the BSS Construction Agreement) and (ii)
Items 3 and 4 described in Section 4.1 of the BSS Construction Agreement;
(a) all amounts paid or payable under the Telesat Agreements
with respect to the period up to and including the date that is 10 days prior to
the First Closing Date;
- 4 -
<PAGE>
(c) 50% of interest charges and other financing costs paid or
payable by Tempo, Primestar or their respective Affiliates under the
Construction Financing Agreements with respect to the period up to and including
the date that is 10 days prior to First Closing Date; and
(d) [*****] representing amounts paid by Tempo, Primestar or
their respective Affiliates to Loral prior to execution of the BSS Construction
Agreement in connection with the Satellites;
less
(i) the amount of any damages paid to Tempo, Primestar
or their respective Affiliates by Loral pursuant to Article 23 of the BSS
Construction Agreement in respect of the First Successfully Delivered Satellite;
(ii) the amount of any [*****] of the BSS Construction
Agreement in respect of the First Successfully Delivered Satellite prior to the
First Closing Date;
(iii) the amount of any reimbursement by Loral to Tempo,
Primestar or their respective Affiliates pursuant to Article 21 of the BSS
Construction Agreement in respect of the First Successfully Delivered Satellite;
provided, that no reduction shall be made in respect of any payment by Loral for
alternative satellite facilities acquired by Tempo as a result of a delay in
Satellite delivery; and
(iv) any late payment or interest charges and any other
amounts paid by Tempo, Primestar or their respective Affiliates under either the
BSS Construction Agreement or any Construction Financing Agreement as a result
of a default under any such agreement.
1.27 Purchase Price of Second Successfully Delivered Satellite. An
---------------------------------------------------------
amount equal to the aggregate of the following:
(a) all amounts paid or payable to Loral under the BSS
Construction Agreement [*****] payable under Article 13 of the BSS Construction
Agreement);
(b) all amounts paid or payable to Telesat under the Telesat
Agreements; and
(c) all interest charges and other financing costs paid or
payable by Tempo, Primestar or their respective Affiliates under the
Construction Financing Agreements;
-5-
<PAGE>
in each case to the extent not previously paid by Telesat as part of the
Purchase Price of First Successfully Delivered Satellite;
less
(i) the amount of any damages paid to Tempo, Primestar
or their respective Affiliates by Loral pursuant to Article 23 of the BSS
Construction Agreement;
(ii) the amount of any [*****] of the BSS Construction
Agreement in respect of the Second Successfully Delivered Satellite prior to the
Second Closing Date;
(iii) the amount of any reimbursement by Loral to Tempo,
Primestar or their respective Affiliates pursuant to Article 21 of the BSS
Construction Agreement; provided, that no reduction shall be made in respect of
any payment by Loral for alternative satellite facilities acquired by Tempo as a
result of a delay in Satellite delivery; and
(iv) any late payment or interest charges and any other
amounts paid by Tempo, Primestar or their respective Affiliates under either the
BSS Construction Agreement or any Construction Financing Agreement as a result
of a default under any such agreement;
in each case to the extent not applied in reduction of part of the Purchase
Price of First Successfully Delivered Satellite.
1.28 Radio Authorization. The authorization of the Minister of
-------------------
Industry (Canada) pursuant to the Radiocommunication Act (Canada) to use the
broadcast satellite system position at the 82 West orbital location.
1.29 Required Consents. The Telesat Required Consents and the Tempo
-----------------
Required Consents.
1.30 Satellite Failure. A Satellite Failure shall be deemed to have
-----------------
occurred with respect to a Satellite when (a) the Satellite no longer has
sufficient fuel to perform north/south station keeping maneuvers, while
maintaining an appropriate fuel reserve for decommissioning; or (b) at any point
in time there are fewer than (i) eight transponders on the Satellite which meet
the Performance Specifications if the Satellite is operating in the 16
transponder mode or (ii) 16 transponders on the Satellite which meet the
Performance Specifications if the Satellite is operating in the 32 transponder
mode; or (c) Telesat and TCI have mutually agreed to declare the Satellite a
Satellite Failure.
-6-
<PAGE>
1.31 Satellite Purchase Price. The Purchase Price of First
------------------------
Successfully Delivered Satellite or the Purchase Price of Second Successfully
Delivered Satellite, as applicable.
1.32 Second Closing. The consummation of the transactions
--------------
contemplated by Section 4.2, the date of which is referred to as the Second
Closing Date.
1.33 Second Launched Satellite. The second satellite that Loral
-------------------------
attempts to launch under the BSS Construction Agreement, whether or not
Successfully Delivered.
1.34 Second Successfully Delivered Satellite. The second Satellite
---------------------------------------
launched pursuant to the BSS Construction Agreement which is accepted by Tempo
pursuant to Section 10.2 or Section 10.3 of the BSS Construction Agreement,
including, if applicable, a replacement Satellite as contemplated by Section
10.4 of the BSS Construction Agreement.
1.35 Spare TWTA. Certain redundant transponder equipment units, as
----------
described in the Performance Specifications, which are designed as substitutes
for equipment component units in use, the failure of which equipment component
units in use could cause a transponder to fail to meet the Performance
Specifications.
1.36 Successful Delivery. A Satellite has been launched and
-------------------
accepted by Tempo pursuant to Section 10.2 or Section 10.3 of the BSS
Construction Agreement.
1.37 Telesat Access Requirements. The Access Requirements attached
---------------------------
hereto as EXHIBIT C.
1.38 Telesat Agreements. The following agreements between Telesat
------------------
and Tempo: (a) Consulting Agreement dated as of November 16, 1990, and amended
as of June 1, 1991 and September 28, 1992, (b) Technical Assistance Agreement
dated as of December 31, 1992 and (c) Consulting Agreement dated as of August
12, 1993.
1.39 Telesat Insurance. Any insurance obtained by Telesat on the
-----------------
Satellites or the Telesat Transponders.
1.40 Telesat Required Consents. All notifications, licenses,
-------------------------
permits, authorizations, approvals and consents under Legal Requirements and
other third-party consents, (including, without limiting the generality of the
foregoing, any Industry Canada and CRTC requirements, notifications, licenses,
authorizations, approvals and or consents), required for Telesat to consummate
the transactions contemplated by, and to perform its obligations under, the
Satellite Purchase Agreement and this Agreement, including those required for
(a) Telesat to permit the transactions described in Section 2 hereof, (b)
Telesat to purchase the Satellites and to thereafter own and operate the
Satellites, and (c) Telesat to sell transponders on the Satellites to TCI in
accordance with the terms of this Agreement and TCI to purchase and use such
-7-
<PAGE>
transponders under Canadian Legal Requirements to transmit television
programming and other services into the United States; provided, that any
notifications, licenses, permits, authorizations, approvals and consents
required under United States Legal Requirements for TCI to so purchase and use
such transponders are Tempo Required Consents, not Telesat Required Consents.
1.41 Telesat Share. [*****]
-------------
1.42 Tempo Required Consents. All notifications, licenses,
-----------------------
permits, authorizations, approvals and consents under Legal Requirements and
other third-party consents (including, without limiting the generality of the
foregoing, any FCC requirements, notifications, licenses, authorizations,
approvals and or consents) required for Tempo to consummate the transactions
contemplated by, and to perform its obligations under, the Satellite Purchase
Agreement and TCI to consummate the transactions contemplated by, and to perform
its obligations under, this Agreement, including those required for (a) Tempo to
sell the Satellites to Telesat, and (b) TCI to purchase transponders on the
Satellites in accordance with the terms of this Agreement and to use such
transponders to transmit television programming and other services into the
United States; provided, that any notifications, licenses, permits,
authorizations, approvals and consents required under Canadian Legal
Requirements for TCI to so purchase and use such transponders are Telesat
Required Consents, not Tempo Required Consents.
1.43 Third Party. With respect to any Person, a Person other than
-----------
an Affiliate of such Person.
1.44 Third Party Offer. A bona fide, non-collusive, binding,
-----------------
arms'-length written offer from a Third Party to purchase or lease any portion
of the Telesat Transponders, stated in terms of U.S. dollars.
1.45 Transfer. A sale, lease, exchange, assignment or other
--------
disposition, whether voluntary or by operation of law.
1.46 Transponder. That portion of the communications subsystem
-----------
between the receive antenna output port and transmit antenna input port,
including any redundancy switching and a traveling wave tube amplifier (TWTA)
(subject to the conditions of Section 9), which provides an individual
communications transmission path for a 24 MHz channel.
1.47 Transponder Failure. A Transponder Failure means: (a) a
-------------------
Transponder fails to meet the Performance Specifications for a cumulative period
of more than ten hours during any consecutive 30 day period, or (b) 20 or more
"outage units" (as defined below) occur within a consecutive 30 day period with
respect to a Transponder, or (c) a Transponder fails to meet the Performance
Specifications for a period in excess of 30 seconds per day for a period of 30
days, or (d) a Transponder fails to meet the Performance Specifications for any
period of time under circumstances that make it clearly ascertainable or
predictable technically that a failure set
-8-
<PAGE>
forth in either (a) or (b) or (c) of this definition will occur. An "outage
unit" shall mean the failure of a Transponder to meet the Performance
Specifications for 15 minutes or more in one day. Notwithstanding the foregoing,
the occurrence of fewer than ten TWTA Spurious Switch-Offs or 30 micro-discharge
events (i.e., a very short unwanted interruption of the transponder RF signal)
----
with respect to a Transponder in a consecutive 60 day period shall not
constitute a Transponder Failure.
1.48 Transponder Purchase Price.
--------------------------
(a) Subject to Sections 1.48(b) and (c), the Transponder
Purchase Price for each Satellite will be an amount equal to:
[*****]
(b) If the First Successfully Delivered Satellite is being
operated in the 16 transponder mode at the time it is sold to Telesat, the
Transponder Purchase Price in respect of the First Successfully Delivered
Satellite will be an amount equal to:
[*****]
(c) If the First Successfully Delivered Satellite is being operated
in the 16 transponder mode at the time the Second Successfully Delivered
Satellite is sold to Telesat pursuant to Section 3.2 of the Satellite Purchase
Agreement, the Transponder Purchase Price in respect of the Second Successfully
Delivered Satellite will be an amount equal to:
[*****]
1.49 TWTA Spurious Switch-Off ("TSSO"). For the purposes of
---------------------------------
defining a successful operating channel, with no interruptions to traffic on
that channel, a TSSO is defined as any unwanted shut-off of a TWTA due to the
automatic protection circuitry in its EPC. This EPC design contains an automatic
reset unit ("ARU") that provides EPC operation within 300mS of a microdischarge
event. If no other microdischarge event occurs within the next three minutes,
the ARU will reset itself automatically. Two microdischarge events occurring
within a three minute ARU interval on the same EPC may trigger a spurious switch
off shutting down the EPC. If the ARU shuts down the EPC, causing the loss of
the transponder TWTA function, the EPC and hence the TWTA must be restarted by
ground command. The EPC timer will automatically apply the high voltage after
five minutes and the TWTA will be back in service. In high power mode, TWTA
shut-down includes shut-down of either one or both of the parallel combined
traveling wave tubes ("TWT"). In medium power mode, TWTA shut-down is the shut-
down of the one
-9-
<PAGE>
shut-down of the one operating TWT. A microdischarge event is any very short
unwanted interruption of the Transponder RF signal. The micro-discharge event
period is typically 1-50 mS duration.
1.50 Other Definitions. The following terms are defined in the
-----------------
Sections indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Action 17.3
Agreement Preamble
Amendments Recitals
Annual Insurance Coverage 7.6(g)
ARU 1.49
Assignee 18.2
Assignment Agreement 4.2
Average Present Value Amount 7.6(g)
BSS Construction Agreement Recitals
Cost Per Transponder 6.1(b)(i)
Cost Per Transponder on a Quarterly
Basis 6.1(b)(i)
First Interim Period 2.1(a)
Guarantee 7.9(a)
Indemnified Party 17.3
Indemnifying Party 17.3
Initial Secured Amount 7.9(b)
Intellectual Property Injunction 13.13(c)
Loral Recitals
Loral Guarantor 13.11(a)
Loral Indemnity Claim 13.13(a)
Loral Warranty Claim 13.12(a)
Maximum Secured Amount 7.9(b)
net insurance proceeds 7.8(b)
Newly Available Telesat Transponder 6.2
Operating Fees 7.6(a)
Operating Fees Per Transponder 6.1(b)(ii)
outage unit 1.47
Party or Parties Preamble
Prepaid Operating Fees 7.7(a)
QTPT/48 6.1(b)(ii)
Satellite or Satellites Recitals
Satellite Purchase Agreement Recitals
Second Interim Period 2.4
</TABLE>
-10-
<PAGE>
<TABLE>
<S> <C>
TCI Indemnitees 17.1
TCI Option 6.2
TCI Transponders 4.1(a) & (b)
Tele-Communications 7.9(a)
Telesat Preamble
Telesat Indemnitees 17.2
Telesat Transponders 3.1(a)& (b)
Telesat Warranty Payback 7.7(b)
Tempo Recitals
Term 5
Time Differential 6.1(b)(ii)
TSSO 1.49
TT&C 7.4
Two-Channel Transponder Simulator 7.4
TWT 1.49
TWTA 1.46
Unused Telesat Transponder 6.1(a)
Warranty Claim Payments 13.12(c)
Warranty Paybacks 7.7(b)
Warranty Payback Claim 13.11(b)
</TABLE>
SECTION 2. INTERIM USE AND OPERATION OF SATELLITES; OPTIONS REGARDING 32
TRANSPONDER MODE.
2.1 Operation of First Successfully Delivered Satellite Pending
-----------------------------------------------------------
First Closing; Initial Designation by TCI of 16 Transponder Mode or
- -------------------------------------------------------------------
32 Transponder Mode.
- -------------------
(a) During the period beginning on the date of Successful
Delivery of the First Successfully Delivered Satellite and ending on the First
Closing Date (the "First Interim Period"), Telesat shall be responsible for
operating and maintaining the First Successfully Delivered Satellite in
accordance with the provisions of Section 7 of this Agreement. In consideration
of the operation and maintenance by Telesat of the First Successfully Delivered
Satellite during the First Interim Period, TCI shall pay to Telesat an amount
equal to [*****] Operating Fee payable pursuant to Section 7.6(b), the amount of
such quarterly Operating Fee to be initially estimated by TCI and Telesat in
good faith and to be prorated based on the actual number of days in the First
Interim Period. The payment provided for in this Section 2.1(a), as estimated,
shall be paid to Telesat by TCI on the first day of the First Interim Period. On
the First Closing Date, the amount due to Telesat hereunder will be recalculated
based on the actual quarterly Operating Fee payable pursuant to Section 7.6(b)
and TCI or Telesat, as applicable, will pay the amount owed to the other Party
on the First Closing Date; provided, that if a payment is due hereunder from
Telesat to TCI, such payment will be offset
-11-
<PAGE>
against the first Operating Fee payment due hereunder from TCI to Telesat in
respect of the First Successfully Delivery Satellite.
(b) At least 30 days prior to the launch of the First
Launched Satellite and, if the First Launched Satellite is not Successfully
Delivered, at least 30 days prior to the launch of each subsequent Satellite by
Loral until there is a Successful Delivery of a Satellite, TCI shall notify
Telesat whether it desires Telesat to initially operate such Satellite in the 16
Transponder mode (i.e., a high power mode, whether or not all 16 Transponders
----
are functioning) or the 32 Transponder mode (i.e., a medium power mode,
whether or not all 32 Transponders are functioning).
2.2 Use of First Successfully Delivered Satellite Pending First
-----------------------------------------------------------
Closing. During the period beginning on the date of Successful Delivery of the
First Successfully Delivered Satellite and ending on the First Closing Date, the
following provisions regarding use of the First Successfully Delivered Satellite
will apply:
(a) Telesat shall be entitled to the use of five
Transponders chosen by it on such Satellite if such Satellite is being operated
in the 32 Transponder mode (even if fewer than 32 Transponders are functioning),
such use to be subject to the requirements of Section 6 of this Agreement. TCI
will provide the In-Orbit Testing (as defined in the BSS Construction Agreement)
results with respect to the First Successfully Delivered Satellite to Telesat
within five days after Tempo's receipt of such results from Loral. Telesat shall
notify TCI in writing regarding which five Transponders it desires to use within
ten days following its receipt of the In-Orbit Testing results with respect to
such Satellite.
(b) Telesat shall be entitled to the use of two
Transponders chosen by it on such Satellite if such Satellite is being operated
in the 16 Transponder mode (even if fewer than 16 Transponders are functioning),
such use to be subject to the requirements of Section 6 of this Agreement. TCI
will provide the In-Orbit Testing (as defined in the BSS Construction Agreement)
results with respect to the First Successfully Delivered Satellite to Telesat
within five days after Tempo's receipt of such results from Loral. Telesat shall
notify TCI in writing regarding which two Transponders it desires to use within
ten days following its receipt of the In-Orbit Testing results with respect to
such Satellite.
(c) TCI shall be entitled to the use of all Transponders on
such Satellite not assigned to Telesat pursuant to Section 2.2(a) or (b), such
use to be subject to the requirements of Section 8 of this Agreement.
2.3 Option Regarding Conversion to 32 Transponder Mode Following
------------------------------------------------------------
First Closing. If the First Successfully Delivered Satellite is initially being
- -------------
operated in the 16 Transponder mode, TCI may instruct Telesat at any time prior
to the Second Closing Date, on ten days' notice, to commence operating the First
Successfully Delivered Satellite in the 32 Transponder mode for the remainder of
the Term or until a second Satellite is Successfully
-12-
<PAGE>
Delivered and a transition of services is accomplished. Following an election by
TCI to convert operation of the First Successfully Delivered Satellite from a 16
transponder mode to a 32 Transponder mode, three additional Transponders shall,
subject to the obligations of Telesat under Section 4.3 and 7.6(c) to make
refunds to TCI, be transferred to Telesat for no additional consideration and
will be included in the Telesat Transponders, as specified in Section 3.1(a).
2.4 Operation and Use of Second Successfully Delivered Satellite
------------------------------------------------------------
Pending Closing. During the period beginning on the date of Successful Delivery
- ---------------
of the Second Successfully Delivered Satellite and ending on the Second Closing
Date (the "Second Interim Period"), the following provisions regarding operation
and use of the Second Successfully Delivered Satellite will apply:
(a) Telesat shall be responsible for operating and
maintaining the Second Successfully Delivered Satellite in accordance with the
provisions of Section 7 of this Agreement. In consideration of the operation and
maintenance by Telesat of the Second Successfully Delivered Satellite during the
Second Interim Period, TCI shall pay to Telesat an amount equal to [*****]
Operating Fee payable pursuant to Section 7.6(e), the amount of such quarterly
Operating Fee to be initially estimated by TCI and Telesat in good faith and to
be prorated based on the actual number of days in the Second Interim Period. The
payment provided for in this Section 2.4(a), as estimated, shall be paid to
Telesat by TCI on the first day of the Second Interim Period. On the Second
Closing Date, the amount due to Telesat hereunder will be recalculated based on
the actual quarterly Operating Fee payable pursuant to Section 7.6(e) and TCI or
Telesat, as applicable, will pay the amount owed to the other Party on the
Second Closing Date; provided, that if a payment is due hereunder from Telesat
to TCI, such payment will be offset against the first Operating Fee payment due
hereunder from TCI to Telesat in respect of the Second Successfully Delivered
Satellite.
(b) From and after the date of Successful Delivery of the
Second Satellite, both Satellites shall be operated in the 16 Transponder mode
as a high power DBS system and Telesat shall be entitled to the use of five
Transponders on such Satellites chosen by it, such use to be subject to the
requirements of Section 6 of this Agreement. TCI will provide the In-Orbit
Testing results with respect to the Second Successfully Delivered Satellite to
Telesat within five days after Tempo's receipt of such results from Loral.
Telesat shall have the right to choose and exchange, or retain, as the case may
be, the five Transponders on the Satellites to be used by it during the Second
Interim Period, which Transponders may, but are not required to be, the same
Transponders previously designated as the "Telesat Transponders" on the First
Successfully Delivered Satellite; provided, that Telesat must keep as a Telesat
Transponder any Telesat Transponder that is not performing in accordance with
Performance Specifications at the time of Successful Delivery of the Second
Successfully Delivered Satellite. Telesat shall notify TCI in writing regarding
the five Transponders it desires to use within 10 days following its receipt of
the In-Orbit testing results for such Satellite.
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<PAGE>
(c) TCI shall be entitled to the use of all Transponders on
the Satellites not chosen by Telesat pursuant to Section 2.4(b), such use to be
subject to the requirements of Section 8 of this Agreement.
SECTION 3. DESIGNATION OF TELESAT TRANSPONDERS.
3.1 Designation of Telesat Transponders.
-----------------------------------
(a) On the First Closing Date, the Transponders chosen by
Telesat pursuant to Section 2.2 of this Agreement (i.e., two Transponders if in
---
the 16 Transponder mode and 5 Transponders if in the 32 Transponder mode) shall
thereafter be known as the "Telesat Transponders." If the First Successfully
Delivered Satellite is being operated in the 16 Transponder mode on the First
Closing Date and TCI thereafter elects pursuant to Section 2.3 of this Agreement
to have Telesat operate such Satellite in the 32 Transponder mode, Telesat shall
acquire full ownership of three additional Transponders chosen by it on such
Satellite and the five Transponders retained by Telesat shall thereafter be
known as the "Telesat Transponders." Such acquisition of three additional
Transponders by Telesat shall, subject to the obligations of Telesat under
Section 4.3 and 7.6(c) to make refunds to TCI, be for no additional
consideration.
(b) From and after the date of Second Closing Date, both
Satellites shall be operated in the 16 Transponder mode as a high power DBS
system. From and after the Second Closing Date, the Transponders chosen by
Telesat pursuant to Section 2.4(b) shall thereafter be known as the "Telesat
Transponders."
(c) The maximum number of Transponders to be retained by
Telesat pursuant to this Agreement is five. The Parties agree to execute and
deliver to each other such instruments as may be necessary to vest title to the
Transponders in the proper Party following any redesignation by Telesat of its
Transponders pursuant to Section 2 or any additional acquisition by Telesat of
Transponders pursuant to Section 3.1. All Telesat Transponders are
non-preemptible.
SECTION 4. PURCHASE AND SALE OF SATELLITE TRANSPONDERS.
Subject to the terms and conditions set forth in this Agreement,
the Parties will effect the purchase and sale of Transponders described below:
4.1 Purchase and Sale of Transponders on First Successfully
-------------------------------------------------------
Delivered Satellite.
- -------------------
(a) If the First Successfully Delivered Satellite is sold
to Telesat pursuant to the Satellite Purchase Agreement and is being operated in
the 16 Transponder mode on the First Closing Date, Telesat, in consideration of
and in exchange for payment by TCI of the Transponder Purchase Price with
respect to the First Successfully Delivered Satellite pursuant to Section 4.3,
will sell, convey, transfer and assign to TCI, all of Telesat's right, title and
interest in
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<PAGE>
and to the 14 Transponders on such Satellite not designated as the Telesat
Transponders pursuant to Section 3.1(a) of this Agreement or, if the First
Successfully Delivered Satellites has been accepted pursuant to Section 10.3 of
the BSS Construction Agreement, such lesser number of Transponders as remain
after designation by Telesat of its two Transponders (and such Transponders
shall then be the "TCI Transponders"). If the First Successfully Delivered
Satellite is being operated in the 32 Transponder mode at the time it is sold to
Telesat, the "TCI Transponders" sold to TCI under this Section 4.1(a) shall be
the 27 Transponders on the First Successfully Delivered Satellite not designated
as the Telesat Transponders pursuant to Section 3.1(a) of this Agreement or, if
the First Successfully Delivered Satellite has been accepted pursuant to Section
10.3 of the BSS Construction Agreement, such lesser number of Transponders as
remain after designation by Telesat of its five Transponders.
(b) From and after the Second Closing Date, both Satellites
shall be operated in the 16 Transponder mode as a high power DBS system. If the
Second Successfully Delivered Satellite is sold to Telesat pursuant to the
Satellite Purchase Agreement, on the Second Closing Date, Telesat, in
consideration of and in exchange for payment by TCI of the Transponder Purchase
Price with respect to the Second Successfully Delivered Satellite pursuant to
Section 4.3 , will sell, convey, transfer and assign to TCI all of Telesat's
right, title and interest in and to the 27 Transponders not designated as the
Telesat Transponders pursuant to Section 3.1(b), to the extent not previously
conveyed or, if the Second Successfully Delivered Satellite has been accepted
pursuant to Section 10.3 of the BSS Construction Agreement, such lesser number
of Transponders as remain after designation by Telesat of its five Transponders
(and such Transponders, together with the transponders previously acquired by
TCI pursuant to Section 4.1(a) of this Agreement shall thereafter be the "TCI
Transponders").
4.2 Title to, and Status of, TCI Transponders. Each transfer of
-----------------------------------------
a TCI Transponder to TCI under this Section 4 shall be made free and clear of
all Encumbrances created by or applicable to Telesat except Permitted
Encumbrances, such assignment to be effected pursuant to an Assignment Agreement
in the form attached to this Agreement as EXHIBIT A (the "Assignment
Agreement"), as modified to reflect the Transponders actually being sold to TCI.
The TCI Transponders are non-preemptible.
4.3 Payment of Transponder Purchase Price. On the First Closing
-------------------------------------
Date and, if applicable, the Second Closing Date, TCI will pay to Telesat the
Transponder Purchase Price with respect to the Satellite sold to Telesat on such
Closing Date, which amount will be offset by Telesat against the Satellite
Purchase Price payable by Telesat to Tempo pursuant to the Satellite Purchase
Agreement with respect to such Satellite and Telesat agrees that TCI may offset
the Transponder Purchase Price payable on such Closing Date against an equal
amount of the Satellite Purchase Price payable by Telesat to Tempo on such date.
If TCI exercises the option granted to it in Section 2.3 of this Agreement, the
Transponder Purchase Price for the First Successfully Delivered Satellite will
be recalculated on the date of exercise by TCI of such option pursuant to the
formula set forth in Section 1.48(a) and the positive difference between the
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<PAGE>
Transponder Purchase Price as recalculated and the Transponder Purchase Price
previously paid by TCI in respect of the First Successfully Delivered Satellite
will be refunded to TCI by Telesat, such refund to be effected by TCI offsetting
the amount due to it from Telesat against the next payment of Operating Fees
made by TCI in respect of the First Successfully Delivered Satellite.
SECTION 5. TERM.
Subject to the provisions of Sections 7.8, 13.9(d) and 16, the
term of this Agreement shall commence on the date hereof and shall terminate
when there are no longer any Satellites which have not been deemed to be a
Satellite Failure (the "Term").
SECTION 6. TELESAT TRANSPONDERS.
6.1 Sale of Telesat Transponders to Canadian DBS Providers.
------------------------------------------------------
(a) TCI, through an Affiliate, operates a direct-to-home
distribution service and acknowledges the desirability of joint marketing and
programming relationships with potential Canadian DBS providers and, therefore,
agrees to work in full cooperation with Telesat to formulate arrangements that
will enhance the ability of Telesat to sell, lease or otherwise provide the use
of Telesat's Transponders to Canadian DBS Providers. Following execution of this
Agreement, Telesat shall use its best efforts to finalize an operating agreement
or a purchase agreement with one or more Canadian DBS Providers for use or sale
of the Telesat Transponders; provided, however, that if Telesat is unable with
respect to any Telesat Transponder (an "Unused Telesat Transponder") to reach an
agreement with a Canadian DBS Provider within one year following the date on
which Telesat acquired ownership of such Unused Telesat Transponder, Telesat
may, not later than 15 months following the date on which Telesat acquired
ownership of such Unused Telesat Transponders, offer to sell all such Unused
Telesat Transponders to TCI and TCI shall, within 90 days following its receipt
of such offer, purchase such Unused Telesat Transponders on the terms and
conditions set forth in Section 6.1(b) below; provided, that TCI shall not be
obligated to purchase any Unused Telesat Transponder that has suffered a
Transponder Failure.
(b) The terms and conditions pursuant to which TCI shall
purchase the Unused Telesat Transponders put to it by Telesat are as follows:
(i) TCI shall make a one time only payment of capital
for each Unused Telesat Transponder to be purchased by it equal to [*****]
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<PAGE>
and Telesat will, by appropriate documentation, Transfer to TCI, free and clear
of all Encumbrances other than Permitted Encumbrances and Encumbrances created
prior to the time Telesat acquired title to or began using the Unused Telesat
Transponders, all of Telesat's right, title and interest in and to, the Unused
Telesat Transponders.
(ii) In addition, TCI shall [*****] with respect to
the TCI Transponders on the Satellite which contains the Unused Telesat
Transponders.
6.2 Newly Available Telesat Transponders. If a Telesat
------------------------------------
Transponder which was initially Transferred by Telesat to a Canadian DBS
Provider pursuant to Section 6.1(a) of this Agreement subsequently becomes
available (a "Newly Available Telesat Transponder"), Telesat may Transfer such
Newly Available Telesat Transponder to a Canadian DBS Provider without first
offering such Transponder to TCI. If Telesat has not Transferred a Newly
Available Telesat Transponder to a Canadian DBS Provider within three months
following the date on which such Transponder again became available, Telesat may
offer such transponder to TCI and TCI shall have the option (the "TCI Option")
to accept such offer from Telesat for [*****] The closing of any Transfer
pursuant to this Section will be held on a date agreed to by Telesat and TCI
which is not later than 60 days after the date of TCI's exercise of the TCI
Option. At closing of any
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<PAGE>
Transfer contemplated by this Section 6.2, TCI will pay the required purchase
price and Telesat will, by appropriate documentation, Transfer to TCI, free and
clear of all Encumbrances other than Permitted Encumbrances and Encumbrances
created prior to the time Telesat acquired title to or began using the Unused
Telesat Transponders, all of Telesat's right, title and interest in and to, the
applicable Newly Available Telesat Transponder.
6.3 Sale of Telesat Transponders to Third Parties Pursuant to
---------------------------------------------------------
Right of First Refusal. Telesat may Transfer all, but not less than all, of any
- ----------------------
Newly Available Telesat Transponder to a Third Party that is not a Canadian DBS
Provider only pursuant to a Third Party Offer and only after following the
procedures set forth in this Section 6.3. The Third Party Offer must be for the
remaining life of the Newly Available Telesat Transponder [*****] TCI may accept
such offer in whole but not in part, by giving written notice to Telesat within
15 days after its receipt of written notice from Telesat of such offer. The
closing of any Transfer pursuant to this Section will be held on a date agreed
to by Telesat and TCI which is not later than 60 days after the date of TCI's
notice of acceptance. At closing of any Transfer contemplated by this Section
6.3, TCI will pay the required purchase price and Telesat will, by appropriate
documentation, Transfer to TCI, free and clear of all Encumbrances other than
Permitted Encumbrances and Encumbrances created prior to the time Telesat
acquired title to or began using the Unused Telesat Transponders, all of
Telesat's right, title and interest in and to, the applicable Newly Available
Telesat Transponder. If TCI does not accept an offer by Telesat to Transfer a
Newly Available Telesat Transponder or does not close the Transfer in accordance
with this Section, [*****]
6.4 Treatment of Transferred Telesat Transponders. Upon
---------------------------------------------
consummation of a Transfer of any portion of the Telesat Transponders to TCI
pursuant to Section 6.1, 6.2 or 6.3, the Telesat Transponders Transferred to TCI
shall thereafter be included in the definition of TCI Transponders for all
purposes.
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<PAGE>
SECTION 7. OPERATION OF SATELLITE.
7.1 Operation of the Satellite. Telesat shall be responsible
--------------------------
for operating and maintaining the Satellites at the 82 degree West orbital
location during the Term of this Agreement (including maintenance and operation
of each Satellite pending Closing for such Satellite, as contemplated by Section
2 of this Agreement) in accordance with the Satellite Orbital Operation Handbook
(as defined in the BSS Construction Agreement). Telesat and TCI will jointly
coordinate operating levels and the type of modulation in the bandwidth.
7.2 Compliance with Law. Telesat will comply with all
-------------------
applicable Legal Requirements, both current and as may come into effect, in
connection with the performance of its obligations under this Agreement.
7.3 Operating Costs. Telesat shall be responsible for all costs
---------------
of operating and maintaining the Satellites at the 82 degree West orbital
location during the Term of this Agreement, including, without limitation, the
following:
(a) [*****];
(b) [*****]
(c) [*****]
(d) [*****]
7.4 Satellite Operations. Throughout the term of this
--------------------
Agreement, Telesat, at its cost and expense, shall provide for all the functions
of Tracking, Telemetry and Command ("TT&C") in accordance with the plan attached
as EXHIBIT F, including, without limitation, stationkeeping, attitude control,
and other satellite maintenance and switching functions as shall be necessary to
maintain the Transponders on the Satellites in accordance with the Performance
Specifications. When a new TT&C facility is established, Telesat shall promptly
notify TCI. The Two-Channel Transponder Simulator (identified as Item 3 in
Section 4.1 of the BSS Construction Agreement) shall be located at the TCI
National Digital Television Center facility in Denver, CO, and shall be made
available to Telesat and its Canadian customers using the Satellite(s), free of
charge, for simulated transmission testing. TCI will be the owner of and will
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<PAGE>
be responsible for the cost of operating, maintaining and, at its option,
replacing the Two-Channel Transponder Simulator.
7.5 Telesat Reports. Telesat will provide TCI with the
---------------
following reports regarding the operation of the Satellites and the associated
TT&C facilities:
(a) Following the Closing Dates, Telesat shall provide TCI
with monthly written operational reports concerning the Satellite(s) and shall
provide general advice without any liability on its part to TCI on any technical
matters relating to the operation of the TCI Transponders. Anomalous operations
shall be reported to TCI as soon as possible. Each party agrees to promptly
notify the other, in writing if it receives notification of any governmental
action or order which will materially affect the operation of the Satellite(s)
or the terms of this Agreement.
(b) Telesat shall notify and consult with TCI regarding all
maneuvers of the Satellite(s) which would result in a change in the orbital
location of the Satellite(s) within twenty-four (24) hours of Telesat becoming
aware of the need for the change. Telesat, in its sole discretion, has the right
to select the most convenient hours during which such maneuvers shall occur,
consistent with Telesat's obligation to properly maintain the affected
Satellite.
7.6 Payment of Operating Fees. In consideration of the services
-------------------------
provided by Telesat under this Agreement, TCI shall pay to Telesat the quarterly
payments provided for in this Section 7.6 and in Section 6.
(a) The quarterly payments to be made by TCI pursuant to
Section 7.6(b), (d) or (e) and Section 6, as applicable, and as adjusted
pursuant to the provisions of Sections 7.6 and 7.7, are referred to herein as
the "Operating Fees." Telesat will designate the account to which the Operating
Fees shall be paid prior to the First Closing. Telesat will render invoices to
TCI with respect to each payment of Operating Fees due hereunder at least 30
days prior to the date on which such payment is due.
(b) On the first day of each of the 48 full calender
quarters immediately following the First Closing Date, TCI will pay Operating
Fees to Telesat in the amount of [*****] in respect of the First Successfully
Delivered Satellite, as adjusted pursuant to the provisions of Sections 7.6 and
7.7. The Operating Fees set forth in this Section 7.6(b) are based on an assumed
Purchase Price of First Successfully Delivered Satellite of [*****] and an
assumed Telesat Share for the First Successfully Delivered Satellite of [*****].
For each dollar reduction or increase in the amount of the Telesat Share with
respect to the First Successfully Delivered Satellite below or above [*****],
there shall be a reduction or increase, as applicable, in the quarterly
Operating Fees payable under this Section 7.6(b) in an amount equal to the
amount of the reduction or increase in the Telesat Share multiplied by .0304.
For example, if the Purchase Price of First Successfully Delivered Satellite
were actually [*****] and the Telesat Share were [*****], the amount of the
quarterly Operating Fees payable pursuant to this Section 7.6(b) would be
[*****] (i.e., [*****] multiplied by .0304 equals a [*****] reduction in the
----
amount of the Operating Fees). The Operating Fees set forth in Section 7.6(b)
and (e) include an allocation to TCI of 27/32nds of an assumed [*****] annual
license fee payable to Industry Canada for use of the 82 degrees West orbital
location for two Satellites.
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<PAGE>
(c) If the First Successfully Delivered Satellite is being
operated in the 16 Transponder mode when it is sold to Telesat, the Operating
Fees payable in respect of such Satellite (as initially calculated pursuant to
Section 7.6(b) and as thereafter adjusted from time to time pursuant to Section
7.6 and 7.7) made prior to exercise by TCI of the option granted to it in
Section 2.3 of this Agreement will be increased by an amount equal to the
product obtained by multiplying .037 by the Operating Fees for such Satellite
then in effect. If TCI exercises the option granted to it in Section 2.3 of this
Agreement, all additional payments previously made by TCI pursuant to this
Section 7.6(c) will be refunded to TCI by Telesat, such refund to be effected by
TCI offsetting the amount due to it from Telesat against the next payment of
Operating Fees made by TCI in respect of the First Successfully Delivered
Satellite.
(d) In addition to the Operating Fees provided for in
Sections 7.6(b) and (c), on the first day of each of the 48 full calendar
quarters immediately following the First Closing Date and pending the Second
Closing Date, (i) TCI will pay to Telesat a service fee of [*****], and (ii) if
the license fees payable to Industry Canada by Telesat are a fixed amount for
the 82 degrees West orbital slot and do not vary based on the number of
satellites located at such orbital slot or the number of frequencies used at
such orbital slot, TCI will pay to Telesat an additional service fee of [*****],
it being agreed that TCI's obligation to pay Telesat such additional [*****] and
[*****] service fees will terminate on the Second Closing Date.
(e) On the first day of each of the 48 full calendar
quarters immediately following the Second Closing Date, TCI will pay Operating
Fees to Telesat in the amount of [*****] in respect of the Second Successfully
Delivered Satellite, as adjusted pursuant to the provisions of Sections 7.6 and
7.7. The Operating Fees set forth in this Section 7.6(e) are based on an assumed
Purchase Price of Second Successfully Delivered Satellite of [*****] and an
assumed Telesat Share for the Second Successfully Delivered Satellite of
[*****]. For each dollar reduction or increase in the amount of the Telesat
Share with respect to the Second Successfully Delivered Satellite below or
above [*****], there shall be a reduction or increase, as applicable, in the
Operating Fees payable under this Section 7.6(e) in an amount equal to the
amount of the reduction or increase in the Telesat Share multiplied by .0304.
(f) If the First Successfully Delivered Satellite is being
operated in the 16 Transponder mode at the time the Second Successfully
Delivered Satellite is sold to Telesat, the Operating Fees for the Second
Successfully Delivered Satellite (as initially calculated pursuant to Section
7.6(e) and as thereafter adjusted from time to time pursuant to Section 7.7)
shall be reduced by an amount equal to the product obtained by multiplying .037
by the Operating Fees for such Satellite then in effect.
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<PAGE>
(g) If Telesat does not obtain and maintain in full force
and effect on an annual basis during the Term, insurance on a Satellite in an
amount at least equal to the Average Present Value Amount (as defined below),
(such amount of insurance coverage being referred to herein as the "Annual
Insurance Coverage"), Telesat shall credit TCI each quarter of such insurance
year with an amount in respect of such Satellite equal to:
(Average Present Value Amount - Annual Insurance Coverage) x 0.025
------------------------------------------------------------------
4
The "Average Present Value Amount" means an amount in any insurance year equal
to the average of 75% of the present value of the remaining quarterly Operating
Fees relating to the Satellite being insured calculated at an annual discount
rate of 10% as of the beginning and end of such insurance year. Notwithstanding
the aforesaid, there shall be no amount credited by Telesat to TCI under this
Section for any insurance year in the event (i) the cost of the Annual Insurance
Coverage for such year is equal to or greater than the product of the Average
Present Value Amount for such year and 2 1/2%; or (ii) pursuant to Section
13.10, TCI desires to purchase in-orbit insurance in connection with its
ownership of the TCI Transponders and the effect of such purchase is that
Telesat is unable to purchase in such year an amount of insurance equal to the
Average Present Value Amount.
7.7 Prepaid Operating Fees; [*****]
------------------------------
(a) At any time and from time to time after the date which
is one year after the First Closing Date, TCI may prepay Operating Fees to
Telesat (the "Prepaid Operating Fees" ) with respect to the TCI Transponders,
and shall designate at the time each such payment is made whether such Prepaid
Operating Fees relate to the TCI Transponders purchased by it on the First
Closing Date or the Second Closing Date. Following each payment of Prepaid
Operating Fees, the Operating Fees payable with respect to the TCI Transponders
to which such payment relates shall be reduced by an amount equal to the number
obtained by multiplying the amount of the Prepaid Operating Fees by the number
set forth on EXHIBIT D hereto with respect to the quarter during which such
Prepaid Operating Fees are paid.
(b) As specified in the Loral Side Agreement, [*****] BSS
Construction Agreement
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<PAGE>
(c) Telesat agrees that it will timely pay to Loral on
behalf of Tempo any Resurrected Transponder (as defined in the BSS Construction
Agreement) payment that Tempo is required to make under the BSS Construction
Agreement to the extent that Telesat received the Warranty Payback to which such
Resurrected Transponder payment relates in an amount not to exceed the amount of
such Warranty Payback. Following each such payment by Telesat that relates to a
TCI Transponder, the Operating Fees with respect to the TCI Transponders to
which such payment relates shall be increased by an amount equal to the number
obtained by multiplying the amount of such payment by Telesat by the number set
forth on EXHIBIT D hereto with respect to the quarter during which such payment
is made by Telesat.
7.8 Effect of Satellite or Transponder Failure.
------------------------------------------
(a) Unless this Agreement is terminated under Section 16,
the Operating Fees for Successfully Delivered Satellites, as appropriately
adjusted pursuant to Sections 7.6 and 7.7 of this Agreement, and the obligations
of the guarantor under the Guarantee described in Section 7.9, shall, subject to
the limitations set forth in Section 7.8(b) and (c), continue and be payable in
each and every event, including, without limitation, Force Majeure and whether
any Satellite or Transponder is operating and is able to transmit and receive
signals on any or all of the channels for which it was intended to operate.
(b) If a Satellite failure occurs for which Telesat is
entitled to make a claim under any Telesat Insurance policy and the Satellite
continues to operate, Telesat agrees that it will diligently pursue payment of
such claim and further agrees that the amount of any insurance proceeds received
by Telesat net of any salvage value payable to Telesat's insurers (such net
amount being referred to herein as "net insurance proceeds") in respect to the
Satellite failure will reduce the Operating Fees in respect of such Satellite
thereafter payable by TCI by an amount equal to the number obtained by
multiplying 27/32 of the amount of the net insurance proceeds so received by
Telesat by the number set forth on EXHIBIT D hereto with respect to the quarter
during which such net insurance proceeds were received by Telesat. [*****]
(c) If a Satellite failure occurs for which Telesat is
entitled to make a claim under any Telesat Insurance policy and the Satellite is
decommissioned, Telesat agrees that it will diligently pursue payment of such
claim and further agrees that TCI's obligation to continue payment of the
prescribed Operating Fees in respect of such Satellite for the period from and
after the date of receipt of the net insurance proceeds by Telesat will
terminate provided [*****]
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<PAGE>
payment and 27/32 of the net insurance proceeds. An annual discount rate of 10%
will be applied in present value calculation.
(d) Upon termination of this Agreement as to a single
Satellite pursuant to Section 7.8(c), TCI will begin or resume making the
payments provided for in Section 7.6(d)(i) and, if applicable, Section
7.6(d)(ii) with respect to the period from and after the date of complete
Satellite failure.
7.9 Guarantee.
---------
(a) At each Closing, TCI shall cause Tele-Communications,
Inc., a Delaware corporation ("Tele-Communications") or, with the prior written
approval of Telesat (not to be unreasonably withheld), a substitute guarantor.
to deliver to Telesat a guarantee in the form of EXHIBIT B (a "Guarantee").
Telesat acknowledges that the designation of Tele-Communications as the entity
to deliver the Guarantee at each Closing is intended as a temporary measure and
that Telesat may not refuse to consent to a substitute guarantor solely on the
basis that the proposed substitute guarantor does not have an equivalent net
worth, fair market value or financial capacity to Tele-Communications. Within 10
days after Telesat's receipt from TCI of a written request to designate a
substitute guarantor, Telesat will request such financial and legal information
as Telesat shall reasonably require from Tele-Communications. Telesat shall
confirm in writing the giving or denial of the consent to the proposed
assignment within 30 days after the receipt by Telesat of such information. If
Telesat shall not have given or denied its consent to a substitute guarantor
within such 30 day period, Telesat shall be deemed to have consented to such
substitute guarantor. If Telesat shall deny such consent within such period, it
shall specify with reasonable particularity the reasons for such denial.
(b) In lieu of causing Tele-Communications or a substitute
guarantor to deliver a Guarantee to Telesat at a Closing, TCI may deliver to
Telesat a letter of credit issued by a financial institution with at least an A-
credit rating and not rated a lower grade by Standard & Poor's Corporation or
Moody's Investor Service, Inc. (or any successor thereto), which letter of
credit (i) will secure TCI's obligation to pay Operating Fees for the
Transponders sold to TCI on such Closing Date up to a maximum amount (the
"Maximum Secured Amount") initially equal to (x) the Satellite Purchase Price
paid on such Closing Date minus the Transponder Purchase Price paid on such
Closing Date [*****]; provided that the Maximum Secured Amount shall decrease on
the first day of each of the 48 full calendar quarters following such Closing
Date by an amount equal to 1/48 of the Initial Secured Amount if TCI pays the
Operating Fees for each such calendar quarter when due and if such Operating
Fees are not paid when due but are paid within 45 days after TCI's receipt of
written notice from Telesat of late payment thereof, then the Maximum Secured
Amount shall decrease on the Business Day immediately following receipt of such
outstanding Operating Fees by Telesat by an amount equal to 1/48 of the Initial
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Secured Amount, (ii) will have a term commencing on the date of delivery to
Telesat and ending on the date which is six months following the end of the 48th
calendar quarter following the Closing Date to which such letter of credit
relates or have such renewal provisions as may be acceptable to Telesat in its
sole discretion, and (iii) otherwise be on terms customary for commercial
letters of credit.
7.10 Payments after Completion of Operating Fees. Subject to the
-------------------------------------------
obligations of TCI under Section 13.9 with respect to successor satellites, if
TCI continues to use TCI Transponders after all Operating Fees required to be
made under Sections 6, 7.6 and 7.7 with respect to such TCI Transponders have
been made, TCI will continue during the time it uses such Transponders [*****].
SECTION 8. USE OF TCI TRANSPONDERS.
8.1 Use of TCI Transponders. Subject to the terms of Sections
-----------------------
8.6, 8.7 and 8.8, TCI shall have the right to use the TCI Transponders and to
permit the use by third Persons of the TCI Transponders for any lawful and
civilian purpose. Notwithstanding the foregoing, TCI agrees that, subject to any
legal limitations and for the life of the current ANIK E fleet of Telesat, which
satellites are estimated to reach the end of their useful lives in 2003, TCI
will not sell or lease any of the TCI Transponders to any Person which is a
customer of Telesat on its ANIK E fleet on the date of this Agreement unless
such Person desires to use the TCI Transponders to duplicate the programming it
distributes on Telesat's ANIK E fleet or to distribute programming not then
distributed by it on Telesat's ANIK E fleet.
8.2 Encryption. TCI shall have the right to use any encryption,
----------
digital compression technology or transmission format of its own choosing in its
signal transmission. Telesat shall not assess an additional charge with respect
to such use or any change of use.
8.3 Radio Transmissions. TCI's radio transmissions to the
-------------------
Satellite(s) shall comply with all applicable Legal Requirements, and shall not
interfere with the use of any Transponder or operation of the Satellite(s).
8.4 Frequency Plans. TCI specifically agrees to submit its
---------------
frequency and transmission plans and any proposed changes thereto to Telesat for
approval (which shall not be unreasonably withheld) prior to transmission or
after any change thereof and to take all necessary precautions to ensure that
its use of the TCI Transponders is in conformity with such approved frequency
and transmission plans and is in all other respects consistent with the
Satellite Orbital Operation Handbook and the Telesat Access Requirements.
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8.5 Uplinking. Subject to any applicable regulatory approvals,
---------
TCI shall have the right to uplink, or arrange for uplinking to the Satellite(s)
from any uplink facilities in any location. When signals are being transmitted
to the TCI Transponders, TCI shall be responsible for proper illumination of the
TCI Transponders in accordance with the Telesat Access Requirements so as not to
interfere with the use of or cause harm to the Telesat Transponders or to the
Satellite(s).
8.6 Content of Communications. TCI will not use the TCI
-------------------------
Transponders to transmit communications into the United States depicting or
describing "sexually explicit conduct" as defined in 18 United States Code (S)
2256(2), unless the depiction or description of such conduct in a communication
is integrally related to and advances the thematic content of the communication
and such content has serious literary, artistic, political or scientific value.
TCI will not use the TCI Transponders to transmit communications into Canada
which are "obscene" as defined by the Criminal Code, R.S.e. C-84 S.168, as
amended.
8.7 Compliance with Law. In connection with its use of the TCI
-------------------
Transponders and the performance of its other obligations hereunder, TCI shall
comply with all applicable Legal Requirements, both current and as may come into
effect.
8.8 Compliance with Telesat Access Requirements. TCI will
-------------------------------------------
comply, and shall cause any other Person which uses the TCI Transponders to
comply, with the Telesat Access Requirements in its use of the TCI Transponders.
SECTION 9. TRANSPONDER RESTORATION PROCEDURES.
9.1 Designated TWTs. Each Transponder on a Satellite will
---------------
initially include one designated TWT if the Satellite is being operated in the
32 Transponder mode and two designated TWTs if the Satellite is being operated
in the 16 Transponder mode.
9.2 Notice of Transponder Failure. Each Party shall promptly
-----------------------------
notify the other Party upon learning of the commencement of any Transponder
Failure and of the relevant facts known to it concerning such failure. A
Transponder Failure with respect to a Telesat Transponder shall be deemed to
have commenced upon receipt by TCI from Telesat of written notice regarding such
Transponder Failure. Upon Telesat's verification (based on reasonable grounds)
that a TCI Transponder has suffered a Transponder Failure, which verification or
denial thereof shall be promptly made but in no event later than seven days
after TCI's notification of the commencement of a Transponder Failure, such
failure shall be deemed to have commenced upon receipt by Telesat of
notification from TCI, or Telesat's actual knowledge of such event, whichever
first occurs.
9.3 Use of Spare TWTAs. In the event of a Transponder Failure
------------------
with respect to a Telesat Transponder or a TCI Transponder, Telesat, as soon as
possible and to the extent technically feasible, will employ a Spare TWTA in the
applicable Satellite as a substitute for the
-26-
<PAGE>
equipment unit which caused such Transponder to suffer a Transponder Failure. To
the extent technically feasible, a Spare TWTA will be substituted for the faulty
equipment unit on a first-needed, first-served basis as among TCI and users of
Telesat Transponders on the same Satellite which have suffered a Transponder
Failure; provided, however, that Telesat's obligations to provide Spare TWTAs
shall continue until such time as all of the Spare TWTAs on a Satellite are
committed to use as substitutes for Transponders on such Satellite which have
suffered Transponder Failures.
9.4 Continued Use of Failed Transponder. TCI may elect to
-----------------------------------
continue to use a Transponder that is a Transponder Failure. In addition, if a
TCI Transponder does not perform in accordance with Performance Specifications
following the substitution of a Spare TWTA pursuant to Section 9.3, TCI may
elect to use a different Spare TWTA if one is available or to return to use of
the equipment unit for which the SPARE TWTA was substituted.
SECTION 10. REPRESENTATIONS AND WARRANTIES OF TELESAT.
To induce TCI to enter into this Agreement, Telesat represents and
warrants to TCI, as of the date of this Agreement and as of each Closing Date,
except with respect to representations and warranties made as of a specific
date, as follows:
101 Organization and Qualification. Telesat is a corporation
------------------------------
validly existing and in good standing under the laws of Canada and has all
requisite corporate power and authority to carry on its business as currently
conducted and to own, lease, use and operate its assets except where the failure
to have such power and authority would not have a material adverse effect on
Telesat. Telesat has delivered to TCI complete and correct copies of the
Articles of Continuance and Bylaws of Telesat, which Articles of Continuance and
Bylaws have not been amended, modified or rescinded and are in full force and
effect.
10.2 Authority and Validity. Subject to obtaining the approval of
----------------------
the board of directors of Telesat, Telesat has all requisite corporate power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement. Subject to
obtaining the approval of Telesat's board of directors, the execution and
delivery by Telesat of, the performance by Telesat of its obligations under, and
the consummation by Telesat of the transactions contemplated by, this Agreement
have been duly authorized by all requisite corporate action of Telesat. Telesat
will deliver to TCI on or before May 27, 1996, complete and correct copies of
resolutions, certified by Telesat's secretary, authorizing such execution,
delivery, performance and consummation, which have been duly adopted by
Telesat's board of directors and which have not been amended, modified or
rescinded and are in full force and effect. Subject to obtaining the approval of
Telesat's board of directors, this Agreement has been duly executed and
delivered by Telesat and is the valid and binding obligation of Telesat,
enforceable against Telesat in accordance with its terms, except insofar as
enforceability may be affected by applicable bankruptcy, insolvency,
reorganization, moratorium
-27-
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or similar laws now or hereafter in effect affecting creditors' rights generally
or by principles governing the availability of equitable remedies.
10.3 No Breach or Violation. Subject to obtaining the Telesat
----------------------
Required Consents, including those listed on SCHEDULE 1 to the Satellite
Purchase Agreement, the execution, delivery and performance of this Agreement by
Telesat will not: (a) violate any provision of the Articles of Continuance or
Bylaws of Telesat; (b) violate any Legal Requirement; (c) require any consent,
approval or authorization of, or any filing with or notice to, any Person; or
(d) (i) violate, conflict with or constitute a breach of or default under
(without regard to requirements of notice, passage of time or elections of any
Person), (ii) permit or result in the termination, suspension or modification
of, (iii) result in the acceleration of (or give any Person the right to
accelerate) the performance of Telesat under, or (iv) result in the creation or
imposition of any Encumbrance under, any instrument or other agreement to which
Telesat is a party or by which Telesat or any of its assets is bound or
affected, except for purposes of clauses (b) or (d) such violations, conflicts,
breaches, defaults, terminations, suspensions, modifications and accelerations
as would not, individually or in the aggregate, have a material adverse effect
on the ability of Telesat to perform its obligations under this Agreement.
SCHEDULE 1 to the Satellite Purchase Agreement lists all Telesat Required
Consents of which Telesat is aware as of the date of this Agreement.
SECTION 11. REPRESENTATIONS AND WARRANTIES OF TCI.
To induce Telesat to enter into this Agreement, TCI represents and
warrants to Telesat, as of the date of this Agreement and as of each Closing
Date, except with respect to representations and warranties made as of a
specific date, as follows:
11.1 Organization. TCI is a corporation duly organized, validly
------------
existing and in good standing under the laws of its state of incorporation and
has all requisite corporate power and authority to carry on its business as
currently conducted and to own, lease, use and operate its assets, except where
the failure to have such power and authority would not have a material adverse
effect on TCI. TCI has delivered to Telesat complete and correct copies of the
Articles or Certificate of Incorporation and Bylaws of TCI, which Articles or
Certificate of Incorporation and Bylaws have not been amended, modified or
rescinded and are in full force and effect.
11.2 Authority and Validity. Subject to obtaining the approval of
----------------------
the board of directors of TCI, TCI has all requisite corporate power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement. The execution and
delivery by TCI of, the performance by TCI of its obligations under, and the
consummation by TCI of the transactions contemplated by, this Agreement have
been duly authorized by all requisite corporate action of TCI. TCI will deliver
to Telesat on or before May 27, 1996, complete and correct copies of
resolutions, certified by TCI's secretary, authorizing such execution, delivery,
performance and consummation, which have been duly adopted by TCI's board of
directors and which have not been amended, modified or rescinded
-28-
<PAGE>
and are in full force and effect. Subject to obtaining the approval of the board
of directors of TCI, this Agreement has been duly executed and delivered by TCI
and is the valid and binding obligation of TCI, enforceable against TCI in
accordance with its terms, except insofar as enforceability may be affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect affecting creditors' rights generally or by
principles governing the availability of equitable remedies.
11.3 No Breach or Violation. Subject to obtaining the Tempo
----------------------
Required Consents, including those listed on SCHEDULE 2 to the Satellite
Purchase Agreement, the execution, delivery and performance of this Agreement by
TCI will not: (a) violate any provision of the charter or bylaws of TCI; (b)
violate any Legal Requirement; (c) require any consent, approval or
authorization of, or any filing with or notice to, any Person; or (d) (i)
violate, conflict with or constitute a breach of or default under (without
regard to requirements of notice, passage of time or elections of any Person),
(ii) permit or result in the termination, suspension or modification of, (iii)
result in the acceleration of (or give any Person the right to accelerate) the
erformance of TCI under, or (iv) result in the creation or imposition of any
Encumbrance under, any instrument or other agreement to which TCI is a party or
by which TCI or any of its assets is bound or affected, except for purposes of
clauses (b) or (d) such violations, conflicts, breaches, defaults, terminations,
suspensions, modifications and accelerations as would not, individually or in
the aggregate, have a material adverse effect on TCI, or on the ability of TCI
to perform its obligations under this Agreement. SCHEDULE 2 to the Satellite
Purchase Agreement lists all Tempo Required Consents of which TCI is aware as of
the date of this Agreement.
SECTION 12. WARRANTIES AND LIMITATION OF LIABILITY.
12.1 Disclaimer of Warranties and Limitation of Liability. ANY
----------------------------------------------------
AND ALL EXPRESS AND IMPLIED WARRANTIES WITH RESPECT TO THE SATELLITES, THE
TRANSPONDERS THEREON AND THE DELIVERABLE ITEMS, INCLUDING, BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR USE, ARE EXPRESSLY
EXCLUDED AND DISCLAIMED. IT EXPRESSLY IS AGREED THAT TELESAT'S SOLE OBLIGATIONS
AND LIABILITIES AND TCI'S EXCLUSIVE REMEDIES FOR ANY FAILURE OF A SATELLITE OR
ANY TRANSPONDER THEREON TO PERFORM IN ACCORDANCE WITH THE PERFORMANCE
SPECIFICATIONS OR ANY FAILURE OF A DELIVERABLE ITEM TO PERFORM (INCLUDING,
WITHOUT LIMITATION, LIABILITY ARISING FROM NEGLIGENCE) ARE LIMITED TO THOSE SET
FORTH IN SECTIONS 12.2 AND 12.3 AND ALL OTHER REMEDIES OF ANY KIND ARE EXPRESSLY
EXCLUDED.
12.2 Injunctive Relief. TCI and Telesat each shall have the right
-----------------
to obtain injunctive relief, if necessary, in order to prevent the other party
from willfully breaching its obligations under this Agreement or to compel the
other party to perform its obligations under this Agreement. Any proceedings for
injunctive relief shall be governed by and construed in all
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respects in accordance with Ontario law without regard to the conflicts of laws
rules of the Province of Ontario and shall be resolved by the courts of the
Province of Ontario, to whose exclusive jurisdiction the Parties agree to submit
regardless of their domicile.
12.3 Negligent Operation of the Satellite. If, (i) solely because
------------------------------------
of negligence on the part of Telesat or Telesat's representatives, consultants
or subcontractors in the operation of, testing of, or communication with, a
Satellite, such Satellite operates in a manner that is not in accordance with
the Performance Specifications; (ii) [*****] Telesat, or Telesat's
representatives, consultants or subcontractors for the remaining period of the
Orbital Performance Incentive Period (as defined in the BSS Construction
Agreement), then subject to any reduction in the Orbital Performance Incentive
resulting from subsequent operation of the Satellite below the Performance
Specification for reasons other than the negligence of Telesat or Telesat's
representatives, consultants or subcontractors, Telesat shall be liable to TCI
[*****].
12.4 Force Majeure. Except for the obligations of TCI under
-------------
Section 7.8, neither Telesat nor TCI shall be liable to the other for any
failure of performance hereunder due to Force Majeure. In the event that Force
Majeure is claimed by either Party, that Party shall provide prompt notice to
the other Party of both the commencement and cessation dates of such Force
Majeure event.
12.5 Limitation of Liability. SUBJECT TO SECTION 12.3, NEITHER
-----------------------
PARTY SHALL BE LIABLE DIRECTLY OR INDIRECTLY TO THE OTHER OR TO ANY PERMITTED
ASSIGNEES OR SUCCESSOR OWNERS OF THE SATELLITE(S) OR TRANSPONDERS ON THE
SATELLITES OR ANY DELIVERABLE ITEMS FOR ANY AMOUNTS (INCLUDING ANY SUCH AMOUNTS
CLAIMED BY THIRD PARTIES) REPRESENTING LOSS OF PROFITS, LOSS OF BUSINESS, OR
INDIRECT, SPECIAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING FROM THE
PERFORMANCE OR NONPERFORMANCE OF THIS CONTRACT OR ANY ACTS OR OMISSIONS
ASSOCIATED THEREWITH OR RELATED TO THE USE OF ANY ITEMS OR SERVICES FURNISHED
HEREUNDER, WHETHER THE BASIS OF THE LIABILITY IS BREACH OF CONTRACT, TORT
(INCLUDING NEGLIGENCE AND STRICT LIABILITY), STATUTES OR ANY OTHER LEGAL THEORY,
UNLESS SUCH ACT OR OMISSION ARISES FROM THE NON-CLAIMING PARTY'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. TELESAT AGREES TO AN EQUIVALENT LIMITATION OF
LIABILITY WITH RESPECT TO LORAL. EACH OF TCI AND TELESAT SHALL USE ITS BEST
EFFORTS, WHEN NEGOTIATING AGREEMENTS WITH SATELLITE OR TRANSPONDER USERS AND
OTHER PARTIES HAVING A FINANCIAL INTEREST IN THE OPERATION AND USE OF THE
SATELLITES AND TRANSPONDERS ON THE
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<PAGE>
SATELLITES, TO OBTAIN SUCH PARTY'S AGREEMENT TO AN EQUIVALENT LIMITATION OF
LIABILITY WITH RESPECT TO LORAL AND THE OTHER PARTY HERETO AND THEIR
SUBCONTRACTORS AND SUPPLIERS AT ANY TIER; PROVIDED, HOWEVER, THAT NEITHER PARTY
SHALL HAVE ANY LIABILITY TO THE OTHER FOR ITS FAILURE TO OBTAIN SUCH LIMITATIONS
OF LIABILITY.
WITHOUT LIMITING THE FOREGOING, IN NO EVENT SHALL TELESAT BE LIABLE FOR ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER FORESEEABLE OR NOT, OCCASIONED BY
ANY DEFECT IN THE SATELLITES, THE TRANSPONDERS ON THE SATELLITES OR THE
DELIVERABLE ITEMS, FAILURE OF THE SATELLITES OR THE TRANSPONDERS ON THE
SATELLITES OR THE DELIVERABLE ITEMS TO PERFORM OR ANY OTHER CAUSE WHATSOEVER.
TELESAT MAKES NO WARRANTY, EXPRESS OR IMPLIED, TO ANY OTHER PERSON OR ENTITY
CONCERNING THE SATELLITES OR THE TRANSPONDERS ON THE SATELLITE OR THE
DELIVERABLE ITEMS.
SECTION 13. ADDITIONAL COVENANTS.
13.1 Conduct of Business. Once its Required Consents are obtained,
-------------------
each Party will maintain, comply with and preserve in full force and effect
during the Term and any renewal, its Required Consents and will not breach or
violate the same; except where the failure to maintain, comply or preserve, or
the breach or violation, would not have a material adverse effect on such
Party's ability to perform its obligations hereunder. Each Party will give
prompt written notice to the other Party of (a) the issuance of any citation or
order relating to its Required Consents that would have a material adverse
effect on its ability to perform its obligations under this Agreement, (b) any
lapse, suspension, revocation, rescission or other termination of its Required
Consents, (c) any notice to such Party of an alleged breach or violation by such
Party or any other Person of its Required Consents, (d) any proceedings related
to such Party's Required Consents if the outcome of such proceedings could have
a material adverse effect on such Party's ability to perform its obligations
hereunder or (e) any refusal of any Person to grant, renew or extend such
Party's Required Consents; except where any such lapse, suspension, revocation,
rescission, other termination, breach, violation, proceedings or refusal under
the foregoing paragraphs (b), (c), (d) and (e) would not have a material adverse
effect on such Party's ability to perform its obligations under this Agreement.
13.2 Maintenance of Required Consents. Once its Required Consents
--------------------------------
are obtained, each Party will (a) take all steps necessary or proper to preserve
its Required Consents and to remain qualified to hold the Required Consents, and
will timely file or cause to be filed with the appropriate Governmental
Authorities, any and all applications, reports and other information required by
applicable Legal Requirements or as otherwise may be necessary or appropriate to
maintain the Required Consents; (b) take such actions as may be necessary or
appropriate to prosecute the Required Consents before the applicable
Governmental Authorities and defend the Required Consents against any
unfavorable actions by or before any
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<PAGE>
Governmental Authority. During the term of this Agreement, each Party will (x)
apply for any additional authorizations, permits, licenses or consents necessary
to carry out its obligations hereunder, including, in the case of Telesat,
modifications and additions to the Telesat Required Consents from Canadian
Governmental Authorities or Persons as may be necessary to enable TCI to use the
TCI Transponders to transmit television programming and other services into the
United States and (y) not cancel, transfer or assign any of its Required
Consents, except as provided herein. Each Party will provide copies to the other
Party of any and all applications, filings, requests for modifications or other
documents to be submitted to any Governmental Authority in connection with the
Required Consents and will give the other Party an opportunity to comment on any
aspects of the same that affect such Party reasonably prior to their submission,
and simultaneously with submission thereof, will provide a copy thereof to the
other Party. Each Party agrees to assist the other Party in maintaining its
Required Consents.
13.3 Notification of Certain Matters. Each of TCI and Telesat
-------------------------------
will promptly notify the other, from time to time up to the Closing, of any
fact, event, circumstance or action (a) which, if known on the date of this
Agreement, would have been required to be disclosed to the other pursuant to
this Agreement or (b) the existence or occurrence of which would cause any of
TCI's or Telesat's, as the case may be, representations or warranties under this
Agreement not to be correct and complete in all material respects if they were
made as of such date.
13.4 Transfer Taxes. Telesat will be responsible for the payment
--------------
of any federal, provincial or local sales, use, transfer, excise, documentary or
license taxes or fees or any other charge (including filing fees) imposed by any
Canadian Governmental Authority with respect to the transfer of the TCI
Transponders pursuant to this Agreement; provided, that in no event will Telesat
be responsible for the payment of any income taxes to which TCI may be subject.
TCI will be responsible for the payment of any federal, state or local sales,
use, transfer, excise, documentary or license taxes or fees or any other charge
(including filing fees) imposed by any United States Governmental Authority with
respect to the transfer of the TCI Transponders pursuant to this Agreement;
provided, that in no event will TCI be responsible for the payment of any income
taxes to which Telesat may be subject.
13.5 Satisfaction of Conditions. Each Party will assist the other
--------------------------
Party in satisfying the conditions to the obligations of such other Party to
consummate the transactions contemplated by this Agreement; provided, that in
the case of the Required Consents, such Required Consents are on terms and
conditions reasonably satisfactory to each Party. Without limiting the
foregoing, each Party agrees to assist the other Party in its efforts to obtain
the Required Consents applicable to such Party.
13.6 Confidentiality Regarding Terms and Existence of Agreement;
-----------------------------------------------------------
Confidential Information.
- ------------------------
(a) Neither Party will issue any press release or make any
other public announcement regarding this Agreement or the transactions
contemplated hereby without the
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consent of the other Party. Each Party will hold, and will cause its employees,
consultants, advisors and agents to hold, in confidence, the terms of this
Agreement, except to the extent the terms of this Agreement are or become a
matter of public record and provided further that TCI may disclose the existence
and terms of this Agreement (including the Telesat Access Requirements) to any
Person to whom TCI leases, subleases or intends to lease or sublease all or any
portion of the TCI Transponders, and may disclose the existence and terms of the
Telesat Access Requirements to any user or proposed user of the TCI
Transponders.
(b) Each Party agrees to hold all Confidential Information
received by it from the other Party pursuant to this Agreement or the Satellite
Purchase Agreement in confidence.
(c) A Party receiving Confidential Information shall use
such information only for the purpose of fulfilling its obligations under this
Agreement and the Satellite Purchase Agreement. Each document containing
Confidential Information which is circulated to employees or agents of a Party
receiving such information shall bear a legend to the effect that the
information contained therein is confidential to the disclosing Party and that
such information shall not be disclosed to other persons.
(d) Upon expiration or termination of this Agreement, or at
any other time, all Confidential Information in the possession of a Party shall,
if requested in writing by the Party that disclosed such information, be either
returned to the disclosing Party or, at the receiving Party's option, destroyed.
In all events, the receiving Party may retain a single copy of all Confidential
Information, as an archive record of the contents thereof, accessed solely in
the event of a dispute between the parties concerning such contents.
(e) The confidentiality and non-disclosure obligations set
forth in this Section 13.6 shall become effective with respect to any item of
Confidential Information immediately upon disclosure to the receiving Party and
shall continue during the Term and for a period of two years thereafter.
(f) Notwithstanding the other provisions of this Section
13.6, a Party may disclose the terms and existence of this Agreement and
Confidential Information to the extent required by any Legal Requirement
(including disclosure requirements under federal, provincial and state
securities laws) or as a condition of obtaining any Required Consent, but the
Party proposing to disclose such information will first notify and consult with
the other Parties concerning the proposed disclosure, to the extent reasonably
feasible. Each Party also may disclose the terms and existence of this Agreement
and Confidential Information to employees, consultants, advisors, agents and
actual or potential lenders whose knowledge is necessary to facilitate the
consummation of the transactions contemplated by this Agreement or the Satellite
Purchase Agreement; provided that such representatives will be required to
observe the terms of this Section 13.6. Each Party's obligation to hold
information in confidence will be satisfied if it exercises the same care with
respect to such information as it would exercise to preserve the confidentiality
of its own similar information.
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<PAGE>
13.7 No Liens, Use or Transfer. Telesat shall not create, assume
-------------------------
or permit to exist any Encumbrance upon, or sell, lease, assign or exchange, its
interest in the Satellites (excluding the Telesat Transponders) except for
Permitted Encumbrances.
13.8 No Merger, etc. Telesat shall not merge, consolidate,
--------------
liquidate, dissolve, dispose of assets (including by way of lease or similar
transaction), or enter into any agreement with respect thereto or with respect
to any joint operating or other transaction that would result in the transfer of
any equity interest in Telesat, directly or indirectly, or any part of the
business or assets of Telesat, if such action would in any way interfere with
the quiet enjoyment of TCI's rights hereunder.
13.9 Satellite Failure; Successor Satellites; Replacement
----------------------------------------------------
Satellites and Operation of a Single Satellite.
- ----------------------------------------------
(a) Upon a mutual determination by Telesat and TCI that a
Satellite Failure of either Satellite has occurred, Telesat may decommission
such Satellite.
(b) Telesat acknowledges that Loral is obligated to make
four attempts to deliver two Satellites on-orbit which satisfy the criteria of
Sections 10.2 or 10.3 of the BSS Construction Agreement. If there is a Satellite
Failure, as defined in Subsection 1.40 of the BSS Construction Agreement and
Delivery (as defined in the BSS Construction Agreement) has not yet occurred for
such Satellite, or in the event Satellite No.1 (as defined in the BSS
Construction Agreement) fails to be placed into its assigned orbital location,
Loral shall, at its own risk and expense, deliver to Tempo a replacement
Satellite on-orbit no later than twenty-nine months after the date of Satellite
Failure. The preceding also applies to Satellite No.2 (as defined in the BSS
Construction Agreement). Further, if a replacement Satellite launched pursuant
to the two immediately preceding sentences is a Satellite Failure prior to
Delivery, or if such Satellite fails to be placed into its assigned orbital
location, and Loral has not fulfilled its obligation to make four attempts to
deliver two Satellites, Loral shall, at its risk and expense, deliver to Tempo
another replacement Satellite on-orbit no later than twenty-nine months after
the date of replacement Satellite Failure. Tempo may, with the consent of
Telesat (not to be unreasonably withheld), use Satellite(s) which have not been
accepted pursuant to Sections 10.2 or 10.3 of the BSS Construction Agreement
consistent with the salvage and use measures available in Loral's satellite risk
insurance policy. If Loral fails to deliver any Satellites by the fifty-fourth
month from the Execution Date of the BSS Construction Agreement, or if two
successive Satellites are Satellites Failures, or if after four attempts Loral
fails to deliver two Satellites on-orbit which satisfy the criteria of Sections
10.2 or 10.3 of the BSS Construction Agreement, Tempo may terminate the BSS
Construction Agreement.
(c) If two Satellites are Successfully Delivered and one of
the two Satellites is subsequently determined to be a Satellite Failure, TCI may
instruct Telesat, on ten days' notice to commence operation of the remaining
Satellite in the 32 Transponder mode for
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<PAGE>
the remainder of the Term or until the Successor Satellite is Successfully
Delivered and a transition of services is accomplished.
(d) If the BSS Construction Agreement results in the
delivery of only one Satellite Successfully Delivered or if one or both
Satellites Successfully Delivered are thereafter determined to be a Satellite
Failure, the Parties shall immediately proceed to negotiate agreements for a
successor satellite program. No later than five years prior to the expected
decommissioning of one or more of the Successfully Delivered Satellites, the
Parties shall commence negotiating agreements for a successor satellite program,
such negotiations to be concluded no less than four years prior to the expected
decommissioning, unless mutually agreed otherwise. Telesat and TCI will use
their best efforts to obtain any necessary approvals and/or licenses in Canada
and the United States for successor DBS satellites at the 82 degrees WL orbital
position and to enter into agreements with each other for use of successor
generation satellites on terms and conditions essentially similar to this
Agreement and the Satellite Purchase Agreement. While the parties acknowledge
that changes in political and geographic boundaries, technology and regulatory
policy may necessitate modifications of this Agreement's and the Satellite
Purchase Agreement's terms and conditions for a successor agreement, Telesat
acknowledges that TCI will have executed this Agreement and Tempo will have
executed the Satellite Purchase Agreement relying on Telesat's best efforts to
obtain successor license rights and to lease or sell, as the case may be, like
capacity to TCI on like economic terms and conditions. The performance
specifications of any successor generation satellites shall be mutually agreed
between Telesat and TCI.
(e) If the Parties are unable to reach an agreement with
respect to successor satellite(s) and Telesat elects to operate a Satellite
after TCI has discontinued its use of the TCI Transponders on such Satellite or
after a Satellite has been determined to be a Satellite Failure (with or without
the benefit of north/south stationkeeping at another orbital location or at 82
degrees WL), or if pending the successful launch of successor satellite(s),
Telesat elects to operate a Satellite after TCI has discontinued its use of the
TCI Transponders on such Satellite or after a Satellite has been determined to
be a Satellite Failure as specified above, the Parties shall negotiate in good
faith an agreement to share 50/50 in the revenues generated by the sale of
capacity on the Satellite and the Transponders to Third Parties. Upon the sale
of a Satellite and the Transponders thereon for salvage value, the Parties shall
negotiate in good faith an agreement to share 50/50 in the revenues generated by
such sale for salvage value.
13.10 Insurance. Telesat will notify TCI prior to obtaining,
---------
renewing or replacing any insurance in connection with its ownership of the
Telesat Transponders or its operation of the Satellites. If TCI desires to
obtain insurance in connection with its ownership of the TCI Transponders either
at the time Telesat gives notice to TCI pursuant to the first sentence of this
Section or at any other time, TCI and Telesat will negotiate in good faith with
the goal of submitting a joint insurance proposal to the insurance market;
provided, that if the Parties are unable to reach agreement on the terms of a
joint insurance proposal within a reasonable period of time, either party may
separately obtain the insurance it desires. If the Parties submit a joint
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<PAGE>
insurance proposal to the insurance market and there is not sufficient insurance
available in the market to cover the total amount of insurance coverage
requested in such joint insurance proposal, then either (i) the Parties may
revise such joint insurance proposal to request the level of insurance that is
available, with the amount of insurance to be requested by each Party being
prorated between them based on the amount of insurance requested by each Party
in the initial joint insurance proposal or (ii) either Party may separately
obtain the insurance it desires. Telesat agrees to provide to TCI such
information regarding the Satellites as TCI may reasonably request in connection
with any attempt by TCI to obtain insurance on its own.
13.11 [*****]
-------
(a)[*****]
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<PAGE>
13.12 Warranty Claims Against Loral.
-----------------------------
(a) Each of TCI and Telesat shall promptly give notice to
the other of (i) any matter which it determines may give rise to a right of
payment or other claim against Loral under Article 15 of the BSS Construction
Agreement (a "Loral Warranty Claim"), specifying with reasonable particularity
the relevant facts and approximate estimate, calculated in good faith, of the
amount of the potential liability; and (ii) the occurrence of any other material
event pertaining to potential Loral Warranty Claims.
(b) Each of TCI and Telesat shall provide, subject to any
solicitor/client privilege, each other with copies of all pleadings, notices,
affidavits, transcripts, productions, orders, judgments and other documents
pertaining to Loral Warranty Claims immediately upon request thereof by TCI or
Telesat, as the case may be. Each of TCI and Telesat shall keep each other
informed of any relevant developments related to the Loral Warranty Claims and
otherwise cooperate with each other in such claim, make available to the other
all witnesses, pertinent records, materials and information in its possession or
under its control, make such assignments and take such other steps as may be
reasonably required by the moving party to conduct such action and make such
claim.
(c) Any payments made by Loral and received by Telesat in
respect of Loral Warranty Claims ("Warranty Claim Payments") will be treated as
a reduction in the Satellite Purchase Price. Following each such Warranty Claim
Payments, [*****]
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<PAGE>
If either TCI or Telesat shall at any time receive any payment in respect
of any claim, counterclaim or settlement of any Loral Warranty Claim to which
all or part of such payment the other Party is entitled hereunder, TCI or
Telesat, as the case may be, shall hold such payment or part thereof in trust
for the other Party and shall forthwith pay over such amount to the other.
(d) Telesat will not settle any Loral Warranty Claim that
relates to the TCI Transponders or allow any right of appeal of any order or
judgement resulting therefrom to lapse without the prior written consent of TCI.
TCI will not settle any Loral Warranty Claim that relates to the Satellites, the
Telesat Transponders or any Deliverable Item other than the Two-Channel
Transponder Simulator or allow any right of appeal of any order or judgement
resulting therefrom to lapse without the prior written consent of Telesat.
13.13 Indemnity Claims Against Loral.
------------------------------
(a) Each of TCI and Telesat shall promptly give notice to
the other of (i) any matter which it determines may give rise to a right of
payment or other claim against Loral under Article 18 of the BSS Construction
Agreement (a "Loral Indemnity Claim"), specifying with reasonable particularity
the relevant facts and approximate estimate, calculated in good faith, of the
amount of the potential liability; and (ii) the occurrence of any other material
event pertaining to potential Loral Indemnity Claims.
(b) Each of TCI and Telesat shall provide, subject to any
solicitor/client privilege, each other with copies of all pleadings, notices,
affidavits, transcripts, productions, orders, judgments and other documents
pertaining to Loral Indemnity Claims immediately upon request thereof by TCI or
Telesat, as the case may be. Each of TCI and Telesat shall keep each other
informed of any relevant developments related to the Loral Indemnity Claims and
otherwise cooperate with each other in such claim, make available to the other
all witnesses, pertinent records, materials and information in its possession or
under its control, make such assignments and take such other steps as may be
reasonably required by the moving party to conduct such action and make such
claim.
(c) If the normal intended use, lease or sale of a
Satellite is enjoined as a result of an Intellectual Property Claim or is
otherwise prohibited and Loral is unable to accomplish one of the remedies
specified in Section 18.2(i), (ii) and (iii) of the BSS Construction Agreement
(the happening of both such events being referred to herein as an "Intellectual
Property Injunction"), Telesat, with the prior written consent of TCI, will
return such Satellite to Loral in accordance with the provisions of the Loral
Side Agreement and Section 18.2 of the BSS Construction Agreement if such
Intellectual Property Injunction is no longer subject to further proceedings or
review at any administrative or judicial level and as to which no stay has
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<PAGE>
been granted or request for stay is pending. Any payment refund made by Loral
pursuant to Section 18.2 of the BSS Construction Agreement shall be shared by
Telesat and TCI in the following proportions: [*****]. If either TCI or
Telesat shall at any time receive any payment refund from Loral pursuant to
Section 18.2 of the BSS Construction Agreement to which all or part of such
payment the other Party is entitled hereunder, TCI or Telesat, as the case may
be, shall hold such payment or part thereof in trust for the other Party and
shall forthwith pay over such amount to the other.
13.14 Exhibits. The Parties acknowledge that this Agreement is
--------
being signed without Exhibit F being attached hereto. Each Party agrees to
negotiate in good faith with the other Party and to use its reasonable
commercial efforts to complete Exhibit F to this Agreement by May 31, 1996.
SECTION 14. CLOSING.
The First Closing under this Agreement will be held on the First
Closing Date under the Satellite Purchase Agreement (as defined therein),
provided that all other conditions to the First Closing contained in this
Agreement (other than those based on acts to be performed at the First Closing),
have also been satisfied or waived. If the Second Closing occurs under the
Satellite Purchase Agreement (as defined therein), a Second Closing under this
Agreement will be held on the Second Closing Date under the Satellite Purchase
Agreement, provided that all other conditions to the Second Closing contained in
this Agreement (other than those based on acts to be performed at the Second
Closing), have also been satisfied or waived. The First Closing, and if
applicable, the Second Closing, will be held at 10:00 a.m. local time at the
offices of Stikeman, Elliott in Toronto, or will be conducted by mail or at such
place and time as TCI and Telesat may agree.
SECTION 15. CONDITIONS TO CLOSING.
15.1 Conditions to the Obligations of the Parties. The obligations
--------------------------------------------
of each Party to consummate the transactions contemplated by this Agreement to
take place at each Closing are subject to the satisfaction at or prior to each
Closing Date of each of the following conditions or the waiver in writing by
both Parties of such conditions:
(a) Closing under the Satellite Purchase Agreement with
respect to such Closing Date shall have occurred.
15.2 Conditions to Obligations of TCI. The obligation of TCI to
--------------------------------
consummate the transactions contemplated by this Agreement to take place at each
Closing are subject to the satisfaction at or prior to the applicable Closing
Date of each of the following conditions or the waiver in writing by TCI of such
conditions:
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<PAGE>
(a) TCI shall have received from Telesat an Assignment
Agreement in the form attached to this Agreement as EXHIBIT A.
15.3 Conditions to Obligations of Telesat. The obligation of
------------------------------------
Telesat to consummate the transactions contemplated by this Agreement to take
place at each Closing are subject to the satisfaction at or prior to the
applicable Closing Date, of each of the following conditions or the waiver in
writing by Telesat of such conditions:
(a) Telesat shall have received the Guarantee or letter of
credit required to be delivered at such Closing pursuant to Section 7.9.
(b) Telesat shall have received from TCI the Security
Agreement in the form attached as EXHIBIT E .
SECTION 16. TERMINATION.
16.1 Termination Prior to First Closing. If the Satellite
----------------------------------
Purchase Agreement is terminated pursuant to Section 11.1 of the Satellite
Purchase Agreement, this Agreement shall automatically terminate without further
action on the part of either Party hereto.
16.2 Termination Following First Closing. If the Satellite
-----------------------------------
Purchase Agreement is terminated as to the Second Closing thereunder pursuant to
Section 11.2 thereof, this Agreement shall terminate as to the transactions
contemplated by Section 4.1(b) of this Agreement without further action on the
part of either Party hereto.
16.3 Liabilities in Event of Termination. Upon termination of this
-----------------------------------
Agreement as a result of the termination of the Satellite Purchase Agreement
pursuant to Section 11.1(a), 11.1(b) or 11.1(c) thereof, the Parties shall have
no further obligations or liabilities to each other hereunder except pursuant to
Section 13.6. The termination or expiration of this Agreement for any other
reason will in no way limit any obligation or liability of either Party based on
or arising from a breach or default by such Party with respect to any of its
representations or warranties contained in this Agreement, or with respect to
any of its covenants or agreements contained in this Agreement which by their
terms were to be performed prior to the date of termination or expiration, nor
shall any such termination or expiration release either Party from its
liabilities or obligations under Section 13.6 or Section 17 to the extent
applicable to obligations arising prior to termination.
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<PAGE>
16.4 Post-Closing Termination by Telesat.
-----------------------------------
(a) If TCI:
(i) shall fail to pay, or the guarantor under the
Guarantee shall fail to pay on behalf of TCI, any Operating Fees within 45 days
after TCI's receipt of written notice from Telesat of late payment; or
(ii) shall (w) generally not pay its debts as such
debts become due; (x) admit in writing its inability to pay its debts generally,
or shall make a general assignment for the benefit of creditors; (y) institute
or have instituted against it any proceeding seeking (1) to adjudicate it a
bankrupt or insolvent, (2) any liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any Legal Requirement relating to bankruptcy, insolvency or reorganization
or relief of debtors, or (3) the entry of an order for relief or the appointment
of a receiver, trustee or other similar official for it or for any substantial
part of its assets, and in the case of any such proceeding instituted against it
(but not instituted by it), either such proceeding shall remain undismissed or
unstayed for a period of 45 days, or any of the actions sought in such
proceeding (including the entry of an order for relief against it or the
appointment of a receiver, trustee, custodian or other similar official for it
or for any substantial part of its assets) shall occur; or (z) take any
corporate action to authorize any of the foregoing actions;
then Telesat may declare all remaining Operating Fees owing by TCI hereunder to
be immediately due and payable, without presentment, demand, protest or further
notice of any kind, all of which are expressly waived by TCI and the obligations
of Telesat to TCI under this Agreement with respect to the period after
termination shall immediately terminate. Upon such declaration, Telesat may
exercise such rights and remedies and commence such legal action or proceedings
as it, in its sole discretion, may deem expedient, including the commencement of
enforcement proceedings under the Security Agreement or any other security
granted by TCI or others to Telesat or any combination thereof, all without
additional notice, presentation, demand, protest, notice of dishonor, entering
into of possession of any property or any other action, notice of all of which
TCI hereby expressly waives except to the extent Telesat is required to give
notice under the Security Agreement.
(b) Telesat may terminate this Agreement
(i) upon 40 days prior written notice if performance
of this Agreement by Telesat pursuant to the terms hereof has been prohibited by
any Governmental Authority and such prohibition is no longer subject to further
proceedings or review at any administrative or judicial level and as to which no
stay has been granted or request for stay is pending or
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<PAGE>
(ii) immediately if an Intellectual Property
Injunction has been issued and such injunction is no longer subject to further
proceedings or review at any administrative or judicial level and as to which no
stay has been granted or request for stay is pending. Prior to any termination
by Telesat pursuant to Section 16.4(b)(i), Telesat and TCI shall negotiate in
good faith to amend this Agreement so that performance of the terms of this
Agreement by Telesat shall no longer be prohibited by any Governmental
Authority; provided, that neither Telesat or TCI shall be required to enter into
an amendment which would materially diminish the economic benefits to be
received by such Party under the terms of this Agreement. [*****]
16.5 Post-Closing Termination by TCI. TCI may terminate this
-------------------------------
Agreement (a) upon 40 days prior written notice if performance of this Agreement
by TCI pursuant to the terms hereof or the use by TCI of the TCI Transponders in
accordance with this Agreement (e.g., to transmit television programming and
other services into the United States) has been prohibited by any Governmental
Authority and such prohibition is no longer subject to further proceedings or
review at any administrative or judicial level and as to which no stay has been
granted or request for stay is pending or (b) immediately if an Intellectual
Property Injunction has been issued and such injunction is no longer subject to
further proceedings or review at any administrative or judicial level and as to
which no stay has been granted or request for stay is pending. Prior to any
termination by TCI pursuant to Section 16.5(a), Telesat and TCI shall negotiate
in good faith to amend this Agreement so that performance of the terms of this
Agreement by TCI shall no longer be prohibited by any Governmental Authority;
provided, that neither Telesat or TCI shall be required to enter into an
amendment which would materially diminish the economic benefits to be received
by such Party under the terms of this Agreement. [*****]
16.6 Rights and Remedies. Subject to the limitations on liability
-------------------
and remedies set forth in Section 12 of this Agreement, the rights and remedies
of Telesat and TCI under this Section 16 are cumulative and are in addition to
and not in substitution for any other rights or remedies.
16.7 Interest on Overdue Amounts.
---------------------------
(a) Any amount of the Operating Fees or any other amount
owing hereunder which is not paid when due (whether by acceleration or
otherwise) shall bear interest (both before and after judgment) from the date on
which such amount is due until such amount is paid in full at a rate per annum
equal to the per annum rate of interest quoted by National Bank
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<PAGE>
of Canada as the reference rate of interest for loans in U.S. Dollars to its
Canadian borrowers (adjusted automatically with each quoted or published change
in such rate) in effect from time to time plus 2% calculated daily and payable
on demand.
(b) All computations of interest shall be made by taking
into account the actual number of days occurring in the period for which such
interest is payable and on the basis of a year of 365 or 366 days, as the case
may be.
SECTION 17. INDEMNIFICATION.
17.1 Indemnification by Telesat. Subject to the limitations on
--------------------------
liability set forth in Section 12 of this Agreement, Telesat will indemnify,
defend and hold harmless TCI and its shareholders and their respective
Affiliates, and the shareholders, directors, officers, employees, agents,
successors and assigns of any of such Persons (the "TCI Indemnitees"), from and
against:
(a) all losses, damages, liabilities, deficiencies or
obligations of or to any of the TCI Indemnitees resulting from or arising out of
(i)any representation or warranty made by Telesat in this Agreement not being
true and accurate in all material respects when made or, in the case of any
representation or warranty which is qualified by its terms by a materiality
requirement, not being true and accurate when made, (ii) any material breach of
any covenant, agreement or obligation of Telesat contained in this Agreement or
the Loral Side Agreement, or, in the case of any agreement, covenant or
obligation contained in this Agreement or the Loral Side Agreement which is
qualified by a limitation that performance need only be material, any breach of
such agreement, covenant or obligation, including any claim by Loral against TCI
or Tempo which arises out of the same, (iii) any interference or disruption of
communications arising out of the use by Telesat or any other Person including
its lessees or transferees of the Telesat Transponders, or (iv) claims for
libel, slander, infringement, or copyright or other intellectual property rights
arising from the use by Telesat or any other Person including its lessees or
transferees of the Telesat Transponders; and
(b) all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including settlement costs and reasonable legal, accounting, experts' and other
fees, costs and expenses) incident or relating to or resulting from any of the
foregoing.
17.2 Indemnification by TCI. Subject to the limitations on
----------------------
liability set forth in Section 12 of this Agreement, TCI will indemnify, defend
and hold harmless Telesat and its shareholders and their respective Affiliates,
and the shareholders,, directors, officers, employees, agents, successors and
assigns of any of such Persons (the "Telesat Indemnitees"), from and against:
(a) all losses, damages, liabilities, deficiencies or
obligations of or to any of the Telesat Indemnitees resulting from or arising
out of (i) any representation or warranty
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<PAGE>
made by TCI in this Agreement not being true and accurate in all material
respects when made or, in the case of any representation or warranty which is
qualified by its terms by a materiality requirement, not being true and accurate
when made, (ii) any material breach of any covenant, agreement or obligation of
TCI contained in this Agreement or the Loral Side Agreement, or, in the case of
any agreement, covenant or obligation contained in this Agreement or the Loral
Side Agreement which is qualified by a limitation that performance need only be
material, any breach of such agreement, covenant or obligation, including any
claim by Loral against Telesat which arises out of the same, (iii) any
interference or disruption of communications arising out of the use by TCI or
any other Person of the TCI Transponders, or (iv) claims for libel, slander,
infringement, or copyright or other intellectual property rights arising from
the use by TCI or any other Person of the TCI Transponders; and
(b) all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including settlement costs and reasonable legal, accounting, experts' and other
fees, costs and expenses) incident or relating to or resulting from any of the
foregoing.
17.3 Third Party Claims. Promptly after the receipt by any Person
------------------
entitled to indemnification hereunder of notice of any claim, action, suit or
proceeding by any Person who is not a Party to this Agreement (collectively, an
"Action"), which Action is subject to indemnification under this Agreement, such
Person (the "Indemnified Party") will give reasonable written notice to the
Party from whom indemnification is claimed (the "Indemnifying Party"). The
Indemnified Party will be entitled, at the sole expense and liability of the
Indemnifying Party, to exercise full control of the defense, compromise or
settlement of any such Action unless the Indemnifying Party, within a reasonable
time after the giving of such notice by the Indemnified Party, (a) notifies the
Indemnified Party in writing of the Indemnifying Party's intention to assume
such defense, (b) provides evidence reasonably satisfactory to the Indemnified
Party of the Indemnifying Party's ability to pay the amount, if any, for which
the Indemnified Party may be liable as a result of such Action and (c) retains
legal counsel reasonably satisfactory to the Indemnified Party to conduct the
defense of such Action. The other Party will cooperate with the Party assuming
the defense, compromise or settlement of any such Action in accordance with this
Agreement in any manner that such Party reasonably may request. If the
Indemnifying Party so assumes the defense of any such Action, the Indemnified
Party will have the right to employ separate counsel and to participate in (but
not control) the defense, compromise or settlement of the Action, but the fees
and expenses of such counsel will be at the expense of the Indemnified Party
unless (i) the Indemnifying Party has agreed to pay such fees and expenses, (ii)
any relief other than the payment of money damages is sought against the
Indemnified Party or (iii) the Indemnified Party will have been advised by its
counsel that there may be one or more defenses available to it which are
different from or additional to those available to the Indemnifying Party, and
in any such case that portion of the fees and expenses of such separate counsel
that are reasonably related to matters covered by the indemnity provided in this
Section will be paid by the Indemnifying Party. No Indemnified Party will settle
or compromise any such Action for which it is entitled to indemnification under
this Agreement
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<PAGE>
without the prior written consent of the Indemnifying Party, unless the
Indemnifying Party has failed, after reasonable notice, to undertake control of
such Action in the manner provided in this Section. No Indemnifying Party will
settle or compromise any such Action (A) in which any relief other than the
payment of money damages is sought against any Indemnified Party or (B) in the
case of any Action relating to the Indemnified Party's liability for any tax, if
the effect of such settlement would be an increase in the liability of the
Indemnified Party for the payment of any tax for any period beginning after the
applicable Closing Date, unless the Indemnified Party consents in writing to
such compromise or settlement.
SECTION 18. MISCELLANEOUS.
18.1 Private Parties. The Parties hereto acknowledge that the
---------------
terms of this Agreement have been privately offered and will be privately
furnished on a non-common carrier basis. The Parties do not regard any
representations, offers or undertakings made by the other hereunder to be in the
nature of offers of common carriage. No Party shall attempt, now or in the
future, to assert through legal process, directly or indirectly, that the
relationship hereunder between themselves involves common carriage
18.2 Parties Obligated and Benefited. Subject to the limitations
-------------------------------
set forth below, this Agreement will be binding upon the Parties and their
respective assigns and successors in interest and will inure solely to the
benefit of the Parties and their respective assigns and suc cessors in interest,
and no other Person will be entitled to any of the benefits conferred by this
Agreement. Without the prior written consent of the other Parties, no Party will
assign any of its rights under this Agreement or delegate any of its duties
under this Agreement; provided that (a) Telesat may, without the consent of TCI,
assign its rights to receive Operating Fees as security for obligations of
Telesat; and (b) TCI may, without the consent of Telesat, assign or delegate all
of its rights and obligations under this Agreement to Primestar or any Affiliate
of TCI; provided that (i) TCI gives prior written notice to Telesat and delivers
an assumption agreement of such assignee pursuant to which such assignee assumes
the obligations of TCI under this Agreement and the Security Agreement and
certifies (x) that it is either a Person constituted under U.S. federal or state
laws, or, to the extent that such Person is not a corporation, such Person's
members, partners or beneficiaries are incorporated under U.S. federal or state
laws, and (y) that it is a Person resident in the United States of America as
contemplated by the Canada-United States Tax Convention, 1980 or, to the extent
that such Person is not a corporation, such Person's members, partners or
beneficiaries are resident in the United States of America as contemplated by
the Canada-United States Tax Convention, 1980 and (ii) the current guarantor
under any Guarantee then in effect delivers a certificate to Telesat confirming
that the Guarantee remains in full force and effect notwithstanding such
assignment and (iii) in the event of such an assignment, TCI will not be
released from its obligations under this Agreement. If Telesat desires to assign
its right to receive Operating Fees or, with the consent of TCI, any other
rights or obligations under this Agreement, pursuant to and in accordance with
this Section 18.2, Telesat shall promptly provide TCI with written notice of
such assignment or proposed assignment and the name and address of the assignee
or proposed assignee (the "Assignee").
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<PAGE>
Within 30 days following TCI's receipt of such notice from Telesat, TCI shall
execute, issue and deliver to Telesat and the Assignee counterpart copies of an
instrument acknowledging that the Assignee has succeeded to the right of Telesat
to receive the Operating Fees due hereunder or, if TCI has consented to the
assignment of any other rights or obligations of Telesat, acknowledging that the
Assignee has succeeded to such other rights or obligations of Telesat. Any such
assignment shall be effective on the date that such counterpart copies of such
instrument are issued by TCI.
18.3 Notices. Any notice, request, demand, waiver or other
-------
communication required or permitted to be given under this Agreement will be in
writing and will be deemed to have been duly given only if delivered in person
or by first class, prepaid, registered or certified mail, or sent by courier or
by overnight delivery service, or, if receipt is confirmed, by telecopier:
To TCI at:
National Digital Television Center
4100 East Dry Creek Road
Littleton, CO 80122
Attention: David P. Beddow
Telephone: (303) 486-3815
Telecopy: (303) 486-3890
With copies to:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
Attention: Legal Department
Telephone: (303) 267-5500
Telecopy: (303) 488-3245
To Telesat at:
1601 Telesat Court
Gloucester, Ontario
CANADA K1B 5P4
Attention: Secretary
Telephone: 613-748-0123
Telecopy: 613-748-8784
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<PAGE>
Any Party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section. All
notices will be deemed to have been received on the date of delivery or on the
third Business Day after mailing in accordance with this Section, except that
any notice of a change of address will be effective only upon actual receipt.
18.4 Attorneys' Fees. In the event of any action or suit based
---------------
upon or arising out of any alleged breach by any Party of any representation,
warranty, covenant or agreement contained in this Agreement, the prevailing
Party will be entitled to recover reasonable attorneys' fees and other costs of
such action or suit from the other Parties.
18.5 Right to Specific Performance. The Parties acknowledge that
-----------------------------
the unique nature of the TCI Transponders renders money damages an inadequate
remedy for the breach by Telesat of its obligations under this Agreement, and
the Parties agree that in the event of such breach, TCI will, upon proper action
instituted by it, be entitled to a decree of specific performance of this
Agreement.
18.6 Waiver. This Agreement or any of its provisions may not be
------
waived except in writing. The failure of any Party to enforce any right arising
under this Agreement on one or more occasions will not operate as a waiver of
that or any other right on that or any other occasion.
18.7 Captions. The section captions contained in this Agreement
--------
are for convenience only and do not constitute a part of this Agreement.
18.8 CHOICE OF LAW.
-------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ONTARIO, WITHOUT REGARD TO THE
CONFLICTS OF LAWS RULES OF THE PROVINCE OF ONTARIO.
(b) Each Party hereby (i) irrevocably submits to the
jurisdiction of any court of competent jurisdiction sitting in the Province of
Ontario over any suit, action or proceeding arising out of or relating to this
Agreement; (ii) irrevocably agrees that all claims in respect of any such suit,
action or proceeding may be heard and determined in such court; and (iii)
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in such a court and any claim that any such suit,
action or proceeding brought in such a court has been brought in an inconvenient
forum. Each party irrevocably consents to the service of any and all process in
any such action or proceeding by the delivery of such process to such Party at
the address specified for it in accordance with Section 18.3 of this Agreement.
Each Party agrees
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<PAGE>
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in any manner provided by law.
(c) Nothing in this Section 18.8 shall affect the right of
either Party to serve process in any manner permitted by law or limit the right
of any Party to bring proceedings against the other Party in the courts of any
other jurisdiction.
(d) Each Party hereby irrevocably waives, to the fullest
extent permitted by law, trial by jury.
(e) Nothing in this Section 18.8 shall constitute a waiver
by any Party of any right to (i) appeal any order or judgment referred to
herein; (ii) seek any stay or reconsideration or review of any such order or
judgment; or (iii) seek any stay of execution or levy pending any appeal from,
or a suit, action or proceeding for reconsideration or review of, any such order
or judgment.
18.9 Terms. Terms used with initial capital letters will have the
-----
meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. The word "include" and derivatives of that word are
used in this Agreement in an illustrative sense rather than limiting sense and
the word "or" is not exclusive.
18.10 Rights Cumulative. Subject to the limitations on liability
-----------------
and remedies set forth in Section 12 of this Agreement, all rights and remedies
of each of the Parties under this Agreement will be cumulative, and the exercise
of one or more rights or remedies will not preclude the exercise of any other
right or remedy available under this Agreement or applicable law.
18.11 Further Actions. The Parties will execute and deliver to the
---------------
other, from time to time at or after the Closings, for no additional
consideration, such further assignments, certificates, instruments, records, or
other documents, assurances or things as may be reasonably necessary to give
full effect to this Agreement and to allow each Party fully to enjoy and
exercise the rights accorded and acquired by it under this Agreement, if such
requested further action will not impose any expense or material additional
obligations on the Party from whom such further action is requested.
18.12 Time. Time is of the essence under this Agreement. If the
----
last day permitted for the giving of any notice or the performance of any act
required or permitted under this Agreement falls on a day which is not a
Business Day, the time for the giving of such notice or the performance of such
act will be extended to the next succeeding Business Day.
18.13 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed an original.
-48-
<PAGE>
18.14 Entire Agreement. References to this "Agreement" include the
----------------
Schedules, Exhibits and Attachments referred to in this Agreement, which are
incorporated in and constitute a part of this Agreement. This Agreement
supersedes all prior oral or written agreements between the Parties and
understandings between the Parties with respect to the subject matter of this
Agreement. This Agreement does not affect or supersede the Telesat Agreements
or the Loral Side Agreement. This Agreement may not be amended or modified
except by a writing signed by the Parties.
18.15 Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable will be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the remaining
rights of the Person intended to be benefitted by such provision or any other
provisions of this Agreement.
18.16 Construction. This Agreement has been negotiated by TCI,
------------
Telesat and their respective legal counsel, and legal or equitable principles
that might require the construction of this Agreement or any provision of this
Agreement against the Party drafting this Agreement will not apply in any
construction or interpretation of this Agreement.
18.17 Expenses. Except as set forth in the second sentence of this
--------
Section 18.17 and as otherwise expressly provided in this Agreement, each Party
will pay all of its own expenses, including attorneys' and accountants' fees, in
connection with the negotiation of this Agreement, the performance of its
obligations and the consummation of the transactions contemplated by this
Agreement. TCI will reimburse Telesat for its reasonable outside legal expenses
associated with this Agreement if Tempo unilaterally terminates the Satellite
Purchase Agreement after Telesat delivers to Tempo the executed Telesat
Authorization Certificate and while such certificate remains in full force and
effect; provided, that the foregoing shall not apply if Tempo terminates the
Satellite Purchase Agreement following a material breach by Telesat of the
Satellite Purchase Agreement, or if the Satellite Purchase Agreement is
terminated pursuant to Section 11.1(b), Section 11.1(d) or Section 11.2 of such
agreement.
18.18 Counting of Days. References herein to a number of days
----------------
shall be deemed to refer to "calendar" and not Business Days unless the context
clearly indicates otherwise. If the last day permitted for the giving of any
notice or performance of any act required or permitted under this Agreement
falls on a day which is not a Business Day, the time for the giving of such
notice or the performance of such act shall be extended to the next succeeding
Business Day.
18.19 Waiver of Tax Warranties. No Party makes any representation
------------------------
or warranty, express or implied, with respect to the tax implications of any
aspect of the transactions contemplated under this Agreement on any other Party
to this Agreement and all Parties expressly disclaim any such representation or
warranty with respect to any tax consequences arising under this Agreement. Each
Party has relied solely on its own tax advisors with respect to the tax
implications of the transactions contemplated under this Agreement.
Notwithstanding the provisions of this Section 18.19, each Party may fully rely
on the
-49-
<PAGE>
representations, warranties and covenants expressly made in this Agreement,
which will not be deemed waived or affected by this Section 18.19.
18.20 Characterization of this Transaction. The Parties hereby
------------------------------------
agree that the transactions contemplated by this Agreement and the Satellite
Purchase Agreement will be recorded and reported for all purposes, including
without limitation for tax purposes, as (i) the acquisition by Telesat of the
Satellites for an amount equal to the Satellite Purchase Price; (ii) the
disposition by Telesat, and the acquisition by TCI, of TCI Transponders for an
amount equal to the Transponder Purchase Price; and (iii) the undertaking by TCI
to subscribe for and pay quarterly Operating Fees, for 48 consecutive quarters,
in consideration of the services provided by Telesat under this Agreement. For
greater certainty, TCI agrees not to capitalize the Operating Fees, or any
portion thereof, for the purpose of claiming depreciation for United States tax
purposes.
18.21 Quiet Enjoyment. Telesat covenants that so long as TCI has
---------------
paid all amounts due and is otherwise in compliance with the terms, covenants
and conditions on its part to be performed under this Agreement, TCI's use and
enjoyment of the TCI Transponders will not be disturbed during the term of this
Agreement, it being agreed that this covenant of quiet enjoyment given by
Telesat shall be interpreted and applied in accordance with the principles of
quiet enjoyment applicable to real estate leases.
18.22 No Joint Venture. The parties agree that the provisions of
----------------
this Agreement shall not operate to constitute TCI and Telesat as joint
venturers or partners or in any other relationship other than independent
parties entering into an arms-length agreement with respect to the transactions
contemplated hereby.
-50-
<PAGE>
The Parties have executed this Agreement as of the day and year
first above written.
TCI TECHNOLOGY VENTURES, INC.
By:________________________________
Name:______________________________
Title:_____________________________
TELESAT CANADA
By:________________________________
Name:______________________________
Title:_____________________________
-51-
<PAGE>
EXHIBIT A
---------
ASSIGNMENT
----------
This Assignment (this "Assignment") is made as of the ____ day of
____________, 199__, by Telesat Canada, a corporation organized and existing
under the laws of the Province of Ontario ("Assignor") in favor of TCI
Technology Ventures, Inc., a Delaware corporation ("Assignee").
RECITALS
This Assignment is delivered pursuant to the requirements of the
Operating Services Agreement dated as of May 6, 1996 between Assignor and
Assignee (the "Operating Services Agreement"). Capitalized terms not otherwise
defined herein shall have the meanings given to such terms in the Operating
Services Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the consideration specified in the Operating
Services Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor does hereby convey,
grant, bargain, sell, transfer, and assign unto Assignee, its successors and
assigns, all of the right, title and interest of Assignee in and to [Describe
transponders], free and clear of all Encumbrances, except Permitted
Encumbrances.
ANY AND ALL EXPRESS AND IMPLIED WARRANTIES WITH RESPECT TO THE
SATELLITES, THE TRANSPONDERS THEREON, AND THE DELIVERABLE ITEMS, INCLUDING, BUT
NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR USE,
ARE EXPRESSLY EXCLUDED AND DISCLAIMED.
Nothing contained in this Assignment shall increase the liability
of Assignor to Assignee beyond the liability that Assignor has under the
Operating Services Agreement and any action brought by Assignee with respect to
this Assignment shall be subject to the limitations on liabilities and remedies
set forth in the Operating Services Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Assignment
effective as of the date first written above.
ASSIGNOR:
TELESAT CANADA
By:____________________________________
Name:__________________________________
Title:_________________________________
and
By:____________________________________
Name:__________________________________
Title:_________________________________
<PAGE>
EXHIBIT 4.6
LIMITED PARTNERSHIP AGREEMENT
OF
K PRIME PARTNERS L.P.
<PAGE>
LIMITED PARTNERSHIP AGREEMENT
OF
K PRIME PARTNERS L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I CERTAIN DEFINITIONS
<S> <C> <C>
1.01. Defined Terms.....................................................1
1.02. Other Terms.......................................................9
ARTICLE II PARTNERSHIP FORMATION, NAME, PLACE OF BUSINESS
2.01. Formation of Partnership; Certificate of Partnership..............9
2.02. Name of Partnership...............................................9
2.03. Place of Business.................................................9
2.04. Resident Agent....................................................9
ARTICLE III PURPOSES AND POWERS OF PARTNERSHIP
3.01. Purposes.........................................................10
3.02. Powers...........................................................10
3.03. Distribution of Programming; Programming to be Provided..........11
3.04. Termination by Force Majeure.....................................14
ARTICLE IV TERM OF PARTNERSHIP
4.01. Term.............................................................15
ARTICLE V CAPITAL
5.01. Initial Capital Contribution Deemed to be Made by
G.E. Americom Services, Inc. in Connection with
User Agreement...................................................16
5.02. Initial Capital Contributions of Partners........................16
5.03. Additional Capital Contributions.................................16
5.03 (a) Payment of Additional Capital Contributions.........16
5.03 (b) Failure to Make Capital Contributions...............17
5.03 (c) Offer to Sell by Nonpaying Partner..................18
5.03 (d) Certain Expenditures................................19
5.04. Capital Accounts.................................................20
5.05. No Interest on Capital Contributions or Capital Account..........22
5.06. Advances to Partnership..........................................22
5.07. Return of Capital................................................23
5.08. Preservation of Percentages of Partnership Interests Held
as General Partners and as Limited Partners......................23
</TABLE>
-i-
<PAGE>
<TABLE>
ARTICLE VI ALLOCATION OF PROFITS AND LOSSES;
DISTRIBUTIONS OF CASH FLOW AND CERTAIN PROCEEDS
<S> <C> <C>
6.01. Certain Definitions..............................................23
6.01 (a) "Cash Flow".........................................23
6.01 (b) "Net Proceeds of a Capital Transaction".............24
6.01 (c) "Percentage Interests"..............................24
6.02. Allocation of Net Income or Net Loss.............................25
6.03. Allocation of Gains and Losses from Capital Transactions.........25
6.04. Allocation of Income and Loss With Respect to Partnership
Interests Adjusted or Transferred................................26
6.05. Distribution of Cash Flow........................................26
6.06. Distribution of Proceeds from Capital Transactions;
Liquidation Distributions........................................26
6.07. Special Allocation Rules.........................................27
6.08. Contributed Property; Revaluations Pursuant to
Section 704(b) Regulations.......................................30
6.09. Withholding Taxes and Reporting Obligations......................30
ARTICLE VII MANAGEMENT
7.01. Management and Control of Partnership Business...................31
7.02. Powers of Partners Committee.....................................31
7.03. Appointment of Representatives...................................32
7.04. Actions of Partners Committee Requiring Majority Vote............33
7.05. Actions of Partners Committee Requiring Majority Vote............33
7.06. Meetings of Partners Committee...................................34
7.07. Annual Operating Budget..........................................35
7.08. Delegation of Authority..........................................35
7.09. Reserves.........................................................35
7.10. Other Activities of Partners.....................................36
7.11. Transactions with Partners or Affiliates.........................36
7.12. Indemnification of Representatives and Employees.................37
7.13. Liability Insurance..............................................38
7.14. Programming......................................................38
ARTICLE VIII COMPENSATION OF PARTNERSHIP EXPENSES REPRESENTATIVES;
PAYMENT OF PARTNERSHIP EXPENSES
8.01. Compensation of Representatives..................................39
8.02. Partnership Expenses.............................................39
ARTICLE IX BANK ACCOUNTS; BOOKS AND RECORDS;
STATEMENTS; TAXES; FISCAL YEAR
9.01. Bank Accounts and Investments....................................40
9.02. Books and Records................................................40
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
9.03. Financial Statements and Information.............................40
9.04. Accounting Decisions.............................................41
9.05. Where Maintained.................................................41
9.06. Tax Returns and Tax Matters Partner..............................41
9.07. Federal Income Tax Elections.....................................43
9.08. Fiscal Year......................................................43
ARTICLE X TRANSFER OF INTERESTS
10.01. Transfer 43
10.02. Requirements for Transfer........................................44
10.03. Partners' Rights of First Refusal................................44
10.04. Admission of Transferee Partners.................................46
10.05. Withdrawal of Partner............................................47
10.06. Similar Business.................................................48
10.07. Purchase of Interest by Partnership..............................52
10.08. Admission of Additional Partners; Right of First Opportunity.....54
10.09. Continued Ownership of Interest Prohibited By Law................55
10.10. Transfer in Event of Breach......................................56
10.11. Affiliate Transfer...............................................57
10.12. Extension of Time................................................57
ARTICLE XI DISSOLUTION AND LIQUIDATION
11.01. Events Causing Dissolution.......................................58
11.02. Right to Continue Business of Partnership........................59
11.03. Liquidation......................................................59
11.04. Termination of Partnership.......................................60
ARTICLE XII REPRESENTATIONS, COVENANTS, AND WARRANTIES;
INDEMNIFICATION
12.01. Representations, Covenants, and Warranties.......................60
12.01 (a) Organization and Authorization....................60
12.01 (b) Absence of Violation..............................61
12.01 (c) Binding Obligation................................61
12.01 (d) No Other Business.................................61
12.01 (e) No Voting Agreements; Disclosure of
Certain Agreements................................61
12.01 (f) No Unauthorized Public Statements.................61
12.01 (g) Parents Agreement.................................62
12.02. Survival of Representations......................................63
12.03. Indemnification..................................................63
ARTICLE XIII MISCELLANEOUS PROVISIONS
13.01. Additional Actions and Documents.................................65
13.02. Notices..........................................................65
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
13.03. Waiver of Right to Seek Partition................................66
13.04. Severability.....................................................66
13.05. Survival.........................................................66
13.06. Waivers..........................................................66
13.07. Exercise of Rights...............................................66
13.08. Specific Performance.............................................66
13.09. Binding Effect...................................................67
13.10. Limitation on Benefits of this Agreement.........................67
13.11. Amendment Procedure..............................................67
13.12. Entire Agreement.................................................67
13.13. Pronouns.........................................................67
13.14. Headings.........................................................67
13.15. Governing Law....................................................68
13.16. Execution in Counterparts........................................68
</TABLE>
-iv-
<PAGE>
LIMITED PARTNERSHIP AGREEMENT
OF
K PRIME PARTNERS, L.P.
THIS LIMITED PARTNERSHIP AGREEMENT is entered into as of February
8, 1990 by and among ATC Satellite, Inc., a wholly owned subsidiary of American
Television & Communications Corp.; Comcast DBS, Inc., an indirect wholly owned
subsidiary of Comcast Corporation; Continental Satellite Company, Inc., a wholly
owned subsidiary of Continental Cablevision, Inc.; Cox Satellite, Inc., a wholly
owned subsidiary of Cox Communications, Inc.; G.E. Americom Services, Inc., a
wholly owned subsidiary of GE American Communications, Inc. ("GE Americom"); New
Vision Satellite, a general partnership that is wholly owned by wholly owned
subsidiaries of Newhouse Broadcasting Corporation and Vision Cable
Communications, Inc.; TCI K-1, Inc., a wholly owned subsidiary of TCI
Development Corporation ("TCI"); United Artists K-1 Investments, Inc., an
indirect wholly owned subsidiary of United Artists Entertainment Company; Viacom
K-Band Inc., an indirect wholly owned subsidiary of Viacom Inc.; and Warner
Cable SSD, Inc., a wholly owned subsidiary of Warner Cable Communications Inc.
(collectively, the "Partners" and individually, each a "Partner"). Any reference
herein to a Partner by name shall include its successor by merger,
consolidation, or transfer of substantially all of its assets.
W I T N E S S E T H:
-------------------
WHEREAS, the parties hereto desire to form a limited partnership
for the purposes hereinafter set forth, subject to the terms and conditions
hereof.
NOW, THEREFORE, in consideration of the foregoing, and of the
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
1.01. Defined Terms. Unless the context otherwise specifies or
-------------
requires, the terms defined in this Article I shall, for the purposes of this
---------
Agreement, have the meanings herein specified. Unless otherwise specified, all
references herein to Articles, Sections or Schedules are to Articles or Sections
of, or Schedules attached to, this Agreement.
Additional Capital Contribution: As defined in Section 5.03(a).
------------------------------- ---------------
<PAGE>
Adjusted Basis: The basis for determining gain or loss for
--------------
federal income tax purposes from the sale or other disposition of property, as
defined in section 1011 of the Code.
Affiliate: With respect to a specified Person, any other Person
---------
directly, or indirectly through one or more intermediaries, controlling,
controlled by, or under common control with such specified Person. As used in
this definition of "Affiliate," the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
Agreement: This Partnership Agreement, as it may be amended or
---------
supplemented from time to time in accordance with the provisions hereof.
Annual Operating Budget: As defined in Section 7.07.
----------------------- ------------
Book Tax Gain and Book Tax Loss: The amount of taxable gain or
------------- -------------
loss that would result from a Capital Transaction if, at the time of such
Capital Transaction, the Adjusted Basis of the Partnership Assets with respect
to which such Capital Transaction occurred were equal to the Carrying Value of
such Partnership Assets at such time.
Business Day: Monday through Friday of each week, except that a
------------
legal holiday recognized as such by the Government of the United States or the
State of New York shall not be regarded as a Business Day.
Capital Account: The capital account established and maintained
---------------
for each Partner pursuant to Section 5.04.
------------
Capital Contribution: The Initial Capital Contribution (or
--------------------
portion thereof) made or deemed to have been made at any time to the Partnership
by or on behalf of a Partner, and any Additional Capital Contribution made to
the Partnership by or on behalf of a Partner.
Capital Shift: As defined in Section 5.01.
------------- ------------
Capital Transaction: An "Interim Capital Transaction" or a
-------------------
"Terminating Capital Transaction", as the case may be.
Carrying Value: (a) With respect to any asset contributed or
--------------
deemed to be contributed to the Partnership or revalued on the Partnership's
books pursuant to Section 5.04(d), the fair market value of such asset (as
---------------
determined by the Partners Committee) at the time of contribution
or revaluation reduced, but not below zero, by all deductions for depreciation,
amortization, cost recovery, and expense in lieu of depreciation debited to the
capital accounts of the Partners pursuant to Section 5.04(a) with respect to
---------------
such asset since the time of contribution or revaluation up to the
time the Carrying Value is to be determined; and (b) with respect to any other
asset of the Partnership, the Adjusted Basis of such asset as of the time the
Carrying Value is to be determined.
-2-
<PAGE>
Cash Flow: As defined in Section 6.01(a).
--------- ---------------
Code: The Internal Revenue Code of 1986, as in effect and
----
hereafter amended, and, unless the context otherwise requires, applicable
Regulations thereunder. Any reference herein to a specific section or sections
of the Code shall be deemed to include a reference to any corresponding
provision of future revenue laws.
Consumer Price Index: Means the Consumer Price Index for All
--------------------
Urban Consumers, 1982-1984 = 100, All Items (CPI-U).
Delaware RULPA: The Delaware Revised Uniform Limited Partnership
--------------
Act (Del. Code Ann. tit. 6 (S) 17-101 et seq.), as amended to date and as it may
be amended from time to time hereafter, and any successor to such Act.
Direct Affiliate: With respect to each Partner, (i) the Parent
----------------
of such Partner and any "Affiliated Person" of such Parent as defined in Section
2(b) of the Parents Agreement, (ii) each other entity of which such Parent or
"Affiliated Person" owns directly, or indirectly through one or more Direct
Affiliates, equity interests representing a majority of the voting power of the
outstanding equity interests of such entity or the right to appoint a majority
of the members of the Board of Directors or equivalent governing body of such
entity, and (iii) each other entity with respect to which such Parent or
"Affiliated Person" directly, or indirectly through one or more other Direct
Affiliates, exercises or is entitled to exercise, by contract or otherwise,
management control.
Distributor: As defined in Section 3.03.
----------- ------------
Excess Negative Balance: The negative balance, if any, in a
-----------------------
Partner's Capital Account as of the end of a Fiscal Year after crediting the
---------
Partner's Capital Account for the amount of any deficit balance in such Capital
Account that the Partner is obligated to restore or is treated as obligated to
restor to the Partnership pursuant to Regulations sections 1.704-1(b) (2) (ii)
(b) (3) and 1.704-1 (b) (2) (ii) (c) and the amount of such Partner's share of
- - -
the-Partnership's Minimum Gain, determined pursuant to Regulations sections
1.704-1T (b) (4) (iv) (f) and 1.704-1T (b) (4) (iv) (h) (5); and debiting the
- - --------
Partner's Capital Account for any adjustment, allocation, or distribution
described in paragraph (4), (5), or (6) of Regulations section 1.704-1(b) (2)
- - -
(ii) (d).
-
FCC: The Federal Communications Commission or any successor
---
agency.
Fiscal Year: The fiscal year of the Partnership for financial
-----------
accounting purposes, and for federal, state, and local income tax purposes, and
for federal, state, and local income tax purposes, which shall be the calendar
year unless changed by the Partners Committee in accordance with Section 9.08.
------------
General Partner: Each Person named as a General Partner on
---------------
Schedule A and any other Person admitted to the Partnership as a general
- ----------
partner.
-3-
<PAGE>
Guarantor: As defined in Section 5.02.
--------- ------------
Guarantor's Agreement: The Guarantor's Agreement among each of
---------------------
the Guarantors substantially in the form of Exhibit A hereto, to be executed and
---------
delivered simultaneously with the execution and delivery of the Agreement.
Guaranty: As defined in Section 5.02.
-------- ------------
Initial Capital Contribution: As described in Section 5.01 and
---------------------------- ------------
Section 5.02 and as set forth in Schedule A.
- ------------ ----------
Interim Capital Transaction: An "Interim" Capital Transaction"
---------------------------
shall refer to (i) a transaction pursuant to which the Partnership borrows
funds, receives Capital Contributions from a new Partner upon its admission to
the Partnership, or receives a distribution from any partnership or joint
venture in which the Partnership is a participant as a result of a capital
transaction with respect to that partnership or joint venture, (ii) a sale,
condemnation, exchange, abandonment, casualty not followed by reconstruction, or
other disposition, whether by foreclosure or otherwise, of a portion (but less
than substantially all) of the Partnership Assets (other than a disposition of
personal property in the ordinary course of the Partnership's business that is
or is to be replaced), or (iii) an insurance recovery or any other transaction
which, in accordance with generally accepted tax accounting principles, is
considered capital in nature but which is not a Terminating Capital Transaction.
Limited Partner: Each Person named as a Limited Partner on
---------------
Schedule A and any other Person admitted to the Partnership as a limited
- ----------
partner.
Majority Vote: The affirmative vote of a majority of the
-------------
Representative who are not required to abstain from voting with respect to a
particular matter.
Minimum Gain: The amount determined by computing, with respect
------------
to each Nonrecourse Debt of the Partnership, the amount of the Book Tax Gain (of
whatever character), if any, that the Partnership would realize if it disposed
of (in a taxable transaction) the Partnership Assets subject to such Nonrecourse
Debt in full satisfaction thereof and for no other consideration, and by then
aggregating the amounts so computed. For purposes of computing the amount of
Minimum Gain, (i) the Carrying Value of a Partnership Asset subject to two or
more Nonrecourse Debts of equal priority shall be allocated among such
Nonrecourse Debts in proportion to the outstanding principal balances of such
Nonrecourse Debts; (ii) the Carrying Value of a Partnership Asset subject to two
or more Nonrecourse Debts of unequal priority shall be allocated to the
Nonrecourse Debts of an inferior priority (in accordance with clause (i) above)
only to the extent of the excess, if any, of the Carrying Value of the
Partnership Asset over the aggregate outstanding balance of the Nonrecourse
Debts of superior priority; and (iii) only the portion of Carrying Value of a
Partnership Asset allocated to Nonrecourse Debts of the Partnership shall be
used in computing the Minimum Gain.
-4-
<PAGE>
Net Gain and Net Loss: For any taxable period, (i) the gross
---------------------
income of the Partnership from all sources, other than any income or loss
recognized with respect to a Capital Transaction during such period, as
calculated for federal income tax purposes by the Partnership, plus (ii) any
income of the Partnership that is exempt from federal income tax and not
otherwise taken into account in computing gross income for federal income tax
purposes, reduced by (iii) Depreciation (as defined below), further reduced by
(iv) all other items of expense or deduction that are allowable as deductions to
the Partnership under the Code for such period but excluding any item of expense
or deduction attributable either to Depreciation (as defined below) or to a
Capital Transaction, as calculated for federal income tax purposes by the
Partnership, and further reduced by (v) any expenditures of the Partnership
described in section 705 (a) (2) (B) of the Code or treated as expenditures
described in section 705 (a) (2) (B) of the Code pursuant to Regulations section
1.704-1 (b) (2) (iv) (i), and not otherwise taken into account in computing
-
taxable income.
"Depreciation" means, for each taxable period, an amount equal to the
depreciation, amortization, or other cost recovery deductions allowable with
respect to Partnership Assets for such period for federal income tax purposes
computed (using the same method used by the Partnership in computing
depreciation, amortization, or other cost recovery deductions in preparing its
federal income tax returns) as if the Adjusted Basis of such Partnership Assets
were equal to their Carrying Values. All items of income, gain, loss,
deduction, and credit recognized by the Partnership for federal income tax
purposes and allocated to the Partners in accordance with the provisions of
Article VI shall be determined without regard to any election that may be made
- ----------
by the Partnership under Code section 754 except as expressly contemplated under
Regulations section 1.704-1 (b) (2) (iv) (m) (4); provided, however, that such
- -
allocations, once made, shall be adjusted as necessary to take into account
those adjustments authorized under sections 734 and 743 of the Code.
Notwithstanding the above, Net Income and Net Loss shall be computed without
taking into account any deduction or other adjustment to income attributable to
or derived from a Capital Shift.
Nonpaying Partner: As defined in Section 5.03(b).
----------------- ---------------
Non-Programmer Partner: As of any date of determination, but
----------------------
subject to the definition of Programmer Partner, a Partner no Direct Affiliate
of which is engaged in the business of, or is entitled to exercise management
control over an entity engaged in the business of, producing one or more
Programming Services.
Nonrecourse Debt: Any liability that is considered nonrecourse
----------------
for purposes of Regulations section 1.1001-2 (without regard to whether such
liability is a recourse liability under Regulations section 1.752-1T(d) (2)) and
any other liability for which the creditor's right to repayment is limited to
one or more of the assets of the Partnership (within the meaning of Regulations
section 1.752-1T(d) (3) (ii) (B) (4) (ii)).
- --
Nonrecourse Liability. Any Nonrecourse Debt (or portion thereof)
---------------------
for which no Partner bears (or is deemed to bear) the economic risk of loss
within the meaning of Regulations section 1.704-1T (b)(4) (iv) (k) (3).
- -
-5-
<PAGE>
Parent: An entity that is required as of the time determination
------
to be a party to the Parents Agreement including pursuant to Section 2(b)
thereof and Section 12.01(g) hereof. The Parents as of the date of this
----------------
Agreement are listed next to the name of the appropriate Partner on Schedule C
hereto, which shall be revised from time to time to reflect the admission of any
new or substitute Partners and any other Person which becomes a party to the
Parents Agreement.
Parents Agreement: The Agreement, dated as of the date hereof,
-----------------
among the Partnership and the Parents of each of the Programmer Partnership and
Parents of each of the Programmer Partners and Non-Programmer Partners, a copy
of which is annexed hereto as Exhibit H, as the same may be amended or
supplemented from time to time hereafter.
Partner Nonrecourse Debt: Any Nonrecourse Debt (or portion
------------------------
thereof) for which a Partner bears (or is deemed to bear) the economic risk of
loss within the meaning of Regulations section 1.704-1T (b) (4) (iv) (k) (1).
- -
Partners: The General Partners and the Limited Partners.
--------
Partners Committee: As described in Section 7.01.
------------------ ------------
Partnership: The partnership created pursuant to this Agreement.
-----------
Partnership Assets: All assets and property, whether tangible or
------------------
intangible and whether real, personal, or mixed, at any time owned by or held
for the benefit of the Partnership.
Partnership Interest: As to Partner, all of the interest of such
--------------------
Partner in the Partnership, including, without limitation, such Partner's (i)
right to a distributive share of the income, gain, losses, and deductions of the
Partnership in accordance herewith, (ii) right to a distributive share of
Partnership Assets, (iii) obligations as a Partner, and (iv) rights with respect
to the management of the business and affairs of the Partnership, as provided
herein or by law.
Partnership Liabilities: All debts, liabilities, and other
-----------------------
obligations of the Partnership.
Percentage Interest: As defined in Section 6.01(c).
------------------- ---------------
Programmer Partner: As of any date of determination, a Partner
------------------
one or more of whose Direct Affiliates is engaged in the business of, or is
entitled to exercise management control over an entity engaged in the business
of, producing one or more Programming Services. Notwithstanding the foregoing
and subject to Section 7.14(d), G.E. Americom Services, Inc. shall not be
---------------
considered a Programmer Partner unless and until such time as (i) one or more of
its Direct Affiliates is engaged in the business of, or is entitled or exercise
management control over an entity engaged in the business of, producing one or
more Programming Services, and (ii) the aggregate number of subscribers to the
basic cable television services offered by the cable television systems, if any,
in which the Direct Affiliates of G.E. Americom Services, Inc. have a
Controlling Interest
-6-
<PAGE>
is equal to or greater than 250,000. For this purpose, a Direct Affiliate of
G.E. Americom Services, Inc. will be deemed to have a Controlling Interest in
any cable television system with respect to which it owns more than 50% of the
equity or exercises or is entitled or exercise management control.
Person: Any individual, corporation, association, partnership,
------
joint venture, trust, estate, or other entity or organization.
Programming Service: A satellite-delivered video programming
-------------------
service, including, by way of example and not by way of limitation, programming
services provided by a television station that is an "unaffiliated station" (as
such term is defined as of the date hereof in 47 C.F.R. (S) 658 (1) (iv)) with
respect to the ABC, CBS and NBC television networks; a pay or basic cable
network; a pay-per-view service or any similar service, but excluding a network
broadcast service and the transmission service provided by or incidental to a
common carrier service.
Regulations: The regulations issued by the United States
-----------
Department of the Treasury under the Code, a now in effect and as they may be
amended from time to time, and any successor regulations.
Representative: The individual or any alternate appointed by a
--------------
Partner to be such Partner's representative on the Partners Committee, and any
successor thereto.
Sanctioned Partner: As defined in Section 10.06(c).
------------------ ----------------
Section 754 Election: An election under section 754 of the Code
--------------------
relating to the adjustment of the Adjusted Basis of Partnership Assets, as
provided in sections 734 and 743 of the Code.
Similar Business: The business of providing one or more
----------------
Programming Services by uplink to Fixed Satellite Service domestic satellite
transponders (other than on C-Band) or to Broadcast Satellite Service or higher
frequency domestic satellite transponders either (i) to distributors who
directly or indirectly redistribute such programming to HSDs (as defined below)
or (ii) directly to HSDs. For purposes of this definition, the term "HSD" means
the residential owner, lessee or user of an individual home satellite earth
station.
Super-majority Vote: The affirmative vote of the number of
-------------------
Representatives specified below who are not required to abstain from voting with
respect to a particular matter at the time that a vote thereon is taken:
-7-
<PAGE>
<TABLE>
<CAPTION>
TOTAL NUMBER OF
REPRESENTATIVES
NOT REQUIRED AFFIRMATIVE VOTES
TO ABSTAIN REQUIRED
--------------- -----------------
<S> <C>
10 7
9 6
8 5
7 5
6 4
5 3
4 3
3 3
</TABLE>
In the event that at any time there shall be more than ten (10)
Representatives on the Partners Committee who are not required to abstain, then
"Super-majority Vote" shall mean the affirmative vote of not less than three (3)
fewer than the total number of Representatives who are not required to abstain
from voting with respect to a particular matter at the time that a vote thereon
is taken.
TEMPO Option: The option granted by TEMPO Satellite, Inc. to the
------------
Partnership as described in, and on the terms and conditions set forth in,
Exhibit C.
- ---------
Terminating Capital Transaction: Any sale, condemnation,
-------------------------------
exchange, abandonment, or other disposition, whether by foreclosure or
otherwise, of all or substantially all of the then remaining Partnership Assets
and/or any other transaction which will result in a dissolution of the
Partnership, including any sale or other disposition of the Partnership Assets
or any portion thereof in connection with the dissolution and liquidation of the
Partnership pursuant to Article XI.
----------
Unrealized Gain: As to any Partnership Asset, the Book Tax Gain,
---------------
if any, that would be realized if such Partnership Asset were sold for its fair
market value on the date of determination.
Unrealized Loss: As to any Partnership Asset, the Book Tax Loss,
---------------
if any, that would be realized if such Partnership Asset were sold for its fair
market value on the date of determination.
User Agreement: The agreement being entered into
--------------
contemporaneously with this Agreement by the Partnership and GE Americom as
described in, and on the terms and conditions set forth in, Exhibit F.
---------
-8-
<PAGE>
Working Capital Reserve: The reserve for working capital
-----------------------
established by the Partners Committee pursuant to Section 7.09.
------------
1.02. Other Terms. Unless otherwise stated, terms, phrases, and
-----------
expressions used in this Agreement (whether or not appearing in initial capital
letters) which pertain to the business in which the Partnership intends to
engage shall have the meaning commonly given to them under common usage and
practice of such business in 1990. In addition, references to "Broadcast
Satellite Service" or "Fixed Satellite Service" on domestic satellite
transponders shall have the meanings given to such terms by the FCC as of the
date hereof, and references to Broadcast Satellite Service or higher frequency
means any frequency higher than C-band and K-band Fixed Satellite Service, as so
defined.
ARTICLE II
PARTNERSHIP FORMATION, NAME, PLACE OF BUSINESS
----------------------------------------------
2.01. Formation of Partnership; Certificate of Partnership. The
----------------------------------------------------
Partners hereby execute this Agreement for the purpose of forming the
Partnership and establishing the rights, duties, and relationship of the
Partners. If the laws of any jurisdiction in which the Partnership transacts
business so require, the Partnership shall file, with the appropriate office in
that jurisdiction, any documents necessary for the Partnership to qualify to
transact business. The Partnership shall, upon request, provide a Partner with
a copy of each such document as filed.
2.02. Name of Partnership. The name under which the Partnership shall
-------------------
conduct its business is "K Prime Partners L.P." The business of the Partnership
may be conducted under any other name permitted by the Delaware RULPA selected
by the Partners Committee. The Partnership promptly shall execute, file, and
record any assumed or fictitious named certificates required by the laws of the
State of Delaware or any state in which the Partnership conducts business and
shall take such other action as the Partners Committee determines is required by
or advisable under the laws of the State of Delaware, or any other state in
which the Partnership conducts business, to use the name or names under which
the Partnership conducts business.
2.03. Place of Business. The Partners Committee shall establish the
-----------------
principal place of business of the Partnership and may change the principal
place of business from time to time, provided that such principal place of
business shall be located in the United States. The Partners Committee may
establish and maintain such other offices and additional place of business of
the Partnership, either within or without the State of Delaware, as it deems
appropriate.
2.04. Resident Agent. The street address of the initial registered
--------------
office of the Partnership shall be 1209 Orange Street, Wilmington, Delaware,
19801, and the Partnership's
-9-
<PAGE>
registered agent at such address shall be The Corporation Trust Company. The
Partners Committee may from time to time appoint a new resident agent for the
Partnership.
ARTICLE III
PURPOSES AND
POWERS OF PARTNERSHIP
---------------------
3.01. Purposes. The purpose of the Partnership shall be:
--------
3.01 (a) to engage in the business of acquiring, originating
and/or providing television programming services delivered by satellite (other
than on C-band) directly to subscribers and providing other related services,
including, without limitation, the provision of the services through Satellite
Master Antenna Television Systems to residential subscribers and to hotels,
motels, and similar businesses offering temporary lodging;
3.01 (b) to acquire, purchase, hold, own, lease, operate,
manage, maintain, improve, repair, replace, reconstruct, sell, or otherwise
dispose of the otherwise use the Partnership Assets in connection with the
provision of such services; and
3.01 (c) to enter into any lawful transaction and engage in
any lawful activity incidental to or in furtherance of the foregoing purposes.
3.02. Powers. The Partnership shall have the power to do any and all
------
acts and things necessary, appropriate, advisable, or convenient for the
furtherance and accomplishment of the purposes of the Partnership, including,
without limitation, the following:
3.02 (a) to borrow (on a secured or unsecured basis) money,
create or become liable on indebtedness or overdrafts, and issue evidences of
indebtedness, and to secure the same by mortgages, deeds of trust, security
interests, pledges, or other liens on all or any part of the Partnership Assets;
3.02 (b) to secure and maintain insurance against liability
or other loss with respect to the activities and assets of the Partnership
(including without limitation, insurance against liabilities under Section
-------
7.13);
- -----
3.02 (c) to employ or retain such Persons (including,
without limitation, a management company) as may be necessary or convenient for
the conduct of the Partnership's business, including permanent, temporary, or
part-time employees and independent attorneys, accountants, consultants, and
contractors;
-10-
<PAGE>
3.02 (d) to acquire, own, hold, maintain, use, lease,
sublease, manage, operate, sell, exchange, transfer, or otherwise deal in assets
and property as may be necessary or convenient for the purposes of the
Partnership;
3.02 (e) to incur expenses and to enter into, guarantee,
perform, and carry out contracts, agreements, leases, subleases, and commitments
of any kind, to assume obligations, and to execute, deliver, acknowledge, and
file documents in furtherance of the purposes of the Partnership, provided,
--------
however, that the Partnership shall not have the power of authority to guarantee
- -------
the individual obligations of the Partners;
3.02 (f) to pay, collect, compromise, arbitrate, litigate,
or otherwise adjust, contest, or settle any and all claims or demands of or
against the Partnership;
3.02 (g) to establish and maintain one or more bank
accounts in the name of the Partnership at such banks as may be selected by the
Partners Committee, to deposit in such account(s) the funds received from time
to time by or on behalf of the Partnership, and to pay the debts, expenses and
obligations of the Partnership by checks drawn on such accounts and signed by
order of the Partners Committee or by such signatory as the Partners Committee
shall designate;
3.02 (h) to invest in interest-bearing accounts and other
investments approved by the Partners Committee, including without limitation,
obligations or federal, state and local governments and their agencies, mutual
funds (including money market funds), commercial paper, time deposits, and
certificates of deposit of commercial banks savings banks, or savings and loan
associations approved by the Partners Committee; and
3.02 (i) to engage in any kind of activity and to enter
into and perform obligations of any kind necessary to or in connection with, or
incidental to, the accomplishment of the purposes of the Partnership, so long as
said activities and obligations may be lawfully engaged in or performed by a
partnership under the Delaware RULPA.
3.03. Distribution of Programming; Programming to be Provided.
-------------------------------------------------------
3.03 (a) The Partnership shall enter into distribution
agreements with such Persons as are approved by the Partners Committee
(including, without limitation, any Affiliate of a Partner) (a "Distributor")
who shall market the programming of the Partnership to, and contract with, other
Persons desiring to receive the programming provided by the Partnership. The
amount of the payments to be made to the Partnership pursuant to each
distribution agreement shall be determined so as to provide a reasonable long
term profit for both the Partnership and the Distributors, taking into account
the full value and costs of the services provided by the Partnership.
Notwithstanding the foregoing, the amounts to be paid to the Partnership by a
Distributor pursuant to such Distributor's distribution agreement with the
Partnership shall in no event be less than (i) with respect to pay-per-view
services (A) ten percent
-11-
<PAGE>
(10%) of the retail rate charged by such Distributor in connection with the
exhibition of movies and (B) five percent (5%) of the retail rate charged by
such Distributor in connection with the exhibition of events other than movies,
and (ii) with respect to all services other than pay-per-view services, Ten
Dollars ($10.00) per month per subscriber increased (A) from time to time on a
dollar for dollar basis by any net incremental increase in out-of-pocket
programming costs incurred by the Partnership as of the effective date of such
distribution agreement, and (B) annually as of January 31 of each year during
the term of such distribution agreement by a percentage equal to the lower of
(x) the percentage increase in the Consumer Price Index for the twelve (12)
month period ended on the December 31, immediately preceding the applicable
January 31 date or (y) the percentage increase during such twelve (12) month
period in the weighted average monthly retail rate (excluding hardware and
nonrecurring charges) charged by such Distributor for such services. The
Partnership's agreements with Distributors shall not provide for any discount in
the aforesaid fees because the Distributor is an Affiliate of a Partner or on
account of such Distributor's number of total subscribers throughout the United
States. Fees paid by Distributors may be increased from time to time above the
amounts provided for in this Section 3.03(a) upon a Super-majority Vote of the
---------------
Partners Committee but may be decreased below the amounts provided for in this
Section 3.03(a) only upon a Super-majority Vote of the Partners Committee which
- ---------------
includes the affirmative vote of the Representative of G.E. Americom Services,
Inc. Any distribution agreement which grants a Distributor exclusive rights
shall provide that such exclusivity may be terminated by the Partnership in the
event such Distributor fails to meet certain performance objectives to be agreed
upon by the Partnership and such Distributor in the applicable distribution
agreement. A distribution agreement may grant a Distributor non-exclusive
rights in geographic areas adjacent to such Distributor's exclusive area so long
as exclusive rights have not been granted to another Distributor with respect to
such adjacent geographic area.
3.03 (b)
(i) To further the distribution to Persons of the
programming provided by the Partnership, the Partners other than G.E. Americom
Services, Inc., any Nonpaying Partner and any Sanctioned Partner (the "Full
Participation Partners"), by the affirmative vote of at least one more than a
simple majority of the Full Participation Partners, may establish, own, operate
and manage a marketing company to act as Distributors for unlicensed areas and
for licensed areas not subject to a distribution agreement with an operative
provision for exclusive rights.
(ii) In the event such marketing company is established
pursuant to this Section 3.03(b), each Non-Paying Partner and each
--------------
Sanctioned Partner other than G.E. Americom Services, Inc. (the "Partial
Participation Partners") and each Full Participation Partner (collectively, the
"Marketing Company Partners"), shall be irrevocably obligated pursuant to the
Guarantor's Agreement to make capital contributions to the first such marketing
company established of up to a total of One Million Dollars ($1,000,000) at the
times and in the amounts which shall be determined by the affirmative vote of
one more than a simple majority of the Full Participation Partners. Thereafter,
the Full Participation Partners by the affirmative vote of one
-12-
<PAGE>
more than a simple majority of the Full Participation Partners may require that
additional capital contributions be made to such marketing company. The Partial
Participation partners will not be permitted to contribute any portion of such
additional capital contributions to the marketing company, and their respective
interests in such marketing company (and their Partnership Interests) will be
subject to dilution as provided in clause (iii) below. Any Full Participation
Partner voting in favor of any such additional capital contribution shall be
obligated both to make its pro rata capital contribution and to contribute its
pro rata share of the capital contribution which any other Marketing Company
Partner fails or is not permitted to make. Any Full Participation Partner
voting against such additional capital contribution shall be entitled to
participate in making such additional capital contribution to the same extent as
any Full Participation Partner voting in favor of such additional capital
contribution.
(iii) In the event any Marketing Company Partner fails
or is not permitted to make its pro rata capital contribution to such marketing
company, regardless of the reason for such failure, then such Partner shall not
be entitled to make any subsequent capital contributions to the marketing
company and such Partner's interest in the marketing company shall be diluted so
that its percentage interest in such marketing company bears the same ratio to
the percentage interests therein of all other Marketing Company Partners that
such Partner's total amount of capital contributions to such marketing company
bears to the total capital contributions to the marketing company of all other
Marketing Company Partners. In addition, if any Marketing Company Partner fails
to make or is not permitted to make its pro rata capital contribution to the
first such marketing company established at any time up to and including such
time as an aggregate of Five Million Dollars ($5,000,000) of initial and
additional capital contributions have been called for from such Partner, then
such Marketing Company Partner's Partnership Interest shall be simultaneously
diluted on the basis of one-half of one percent (0.50%) reduction in such
Marketing Company Partner's Percentage Interest multiplied by a fraction, the
numerator of which is that portion of the capital contributions required of such
Marketing Company Partner (up to a maximum of $5 million of required capital
contributions, in the aggregate) that the Marketing Company Partner has failed
to make to such first established Marketing Company and the denominator of which
is One Million Dollars ($1,000,000). Such reduction shall be reallocated pro
rata among the Full Participation Partners that have made all their required
capital contributions to such marketing company up to $5,000,000.
(iv) If a marketing company is established
pursuant to this Section 3.03(b), each Marketing Company Partner shall acquire
an initial percentage equity interest in such marketing company which shall
equal one hundred percent (100%) times a fraction, the numerator of which is the
initial capital contribution made by such Marketing Company Partner on the
acquisition of its interest and the denominator of which is the aggregate
initial capital contributions made by all Marketing Company Partners on the
acquisition of their interests therein. Such marketing company's organizational
documents shall contain management and governance provisions and provisions
relating to dispositions set forth in this Agreement (but excluding Section
5.03(c) of this Agreement). Each Full Participation Partner shall then have the
same rights and benefits with respect to such marketing company as, and to
participate in such
-13-
<PAGE>
marketing company on the same terms and conditions as, each other Full
Participation Partner (except as otherwise required by this Section 3.03(b)).
---------------
(v) If any marketing company is established pursuant
to this Section 3.03(b), each Marketing Company Partner that holds an equity
---------------
interest therein shall dispose of its Partnership Interest simultaneously with,
and on the same basis and to the same extent as, and disposition of its interest
in such marketing company, and the organizational documents of the marketing
company shall provided that each Marketing Company Partner shall be required to
dispose of its equity interest in the marketing company simultaneously with, and
on the same basis and to the same extent as, any disposition of such Partner's
Partnership Interest. If a Marketing Company Partner disposes of its interest in
the marketing company to one or more of the Full Participation Partners, and as
a result of the immediately preceding sentence it is also required to dispose of
its Partnership Interest, then such disposition of its Partnership Interest to
the Full Participation Partners that purchased its interest in the marketing
company shall not be subject to Section 10.03.
--------------
(vi) Upon the establishment of a marketing company
pursuant to this Section 3.03(b), the Partners including G.E. Americom Services,
--------------
Inc. shall use their best efforts to cause appropriate amendments to this
Agreement to be made to effect the foregoing provisions set forth in this
Section 3.03(b).
- ---------------
3.03 (c) The Partnership shall initially make available to
each customer of a Distributor a package of programming consisting of
independent broadcast stations together with pay-per-view providers services
(subject to negotiation with pay-per-view services). If the distribution of any
portion of such programming to such customers is, in the reasonable
determination of the Partners Committee, rendered economically, technologically
or legally impractical, other than as a result of any event described in Section
-------
3.04, then the Partnership shall use its diligent efforts to secure alternative
- ----
programming (whether broadcast or non-broadcast) comparable to that initially
offered by the Partnership, the distribution of which alternate programming
would not be economically, technologically or legally impractical.
3.04. Termination by Force Majeure.
----------------------------
3.04 (a) In the event of any judicial, legislative or
governmental action (including, without limitation, any enactment of legislation
or regulation or any change in law or regulation or any interpretation or change
in the interpretation thereof by any court or any governmental agency charged
with the administration or interpretation thereof) (a "Governmental Action")
after the date hereof which materially adversely affects (i) any Fundamental
Business Element (as defined below) of the Partnership, or (ii) the
Partnership's access to sufficient programming comparable to that initially
offered by the Partnership to allow the Partnership to offer seven (7) channels
of such programming and the ability of the Partnership to secure and distribute
such programming at a cost which does not materially increase the Partnership's
aggregate programming costs, then in either event (each a "Force Majeure Event")
the Partners
-14-
<PAGE>
Committee by Majority Vote may, if it reasonably determines that it is not in
the best economic interests of the Partners to continue the business of the
Partnership, not earlier than sixty (60) days nor later than two hundred seventy
(270) days following the date of occurrence of such Governmental Action, elect
to dissolve the Partnership in accordance with Article XI. Upon any such
election, the Partnership shall be required to satisfy certain obligations of
the Partnership with respect to the deferred fixed monthly charges under, and as
set forth in, section 11.01(d) of the User Agreement pari passu with all other
---- -----
senior unsecured debts of the Partnership.
3.04 (b) For purposes of this Section 3.04, a
------------
"Fundamental Business Element" means the ability of the Partnership to (i) grant
----------------------------
exclusive distributorships, including exclusive distributorships within cable
television franchise areas to the franchised cable operator in each such area,
(ii) grant nonexclusive distributorships outside such exclusive areas to
franchised cable operators who are Distributors of the Partnership's service in
geographic areas adjacent to such nonexclusive area or other qualified Persons,
(iii) distribute the Partnership's service directly, (iv) determine the
encryption methods and devices and to own the decoder and otherwise control such
methods and devices by offering them as an integral part of its or any
Distributor's services, or (v) offer and price the Partnership's service subject
to laws, rules, regulations or orders not materially more restrictive than those
in effect on the date hereof.
3.04 (c) Each Partner acknowledges and agrees that, for
purposes of Section 3.04(a), (i) the application of syndicated exclusivity to
--------------
the method delivery of video programming contemplated by the Partnership, (ii)
the Partnership's inability due to material, adverse Governmental Action to
carry seven (7) independent television stations licensed by the FCC to serve any
of the twenty-five (25) largest television markets or (iii) the revocation of
compulsory copyright licenses for carriage of independent stations shall
constitute a Force Majeure Event. Each Partner also acknowledges and agrees that
any change in copyright fees resulting from negotiations provided for by the
Satellite Home Viewer Act of 1988 and any amendment thereof which does not
materially alter its terms shall not constitute Governmental Action for purposes
of this Section 3.04.
------------
ARTICLE IV
TERM OF PARTNERSHIP
-------------------
4.01. Term. The Partnership shall commence on the date hereof and
----
shall continue (unless earlier dissolved in accordance with the provisions of
Article XI) for an initial term expiring on December 31, 2015, which initial
- ----------
term shall be extended for an additional period or additional periods, as
determined from time to time by the Partners Committee, if the Partners
Committee shall determine in accordance with Section 7.05, no later than one
------------
hundred eighty (180) days prior to the expiration of such initial term or any
such additional term, as applicable, that the Partnership shall continue upon
expiration of such initial term or any such additional term, as applicable.
-15-
<PAGE>
ARTICLE V
CAPITAL
-------
5.01. Initial Capital Contribution Deemed to be Made by G.E. Americom
---------------------------------------------------------------
Services, Inc. in Connection with User Agreement. As a result of GE Americom
- ------------------------------------------------
and its Affiliates making available to the Partnership certain satellite
transponders on the terms set forth in the User Agreement, G.E. Americom
Services, Inc. shall be deemed to make an Initial Capital Contribution with a
Carrying Value at time of contribution equal to the amount set forth opposite
its name on Schedule A (Section 1). G.E. Americom Services, Inc. shall be
---------------------
deemed to pay the Initial Capital Contribution deemed made pursuant hereto to
the Partnership at such time or times as the Initial Capital Contributions of
the Partners pursuant to Section 5.02 are paid and in an amount or amounts such
------------
that G.E. Americom Services, Inc. shall always be deemed to have paid in fifteen
percent (15%) of the aggregate Initial Capital Contributions made to the
Partnership. Such amounts will be deemed to have been derived pro rata from the
Initial Capital Contributions of the Partners other than G.E. Americom Services,
Inc. and such amounts shall be referred to as "Capital Shifts."
5.02. Initial Capital Contributions of Partners. By the execution of
-----------------------------------------
this Agreement, each Partner listed in Schedule A (Section 2) commits to make an
----------------------
Initial Capital Contribution in the amount set forth opposite its name on
Schedule A (Section 2), which Initial Capital Contributions of the Partners
- ----------------------
aggregate Thirty Eight Million Dollars ($38,000,000). The Initial Capital
Contribution of each such Partner shall be made in cash, by wire transfer or by
certified or cashier's check payable to the order of the Partnership or its
designated agent, at such time or times and in such amount or amounts as may be
needed by the Partnership from time to time, as determined by the Partners
Committee. Each call for payment of Initial Capital Contributions shall be made
on a pro rata basis in the proportion that a Partner's remaining unpaid Initial
Capital Contribution bears to the aggregate remaining unpaid Initial Capital
Contributions of all of the Partners. In addition, simultaneously with the
execution and delivery of this Agreement, the parent company of each Partner
listed on Schedule A (Section 3) (each a "Guarantor") has executed and delivered
---------------------
to the Partnership a guaranty agreement in the form attached hereto as Exhibit E
---------
("Guaranty").
5.03. Additional Capital Contributions.
--------------------------------
5.03 (a) Payment of Additional Capital Contributions. After
-------------------------------------------
such time as the Partners Committee has called for the payment of the entire
Thirty Eight Million Dollars ($38,000,000) of Initial Capital Contributions to
be made by the Partners pursuant to Section 5.02, the Partners Committee in
------------
accordance with Section 7.05 may require the Partners to make additional Capital
------------
Contributions ("Additional Capital Contributions") to the Partnership (i)
following preparation of each Annual Operating Budget with respect to each
Fiscal Year pursuant to Section 7.07, in such amounts, as determined by the
------------
Partners Committee in
-16-
<PAGE>
accordance with Section 7.05, not to exceed the amounts set forth in the Annual
------------
Operating Budget and (ii) at such other times, and in such amounts, as may be
determined from time to time by the Partners Committee in accordance with
Section 7.05. Each Partner other than a Non-paying Partner or a Sanctioned
- ------------
Partner shall be required to contribute a percentage of each such Additional
Capital Contribution equal to its then current Percentage Interest divided by
the total Percentage Interests of all Partners that are not Non-paying Partners
or Sanctioned Partners. The Partners Committee shall provide written notice to
each of the Partners setting forth the amount of each Partner's proportionate
share of the required Additional Capital Contribution not less than thirty (30)
days prior to any date (the "Contribution Date") for payment of an Additional
Capital Contribution. Each Partner whose Representative voted against requiring
the Partners to make such Additional Capital Contributions, in its sole
discretion, may decline to make its required Additional Capital Contribution by
notice to the Partnership within fifteen (15) days of the notice from the
Partnership of the required Additional Capital Contribution. To the extent that
any Partner (the "Declining Partner") declines to make its required Additional
Capital Contribution, each other Partner that is not a Non-paying Partner or a
Sanctioned Partner shall (subject to the following sentence) have the right, but
not the obligation, to increase its Additional Capital Contribution by the
amount of the Additional Capital Contribution that the Declining Partner
declined to make. If more than one Partner elects to increase its Additional
Capital Contribution pursuant to the immediately preceding sentence, the
Additional Capital Contribution that the Declining Partner declined to make
shall be allocated among such electing Partners as they may agree or, if they
shall fail to agree, then in proportion to their respective Percentage Interests
(as determined before any adjustments to their Percentage Interests under
Section 5.03(b) with respect to such Additional Capital Contribution). If no
- ---------------
Partner elects to so increase its Additional Capital Contribution, then all
Partners other than any Non-paying Partners and Sanctioned Partners shall
contribute an additional aggregate amount equal to the Additional Capital
Contribution which the Declining Partner declined to make, in proportion to
their respective Percentage Interests (as determined before any adjustments
thereto under Section 5.03(b) with respect to such Additional Capital
---------------
Contribution). If any Partner whose Representative did not vote against
requiring the Partners to make the Additional Capital Contributions fails to
make an Additional Capital Contribution on any date upon which the payment
thereof is required by the Partners Committee, such Partner's Percentage
Interest shall be subject to reduction as provided in Section 5.03(b), in
---------------
addition to any other remedy which the Partnership may have against such Partner
in accordance with this Agreement. Except as required by applicable law and as
provided in this Article V, the Partners shall not be required to make any
---------
Capital Contributions, loans, or other advances to the Partnership.
5.03 (b) Failure to Make Capital Contributions. In the event
that any Partner is a Declining Partner or otherwise fails to contribute its
share of an Initial Capital Contribution or an Additional Capital Contribution
on or before the Contribution Date therefor (a "Non-paying Partner"), then the
Non-paying Partner's Percentage Interest shall be reduced to a percentage
determined by dividing (i) the difference between (A) the aggregate amount of
the Capital Contributions that the Non-paying Partner made (or is deemed to have
made), and (B) with respect to any Partner other than G.E. Americom Services,
Inc., the aggregate amount of
-17-
<PAGE>
any Capital Shifts derived from such Partner, by (ii) the sums of all Initial
Capital Contributions and Additional Capital Contributions actually made to the
Partnership by all Partners pursuant to Sections 5.02 and 5.03 (without
------------- ----
reduction for any Capital Shifts). The amount of such reduction in the Non-
paying Partner's Percentage Interest shall be allocated to increase the
Percentage Interests of the other Partners that are not Non-paying Partners in
proportion to the amounts of the Non-paying Partner's share of the called-for
Additional Capital Contribution, if any, contributed by each. The Partners
Committee shall provide notice thereof to all Partners and Schedule B shall be
----------
revised to reflect such adjustment. If such adjustment shall result in a
Partner's Percentage Interests being less than five percent (5%), then except as
provided in Section 7.03, such Partner shall no longer be entitled to appoint a
------------
Representative to the Partners Committee and such partner's present
Representative shall be considered to have immediately resigned its position as
a Representative. In addition to the adjustment provided in this Section
-------
5.03(b), a Non-paying Partner shall have no right to participate in any
- -------
subsequent call for Additional Capital Contributions. Such Non-paying Partner's
Percentage Interest in the Partnership shall be reduced as of each subsequent
Contribution Date in accordance with this Section 5.03(b) as though such Non-
---------------
paying Partner were a Non-paying Partner with respect to each such subsequent
Additional Capital Contribution, the Non-paying Partner's share of each such
subsequent Additional Capital Contribution shall be allocated among the other
Partners that are not Non-paying Partners in proportion to their respective
Percentage Interests, and the amount of each reduction in the Non-paying
Partner's Percentage Interest shall be allocated among the Partners that
contribute their shares of each such Additional Capital Contribution in
proportion to the amounts so contributed by each such Partner.
5.03 (c) Offer to Sell by Non-paying Partner. If any Partner
-----------------------------------
other than a Sanctioned Partner becomes a Non-paying Partner before the
Partnership has received Initial Capital Contributions and Additional Capital
Contributions pursuant to Sections 5.02 and 5.03(a) totaling Sixty Million
------------- -------
Dollars ($60,000,000), such Partner (other than G.E. Americom Services, Inc.
with respect to that portion of its Partnership Interest that is attributable to
the Initial Capital Contribution deemed made by it) (the "Offeror Partner")
shall offer to sell to the other Partners that are not Non-paying Partners or
Sanctioned Partners (the "Remaining Partners") such Offeror Partner's
Partnership Interest and the Remaining Partners shall have the right to buy such
Offeror Partner's Partnership Interest, all in accordance with the procedures
set forth in Sections 10.03(a) and 10.03(b) except that (i) the term "Offerees"
----------------- --------
as used in such Section 10.03(a) shall be deemed a reference to the Remaining
----------------
Partners and the term "Offeror" as used in such Section 10.03 shall be deemed a
-------------
reference to the Offeror Partner; (ii) the purchase price shall be the greater
of (A) the positive Capital Account balance of such Offeror Partner as of the
date immediately after the Contribution Date (adjusted for items of income and
deduction for the then current year to date and reduced by the amount of any
Capital Shift attributable to such Partner and not previously deduced from such
Partner's Capital Account), as determined by the Partnership's accounting firm
(selected pursuant to Section 9.04), and (B) One Dollar ($1.00); (iii) the offer
------------
to sell shall be deemed made as of the Contribution Date; (iv) the Remaining
Partners need not purchase all of the Offeror Partner's Partnership Interest if
the Remaining Partners so agree; and (v) the term "Offerees Election Period" as
used in such Section 10.03 shall mean (A) in the case of a failure to
-------------
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<PAGE>
make an Initial Capital Contribution, the period that commences as of the day
after the Contribution Date and ends on the date that is one (1) year after the
date for the payment of Initial Capital Contributions called for by the Partners
Committee which, when aggregated with the amount of Initial Capital
Contributions previously called for by the Partners Committee, totals Thirty
Eight Million Dollars ($38,000,000), and (B) otherwise, the sixty (60) day
period commencing the day after such Contribution Date. The rights of the
Remaining Partners under this Section 5.03(c) are in addition to the reduction
---------------
of an Offeror Partner's Percentage Interest provided for in Section 5.03(b) and
---------------
the rights of the Partnership under the Guaranty provided by a Guarantor with
respect to the Offeror Partner's obligation to pay its Initial Capital
Contributions to the Partnership. Moreover, the purchase of the Partnership
Interest of an Offeror Partner pursuant to this Section 5.03(c) shall not
---------------
relieve the Offeror Partner or the Guarantor of its obligation to pay to the
Partnership the full amount of the Offeror Partner's Initial Capital
Contributions pursuant to Section 5.02.
------------
5.03 (d) Certain Expenditures. On the basis of certain
--------------------
assumptions concerning capital expenditures, subscriber levels, and wholesale
distributor and retail subscriber prices, the Partners have assumed that the
Partnership will not require any Capital Contributions in excess of the Initial
Capital Contributions of Thirty Eight Million Dollars ($38,000,000) in order to
achieve positive cash flow, if the Partnership is operated in accordance with
the "Key Business Assumptions" attached hereto as Exhibit D. The Partners
---------
Committee shall cause to be prepared and timely distributed to the Partners on a
quarterly basis projections of the Partnership's cash flow and total working
capital needs through the quarter in which the Partnership is projected to
achieve positive cash flow. If prior to the expenditure by the Partnership of
the Initial Capital Contributions of Thirty Eight Million Dollars
($38,000,000.00) the Partners Committee authorizes any Partnership expenditures
that are contrary to the Key Business Assumptions and that, in the aggregate,
will increase by more than Four Million Dollars ($4,000,000) the projected total
amount of Additional Capital Contributions that the Partners will be required to
make to the Partnership (such Additional Capital Contributions in excess of Four
Million Dollars ($4,000,000) are hereinafter referred to as "Excess
Contributions"), each Guarantor shall execute and deliver to GE Americom a
guaranty agreement, substantially similar in form to its Guaranty, pursuant to
which such Guarantor shall severally guarantee the payment by the Partnership to
GE Americom of a portion of the deferred fixed monthly charges under section
4.01 of the User Agreement in an amount equal to (i) the lesser of (A) the
aggregate amount of such Excess Contributions, and (B) sixty percent (60%) of
the amount owed by the Partnership to GE Americom from time to time with respect
to deferred fixed monthly charges under section 4.01 of the User Agreement,
multiplied by (ii) a fraction, the numerator of which is the Percentage Interest
of the Guarantor's Affiliate that is a Partner and the denominator of which is
the total Percentage Interests of all of the Guarantor's Affiliates that are
Partners. The amount of any guaranty made by a Guarantor pursuant to this
Section 5.03(d) shall be decreased from time to time to reflect any reductions
- --------------
in the amount of the Partnership's obligation to GE Americom with respect to
deferred fixed monthly charges under section 4.01 of the User Agreement whether
by payments under the User Agreement or otherwise. GE Americom shall first claim
against the Partnership (and the Partnership shall call upon any
-19-
<PAGE>
unpaid amounts of the first guaranteed Thirty-Eight Million Dollars
($38,000,000) of Initial Capital Contributions) before making any claim under
such guaranty agreement, provided that it shall not be a condition precedent to
GE Americom making a claim under any such guaranty agreement that the
Partnership actually made any such call but GE Americom shall provide the
Partnership with a period of time equal to the earlier of (i) 30 days or (ii)
the occurrence of the Bankruptcy (as defined in Section 11.01) of any Guarantor
-------------
or any Partner in which to make such call.
5.04. Capital Accounts.
----------------
5.04 (a) A separate Capital Account shall be established
and maintained for each Partner in accordance with the rules of Regulations
section 1.704-1(b)(2)(iv), as amended from time to time. In general, the Capital
Account of each Partner shall be credited with:
(i) the amount of cash and the initial Carrying Value
of any amount (net of liabilities secured by any property
contributed that the partnership is considered to assume or take
subject to) contributed or deemed to be contributed to the
partnership by such Partner pursuant to Sections 5.01, 5.02, and
------------- ----
5.03, plus
----
(ii) all Net Income and Book Tax Gains of the
Partnership computed in accordance with Section 5.04(b) allocated
--------------
to such Partner pursuant to Sections 6.02, 6.03(a), and 6.07
------------- ------ ----
(including for purposes of this Section 5.04(a) income and gain
--------------
exempt from tax);
and shall be debited with the sum of:
(iii) all Net Losses, Book Tax Losses, deductions
attributable to Capital Shifts, and deductions of the Partnership
computed in accordance with Section 5.04(b) and allocated to such
--------------
Partner pursuant to Sections 6.02, 6.03(b), and 6.07, and
------------- ------- ----
(iv) all cash and the fair market value of any property
(net of liabilities secured by such property that such Partner is
considered to assume or take subject to) distributed by the
Partnership to such Partner pursuant to Sections 6.05 and 6.06.
------------- ----
The Capital Account of a Partner also shall be adjusted to reflect any other
adjustments required pursuant to Regulations sections 1.704-1(b) or 1.704-1T(b).
Any reference in this Agreement to the Capital Account of a Partner shall be
deemed to refer to such Capital Account as the same may be credited or debited
from time to time as set forth above.
5.04 (b) For purposes of computing the amount of any item
of income, gain, deduction, or loss to be reflected in Capital Accounts, the
determination, recognition, and
-20-
<PAGE>
classification of each such item shall be the same as its determination,
recognition, and classification for federal income tax purposes, provided that:
(i) any deductions for depreciation, cost recovery,
amortization, or expense in lieu of depreciation attributable to
a Partnership Asset, any gain or loss arising in connection with
a Capital Transaction involving a Partnership Asset, and the
Minimum Gain attributable to any Partnership Asset shall be
determined as if the Adjusted Basis of such Partnership Asset
were equal to its Carrying Value;
(ii) immediately prior to decreasing a Partner's
Capital Account to reflect any distribution of a Partnership
Asset to it (other than cash), all Partners' Capital Accounts
shall be adjusted to reflect the manner in which the Unrealized
Gain or Unrealized Loss inherent in such Partnership Asset (that
has not been reflected in the Capital Accounts previously) would
be allocated among the Partners if there were a taxable
disposition of such Partnership Asset for its fair market value
(but not less than the amount of any Nonrecourse Debt secured by
such Partnership Asset); and
(iii) adjustment to a Partner's Capital Account in
respect of Partnership income, gain, loss, deduction, and Code
section 705(a)(2)(B) expenditures (and other expenditures
described in Regulations section 1.704-1(b)(2)(iv)(i)) (or items
thereof) shall be made with reference to the federal tax
treatment of such items (and, in the case of book tax items, with
reference to the federal tax treatment of the corresponding tax
items) at the Partnership level, without regard to any required
or elective tax treatment of such items at the Partner level.
5.04 (c) A Partner shall be considered to have only one
Capital Account.
5.04 (d) The Capital Account balances of the Partners shall
be increased or decreased as necessary to reflect a revaluation of Partnership
Assets on the Partnership's books to the extent required or permitted by the
Regulations. Any such adjustments must be based on the fair market value of the
Partnership Assets as determined by the Partners Committee (provided that no
Partnership Asset shall be valued at an amount less than any Nonrecourse Debt to
which such Partnership Asset is subject on the date of adjustment) and must
reflect the manner in which the Unrealized Gain or Unrealized Loss inherent in
such Partnership Assets (that has not been reflected in a Capital Account
previously) would be allocated among the Partners if there were a taxable
disposition of such Partnership Assets for such fair market value on that date.
5.04 (e) Any transferee of a Partnership Interest shall
succeed to the Capital Account relating to the Partnership Interest transferred.
-21-
<PAGE>
5.04 (f) Any special basis adjustments resulting from an
election by the Partnership pursuant to section 754 of the Code shall not be
taken into account for any purpose in establishing and maintaining Capital
Accounts for the Partners, except as provided in Regulations section 1.704-
1(b)(2)(iv)(m).
-
5.04 (g) If any transfer of a Partner's Partnership
Interest causes a termination of the Partnership under section 708(b)(1)(B) of
the Code, the Capital Account that carries over to the transferee Partner shall
be adjusted in accordance with Regulations section 1.704-1(b)(2)(iv)(e) in
connection with the-constructive liquidation of the Partnership under
Regulations section 1.708-1(b)(1)(iv). The constructive reformation of the
Partnership will be treated as the formation of a new Partnership, and the
Capital Accounts of the Partners in such new Partnership will be determined and
maintained accordingly taking into account, for example, the difference between
the fair market value of the Partnership Asset and its Carrying Value on the
date of such constructive reformation.
5.04 (h) The foregoing provisions of this Section 5.04 and
any other provisions of the Agreement relating to the maintenance of Capital
Accounts are intended to comply with the requirements of Regulations section
1.704-1(b)(2)(iv) as they currently exist and as they subsequently may be
amended. In the event the Partners Committee determines that it is prudent to
modify the manner in which the Capital Accounts, or any debits or credits
thereto, are computed in order to comply with such Regulations, the Partners
Committee may make such modification, provided that it is not likely to have a
material effect on the amounts distributable to any Partner upon dissolution of
the Partnership.
5.05. No Interest on Capital Contributions or Capital Account. No
-------------------------------------------------------
Partner shall be entitled to receive any interest on its Capital Contributions
or Capital Account.
5.06. Advances to Partnership. If any Partner shall advance funds to
-----------------------
the Partnership in excess of the amounts required to be contributed by it to the
capital of the Partnership pursuant to Sections 5.02 and 5.03 or permitted to be
------------- ----
so contributed pursuant to Section 5.03(a), the making of such advances shall
---------------
not result in any increase in the amount of such Partner's Capital Account or
entitle such Partner to any increase in its Percentage Interest. The amounts of
such advances shall be a debt of the Partnership to the Partner and shall be
payable or collectible only out of the Partnership Assets in accordance with the
terms and conditions upon which such advances are made. Any such advances shall
be subject to the prior approval of the Partners Committee and shall be
repayable on demand or as otherwise agreed at the time such advances are made.
Such advances shall be interest from the date made until rapid in full at a rate
per annum equal to two (2) percentage points above the "Federal Short-Term Rate"
as defined in Code section 1274(d)(1)(C)(i) (which shall be adjusted as and when
the Federal Short-Term Rate changes), but in no event more than the maximum rate
permitted under applicable law. Interest on any such advances shall be payable
monthly in arrears and, to the extent not paid currently, shall be added to the
principal amount of the advance. In addition, any sum owned by the Partnership
to a Partner or an Affiliate of a Partner for or in respect of services rendered
to the Partnership by a
-22-
<PAGE>
Partner or an Affiliate of a Partner at the request of or as approved by the
Partners Committee shall be debts of the Partnership and shall not be regarded
as contributions to the capital of the Partnership.
5.07. Return of Capital. Except upon the dissolution of the
-----------------
Partnership or as may be specifically provided in this Agreement, no Partner
shall have the right to demand or to receive the return of all or any part of
its Capital Account or its Capital Contributions to the Partnership.
5.08. Preservation of Percentages of Partnership Interests Held as
------------------------------------------------------------
General Partners and as Limited Partners. For purposes of this Agreement, each
- ----------------------------------------
Partner is treated as though it holds a single Partnership Interest, even
through it holds ninety nine percent (99.00%) of its Partnership Interest as a
Limited Partner. Notwithstanding anything in this Agreement to the contrary,
the Partners intend for each Partner to continue to hold ninety nine percent
(99.00%) of its Partnership Interest as a General Partner and one percent
(1.00%) of its Partnership Interests as a Limited Partner. Accordingly, the
amount of any Capital Contributions made by a Partner pursuant to this Article V
---------
and any allocations and distributions to a Partner pursuant to Article VI shall
----------
be allocated ninety nine percent (99.00%) to the Partnership Interest held by
the Partner as a General Partner and one percent (1.00%) to the Partnership
Interest held by the Partner as a Limited Partner. In the event that a Partner
sells or otherwise transfers all or any portion of its Partnership Interest
pursuant to this Agreement, ninety nine percent (99.00%) of the aggregate
Partnership Interest so acquired by any Person shall be treated as attributable
to the Partnership Interest held by the transferring Partner as a General
Partner and one percent (1.00%) shall be treated as attributable to the
Partnership Interest held by the transferring Partner as a Limited Partner. In
the event that the Partnership Interest of a Partner is otherwise increased or
decreased pursuant to this Agreement, the amount of the increase or decrease, as
the case may be, shall be allocated ninety nine percent (99.00%) to the
Partnership Interest held by the Partner as a General Partner and one percent
(1.00%) to the Partnership Interest held by the Partner as a Limited Partner.
ARTICLE VI
ALLOCATION OF PROFITS AND LOSSES;
DISTRIBUTIONS OF CASH FLOW AND CERTAIN PROCEEDS
-----------------------------------------------
6.01. Certain Definitions.
-------------------
6.01 (a) "Cash Flow" shall mean and refer to the sum of the
---------
following:
(i) the taxable income (or loss) of the Partnership
for federal income tax purposes as shown on the books of the Partnership for the
period for which such determination is being made, excluding taxable income,
gain, or loss from any Capital Transactions, increased by (A) the amount of cost
------------
recovery, depreciation, or amortization deductions or similar deductions in lieu
thereof deductible by the Partnership in computing such
-23-
<PAGE>
taxable income, and any other non-cash accruals deductible in determining
federal taxable income or loss, for such period, and (B) any non-taxable income
or receipts of the Partnership for such period (including, without limitation,
any amounts received during such period that were included in taxable income in
a prior period and the proceeds of any loans to the Partnership) except Capital
Contributions to the Partnership pursuant to Article V; and reduced by (AA)
--------- ----------
payments from the sum of the foregoing on the principal of any loan to the
Partnership or in satisfaction of other obligations to holders of Partnership
debt to the extent such payments have not otherwise reduced the taxable income
of the Partnership for federal income tax purposes, (BB) expenditures from the
sum of the foregoing for the acquisition, improvement, development, or
replacement of property not financed through Capital Contributions to the
Partnership or any reserves previously set aside by the Partnership for such
purposes, and for the payment of items attributable to the acquisition,
improvement, development, or replacement of property which are not deductible in
determining federal taxable income when paid, (CC) any amounts included in
determining gross income for such period that were not received by the
Partnership during such period, (DD) any other cash expenditures of the
partnership which are not deductible when paid for federal income tax purposes,
and (EE) transfers from the sum of the foregoing to the reserves maintained
pursuant to Section 7.09; plus
------------
(ii) any other funds (including amounts previously set
aside as reserves by the Partners Committee if and to the extent the
Partners Committee no longer regard such amounts as reasonably needed in
connection with the operation of the business of the Partnership) deemed
available for distribution and designated by the Partners Committee as Cash
Flow.
6.01 (b) "Net Proceeds of a Capital Transaction" means the
-------------------------------------
proceeds received by the Partnership in connection with a Capital Transaction,
after (i) the payment of all costs and expenses of any kind or nature incurred
by the Partnership in connection with such Capital Transaction, (ii) the
utilization of any such proceeds in connection with the payment of such costs
and expenses of the Partnership and/or discharge of debts and other obligations
of the Partnership (including any loans to the Partnership made by Partners and
any accrued but unpaid interest thereon) required or intended (as determined by
the Partners Committee) to be discharged with the proceeds of such Capital
Transaction, and (iii) the retention of such proceeds or a portion of such
proceeds in connection with creation of or addition to any reserve established
by the Partners Committee (including without limitation any reserve established
pursuant to Section 6.06(b)). "Net Proceeds of an Interim Capital Transaction"
----------------
and "Net Proceeds of a Terminating Capital Transaction" mean the amount of Net
Proceeds received by the Partnership with respect to an Interim Capital
Transaction or Terminating Capital Transaction, as the case may be.
6.01 (c) "Percentage Interests" of the Partners shall be as
set forth on Schedule B hereto as of the execution of this Agreement. Such
Percentage Interests shall be subject to proportionate increase upon the
withdrawal of a Partner (including any purchase by the Partnership of a
Partner's Partnership Interest) and to proportionate decrease upon admission of
-24-
<PAGE>
additional Partners. Each additional Partner shall be granted a Percentage
Interest established by the Partners Committee in accordance with Section
-------
7.05(e) at the time of its admission to the Partnership. In addition, the
- -------
Percentage Interest of the Partners shall be subject to increase or decrease as
provided in Section 5.03. Except as expressly provided in this Section 6.01(c)
------------ ---------------
or other provision of this Agreement, or as may result from a transfer of its
Partnership Interest as permitted by Article X, the Percentage Interest of a
---------
Partner shall not be subject to increase or decrease without such Partner's
prior consent.
6.02. Allocation of Net Income or Net Loss.
------------------------------------
6.02 (a) Subject to Section 6.07, the Net Income or Net Loss
------------
of the Partnership, if any, for each Fiscal Year (or portion thereof) during the
term of this Agreement shall be allocated to the Partners, pro rata, in
accordance with the Partners' respective Percentage Interests.
6.02 (b) Any deduction attributable to any Capital Shift shall
be allocated among those Partners from whose Initial Capital Contributions the
Capital Shift is deemed to have been made, pro rata, based on the ratio of the
portion of the Capital Shift deemed derived from each Partner to the total
amount of the Capital Shift deemed derived from all Partners.
6.03. Allocation of Gains and Losses from Capital
-------------------------------------------
Transactions. Taxable income (including gain) or loss of the Partnership
- ------------
resulting from a Capital Transaction shall be allocated to the Partners (after
allocating to the Partners the appropriate portion of all Net Income or Net Loss
of the Partnership for the then current Fiscal Year in accordance with Section
-------
6.02 and after reducing their respective Capital Accounts for all Cash Flow and
- ----
Net Proceeds from Interim Capital Transactions previously distributed during or
with respect to such Fiscal Year under Sections 6.05 and 6.06(a)) as follows:
--------------------------
6.03 (a) Subject to Section 6.07, any Book Tax Gain of the
------------
Partnership resulting from a Capital Transaction shall be allocated to the
Partners pro rata, in accordance with the Partners' respective Percentage
Interests.
6.03 (b) Subject to Section 6.07, any Book Tax Loss of the
------------
Partnership resulting from a Capital Transaction shall be allocated to the
Partners as follows and in the following order of priority:
(i) First: To the Partners, if any, with positive
-----
Capital Account balances, prorata in proportion to their respective Capital
Account balances, until such balances have been reduced to zero (0); and
(ii) Second: The balance of such Book Tax Loss, if any,
------
allocated to the Partners, pro rata, in accordance with the Partners'
respective Percentage Interests.
-25-
<PAGE>
6.04. Allocation of Income and Loss With Respect to Partnership
---------------------------------------------------------
Interests Adjusted or Transferred. If any Partnership Interest is reduced or
- ---------------------------------
increased pursuant to Section 5.03(b) or is transferred during any Fiscal Year,
---------------
the Net Income or Net Loss attributable to such Partnership Interest for such
Fiscal Year shall be adjusted accordingly. With respect to a transfer of a
Partnership Interest, the Net Income or Net Loss shall be divided and allocated
proportionately between the transferor and the transferee based upon the number
of days during such Fiscal Year for which each party was the owner of the
interest transferred. Notwithstanding any provision herein to the contrary, any
Book Tax Gain or Book Tax Loss of the Partnership realized in connection with a
Capital Transaction shall be allocated only to Persons who are holders of
Partnership Interests as of the date such Capital Transaction occurs.
6.05. Distribution of Cash Flow.
-------------------------
6.05 (a) Cash Flow of the Partnership shall be determined by
the Partners Committee in accordance with Section 6.01(a) for each Fiscal Year.
---------------
Cash Flow as so determined shall be distributed to the Partners, pro rata, in
accordance with their respective Percentage Interests as of the date of any such
distribution. Distributions of Cash Flow made within the first seventy-five (75)
days of a subsequent Fiscal Year and designated by the Partners Committee as
made with respect to the immediately prior Fiscal Year shall be considered made
on the last day of such prior Fiscal Year for purposes of this section 6.05(a)
---------------
and Sections 6.02 and 6.03.
- --------------------------
6.05 (b) Cash Flow, if any, shall be distributed at least
annually within seventy-five (75) days after the end of each Fiscal Year,
commencing with the Fiscal Year ending December 31, 1990. Cash Flow also may be
distributed at such other time or times during any Fiscal Year as the Partners
Committee shall decide in anticipation of the year-end determination thereof,
and such distributions shall be subject to year-end adjustment based on the
amount of Cash Flow determined to be available for distribution with respect to
such Fiscal Year. The Partners agree that, within thirty (30) days after
determination by the Partnership that an overpayment was made to any Partner for
any Fiscal Year pursuant to this Section 6.05, such Partner shall repay, allow
------------
as a credit against future distributions, or make such other adjustments as the
Partners Committee determines to be appropriate to remedy such overpayment.
Likewise, appropriate adjustment shall be made to remedy any underpayment.
6.06. Distribution of Proceeds from Capital Transactions; Liquidation
---------------------------------------------------------------
Distributions.
- -------------
6.06 (a) The Net Proceeds of an Interim Capital Transaction
shall be distributed to the Partners as follows and in the following order of
priority:
(i) First: To the Partners with positive Capital Account
-----
balances, pro rata in proportion to their respective positive Capital
Account balances, until such balances have been reduced to zero (0); and
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<PAGE>
(ii) Second: The balance, if any, pro rata in proportion
------
to the Partners' Percentage Interests.
6.06 (b) The Net Proceeds of a Terminating Capital Transaction
and any other remaining assets of the Partnership to be distributed to the
Partners in connection with dissolution and liquidation of the Partnership
pursuant to
Article XI, after the payment of, or provision for, all debts and liabilities of
- ----------
the Partnership to all creditors of the Partnership (including, without
limitation, all amounts owning to a Partner under this Agreement (other than
this Article VI) or under any agreement between the Partnership and a Partner
----------
entered into by the Partner other than in its capacity as a Partner in the
Partnership, the payment of expenses of liquidation of the Partnership, and the
establishment of a reasonable reserve (including, without limitation, an amount
estimated by the Partners Committee to be sufficient to pay any amount
reasonably anticipated to be required pursuant to Section 7.12), shall be
------------
distributed to the Partners as follows and in the following order of priority:
(i) First: To the Partners, if any, with positive
-----
Capital Account balances, pro rata in proportion to their respective
positive Capital Account balances, until such balances have been reduced to
zero (0); and
(ii) Second: The balance, if any, pro rata in proportion
------
to the Partners' Percentage Interests.
Distributions pursuant to this Section 6.06(b) shall be made by the end of the
---------------
Fiscal Year in which such Terminating Capital Transaction occurs or, if later,
within ninety (90) days of such Terminating Capital Transaction.
6.06 (c) Notwithstanding any provision in this Section 6.06 to
------------
the contrary, in the event that the Net Proceeds of the Terminating Capital
Transaction are to be paid to the Partnership in more than one installment, each
such installment (including any interest thereon) shall be distributed among the
Partners in accordance with their respective "Installment Percentages". The
"Installment Percentage" of each Partner shall be (i) the aggregate amount of
cash that would have been distributed to that Partner under this Section 6.06
------------
had the Net Proceeds of the Terminating Capital Transaction been paid in one
lump sum divided by (ii) the total Net Proceeds that would have been distributed
to all of the Partners under that Section under such circumstances.
6.07. Special Allocation Rules. The following allocation rules shall
------------------------
apply notwithstanding the provisions of Sections 6.02 and 6.03, and the
------------- ----
provisions of Sections 6.02 and 6.03 shall be applied only after giving effect
------------- ----
to the following rules. In the event there is a conflict between any of the
following rules, the earlier listed rule shall govern.
6.07 (a) If in any Fiscal Year there is a net increase during
such Fiscal Year in the amount of Minimum Gain attributable to Partner
Nonrecourse Debts, the Partner(s) that
-27-
<PAGE>
bear the economic risk of loss with respect thereto (within the meaning of
Regulations section 1.704-1T(b)(4)(iv)(k)(1)) shall be specially allocated items
- -
of Partnership loss or deduction in an amount equal to the excess of (i) the
amount of such net increase, over (ii) the aggregate amount of any distributions
during such Fiscal Year to such Partner(s) of the proceeds of such debt that are
allocable to such increase in Minimum Gain. Items to be so allocated shall be
determined in accordance with Regulations section 1.704-1T(b)(4)(iv)(h).
-
6.07 (b) If in any Fiscal Year there is a net decrease in the
Partnership's Minimum Gain attributable to Nonrecourse Liabilities during such
Fiscal Year, each Partner shall be specially allocated items of Partnership
income and gain for such Fiscal Year (and, if necessary, for subsequent Fiscal
Years) in proportion to, and to the extent of, an amount equal to the greater of
the following:
(i) the portion of such Partner's share of the net
decrease in such Minimum Gain during such Fiscal Year (as such
share is determined pursuant to Regulations section 1.704-1T (b)
(4) (iv) (f)) that is allocable to the disposition of Partnership
-
property subject to one or more Nonrecourse Liabilities (as such
allocable portion is determined pursuant to Regulations section
1.704-1T (b) (4) (iv) (e) (2)); or
- -
(ii) such Partner's Excess Negative Balance at the end of
such Fiscal Year (determined before any allocation for such
Fiscal Year of any items of income, gain, loss, or deduction
described in section 705 (a) (2) (B) of the Code).
It is the intent of the Partners that items to be so allocated shall be
determined and the allocations made in accordance with Regulations section
1.704-1T (b) (4) (iv) (e).
-
6.07 (c) If in any Fiscal Year there is a net decrease in the
Partnership's Minimum Gain attributable to Partner Nonrecourse Debts during such
Fiscal Year, the Partner(s) that bear the economic risk of loss with respect to
such Partner Nonrecourse Debts (within the meaning of Regulations section 1.704-
1T (b) (4) (iv) (k) (l)) shall be specially allocated items of Partnership
- -
income and gain for such Fiscal Year (and, if necessary, for subsequent Fiscal
Years) in an amount equal to the greater of the following:
(i) the net decrease in such Minimum Gain during such
Fiscal Year that is allocable to the disposition of Partnership
property subject to one or more Partner Nonrecourse Debts (as
such allocable portion is determined pursuant to Regulations
section 1.704-1T (b) (4) (iv) (h) (6)); or
- -
(ii) such Partner's (Partners') Excess Negative Balance at
the end of such Fiscal Year (determined before any allocation for
such Fiscal Year of any items of income, gain, loss, or deduction
described in section 705 (a) (2) (B) of the Code).
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<PAGE>
It is the intent of the Partners that items to be so allocated shall be
determined and the allocation made in accordance with Regulations section 1.704-
1T (b) (4) (iv) (h) (6).
- -
6.07 (d) For purposes of allocating Partnership Nonrecourse
Liabilities among the Partners pursuant to Regulations section 1.752-1T (a) (2)
(i), the respective interests of the Partners in Partnership profits shall be
equal to their respective Percentage Interests.
6.07 (e) A Partner shall not be allocated any item of
deduction or loss (including Net Loss) to the extent such allocation would give
rise to or increase Excess Negative Balance in such Partner's Capital Account.
6.07 (f) In the event a partner receives with respect to a
Fiscal Year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations section 1.704-1 (b) (2) (ii) (d)
-
that causes of increases an Excess Negative Balance in such Partner's Capital
Account, such Partner shall be specially allocated for such Fiscal Year (and if
necessary, in subsequent Fiscal Years) items of income and gain in an amount and
manner sufficient to eliminate such Excess Negative Balance as promptly as
possible as provided in Regulations section 1.704-1 (b) (2) (ii) (d).
-
6.07 (g) Notwithstanding the provisions of Sections 6.02 and
-------------
6.03, in the event that any fees, interest, or other amounts paid to a Partner,
- ----
or an Affiliate of a Partner, pursuant to this Agreement, or any agreement
between the Partnership and the Partner or Affiliate providing for the payment
of such amounts, and deducted by the Partnership whether in reliance on sections
162, 163, 707(a), and/or 707(c) of the Code or otherwise, are disallowed as
deductions to the Partnership on its federal income tax return for the Fiscal
Year in or with respect to which such amounts are claimed, and are treated
instead as Partnership distributions, then:
(i) the Net Income or Net Loss, as the case may be, for
the Fiscal Year in or with respect to which such deduction was claimed
shall be increased or decreased, as the case may be, by the amount of such
deduction that is disallowed and treated as a Partnership distribution; and
(ii) there shall be allocated to the Partner who received
(or whose Affiliate received) such payments, prior to the allocations
pursuant to Section 6.02, an amount of gross income of the Partnership for
------------
the Fiscal Year in or with respect to which such claimed deduction was
disallowed, equal to the amount of such deduction that was so disallowed
and treated as a Partnership distribution.
6.07 (h) Except as otherwise specifically provided in this
Agreement and as provided in the next sentence below, the distributive share of
a Partner of each specific deduction and item of income, gain, loss, and credit
of the Partnership for federal income tax purposes for any Fiscal Year shall be
the same as such Partner's proportionate share (determined as set forth
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<PAGE>
in Sections 6.02 and 6.03) of Net Income, Net Loss, Book Tax Gain, or Book Tax
------------- ----
Loss, as the case may be, for such Fiscal Year. Notwithstanding the foregoing,
any income recognized pursuant to sections 1245 and 12850 of the Code and
allocated to the Partners pursuant to Sections 6.02 and 6.03 shall be allocated,
------------- ----
to the extent possible, to the Partners to whom (or to whose predecessors in
interest) the prior depreciation deductions giving rise to such income or
recapture were allocated.
6.08. Contributed Property; Revaluations Pursuant to Section 704(b)
-------------------------------------------------------------
Regulations. In the event that any property contributed to the Partnership or
- -----------
revalued pursuant to the provisions of Regulations section 1.704-1 (b) (2) (iv)
(f) has a Carrying Value that differs from the Adjusted Basis of such property
-
at the time of its contribution or revaluation, any income, depreciation, gain,
or loss with respect to such property shall, solely for tax purposes, be
allocated among the Partners in a manner that takes such difference into account
and is consistent with Code section 704 (c), the Regulations thereunder, and
Regulations section 1.704-1 (b) (2) (iv) (f) (4), 1.704-1 (b) (2) (iv) (g), and
- - -
1.704-1 (b) (4) (i). The allocations made pursuant to this Section 6.08 shall
------------
be made solely for tax purposes and shall not affect or in any way be taken into
account in computing any Partner's Capital Account or share of Net Income, Net
Loss, Book Tax Gain, Book Tax Loss, or other allocations or distributions under
this Agreement.
6.09. Withholding Taxes and Reporting Obligations.
-------------------------------------------
6.09 (a) The Partnership is authorized and directed to
withhold from or pay on behalf of any Partner the amount of federal, state,
local, or foreign taxes that the Partners Committee reasonably determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Partner pursuant to this Agreement,
including, without limitation, any taxes required to be paid by the Partnership
pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any amount so
withheld or paid on behalf of a Partner shall constitute an advance by the
Partnership to such Partner that shall be secured by the Partner's Partnership
Interest. An advance to a Partner pursuant to this Section 6.09(a) shall be
---------------
repaid to the Partnership, in whole or in part, as determined by the Partners
Committee in its sole discretion, either (iii) out of any distributions from the
Partnership which the Partner may be or become entitled to receive, or (iv) by
the Partner in cash upon demand by the Partnership.
6.09 (b) The Partners agree to cooperate fully with all
efforts of the Partnership to comply with its tax withholding and information
reporting obligations and to provide the Partnership with such information as
the Partners Committee may reasonably request from time to time in connection
with such obligations. Without limiting the foregoing, each Partner shall
complete the Certification of Non-foreign Status attached hereto as Exhibit G
---------
(or shall provide such other information as the Partners Committee may require)
at the time that it executes this Agreement, and each permitted transferee of a
Partnership Interest pursuant to Article X, whether or not such transferee is
---------
admitted to the Partnership as a Partner, shall complete such Certification at
the time of its acquisition of an interest in the Partnership. Any Partner or
permitted transferee of a Partnership Interest that fails to comply with this
Section
- -------
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<PAGE>
6.09(b) shall be liable to the Partnership for the amount of any taxers,
- -------
penalties, and interest for which the Partnership becomes liable as a result of
any such failure.
ARTICLE VII
MANAGEMENT
----------
7.01. Management and Control of Partnership Business. The business and
----------------------------------------------
affairs of the Partnership shall be managed and controlled by the Partners
Committee, which Partners Committee shall have full, exclusive, and complete
discretion to make all decisions affecting the business and affairs of the
Partnership and to take all such actions as the Partners Committee deems
necessary or appropriate to accomplish the purposes of the Partnership as set
forth herein. Except as otherwise expressly provided by the Partners Committee,
no Partner shall have any authority, right, or power to bind the Partnership, or
to manage or control, or to participate in the management or control of, the
business and affairs of Partnership in any manner whatsoever.
7.02. Powers of Partners Committee. Subject to the limitations of
----------------------------
Section 7.05, the Partners Committee (acting as provided herein) shall have the
- ------------
right, power, and authority, in the management of the business and affairs of
the Partnership, to do or cause to be done any and all acts, at the expense of
the Partnership, deemed by the Partners Committee to be necessary or appropriate
to effectuate the purposes of the Partnership. All decisions made and actions
taken on behalf of the Partnership by the Partners Committee in accordance with
this Agreement shall be binding upon the Partnership. The power and authority
of the Partners Committee pursuant to this Agreement shall be liberally
construed to encompass all acts and activities consistent with the purposes of
the Partnership in which a partnership may engage under the Delaware RULPA. The
power and authority of the Partners Committee shall include, without limitation,
the power and authority on behalf of the Partnership:
7.02 (a) to do any acts or things that the Partnership has
power to do pursuant to Section 3.02;
------------
7.02 (b) to purchase and maintain, at the expense of the
Partnership, liability, indemnity, and any other insurance, sufficient to
protect the Partnership, the Partners, the Representatives, their officers,
directors, employees, agents, and Affiliates, or any other Person, from those
liabilities and hazards which may be insured against in the conduct of the
business and the management of the business and affairs of the Partnership;
7.02 (c) to negotiate, make, execute, assign, acknowledge, and
file on behalf of the Partnership any and all documents or instruments of any
kind which the Partners Committee may deem necessary or appropriate in carrying
out the purposes of the Partnership, including, without limitation, powers of
attorney, agreements of indemnification, sales contracts, service contracts,
distribution agreements, leases, deeds, options, loan obligations, mortgages,
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<PAGE>
deeds of trust, notes, documents, or instruments of any kind or character, and
amendments thereto;
7.02 (d) to appoint one or more committees to perform any
functions or conduct any activities that the Partners Committee has the right,
power, and authority to perform or conduct, other than any function or activity
that requires a Super-majority Vote or unanimous vote of the Partners Committee;
and
7.02 (e) to possess and exercise any additional rights and
powers of a general partner under the partnership laws of Delaware (including,
without limitation, the Delaware RULPA) and any other applicable laws, to the
extent consistent with the purpose of the Partnership.
7.03. Appointment of Representatives.
------------------------------
7.03 (a) The Partners Committee shall initially consist of one
(1) Representative appointed by each original General Partner by written notice
to the Partnership as provided in Section 13.02. Each original General Partner
-------------
shall be entitled to designate one or more alternates to its Representative and
to cancel by written notice to the Partnership its designation of a
Representative or alternate for any reason and at any time. Subject to Section
-------
10.6, so long as such original General Partner shall continue as a Partner with
- ----
a Percentage Interest (as a General Partner and a Limited Partner) of at least
five percent (5%), such original General Partner shall be entitled to continue
to have one Representative for such Partner on the Partners Committee and, if
any such original General Partner shall transfer all or any portion of its
Partnership Interest to an Affiliate of such original General Partner (which
Affiliate is not an original Partner), then so long as such original General
Partner and such Affiliate shall have a combined Percentage Interest (as General
and Limited Partners) of at least five percent (5%), such original General
Partner and such Affiliate shall collectively be entitled to continue to have
one Representative on the Partners Committee. The number of Representatives
shall be decreased permanently to the extent that any original General Partner
(together with any such Affiliate, if applicable) is no longer eligible to have
a Representative as aforesaid; provided, however, that if there are one or more
-------- -------
General Partners (including any new Partners and any original General Partners
no longer entitled to have a Representative) which are not otherwise entitled to
have a Representative but which collectively hold Percentage Interests whether
held as General Partners or Limited Partners) aggregating at least five percent
(5%), then subject to Section 10.06, such Partners collectively shall be
-------------
entitled to elect ne Representative to represent all of them, such
Representative to be elected by a majority vote of such Partners and provided
--------
further, that subject to Section 10.06, each original General Partner together
- ------- -------------
Representative so long as such Partner and all such transferee Affiliates make
all Initial Capital Contributions and Additional Capital Contributions required
of them (both as General Partners and Limited Partners) under this Agreement.
Notwithstanding the foregoing provisions of this Section 7.03(a), but subject to
------------
Section 10.06, so long as G.E. Americom Services, Inc. Is a Partner and GE
- -------------
Americom is holding a receivable
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<PAGE>
from the Partnership pursuant to the User Agreement, G.E. Americom Services,
Inc. shall continue to have a Representative on the Partners Committee. In the
event that a Partner and its transferee Affiliates (if any) entitled to appoint
a Representative (other than solely as a result of the immediately preceding
sentence) sell their entire Partnership Interest pursuant to Section 10.03 to a
-------------
single purchaser, then such purchaser shall become entitled to appoint a
Representative with respect to the acquired Partnership Interest, subject to the
terms of this Agreement. Each Representative appointed pursuant to this Section
-------
7.03(a) shall serve as the Partners appointed Representative until the Partner
- -------
has duly appointed a successor Representative.
7.03 (b) Notwithstanding Section 7.03(a), in the event that a
---------------
General Partner become a Non-paying Partner with respect to any portion of its
Initial Capital Contribution, such General Partner shall no longer be entitled
to appoint a Representative, its Representative shall be considered to have
resigned and the total number of Representatives shall be permanently reduced by
one as a result.
7.04. Actions of Partners Committee Requiring Majority Vote. Except as
-----------------------------------------------------
otherwise specifically provided in this Agreement, all actions and decisions
required to be taken by the Partners Committee shall require a Majority Vote.
7.05. Actions of Partners Committee Requiring Majority Vote.
-----------------------------------------------------
Notwithstanding anything in this Agreement to the contrary (except any provision
that specifically requires a unanimous vote of the Partners Committee or the
affirmative vote or consent of a particular Partner or its Representative with
respect to any matter), the Partners Committee shall not, except by Super-
majority Vote, cause or permit the Partnership to:
(a) dissolve, liquidate or wind-up the affairs of the Partnership,
except as otherwise provided in Article XI;
----------
(b) merge or consolidate with any other partnership or other entity;
(c) sell, assign, lease or otherwise dispose of all or substantially
all of the Partnership Assets;
(d) take any other action which would prevent the carrying on of the
business of the Partnership;
(e) admit additional partners pursuant to Section 10.08 and determine
-------------
their Percentage Interests in accordance with Section 6.01(c);
---------------
(f) call for Capital Contributions;
(g) make loans to any other entity or guarantee the obligations of
any other entities;
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<PAGE>
(h) redeem or purchase any Partnership Interest;
(i) change the Fiscal Year of the Partnership;
(j) commence or terminate any significant litigation and determine
any of the matters set forth in Section 9.06(f);
---------------
(k) appoint or dismiss any of the Partnership's chief executive
officer, chief operating officer, or chief financial officer;
(l) subject to Section 3.03(a), determine the Partnership's policies
--------------
with respect to the distribution of its programming services,
including, without limitation, the amount of fees charged to
Distributors and the ability of, and terms on which, Distributors
may appoint subdistributors;
(m) adopt or amend any Annual Operating Budget pursuant to Section
-------
7.07;
----
(n) determine the categories of Programming Services to be offered by
the Partnership and the kind and number of Programming Services
in any such category, establish standards and procedures for the
selection of Programming Services, and select the Programming
Services to be offered by the Partnership;
(o) select the encryption system to be used by the Partnership and
make any fundamental change thereto;
(p) subject to Section 7.11(b), make satellite selection decisions,
---------------
including successor satellite capacity;
(q) decide whether the Partnership should provide services at
Broadcast Satellite Service or higher frequencies;
(r) cause the Partnership to borrow any amounts other than in
accordance with the Annual Operating Budget then in effect; or
(s) extend the term of the Partnership.
7.06. Meetings of Partners Committee. Regular Meetings of the Partners
------------------------------
Committee regarding any matters shall be held at least quarterly or more
frequently as the Partners Committee may decide and special meetings may be
called from time to time by Representatives of any two General Partners, which
request shall specify the purpose of such a meeting. Notification of a meeting
of the Partners Committee shall be sent to each of the Representatives at their
record addresses (as may be changed by written notice to the Partnership) and
shall specify the time, date, place and purpose of such meeting. Notification
of a meeting shall be sent
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<PAGE>
within ten (10) business days after the Partnership's receipt of a proper
request and such meeting shall be held not less than ten (10) no more than
thirty (30) business days after notice thereof is given, unless such notice is
waived in writing by all Representatives. Any Representative participating in a
meeting of the Partners Committee shall be deemed to waive notice of such
meeting. Any meeting of the Partners Committee may be held at the principal
office of the Partnership or at such other location as the Partners Committee
may deem appropriate. Representatives may participate in a meeting of the
Partners Committee by conference telephone or other communications equipment by
means of which all Representatives participating can hear each other. Any
action required or permitted to be taken at any meeting, if all of the
Representatives consent thereto in writing. The Partners Committee may adopt
such other procedural rules with respect to the meetings and other conduct of
the Partners Committee as it may deem desirable.
7.07. Annual Operating Budget. The Partners Committee shall prepare and
-----------------------
formulate or cause to be prepared and formulated an annual operating budget for
the Partnership's business (the "Annual Operating Budget"), setting forth
estimated revenues and expenses (including taxes and debt service), capital
expenditures, reserves, contingencies, sources and applications of funds, loans
contemplated, if any, and a comprehensive operating plan that shall include a
discussion of significant business issues, either present or prospective, which
would, in the judgement of the Partners Committee, be material in any evaluation
of the financial or business prospects of the Partnership, and subject to
Section 10.06, such other information reasonably requested by any Partner. In
- -------------
the event that the Partners Committee has not approved an Annual Operating
Budget prior to the commencement of a Fiscal Year, until an Annual Operating
Budget is approved, the Partnership shall be operated in accordance with the
Annual Operating Budget most recently theretofore approved by the Partners
Committee, except that the provision therein for operating expenses shall be
adjusted to reflect any increases or decreases in the Consumer Price Index,
payments under contracts previously approved by the Partners Committee, and any
expenses of previously approved litigation. The Partners Committee shall direct
the officers and employees of the Partnership to implement the Annual Operating
Budget and such officers and employees shall be authorized only to make
expenditures and incur obligations as provided in the Annual Operating Budget.
7.08. Delegation of Authority. Subject to Sections 7.11(a) and
----------------------- ----------------
7.02(d), the Partners Committee may delegate any or all of its powers, rights,
- -------
and obligations hereunder, and may appoint, employ, contract with, or otherwise
delay with any Person (including an Affiliate of any Partner) for the
transaction of the business of the Partnership, which Person(s) may, under the
supervision of the Partners Committee, perform any acts or services for the
Partnership as the Partners Committee shall approve, including the
implementation of the approved Annual Operating Budget.
7.09. Reserves. The Partners Committee shall have the right to set up a
--------
Working Capital Reserve and other reserves determined to be necessary and
advisable by the Partners Committee and to set aside therein such Partnership
funds as the Partners Committee determines
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<PAGE>
to be reasonable in connection with the operation of the business of the
Partnership, including, without limitation, funds for the acquisition,
improvement, development, and replacement of property, for the repayment of
loans and other indebtedness, for security deposit and other necessary escrows
and deposits, and for meeting other reasonably anticipated expenses, liabilities
or contingencies. Any funds set aside for a reserve may be invested by the
Partners Committee with a view to the appropriate degree of safety of and return
on such invested funds, and such funds shall not be available for current
distribution under Section 6.05 or 6.06; provided, however, that some or all of
------------ ---- -------- -------
such funds may subsequently be made available for distribution pursuant to
Section 6.05 or 6.06 should the Partners Committee so determine.
- ------------ ----
7.10. Other Activities of Partners. Except as provided in Sections
---------------------------- --------
7.14 and 10.06, no Partner or Affiliate thereof shall incur any liability to the
- ---- -----
Partnership as a result of the pursuit by the Partner's Affiliate of any other
business interest, venture, or competitive activity, and neither the Partnership
nor the other Partners shall have any right to participate in such other
business interest, venture or activity or to receive or share in any income or
profits derived therefrom and any Affiliate of a Partner may have other business
interests or may engage in any other business ventures and activities of any
nature or description whatsoever, whether presently existing or hereafter
created, and may compete, directly or indirectly, with the business of the
Partnership.
7.11. Transactions with Partners or Affiliates.
----------------------------------------
7.11 (a) The Partnership is expressly permitted in the normal
course of its business to enter into transactions with the Partners or with any
Affiliate of the Partners provided that the Partners Committee (with the
Representative of any interested Partner absent from the deliberation of any
such transaction and abstaining from voting thereon) has determined that the
price and other terms of such transactions are fair to the Partnership and that
the price and other terms of such transaction are not less favorable to the
Partnership than those generally prevailing with respect to comparable
transactions involving non-Affiliates of Partners. The Partnership is hereby
expressly authorized to enter into and as of the date hereof has executed the
User Agreement with GE Americom and the TEMPO Option with TEMPO Satellite, Inc.
7.11 (b) So long as G.E. Americom Services, Inc. is a direct
or indirect wholly-owned subsidiary of GE Americom and is a Partner and is not a
Sanctioned Partner, if during the term of this Agreement (i) GE Americom offers
to provide satellite services that the Partnership proposes to acquire in order
to provide Fixed Satellite Service, or (ii) so long as GE Americom is a direct
or indirect wholly-owned subsidiary of General Electric Company, General
Electric Company (or any of its direct or indirect wholly-owned subsidiaries
designated by it) offers to construct any satellite or satellites that the
Partnership proposes to use to provide programming at Broadcast Satellite
Service or higher frequency, including, without limitation, any satellite to be
constructed in connection with the TEMPO Option (GE Americom or General Electric
Company (or such designated wholly-owned subsidiary), as applicable, being
hereinafter referred to as the "GE Offeror"), and the terms and conditions of
the GE Offeror's offer (the "First Offer") are, in the reasonable opinion of the
Partners Committee, at least comparable to
-36-
<PAGE>
those of the best competing offer, the Partnership shall, or shall cause the
Person arranging for construction of such satellite to, as the case may be,
accept the First Offer in preference to all other offers. If the terms and
conditions of the First Offer are not, in the reasonable opinion of the Partners
Committee, at least comparable to those of the best competing offer, the
Partners Committee shall so notify the GE Offeror in writing, specifying the
area(s) in which such offer of the GE Offeror are not as favorable as the best
competing offer (but without disclosing the actual terms of such competing
offer), and shall provide the GE Offeror with the opportunity to submit a second
offer (the "Second Offer") within thirty (30) days of the receipt of such
notice. If the terms and conditions of the Second Offer are, in the reasonable
opinion of the Partners Committee, at least comparable to those of the best
competing offer, the Partnership shall, or shall cause the Person arranging for
construction of such satellite to, as the case may be, accept the Second Offer;
otherwise, the Partners Committee shall so notify the GE Offeror in writing,
specifying the area(s) in which such offer of the GE Offeror are not as
favorable as the best competing offer (but without disclosing the actual terms
of such competing offer), and shall provide the GE Offeror with the opportunity
to submit a third offer (the "Third Offer") within thirty (30) days of the
receipt of such notice. If the terms and conditions of the Third Offer are, in
the reasonable opinion of the Partners Committee, at least comparable to the
best competing offer, the Partnership shall, or shall cause the Person arranging
for construction of such satellite to, as the case may be, accept the Third
Offeror. In the event that the terms and conditions of the Third Offer are not,
in the reasonable opinion of the Partners Committee, at least comparable to the
best competing offer, the Partnership shall provide the GE Offeror with written
notice of such determination, including a statement of the specific basis for
such determination, and thereafter shall have no further obligation to the GE
Offeror pursuant to this Section 7.11(b); provided, that nothing in this Section
--------------- -------- -------
7.11(b) shall or shall be deemed to alter or affect the obligations of the
- -------
Partnership under the User Agreement.
7.12. Indemnification of Representatives and Employees.
------------------------------------------------
7.12 (a) The Partnership shall indemnify and hold harmless
each Representative and the employees and agents of the Partnership
(individually, in each case, an "Indemnitee") to the fullest extent permitted by
law from and against any and all losses, claims, demands, costs, damages,
liabilities (joint or several), expenses of any nature (including reasonable
attorneys' fees and disbursements), judgments, fines, settlements, and other
amounts arising from any and all claims, demands, actions, suits, or proceedings
(unless asserted by the Partnership against the Indemnitee), whether civil,
criminal, administrative or investigative, in which the Indemnitee may be
involved, or threatened to be involved, as a party or otherwise, arising out of
or incidental to the business or activities of or relating to the Partnership,
regardless of whether the Indemnitee continues to be a Representative, or an
employee or agent of the Partnership at the time any such liability or expense
is paid or incurred, if the Indemnitee's conduct did not constitute fraud, gross
negligence, or willful misconduct and was within the scope of his authority. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendre or its equivalent, shall not, in
and of
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<PAGE>
itself, create a presumption or otherwise constitute evidence that the
Indemnitee's conduct did constitute fraud, gross negligence or willful
misconduct.
7.12 (b) Expenses incurred by an Indemnitee in defending any
claim, demand, action, suit, or proceeding subject to this Section 7.12 shall,
------------
from time to time, upon request by the Indemnitee, be advanced by the
Partnership prior to the final disposition of such claim, demand, action, suit,
or proceeding upon receipt by the Partnership of an undertaking by or on behalf
of the Indemnitee to repay such amount, together with interest on any such
advance or advances at the rate equal to two (2) percentage points about the
"Federal Short-Term Rate" as defined in Code section 1274(d)(1)(C)(i) or the
maximum rate permitted under applicable law, whichever is less, calculated upon
the outstanding principal balance of such advance or advances, promptly upon
(and in no event more than ten (10) days after) a determination in a judicial
proceeding or a binding arbitration that such Indemnitee is not entitled to be
indemnified as authorized in this Section 7.12.
------------
7.12 (c) The indemnification provided by this Section 7.12
------------
shall be in addition to any other rights to which an Indemnitee may be entitled
under any agreement, vote of the Partners Committee, as a matter of law or
equity, or otherwise, both as to an action to the Indemnitee's capacity as a
Representative, employee, or agent of the Partnership, and as to an action in
another capacity, and shall continue as to an Indemnitee who has ceased to serve
in such capacity with respect to those periods during which such Indemnitee
served, and shall inure to the benefit of the heirs, successors, assigns, and
administrators of the Indemnitee.
7.12 (d) An Indemnitee shall not be denied indemnification in
whole or in part under this Section 7.12 or otherwise by reason of the fact that
------------
the Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction either (i) was otherwise permitted by
the terms of this Agreement or (ii) was not expressly prohibited by the terms of
this Agreement and was fully disclosed to the Partners Committee.
7.12 (e) The provision of this Section 7.12 are for the
------------
benefit of the Indemnities and shall not be deemed to create any rights for the
benefit of any other Persons.
7.13. Liability Insurance. The Partnership may purchase and maintain
-------------------
insurance on behalf of the Partners, the Representatives and such other Persons
as the Partners Committee shall determine against any liability that may be
asserted against or expense that may be incurred by such Persons in connection
with the offering of interests in the Partnership or the business or activities
of the Partnership, regardless of whether the Partnership would have the power
to indemnify such Persons against such liability under the provisions of this
Agreement.
7.14. Programming.
-----------
7.14 (a) The Partners Committee will evaluate from time to
time the package of Programming Services provided by the Partnership to
subscribers in order to
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determine, in light of consumer preference, programming availability,
programming and transmission costs and other appropriate factors, whether to
expand the categories of Programming Services included in such package to add by
way of example, one or more basic cable networks and/or pay cable networks. If
such expansion is determined to be advisable, the Partners Committee will from
time to time determine the category or categories of Programming Services to be
added, the kind and number of Programming Services in any such category to be
provided (except that at such time as the category of pay cable is first
determined to be added to the programming package, at least two Programming
Services in such category will be offered to subscribers), and the standards and
procedures for selection of a particular Programming Services. In selecting a
Programming Service to be offered within a category of Programming Services, the
Partners Committee will consider all Programming Services that satisfy the
specified standards established by the Partners Committee, regardless of whether
the provider thereof has any affiliation with the Partnership or any Partner.
7.14 (b) [NEW 7.14(B) TO COME]
ARTICLE VIII
COMPENSATION OF REPRESENTATIVES;
PAYMENT OF PARTNERSHIP EXPENSES
-------------------------------
8.01. Compensation of Representatives. Except as expressly provided in
-------------------------------
Section 8.02 or pursuant to arrangements contemplated by Section 7.12, the
- ------------ ------------
Representatives shall not receive any compensation from the Partnership for
services rendered in their capacity as Representatives on the Partners
Committee.
8.02. Partnership Expenses. The Partnership shall bear all costs and
--------------------
expenses incurred in connection with the management and operation of the
business and affairs of the Partnership or in carrying out the purposes of the
Partnership (exclusive of the costs and expenses of each Representative incurred
in connection therewith, which costs and expenses (other than as provided in
Section 7.12) shall be borne by the Partner which appointed such
- ------------
Representative). In the event that the Representatives, the Partners, or any
one of them, at any time or from time to time advances their own funds to pay
any such costs or expenses, they shall be entitled to reimbursement of such
funds from the Partnership promptly upon demand so long as such costs or
expenses are approved by the Partners Committee as part of the approval of the
Annual Operating Budget or are otherwise specifically approved by the Partners
Committee.
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ARTICLE IX
BANK ACCOUNTS; BOOKS AND RECORDS;
STATEMENTS; TAXES; FISCAL YEAR
------------------------------
9.01. Bank Accounts and Investments. All funds of the Partnership
-----------------------------
shall be deposited in its name in such checking and savings accounts, time
deposits or certificates of deposit, or other accounts at such banks or in such
other investments permitted by Section 3.02(h), as shall be designated by the
---------------
Partners Committee from time to time, and the Partners Committee shall arrange
for the appropriate management of such account or accounts.
9.02. Books and Records. The Partners Committee shall keep, or cause
-----------------
to be kept, accurate, full and complete books and accounts showing assets,
liabilities, income, operations, transactions and the financial condition of the
Partnership. Such books and accounts shall be prepared on the accrual basis for
accounting and U.S. federal income tax purposes and in accordance with generally
accepted accounting principles unless the Partners Committee adopts an
alternative basis in accordance with applicable accounting and federal income
tax standards. Except to the extent expressly limited by any other provision of
this Agreement, for any proper purpose, the Partners, or their respective
designees (including, without limitation, their respective Representatives),
shall have access to the books and records of the Partnership at any reasonable
time during regular business hours and shall have the right to copy said records
at their expense.
9.03. Financial Statements and Information.
------------------------------------
9.03 (a) All financial statements prepared pursuant to this
Section 9.03 shall be accurate and complete in all material respects, shall
- ------------
present fairly the financial position and operating results of the Partnership
in accordance with generally accepted accounting principles, and shall be
prepared on the accrual basis (or as otherwise determined pursuant to Section
-------
9.02) for each Fiscal Year of the Partnership during the term of this Agreement.
- ----
9.03 (b) Within forty-five (45) days after the end of each
quarterly period (the "Fiscal Quarter") of each Fiscal Year during the term of
this Agreement, commencing with the first full Fiscal Quarter after the date of
this Agreement, the Partners Committee shall prepare and submit or cause to be
prepared and submitted to the Partners (other than any Sanctioned Partner)
unaudited statements of profit and loss and cash flows for the Partnership for
such Fiscal Quarter, an unaudited balance sheet of the Partnership as of the end
of such Fiscal Quarter, and an unaudited statement of any Net Proceeds of a
Capital Transaction of the Partnership as of the end of such Fiscal Quarter, in
each case prepared in accordance with generally accepted accounting principles.
9.03 (c) Within ninety (90) days after the end of each Fiscal
Year during the term of this Agreement, the Partners Committee shall prepare and
submit or cause to be prepared and submitted to the Partners (other than, with
respect to clause (iii), any Sanctioned
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Partner) (i) an audited balance sheet, together with audited statements of
profit and loss, Partners' equity and cash flows for the Partnership during such
Fiscal Year, (ii) an audited statement showing any Cash Flow (and any Net
Proceeds of a Capital Transaction) of the Partnership and the distributions
thereof to the Partners in respect of such Fiscal Year, and (iii) until the
Partnership has completely satisfied any deferred portion of the fixed monthly
charges to be paid to GE Americom under the User Agreement, a projection of
Partnership's cash flow receipts and expenditures for the succeeding five year
period.
9.03 (d) The Partners Committee shall provide to the Partners,
other than any Sanctioned Partner, such other reports and information concerning
the business and affairs of the Partnership as may be required by the Delaware
RULPA or by any other law or regulation of any regulatory body applicable to the
Partnership.
9.04. Accounting Decisions. All decisions as to accounting matters,
--------------------
except as specifically provided to the contrary herein, shall be made by the
Partners Committee. Any accounting firm selected by the Partners Committee for
the Partnership shall be a nationally recognized independent certified public
accounting firm.
9.05. Where Maintained. The books, accounts and records of the
----------------
Partnership at all times shall be maintained at the Partnership's principal
office or at any other location designated by the Partners Committee.
9.06. Tax Returns and Tax Matters Partner.
-----------------------------------
9.06 (a) The Partners Committee shall designate a "tax matters
partner" (as defined in the Code) of the Partnership to represent the
Partnership (at the expense of the Partnership) in connection with all
examinations of the affairs of the Partnership by any federal, state, local, or
foreign tax authorities, including any resulting administrative and judicial
proceedings, and to expend funds of the Partnership for professional services
and costs associated therewith. The tax matters partner shall not be liable to
the Partnership or any other Partner for any act or omission taken or suffered
by it in such capacity in good faith in the belief that such act or omission is
in or is not opposed to the best interests of the Partnership, provided that
--------
such act or omission is not in violation of this Agreement and does not
constitute gross negligence, fraud or a willful violation of law. The first
return filed with respect to the Partnership shall include a statement that all
Partners other than the tax matters partner are "notice partners" as defined in
Code section 6231(a)(8).
9.06 (b) The Partners Committee shall cause income and other
required federal, state, local, and foreign returns for the Partnership to be
prepared and to be timely filed with the appropriate authorities, making such
elections as the Partners Committee shall deem to be in the best interests of
the Partnership and the Partners.
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9.06 (c) The Partners Committee shall submit federal, state,
and foreign Partnership Returns of Income as contemplated in Section 9.06(b) to
---------------
each Partner for review and comment by the earlier of (i) June 15 or (ii) one
month prior to its final due date (including extensions) but in no event is such
return required to be delivered to the Partners prior to the fifteenth day of
the third month following the close of the Partnership's tax year. All other
returns shall be submitted to each Partner for review and comment a reasonable
period of time prior to filing.
9.06 (d) The Partners Committee shall provide to each Partner
information concerning the Partnership's taxable income or loss and each class
of income, gain, loss, deduction or credit which is relevant to reporting a
Partner's share of Partnership income, gain, loss, deduction or credit for
purposes of federal or state income tax. Information required for the
preparation of a Partner's income tax returns shall be furnished to the Partners
no later than the final due date, including extensions, for the filing of the
Partnership's income tax return for such fiscal year.
9.06 (e) Upon receipt by the tax matters partner of any notice
of examination or any other notice, request, inquiry or statement of a material
nature from the IRS, the tax matters partner shall within 10 days send all other
Partners a copy of the documents so received. Subject to the provisions of
Section 9.06(f) below which shall control as to any matter specified therein, in
- ---------------
the event that such documents require a response, the tax matters partner shall
provide a copy of its proposed response to all other Partners in a timely
fashion so as to allow all other Partners not less than 10 days to comment upon
such proposed response. All Partners agree to cooperate in good faith so as to
cause such response to be agreeable to all partners.
9.06 (f) Without the consent of the Partners Committee (as
determined by a Super-majority Vote), the tax matters partner shall not act on
behalf of the Partnership to: (i) consent to an extension of the statute of
limitations applicable to the assessment and collection of taxes, (ii) commence
litigation in the Tax Court, or (iii) file a claim for refund (or request for
administrative adjustment by the IRS) or sue for a refund of federal income
taxes. If any Partner concludes it is in the best interests of the Partnership
to take any of the actions enumerated in the preceding sentence, it shall advise
the other Partners in writing of the action it would propose for the Partnership
to take. If any Partner disagrees with such proposed action, it shall so advise
the other Partners in writing in a timely fashion setting forth the reasons for
its disagreement. The Partners shall thereafter use their best efforts, acting
in good faith, to reach agreement with respect to such proposed action. If
agreement is reached, the tax matters partner shall effect such action, but if
agreement cannot be reached, no such action shall be taken by the Partnership.
In the event any action of the sort described in this paragraph with respect to
Partnership items, it shall so notify the other Partners at least 15 days prior
to taking such action.
9.06 (g) In the event of an examination of the Partnership
return by the IRS, no Partner waives its rights to participate in the IRS
administrative proceedings. All Partners
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agree to use their best efforts to coordinate their work and cooperate with each
other during the IRS administrative proceedings relating to the examination
including the appellate conference. In the event any Partner intends to enter
into a settlement with the IRS, the Partner intending to settle shall notify the
other Partners of the terms of such proposed settlement 15 days prior to
entering into a definitive agreement of settlement. Any such settlement by any
Partner shall be only as a Partner, and not as tax matters partner so as to bind
the Partnership or any other Partner to such settlement.
9.07. Federal Income Tax Elections. If there is a distribution of any
----------------------------
Partnership Assets or other property as described in section 734 of the Code, or
if there is a transfer of an interest in the Partnership as described in section
743 of the Code, then, upon the request of any Partner, the Partners Committee
will cause the Partnership to make a Section 754 Election if one is not in
effect.
9.08. Fiscal Year. The Fiscal Year of the Partnership for financial
-----------
and Federal, state and local income tax purposes shall initially be the calendar
year. The Partners Committee shall have authority to change the beginning and
ending dates of the Fiscal Year if they deem such change to be necessary or
appropriate to the business of the Partnership and in accordance with applicable
federal income tax law, and shall give written notice of any such change to the
Partners within thirty (30) days after the occurrence thereof.
ARTICLE X
TRANSFER OF INTERESTS
---------------------
10.01. Transfer.
--------
10.01 (a) The term "transfer", when used in this Article X with
---------
respect to a Partnership Interest (or all (but not less than all) of the equity
interests in a Partner only (as distinct from the transfer of an equity interest
in a Person other than a Partner)), shall include any sale, assignment, gift,
pledge, hypothecation, mortgage or other transfer, encumbrance, exchange, or
other disposition, whether voluntary or involuntary, by operation of law or
otherwise, and whether effected directly or indirectly, except that such term
shall not include any pledge, mortgage, or hypothecation of or granting of a
security interest in a Partnership Interest approved by the Partners Committee
in connection with any financing obtained on behalf of the Partnership.
10.01 (b) Neither Section 10.02 or 10.03 nor any other
------------- -----
provision of this Agreement shall be construed to prevent any transfer by a
Partner of all or any portion of such Partner's Partnership Interest to an
Affiliate that is organized for the sole purpose of holding such Partnership
Interest or portion thereof and that is more than fifty percent (50%) owned,
directly or indirectly, by the Parent of such Partner; provided that such
transfer complies with the
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<PAGE>
provisions of Section 10.02(b) and that such Affiliate executes and delivers a
----------------
counterpart of this Agreement agreeing to be bound thereby as an additional
party thereto.
10.01 (c) No Partnership Interest shall be transferred, in
whole or in part, directly or indirectly, except in accordance with the terms
and conditions set forth in Section 5.03, Section 7.14(d), or this Article X.
------------ --------------- ---------
Any transfer or purported transfer of any Partnership Interest not made in
accordance with Section 5.03, Section 7.14(d), or this Article X shall be null
------------ --------------- ---------
and void. No transfer of any Partnership Interest shall entitle the transferee
to have a representative on the Partners Committee, except to the extent
provided in Section 7.03.
------------
10.01 (d) For purposes of this Article X, a transfer of all
---------
(but not less than all) of the equity interests in a Partner only (as distinct
from the transfer of an equity interest in a Person other than a Partner) shall
be considered a Transfer of the Partner's Partnership Interest.
10.02. Requirements for Transfer. Except for a transfer pursuant to
-------------------------
Section 5.03, Section 10.01(b), or Section 10.09, a Partner may not transfer, or
- ------------ ---------------- -------------
otherwise permit any other Person (other than the Partnership) to hold, all or
any portion of its Partnership Interest as a Partner unless:
10.02 (a) such transfer occurs on or after the date which is
the third anniversary of the date hereof;
10.02 (b) such transfer (i) would not violate the then
applicable federal and state (and, if applicable, foreign) securities laws and
rules and regulations of the Securities and Exchange Commission, state
securities commissions and any other governmental authorities with jurisdiction
over such disposition, (ii) would not result in the Partnership being classified
for Federal income tax purposes as an "association taxable as a corporation"
rather than as a partnership, and (iii) would not either alone or taken together
with other prior transfers of Partnership Interests cause the Partnership to
terminate for the purposes of Section 708 of the Code;
10.02 (c) the transferee is admitted to the Partnership as a
Partner in accordance with Section 10.04; and
-------------
10.02 (d) the transferring Partner first offers the other
Partners the right to purchase such Partnership Interest on a pro rata basis in
accordance with their respective Percentage Interests pursuant to Section 10.03.
-------------
10.03. Partners' Rights of First Refusal.
---------------------------------
10.03 (a) If a Partner has received a bona fide written offer
from a prospective third party purchaser (including another Partner) to purchase
all or any portion of its Partnership Interest (a "Third Party Offer"), which
Third Party Offer must consist solely of cash
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<PAGE>
consideration, then, before accepting such Third Party Offer, such Partner (the
"Offeror") shall first offer to the other Partners other than any Non-paying
Partners, any Sanctioned Partner and G.E. Americom Services, Inc. (the
"Offerees"), on a pro rata basis in accordance with their respective Percentage
Interests, the Partnership Interest that the Offeror proposes to transfer to
such third party. Such Partnership Interest shall be offered to the Offerees at
an offering price which shall be the same as, and on the same terms and
conditions as, those contained in the Third Party Offer. The Offer shall be
made by a written notice to the Offerees which notice shall be accompanied by a
copy of the Third Party Offer and shall specifically identify the Person making
the Third Party Offer. If the Person making the Third Party Offer is neither a
Partner nor an entity that is subject to the periodic reporting requirements of
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the Offeror
shall also provide any information concerning the ownership of the Person making
the Third Party Offer as may be reasonably requested by any other Partner, to
the extent such information is available to the Offeror. Any Offeree shall have
thirty (30) days after the date of the notice to it (the "Offerees Election
Period") within which the elect to purchase all (but not less than all) of the
Partnership Interest offered to it for purchase. Such election shall be made by
a written notice of election given to the Offeror and the other Partners. Any
portion of a Partnership Interest not subscribed for by any particular Offeree
may be subscribed for by the other participating Offerees on a pro rata basis in
accordance with their respective Percentage Interests, or on such other basis as
they may agree, by written notice to the Offeror within ten (10) days after the
end of the Offerees Election Period. Subject to Section 10.04(b), the Partners
----------------
Committee may, to the extent that the offered Interest is not fully subscribed
for by such Offerees, require that the Offeror offer the remainder of such
Interest by written notice to any Distributor designated by the Partners
Committee. If all of the remaining offered Interest is not subscribed for by
one or more of such Distributors designated by the Partners Committee within
forty (40) days of the end of the Offerees Election Period, then G.E. Americom
Services, Inc., if it is not then a Non-paying Partner or a Sanctioned Partner,
shall be offered the option to purchase (at its election) all (but not less than
all) of the remaining offered Interest, in which case the Partners Committee
shall provide G.E. Americom Services, Inc. with written notice of its option to
purchase such remaining portion. G.E. Americom Services, Inc. shall exercise
such option within twenty (20) days of its receipt of such notice.
10.03 (b) Unless the participating Partners otherwise agree,
the closing of any purchase pursuant to Section 10.03(a) shall take place at the
----------------
principal office of the Partnership at 10:00 a.m. (local time) on the date that
is twenty (20) days after the earlier to occur of (i) the date on which notice
is given to all Partner that all of the Offered Partnership Interest has been
subscribed for, or (ii) the last day of the twenty (20) day period in which G.E.
Americom Services, Inc. may exercise its option, if any, to purchase the
unsubscribed portion of the offered interest pursuant to Section 10.03(a);
provided, that if the date so determined is not a Business day, then the closing
shall take place on the next Business Day thereafter. At the closing, the
Offeror shall deliver such deeds, bills of sale, assignments, and other
agreements and instruments, and shall take all such other reasonable actions, in
connection with any purchase and sale pursuant to Section 10.03(a) as the
----------------
purchasers, or any of them, shall request, including removing any lien or
encumbrance attached to its Partnership Interest so that good title to such
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Partnership Interest shall be conveyed to the purchasers free and clear of any
mortgage, pledge, lien, or encumbrance (other than any lien securing financing
obtained by the Partnership).
10.03 (c) If the other Partners (including G.E. Americom
Services, Inc.) and eligible Distributors shall fail to elect to purchase all
(and not less than all) of the Partnership Interest that is the subject of the
Third Party Offer pursuant to the terms of Section 10.03(a), or shall elect to
----------------
purchase but fail to close the purchase on the closing date, then subject to
Section 10.04(b), the Offeror shall be free for a period of ninety (90) days
- ----------------
thereafter to sell all or, at its election, the unsubscribed or unsold portion
of the offered Partnership Interest to the Person that made the Third Party
Offer and at the same or greater price (but, in the event of a sale of the
unsubscribed or unsold portion, reduced pro rata if any portion of the
Partnership Interest has been purchased by the other Partners pursuant to
Section 10.03(a)), which must consist solely of cash consideration, and upon
- ----------------
such other terms and conditions as are no more favorable to the purchaser than
those contained in the Third Party Offer. If such Partnership Interest is not
sold by the Offeror within such 90-day period, the Offeror's right to transfer
such Partnership Interest shall again be subject to the foregoing restrictions.
10.03 (d) As a condition to the purchase of all or any portion
of a Partnership Interest pursuant to this Section 10.03, an Affiliate of the
-------------
purchaser that is acceptance, in terms of its creditworthiness, to GE Americom,
shall assume all or the corresponding portion, as applicable, of any obligation
of the Offeror's Guarantor under its Guaranty, under its guaranty, if any,
issued to GE Americom pursuant to Section 5.03(d), and under the Guaranty's
---------------
Agreement, in which event the existing Guarantor of the Offeror shall be
released from its Guaranty, from its guaranty, if any, issued to GE Americom,
and from the Guarantor's Agreement to the extent of such assumption.
10.04. Admission of Transferee Partners.
--------------------------------
10.04 (a) Transferee Partners (including substitute Partners)
may be admitted to the Partnership upon satisfaction of the conditions set forth
in Section 10.04(b).
----------------
10.04 (b) No Person shall have the right to become a Partner
unless:
(i) such Person accepts and agrees in writing to be
bound by all of the terms and provision of this Agreement, in form and
substance satisfactory to the Partners Committee, in its reasonable
discretion;
(ii) such Person delivers to the Partnership evidence of
the authority of such Person to become a Partner and to be bound by all of
the terms and conditions of this Agreement;
(iii) such Person agrees in writing to assume all existing
and future obligations and liabilities of the Partnership (but only to the
extent of its interest in
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<PAGE>
Partnership property), and an Affiliate of the Person that is acceptable,
in terms of its creditworthiness, to GE Americom, assumes any outstanding
obligation of the transferor Partner's Guaranty under its Guaranty, if any,
issued to GE Americom pursuant to Section 5.03(d), and under the Guaranty's
---------------
Agreement with respect to the Partnership Interest acquired by such Person,
in which event the existing Guaranty of the transferor Partner shall be
released from the foregoing guaranty obligations to the extent of such
assumption; and
(iv) such Person (and the transferor Partner) executes and
delivers such other instruments as the Partners Committee reasonably deems
necessary or appropriate to effect, and as a condition to, such action,
including, without limitation, amendments to this Agreement or any other
instrument filed with the State of Delaware or any other state or
governmental agency and the Parent of such Person executes the Parents
Agreement.
10.05. Withdrawal of Partner. A Partner may not withdrawn from the
---------------------
Partnership at any time except upon a transfer of all of such Partner's
Partnership Interest as a Partner in accordance with this Article X or in
---------
accordance with Section 5.03, Section 7.14(d), or Section 11.02. Notwithstanding
------------ --------------- -------------
the foregoing, if an administrative or legal proceeding is instituted by the
Federal Trade Commission, the United States Department of Justice or any other
federal or state agency charged with the administration or enforcement of
antitrust or fair trade laws against a Partner or any of its Affiliates on
account of such Partner's participating in the remedies the divestiture by such
Partner or its Affiliate of all or any portion of its media properties, such
Partner shall have the right to withdraw from the Partnership (and forfeit all
of its interest in the Partnership to the other Partners other than any Non-
paying Partners and Sanctioned Partners) upon the payment to the Partnership of
its entire remaining Initial Capital Contribution (whether or not the Partners
Committee has previously called for the payment of such Initial Capital
Contribution) and the satisfaction (or making adequate provision for the
satisfaction) of any other obligations and liabilities the Partner may have as a
Partner in respect of the period prior to the time of its withdrawal. In
addition, such Partner's Guarantor shall continue to be a party to and remain
liable under the Guarantor's Agreement. Any payment to the Partnership by a
withdrawing Partner of its remaining Initial Capital Contribution pursuant to
this Section 10.05 shall be held by the Partnership in a special account
-------------
established for such purpose and shall be distributed (without interest) to the
withdrawing Partner solely in the event that the Partnership is dissolved
pursuant to Section 11.01 (and its business is not continued pursuant to Section
------------- -------
11.02) within the six (6) month period immediately following such payment as a
- -----
direct result of any similar proceeding against any of the other Partners or the
Partnership. If the Partnership is not so dissolved (or if so dissolved, its
business is continued) within such six (6) month period, the withdrawing Partner
shall have no further right to the funds in the special account established
pursuant to the preceding sentence and such funds shall be credited to the
Capital Accounts of the remaining Partners, other than any Non-paying Partners
and any Sanctioned Partners, pro rata in proportion to their respective
Percentage Interests. Notwithstanding the immediately preceding sentence, until
the Partnership has received Initial Capital Contributions totaling Thirty-Eight
Million Dollars ($38,000,000.00), the amount of such funds credited to the
Capital
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<PAGE>
Account of G.E. Americom Services, Inc. (if it is not the withdrawing Partner)
shall be equal to fifteen percent (15%) of such funds, and the remaining amount
of such funds shall be allocated among the Capital Accounts of the remaining
Partners (other than any Non-paying Partners and Sanctioned Partners), including
G.E. Americom Services, Inc. if its then Percentage Interest exceeds fifteen
percent (15%), pro rata in proportion to their respective Percentage Interests
(with the Percentage Interest of G.E. Americom Services, Inc. equal for this
purpose to its Percentage Interest in excess of fifteen percent (15%)).
10.06. Similar Business.
-----------------
10.06 (a) At any given time, a Partner shall be bound by the
provisions of this Section 10.06 based upon its status at the time in question.
-------------
10.06 (b) If a Direct Affiliate of a Partner engages in a
Similar Business or holds or acquires, or is deemed pursuant to this subsection
(b) to have acquired an equity interest in a Similar Business or in an entity
engaged in or that has formally adopted a plan to engage in a Similar Business,
or is or becomes entitled to exercise a management role with respect to such
Similar Business or entity (including, by way of example and not by way of
limitation, by governing body of such entity), then such Partner shall promptly,
but no more than ten (10) days, after obtaining knowledge (after due inquiry)
thereof, so notify the Partnership and the other Partners, and, subject to
subsections (d) and (e) below, such notice shall constitute such Partner's
agreement to be bound by and comply with the Partners Committee's election of
remedies pursuant to subsection (c) below. If at a time when G.E. Americom
Services, Inc. is not a Programmer Partner a Direct Affiliate of G.E. Americom
Services, Inc. licenses any of its Programming Services to any Similar Business,
then such Direct Affiliate agrees to comply, and therefore complies, with all
provisions of Section 7.14(c) applicable to a Direct Affiliate of a Programmer
---------------
Partner. Further, the provision by a Direct Affiliate of G.E. Americom Services,
Inc. of satellite services to a Similar Business will be deemed to be the
acquisition by such Direct Affiliate of an equity interest in such Similar
Business if, but only if, the amount of the fees payable for such satellite
services varies directly with the number of subscribers to such Similar
Business.
If a Direct Affiliate of a Partner holds an equity interest in a entity or
is entitled to exercise a management role with respect to an entity that in
either case is not itself a Direct Affiliate and such equity interest of
entitlement to exercise a management role was acquired or held prior to such
entity's being engaged in or having formally adopted a plan to engage in a
Similar Business, and no Direct Affiliate of such Partner affirmatively
participated in or supported the determination of such entity to engage in a
Similar Business, then the continued holding of such equity interest and the
continued exercise of such management role after such entity becomes engaged in
Similar Business will not, in and of itself, constitute an action subject to
this Section.
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10.06 (c) Upon receipt of notice from a Partner (a "Notifying
Partner") pursuant to subsection (b) above or the last sentence of this
subsection (c), the Partners Committee (with the Representative of each
Notifying Partner with respect to the same Similar Business abstaining) shall be
entitled, by notice given to the Notifying Partner within ninety (90) days
following receipt of the Notifying Partner's notice (the "Committee's Election
Period"), to exercise either of the following remedies (a Partner with respect
to whom any such remedy is exercised being herein referred to as a "Sanctioned
Partner"):
(i) to remove from the Partners Committee the
Representative of the Notifying Partner, in which event (x) the Notifying
Partner shall not be entitled to appoint a Representative to the Partners
Committee or to participate in the election of a Representative to the
Partners Committee pursuant to Section 7.03, to vote or otherwise act in
------------
respect of matters coming before the Partners Committee, or to receive or
request any financial or other information with respect to the Partnership
or access to its books, records, or properties, other than the audited
annual financial statements furnished to all Partners pursuant to Section
-------
9.03(c)(i) and the Partnership Returns of Income and other tax-related
----------
information contemplated by Sections 9.06(c), (d) and (e), (y) the
---------------- --- ---
Notifying Partner shall have no right to participate in any future calls
for Additional Capital Contributions and, in the event of any such call,
its Percentage Interest in the Partnership shall be subject to reduction as
provided in Section 5.03(b), but its Partnership Interest will not be
---------------
subject to purchase pursuant to Section 5.03(c), and (z) the number of
---------------
Representatives shall be permanently decreased by one; or
(ii) to require the Notifying Partner to sell its
Partnership Interest to the Partnership, in which event (A) the purchase
price for such Partnership Interest shall be equal to the fair market value
thereof determined, in the manner provided in Section 10.07, as of the last
-------------
day of the fiscal quarter of the Partnership immediately preceding the
fiscal quarter in which notice is given to the Notifying Partner of the
Partners Committee's election of such remedy, (B) the closing of the sale
of such Partnership Interest to the Partnership shall take place on the
date and at the time and place determined in accordance with Section 10.07;
-------------
and (C) the purchase price for such Partnership Interest shall be paid, at
such closing, by such of the following methods as the Partners Committee
may elect: (x) in cash by wire transfer of immediately available funds to a
bank account designated by the Sanctioned Partner or (y) not less than 50%
of the purchase price in cash as provided in clause (x) above and the
balance by delivery of a three-year promissory note of the Partnership
substantially in the form annexed hereto as Exhibit I. In the event the
Partners Committee elects the remedy specified in this clause (ii), any
license agreement to which the Partnership and any Direct Affiliate of the
Sanctioned Partner are parties on the closing date shall, at the Partners
Committee's election if the remaining term of such license agreement is
less than three years, by amended as of the closing date to provide for a
minimum remaining term of three years.
50
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If all Initial Capital Contributions of the Partners have not been called
for by the end of the Committee's Election Period and if the Partners Committee
has elected to exercise the remedy specified in clause (i) above, then the
Partners Committee shall have a second option to exercise the remedy specified
in clause (ii) above by giving written notice of such election to the Sanctioned
Partner within (90) days after the Contribution Date for the payment of Initial
Capital Contributions which, when aggregated with the amount of the Initial
Capital Contributions previously called for by the Partners Committee, total
Thirty-Eight Million Dollars ($38,000,000).
Notwithstanding the foregoing, if G.E. Americom Services, Inc. is a
Notifying Partner solely by virtue of the second sentence of subsection (b)
above and the Partners Committee determines to exercise the remedy specified in
clause (ii) of this subsection (c), then the purchase price for its Partnership
Interest shall be payable solely in cash. Further, if any two or more Partners
have a single common Parent ("Affiliated Partners") and one or more of such
Affiliated Partners is a Notifying Partner, then if the Partners Committee
determines to exercise a remedy against all such Affiliated Partners, it shall
elect to exercise the same remedy against each such Affiliated Partner.
If the Partners Committee does not elect to exercise either of the remedies
specified in this subsection (c) prior to the expiration of the Committee's
Election Period, the Notifying Partner shall continue as a Partner in the
Partnership subject to all the terms and provisions of this Agreement, except
that the provisions of this Section 10.06 shall not again be applicable to the
-------------
equity interest in, or management role with respect to, the Similar Business
identified in such notice for so long as neither such interest nor role is
increased. If such interest or role is increased (other than by means of a
passive receipt of additional equity interests unless such receipt results in
such Notifying Partner holding more than fifty percent of the voting power of
the outstanding equity interests of such Similar Business (if such notifying
Partner previously held fifty percent (50%) or less of such voting power) or
obtaining the ability to control the management of such Similar Business), the
Notifying Partner shall promptly so notify the Partnership and the other
Partners and the provisions of this Section will again become applicable.
10.06 (d) The provisions of this Section 10.06 shall not be
-------------
applicable to the following (except that, with respect to clauses (i), (ii) and
(iii), the notice requirements shall apply but a Partner complying with such
requirements shall not thereby be deemed to be a Notifying Partner):
(i) the engaging by a Direct Affiliate of a Programmer
Partner in a Similar Business that meets each of the following conditions:
(x) such Similar Business consists exclusively of providing (by one or more
of the methods of transmission contemplated by the definition of the term
Similar Business) one or more of its own Programming Services for sale at
wholesale or to bulk accounts, (y) such method of transmission is the
primary method by which such Direct Affiliate transmits such
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Programming Services for distribution to cable television headends and (z)
the transponders used for such transmission are not on a satellite used by
the Partnership unless such satellite was being used by such Direct
Affiliate prior to the Partnership's use thereof;
(ii) the acquisition by a Direct Affiliate of a Partner of
an equity interest in a Similar Business, or in an entity engaged in or
that has formally adopted a plan to engage in a Similar Business, as a
result of a foreclosure or equivalent action, provided that such Direct
Affiliate or such entity, as the case may be, divests itself of such
Similar Business within twelve (12) months after the acquisition thereof or
such longer period as the Partners Committee (with the Representative of
such Partner abstaining) may in its reasonable discretion approve;
(iii) the acquisition by a Direct Affiliate of a Partner of
an equity interest in a Similar Business or in an entity that is engaged in
or that has formally adopted a plan to engage in a Similar Business, if (x)
such Similar Business does not constitute the principal activities, in
terms of assets, sales or earnings of the businesses acquired in such
acquisition or conducted by the entity in which such equity interest is
acquired and (y) such Direct Affiliate or such entity, as the case may be,
divests itself of such Similar Business within twelve (12) months after the
acquisition or such longer period as the Partners Committee (with the
Representative of such Partner abstaining) may in its reasonable discretion
approve;
(iv) investments in a Similar Business by or on behalf of
(A) any employee benefit plan, or the trust funds of any employee benefit
plan, of any Direct Affiliate of a Partner, (B) General Electric Investment
Corporation, General Electric Financial Services, Inc., G.E. Investment
Management Incorporated, any of their Affiliates (other than any
Programming Affiliate, as defined in Section 2(c) of the Parents Agreement,
of G.E. Americom Services, Inc.'s Parent (as if it were a party to the
Parents Agreement), GE Americom, or any of their respective subsidiaries),
or any of the accounts managed by them (other than accounts that are
managed for the benefit of any Programming Affiliate, as defined in Section
2(c) of the Parents Agreement, of G.E. Americom Services, Inc.'s Parent (as
if it were a party to the Parents Agreement), GE Americom or its
subsidiaries as to which such Programming Affiliate, GE Americom, or such
subsidiary directs the investment decisions, except as provided for in
clause (A) above) or (C) the separate financial services affiliates of any
other Partner or accounts manages by them (other than accounts that are
managed for the benefit of any Guarantor or Programming Affiliate (as
defined in Section 2(c) of the Parents Agreement) or any of their
respective subsidiaries, as to which such Guarantor, Programming Affiliate
or subsidiary directs the investment decisions other than as provided for
in clause (A) above), but in each case only to the extent that such
investments are acquired and held in the ordinary course of such holder's
business or activities and not as a means of avoiding the requirements of
this Section.
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10.06 (e) If a Direct Affiliate of a Partner acquires an equity
interest in a Similar Business or in an entity that is engaged or has formally
adopted a plan to engage in a Similar Business or become entitled to exercise a
management role with respect to a Similar Business and such Similar Business
provides or is to provide programming by uplink to Broadcast Satellite Service
or higher frequency ("BSS") domestic satellite transponders, the relevant
Partner shall promptly upon, but no more than ten (10) days after, obtaining
knowledge (after due inquiry) thereof so notify the Partnership, such notice to
include a description of the Similar Business or entity, the equity interest
acquired or management role assumed, any additional equity investments in such
entity such Direct Affiliate intends to make and of the extent of the commitment
to such method of transmission theretofore made by such Direct Affiliate or
entity, as the case may be. If both (i) the Partnership is not at the time such
notice is received providing programming by uplink to BSS domestic satellite
transponders and (ii) the Partners Committee (with the Representative of the
affected Partner(s) abstaining) does not, within 120 days after the receipt of
such notice, cause the Partnership to make a commitment to such method of
transmission (whether on an existing BSS domestic satellite or one to be
constructed by or for an applicant or licensee from the FCC) that is comparable,
as illustrated by the examples set forth on Exhibit J, to the commitment
theretofore made by such Direct Affiliate or entity, as the case may be, then
the provisions of this Section will not apply to the transaction described in
the affected Partner's Notice. If such Direct Affiliate offers the Direct
Affiliates of any other Partner or Partners who Representative(s) on the
Partners Committee did not vote against making the level of commitment to such
method of transmission contemplated by clause (ii) above, the opportunity to
participate with such Direct Affiliate in its equity interest in such Similar
Business, such participation shall also not be subject to the provisions of this
Section. Notwithstanding the foregoing, if the equity interest or management
role described in the notice from the affected Partner is increased in any
material respect, then such Partner shall so notify the Partnership and the
provisions of the second sentence of this subsection (e) will again become
applicable to the determination of whether such transaction is subject to this
Section.
10.07. Purchase of Interest by Partnership.
-----------------------------------
10.07 (a) The procedure for determining the fair market value
of the Partnership Interest of a Partner (the "Selling Partner") as may be
required pursuant to this Agreement shall be as follows: the Partners Committee
(exclusive of the Representative of the Selling Partner) and the Selling Partner
shall attempt to mutually agree on the fair market value of the Selling
Partner's Partnership Interest. If the Partners Committee and the Selling
Partner are unable to reach such an agreement within (90) days after the date of
the Partners Committee's notice to the Selling Partner requiring it to sell its
Partnership Interest, then either the Selling Partner or the Partners Committee
may demand by written notice given to the other within ten (10) days thereafter
that such fair market value be determined by appraisal under the following
valuation procedure. The Selling Partner and the Partners Committee shall
attempt in good faith, within fifteen (15) day period, then the Selling Partner
and the Partners Committee, each shall, within fifteen (15) days thereafter,
choose one appraiser. The third appraiser shall be selected by the two
appraisers so designated. Each appraiser must be a qualified person having at
least five
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<PAGE>
(5) years of experience appraising interests in businesses that provide
television programming to residential customers through broadcast, cable, or
satellite systems. If the two appraisers so selected shall be unable to agree
on a third appraiser within ten (10) days, the unselected appraiser shall be
selected by the American Arbitration Association to serve as herein provided.
Should either the Selling Partner or the Partners Committee fail or refuse to
appoint an appraiser within such fifteen (15) day period, then the single
appraiser shall have the right to decide alone and such appraiser's decision
shall be final and binding upon the Partners. In the event that any appraiser
shall be unable to act, a new appraiser shall be appointed within ten (10) days
after such inability occurs, such appointment to be made in the same manner as
hereinabove provided for the appointment of the appraiser who is unable to act.
The appraisers shall determine the fair market value of the Selling Partner's
Partnership Interest and deliver a written statement of the same to the Partners
Committee and the Selling Partner within sixty (60) days after the last
appraiser has been engaged. For purposes of this Agreement, such fair market
value shall be (i) the valuation jointly determined by the three appraisers; or
(ii) if the three appraisers are unable to agree upon a valuation, then each of
the appraisers shall make its own determination and the fair market value shall
be determined as follows:
(A) If the low valuation is less than 10 percent lower
than the middle valuation and the high valuation is less than 10 percent higher
than the middle valuation, the fair market value shall equal the average of the
values determined by the three appraisers;
(B) If the low valuation is more than 10 percent lower
than the middle valuation and the high valuation is more than 10 percent higher
than the middle valuation, the low and the high valuations shall be disregarded
and the middle valuation shall be the fair market value; or
(C) If only one valuation is more than 10 percent higher
or lower than the middle valuation, such valuation shall be disregarded and the
fair market value shall equal the average of the valuations determined by the
remaining appraisers.
10.07 (b) If there is only one appraiser appointed pursuant to
Section 10.07(a), the cost of such appraiser shall be borne equally by the
- ----------------
Partnership and the Selling Partner. If there is more than one appraiser, the
partnership shall bear the cost of any appraiser appointed by the Partners
Committee, the Selling Partner shall bear the cost of any appraiser appointed by
it, and the Partnership and the Selling Partner shall equally bear the cost of
any appraiser appointed by the other appraisers.
10.07 (c) Unless the Selling Partner and the Partners Committee
otherwise agree, the closing of the purchase of the Selling Partner's
Partnership Interest pursuant to this Section 10.07 shall take place at the
-------------
Partnership's principal office at 10:00 a.m. (local time) on the date that is
thirty (30) days after the date of the appraisers' decision or of the date of
agreement by the Selling Partner and the Partners Committee as to the fair
market value of the Selling Partner's Partnership Interest; provided that if the
date for closing as so determined is not
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<PAGE>
a Business Day, the closing shall take place on the next Business Day
thereafter. At such closing, the Partnership shall pay the purchase price to
the Selling Partner in cash, by wire transfer or certified or cashier's check
and the Selling Partner shall deliver such deeds, bills of sale, assignments,
and other agreements and instruments, and shall take all such other reasonable
actions, in connection with any purchase and sale pursuant to this Section 10.07
-------------
as the Partners Committee shall require, including removing any lien or
encumbrance attached to its Partnership Interest so that good title to such
Partnership Interest shall be conveyed to the Partnership free and clear of any
mortgage, pledge, lien, or encumbrance (other than any lien securing financing
obtained by the Partnership).
10.07 (d) Any Partnership Interest purchased by the Partnership
shall be allocated among the other Partners, other than any Non-paying Partners
and Sanctioned Partners, pro rata in proportion to their respective Percentage
Interests.
10.08. Admission of Additional Partners; Right of First Opportunity. In
------------------------------------------------------------
the event that the Partners Committee shall at any time and from time to time
determine to admit a Person as an additional partner (a "Proposed Partner"), the
admission of which Proposed Partner would reduce the Percentage Interest of any
Partner whose Representative did not vote in favor of admitting such Proposed
Partner other than any Non-paying Partner or Sanctioned Partner (each a
"Dissenting Partner"), then before admitting any Proposed Partner, the Partners
Committee shall offer to each Dissenting Partner the right to maintain such
Dissenting Partner's Percentage Interest as the same would exist immediately
prior to the admission of a Proposed Partner by such Dissenting Partner making
an Additional Capital Contribution to the Partnership in an amount equal to the
product of (i) the contemplated Capital Contribution to be made by the Proposed
Partner multiplied by (ii) a fraction, the numerator of which is the proposed
numerical reduction in the Partnership Interest of such Dissenting Partner (the
"Proposed Reduction") and the denominator of which is the aggregate proposed
numerical reduction in the Percentage Interests of all Partners. Each
Dissenting Partner shall have fifteen (15) days from the date of such offer
within which to elect to make such Additional Capital Contribution on the date
on which the Proposed Partner is admitted to the Partnership. If any Dissenting
Partner shall notify the Partners Committee within the applicable fifteen (15)
day period of its election to make such Additional Capital Contribution, then
the Partners Committee shall reduce the proposed Capital Contribution to be made
by such Proposed Partner in an amount equal to such Additional Capital
Contribution to be made by the Dissenting Partner (or, if more than one
Dissenting Partner so elects, then in an amount equal to the sum of all such
Additional Capital Contributions) and shall correspondingly reduce the proposed
Percentage Interest of the Proposed Partner in an amount equal to the Proposed
Reduction (or, if more than one Dissenting Partner so elects, then in an amount
equal to the sum of the Proposed Reduction of each such Dissenting Partner).
Any Capital Contributions or Additional Capital Contributions made by a Partner
pursuant to this Section 10.08 shall be included in the amount of the Additional
-------------
Capital Contributions made by such Partner for purposes of Section 5.03. No
------------
Proposed Partner shall be admitted as a Partner unless such admission complies
with the provisions of Section 10.02(b) and Section 10.04(b).
---------------- ----------------
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10.09. Continued Ownership of Interest Prohibited By Law.
-------------------------------------------------
10.09 (a) Subject to Section 11.01(g), the event that as a
----------------
result of the enactment of legislation, the promulgation of an administrative
regulation, or the issuance of an administrative or judicial decision or order
(including the entry of a preliminary injunction) after the date of this
Agreement any Partner (a "Prohibited Partner") becomes subject to a legal
prohibition or restriction on its owning an interest or otherwise participating
in the Partnership (including, by way of example and not by way of limitation,
any legislation or regulation prohibiting or restricting the cross-ownership of
interests in cable television systems and in businesses serving home satellite
dish owners, but excluding a legal prohibition or restriction resulting from an
action taken by a Partner or its Affiliate after the date of such legislation,
regulation, decision or order other than any action contemplated by this
Agreement), then notwithstanding Section 10.02(a), the Prohibited Partner shall
----------------
be entitled to offer to sell its entire Partnership Interest in accordance with
Section 10.03 (in which case the provisions of Section 10.03 shall apply unless
- ------------- -------------
and until the Prohibited Partner fails to sell its entire Partnership Interest
pursuant to Section 10.03), and if it fails to sell its entire Partnership
--------------
Interest pursuant to Section 10.03, the Prohibited Partner shall be deemed to
-------------
have offered to sell, and the remaining Partners that are not also Prohibited
Partners and are not Non-paying Partners or Sanctioned Partners (the "Remaining
Partners") shall be deemed to have agreed to purchase, all of the Prohibited
Partner's Partnership Interest on the date by which the Prohibited Partner is
legally required to have disposed of its Partnership Interest (the "Disposition
Date"). The purchase price for a Prohibited Partner's Partnership Interest
purchased pursuant to this Section 10.09(a) (other than a purchase to which
----------------
Section 10.03 applies) shall be equal to the greater of the Prohibited Partner's
- -------------
positive Capital Account balance (adjusted for items of income and deduction for
the then current year to date and reduced by the amount of any Capital Shift
attributable to such Partner and not yet deducted from such Partner's Capital
Account), if any, as of the Disposition Date, as determined by the Partnership's
accounting firm selected pursuant to Section 9.04, and One Dollar ($1.00).
------------
10.09 (b) Unless all the Remaining Partners otherwise agree,
the Remaining Partners other than G.E. Americom Services, Inc. shall have the
first option to purchase the Prohibited Partner's Partnership Interest pursuant
to this Section 10.09. If the Remaining Partners other than G.E. Americom
-------------
Services, Inc. have not elected by written notice (which notice shall specify
the percentage of the Prohibited Partner's Partnership Interest that the
Remaining Partners elect to purchase) to G.E. Americom Services, Inc. by the
date that is fifteen (15) days prior to the Disposition Date that they intend to
exercise such election, then they shall be deemed to have elected not to
exercise such option. If the Remaining Partners elect (or are deemed to have
elected) to purchase less than all of the Prohibited Partner's Partnership
Interest, then G.E. Americom Services, Inc. shall have the exclusive right to
purchase all or any portion of the Prohibited Partner's remaining Partnership
Interest. If G.E. Americom Services, Inc. has not elected by written notice to
the other Remaining Partners by the date that is five (5) business days prior to
the Disposition Date to purchase all of the Prohibited Partner's remaining
Partnership Interest, then the balance of the Prohibited Partner's remaining
Partnership Interest
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<PAGE>
shall be purchased by all of the Remaining Partners, other than G.E. Americom
Services, Inc. Unless it elects to participate in such purchase.
10.09 (c) Those Remaining Partners that participate in the
purchase of the Partnership Interest of a Prohibited Partner as provided in
Section 10.09(b) shall make such purchase in accordance with the elections made
- ----------------
by them pursuant to Section 10.09(b) and, as to any balance of the Partnership
----------------
Interest, unless they otherwise all agree, pro rata in proportion to their
respective shares of the purchase price to the Prohibited Partner in cash, by
wire transfer or cashier's check. In addition, the Guarantor with respect to the
obligations of a Remaining Partner that participates in such purchase shall
assume any outstanding obligation of the Prohibited Partner's Guarantor under
its Guaranty, its guaranty, if any, issued to G.E. Americom pursuant to Section
-------
5.03(d), and the Guarantor's Agreement attributable to the portion of the
- -------
Partnership Interest being purchased by the Remaining Partner, in which event
the existing Guarantor of the Prohibited Partner's obligations shall be released
from its Guaranty, its guaranty, if any, issued to G.E. Americom pursuant to
Section 5.03(d), and the Guarantor's Agreement to that extent. If G.E. Americom
- ---------------
Services, Inc. participates in such purchase, the Prohibited Partner's Guarantor
shall be released from its Guaranty, its guaranty, if any, issued to G.E.
Americom pursuant to Section 5.03(d), and the Guarantor's Agreement to the
---------------
extent attributable to the portion of the Partnership Interest purchased by G.E.
Americom Services, Inc. Contemporaneously with such payment, the Prohibited
Partner shall deliver such deeds, bills of sale, assignments, and other
agreements and instruments, and shall take all such other reasonable actions, in
connection with such purchase and sale as the purchasing Remaining Partners may
request, including removing any lien or encumbrance attached to its Partnership
Interest so that good title to such Partnership Interest shall be conveyed to
the purchasers free and clear of any mortgage, pledge, lien, or encumbrance
(other than any lien securing financing obtaining by the Partnership). Each
Remaining Partner that purchases a Partnership Interest pursuant to this Section
-------
10.09 shall be deemed to have agreed to all of the requirements for the
- -----
admission of a Transferee Partner under Section 10.04 with respect to the
-------------
portion of the Partnership Interest acquired by such Remaining Partner. The
closing of any purchase of a Partnership Interest hereunder shall take place at
the principal office of the Partnership at 10:00 a.m. (local time) on the
Disposition Date or, if it is not a Business Day, on the next succeeding
Business Day.
10.10. Transfer in Event of Breach. If the Partners Committee
---------------------------
determines in good faith that any facts or circumstances exist which constitute
(i) a willful breach by a Partner of any of its obligations under Section
-------
7.14(c), 12.01(d) or 12.01(g), ir (ii) a willful breach of any of such Partner's
- ------- -------- --------
Parent's obligations under the Parents Agreement or under sections 17.13 or
17.14 of the User Agreement, and such breach remains uncured for thirty (30)
days after written notice thereof is given to such Partner by the Partnership,
then, in addition to all other remedies available at law or in equity
(including, without limitation, specific performance), the Partners Committee
(with the Representative of the affected Partner (the "Breaching Partner")
abstaining) shall be entitled, by notice (the "Election Notice") given to the
Breaching Partner within one (1) year after the later of (x) the expiration of
such 30-day cure period, and (y) the Contribution Date for the payment of
Initial Capital Contributions which, when aggregated with the amount of the
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Initial Capital Contributions previously called for by the Partners Committee,
totals Thirty Eight Million ($38,000,000), to require the Breaching Partner to
sell its Partnership Interest to the Partnership, in which event (A) the
purchase price for such Partnership Interest shall be equal to fifty percent
(50%) of the fair market value thereof, determined in the manner provided in
Section 10.07, as of the last day of the fiscal quarter of the Partnership
- -------------
immediately preceding the fiscal quarter in which the Election Notice is given
to the Breaching Partner; (B) the closing of the sale of such Partnership
Interest to the Partnership shall take place on the date and at the time and
place determined in accordance with Section 10.07; and (C) the purchase price
-------------
for such Partnership Interest shall be paid, at such closing, in cash, by wire
transfer or by certified or cashier's check. The Partners Committee (with the
Representative of the Breaching Partner abstaining) shall further be entitled to
require the Breaching Partner to remove its Representative from the Partners
Committee, in which event, pending the giving of an Election Notice and, if an
Election Notice is given, thereafter until the consummation of the sale of the
Breaching Partner's Partnership Interest, the Breaching Partner shall in all
respects be subject to the same limitations on participation in Sanctioned
Partner as to whom the remedy set forth in Section 10.06 (c)(i) has been
--------------------
elected.
10.11. Affiliate Transfer. If the Partnership exercises any of its
------------------
rights with respect to a Partner (including the right to require such Partner
to sell its Partnership Interest and/or to remove its Representative on the
Partners Committee) under Section 10.06 or Section 10.10, it shall exercise
------------- -------------
such rights in the same manner and to the same extent with respect to any
Affiliate to which such Partner has transferred any portion of its Partnership
Interest, and such Affiliate shall be bound by the Partnership's decision to
exercise such rights as fully as if such Affiliate were the affected Partner
under Section 10.06 or Section 10.10, as the case may be.
------------- -------------
10.12. Extension of Time. If any transfer of a Partner's Partnership
-----------------
Interest in accordance with this Article X, Section 7.14, or Section 5.03
--------- ------------ ------------
requires, in the judgment of the Partners' Committee, the consent, approval,
waiver, or authorization of any government department, board, bureau,
commission, agency, or instrumentality as a condition to the valid transfer of
such Partner's Partnership Interest to the proposed transferee thereof, then
each of the time periods provided in this Article X or such sections shall be
----------
suspended for the period of time during which any such consent, approval,
waiver, or authorization is being diligently pursued; provided, however, that in
-------- -------
no event shall the suspension of any time period pursuant to this Section 10.12
-------------
exist for more than one hundred eighty (180) days. Each of the Partners agrees
to use its diligent efforts to obtain, or to assist the affected Partner or the
Partners' Committee in obtaining, any such consent, approval, waiver, or
authorization and shall cooperate and use its diligent efforts to respond as
promptly as practicable to all inquiries received by it, by the affected Partner
or the Partners' Committee from any government department, board, bureau,
commission, agency or instrumentality for initial or additional information or
documentation in connection therewith.
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ARTICLE XI
DISSOLUTION AND LIQUIDATION
---------------------------
11.01. Events Causing Dissolution. The Partnership shall be dissolved
--------------------------
and its affairs would up only upon occurrence of any of the following events:
11.01 (a) expiration of the term of the Partnership;
11.01 (b) a Super-majority vote of the Partners Committee;
11.01 (c) the sale or other disposition by the Partnership
(other than in the ordinary course of business) of all or substantially all of
the Partnership Assets and the collection of all amounts derived form any such
sale or other disposition, including all amounts payable to the Partnership
under any promissory notes or other evidences of indebtedness taken by the
Partnership in connection with such sale or other disposition (unless the
Partners Committee shall elect to distribute such indebtedness to the Partners
in liquidation);
11.01 (d) the Bankruptcy (as hereinafter defined) of a Partner;
11.01 (e) a Majority Vote of the Partners Committee upon the
occurrence of a Force Majeure Event as provided in Section 3.04;
------------
11.01 (f) the Bankruptcy (as hereinafter defined) of the
Partnership and the determination of the Partners Committee not to continue the
business of the Partnership;
11.01 (g) (i) the occurrence of an event or events specified in
Section 10.09(a) that causes any two (2) or more Partners that are not
- ----------------
Affiliates to become Prohibited Partners under Section 10.09(a), or, (ii) upon
----------------
the determination by the Partners Committee, by a Super-majority Vote which
includes the affirmative vote of the Representative of G.E. Americom Services,
Inc., that any legal proceedings instituted against or involving the Partnership
or any of the Partners make it inadvisable for the Partnership to continue to
actively pursue its principal business activities; or
11.01 (h) the occurrence of any event that, under the Delaware
RULPA, would cause the dissolution of the Partnership or that would make it
unlawful for the business of the Partnership to be continued.
For the purposes of this Article XI, the term "Bankruptcy" shall mean, and a
----------
Person shall be deemed "Bankrupt" upon, (i) the entry of a decree or order for
relief of such Person by a court of competent jurisdiction in any involuntary
case involving such Person under any bankruptcy,
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insolvency, or other similar law now or hereafter in effect; (ii) the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, or other similar agent for such Person or for any substantial part
of such Person's assets or property; (iii) the ordering of the winding up or
liquidation of such Person's affairs; (iv) the filing with respect to such
Person of a petition in any such involuntary bankruptcy case, which petition
remains undismissed for a period of ninety (90) days or which is dismissed or
suspended pursuant to Section 305 of the Federal Bankruptcy Code (or any
corresponding provision of any future United States bankruptcy law); (v) the
commencement by such Person of a voluntary case under any bankruptcy,
insolvency, or other similar law now or hereafter in effect; (vi) the consent by
such Person to the entry of an order for relief in an involuntary case under any
such law or to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator, or other similar agent
for such Person or for any substantial part of such Person's assets or property;
(vii) the making by such Person of any general assignment for the benefit of
creditors; or (viii) the failure by such Person generally to pay its debts as
such debts become due.
11.02. Right to Continue Business of Partnership. Upon an event
-----------------------------------------
described in Sections 11.01(a), 11.01(d), 11.01(g), or 11.01(h) (but not an
----------------- -------- -------- --------
event described in Section 11.01(h) that makes its unlawful for the business of
----------------
the Partnership to be continued), the Partnership thereafter shall be dissolved
and its affairs shall be wound up unless, within ninety (90) days after the
event described in any of such Sections, all Partners (except any Non-paying
Partners or Sanctioned Partners and, in the case of an event described in
Section 11.01(d), the Bankrupt Partner or, in the case of an event described in
- ----------------
Section 11.01(g), the Prohibited Partners) agree in writing to continue the
- ----------------
business of the Partnership. If all Partners (except any Non-paying Partners or
Sanctioned Partners and, in the case of an event described in Section 11.01(d),
----------------
the Bankrupt Partner or, in the case of an event described in Section 11.01(g),
----------------
the Prohibited Partners) agree to the foregoing, then the Partnership shall not
be dissolved but shall continue until another event causing dissolution in
accordance with this Article XI shall occur. In the case of an event described
----------
in Section 11.01(d), the Partners other than any Non-paying Partners, Sanctioned
----------------
Partners, and the Bankrupt Partner shall have the right, but not the obligation,
to purchase the Partnership Interest of the Bankrupt Partner for a price equal
to the fair market value thereof (determined pursuant to Section 10.07) if an
-------------
election is made pursuant to this Section 11.02 to continue the business of the
-------------
Partnership. In the case of an event descried in Section 11.01(g), the Partners
----------------
other than any Non-paying Partners, Sanctioned Partner, and Prohibited Partners
shall purchase the Partnership Interests of the Prohibited Partners as provided
in Section 10.9 if an election is made pursuant to this Section 11.02 to
------------ -------------
continue the business of the Partnership.
11.03. Liquidation.
-----------
11.03 (a) Except as otherwise provided in Section 11.02, upon
-------------
the dissolution of the Partnership, the Partners Committee (or other Person
responsible for winding up the affairs of the Partnership) shall promptly notify
the Partners of such dissolution and shall proceed without any unnecessary delay
to sell or otherwise liquidate the Partnership Assets and shall pay E Americom
all amounts due under the User Agreement pari passu with other senior
-59-
<PAGE>
unsecured creditors of the Partnership, and shall then pay or make due provision
for the payment of all other actual or contingent debts, liabilities and
obligations of the Partnership (including, without limitation, enforcing any
remaining obligation under each Guarantor's Guaranty). Amounts due or to become
due to GW Americom under such User Agreement shall not be subordinate to any
other debts, liabilities or obligations of the Partnership, except to the extent
required by applicable law. Notwithstanding the foregoing, for purposes of
determining the Partnership's obligations under the User Agreement the
dissolution of the Partnership as a result of an event described in Section
-------
11.01(g) (unless the Partnership's business is continued pursuant to Section
- -------- -------
11.02) shall be determined pursuant to Section 11.01(d)(ii) of the User
- -----
Agreement.
11.03 (b) After adequate provision has been made for the
payment of all debts, liabilities and obligations of the Partnership, the
Partners Committee (or other Person responsible for winding up the affairs of
the Partnership) shall distribute the net liquidation proceeds and any other
liquid assets of the Partnership to the Partners in accordance with Section
-------
6.06(b).
- -------
11.03 (c) A reasonable time shall be allowed for the orderly
winding up of the business and affairs of the Partnership and the liquidation of
its assets pursuant to this Section 11.03 in order to minimize any losses
-------------
otherwise attendant upon such a winding up.
11.04. Termination of Partnership. Except as otherwise provided in
--------------------------
this Agreement, the Partnership shall terminate when all of the assets of the
Partnership shall have been converted into cash, the net proceeds therefrom, as
well as any other liquid assets of the Partnership, after payment of or due
provision for the payment of all debts, liabilities and obligations of the
Partnership, shall ha been distributed to the Partners as provided for in
Section 6.06(b) and Section 11.03, and any assumed or fictitious name
- --------------- -------------
certificate shall have been canceled n the manner required by the Delaware
RULPA.
ARTICLE XII
REPRESENTATIONS, COVENANTS, AND WARRANTIES; INDEMNIFICATION
-----------------------------------------------------------
12.01. Representations, Covenants, and Warranties. Each of the
------------------------------------------
Partners represents, warrants and covenants to the other Partners as follows:
12.01 (a) Organization and Authorization. The Partner is
------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has the full corporate or partnership, as
the case may be, power and authority to own and operate its business and
properties and to enter into and perform the terms of this Agreement and the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Partner and the consummation of the transaction contemplated hereby have
been duly authorized by all necessary corporate or partnership action on the
part of the Partner.
-60-
<PAGE>
12.01 (b) Absence of Violation. Neither the execution and
--------------------
delivery of this Agreement nor the consummation of the transactions contemplated
hereby constitutes a violation of, default under, or conflicts with (i) any
terms of the articles of incorporation or bylaws or similar organization
documents of the Partner, (ii) any existing law, regulation, rule, or order,
judgment or decree of any court or governmental body, binding upon or affecting
the Partner, or (iii) in any material respect, any contract, commitment,
indenture, lease, or other agreement or understanding t which it is a party of
by which it is bound.
12.01 (c) Binding Obligation. This Agreement constitutes a
------------------
valid and binding obligation of the Partner, enforceable in accordance with its
terms, subject to any applicable bankruptcy, reorganization, moratorium,
insolvency, or other similar laws affecting creditors' rights generally or the
application of general principles of equity.
12.01 (d) No Other Business. The Partner agrees that so long
-----------------
as it is a Partner, its sole business shall be its interest in Partnership and
in marketing company that may be established by the Partners pursuant to Section
-------
3.03(b).
- -------
12.01 (e) No Voting Agreements; Disclosure of Certain
-------------------------------------------
Agreements. The Partner represents and covenants that neither such Partner nor
- ----------
its Representative is or will become a party to any binding agreement with any
other Partner (or Affiliate thereof), other than an Affiliate of the Partner
making this representation, or Representative with respect to any votes or
decisions to be made by the Partners or the Partners Committee under this
Agreement. In addition, the Partner agrees to fully disclose to the Partnership
and the other Partners any other binding agreement (and the terms thereof) that
such Partner (or any Affiliate thereof) may hereafter enter into with any other
Partner (or Affiliate thereof), other than an Affiliate of the Partner making
this covenant, with respect to the Partnership or such Partner's Partnership
Interest, and represents and covenants that it has fully disclosed to the other
Partners, on or before the effective date of this Agreement, the existence and
terms of any such agreement in existence on the effective date of this
Agreement. This Section 12.01(e) shall not be deemed to preclude a
----------------
Representative or other agent of any Partner or Affiliate of such Partner from
freely discussing at any time affairs of the Partnership with any other
Representative or other agent of any other Partner and disclosing to each other
the position of such Representative or Partner with respect to any issue
concerning the Partnership or the Partners Committee, provided that such Persons
do not enter into a binding agreement concerning their voting with respect to
such affairs or issues.
12.01 (f) No Unauthorized Public Statements. Except to the
---------------------------------
extent previously and specifically authorized by the Partners Committee, the
Partner shall consult with all other Partners with regard to all press releases,
public statements and other announcements issued or to be issued concerning the
transactions contemplated by this Agreement; and, except as the Partner deems
necessary or advisable as a result of pubic disclosure requirements under
applicable laws or the applicable rules and regulations of any governmental
authority or stock exchange, the Partner shall not issue any such press
releases, public statements or other
-61-
<PAGE>
announcement or publicity without the prior written consent of the Partners
Committee, not to be unreasonably withheld.
12.01 (g) Parents Agreement. G.E. Americom Services, Inc. and
-----------------
each new Partner agrees that if it becomes a Programmer Partner or Non-
Programmer Partner and its ultimate parent (within the meaning of the Hart-
Scott-Rodino Antitrust Improvement Act of 1976, as amended and the rules and
regulations promulgated thereunder, as in effect on the date hereof) has not
signed the Parents Agreement, such Partner will cause its ultimate parent to
become a party to the Parents Agreement by executing a supplement thereto and
distributing the same to each of the other Partners. Each Partner agrees that if
it ceases to be a Direct Affiliate of the Parent listed next to its name on
Schedule C hereto (as amended from time to time) other than in a transaction
- ----------
which results in an Affiliated Person (as defined in Section 2(b) of the Paren
ts Agreement) becoming a party to the Parents Agreement, such Partner will cause
its new ultimate parent (as defined in the preceding sentence) to become a party
to the Parents Agreement as provided above. The previous sentence
notwithstanding, any such new ultimate parent may elect to be obligated by the
provisions of Section 2(a) of the Parents Agreement only with respect to the
Direct Affiliates and Programming Affiliates of a Partner which were Direct
Affiliates and Programming Affiliates of the Partner at the time that said new
ultimate parent became the ultimate parent of the Partner and with respect to
any future Controlled Affiliates (as defined in the Parents Agreement) of such
Direct Affiliates and Programming Affiliates. To make such election, the new
ultimate parent shall provide written notice thereof to the Partnership within
60 days of such time as said ultimate parent becomes the ultimate parent of the
Partner. The Partnership shall have a period of 60 days from receipt of such
notice in which to make the election provided for in the next sentence, and the
Partnership shall notify the new ultimate parent in writing within 5 days of
making its election. Unless the Partnership and the new ultimate parent
otherwise agree, the Partnership shall elect either (i) to abide by the election
of the new ultimate parent, in which event the form of the Parents Agreement
with such ultimate parent shall be amended as may be required to give affect to
the new ultimate parent's election, or (ii) to require said Partner to sell its
Partnership Interest to the Partnership at a purchase price equal to 75% of the
fair market value of such Partnership Interest, determined in the manner
provided in Section 10.07, as of the last day of the fiscal quarter of the
-------------
Partnership immediately preceding the fiscal quarter in which the Partnership
shall have notified the new ultimate parent that its Partner is required to sell
its Partnership Interest to the Partnership. The closing of the sale of such
Partnership Interest to the Partnership shall take place on the date and at the
time and place determined in accordance with Section 10.07, and the purchase
-------------
price for such Partnership Interest shall be paid at such closing by either of
the following methods as the Partners Committee may elect: (x) in cash by wire
transfer of immediately available funds to a bank account designated by the new
ultimate parent, or (y) not less than 50% of the purchase price in cash as
provided in clause (x) above and the balance by delivery of a three year
promissory note of the Partnership substantially in the form annexed hereto as
Exhibit I. In the event the Partners Committee elects to require such Partner to
- ---------
sell its Partnership Interest as provided herein, any license agreement to which
the Partnership and any Direct Affiliate of the Partner in question are parties
on the closing date shall, at the Partners Committee's election if the remaining
term of
-62-
<PAGE>
such license is less than 3 years, be amended as of the closing date to provide
for a minimum remaining term of 3 years.
12.02. Survival of Representations. All representations, warranties
---------------------------
and covenants made by each Partner in or pursuant to this Agreement shall be
deemed made as of the date of this Agreement and shall survive the execution and
delivery of this Agreement and any investigation at any time made by or on
behalf of any party hereto.
12.03. Indemnification.
---------------
12.03 (a) As among the Partners, no Partner shall be liable
to bear responsibility for more than its proportionate share (based on its
Percentage Interest) of each and all of the liabilities and obligations of the
Partnership. In the event that any Partner shall be required to pay, discharge
or otherwise bear responsibility for any amount of any liability or obligation
of the Partnership in excess of such Partner's proportionate share thereof, each
other Partner hereby agrees to indemnify, hold harmless and reimburse (directly
or through the Partnership) such Partner against and for such other Partner's
proportionate share of such excess. It is the intention of this Section 12.03(a)
----------------
that, following the operation of this Section 12.03(a), each Partner will have
----------------
borne exactly its proportionate share of the liability of obligation of the
Partnership at issue. Notwithstanding the foregoing, in the event the Partners
Committee votes to provide services at Broadcast Satellite Service or higher
frequency ("BSS"), the liability with respect to any obligation of the
Partnership incurred in connection with providing services at BSS of any Partner
whose Representative voted against the Partnership providing services at BSS and
that subsequently becomes a Non-paying Partner shall be determined by
multiplying such liability by a fraction the numerator of which shall be such
Partner's total Capital Contributions and the denominator of which shall be all
Partners' total Capital Contributions plus the amount of the liability in
question. The difference between the amount of such Non-paying Partner's share
of such liability determined on the basis of its Percentage Interest and the
amount of its share of such liability determined in accordance with the
immediately preceding sentence shall be borne by the other Partners (other than
any Sanctioned Partner) pro rata in accordance with their respective Percentage
Interests.
12.03 (b) Each Partner hereby agrees to indemnify, defend
and hold harmless the other Partners from and against all demands, claims,
actions, or causes of action, assessments, losses, damages, liabilities, costs
and expenses, including, but not limited to, interest, penalties and reasonable
attorneys' fees and expenses, asserted against, resulting to, or imposed upon or
incurred by, the other Partners, directly or indirectly, by reason of or
resulting from any misrepresentation or breach of warranty of such Partner as
set forth in this Agreement, or unauthorized acts taken in the name of or on
behalf of the Partnership, or acts specified in Section 5.02(c)(i) of the User
------------------
Agreement or any facts or circumstances constituting any of the foregoing by
such Partner. The obligations and liabilities of each Partner hereunder with
respect to their respective indemnities pursuant to this Section 12.03,
-------------
resulting from any claim or other
-63-
<PAGE>
assertion of liability by third parties (hereinafter called collectively,
"Claims"), shall be subject to the following terms and conditions:
(i) The party seeking indemnification (the "Indemnified
Party") must give the indemnifying party or parties, as the case may be
(the "Indemnifying Party"), notice of any such Claim promptly after the
Indemnified Party receives notice thereof; provided that the failure to
give such notice shall not affect the rights of the Indemnified Party
hereunder except to the extent that the Indemnifying Party shall have
suffered actual damage by reason of such failure.
(ii) The Indemnifying Party shall have the right to undertake,
by counsel or other representatives of its own choosing, the defense of
such Claim, subject to the consent of the Indemnified Party, which shall
not be withheld unreasonably.
(iii) In the event that the Indemnifying Party shall elect not
to undertake such defense, or within a reasonable time after notice of any
such Claim for the indemnified Party shall fail to defend, the Indemnified
Party (upon further written notice to the Indemnifying Party) shall have
the right to undertake the defense, compromise or settlement of such Claim,
by counsel or other representatives of its own choosing, on behalf of and
for the account and risk of the Indemnifying Party.
(iv) Anything in this Section 12.03(b) to the contrary
----------------
notwithstanding, (A) if there is a reasonable probability that a Claim may
materially and adversely affect the Indemnified Party other than as a
result of money damages or other money payments, the Indemnified Party
shall have the probability that a Claim may materially and adversely affect
the Indemnified Party other than as a result of money damages o other money
payments, the Indemnified Party shall have the right, at its own cost and
expense, to participate in, and the Indemnifying Party shall not have the
right to control, the defense, compromise or settlement of the Claim, (B)
the Indemnifying Party shall not, without the Indemnified Party's written
consent, settle or compromise any Claim or consent to entry of any
judgement which does not include as an unconditional term thereof the
giving by the claimant or the Plaintiff to the Indemnified Party of a
release from all liability in respect of such Claim, and (C) in the event
that the Indemnifying Party undertakes defense of any Claim, the
Indemnified Party, by counsel or other representative of its own choosing
and t its sole cost and expense, shall have the right to consult with the
Indemnifying Party and its counsel or other representatives concerning such
Claim and the Indemnifying Party and the Indemnified Party and their
respective counsel or other representatives shall cooperate with respect to
such Claim.
-64-
<PAGE>
ARTICLE XIII
MISCELLANEOUS PROVISIONS
------------------------
13.01. Additional Actions and Documents. Each of the Partners hereby
--------------------------------
agrees to take or cause to be taken such further actions, to execute,
acknowledge, deliver and file or cause to be executed, acknowledge, delivered
and filed such further documents and instruments, and to use best efforts to
obtain such consents, as may be necessary or as may be reasonably requested in
order to fully effectuate the purposes, terms and conditions of this Agreement,
whether before, at or after the closing of the transactions contemplated by this
Agreement.
13.02. Notices. All notices, demands, requests or other communications
-------
which may be or are required to be given, served, or sent by a Partner or the
Partnership pursuant to this Agreement shall be in writing and shall be hand
delivered (including delivery by courier), sent by recognized overnight courier
service, mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by telegram, telex or facsimile
transmission, addressed as follows:
(i) If to a Partner:
At the address specified for such Partner in Schedule A
----------
(ii) If to the Partnership, at the address of its then principal
place of business, as determined by the partners Committee,
or until such principal place of business has been
determined:
c/o Hogan & Hartson
555 Thirteenth Street,N.W.
Washington,D.C. 20004-1109
Attention: Timothy A. Lloyd
Notwithstanding the foregoing, each Partner and the Partnership may designate by
notice in writing a new address to which any notice, demand, request, or
communication may thereafter be so given, served, or sent. Each notice, demand,
request, or communication which shall be delivered, sent, mailed, or transmitted
in the manner described above, shall be deemed sufficiently given, served, sent,
or received for all purposes at such time as it is delivered to the addressee
(with an affidavit of personal delivery, the return receipt, the delivery
receipt, or (with respect to a telex or facsimile) the answer back being deemed
conclusive (but not exclusive) evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
-65-
<PAGE>
13.03. Waiver of Right to Seek Partition. Each of the Partners
---------------------------------
irrevocably waives during the term of the Partnership (including any extensions
thereof) any right that such Partner may have to maintain any action for
partition with respect to the property of the Partnership.
13.04. Severability. The invalidity of any one or more of the
------------
provisions hereof or of any other agreement or instrument given pursuant to or
in connection with this Agreement shall not affect the remaining portions of
this Agreement or any such other agreement or instrument or any part thereof,
all of which are inserted conditionally on their being held valid in law; and in
the event that one or more of the provisions contained herein or therein should
be invalid, or should operate to render this Agreement or any such other
agreement or instrument invalid, this Agreement and such other agreements and
instruments shall be construed as if such invalid provisions had not been
inserted; provided, however, that if any provision determined to be invalid
-------- -------
under the foregoing terms of this Section 13.04 is considered a material benefit
-------------
that any Partner was seeking to attain in the consummation of or performance of
the transactions contemplated under this Agreement, the Partners shall negotiate
in good faith and for the purpose of entering into an appropriate amendment or
supplement to this Agreement to provide comparable terms the economic value of
which will approximate as closely as practicable the benefit lost.
13.05. Survival. It is the express intention and agreement of the
--------
Partners that all covenants, agreements, statements, representations, warranties
and indemnities made in this Agreement shall survive the execution and delivery
of this Agreement.
13.06. Waivers. Neither the waiver by a Partner or the Partnership of a
-------
breach of or a default under any of the provisions of this Agreement, nor the
failure of a Partner or the Partnership, on one or more occasions, to enforce
any of the provisions of this Agreement or to exercise any right, remedy, or
privilege hereunder shall thereafter be construed as a waiver of any subsequent
breach or default of a similar nature, or as a waiver of any such provisions,
rights, remedies, or privileges hereunder.
13.07. Exercise of Rights. No failure or delay on the part of a Partner
------------------
or the Partnership in exercising any right, power, or privilege hereunder and no
course of dealing between the Partners or between a Partner and the Partnership
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power, or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege. The rights and
remedies herein expressly provided are cumulative and not exclusive of any other
rights or remedies which a Partner or the Partnership would otherwise have at
law or in equity or otherwise.
13.08. Specific Performance. Each Partner acknowledges that the rights,
--------------------
benefits and obligations of such Partner pursuant to this Agreement are unique
and that no adequate remedy exists at law if such Partner shall fail to perform
any of its obligations hereunder, and each Partner therefore confirms and agrees
that the Partnership's right to specific performance is essential to protect the
rights and interests of the Partnership and each other Partner.
-66-
<PAGE>
Accordingly, except where this Agreement expressly provides a remedy or remedies
for such failure to perform and does not expressly provide that such remedy is
in addition to any equitable remedies, each Partner hereby agrees that the
Partnership shall, in addition to any other remedies which the Partnership may
have hereunder or at law or in equity or otherwise, have the right to have all
obligations, undertakings, agreements and other provisions of this Agreement
specifically performed by each Partner and shall have the right to obtain an
order or decree of such specific performance in any of the courts of the United
States or of any state or other political subdivision thereof.
13.09. Binding Effect. Subject to any provisions hereof restricting
--------------
assignment, this Agreement shall be binding upon and shall inure to the benefit
of the Partners and their respective successors and permitted assigns.
13.10. Limitation on Benefits of this Agreement. It is the explicit
----------------------------------------
intention of the Partners that no Person or entity other than the Partners and
the Partnership is or shall be entitled to bring any action to enforce any
provision of this Agreement against any Partner or the Partnership, and that the
covenants, undertakings, and agreements set forth in this Agreement shall be
solely for the benefit of, and shall be enforceable only by, the Partners (or
their respective successors and assigns as permitted hereunder) and the
Partnership.
13.11. Amendment Procedure. Except as otherwise specifically provided
-------------------
in this Agreement, this Agreement may be modified or amended only upon the
unanimous vote of all Representatives and, with respect to any amendment that
would adversely affect the economic rights or increase the economic obligations
of a Partner or any of its Direct Affiliates under this Agreement, the written
consent of such Partner if it is not then entitled to appoint a Representative.
13.12. Entire Agreement. This Agreement (including the Schedules and
----------------
Exhibits hereto) contains the entire agreement among the Partners with respect
to the transactions contemplated herein, and supersedes all prior oral or
written agreements, commitments or understandings with respect to the matters
provided for herein and therein.
13.13. Pronouns. All pronouns and any variations thereof shall be
--------
deemed to refer to the masculine, feminine, neuter, singular, or plural, as the
identify of the person or entity may require.
13.14. Headings. Article and Section headings contained in this
--------
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
-67-
<PAGE>
13.15. Governing Law. This Agreement, the rights and obligations of the
-------------
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of Delaware (but not
including the choice of law rules thereof).
13.16. Execution in Counterparts. To facilitate execution, this
-------------------------
Agreement may be executed in as many counterparts as may be required; and it
shall not be necessary that the signatures of, or on behalf of, each party, or
that the signatures of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the persons required to bind any party,
appear on one or more of the counterparts. This Agreement shall be binding and
enforceable upon (but only upon) the execution of counterparts by all the
parties hereto and such counterparts shall thereupon collectively constitute a
single agreement. It shall not be necessary in making proof of this Agreement
to produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
-68-
<PAGE>
SCHEDULE A
TO PARTNERSHIP AGREEMENT OF
K PRIME PARTNERS L.P.
Dated: February 8, 1990
NAMES, ADDRESSES, INITIAL
CAPITAL CONTRIBUTIONS, AND GUARANTORS
-------------------------------------
SCHEDULE A (SECTION 1)
----------------------
<TABLE>
<CAPTION>
DEEMED INITIAL CAPITAL
NAME AND ADDRESS CONTRIBUTION
- ---------------- ----------------------
<S> <C>
G.E. Americom Services, Inc. $5,700,000.00
Four Research Way
Princeton, New Jersey 08540-6684
Attention: John J. Cusick
<CAPTION>
SCHEDULE A (SECTION 2)
----------------------
NAME AND ADDRESS INITIAL CAPITAL CONTRIBUTION
- ---------------- ----------------------------
<S> <C>
ATC Satellite, Inc. $4,222,222.23
300 First Stamford Place
Stamford, Connecticut 06902-6732
Attention: General Counsel
Comcast DBS, Inc. $4,222,222.22
1414 South Penn Square
34th Floor
Philadelphia, Pennsylvania 19102-2480
Attention: Mark Coblitz
Continental Satellite Company, Inc. $4,222,222.22
The Pilot House
Lewis Wharf
Boston, Massachusetts 02110
Attention: Timothy P. Neher
Cox Satellite, Inc. $4,222,222.22
1400 Lake Hearn Drive
Atlanta, Georgia 30319
Attention: Agit M. Dalvi
New Vision Satellite $4,222,222.22
112 Northern Concourse
P.O. Box 4872
North Syracuse, New York 13221
Attention: Daniel P. Cavallo
</TABLE>
<PAGE>
SCHEDULE A (SECTION 2) (cont'd)
----------------------
<TABLE>
<S> <C>
TCI K-1, Inc. $4,222,222.23
4643 South Ulster Street
Suite 600
Denver, Colorado 80237
Attention: John J. Sie
United Artists K-1 Investments, Inc. $4,222,222.22
2930 East Third Avenue
Denver, Colorado 80206
Attention: John D. Field, III
Viacom K-Band Inc. $4,222,222.22
1211 Avenue of the Americas
New York, New York 10036
Attention: Edward Horowitz
Warner Cable SSD, Inc. $4,222,222.22
400 Metro Plaza North
Dublin, Ohio 43017
Attention: General Counsel -------------
Total $38,000,000.00
</TABLE>
SCHEDULE A (SECTION 3)
----------------------
GUARANTOR OF INITIAL
PARTNER CAPITAL CONTRIBUTIONS
- ------- ---------------------
ATC Satellite, Inc. American Television &
Communications Corp.
Comcast DBS, Inc. Comcast Cable Communications, Inc.
Continental Satellite Company, Inc. Continental Cablevision, Inc.
Cox Satellite, Inc. Cox Communications, Inc.
New Vision Satellite NewChannels Corp.
TCI K-1, Inc. TCI Development Corporation
United Artists K-1 Investments, Inc. United Artists Entertainment Company
Viacom K-Band Inc. Viacom Inc.
Warner Cable SSD, Inc. Warner Cable Communications Inc.
<PAGE>
SCHEDULE B
TO PARTNERSHIP AGREEMENT OF
K PRIME PARTNERS L.P.
Dated: February 8, 1990
PERCENTAGE INTERESTS
--------------------
<TABLE>
<CAPTION>
GENERAL PARTNERS PERCENTAGE INTEREST
- ---------------- -------------------
<S> <C>
ATC Satellite, Inc. 9.35%
Comcast DBS, Inc. 9.35%
Continental Satellite Company, Inc. 9.35%
Cox Satellite, Inc. 9.35%
GE Americom Services, Inc. 14.85%
New Vision Satellite 9.35%
TCI K-1, Inc. 9.35%
United Artists K-1 Investments, Inc. 9.35%
Viacom K-Bank Inc. 9.35%
Warner Cable SSD, Inc. 9.35%
Total 99.0000%
LIMITED PARTNERS
- ----------------
ATC Satellite, Inc. 0.094444
Comcast DBS, Inc. 0.094444
Continental Satellite Company, Inc. 0.094444
Cox Satellite, Inc. 0.094444
G.E. Americom Services, Inc. 0.150000
New Vision Satellite 0.094444
TCI K-1 Inc. 0.094444
United Artists K-1 Investments, Inc. 0.094444
Viacom K-Band Inc. 0.094444
Warner Cable SSD, Inc. 0.094444
Total 1.0000%
</TABLE>
<PAGE>
SCHEDULE C
TO PARTNERSHIP AGREEMENT OF
K PRIME PARTNERS, L.P.
Dated: February 8, 1990
SCHEDULE OF
PARENTS
-----------
PARTNER PARENT
------- ------
ATC Satellite, Inc. Time Warner Inc.
Comcast DBS, Inc. Comcast Corporation
Continental Satellite Company, Inc. Continental Cablevision, Inc.
Cox Satellite, Inc. Cox Enterprises, Inc.
G.E. Americom Services, Inc. General Electric Company
New Vision Satellite Newhouse Broadcasting Corporation
TCI K-1, Inc. Tele-Communications, Inc.
United Artists K-1 Investments, Inc. Tele-Communications, Inc.
Viacom K-Band, Inc. Viacom Inc.
Warner Cable SSD, Inc. Time Warner Inc.
<PAGE>
Certain exhibits to this Limited Partnership Agreement may be found at the
tabs indicated.
<TABLE>
<CAPTION>
Exhibit Description Tab
------- ----------- ---
<S> <C> <C>
A Guarantor's Agreement 2
C Option Agreement 2
E Guaranty 4-12
F Ku-1 User Agreement 13
H Parents' Agreement 14
</TABLE>
Exhibit D (Key Business Assumptions); Exhibit G (Form of Certification of
Nonforeign Status); Exhibit I (Form of Promissory Note); and Exhibit J (DBS-BSS
Competitive Points of Entry and Corresponding Activity) are attached hereto.
Exhibit B was intentionally omitted.
<PAGE>
EXHIBIT D
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KEY BUSINESS ASSUMPTIONS
1. The Partnership will not incur any costs of providing subscriber
equipment, including without limitation providing any financing for such
equipment or installation, except in connection with testing and demonstrations.
2. The Partnership will lease any uplink equipment (other than encoders)
and office spaced used by it.
3. The Partnership will not provide, or incur any costs of providing, any
back office services, other than initialization and customer authorization
services and technical and billing support services.
4. Marketing and sales efforts will be conducted principally through
Affiliates of the Partners and/or a separate marketing organization established
pursuant to Section 3.03(b) of the Partnership Agreement, and the Partnership's
activities and financial commitment with respect to such efforts shall be
limited to the provision of sales support materials, affiliate marketing and
support, the provision of programming guides to subscribers, and limited
national and regional advertising and promotion.
5. The Partnership will not make any loans or advances to any Person and
will not make any distributions to the Partners pursuant to Sections 6.05 and
6.06 of the Partnership Agreement.
<PAGE>
EXHIBIT G
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CERTIFICATION OF NONFOREIGN STATUS
Section 1446 of the Internal Revenue Code of 1986, as amended (the
"Code"), requires a partnership to pay a withholding tax to the Internal Revenue
Service with respect to a partner's share of the partnership's effectively
connected taxable income for any taxable year if the partner is a foreign
partner. To inform K Prime Partners L.P. (the "Partnership") that withholding
of tax is not required under Code section 1446 with respect to its effectively
connected taxable income that is allocable to___________("Partner"), the
undersigned hereby certifies the following:
1. Partner is not a "foreign partner" within the meaning of Code
section 1446(e).
2. Partner's U.S. Taxpayer Identification Number is________________
________________________.
3. Partner's office address is_____________________________________
_____________________________________________________________________
_____________________________________________________________________.
Partner hereby agrees to notify the Partnership within sixty (60) days
of the date that Partner becomes a "foreign partner." Partner understands that
this certification may be disclosed to the Internal Revenue Service and that any
false statement contained herein could be punished by fine, imprisonment, or
both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct,
and complete, and I further declare that I have authority to provide this
certification on behalf of Partner.
Date:__________________ _________________________________
Signature
Title: __________________________
<PAGE>
EXHIBIT I
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K PRIME PARTNERS L.P.
PROMISSORY NOTE
---------------------
$____________ [City, State]
[Date]
FOR VALUE RECEIVED, the undersigned, K PRIME PARTNERS L.P., a Delaware
limited partnership (the "Partnership"), promises to pay to the order of________
______________________ a [corporation] [general partnership] ("Holder"),
on___________ , _____ , the principal ($______ ) Dollars, together with all
accrued and unpaid interest thereon. Payments of principal and interest shall be
made by certified or cashier's check, or wire transfer of immediately available
funds, in lawful money of the United States of America, at the office of Holder
located at __________________, or at such other place as Holder shall have
specified to the Partnership.
1. Interest. Interest shall accrue on the unpaid principal amount of
--------
this Note from the date hereof until the principal amount hereof shall have been
paid in full (whether at maturity, by prepayment, by acceleration or otherwise)
at a rate per annum equal to two (2) percentage points above the "Federal Short-
Term Rate" as defined in Section 1274(d)(1)(C)(i) of the Internal Revenue Code
of 1986, as amended (which rate shall change as and when the Federal Short-Term
Rate changes). Interest shall be computed on the basis of a 365/366-day year for
actual days elapsed. Interest shall be payable quarterly in arrears on the last
day of each
<PAGE>
March, June, September and December, commencing_____________ and to the extent
not paid when due shall be added to the principal amount hereof.
2. Prepayment. The Partnership may at any time prepay all or part of the
----------
outstanding principal amount of this Note, together with all accrued and unpaid
interest on the amount prepaid to the date of such prepayment.
3. Event of Default. An event of default (an "Event of Default") shall
----------------
exist if any of the following shall occur and be continuing:
(a) the Partnership shall fail to make any payment of principal or
interest on this Note on or before ten (10) days after the date of such
payment is due;
(b) the Partnership shall generally not pay its debts as such debts
become due, shall admit in writing its inability to pay its debts
generally, shall make a general assignment for the benefit of its
creditors, or shall apply for, consent to, or acquiesce in the appointment
of a trustee, receiver or other custodian for the Partnership, or for a
substantial part of its property; or, in the absence of such application,
consent or acquiescence, a trustee, receiver or other custodian is
appointed for the Partnership, or for a substantial part of the
Partnership's property and is not discharged within thirty (30) days; or
any bankruptcy, reorganization, debt arrangement or other proceeding under
any bankruptcy or insolvency law, or any dissolution or liquidation
proceeding is instituted by or against the Partnership and if instituted
against the Partnership is consented to or acquiesced in by the Partnership
or remains for thirty (30) days undismissed; or
(c) the Partnership is dissolved.
Upon the occurrences of an Event of Default, Holder may immediately declare
the unpaid principal amount of this Note and all interest accrued thereon to be
forthwith due and payable, whereupon such principal amount and interest shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Partnership.
<PAGE>
4. Nonrecourse Note. In enforcing any judgment or claim relating to
----------------
this Note, the holder of this Note shall only have recourse to the assets of the
Partnership and no general partner, limited partner or other holder of an
ownership interest of or in the Partnership, or partner, officer, director or
stockholder of any partnership, corporation or other entity that is a holder of
an ownership interest of or in the Partnership, shall have personal liability in
respect of such obligations by reason of his or its status as such general
partner, limited partner, officer, director, stockholder or holder nor shall any
guarantor of an obligation of a Partner in the Partnership have any such
personal liability in excess of such guaranty.
5. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, certified mail, return receipt requested, first-class
postage paid,
If to the Partnership:
If to the Holder:
or to such other address as either party hereto shall have last designated by
notice to the other party. Notices mailed in accordance with the foregoing
shall be deemed to have been given and made three (3) days following the date so
mailed.
6. Registration of Note. The Partnership may treat the person in
--------------------
whose name this Note is registered on the register maintained by the Partnership
at its principal office as the owner of the Note for the purpose of receiving
payment and for all other purposes, and the
<PAGE>
Partnership shall not be affected by any notice to the contrary, provided that
--------
this Note is transferable upon surrender thereof to the Partnership for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by Holder.
7. Miscellaneous.
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(a) The Partnership's obligation to make all payments under this Note
shall be absolute and unconditional and shall not be subject to any reduction,
diminution, setoff, defense or counterclaim whatsoever.
(b) The Partnership hereby waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note and assents to any
extension or postponement of the time of payment or any other indulgence.
(c) No delay or omission on the part of Holder in exercising any
right hereunder shall operate as a waiver of such right or of any other right of
Holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion.
(d) The Partnership will pay on demand all costs and expenses of
collection, including reasonable attorneys' fees, incurred or paid by Holder in
enforcing this Note.
(e) This Note shall be governed by the internal laws of the State of
Delaware, without regard to principles of conflict of laws.
(f) The paragraph headings hereof are for convenience of reference
only, and shall not be deemed to construe or affect the meaning of any of the
provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the Partnership has caused this Note to be executed by
its representative thereunto duly authorized, as of the date first above
written.
K PRIME PARTNERS L.P., a
Delaware Limited Partnership
By:__________________________
a ________ corporation,
as General Partner
By:__________________________
Its:_________________________
<PAGE>
EXHIBIT J
DBS-BSS Competitive Points of Entry and Corresponding Activity
<TABLE>
<CAPTION>
Major Events, Corresponding
Points of Competitive Tempo K-1 JV TEMPO
Entry Activity Option Activity
- ---------------------------- -------------------- -------------------------
<S> <C> <C>
New Applicant Business TEMPO Option
Development Agreement Executed
Within
TEMPO/TCI
Conditional CP
CP Due Diligence w/FCC Full Contract
Orbital Assignment */ Commitment
-
- More than 12 months - Definition Phase
from construction
- Design Phase Early Exercise of Option
- Within 12 months of
construction
Option Exercised
- Construction - Construction
</TABLE>
*/ From this point forward, semi-annual progress reports are required by the
- -
FCC and are publicly available.
<PAGE>
EXHIBIT 4.6.1
AMENDMENT OF
LIMITED PARTNERSHIP AGREEMENT OF
PRIMESTAR PARTNERS L.P.
THIS AMENDMENT OF LIMITED PARTNERSHIP AGREEMENT OF PRIMESTAR PARTNERS
L.P. (formerly K Prime Partners, L.P.), a limited partnership organized under
the laws of Delaware pursuant to the Limited Partnership Agreement dated
February 8, 1990, as previously amended (the "Agreement") and having its
principal place of business at Bala Cynwyd, Pennsylvania (the "Partnership"), is
made and entered into effective as of the first day of September, 1993, by all
of the Representatives on the Partners Committee (as those terms are defined in
the Agreement).
W I T N E S S E T H
WHEREAS, as of the date hereof the Partnership, certain partners of
the Partnership, and GE American Communications, Inc., a corporation organized
under the laws of Delaware having its principal place of business at Princeton,
New Jersey, are entering into a Services Contract and an Addendum thereto
pursuant to which said partners have approved certain amendments to the
Agreement as set forth herein in order to carry out the provisions of ARTICLE
2.A of said Addendum and to conform the Agreement to changes made to certain
Federal income tax regulations adopted after the date on which the Agreement was
entered into; and
WHEREAS, the parties hereto, acting on behalf of the partners that are
parties to the Addendum and pursuant to Section 13.11 of the Agreement, wish to
amend the Agreement as provided herein;
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements hereinafter set forth, the undersigned, constituting all of the
Representatives, unanimously agrees as follows:
1. The following definitions contained in the Agreement are amended
and replaced in their entirety with the following definitions as of the date
hereof:
Excess Negative Balance: The negative balance, if any, in a
-----------------------
Partner's Capital Account as of the end of a Fiscal year after
crediting the Partner's Capital Account for any amounts which such
---------
Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations sections 1.704-2(g)(1) and
1.704-2(i)(5) andthe amount of
<PAGE>
any Loral Satellite Financing Guarantees provided by such Partner or
an Affiliate of such Partner, and debiting the Partner's Capital
--------
Account for the items described in Regulations sections 1.704-
1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-
1(b)(2)(ii)(d)(6). The foregoing definition of Excess Negative Balance
is intended to comply with the provisions of Regulations section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith,
except that the amount of any Loral Satellite Financing Guarantees
provided by a Partner or an Affiliate of a Partner shall be credited
to such Partner's Capital Account in all events.
"Partner Nonrecourse Debt" has the meaning set forth Regulations
------------------------
section 1.704-2(b)(4).
"Nonrecourse Liability" has the meaning set forth in Regulations
---------------------
section 1.752-1(a)(2).
2. The definitions of "Minimum Gain" and "Nonrecourse Debt" are
deleted from the Agreement and the following new definitions are added to the
Agreement as of the date hereof:
"Commercial Operation Date" means the date on which Space Systems
-------------------------
Loral, Inc. declares that the first Loral Satellite has been fully
tested in orbit and is ready to begin operation providing commercial
communications services to the Partnership, having met all of the
requirements for "Delivery" under the contract for the construction of
the Loral Satellites.
"Customary Long-term Satellite Financing" means any of the
---------------------------------------
following: i. debt financing providing for equal annual
payments of principal over a period of not less than 80% of the
economic useful life of a satellite or satellites ("Traditional
-----------
Financing"); debt financing providing for annual payments of
---------
principal based substantially on the projected sources of cash
flow from one or more satellites over the economic useful life of
such satellite(s) ("Cash Flow Financing"); and sale and lease
-------------------
back financing for one or more satellites which meets the
"guideline requirements" of Rev. Proc. 75-21 and Rev. Proc. 75-28
to the extent those guidelines are then customarily followed by
financing institutions providing this type of financing ("Sale
----
Lease-back Financing").
--------------------
"Excused Contributions" means, in any period, G.E. Americom
---------------------
Services, Inc.'s pro rata share of any Loral Satellite Financing
Contributions to be made to enable the Partnership to make Loral
Satellite Financing Payments that exceed by ten percent (10%) or more
the amount of Regular Financing Payments that would be due for such
period under Customary Long-term Satellite Financing, subject to the
maximum limitation provided for below. For this purpose, the amount
of Regular Financing Payments that would be due shall be based on the
type of Customary
2
<PAGE>
Long-term Satellite Financing that corresponds to the type of
financing actually acquired for one or both of the Loral Satellites,
using Cash Flow Financing if the financing actually acquired is based
on cash flow from one or both of the Loral Satellites by the
Partnership, and Traditional Financing if any other type of financing
is acquired for one or both of the Loral Satellites. The amount of
Loral Satellite Financing Contributions that G.E. Americom Services,
Inc. shall be excused from making in any period shall not (when added
to the amount of its Excused Contributions from prior periods) exceed
the maximum Excused Contributions amount set forth below for such
period:
<TABLE>
<CAPTION>
Date of Loral Satellite Maximum Excuse
Financing Contributions Contribution Amount
----------------------- -------------------
<S> <C>
3rd Quarter 1993 $39 million
4th Quarter 1993 $42 million
1st Quarter of 1994 $45 million
2nd Quarter of 1994 $48 million
3rd Quarter of 1994 $51 million
4th Quarter of 1994 $55 million
until Commercial Operation Date
1st 12 mos. after Commercial Operation Date $49 million
2nd 12 mos. after Commercial Operation Date $45 million
3rd 12 mos. after Commercial Operation Date $41 million
4th 12 mos. after Commercial Operation Date $36 million
5th 12 mos. after Commercial Operation Date $32 million
6th 12 mos. after Commercial Operation Date $27 million
7th 12 mos. after Commercial Operation Date $22 million
8th 12 mos. after Commercial Operation Date $18 million
9th 12 mos. after Commercial Operation Date $13 million
10th 12 mos. after Commercial Operation Date $9 million
</TABLE>
For the avoidance of doubt, in the event the aggregate amount of G.E.
Americom Services, Inc.'s Excused Contributions for prior periods
exceeds the maximum
3
<PAGE>
Excused Contributions amount set forth above for a subsequent period,
G.E. Americom Services, Inc. shall not be required to contribute such
excess amount to the Partnership.
Further, nothing in this definition shall prevent the Partnership from
acquiring more than one type of financing for Loral Satellite
Acquisition Costs.
"Loral Satellite" means either of the two satellites being
---------------
constructed by Space Systems Loral, Inc. for TEMPO under Contract No.
TPO 1-290 for a TEMPO Direct Broadcast Satellite System, as most
recently amended by Contract Amendment Number 4 dated July 19, 1993
and as it may be amended from time to time or, as the case may be,
pursuant to a future FCC authorization in the Fixed Satellite Service
under Contract No. TPO 1-693 between TEMPO and Space Systems Loral,
Inc. for a TEMPO Fixed Satellite System dated July 19, 1993, as it may
be amended from time to time. "Loral Satellites" means both of the
----------------
Loral Satellites.
"Loral Satellite Acquisition Costs" means the Partnership's costs
---------------------------------
of acquisition, construction, and launch of the Loral Satellites,
including the costs of any directly related financing arrangements.
"Loral Satellite Financial Guarantees" means any financing
------------------------------------
guarantees (including direct guarantees and indirect credit support by
means of letters of credit or other credit support mechanisms) with
respect to the Partnership's Loral Satellite Acquisition Costs and any
pledges of Partnership Interests as security for any such financial
guarantees.
"Loral Satellite Financing Contributions" means Additional
---------------------------------------
Capital Contributions to be made to enable the Partnership to make
Loral Satellite Financing Payments.
"Loral Satellite Financing Payments" means payments made by the
----------------------------------
Partnership pursuant to, or in connection with, third party financing
of Loral Satellite Acquisition Costs, including reimbursement of
amounts paid pursuant to Loral Satellite Financial Guarantees but
excluding the customary costs of refinancing any satellite financing.
"Nonrecourse Deductions" has the meaning set forth in Regulations
----------------------
section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of
Regulations section 1.704-2(c).
"Partner Minimum Gain" means an amount, with respect to each
--------------------
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that
would result if such
4
<PAGE>
Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations section 1.704-2(i)(3).
"Partner Nonrecourse Deductions" has the meaning set forth in
------------------------------
Regulations section 1.704-2(i)(2), and the amount of Partner
Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for
a Partnership Year shall be determined in accordance with the rules of
Regulations section 1.704-2(i)(2).
"Partnership Minimum Gain" has the meaning set forth in
------------------------
Regulations section 1.704-2(b)(2), and the amount of Partnership
Minimum Gain, as well as any net increase or decrease in a Partnership
Minimum Gain, for a Partnership Year shall be determined in accordance
with the rules of Regulations section 1.704-2(d).
"Regular Financing Payments" means the amount of Loral Satellite
--------------------------
Financing Payments the Partnership would be required to make in a
particular period with respect to the Loral Satellites after the
Commercial Operation Date pursuant to the terms of any Customary Long-
term Satellite Financing.
"Services Contract" means that certain Services Contract between
-----------------
the Partnership and GE Americom dated as of September 1, 1993, as it
may be amended from time to time.
"TEMPO" means TEMPO Satellite, Inc., a corporation organized
-----
under the laws of Oklahoma, and its successors and assigns.
3. The provisions of Sections 6.07 of the Agreement up through and
including 6.07(f) are amended and replaced in their entirety with the following,
Sections 6.07(g) and Sections 6.07(h) of the Agreement are renumbered Sections
6.07(j) and 6.07(k), respectively, and the following new Sections 6.07(g),
6.07(h), and 6.07(i) are added to the Agreement, all as of the date hereof:
6.07. Special Allocation Rules. The following special
------------------------
allocation rules shall apply notwithstanding the provisions of
Sections 6.02 and 6.03, and the provisions of Section 6.02 and 6.03
shall be applied only after giving effect to the special allocation
rules listed below. In the event of a conflict between two or more of
these special allocation rules, the earlier listed rule shall govern:
6.07(a) Minimum Gain Chargeback. If there is a net decrease in
-----------------------
Partnership Minimum Gain during any Fiscal Year, each Partner shall be
specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as
determined under Regulations section 1.704-2(g). Allocations pursuant
to the previous sentence shall be made in proportion to the
5
<PAGE>
the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations section 1.704-2(f)(6). This Section
6.07(a) is intended to comply with the minimum gain chargeback
requirements in Regulations section 1.704-2(f) and for purposes of
this Section 6.07(a) only, each Partner's Excess Negative Balance
shall be determined prior to any other allocations pursuant to
Sections 6.02 and 6.03 of this Agreement or this Section 6.07 with
respect to such Fiscal Year and without regard to any decrease in
Partner Minimum Gain during such Partnership Year.
6.07(b) Partner Minimum Gain Chargeback. If there is a net
-------------------------------
decrease in Partner Minimum Gain attributable to a Partner Nonrecourse
Debt during any Fiscal Year, each Partner who has a share of the
Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations section 1.704-2(i)(5), shall
be specially allocated items of Partnership income and gain for such
year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations section 1.704-2(i)(5). Allocations
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in
accordance with Regulations section 1.704-2(i)(4). This Section
6.07(b) is intended to comply with the minimum gain chargeback
requirement in section 1.704-2(i)(5) of the Regulations and shall be
interpreted consistently therewith. Solely for purposes of this
Section 6.07(b), each Partner's Excess Negative Balance shall be
determined prior to any other allocations pursuant to Sections 6.02
and 6.03 of the Agreement or this Section 6.07 with respect to such
Fiscal year, other than allocations pursuant to Section 6.07(a)
hereof.
6.07(c) Qualified Income Offset. In the event any Partner
-----------------------
unexpectedly receives any adjustments, allocations or distributions
described in Regulations sections 1.704-1(b)(2)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), and after giving effect
to the allocations required under Section 6.07(a) and 6.07(b), such
Partner has an Excess Negative Balance, items of Partnership income
and gain (consisting of a pro rata portion of each item of Partnership
income, including gross income and gain for the Fiscal Year) shall be
specifically allocated to such Partner in an amount and manner
sufficient to eliminate, to the extent required by the Regulations,
its Excess Negative Balance created by such adjustments, allocations
or distributions as quickly as possible.
6.07(d) Nonrecourse Deductions. Nonrecourse Deductions for any
----------------------
Fiscal Year shall be allocated to the Partners in accordance with
their respective Percentage Interests.
6
<PAGE>
6.07(e) Net Losses Attributable to Loral Satellite Acquisition
------------------------------------------------------
Costs. Any deductions or items of Net Loss or Book Tax Loss
-----
attributable to Loral Satellite Acquisition Costs (including related
financing and loans from Partners or their Affiliates with respect to
Loral Satellite Acquisition Costs) or to the disposition of a Loral
Satellite shall be specially allocated to the Partners in accordance
with the manner in which such costs are allocated for purposes of
section 752 of the Code and the Regulations thereunder.
6.07(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse
------------------------------
Deductions for any Fiscal year that have not been specially allocated
pursuant to Section 6.07(e) shall be specially allocated to the
Partner who bears the economic risk of loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable in accordance with Regulations section 1.704-2(i).
6.07(g) Code Section 754 Adjustments. To the extent an
----------------------------
adjustment to the adjusted tax basis of any Partnership asset pursuant
to section 734(b) or 743(b) of the Code is required, pursuant to
Regulations section 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis), and such item of gain or loss shall
be specially allocated to the Partners in a manner consistent with the
manner in which their Capital Accounts are required to be adjusted
pursuant to such section of the Regulations.
6.07(h) Excess Negative Balances. A Partner shall not be
------------------------
allocated any item of deduction or loss (including Net Loss and Book
Tax Loss) to the extent such allocation would give rise to or increase
an Excess Negative Balance in such Partner's Capital Account.
6.07(i) Allocation of Nonrecourse Liabilities. For purposes of
-------------------------------------
Regulations section 1.752-3(a), the Partners agree that Nonrecourse
Liabilities of the Partnership in excess of the amount of Partnership
Minimum Gain shall be allocated among the Partners in accordance with
their respective Percentage Interests.
4. The following new Sections 6.07(l) and 6.07(m) are added to the
Agreement as of the date hereof:
6.07(l) Special Allocation of Gross Income to Offset Special
----------------------------------------------------
Allocations of Loss. To the extent the Partnership has items of gross
-------------------
income in any Fiscal year which do not result in Cash Flow because of
Loral Satellite Financing Payments made during such Fiscal Year or
because gain is recognized for Federal income tax purposes during such
Fiscal year as a result of a disposition of all or part of a Loral
7
<PAGE>
Satellite, such items of gross income shall be specially allocated to
the Partners that were allocated items of deduction, net Loss or Book
Tax Loss pursuant to Section 6.07(e), pro rata in proportion to the
excess of (i) the aggregate amount of the times of deduction, Net Loss
and Book Tax Loss specially allocated to each such Partner pursuant to
Section 6.07(e), over (ii) the aggregate amount of gross income
specially allocated to such Partner pursuant to this Section 6.07(l),
until each such Partner has been allocated pursuant to this Section
6.07(l) items of gross income in an amount equal to the aggregate
amount of items of deduction, Net Loss and Book Tax Loss specially
allocated to it pursuant to Section 6.07(e).
6.07(m) Residual Allocations. To the extent this Agreement does
--------------------
not provide for the allocation of Net Income, Net Loss, Book Tax Gain,
or Book Tax Loss or any item thereof, such amount shall be allocated
to the Partners in accordance with their Percentage Interests.
5. The following new Section 5.09 is added to the Agreement as of
the date hereof:
5.09. Loral Satellite Financing Guarantees and Contributions.
------------------------------------------------------
5.09(a) Neither G.E. Americom Services, Inc. nor any of its
Affiliates shall be required to provide any Loral Satellite Financial
Guarantees. No Partner or Affiliate shall have any obligation to
provide any Loral Satellite Financial Guarantees as a result of this
Section 5.09(a). In the event a Partner or its Affiliate provides any
Loral Satellite Financial Guarantees, the terms of such Loral
Satellite Financial Guarantees may, if approved by the Partners
committee, provide the party providing such Loral Satellite Financial
Guarantees with a right of reimbursement by the Partnership (or with a
right of subrogation) with respect to any payments made by such party
pursuant to such Loral Satellite Financial Guarantees (including
payments resulting from foreclosure on collateral).
5.09(b) Prior to the Commercial Operation Date, if the Partners
Committee decides to fund any portion of the Loral Satellite
Acquisition Costs with funds provided by the Partners or their
Affiliates, such funds shall be provided in the form of loans to the
Partnership from the Partners (or their Affiliates) who agree to make
them, other than any Non-paying Partners and any Sanctioned Partners,
and noting the form of Additional Capital Contributions; provided,
however, that this Section 5.09(b) shall not preclude the Partners
Committee, acting pursuant to Section 5.03 and 7.05(f), from calling
for Additional Capital Contributions in order to enable the
Partnership to make Loral Satellite Financing Payments. The terms and
conditions of any such loans shall be substantially in accordance with
the terms and conditions set for in Section 5.06 for loans from
Partners to the Partnership and shall be expressly nonrecourse to the
Partners, but may be fully recourse to the
8
<PAGE>
Partnership. Prior to the Commercial Operation Date, the Partnership
shall not make any payments of principal or interest on any such loans
from funds provided by Additional Capital Contributions. In the event
any third party providing financing to the Partnership will not permit
a portion of such Loral Satellite Acquisition Costs to be provided in
the form of loans from the Partners or their Affiliates, the Partners
will act in good faith to arrange for such portion to be provided in a
form that is permitted by such third party creditors and provides for
substantially equivalent economic terms for the Partners, their
Affiliates, and the Partnership. No Partner or Affiliate shall have
any obligation to make any loans or other payments to the Partnership
as a result of this Section 5.09(b).
5.09(c) G.E. Americom Services, Inc. shall not be required (but,
in its sole discretion, it may elect) to make any Loral Satellite
Financing Contributions that are called for to enable the Partnership
to make Loral Satellite Financing Payments, irrespective of whether
the Representative appointed by G.E. Americom Services, Inc., votes
for or against calling for such Loral Satellite Financing
Contributions. G.E. Americom Services, Inc. shall not be considered a
Non-paying Partner or otherwise to be in default under this Agreement,
and shall not be precluded from participating in future Additional
Capital Contributions, as a result of its failure to make its share of
any Loral Satellite Financing Contributions.
5.09(d) Solely for purposes of calculating the Percentage
Interests of the Partners, (i) G.E. Americom Services, Inc. shall be
treated as having made Additional Capital Contributions to the
Partnership equal to the amount of Loral Satellite Financing
Contributions that it elects not to make pursuant to Section 5.09(c)
that are Excused Contributions, and (ii) the amount of Additional
Capital Contributions that the Partners that actually contribute such
Loral Satellite Financing Contributions are treated as having made
shall be reduced by the amount of such Excused Contributions, with
such reduction to be allocated among such Partners pro rata in
proportion to the amount of such Loral Satellite Financing
Contributions made by each. To the extent the amount of Loral
Satellite Financing Contributions that G.E. Americom Services, Inc.
elects not to make pursuant to Section 5.09(c) are not Excused
Contributions, the Percentage Interest of G.E. Americom Services, Inc.
shall be reduced as provided in Section 5.03(b).
6. The parties hereto agree and confirm that the amendments to the
Agreement set forth in this Amendment are not intended to adversely affect the
economic rights or increase the economic obligations of any current partner of
the Partnership that is not a party to this Amendment or any Direct Affiliate
(as defined in the Agreement) of such partner.
7. Each reference in the Agreement to a section or provision of the
Agreement shall be deemed to be a reference to the Agreement as amended by this
Amendment.
9
<PAGE>
8. This Amendment shall be part of the Agreement and shall be
governed by the provisions of the Agreement generally applicable to the
provisions thereof, including, without limitation, the provision of the
Agreement pursuant to which the rights and obligations of the parties hereto,
and any claims or disputes relating thereto, shall be governed by, and construed
in accordance with the laws of the State of Delaware (but not including the
choice of law rules thereof).
9. To facilitate execution, this Amendment may be executed in as
many counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons requires to bind any party, appear on one or more of
the counterparts. All counterparts collectively shall constitute a single
agreement. It shall not be necessary in making proof of this Amendment to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all the parties hereto.
10
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment,
or have caused this Amendment to be duly executed on their behalf, as of the day
and year first herein above set forth.
_________________________________________
Daniel O'Brien, a Representative,
on behalf of ATC Satellite, Inc.
_________________________________________
Mark Coblitz, a Representative,
on behalf of Comcast DBS, Inc.
_________________________________________
Jeff DeLorme, a Representative,
on behalf of Continental Satellite Company, Inc.
_________________________________________
Ajit Dalvi, a Representative,
on behalf of Cox Satellite, Inc.
_________________________________________
John Connelly, a Representative,
on behalf of G.E. Americom Services, Inc.
_________________________________________
Daniel Cavello, a Representative,
on behalf of New Vision Satellite
11
<PAGE>
_________________________________________
Gary Howard, a Representative,
on behalf of TCI K-1, Inc.
_________________________________________
Gary Howard, a Representative,
on behalf of United Artists K-1 Investments, Inc.
_________________________________________
Daniel O'Brien, a Representative,
on behalf of Warner Cable SSD, Inc.
12
<PAGE>
EXHIBIT 4.6.2
AMENDMENT
of
LIMITED PARTNERSHIP AGREEMENT
of
PRIMESTAR PARTNERS L.P.
THIS AMENDMENT OF LIMITED PARTNERSHIP AGREEMENT OF PRIMESTAR
PARTNERS L.P. (formerly K Prime Partners, L.P.), a limited partnership organized
under the laws of Delaware pursuant to the Limited Partnership Agreement, dated
February 8, 1990, as previously amended (the "Agreement") and having its
principal place of business at Bala Cynwyd, Pennsylvania (the "Partnership"), is
made and entered into effective as of the 15th day of December, 1993, by all of
the Representatives on the Partners Committee (as those terms are defined in the
Agreement).
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the parties hereto wish to amend the Agreement pursuant
to Section 13.11 thereof as provided herein;
NOW, THEREFORE, the undersigned, constituting all of the
Representatives, unanimously agree as follows:
1. Section 1.01 of Article I is amended as follows:
A. The definition set forth below is added immediately
following the definition of the term "FCC":
"Final State Judgment: The Final Judgment as to all
--------------------
Defendants except Viacom, Inc. and Viacom K-Band Inc. in the
action, titled The States of New York, et al, v. Primestar
-------------------------------------------
Partners, L.P., et al., in the United States District Court,
----------------------
Southern District of New York, 93 Civ. Nos. 3868-3907."
B. The definition set forth below is added immediately
following the definition of the term "Guaranty":
"Independent Member: A member of the Partners Committee, or
------------------
any successor thereto, appointed pursuant to Section 7.03A."
-------------
C. The definition of "Majority Vote" is amended to read in its
entirety as follows:
<PAGE>
"Majority Vote: The affirmative vote of the following
--------------
persons who are not required to abstain from voting with
respect to a particular matter at the time that a vote
thereon is taken: (i) a majority of the Representatives and
(ii) a majority of the members (i.e., the Representatives
----
and the Independent Members) on the Partners Committee."
D. In the definition of the term "Super-majority Vote", the
phrase "The affirmative vote", at the beginning thereof is
amended to read "A Majority Vote and the affirmative vote".
2. Section 7.02(b) of Article VII is amended by amendment of
the phrase "or any other Person" to read "the Independent Members, or any
other Person".
3. Article VII is amended by addition of the following new
Section 7.03A immediately preceding Section 7.04:
"Section 7.03A. Appointment of Independent Members. From and
----------------------------------
after December 15, 1993, the Partners Committee shall include two
(20) Independent Members or, in the event that there are more
then twenty (2) members of the Partners Committee, three (3)
Independent Members. Each Independent Member shall be appointed
and may be removed (with or without cause) by a Majority Vote at
any duly convened meeting of the Partners Committee. An
Independent Member shall be required to abstain from voting with
respect to his or her appointment or removal. An individual shall
be eligible to be appointed as an Independent Member only if such
individual would be considered "independent" as that term is used
in subparagraph IV(I)(3) of the Final State Judgment. An
Independent Member may not be a Representative."
4. Section 7.06 of Article VII is amended to read in its
entirety as follows:
"7.06. Meetings of Partners Committee. Regular meetings of
------------------------------
the Partners Committee regarding any matters shall be held at
least quarterly or more frequently as the Partners Committee may
decide and special meetings may be called from time to time by
Representatives of any two General Partners, which request shall
specify the purpose of such a meeting of the Partners Committee
shall be sent to each of the Representatives and each of the
Independent Members at their record addresses (as may be changed
by written notice to the Partnership) and shall specify the time,
date, place and purpose of such meeting. Notification of a
meeting shall be sent within ten (10) business days after the
Partnership's receipt of a proper request and such meeting shall
be held not less than ten (10) nor more than thirty (30) business
days after notice thereof is given, unless such notice is waived
in writing by all Representatives and Independent Members. Any
Representative or Independent Member participating in a meeting
of the Partners Committee shall be deemed to waive notice of such
meeting. Any meeting of the Partners Committee may be held at the
-2-
<PAGE>
principal office of the Partnership or at such other location as
the Partners Committee may deem appropriate. Representatives and
Independent Members may participate in a meeting of the Partners
Committee by conference telephone or other communications
equipment by means of which all Representatives and Independent
Members may participate in a meeting of the Partners Committee by
conference telephone or other communications equipment by means
of which all Representatives and Independent Members
participating can hear each other. Any action required or
permitted to be taken at any meeting of the Partners Committee
may be taken without a meeting, if all of the Representatives and
Independent Members consent thereto in writing. The Partners
Committee may adopt such other procedural rules with respect to
the meetings and other conduct of the Partners Committee as it
may deem desirable."
5. Section 7.12 of Article VII is amended (i) by the addition
of the phrase ", Independent Members" in the caption immediately
following the word "Representatives", (ii) by addition of the phrase
", each Independent Member" immediately following the word
"Representative" in the second line of Section 7.12(a), (iii) by the
addition of the phrase "an Independent Member," immediately following
the word "Representative" in the sixteenth line of Section 7.12(a) and
(iv) by the addition of the phrase "an Independent Member,"
immediately following the word "Representative" in Section 7.12(c).
6. Section 7.13 of Article VII is amended by addition of the
phrase," the Independent Members" after the word "Representatives".
7. Section 7.14 of Article VII is amended (i) by deletion of
Sections 7.14(c) and 7.14(d) and (ii) by amendment of Section 7.14(b)
to read in its entirety as follows:
"7.14(b) In establishing the standards and procedures for and
conducting the process of selecting a Programming Service within a
category, including the negotiation of the terms and conditions of the
license to distribute the same, the Partners Committee shall in all
respects deal fairly, equitably and in good faith with the Direct
Affiliates of the Programmer Partners that produce Programming
Services and desire to license the same to the Partnership. If after
due consideration of all license offers in the category selected by
the Partnership, an offer made by a Direct Affiliate of a Programmer
Partner is not accepted, such Direct Affiliate shall receive a written
explanation of the specific reasons that its Programming Service was
not selected.
If the Direct Affiliates of more than one separate
Programmer Partner submit offers to license (a "Direct Affiliate
Offer") a Programming Service of the category and kind and satisfying
the standards established by the Partners Committee then as between
such Direct Affiliate Offers the selection will be made on the basis
of the best terms offered and the quality and consumer appeal of the
relevant Programming Services and, if such offers and Programming
Services are otherwise comparable,
-3-
<PAGE>
such other considerations relating to the value of such Programming
Services to the Partnership's business as the Partners Committee in
its sole discretion determines to be appropriate."
8. Article VIII is amended to read in its entirety as follows:
"ARTICLE VIII
COMPENSATION OF REPRESENTATIVES AND INDEPENDENT
MEMBERS; PAYMENT OF PARTNERSHIP EXPENSES
--------------------------------------------------------
8.01 Compensation of Representatives. Except as expressly
-------------------------------
provided in Section 8.03 or pursuant to arrangements contemplated by
------------
Section 7.12, the Representatives shall not receive any compensation
------------
from the Partnership for services rendered in their capacity as
Representatives on the Partners Committee.
8.02 Compensation of Independent Members. In addition to
-----------------------------------
the arrangements contemplated by Section 7.12, the Independent Members
------------
shall receive such compensation from the Partnership for services
rendered in their capacity as Independent Members on the Partners
Committee as the Partners Committee shall from time to time determine.
8.03 Partnership Expenses. The Partnership shall bear all
--------------------
costs and expenses incurred in connection with the management and
operation of the business and affairs of the Partnership or in
carrying out the purposes of the Partnership (exclusive of the costs
and expenses of each Representative incurred in connection therewith,
which costs and expenses (other than as provided in Section 7.12)
------------
shall be borne by the Partner which appointed such Representative). In
the event that the Representatives, the Partners, the Independent
Members, or any one of them, at any time or from time to time advance
their own funds to pay any such costs or expenses, they shall be
entitled to reimbursement of such funds from the Partnership promptly
upon demand so long as such costs or expenses are approved by the
Partners Committee as part of the approval of the Annual Operating
Budget or are otherwise specifically approved by the Partners
Committee."
9. Section 10.06(b) of Article X is amended by deletion of the
following sentence from the first paragraph thereof.
"If at a time when G.E. Americom Services, Inc. is not a Programmer
Partner a Direct Affiliate of G.E. Americom Services, Inc. licenses
any of its Programming Services ot any Similar Business, then such
Direct Affiliate shall be deemed for purposes hereof to have acquired
an equity interest in such Similar Business, unless
-4-
<PAGE>
such Direct Affiliate agrees to comply, and thereafter complies, with
all provisions of Section 7.14(c) applicable to a Direct Affiliate of
a Programmer Partner."
10. Section 10.06(c)(ii) of Article X is amended by deletion of
the following sentence therefrom:
"In the event the Partners Committee elects the remedy specified in
this clause (ii), any license agreement to which the Partnership and
any Direct Affiliate of the Sanctioned Partner are parties on the
closing date shall, at the Partners Committee's election if the
remaining term of such license agreement is less than three years, be
amended as of the closing date to provide for a minimum remaining term
of three years."
11. Section 10.06(c) of Article X is amended by deletion of the
following sentence from the third paragraph thereof:
"Notwithstanding the foregoing, if G.E. Americom Services, Inc. is a
Notifying Partner solely for virtue of the second sentence of
subsection (b) above the Partners Committee determines to exercise the
remedy specified in clause (ii) of this subsection (c), then the
purchase price for its Partnership Interest shall be payable solely in
cash."
12. The amendments to the Agreement effected by this Amendment
(other than those specified in Section 7, 9, 10 and 11 hereof) shall
terminate on October 2, 1997 (or, if earlier, the date following the date
on which the provisions of subparagraph IV(I)(3) of the Final State
Judgment expire or are terminated and on and after such date the provisions
of the Agreement which were amended by such amendments (other than those
specified in Sections 7, 9, 10 and 11) shall be restored to the text which
was in effect on December 14, 1993, as amended, if amended, by any
amendments to the Agreement which become effective subsequent to this
Amendment.
13. Each reference in the Agreement to a section or provision of the
Agreement shall be deemed to be a reference to the Agreement as amended by
this Amendment.
14. To facilitate execution, this Amendment may be executed in as
many counterparts as may be required; and it shall not be necessary that
the signatures of, or on behalf of, each party, or that the signatures of
all persons required to bind any party, appear on each counterpart; but it
shall be sufficient that the signature of, or on behalf of, each party, or
that the signatures of the persons required to bind any party, appear on
one more of the counterparts. All counterparts collectively shall
constitute a single agreement. It shall not be necessary in making proof of
this Amendment to produce or account for more than a number of counterparts
containing the respective signatures of, or on behalf of, all the parties
hereto.
-5-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment,
or have caused this Amendment to be duly executed on their behalf, as of the day
and year first herein above set forth.
_______________________________________
Daniel O'Brien, a Representative,
on behalf of ATC Satellite, Inc.
_______________________________________
Mark Coblitz, a Representative,
on behalf of Comcast DBS, Inc.
_______________________________________
Jeff DeLorme, a Representative,
on behalf of Continental Satellite
Company, Inc.
_______________________________________
Ajit Dalvi, a Representative,
on behalf of Cox Satellite, Inc.
_______________________________________
John Connelly, a Representative,
on behalf of G.E. Americom Services,
Inc.
_______________________________________
Daniel Cavello, a Representative,
on behalf of New Vision Satellite
_______________________________________
Gary Howard, a Representative,
on behalf of TCI K-1, Inc.
_______________________________________
Gary Howard, a Representative,
on behalf of United Artists K-1
Investments, Inc.
_______________________________________
Daniel O'Brien, a Representative,
on behalf of Warner Cable SSD, Inc.
-6-
<PAGE>
EXHIBIT 4.7
AGREEMENT
This Agreement (the "Agreement") made as of February 8, 1990 by and
among Cox Enterprises, Inc. ("Cox"); Comcast Corporation ("Comcast");
Continental Cablevision, Inc. ("Continental"); Newhouse Broadcasting Corporation
("Newhouse"); Tempo Satellite, Inc., a wholly owned subsidiary of TCI
Development Corporation ("TSI"); TCI Development Corporation ("TCI Development")
and Tele-Communications, Inc. ("TCI") (Cox, Comcast, Continental, Newhouse, TSI,
TCI Development, and TCI are collectively referred to herein as the "Companies"
and individually, as the "Company") sets forth the understanding of the parties.
WHEREAS, Affiliates of the Companies and certain other parties have
entered into that certain Limited Partnership Agreement, dated the date hereof
(the "Partnership Agreement") which establishes K Prime Partners L.P., a
Delaware limited partnership (the "Partnership");
WHEREAS, the Partnership and TSI have entered into an option agreement
dated the date hereof concerning the purchase or lease by the Partnership of
certain satellite capacity (the "Tempo Option");
WHEREAS, each Company desires to offer to the other Companies the
opportunity to participate in any venture in which any Company or an affiliate
of any Company acquires an interest and which is engaged in a BSS Business (as
defined below).
THEREFORE, the parties hereto hereby agree as follows:
1. Definitions:
-----------
(a) "Affiliated Group" of a Company shall mean such Company and
all Persons which are such Company's Direct Affiliates.
(b) "Affiliated Transaction" shall mean any event, including
without limitation a sale, lease, transfer, dividend, distribution, merger,
consolidation, reorganization, recapitalization, spin-off, split-up, split-off,
or any other type of disposition involving the transfer of assets, including
without limitation stock or any security or partnership interest, which prior to
such event were held by a member of an Affiliated Group, being held by any
Person which is not a member of such Affiliated Group but which Person either is
the ultimate Parent of, or has the same ultimate Parent (within the meaning of
the HSR) as such Affiliated Group.
(c) "BSS Business" shall mean the business of providing
television programming by uplink to Broadcast Satellite Service or higher
frequency domestic satellite transponders either (i) to distributors who
directly or indirectly redistribute such programming to
<PAGE>
HSDs (as defined below) or (ii) directly to HSDs. For purposes of this
definition, the term "HSD" means the residential owner, lessee or user of an
individual home satellite earth station.
(d) "Direct Affiliate" shall mean with respect to each Company
(i) each other entity of which such Company owns directly, or indirectly through
one or more Direct Affiliates, equity interests representing a majority of the
voting power of the outstanding equity interests of such entity or the right
appoint a majority of the members of the Board of Directors or equivalent
governing body of such entity, and (ii) each other entity with respect to which
such Company directly, or indirectly through one or more other Direct
Affiliates, exercises or is entitled to exercise, by contract or otherwise,
management control.
(e) "HSR" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder, as in effect on the date hereof.
(f) [Intentionally Left Blank]
(g) "Person" shall mean any individual, corporation,
partnership, joint venture, association, trust, estate, or other entity or
organization.
All capitalized terms not otherwise defined in this Agreement shall
have the meaning ascribed to them in the Partnership Agreement.
2. Tag-Along Right.
---------------
(a) If a Company or a Direct Affiliate of a Company engages in a
BSS Business or holds or acquires or has a right to acquire an equity interest
in a BSS Business or in an entity engaged in or that proposes to engage in a BSS
Business, or is or becomes entitled to exercise a management role with respect
to such BSS Business or entity (including, by way of example and not by way of
limitation, by representation on the board of directors or other equivalent
governing body of such entity) at any time that such Company (or a Direct
Affiliate thereof) is a Partner in the Partnership or at any time during the one
(1) year after such Company (or a Direct Affiliate thereof) ceases to be a
Partner in the Partnership, then such company (the "Investing Company") shall
promptly upon, but no more than ten (10) days after, obtaining knowledge (after
due inquiry) of such acquisition or entitlement, provide the other Companies
with a written offer to participate with such Investing Company in such
acquisition or entitlement on terms and conditions comparable to these available
to the Investing Company pro rata in accordance with the Companies' on their
Direct Affiliates' respective Percentage Interests
2
<PAGE>
in the Partnership as of the time of such offer. The other Companies shall
accept or reject the Investing Company's offer to participate in such
acquisition or entitlement within ninety (90) days after receipt of the written
notice from the Investing Company. In the event any one or more of the Companies
rejects the aforesaid offer, the remaining Companies including the Investing
Company shall participate in such investment or entitlement pro rata in
accordance with such Companies' or their Direct Affiliates' respective
Percentage Interests in the Partnership as of the time of such offer.
Notwithstanding anything herein contained, in the event that the Partners
Committee of the Partnership shall have voted that the Partnership shall not
engage in a BSS Business or make the commitment required in order to continue
the characterization of a BSS Business as a Similar Business, the Investing
Company shall have voted in favor of such engaging or commitment (unless such
Investing Company was required by the terms of the Partnership Agreement to
abstain from such vote in favor of such engaging or commitment), and any Company
(a "Negative Company") shall have voted against such engaging or commitment,
then the Investing Company shall not be required to provide such written offer
to a Negative Company and only the remaining Companies including the Investing
Company shall be entitled to participate in such investment or entitlement in
accordance with this Section 2.
(b) Prior to the consummation of any Affiliated Transaction by a
Company or any member of its Affiliated Group such Company shall cause the
Person which as a result of such Affiliated Transaction shall be the transferee
of such assets to become a party to this Agreement subject to all its provisions
including without limitation Section 2.
(c) Prior to the date of this Agreement, TCI publicly announced
that its Board of Directors had authorized the officers of TCI to develop a plan
for the distribution of certain of TCI's assets to its stockholders. If the plan
that is finally approved by TCI's Board provides for the distribution to TCI's
stockholders (whether in the form of a dividend, distribution, spin-off or
otherwise) of assets (including, without limitation, stock or any security or
partnership interest) connected with the operation of cable television systems
serving a majority of the subscribers to cable television systems directly or
indirectly owned by TCI prior to such distribution, TCI shall prior to effecting
such distribution cause the entity or entities of the equity securities of which
are being distributed to TCI's stockholders to become a party to this Agreement,
subject to all its provisions, including, without limitation, Section 2.
(d) If any Company receives from any Person which was formerly a
member of its Affiliated Group a right to acquire an interest in a BSS Business
or to exercise a management role with respect to a BSS Business, such right or
entitlement shall be deemed to be a right or entitlement subject to Section 2
hereof, and such Company shall be obligated to provide to the other Companies
the written offer required by, and the other Companies shall have the rights set
forth in, Section 2.
3. Confidentiality. Except as required by law, government
---------------
regulation or the Partnership Agreement (but only to the extent required
thereby), none of the parties hereto shall announce the existence or terms of
this Agreement or of any transaction contemplated hereunder
3
<PAGE>
without the prior written consent of the other parties hereto, and all
announcements (other than those required by law or government regulation) by the
parties concerning such transactions shall be satisfactory to and previously
approved by all parties.
4. Term. This Agreement shall continue until the first to occur of
----
(i) the date on which the term of the Partnership expires under the Partnership
Agreement, (ii) the date on which the Partnership is dissolved, or (iii) the
date on which none of the Companies or any of their Direct Affiliates remain a
Partner of the Partnership. Notwithstanding anything herein contained, this
Agreement at any time may be either terminated or in any way amended or modified
only by a written instrument signed by all the parties hereto.
5. Governing Law. This Agreement shall be governed by, construed
-------------
and enforced in accordance with the laws of the State of Delaware without
reference to principles of conflict of laws. This Agreement and all of the
rights, liabilities and obligations of the parties hereunder shall be subject to
applicable federal law.
6. Notices. All notices, demand, requests or other communications
-------
which may be or are required to be given, served, or sent by any party pursuant
to this Agreement shall be in writing and shall be hand delivered (including
delivery by courier), sent by recognized overnight courier service, mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by telegram, telex or facsimile transmission, addressed
as follows:
If to Cox Enterprises, Inc.:
Cox Enterprises, Inc.
1400 Lake Hearn Drive
Atlanta, GA 30319
Attention: Mr. Ajit Dalvi
With a copy (which shall not constitute notice) to:
Dow, Lohnes & Albertson
1255 23rd St., N.W. - Suite 500
Washington, D.C. 20037
Attention: Stuart A. Sheldon, Esq.
If to Comcast Corporation:
Comcast Corporation
1414 South Penn Square - 34th Floor
Philadelphia, PA 19102-2480
Attention: Mark A. Coblitz
4
<PAGE>
With a copy (which shall not constitute notice) to:
Comcast Corporation
1414 South Penn Square - 34th Floor
Philadelphia, PA 19102-2480
Attention: Laura Kramedas, Esq.
If to Tele-Communications, Inc.:
4643 South Ulster Street - Suite 600
Denver, Colorado 80237
Attention: John J. Sie
With a copy similarly addressed to the Legal Department.
With a copy (which shall not constitute notice) to:
Shea & Gould
1251 Sixth Avenue
New York, NY 10027
Attention: Elizabeth Markowski, Esq.
If to Continental Cablevision, Inc.:
The Pilot House - Lewis Wharf
Boston, MA 02110
Attention: Timothy P. Neher
With a copy (which shall not constitute notice) to:
Sullivan & Worcester
1 Post Office Square
Boston, MA 02109
Attention: Lee Dunham, Esq.
If to Newhouse Broadcasting Corporation:
112 Northern Concourse
P.O. Box 4872 (Mailing Address)
North Syracuse, NY 13212
Attention: Daniel P. Cavallo
5
<PAGE>
With a copy (which shall not constitute notice) to:
Sabin, Bermant & Gould
350 Madison Avenue
New York, NY 10017
Attention: Arthur Steinhauer, Esq.
If to TCI Development Corporation:
4643 South Ulster Street - Suite 600
Denver, Colorado 80237
Attention: John J. Sie
With a copy to the Legal Department.
With a copy (which shall not constitute notice) to:
Shea & Gould
1251 Sixth Avenue
New York, NY 10027
Attention: Elizabeth Markowski, Esq.
If to Tempo Satellite, Inc.:
4643 South Ulster Street - Suite 600
Denver, CO 80237
Attention: John J. Sie
With a copy to the Legal Department.
With a copy (which shall not constitute notice) to:
Shea & Gould
1251 Sixth Avenue
New York, NY 10027
Attention: Elizabeth Markowski, Esq.
Notwithstanding the foregoing, each party may designate by notice in writing a
new address to which any notice, demand, request, or communication may
thereafter be so given, served, or sent. Each notice, demand, request, or
communication which shall be delivered, sent, mailed, or transmitted in the
manner described above, shall be deemed sufficiently given, served, sent, or
received for all purposes at such time as it is delivered to the addressee (with
an affidavit of
6
<PAGE>
personal delivery, the return receipt, the delivery receipt, or (with respect to
a telex or facsimile) the answer back being deemed conclusive (but not
exclusive) evidence of such delivery) or at such time as delivery is refused by
the addressee upon presentation.
7. Severability. The invalidity of any one or more of the
------------
provisions in this Agreement shall not affect the remaining portions of this
Agreement, all of which are inserted conditionally on their being held valid in
law; and in the event that one or more of the provisions contained herein should
be invalid, or should operate to render this Agreement in whole or in part
invalid, this Agreement shall be construed as if such invalid provisions had not
been inserted; provided, however, that if any provision determined to be invalid
under the foregoing terms of this Section 7 is considered a material benefit
that any party was seeking to attain in the consummation of or performance of
the transactions contemplated under this Agreement, the parties to this
Agreement shall negotiate in good faith and for the purpose of entering into an
appropriate amendment or supplement to this Agreement to provide comparable
terms the economic value of which will approximate as closely as practicable the
benefit lost.
8. Waivers. Neither the waiver by a party of a breach of or a
-------
default under any of the provisions of this Agreement, nor the failure of a
party, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right, remedy, or privilege hereunder shall
thereafter be construed as a waiver of any subsequent breach or default of a
similar nature, or as a waiver of any such provisions, rights, remedies, or
privileges hereunder.
9. Specific Performance. Each party to this Agreement acknowledges
--------------------
that the rights, benefits and obligations of such party pursuant to this
Agreement are unique and that no adequate remedy exists at law if any party
shall fail to perform any of its obligations hereunder, and each party therefore
confirms and agrees that its rights to specified performance is essential to
protect its rights and interests hereunder. Accordingly, in addition to any
other remedies which each party may have hereunder or at law or in equity or
otherwise, each party hereby agrees that each party shall have the right to have
all obligations, undertakings, agreements and other provisions of this Agreement
specifically performed and shall have the right to obtain an order or decree of
such specific performance in any of the courts of the United States or of any
state or other political subdivision thereof.
10. Execution in Counterparts. To facilitate execution, this
-------------------------
Agreement may be executed in as many counterparts as may be required; and it
shall not be necessary that the signatures of, or on behalf of, each party, or
that the signatures of all persons required to bind any party appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the persons required to bind any party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of this
Agreement to produce or account for more than a number of counterparts
containing the respective signatures of, or on behalf of, all of the parties
hereto.
7
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands and seals.
COX ENTERPRISES, INC.
By:_____________________________________
Name:
Title:
COMCAST CORPORATION
By:_____________________________________
Name:
Title:
TELE-COMMUNICATIONS, INC.
By:_____________________________________
Name:
Title:
CONTINENTAL CABLEVISION, INC.
By:_____________________________________
Name:
Title:
NEWHOUSE BROADCASTING CORPORATION
By:_____________________________________
Name:
Title:
8
<PAGE>
TCI DEVELOPMENT CORPORATION
By:_____________________________________
Name:
Title:
TEMPO SATELLITE, INC.
By:_____________________________________
Name:
Title:
9
<PAGE>
EXHIBIT 4.8
OPTION AGREEMENT
THIS OPTION AGREEMENT is entered into as of February 8, 1990, by and
between TEMPO Satellite, Inc., a wholly owned affiliate of Tele-Communications,
Inc., having an office at 4643 South Ulster Street, Suite 600, Denver, Colorado
80237 (TSI), and K Prime Partners L.P., a Delaware limited partnership (K-1).
WHEREAS, TSI using its best efforts to obtain a construction permit
from the Federal Communications Commission (FCC), to build, launch and operate a
multi-satellite Direct Broadcast Satellite System, including ground spare
hardware (DBSS), and
WHEREAS, K-1 and TSI desire that TSI grant K-1 an option to lease or
purchase the capacity of the DBSS,
NOW THEREFORE, in consideration of the foregoing and of the covenants
and agreements hereinafter set forth, the parties hereto hereby agree as
follows:
1. GRANT: TSI does hereby grant to K-1 an exclusive option to lease
-----
(as more particularly described in Paragraph 4 hereof), or purchase (as more
particularly described in Paragraph 4 hereof), or purchase (as more particularly
described in Paragraph 5 hereof) the entire capacity of TSI's DBSS for its
useful life (Option).
2. TERM:
----
(a) Occurrence of FCC Order During Initial 24 Month Period. The
------------------------------------------------------
initial term of the Option shall be twenty-four (24) months from the effective
date of this Agreement, and in the event that the FCC issues and FCC Order (as
defined below) within the initial term, the term of the Option shall be extended
for additional terms of six (6) months unless
<PAGE>
K-1 provides TSI with written notice of its election not to extend on or before
ninety (90) days prior to the expiration of the initial term and any additional
term (the "Notice Date"). If no such notice is given, the parties shall have
sixty-five (65) days from the Notice Date to mutually agree upon the
consideration to be paid by K-1 to TSI for any such additional term, which
consideration shall in no event exceed an amount equal to Two Hundred Fifty
Thousand Dollars ($250,000) per quarter. Notwithstanding the foregoing
sentence, if the FCC Order is issued during the last sixty-give (65) days prior
to the expiration of said initial twenty-four (24) months period, there shall be
added an additional number of days to the sixty-five (65) day period provided
pursuant to the foregoing sentence for TSI and K-1 to mutually agree upon the
consideration to be paid by K-1 to TSI for any such additional term. Such
additional number of days shall be calculated by subtracting the remaining days
left in said initial twenty-four (24) month period as of the date on which the
FCC Order is issued, from sixty-five (65) days. For purposes of this Agreement,
"FCC Order" means the issuance of (i) an order of the FCC appealable under
Section 402 of the Communications Act of 1934, as amended, granting to TSI an
unconditional construction permit and orbital assignment, and (ii) an instrument
of authorization reflecting such grant, each of which shall have been made
publicly available; neither of which shall have its terms or validity contingent
upon the issuance of any further order or determination of the FCC; and which
together shall constitute all FCC approval required to initiate construction.
(b) Occurrence of FCC Order After Initial 24 Months Period. In the
------------------------------------------------------
event that the FCC does not issue an FCC Order within the initial term of
twenty-four (24) months, then the initial term shall be automatically extended
at noadditional cost to K-1 to the date on which such
2
<PAGE>
FCC Order is issued. After the date of the issuance of such FCC Order, the
first additional term of six (6) months shall be granted by TSI to K-1 unless K-
1 provides TSI with written notice of its election not to extend on or before
ten (10) days after the date on which such FCC Order was issued. If no such
notice is given, the parties shall have fifty (50) days to mutually agree upon
the consideration to be paid by K-1 to TSI for the first additional term, which
consideration shall in no event exceed an amount equal to Two Hundred Fifty
Thousand Dollars ($250,000) per quarter. Subsequent additional terms shall be
granted in the manner provided in the first paragraph of this Paragraph 2.
(c) Occurrence of Appeal of FCC Order. If an FCC Order is issued and
---------------------------------
subsequently to such issuance, is appealed (the "Appeal"), TSI shall use its
best efforts to get a postponement of the construction of the DBSS without
jeopardizing the grant of such FCC Order. For purposes of Section 2(b) if such
construction is postponed during the pendency of such Appeal, it shall be deemed
that no FCC Order has been issued until sixty (60) days after such Appeal is
conclusively resolved; provided however, if such construction is not postponed
during such Appeal for purposes of Section 2(a) it shall be deemed that an FCC
Order has been issued.
3. PRICE:
-----
(a) In return for the Option, K-1 shall pay TSI the sum of two
million dollars ($2,000,000) in the form of eight (8) payments of two hundred
and fifty thousand dollars ($250,000) each. The first payment shall be due
within ten (10) business days after execution of this Agreement and each
additional payment shall be made on the first business day of each calendar
quarter thereafter. Such payments shall continue to be payable by K-1 even
though K-1
3
<PAGE>
elects to exercise the Option and shall be credited against the payments
required to be made by K-1 pursuant to the lease agreement (described in
Paragraph 4 hereof) or the purchase agreement (described in Paragraph 5 hereof),
as the case may be. If K-1 fails to make a payment due hereunder, the Option
shall expire thirty (30) days after the receipt by K-1 of written notice from
TSI that such payment remains outstanding unless within such thirty (30) days,
K-1 cures its payment default.
(b) In the event TSI obtains the authority to construct one full-
CONUS satellite but fails to obtain sufficient authority to operate a second
full-CONUS satellite in the East, the prices for the lease or the purchase of
the DBSS satellites will be reduced to approximately sixty-five percent (65%) of
that provided in Paragraphs 4 and 5 hereof.
(c) During the term of this Agreement, K-1 shall pay TSI an
additional one million dollars ($1,000,000) to the payments provided in
paragraph 3(a) if K-1 establishes, or leases the assets of, or acquires the
assets of, or any equity interest in, or enters into a legally binding
commitment, or obtains the right or option to established, or to lease the
assets of, or acquire the assets of, or any equity interest in, any business
holding a DBSS license other than the TSI DBSS license or interest into a
legally binding commitment or obtains the right or option by Super-majority Vote
(as defined in K-1's limited partnership agreement) to transmit television
programming to HSDs (as defined in K-1's limited partnership agreement) via DBSS
or higher frequency satellite other than the TSI DBSS license.
4. LEASE OPTION: To exercise the option to lease the capacity of
------------
TSI's DBSS, K-1 shall give TSI written notice of its election to exercise such
option. Within one hundred and twenty (120) days of the exercise of such option,
(i) K-1 shall pay TSI one million
4
<PAGE>
dollars ($1,000,000) and (ii) TSI and K-1 shall use their best efforts to
negotiate and execute a definitive lease agreement. Unless otherwise agreed by
the parties, such lease agreement shall contain such terms and conditions as are
customarily contained in similar lease agreements except to the extent that such
terms and conditions may not be applicable to DBSS and shall also provide that
(A) TSI shall use its best efforts to locate a successor satellite and to obtain
a renewal of its FCC license for a successor satellite, and (B) K-1 shall have
the exclusive right to lease the entire capacity of such successor satellite on
terms and conditions no less favorable to K-1 then the terms and conditions
contained in such lease agreement. The term of the lease shall be for the
period from its effective date and shall extend through the useful life of the
DBSS. Subject to adjustments as hereinafter provided, lease payments shall be
fifty-four million dollars ($54,000,000) per year payable in equal monthly
payments of four million, five hundred thousand dollars ($4,500,000).
5. PURCHASE OPTION: To exercise the option to purchase the capacity
---------------
of TSI's DBSS, K-1 shall give TSI written notice of its election to exercise
such option. Within one hundred and twenty (120) days of the exercise of such
option, (i) K-1 shall pay TSI one million dollars ($1,000,000) and (ii) TSI and
K-1 shall use their best efforts to negotiate and execute a definite purchase
and sale agreement. Unless otherwise agreed by the parties, such purchase and
sale agreement shall contain such terms and conditions as are customarily
contained in similar purchase and sale agreements except to the extent that such
terms and conditions may not be applicable to DBSS and shall also provide that
(A) TSI shall use its best efforts to locate a successor satellite and to obtain
a renewal of its FCC license for a successor satellite, and (B) K-1 shall have
the exclusive right to purchase the entire capacity of such successor satellite
on
5
<PAGE>
terms and conditions no less favorable to K-1 than the terms and conditions
contained in such purchase and sale agreement. Subject to adjustments as
hereinafter provided, the estimated purchase price shall be four hundred and
seventy-two million, two hundred thousand dollars ($472,200,000), payable in
accordance with the following schedule: 1st year $41.2 million, 2nd year $61.0
million; 3rd year $154.6 million, 4th year $157.9 million; 5th year $8.0
million; and the lesser of the remaining balance of the purchase price and $5.5
million in each subsequent year until the purchase price is paid in full. The
payments for any year shall be made pursuant to a monthly schedule of payments
to be mutually agreed upon by TSI and K-1 as part of the purchase agreement.
6. ADJUSTMENTS TO PRICE: All parties to this Agreement acknowledge
--------------------
and agree that the pricing for the lease described in Paragraph 4 hereof and the
purchase described in Paragraph 5 hereof has been estimated only and is based on
current assumptions regarding the costs related to the construction, launch,
operation, and maintenance of satellites and related matters. In the event of
changes in the number of satellites in the system, changes in the timing of the
construction and launch of the DBSS satellites, a partial or total launch or
satellite failure, the exercise by TSI of certain options in its contracts with
various vendors, changes in the design of the satellites and related equipment
and any other factor which affects the cost to TSI of the DBSS, the prices
stated herein shall be adjusted downward or upward upon a reasonable
demonstration by TSI of the dollar impact of any such change by mutual agreement
of K-1 and TSI. All parties to this Agreement agree and acknowledge that the
price for this option, for the lease described in Paragraph 4 and for the
purchase described in Paragraph 5 shall not include any expenses paid by TSI in
order to litigate in any administrative, judicial, or other
6
<PAGE>
forum any issue relating to its suitability as a recipient of any license to
construct and operate the DBSS satellites.
7. RIGHT OF CONSULTATION: TSI shall consult with K-1 before entering
---------------------
into any and all contracts (or any amendments to any and all contracts) which
relate to the construction, operation, and maintenance of the DBSS satellites
and which would affect K-1's rights, obligations, or conditions under its lease
or purchase of the DBSS capacity or which relate to, the DBSS satellites'
ability to meet all the technical and economic requirements of K-1's high power
business plan. TSI shall give notice of any such proposed contract by sending K-
1 either a copy of such proposed contract or a written summary setting forth the
material terms of such proposed contract. After such notice, K-1 and TSI shall
consult in good faith for ninety (90) days in order to reach agreement on the
terms of such proposed contract.
8. REPRESENTATIONS AND WARRANTIES OF TSI: TSI represents and
-------------------------------------
warrants to K-1 as follows:
(a) Authority. TSI has full corporate power and authority, and
---------
has obtained all necessary authority to execute and deliver this Agreement and
to perform the transactions described herein. The Board of Directors of TSI has
taken all actions required by law, its Certificate of Incorporation, its By-
Laws, or otherwise to authorize the execution, delivery and performance of this
Agreement, and this Agreement is a valid and binding obligation of TSI,
enforceable in accordance with its terms, subject to bankruptcy and other laws
affecting creditor's rights.
7
<PAGE>
(b) Capacity of the DBSS Satellites. The DBSS satellites which
-------------------------------
are the subject matter of this Option will have the same capacity as set forth
in the application filed with the FCC for a construction permit.
(c) No Other Options. During the term of this Agreement, TSI
----------------
has not and will not grant any option or right (other than pursuant to this
Agreement) in connection with the DBSS satellites which are the subject matter
of this Option.
(d) No FCC Violations. The execution of the Option and the
-----------------
consummation of any and all transactions contemplated by this Agreement does not
and will not result in any violations of any FCC rules, regulations, or
published policies in effect on and as of the date hereof.
9. REPRESENTATIONS AND WARRANTIES OF K-1: K-1 represents and
-------------------------------------
warrants to TSI as follows:
Authority. K-1 has full power and authority, and has obtained all
---------
necessary authority to execute and deliver this Agreement and to perform the
transactions described herein. The Partners of K-1 have taken all actions
required by law and its Partnership Agreement, or otherwise to authorize the
execution, delivery and performance of this Agreement, and this Agreement is a
valid and binding obligation of K-1, enforceable in accordance with its terms,
subject to bankruptcy and other laws affecting creditor's rights.
10. TERMINATION:
-----------
(a) TSI Failure to Obtain Construction Permit. TSI shall use its
-----------------------------------------
best efforts to prosecute its FCC application for the DBS construction permit.
However, in the event that he FCC issues an order appealable under Section 402
of the Communications Act of 1934,
8
<PAGE>
as amended, rejecting TSI's application for a satellite construction permit, K-1
may at any time thereafter elect to terminate this Option by providing written
notice of such election to TSI, upon which K-1 shall have no further obligations
to TSI under this Agreement other than any payments due to TSI under this
Agreement for the period ending as of the date of K-1's notice to TSI. It is
expressly understood that in the event the Option is terminated pursuant to this
Paragraph 10(a) K-1 shall have no obligation to make the one million dollar
($1,000,000) payment to TSI provided for in Paragraphs 3(c) and 10(b) of this
Agreement.
(b) Upon Election By K-1. In addition to its rights under
--------------------
Paragraph 10(a) of this Agreement, K-1 shall have the right to terminate this
Option for any reason whatsoever and without any penalty by giving TSI one
hundred and twenty (120) days prior written notice. The Option may be reinstated
after any such termination if K-1 notifies TSI of its intent to reinstate the
Option within Seventy Five (75) days of any such termination notice. Upon
termination of this Option by K-1 pursuant to his Paragraph 10(b), no further
payments shall be due to TSI under this Agreement; provided however, that K-1
shall pay TSI one million dollars ($1,000,000) if subsequent to such termination
K-1 establishes, or leases the assets of, or acquires the assets of, or any
equity interest in, or enters into a legally binding commitment, or obtains the
right or option to establish, or to lease the assets of, or acquire the assets
of, or any equity interest in any business holding a DBSS license or enters into
a legally binding commitment or obtains the right or option by Super-majority
Vote (as defined in K-1's limited partnership agreement) to transmit television
programming to HSDs (as defined in K-1's limited partnership agreement) via a
BSS or higher frequency satellite.
9
<PAGE>
11. SEVERABILITY: The obligations of TSI and K-1 under this Agreement
------------
are subject to all applicable federal, state and local laws, rules and
regulations (including, but not limited to, FCC rules, regulations and policies
governing the DBSS). If any one or more of the provisions contained in this
Agreement is held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby; provided however, that both parties
shall negotiate in good faith to achieve the same economic result with respect
to an equitable modification of the provisions, or application thereof, held to
be invalid.
12. ASSIGNMENT: K-1 shall not assign its interest in the Option
----------
without the prior written consent of TSI. TSI may not grant any option or right
(other than pursuant to this Agreement) relating to the DBSS satellites which
are the subject matter of this Option.
13. NOTICES: All notices, demands, requests or other communications
-------
which may be or are required to be given, served or sent by any party to this
Agreement, shall be in writing and shall be hand delivered, sent by recognized
overnight courier service, mailed by first-class, registered or certified mail,
return receipt requested, postage prepaid, or transmitted by telegram, telex or
facsimile transmission, addressed as follows:
(a) If to K-1, at the address of its then principal place of
business, as determined by its Partners Committee, or until such principal place
of business has been so determined:
c/o Hogan & Hartson
555 13th Street, N.W.
Washington, D.C. 20004
Attention: Timothy A. Lloyd
10
<PAGE>
(b) If to TSI:
4643 South Ulster Street, Suite 600
Denver, Colorado 80237
Attention: John J. Sie
with a copy to the Legal Department.
14. AMENDMENT: This Agreement can be modified or amended only by a
---------
written instrument signed by all the parties hereto.
15. ENTIRE AGREEMENT: This Agreement contains the entire agreement
----------------
among the parties hereto with respect to the transactions contemplated herein,
and supersedes all prior oral or written agreements, commitments or
understanding with respect to the matters provided for herein.
16. GOVERNING LAW: This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
17. SPECIFIC PERFORMANCE: Each party acknowledges that the rights,
--------------------
benefits and obligations of such party pursuant to this Agreement are unique and
that no adequate remedy exists at law if any party shall fail to perform any of
its obligations hereunder, and each party therefore confirms and agrees that its
rights to specific performance is essential to protect its rights and interests
hereunder. Accordingly, in addition to any other remedies which each party may
have hereunder or at law or in equity or otherwise, each party hereby agrees
that each party shall have the right to have all obligations, undertakings,
agreements and other provisions of this Agreement specifically performed and
shall have the right to obtain an order or decree of such specific performance
in any of the courts of the United States or of any state or other political
subdivision thereof; except however, that such right of specific performance
shall
11
<PAGE>
not be inconsistent with, nor violate any rule, regulation, or order of the FCC.
If any such right of specific performance would violate any such rule,
regulation, or order, TSI and K-1 shall in good faith cooperate to obtain the
consent of the FCC to permit either or both parties to specifically perform the
acts required by the order or decree of such specific performance.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed on their behalf, as of the day
and year first hereinabove set forth.
TEMPO SATELLITE, INC. (TSI)
By: ________________________________
John J. Sie
Title: Vice President
K PRIME PARTNERS L.P. (K-1)
By: ATC Satellite, Inc.
General Partner
By: __________________________
Carl U. J. Posetti
Title: Vice President
By: Comcast DBS, Inc.,
General Partner
By: __________________________
Mark Coblitz
Title: Vice President
12
<PAGE>
By: Continental Satellite Company, Inc.,
General Partner
By: __________________________
Timothy P. Neher
Title: President
By: Cox Satellite, Inc.,
General Partner
By: __________________________
James O. Robbins
Title: President
By: G.E. Americom Services, Inc.,
General Partner
By: __________________________
John J. Cusick
Title: Vice President
By: New Vision Satellite,
General Partner
By: Newhouse Satellite, Inc.
By: __________________________
Daniel P. Cavallo
Title: Senior Vice President
13
<PAGE>
By: TCI K-1, Inc., General Partner
By: __________________________
John J. Sie
Title: Vice President
By: United Artists K-1 Investments,
Inc., General Partner
By: __________________________
John D. Field, III
Title: Vice President
By: Viacom K-Band, Inc.,
General Partner
By: __________________________
Edward Horowitz
Title: Sr. Vice President
By: Warner Cable SSD, Inc.
General Partner
By: __________________________
James L. Gray
Title: President
14
<PAGE>
To: Marc Evans
cc: John Cusick
From: David P. Beddow
Subject: TEMPO Satellite Inc.
--------------------
Effective Friday, July 29, 1994, TCI hereby notifies Primestar Partners, LP that
it will enter an agreement with Advanced Communications Corporation to acquire
its assets, specifically including the FCC authorization to construct and
operate the 27 channels at 110 degrees WL. The agreement(s) will reflect the
following:
(i) upon execution (July 28, 1994) of the agreement reflecting the basic
terms and conditions of the deal, a payment of $600,000 will be made to
Advanced; and
(ii) TCI will immediately proceed to complete the final definitive merger
agreement, back-up lease of capacity agreement, consulting agreement, FCC
filings, HSR filing, notification under the consent agreement and due diligence.
Upon execution of the documents, 2,000,000 shares of TCI stock will be placed in
escrow for payment to Advanced upon first regulatory approval or, in the event
regulatory approval is not granted, the triggering by TCI of the back-up lease.
Regulatory approval or TCI's triggering of the lease will also trigger the start
of Advanced's 12 year consulting arrangement for which it will be paid $240,000
per year adjusted biennially for the change in the CPI/BLS.
TCI recommends that the Partners vote in the affirmative for a resolution
reflecting that: (i) Primestar's K1 successor satellite program shall be
constructed at BSS frequencies and that Tempo/TCI should proceed with
notification to SS/Loral of the termination of the dual-build program and the
modifications necessary to the BSS contract in order to modify the antenna
patters for 110 degrees and for the continued satisfaction of due diligence for
all construction authorizations held by Tempo and Advanced; (ii) Primestar
exercise the Tempo Option Agreement; and (iii) Primestar expressly recognizes
that paragraphs 4, 5, and 6 of the Tempo Option Agreement will be replaced with
a payment arrangement to make TCI whole for all expenses, interest and/or tax
consequences related to the transaction with Advanced and any ongoing expenses
resulting from the maintenance of the transaction agreements and newly acquired
frequencies.
Best regards
<PAGE>
FIRST AMENDMENT TO THE OPTION AGREEMENT
This First Amendment to the Option Agreement dated February 8, 1990, (the
"Option Agreement") between PrimeStar Partners, L.P., f/k/a K Prime Partners
L.P. ("PrimeStar") and TEMPO Satellite, Inc. ("TSI") is effective as of February
15, 1991, reflecting that certain credit promissory notes of Direct Broadcast
Satellite Corporation and Directsat Corporation were transferred as the
effective date hereof, from TCI K-1, Inc., an affiliate of TSI, to PrimeStar
pursuant to the unanimous agreement of the Partners Committee of PrimeStar as
referenced in the November 14-15, 1990 minutes of that Committee.
1. PrimeStar and TSI agree to add a new Paragraph 18 to the Option
Agreement as follows:
"18. Effective as of February 15, 1991, (i) the stated liability of
$2,000,000 referenced in Paragraph 3(a) of this Option Agreement shall be
reduced to the amount of the actual costs incurred by and projected to be
incurred by TSI pursuant to this Option Agreement (except for those specifically
excluded by this Option Agreement) up to an amount not to exceed $2,000,000; and
(ii) the quarterly payment referenced in Paragraph 3(a) of this Option Agreement
shall be invoiced quarterly by TSI."
2. PrimeStar and TSI further agree that notwithstanding any provision in
the Option Agreement to the contrary, the references to a payment amount of
$1,000,000 contained in Paragraphs 3(c), 4, 5, and 10(b) shall not require
PrimeStar to pay TSI more than $1,000,000 total.
IN WITNESS WHEREOF, the undersigned parties, who warrant and represent that
they hold all requisite authority for the execution hereof, have so executed
this First Amendment this 11th day of September 1991.
TEMP Satellite, Inc. PRIMESTAR Partners, Inc.
By:_________________________ By:__________________________
David P. Beddow
Its: Vice President Its: Executive Vice President and C.O.O.
------------------------
<PAGE>
EXHIBIT 4.9
July 30, 1993
Tempo Satellite, Inc.
5619 DTC Parkway
Englewood, CO 80111
Re: Tempo FSS Satellite System
--------------------------
Gentlemen:
This letter sets forth our understanding as to that certain Contract
No. TPO-1-693 by and between Tempo Satellite, Inc. ("Tempo") and Space
Systems/Loral, Inc. ("Loral") dated as of July 19, 1993 (the "FSS Construction
Agreement") for the construction of a Fixed Satellite System (the "FSS System").
1. The FSS Construction Agreement becomes effective upon the
occurrence of (i) the grant by the FCC of authority to construct the FSS System
and (ii) notice by Tempo to Loral to begin construction under the FSS
Construction Agreement. If GE American Communications, Inc. ("GEA") or any other
designee of PRIMESTAR obtains an authorization from the FCC acceptable to
PRIMESTAR to construct a fixed satellite system for orbital locations as
contemplated by this letter, PRIMESTAR shall so notify Tempo. Provided PRIMESTAR
is in compliance with its funding obligations under that letter agreement
relating to Tempo's DBSS System of even date herewith (the "DBSS Letter
Agreement"), within thirty (30) days after receipt of such notice, Tempo shall
assign all of its rights and obligations under the FSS Construction Agreement to
PRIMESTAR, whereupon PRIMESTAR shall assume, in writing, all of Tempo's
obligations thereunder, and whereupon Tempo shall elect its option under Section
2.2 of the FSS Construction Agreement to have all work in progress on Tempo's
direct broadcast satellite program consisting of the two (2) satellites and any
options exercised on behalf of PRIMESTAR (the "DBSS System"), other than the
Excluded Options (as defined in the DBSS Letter Agreement), transferred and
assigned to be used in construction of the FSS System. In addition, Tempo shall
assign to PRIMESTAR and PRIMESTAR shall accept the assignment of and assume
Tempo's rights and obligations under its agreement with Telesat (or a similar
organization) for consulting and monitoring services related to the construction
of the satellites.
2. Any progress or milestone payments previously funded by PRIMESTAR
or its partners (or their affiliates) for the DBSS System shall be applied to
the obligations of PRIMESTAR for the FSS System on a dollar-for-dollar basis. In
addition, upon the transfer of work in progress to the FSS Construction
Agreement, as contemplated in the letter agreement, the guaranties from
affiliates of certain of the partners of PRIMESTAR delivered to Loral to
guarantee payments to Loral under the FSS Construction Agreement (forms of which
guaranties are attached hereto as Exhibit "A") shall become effective, and the
guaranties from those same
<PAGE>
Tempo Satellite, Inc.
July 30, 1993
Page 2
affiliates of certain of the PRIMESTAR partners delivered to Loral under Tempo's
BSS satellite system program shall terminate, without further action on the part
of the parties thereto and hereto.
3. Pending the assignment of the FSS Construction Agreement as
contemplated by paragraph 1 of this letter agreement, and so long as PRIMESTAR
is not in default of its funding obligations under the DBSS Letter Agreement,
Tempo shall not, without the prior written consent of PRIMESTAR, (i) consent to
any waivers of the terms and conditions of, or amendment to, the FSS
Construction Agreement, (ii) exercise any termination rights under the FSS
Construction Agreement, (iii) exercise any options under the FSS Construction
Agreement, including without limitation, options for additional satellites,
ground station equipment, long lead parts, ground storage, launch vehicle cost
sharing, alternative orbital locations, or satellite simulators, (iv) issue any
stop work orders under the FSS Construction Agreement, (v) create any liens or
encumbrances on any deliverable items under the FSS Construction Agreement, or
(vi) assign or transfer any of its rights under the FSS Construction Agreement
to any entity other than PRIMESTAR and the partners of PRIMESTAR which have
provided funding for progress and milestone payments and termination liability
payments ("Funding Partners") pursuant to this letter agreement. So long as
PRIMESTAR is not in default of its funding obligations under the DBSS Letter
Agreement, and until the assignment of the FSS Construction Agreement to
PRIMESTAR as contemplated herein, Tempo shall use reasonable commercial efforts
to (i) comply with the terms and conditions of the FSS Construction Agreement,
(ii) maintain the FSS Construction Agreement in full force and effect, and (iii)
consent to waivers and amendments to or exercise any options or issue any stop
work orders under, the FSS Construction Agreement as requested by PRIMESTAR,
subject to PRIMESTAR's and the Funding Partners' agreements to be responsible
for the financial obligations resulting therefrom.
4. All notices, demands, requests or other communications which may
be or are required to be given, served or sent by any party to this letter,
shall, in order to be effective, be in writing and shall be hand delivered, sent
by recognized overnight courier service, mailed by first class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
facsimile transmission, addressed as follows:
(a) If to PRIMESTAR: PRIMESTAR Partners, L.P.
100 North Presidential Boulevard
Bala Cynwyd, PA 19004
ATTN: President
Fax No.: (215) 660-6112
<PAGE>
Tempo Satellite, Inc.
July 30, 1993
Page 3
With a separately
delivered copy to: PRIMESTAR Partners, L.P.
100 North Presidential Boulevard
Bala Cynwyd, PA 19004
ATTN: General Counsel
Fax No.: (215) 660-6112
(b) If to Tempo: 5619 DTC Parkway
Englewood, CO 80111
ATTN: David Beddow
Fax No.: (303) 267-3217
With a separately
delivered copy to: Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
ATTN: Legal Department
Fax No.: (303) 488-3207
or to such other address as any party may designate by notice to the other
party. Each such communication delivered in the manner described in this letter,
shall be deemed sufficiently given at such time as it is delivered to the
addressee (with an affidavit of personal delivery, a return receipt, or (with
respect to facsimile) an answer back being deemed conclusively (but not
exclusive evidence of such delivery) or at such time as delivery is refused by
the addressee upon presentation.
5. Each party to this letter represents and warrants to each other
party that (i) it has full power and authority, and has obtained all necessary
authority to execute and deliver this letter and to perform in the manner set
forth herein; and (ii) all corporate or partnership action (as applicable), as
required by law or its certificate of incorporation, by-laws or partnership
agreement (as applicable) or otherwise to authorize the execution, delivery and
performance of this letter, has been taken.
6. In the event that following the transfer of the work in process
under the BSS Construction Agreement to the fixed Satellite System, Tempo should
proceed with a direct broadcast satellite system under the BSS Construction
Agreement, it shall so notify PRIMESTAR in writing. PRIMESTAR shall then have a
period of six (6) months after the receipt of the notification in which to
exercise the option under the Option Agreement. The Option Agreement shall
automatically terminate, along with any obligations of Tempo to consult
<PAGE>
Tempo Satellite, Inc.
July 30, 1993
Page 4
with PRIMESTAR under paragraph 4 of the DBSS Letter Agreement, if PRIMESTAR has
not exercised its option within the six (6) month period. In the event that the
Option Agreement so terminates, Tempo shall immediately refund to PRIMESTAR all
funds Tempo has received from PRIMESTAR under the Option Agreement (which do not
include progress payments, milestone payments or other payments by PRIMESTAR
under the DBSS Letter Agreement for work in process transferred to the FSS
System).
If this letter correctly sets forth your understanding of the parties'
intentions, please indicate your agreement by signing this letter in the space
designated below and return it to us. An extra copy has been enclosed for your
files.
Sincerely,
PRIMESTAR Partners, L.P.
By: _________________________________
Its.: _________________________________
PRIMESTAR Partners, L.P.
By: _________________________________
Its: _________________________________
The terms of this letter are
acknowledged and agreed to:
TEMPO SATELLITE, INC.
By: _________________________________
Its: _________________________________
<PAGE>
Tempo Satellite, Inc.
July 30, 1993
Page 5
EXHIBIT A
GUARANTIES
----------
<PAGE>
EXHIBIT 4.10
July 30, 1993
Tempo Satellite, Inc.
5619 DTC Parkway
Englewood, CO 80111
Re: Tempo DBSS Satellite System
---------------------------
Gentlemen:
This letter sets forth our understanding as to certain modifications to the
Tempo DBSS Satellite System (the "DBSS System"") which is the subject of that
certain Option Agreement between PRIMESTAR Partners, f/k/a K Prime Partners L.P.
("PRIMESTAR") and Tempo Satellite, Inc. ("Tempo"), effective as of February 8,
1990, as amended (the "Option Agreement").
1. Tempo has entered into an amended and restated agreement (Amendment
No. 4) for construction of the DBSS System with Space Systems/Loral, Inc.
("Loral"), which has been further amended by Contract Amendment No. 5 thereto
(the "BSS Construction Agreement"). Pursuant to the BSS Construction Agreement,
Tempo may elect to have the DBSS System constructed pursuant to the Sub-1
Exhibits or the Sub-2 Exhibits, as defined in the BSS Construction Agreement.
Tempo's current FCC authorization would allow construction of the DBSS System
under the Sub-1 Exhibits, which construction tempo has directed LORAL to begin.
2. Tempo agrees that soon as practicable, but not later then ten (10)
days after the date of this letter, it will file with the Federal Communications
Commission ("FCC") (i) an application to modify its FCC authorization to
construct a satellite system in accordance with the parameters of Sub-2 Exhibits
and (ii) a request for a waiver under Section 319(d) of the Communications Act
to permit commencement of construction of the DBSS System pursuant to the Sub-2
Exhibits pending the grant of the modification application. Tempo agrees to use
commercially reasonable efforts to secure favorable FCC action on the
modification application and the request for waiver at the earliest possible
date.
3. Tempo further agrees that upon the earlier to occur of the FCC grant
of the waiver request or grant of the modification application, Tempo shall
direct LORAL to proceed with construction of the DBSS System in accordance with
the Sub-2 Exhibits.
<PAGE>
Tempo Satellite, Inc.
July 30, 1993
Page 2
4. In consideration of Tempo proceeding in the manner contemplated in
this letter, PRIMESTAR agrees that it will fund (directly or indirectly) the
progress payments and milestone payments as and when such payments become due
under the terms of the BSS Construction Agreement. Amounts so funded may be
applied toward any payments that might become due to Tempo from PRIMESTAR under
the Option Agreement, either before or after any exercise of any option under
the Option Agreement. In addition, as further consideration, PRIMESTAR has
obtained and delivered to LORAL the guaranties of such payments in favor of
LORAL from affiliates of certain of the partners of PRIMESTAR (the "DBSS
Guaranties") copies of which are attached hereto as Exhibit A. Further,
PRIMESTAR acknowledges that Tempo will enter into an agreement with Telesat or a
similar organization for the purposes of consulting and monitoring the
construction of the satellites and has and will incur other expenses associated
with the satellite program and its license. Such expenses will be funded by
PRIMESTAR as they become due. Tempo shall consult with PRIMESTAR under the
procedures set forth in paragraph 5 of this letter agreement, prior to entering
into such agreement and prior to any amendments thereto.
5. So long as PRIMESTAR is not in default of its material obligations
under this letter agreement, including any obligations of PRIMESTAR under
paragraph 4 hereof, Tempo shall consult with PRIMESTAR before taking any of the
following actions: (i) entering into or agreeing to any waivers of the terms and
conditions of, or amendments to, the BSS Construction Agreement which related to
the construction, operation, and maintenance of the DBS System and which would
affect PRIMESTAR's rights, obligations, or conditions under its lease or
purchase of the entire capacity of the DBSS System, or which relate to the DBSS
System's ability to meet all the technical and economic requirements of
PRIMESTAR's high power business plan, (ii) except as provided in Paragraph 6
below, exercising any termination rights under the BSS Construction Agreement,
(iii) exercising any options under the BSS Construction Agreement, including
without limitation, options for additional satellites, ground station equipment,
long lead parts, ground storage, launch vehicle cost sharing, alternative
orbital locations, or satellite simulators, (iv) issuing any stop work orders
under the BSS Construction Agreement, (v) creating any liens or encumbrances on
any deliverable items under the BSS Construction Agreement, or (vi) assigning or
transferring any of its rights under the BSS Construction Agreement to any
entity other than PRIMESTAR and the Funding Partners (as defined in Paragraph 6
below) pursuant to this letter agreement; provided, however, that Tempo may,
without consulting with PRIMESTAR, exercise options for additional satellites
and for long lead parts under the BSS Construction Agreement ("Excluded
Options"), so long as Tempo accepts all responsibility to LORAL and provides
PRIMESTAR with documentation from LORAL evidencing LORAL's agreement to look
solely to Tempo for all costs and other obligations incurred for any such
Excluded Options and disclaiming any rights under the DBSS
<PAGE>
Tempo Satellite, Inc.
July 30, 1993
Page 3
Guaranties with respect to such Excluded Options. Tempo shall give notice of any
proposed action under clauses (i) through (vi) (except Excluded Options) by
sending PRIMESTAR either a copy of any such proposed waiver, amendment, exercise
or action or a written summary setting forth the material terms of such proposed
action. After such notice, PRIMESTAR and Tempo shall consult in good faith for
ninety (90) days in order to reach agreement on the terms of any such proposed
action. So long as PRIMESTAR is not in default of its material obligations under
this letter agreement, including any obligations of PRIMESTAR under paragraph 4
hereof, Tempo shall use reasonable commercial efforts to (i) comply with the
terms and conditions of the BSS Construction Agreement, (ii) maintain the BSS
Construction Agreement in full force and effect, and (iii) consent to waivers
and amendments to or exercise any options or issue any stop work orders under,
the BSS Construction Agreement as requested by PRIMESTAR, subject to PRIMESTAR's
and the Funding Partners' agreements to be responsible for the financial
obligations resulting therefrom. If Tempo elects any of the Excluded Options, it
shall so notify PRIMESTAR promptly and supply PRIMESTAR with the documentation
described above evidencing the agreement between LORAL and Tempo concerning
Tempo's sole obligations with respect to such Excluded Options.
6. In the event PRIMESTAR notifies Tempo that it wishes to cease
providing funding to LORAL under Paragraph 4 hereof, within fifteen (15)
business days after receipt of such notice, Tempo shall give notice of its
termination of the BSS Construction Agreement to LORAL or shall advise PRIMESTAR
that it does not intend to terminate the BSS Construction Agreement as
contemplated by Paragraph 7 below. If Tempo gives notice of termination of the
BSS Construction Agreement within the fifteen (15) business day period,
PRIMESTAR will fund (directly or indirectly) the termination liability payments
that may be due to LORAL under the BSS Construction Agreement as and when such
payments become due thereunder. Upon termination of the BSS Construction
Agreement, so long as PRIMESTAR is not in default of its material obligations
under this letter agreement, Tempo shall assign and transfer to PRIMESTAR and/or
the partners of PRIMESTAR which have provided funding for progress and milestone
payments and termination liability payments ("Funding Partners"), as their
interests may appear, all of Tempo's right, title and interest in and to any and
all deliverable items (partially or fully completed), refunds and other assets
which Tempo is entitled to receive from LORAL upon termination of the BSS
Construction Agreement (collectively, the "Termination Assets"). Tempo shall use
commercially reasonable efforts to preserve all of its rights to the Termination
Assets due it from LORAL upon termination of the BSS Construction Agreement and,
so long as PRIMESTAR is not in default of its material obligations under this
letter agreement, shall take instructions from PRIMESTAR with respect to the
receipt, modification, and disposition of the Termination Assets, all for the
account and benefit of PRIMESTAR and the Funding Partners, as their interest may
appear. If Tempo fails to comply
<PAGE>
Tempo Satellite, Inc.
July 30, 1993
Page 4
with its obligations set forth in the two immediately preceding sentences (a
"Payment Default"), PRIMESTAR may elect to provide LORAL with the certificate in
the form of Exhibit B hereto (the "Certificate"), in which event there shall be
an automatic termination of the BSS Construction Agreement and all of Tempo's
rights to the Termination Assets shall be automatically assigned to PRIMESTAR
under the BSS Construction Agreement. In the event that PRIMESTAR notifies
Tempo that it wishes to terminate funding the BSS Construction Agreement under
the first sentence of this Paragraph 6, the Option Agreement shall automatically
terminate.
7. In the event Tempo does not give notice of termination of the BSS
Construction Agreement within fifteen (15) business days after being advised by
PRIMESTAR of PRIMESTAR's desire to cease providing funding to LORAL under
Paragraph 4 hereof, Tempo, shall issue a stop work order under the BSS
Construction Agreement and within forty-five (45) days after receipt of
PRIMESTAR's notice under Paragraph 6, refund to PRIMESTAR and/or the Funding
Partners as their interests may appear, all amounts that PRIMESTAR and the
Funding Partners have paid for the progress payments, milestone payments,
termination liability payments and payments to Telesat of a similar organization
for consulting and monitoring services, and upon completion of such obligations
by Tempo, this letter agreement and the letter agreement of even date herewith
regarding the Tempo Fixed Satellite System shall terminate. Tempo shall take
instructions from PRIMESTAR with respect to such refunds. If Tempo fails to pay
to PRIMESTAR and/or the Funding Partners the amounts due under this Paragraph 7
within the forty-five (45) day period described herein (a "Payment Default"),
PRIMESTAR may elect to provide LORAL with the certificate in the form of Exhibit
B hereto (the "Certificate"), in which event there shall be an automatic
termination of the BSS Construction Agreement and all of Tempo's rights to the
Termination Assets shall be automatically assigned to PRIMESTAR.
8. In the event that PRIMESTAR notifies Tempo that GE American
Communications, Inc. or any other designee of PRIMESTAR has obtained
authorization from the FCC acceptable to PRIMESTAR to construct a fixed
satellite system, certain work in progress under the BSS Construction Agreement,
consisting of the two (2) satellites and any options which have been exercised
on behalf of PRIMESTAR, other than the Excluded Options, shall be transferred to
the fixed satellite system, pursuant to that letter agreement regarding the
Tempo FSS Satellite System of even date herewith, as provided in paragraph 1 of
such letter agreement, and any payments previously made for the DBSS System
pursuant hereto shall be applied on a dollar-for-dollar basis to payments due
for a fixed satellite system to be constructed by LORAL, and the DBSS Guaranties
shall terminate. In the event of a transfer of work in process to the fixed
satellite system, and provided that PRIMESTAR is not in default of any material
obligations under this letter agreement, Tempo shall assign and PRIMESTAR shall
<PAGE>
Tempo Satellite, Inc.
July 30, 1993
Page 5
accept the assignment of and assume the obligations under the BSS construction
agreement and the agreement with Telesat or similar organization for the purpose
of consulting and monitoring the construction of the satellite. In the event
that following the transfer hereunder of the work in process under the BSS
Construction Agreement to the fixed satellite system, Tempo should proceed with
a direct broadcast satellite system under the BSS Construction Agreement, it
shall so notify PRIMESTAR in writing. PRIMESTAR shall then have a period of six
(6) months after the receipt of notification in which to exercise the option
under the Option Agreement. The Option Agreement shall automatically terminate,
along with any obligations to Tempo to consult with PRIMESTAR under paragraphs 4
or 5 of this letter agreement, if PRIMESTAR has not exercised its option within
the six (6) month period. In the event that the Option Agreement so terminates,
Tempo shall immediately refund to PRIMESTAR all funds Tempo has received from
PRIMESTAR under the Option Agreement (which do not include progress payments,
milestone payments, payments to Telesat or a similar organization for consulting
and monitoring services or other payments by PRIMESTAR under this letter
agreement for work in process which has been transferred to the fixed satellite
system).
9. All notices, demands, requests or other communications which may be or
are required to be given, served or sent by any party to this letter, shall, in
order to be effective, be in writing and shall be hand delivered, sent by
recognized overnight courier service, mailed by first class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
facsimile transmission, addressed as follows:
(a) If to PRIMESTAR: PRIMESTAR Partners, L.P.
100 North Presidential Boulevard
Bala Cynwyd, PA 19004
ATTN: President
Fax No.: (215)660-6112
With a separately
delivered copy to: PRIMESTAR Partners, L.P.
100 North Presidential Boulevard
Bala Cynwyd, PA 19004
ATTN: General Counsel
Fax No.: (215)600-6112
<PAGE>
Tempo Satellite, Inc.
July 30, 1993
Page 6
(b) If to Tempo: 5619 DTC Parkway
Englewood, CO 80111
ATTN: David Beddow
Fax No.: (303)267-3217
With a separately
delivered copy to: Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
ATTN: Legal Department
Fax No.: (303)488-3207
or to such other address as any party may designate by notice to the other
party. Each such communication delivered in the manner described in this
letter, shall be deemed sufficiently given at such time as it is delivered to
the addressee (with an affidavit of personal delivery, a return receipt, or
(with respect to facsimile) an answer back being deemed conclusively (but not
exclusive evidence of such delivery) or at such time as delivery is refused by
the addressee upon presentation.
10. Each party to this letter represents and warrants to each other party
that (i) it has full power and authority, and has obtained all necessary
authority to execute and deliver this letter and to perform in the manner set
forth herein; and (ii) all corporate or partnership action (as applicable), as
required by law or its certificate of incorporation, by-laws or partnership
agreement (as applicable) or otherwise to authorize the execution, delivery and
performance of this letter, has been taken.
11. In the event that the FCC should refuse to grant authority to GE
American Communications, Inc. ("GE Americom") (or to another designee of
PRIMESTAR) to construct the fixed satellite system contemplated by the FSS
Construction Agreement (including such minor modifications, if necessary, which
would not adversely affect the ability of LORAL to deliver the satellites on
schedule or of GE Americom, or a designees of PRIMESTAR, to operate the fixed
satellite system in accordance with its specifications), PRIMESTAR shall be
required within sixty (60) days after the FCC's denial of such authority becomes
a final order to exercise the option under the Option Agreement, and failing
such exercise within such sixty (60) day period, the Option Agreement shall
automatically terminate. If the fixed satellite service application process
described in the preceding sentence terminates for reasons other than those
described in the preceding sentence, and PRIMESTAR or its designee has not
instituted a replacement application for fixed satellite service orbital
positions within sixty (60) days after the
<PAGE>
Tempo Satellite, Inc.
July 30, 1993
Page 7
application process so terminates, PRIMESTAR shall be required to exercise the
option under the Option Agreement, and failing such exercise within such sixty
(60) day period, the Option Agreement shall automatically terminate. If the
Option Agreement terminates under this paragraph 11, and Tempo should proceed
with a direct broadcast satellite system under the BSS Construction Agreement,
Tempo shall issue a stop work order under the BSS Construction Agreement and,
withing forty-five (45) days after the termination of the Option Agreement,
shall pay to PRIMESTAR all amounts that PRIMESTAR and the Funding Partners have
paid for progress payments, milestone payments, termination liability payments
and payments to Telesat or a similar organization for consulting and monitoring
services. If Tempo fails to pay to PRIMESTAR and/or the Funding Partners the
amounts due under this Paragraph 11 within the forty-five (45) day period
described herein (a "Payment Default"), PRIMESTAR may elect to provide LORAL
with the certificate in the form of Exhibit B hereto (the "Certificate"), in
which event there shall be an automatic termination of the BSS Construction
Agreement and all of Tempo's rights to the termination Assets shall be
automatically assigned to PRIMESTAR.
If this letter correctly sets forth your understanding of the parties'
intentions, please indicate your agreement by signing this letter in the space
designated below and returning it to us. A copy is enclosed or your files.
Sincerely,
PRIMESTAR Partners, L.P.
By: _____________________________
Its: _____________________________
<PAGE>
Tempo Satellite, Inc.
July 30, 1993
Page 8
PRIMESTAR Partners, L.P.
By: _____________________________
Its: _____________________________
The terms of this letter are
acknowledged and agreed to:
TEMPO SATELLITE, INC.
By: ______________________________
Gary S. Howard
Its: Vice President
------------------------------
<PAGE>
EXHIBIT 4.11
________________________________________________________________________________
AMENDED AND RESTATED REIMBURSEMENT AGREEMENT
Among
TCI UA I, INC.,
CHEMICAL BANK, as Bank
and as Administrative Agent
and
THE TORONTO-DOMINION BANK,
as Departing Bank
Dated as of
March 1, 1995
________________________________________________________________________________
<PAGE>
TCI UA I, INC.
REIMBURSEMENT AGREEMENT
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
Definitions............................................................ -1-
ARTICLE 2
Letter of Credit and Reimbursement Obligations......................... -8-
Section 2.1 Issuance of Letter of Credit............................ -8-
Section 2.2 Reimbursement........................................... -8-
(a) Reimbursement Obligations Absolute...................... -8-
(b) Interest on Unpaid Amounts............................. -10-
(c) Increased Costs........................................ -11-
Section 2.3 Fees................................................... -12-
(a) Letter of Credit Fees.................................. -12-
(b) Other Fees............................................. -13-
(c) Fees Non-Refundable.................................... -13-
Section 2.4 Manner of Payment...................................... -13-
Section 2.5 Replacement of Departing Bank; Effectiveness of
this Agreement......................................... -13-
ARTICLE 3
Conditions Precedent.................................................. -14-
Section 3.1 Conditions Precedent to Issuance of Letter of
Credit................................................. -14-
ARTICLE 4
Representations and Warranties........................................ -15-
Section 4.1 Representations and Warranties........................... -15-
(a) Organization; Power; Qualification..................... -15-
(b) Authorization; Enforceability.......................... -16-
(c) Subsidiaries........................................... -16-
(d) Compliance with Other Related Documents and
Contemplated Transactions.............................. -16-
(e) Compliance with Law.................................... -16-
(f) Financial Statements................................... -16-
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
(g) Compliance with Regulations G, T, U and X.............. -16-
(h) Absence of Default and Litigation...................... -17-
(i) Accuracy and Completeness of Information............... -17-
(j) Investment Company Act................................. -17-
(k) Solvency............................................... -17-
(l) Business and Assets.................................... -18-
Section 4.2 Survival of Representations and Warranties, etc........ -18-
ARTICLE 5
General Covenants..................................................... -18-
Section 5.1 Preservation of Existence and Similar Matters.......... -18-
Section 5.2 Compliance with Applicable Law......................... -18-
Section 5.3 Accounting Methods and Financial Records............... -19-
Section 5.4 Visits and Inspections................................. -19-
Section 5.5 Indemnity.............................................. -19-
ARTICLE 6
Information Covenants................................................. -20-
Section 6.1 Quarterly Financial Statements and Information......... -20-
Section 6.2 Annual Financial Statements and Information............ -20-
Section 6.3 Certificates of No Default and Credit
Availability........................................... -21-
Section 6.4 Copies of Other Reports................................ -21-
Section 6.5 Notice of Litigation and Other Matters................. -21-
ARTICLE 7
Negative Covenants.................................................... -22-
Section 7.1 Indebtedness........................................... -22-
Section 7.2 Limitation on Liens.................................... -23-
Section 7.3 Liquidation; Formation of Subsidiaries; Change in
Ownership; Disposition or Acquisition of Assets........ -23-
Section 7.4 Amendment and Waiver................................... -24-
Section 7.5 Dividends and Distributions............................ -25-
Section 7.6 Consolidated Tax Returns............................... -25-
ARTICLE 8
Defaults.............................................................. -25-
Section 8.1 Events of Default..................................... -25-
Section 8.2 Remedies.............................................. -28-
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 9
Miscellaneous......................................................... -29-
Section 9.1 Notices................................................ -29-
Section 9.2 Expenses............................................... -30-
Section 9.3 Waivers................................................ -31-
Section 9.4 Determination by Bank Presumptively Correct and
Binding................................................ -31-
Section 9.5 Set-Off................................................ -31-
Section 9.6 Assignment............................................. -32-
Section 9.7 Counterparts........................................... -32-
Section 9.8 Governing Law.......................................... -32-
Section 9.9 Severability........................................... -32-
Section 9.10 Interest and Charges................................... -32-
Section 9.11 Headings............................................... -33-
Section 9.12 Amendment and Waiver................................... -33-
Section 9.13 Entire Agreement....................................... -33-
Section 9.14 Waiver of Jury Trial................................... -33-
ARTICLE 10
Administrative Agent.................................................. -34-
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
EXHIBITS
<S> <C> <C>
Exhibit A - Form of Affiliate Debt Subordination Agreement
Exhibit B - Form of Letter of Credit
Exhibit C - Form of Opinion of Account Party's Corporate Counsel
Exhibit D - Form of Opinion of Account Party's In-House Counsel
Exhibit E - Form of L/C Issuer Replacement Letter
SCHEDULES
Schedule 1 - Description of Assets
Schedule 2 - Existing Indebtedness under Robin Media Put Agreement
</TABLE>
-iv-
<PAGE>
AMENDED AND RESTATED REIMBURSEMENT AGREEMENT, dated as of March 1,
1995, among TCI UA I, Inc., a corporation formed under the laws of the State of
Colorado (the "Account Party"), CHEMICAL BANK (in its capacity as issuing bank
of the Letter of Credit referred to below and as Administrative Agent (each as
defined below)), as the issuing bank whose Original L/C referred to below is
being replaced by the Letter of Credit (in such capacity, the "Departing Bank").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Account Party and Toronto-Dominion have entered into a
Reimbursement Agreement, dated as of March 9, 1994 (as the same has been amended
from time to time, the "Original Reimbursement Agreement") pursuant to which
Toronto-Dominion has issued its letter of credit (the "Original L/C");
WHEREAS, the Account Party has requested, and Chemical Bank has
agreed, that Chemical Bank issue, in replacement of the Original L/C, its Letter
of Credit, and Toronto-Dominion has also agreed that its Original L/C shall be
so replaced;
WHEREAS, the parties hereto further agree that, from and after the
close of business on the date on which the Original L/C expires (the "L/C
Replacement Date"), the departing Bank shall no longer be deemed a party to this
Agreement and, on such date, the Departing Bank shall be deemed to assign and
transfer, in the manner set forth in Section 2.5 of this Agreement, all of its
rights, duties and interests hereunder to Chemical Bank;
WHEREAS, the parties hereto wish to amend and restate the Original
Reimbursement Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree that the Original
Reimbursement Agreement shall be and hereby is amended and restated in its
entirety as follows:
ARTICLE 1
Definitions
-----------
For the purposes of this Agreement:
"Account Party" shall mean TCI UA I, Inc., a Colorado corporation.
-------------
<PAGE>
"Administrative Agent" shall mean Chemical Bank as the administrative
--------------------
agent hereunder for the financial institutions which from time to time may
become parties hereto as additional Banks.
"Affiliate" shall mean any Person directly or indirectly controlling,
---------
controlled by, or under common control with, the Account Party.
"Affiliate Debt Subordination Agreement" shall mean that certain
--------------------------------------
Affiliate Debt Subordination Agreement dated as of November 17, 1994 by and
among the Account Party, TCIC, The Bank of New York and any other Person
(including the Bank) who becomes a party thereto from time to time.
"Affiliate Subordinated Debt" shall mean (a) so long as any Letter of
---------------------------
Credit Obligations remains outstanding under the $720 Million Letter of Credit
Agreement (as such term is defined therein), Indebtedness for Borrowed Money of
the Account Party to TCI or a direct or indirect wholly-owned Subsidiary of TCI
the proceeds of which are used by the Account Party (i) to purchase shares of
TCI Class A common stock, which shares shall be subject to no Liens (other than
the Lien created in favor of the Collateral Agent pursuant to the Security
Agreement), (ii) to purchase all of the issued and outstanding capital stock of
a Permitted TCI Subsidiary or (iii) to pay Senior Obligations (as such term is
defined in the TCIC Subordinated Credit Agreement), and which Indebtedness for
Money Borrowed is subordinated to the Senior Obligations (as such term is
defined in the TCIC Subordinated Credit Agreement) on the same terms as
contained in the TCIC Subordinated Credit Agreement and is otherwise in all
respects satisfactory to the Bank; and (b) at all times thereafter, Indebtedness
of the Account Party to an Affiliate relating to or resulting from any loan or
advance from, or any non-equity investment by, or any management or similar fees
payable to, or any obligation to pay for goods or services to, an Affiliate,
provided that to qualify as Affiliate Subordinated Debt the full amount of any
such Indebtedness shall be subordinated to the full payment and performance of
the obligations of the Account Party under this Agreement in accordance with the
terms of the Affiliate Debt Subordination Agreement, and provided further that
the Account Party and such Affiliate are and during such time as any
Indebtedness remains outstanding continue to be, parties to the Affiliate Debt
Subordination Agreement.
"Agreement" shall mean this Amended and Restated Reimbursement
---------
Agreement, together with its Exhibits and Schedules, as the same may be amended,
modified or supplemented from time to time.
"Agreement Date" shall mean March 1, 1995.
--------------
"Alternate Base Rate" shall mean, for any day, a rate per annum
-------------------
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. For purposes hereof: "Prime Rate" shall
----------
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<PAGE>
mean the rate of interest per annum publicly announced from time to time by the
Bank as its prime rate in effect at its principal office in New York City (the
Prime Rate not being intended to be the lowest rate of interest charged by
Chemical Bank in connection with extensions of credit to debtors); "Base CD
-------
Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD
Rate and (ii) a fraction, the numerator of which is one and the denominator of
which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate;
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary market
-----------------------------
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day shall not be a Business Day, the next preceding Business
Day) by the Board of Governors of the Federal Reserve System (the "Board")
-----
through the public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15 (519) during the week following such
day), or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 A.M., New York City time, on such day (or, if
such day shall not be a Business Day, on the next preceding Business Day) by the
Bank from three New York City negotiable certificate of deposit dealers of
recognized standing selected by it; and "Federal Funds Effective Rate" shall
----------------------------
mean, for any day, the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for the date of such
transactions received by the Bank from three federal funds brokers of recognized
standing selected by it. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate, respectively.
"Applicable Law" shall mean, in respect to any Person, all provisions
--------------
of constitutions, statues, ordinances, rules, regulations and orders of
governmental bodies or regulatory agencies applicable to such Person, including,
without limiting the foregoing, the Communications Act of 1934, as amended, and
Title 47 of the United States Code, and all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party.
"Bank" shall mean Chemical Bank and any other financial institution
----
which hereafter issues a Letter of Credit and becomes a party hereto pursuant to
and in accordance with Section 9.6(b) hereof, provided that, until the L/C
--------
Replacement Date occurs, The Toronto-Dominion Bank shall be deemed to be a
"Bank" for all purposes hereunder.
"Beneficiary" shall mean Chemical Bank, as beneficiary of the Letter
-----------
of Credit and as agent for the lenders under the PrimeStar Credit Facility,
together with its successors, transferees and assigns.
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<PAGE>
"Business Day" shall mean a day on which banks and foreign exchange
------------
markets are open for the transaction of business required for this Agreement in
New York, New York, as relevant to the determination to be made or action to be
taken.
"C/D Assessment Rate" shall mean, for any day as applied to any
-------------------
determination of Alternate Base Rate, the annual assessment rate in effect on
such day which is payable by a member of the Bank Insurance Fund maintained by
the Federal Deposit Insurance Corporation (the "FDIC") classified as well
----
capitalized and within supervisory subgroup "B" (or a comparable successor
assessment risk classification) within the meaning of 12 C.F.R. (S) 327.3(d) (or
any successor provision) to the FDIC (or any successor) for the FDIC's (or such
successor's) insuring time deposits at offices of such institution in the United
States.
"C/D Reserve Percentage" shall mean, for any day as applied to any
----------------------
determination of Alternate Base Rate, that percentage (expressed as a decimal)
which is in effect on such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) (the "Board"), for determining the
-----
maximum reserve requirement for a Depositary Institution (as defined in
Regulation D of the Board) in respect of new non-personal time deposits in
Dollars having a maturity of 30 days or more.
"Collateral Agent" shall mean The Bank of New York in its capacity as
----------------
collateral agent under the Security Agreement and the Registration Rights
Agreement.
"Daily Close Price" shall mean, on any day, the closing sale price (or
-----------------
the average of the quoted closing bid and asked prices if no sale is reported)
for such day for shares of the capital stock in question as reported by NASDAQ.
"Default" shall mean any of the events specified in Section 8.1
-------
hereof, regardless of whether there shall have occurred any passage of time or
giving of notice or both that would be necessary in order to constitute such
event an Even of Default.
"Departing Bank" shall mean The Toronto-Dominion Bank.
--------------
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as in effect on the Agreement Date and as such Act may be amended
thereafter from time to time.
"Event of Default" shall mean any of the events specified in Section
----------------
8.1 hereof.
"Expiration Date" shall mean March 9, 1996, as such date may be
---------------
amended or extended from time to time hereunder.
"Face Amount" shall mean the undrawn face amount of the Letter of
-----------
Credit, which undrawn face amount is $112,500,000 as of March 1, 1995.
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<PAGE>
"Fall-In Rate" shall mean a simple per annum interest rate equal to
------------
the sum of (a) the Alternate Base Rate plus (b) two percent (2%). The Fall-In
Rate shall be adjusted automatically as of the opening of business on the
effective date of each change in the Alternate Base Rate to account for such
change.
"Financial Officer" shall mean, with respect to any corporation, its
-----------------
chief financial officer, vice president-finance, vice president/director of
finance, principal accounting officer, treasurer or assistant treasurer.
"Indebtedness" shall mean, with respect to any Person as of any date
------------
of determination, all liabilities, obligations and reserves, contingent or
otherwise.
"Indemnified Liabilities" shall have the meaning assigned to such term
-----------------------
in Section 5.5 hereof.
"Indemnified Parties" shall have the meaning assigned to such term in
-------------------
Section 5.5 hereof.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
---------------------
as amended.
"Joint Venture" shall mean WirelessCo. L.P., a Delaware limited
-------------
partnership, formed by TCI Joint Venture Partner, an affiliate of TCI, and
affiliates of Sprint Corporation, Cox Enterprises, Inc. and Comcast Corporation.
"L/C Issuer Replacement Letter" shall mean that certain letter, dated
-----------------------------
as of even date herewith, of the Account Party, and acknowledged by The Bank of
New York in its capacity as Collateral Agent and as co-managing agent under the
$720 Million Letter of Credit Agreement, in substantially the form of Exhibit E
attached hereto.
"L/C Replacement Date" shall mean the date on which the Original L/C
--------------------
expires (which date is scheduled to be March 8, 1995).
"Letter of Credit" shall mean that certain Irrevocable Transferable
----------------
Letter of Credit issued as of March 1, 1995 by the Bank in favor of the
Beneficiary, substantially in the form of Exhibit B attached hereto, in an
aggregate face amount equal to the Face Amount, together with any replacement or
substitute Letters of Credit issued by any of the Banks hereunder.
"Letter of Credit Reserve Account" shall mean any account maintained
--------------------------------
by the Bank, the proceeds of which shall be applied as provided in Section
8.2(c) hereof.
"Lien" shall mean, with respect to any property, any mortgage, lien,
----
pledge, assignment, charge, security interest, title retention agreement, levy,
execution, seizure,
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<PAGE>
attachment, garnishment or other encumbrance of any kind in respect of such
property, whether or not choate, vested or perfected.
"NASDAQ" shall mean the National Association of Securities Dealers
------
Automated Quotation System.
"Obligations" shall mean (i) all obligations of the Account Party to
-----------
the Bank under this Agreement and any related documents, as they may be amended
from time to time, or as a result of issuing the Letter of Credit, however
arising or evidenced, whether now existing or hereafter arising, due or to
become due or absolute or contingent, and (ii) the obligation to pay an amount
equal to the amount of any and all losses or damages which the Bank may suffer
by reason of a breach by the Account Party of any obligation, covenant or
undertaking with respect to this Agreement or any other related document, as
they may be amended from time to time.
"Permitted Subsidiary" shall mean a wholly-owned direct Subsidiary of
--------------------
the Account Party which has no liabilities, fixed, contingent or otherwise, and
no assets other than shares of the Class A common stock of TCI and dividends
thereon, which shares are owned solely by such Subsidiary and are subject to no
Liens.
"Permitted TCI Subsidiary" shall mean a wholly-owned direct or
------------------------
indirect Subsidiary of TCI which has no liabilities, fixed, contingent or
otherwise, and no assets other than shares of the Class A common stock of TCI
and dividends thereon, which shares are owned solely by such Subsidiary and are
subject to no Liens.
"Permitted Liens" shall mean (i) Liens in favor of the Bank, and (ii)
---------------
Liens arising under the Security Agreement which secure Indebtedness, if any,
described in Sections 7.1(b) and (c) hereof and the Obligations on a pari passu
---- -----
basis in accordance with the Security Agreement.
"Person" shall mean an individual, corporation, partnership, limited
------
liability company, trust or unincorporated organization, or a government or any
agency or political subdivision thereof.
"PrimeStar" shall mean PrimeStar Partners, L.P., a Delaware limited
---------
partnership.
"PrimeStar Credit Agreement" shall mean that certain Credit Agreement
--------------------------
dated on or about March 9, 1994 among PrimeStar, the banks listed on the
signature pages thereof, The Bank of New York, Chemical Bank and Citibank, N.A.,
as Managing Agents, The Bank of New York, as Documentation Agent, and Chemical
Bank, as Administrative Agent.
"Registration Rights Agreement" shall mean that certain Registration
-----------------------------
Rights Agreement dated as of November 17, 1994 executed by TCI in favor of the
Collateral Agent, as the same may be amended, modified or supplemented from time
to time.
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<PAGE>
"Robin Media" shall mean Robin Media Group, Inc., a Nevada
-----------
corporation.
"Robin Media Credit Agreement" shall mean, collectively, the Revolving
----------------------------
Credit Agreement, dated as of December 1, 1993, as amended, between Robin Media
Group, Inc., a Nevada corporation, the lenders party thereto, and The Bank of
New York, as agent, and the other loan documents referred to therein.
"Robin Media Put Agreement" shall mean that certain TCI UA I Put
-------------------------
Agreement dated as of December 2, 1993 by and among the Account Party, the
lenders party thereto and The Bank of New York, as agent for such lenders.
"Security Agreement" shall mean that certain Security Agreement dated
------------------
as of November 17, 1994 by and among the Collateral Agent, the Account Party and
certain other Persons, as the same may be amended, modified or supplemented from
time to time.
"$720 Million Letter of Credit Agreement" shall mean that certain
---------------------------------------
Letter of Credit Agreement dated as of November 17, 1994 by and among the
Account Party and certain other parties, as the same may be amended, modified or
supplemented from time to time.
"$720 Million Termination Date" shall mean the date upon which all
-----------------------------
Letter of Credit Obligations (as such term is defined in the Security Agreement)
shall have been indefeasibly paid and performed in full and the $720 Million
Letter of Credit Agreement terminated.
"Subsidiary" shall mean any corporation, association, partnership,
----------
joint venture, limited liability company, or other business entity of which the
Account Party and/or any Subsidiary of the Account Party, directly or
indirectly, either (a) in respect of a corporation, owns or controls more than
50% of the outstanding shares, interests, participations or other equivalents
(however designated) of corporate stock having ordinary voting power to elect a
majority of the board of directors or similar managing body, irrespective of
whether or not a class or classes shall or might have voting power by reason of
the happening of any contingency, or (b) in respect of any association,
partnership, joint venture, limited liability company or other business entity,
is entitled to share in more than 50% of the profits and losses, however
determined.
"TCI" shall mean Tele-Communications, Inc., a Delaware corporation as
---
in existence on the date hereof.
"TCI Joint Venture Note" shall mean that certain promissory note dated
----------------------
as of November 17, 1994 made by the Joint Venture in the stated principal amount
of up to $720,000,000, in the form attached as Exhibit D to the $720 Million
Letter of Credit Agreement.
"TCI Joint Venture Partner" shall mean TCI Network, Inc., a Colorado
-------------------------
corporation, and an indirect wholly-owned Subsidiary of TCI.
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<PAGE>
"TCI Class A Stock Collateral" shall mean the TCI Class A Stock
----------------------------
Collateral under and as defined in the Security Agreement.
"TCIC" shall mean TCI Communications, Inc. a Delaware corporation.
----
"TCIC Material Credit Agreement" shall mean any credit, loan, note
------------------------------
purchase, indenture or similar agreement pursuant to which loans or other credit
in a principal amount equal to or greater than $50,000,000 is or may be extended
to TCIC.
"TCIC Subordinated Credit Agreement" shall mean that certain
----------------------------------
Subordinated Credit Agreement dated as of November 17, 1994 by and between TCIC
and the Account Party, as the same may be amended, modified or supplemented from
time to time.
"TCID" shall mean TCI Development Corporation, a Colorado corporation.
----
"TCI UA" shall mean TCI UA, Inc., a Delaware corporation.
------
All accounting terms not specifically defined herein shall be
constructed in accordance with generally accepted accounting principles of the
United States, consistently applied, and practices consistent with those applied
in the preparation of the financial statements referred to herein. All financial
data submitted pursuant to this Agreement shall be prepared in accordance with
such principles and practices, except as otherwise specified herein.
Each definition of an agreement in this Article 1 shall include such
agreement as amended from time to time.
ARTICLE 2
Letter of Credit and Reimbursement Obligations
----------------------------------------------
Section 2.1 Issuance of Letter of Credit. The Bank agrees upon the
----------------------------
terms and subject to the conditions of this Agreement, including, without
limitation, the satisfaction of the conditions precedent set forth in Section
3.1 hereof, to issue the Letter of Credit in favor of the Beneficiary in
replacement of the Original L/C.
Section 2.2 Reimbursement.
-------------
(a) Reimbursement Obligations Absolute. In consideration of the
----------------------------------
agreement by the Bank to issue the Letter of Credit, the Account Party agrees to
reimburse and indemnify the Bank to the extent of any payments made under the
Letter of Credit to or for the account of the Beneficiary. Further, the Account
Party agrees to indemnify and save the Bank harmless
-8-
<PAGE>
from and against any and all other claims, losses, demands, actions, costs,
damages or expenses suffered or incurred in any manner whatsoever by reason of
or in connection with the execution, delivery, issuance or transfer of, and
payment and performance or failure to pay by the Bank under, the Letter of
Credit, including but not limited to reasonable attorneys' fees and court costs
incurred by the Bank with respect to the Letter of Credit or in connection with
collecting any sums due to the Bank hereunder.
The Account Party agrees to pay promptly ON DEMAND all sums due and
owing from the Account Party to the Bank pursuant to the terms of this
Agreement, together with interest on any payments not made on demand as provided
hereunder. Further, the Account Party hereby authorizes the Bank, at the option
of the Bank and in its sole discretion, to effect payment of all or any part of
any sums due hereunder (including any interest) by debiting any accounts which
the Account Party may have with the Bank as well as the Letter of Credit Reserve
Account.
The Account Party acknowledges, understands and agrees that any demand
or request made upon the Bank for payment under the Letter of Credit by the
Beneficiary which conforms in all material respects with the drawing
requirements set forth in the Letter of Credit will be the sufficient authority
of the Bank, without inquiry or notice to the Account Party, to pay thereunder,
and the Bank shall not be required to determine the validity, adequacy, accuracy
or sufficiency of any such demand or request.
The Account Party agrees that any action taken or omitted to be taken
by the Bank in connection with the Letter of Credit, except for such actions or
omissions as shall constitute gross negligence or willful misconduct on the part
of the Bank as determined by a final, non-appealable order of a court of
competent jurisdiction, shall be binding on the Account Party and shall not
result in any liability of the Bank to the Account Party.
The Account Party agrees that its obligation to reimburse the Bank
hereunder shall be absolute, unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances
whatsoever, including, without limitation, the following circumstances:
(i) Any lack of validity or enforceability of any document issued
or executed in connection herewith;
(ii) Any amendment or waiver of, or consent to or departure from,
any or all of such documents;
(iii) Any improper use which may be made of the Letter of Credit or
any improper acts or omission of the Beneficiary or any other Person for whom
the Beneficiary may be acting in connection therewith;
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<PAGE>
(iv) The existence of any claim, set-off, defense or any other
right which the Account Party may have at any time against the Bank or the
Beneficiary (or Persons for whom the Beneficiary may be acting), or any other
Person, whether in connection with this Agreement, the Letter of Credit, any
transaction contemplated hereby or thereby, or any unrelated transaction;
(V) Any statement or any other documents presented under the
Letter of Credit proving to be insufficient, forged, fraudulent or invalid in
any respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(vi) The insolvency of any Person issuing any document in
connection with the Letter of Credit;
(vii) Any breach of any agreement between the Account Party and the
Beneficiary;
(viii) Any irregularity in the transaction with respect to which the
Letter of Credit is issued, including any fraud by the Beneficiary;
(ix) Any errors, omission, interruptions or delays in transmission
or delivery of any messages, by mail, cable, telegraph, wireless or otherwise,
whether or not they are in code;
(x) Any act, error, neglect or default, omission, insolvency or
failure of business of any of the correspondents of the Bank;
(xi) Any other circumstances arising from causes beyond the control
of the Bank;
(xii) Payment by the Bank under the Letter of Credit against
presentation of a sight draft or a certificate which does not strictly comply
with the terms of the Letter of Credit so long as the documents presented
conform in all material respects with the drawing requirements of the Letter of
Credit; and
(xiii) Any other circumstances or happening whatsoever, whether or
not similar to any of the foregoing;
except for such circumstances as arise out of the gross negligence or willful
misconduct of the Bank as determined by a final, non-appealable order by a court
of competent jurisdiction.
(b) Interest on Unpaid Amounts. The Account Party shall
--------------------------
immediately reimburse the Bank for any and all amounts drawn by the Beneficiary
under the Letter of Credit. In the event the Account Party fails to reimburse
the Bank for any amounts so drawn on the date of a draw under the Letter of
Credit, interest shall accrue and be payable by the Account Party on
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<PAGE>
such drawn amounts at the Alternate Base Rate from and inclusive of the date of
the draw through and including the fifth (5th) Business Day immediately
following such date and at the Fall-In Rate for each day thereafter until such
amounts are paid in full. Interest on any other Obligations hereunder which are
not paid when due shall accrue and be payable by the Account Party at the
Alternate Base Rate from and inclusive of the due date through and including the
fifth (5th) Business Day immediately following such date and at the Fall-In Rate
for each day thereafter until such amounts are paid in full. Any interest, due
and payable hereunder shall be due and payable ON DEMAND, or, in the absence of
a demand by the Bank, not less frequently than monthly in arrears on the last
Business Day of each calendar month.
(c) Increased Costs. In the event that any present or future
---------------
applicable law, rule or regulation, or any change therein or in the
interpretation or administration thereof, including any request, guideline,
directive or policy (whether or not having the force of law) by any governmental
body charged with the administration or interpretation thereof, or compliance by
the Bank with any request, guideline, directive or policy of any such
governmental body:
(i) subjects the Bank to any tax, duty or other charge with
respect to any Obligation or the Letter of Credit (other than any tax on or
measured by the overall net income of the Bank); or
(ii) imposes, modifies or deems applicable any reserve, capital
adequacy, deposit or similar requirement against any assets held by, deposits
with or for the account of, or loans or commitments by, or any acquisition of
funds by or for the account of an office of the Bank or its holding company in
connection with the Letter of Credit or any Obligation; or
(iii) imposes upon the Bank any other condition with respect to any
Obligation, the Letter of Credit or this Agreement;
and the result of any of the foregoing (taking the Bank's policies into account)
is to (x) increase the cost to the Bank of making, funding or maintaining the
Letter of Credit hereunder or (y) reduce the amount of any payment (whether of
interest or otherwise) received or receivable by the Bank or (z) require the
Bank or its holding company to deposit any reserve, increase its capital or make
any payment on or calculated by reference to the Letter of Credit, any sum
received by it hereunder or any outstanding Obligation, in each case by an
amount which the Bank in its sole judgment reasonably deems material after
conducting the review required by this Section; the Bank shall promptly notify
the Account Party of the happening of such event; the Bank shall promptly, and
in any case within ninety (90) days of the date when it becomes aware of the
happening of such an event, deliver to the Account Party a certificate, executed
by an officer, stating the change which has occurred or the reserve requirements
or other conditions which have been imposed or the request, direction or
requirement with which the Bank has complied or will comply, together with the
date thereof, the amount of such increased costs, reduction or payment, the way
in which such amount has been calculated, and shall certify that this is the
Bank's standard method of calculating such amount, that such amount is or will
be
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<PAGE>
calculated in a similar way for other customers of the Bank under similar
circumstances, that such requests are not inconsistent with its treatment of
other customers which are subject to similar provisions, and that its method of
allocating any such costs, reductions or payments is fair and reasonable; and
the Account Party shall promptly pay to the Bank such an amount or amounts set
forth in such certificate as will compensate the Bank for such additional costs,
reduction or payment.
The certificate of the Bank as to the additional amounts payable
pursuant to this Section shall contain in reasonable detail the basis upon which
such additional amounts have been calculated and shall be presumed correct
absent manifest error. The provisions of this Section shall be applicable to the
Account Party and the Bank regardless of any possible contention of invalidity
or inapplicability of the law, regulation or condition which has been imposed.
Notwithstanding the foregoing, the Account Party will not be required to
reimburse the Bank for any increased costs, reductions or payments under this
Section arising prior to ninety (90) days preceding the date of request, unless
the applicable law or regulation is imposed retroactively. In the case of a law
or regulation which is retroactive in effect, such notice shall be provided to
the Account Party not later than ninety (90) days from the date that the Bank
reasonably should have learned of such law or regulation, and the Account
Party's obligation to compensate the Bank for such increased cost or reduction
is contingent upon the provision of such timely notice (but any failure by the
Bank to provide such timely notice shall not affect the Account Party's
reimbursement obligations with respect to (a) costs or reduction incurred from
the date as of which the law or regulation become effective to the date that is
ninety (90) days after the Bank reasonably should have learned of such law or
regulation and (b) costs or reduction incurred following the provision of such
notice). No failure on the part of the Bank to demand compensation under this
Section shall constitute a waiver of its right to demand such compensation on
any other occasion in connection with any other similar or dissimilar event. If
the Bank shall subsequently recoup costs for which the Bank has therefore been
compensated by the Account Party, the Bank shall remit to the Account Party the
amount of recoupment.
Upon the occurrence of any change in circumstances pursuant to this
Section and subject to the provisions of this Section, the Bank shall use its
reasonable efforts to conduct a review of alternative reasonable courses of
action which may mitigate or eliminate the increased cost to the Bank of making
funding or maintaining its obligations in respect of the Letter of Credit and
shall engage in any such alternative course of action which is considered
reasonable under the circumstances as they shall exist at such time; provided
that such alternative course of action will not result in any increased costs or
reduction of the amount of any payment receivable hereunder by the Bank or cause
the Bank, in its good faith judgment, to violate one or more of its policies in
order to avoid such increased cost or reduction.
Section 2.3 Fees.
----
(a) Letter of Credit Fees. The Account Party agrees to pay to the
---------------------
Bank a letter of credit fee, which fee shall be equal to seven-eights of one
percent (7/8%) of the Face Amount
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<PAGE>
of the Letter of Credit as in effect on the Agreement Date. Such letter or
credit fee shall payable quarterly in arrears on the last day of each calendar
quarter to occur during the term of this Agreement and on the Expiration Date.
(b) Other Fees. The Account Party further agrees to pay the Bank
----------
all of the other fees in respect of this Agreement and the Letter of Credit
required to be paid pursuant to that certain letter agreement dated as of
February 23, 1995 between the Account Party and the Bank. Such other fees shall
be due and payable on the dates specified in such letter.
(c) Fees Non-Refundable. All fees payable under this Section shall
-------------------
be fully earned when due and non-refundable when paid.
Section 2.4 Manner of Payment. Each payment by the Account Party on
-----------------
account of the Obligations, whether for reimbursement of draws under the Letter
of Credit, interest, fees or other amounts due and payable hereunder, shall be
made not later than 3:00 p.m. (New York time) on the date specified for payment
under this Agreement to the Bank for its account in lawful money of the United
States of America and immediately available funds. Any payment received after
3:00 p.m. (New York time) shall be deemed received on the next Business Day.
Interest shall be calculated on the basis of a year of 365/366 days, for the
actual number of days elapsed and all other amounts payable hereunder (including
the fees pursuant to Section 2.3) shall be calculated on the basis of a year of
360 days, for the actual number of days elapsed.
Section 2.5 Replacement of Departing Bank; Effectiveness of this
----------------------------------------------------
Agreement. (a) Each of the parties hereto agrees that, from and after the close
- ---------
of business on the L/C Replacement Date, (i) the rights, duties and interests
under the Original Reimbursement Agreement (as amended and restated by this
Agreement) of the Departing Bank with respect to its issuance of the Original
L/C thereunder (other than any such rights or interests in respect of the
Account Party's indemnification of the Departing Bank which shall survive the
termination of the Original Reimbursement Agreement and shall apply to the
"Indemnified Liabilities" arising both under the Original Reimbursement
Agreement and this Agreement and in connection with the transactions
contemplated hereby and thereby) shall be replaced and succeeded to, by the Bank
for all purposes of this Agreement, (ii) the Departing Bank shall be deemed to
assign and transfer of its rights, duties and interests hereunder to the Bank
and (iii) the Departing Bank shall no longer be a party to this Agreement.
(b) Notwithstanding anything contained herein to the contrary,
until the occurrence of the close of business on the L/C Replacement Date, the
Departing Bank shall be entitled to, and subject to, all of the terms,
provisions and conditions contained in the Original Reimbursement Agreement,
without regard to the changes made thereto pursuant to this Agreement.
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<PAGE>
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to Issuance of Letter of Credit.
----------------------------------------------------
The obligation of the Bank to issue the Letter of Credit is subject to the
receipt by the Bank of the following, each in form and substance satisfactory to
it:
(a) True and correct copies of the resolutions, in form and substance
satisfactory to the Bank, adopted by the board of directors of the Account
Party, duly certified by the secretary or an assistant secretary of the Account
Party, evidencing approval of the transactions contemplated by this Agreement
and the other documents to be delivered hereunder, and the authorization of the
officer or officers of the Account Party authorized to execute and deliver this
Agreement and such other documents;
(b) A certificate of the secretary or an assistant secretary of the
Account Party certifying (i) that attached thereto is a true and complete copy
of the articles of incorporation and the bylaws of the Account Party, together
with all amendments thereto, as in effect on the date of such certificate, (ii)
the receipt by or on behalf of the Account Party of all governmental approvals,
if any, with respect to this Agreement and the related documents and (iii) as to
the incumbency and specimen signature of each officer of the Account Party
executing this Agreement or any other document delivered in connection herewith;
(c) A certificate of another officer of the Account Party as to the
incumbency and specimen signature of the secretary or such assistant secretary
of the Account Party;
(d) A certificate signed by a Financial Officer of the Account Party
to the effect that, as of the Agreement Date, (i) no event has occurred, is
continuing, would result from the Account Party's incurrence of reimbursement
obligations with respect to the issuance of the Letter of Credit or, to such
Financial Officer's knowledge, is imminent, which constitutes a Default, (ii)
the representations and warranties contained in Article 4 are true and correct
as of the Agreement Date and (iii) there has been no material adverse change in
the business, operations, assets or condition (financial or otherwise) of the
Account Party;
(e) Duly executed Form U-1 of the Board of Governors of the Federal
Reserve System;
(f) True, correct and complete copies of a duly executed and
effective Affiliate Debt Subordination Agreement, including any amendments
thereto;
(g) Opinions of Sherman & Howard L.L.C., corporate counsel to the
Account Party, and Stephen M. Brett, Esq., in-house counsel to the Account
Party, in substantially the forms attached hereto as Exhibits C and D,
respectively;
-14-
<PAGE>
(h) Fees due and payable to the Bank on the date hereof, as set
forth in Section 2.3, with respect to this Agreement and the Letter of Credit;
(i) Evidence satisfactory to the Bank that any necessary consents
to the execution and delivery of this Agreement and the other documents relating
hereto or contemplated hereby by the respective parties thereto (other than the
Bank) have been received and are in full force and effect;
(j) A duly executed and delivered L/C Issuer Replacement Letter,
in form and substance substantially similar to Exhibit E attached hereto;
(k) The designation by the Account Party of the Obligations as
"Additional Senior Indebtedness" pursuant to, and as defined under, the
Affiliate Debt Subordination Agreement and the Bank shall have received written
evidence of the effectiveness of such designation; and
(l) Such other documents as the Bank or its counsel may reasonably
request.
ARTICLE 4
Representations and Warranties
------------------------------
Section 4.1 Representations and Warranties. The Account Party
------------------------------
hereby represents and warrants to the Bank that:
(a) Organization; Power; Qualification. The Account Party is a
----------------------------------
corporation duly formed, validly existing and in good standing under the laws of
the State of Colorado. All of the issued and outstanding capital stock of the
Account Party is owned, beneficially and of record, by TCI UA. The outstanding
shares of capital stock of the Account Party have been duly authorized and
validly issued and are fully paid and non-assessable. There are no outstanding
options, rights or warrants for the acquisition by any Person of shares of the
capital stock of the Account Party or of securities or obligations convertible
into such capital stock and there are no sale agreements, proxies, voting
trusts, powers of attorney or other agreements with respect to beneficial or
record ownership, or voting rights with respect to, shares of capital stock of
the Account Party. All of the issued and outstanding capital stock of TCI UA is
owned, beneficially and of record, by TCID. All of the issued and outstanding
capital stock of TCID is owned, directly or indirectly, beneficially and of
record, by TCI. The Account Party has the corporate power and authority to own
its properties and to carry on its business as now being and hereafter proposed
to be conducted. The Account Party is duly qualified, in good standing and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization, except where such failure to qualify or to be
-15-
<PAGE>
in good standing could not reasonably be expected to have a materially adverse
effect on the business, assets, liabilities, financial position or results of
operations of the Account Party.
(b) Authorization: Enforceability. The Account Party has the
-----------------------------
corporate power and has taken all necessary action to authorize it to incur the
Obligations hereunder, to execute, deliver and perform this Agreement and each
of the other related documents to which it is a party in accordance with their
respective terms, and to consummate the transactions contemplated hereby and
thereby. This Agreement and each of the related documents to which the Account
Party is party have been duly executed and delivered by the Account Party,
enforceable in accordance with their respective terms, subject, as to
enforcement of remedies, to the following qualifications: (i) certain equitable
remedies are discretionary and, in particular, may not be available where
damages are considered an adequate remedy at law, and (ii) enforcement may be
limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction
and other similar laws affecting enforcement of creditors' rights generally
(insofar as any such law relates to the bankruptcy, insolvency or similar event
of the Account Party).
(c) Subsidiaries. The Account Party has no Subsidiaries.
------------
(d) Compliance with Other Related Documents and Contemplated
--------------------------------------------------------
Transactions. The execution, delivery and performance by the Account Party of
- ------------
this Agreement and each of the other related documents to which it is a party in
accordance with their respective terms, and the consummation of the transactions
contemplated hereby and thereby, do not and will not (i) require any consent or
approval not already obtained, (ii) violate any Applicable Law, (iii) conflict
with, result in a breach of, or constitute as default under the articles of
incorporation or by-laws, as amended, of the Account Party, or any indenture,
agreement, or other instrument to which the Account Party is a party or by which
it or its properties may be bound, or (iv) result in or require the creation or
imposition of any Lien upon or with respect to any property now owned or
hereafter acquired by the Account Party.
(e) Compliance with Law. The Account Party is in compliance in
-------------------
all material respects with all material Applicable Laws, including, without
limitation, the Federal Communications Act of 1934, as amended, ERISA and the
Internal Revenue Code.
(f) Financial Statements. The Account Party has furnished or
--------------------
caused to be furnished to the Bank its unaudited balance sheet as at the end of
the fiscal quarter ended September 30, 1994. Such balance sheet is complete and
correct in all material respects and presents fairly the financial position of
the Account Party on and as of such date. Such balance sheet was prepared in
accordance with generally accepted accounting principles, consistently applied.
(g) Compliance with Regulations G, T, U and X. The Account Party
-----------------------------------------
is not engaged principally nor has as one of its important activities the
business of extending credit for the purpose of purchasing or carrying any
margin stock within the meaning of Regulations G, T,
-16-
<PAGE>
U and X of the Board of Governors of the Federal Reserve System. No part of the
Obligations is being incurred for the purpose of purchasing or carrying any
margin stock within the meaning of such Regulations. Neither the Account Party
nor any agent acting on its behalf has taken or will take any action that might
cause this Agreement or the transactions contemplated hereby to violate such
Regulations.
(h) Absence of Default and Litigation. The Account Party is in
---------------------------------
compliance in all material respects with all of the provisions of its articles
of incorporation and by-laws, and no event has occurred or failed to occur,
which has not been remedied or waived, the occurrence or non-occurrence of which
constitutes, or which with the passage of time or giving of notice or both would
constitute, (i) an Event or Default or (ii) a default by the Account Party under
any indenture, agreement or other instrument, or violation of or default under
any judgment, decree, award or order to which the Account Party is a party or by
which the Account Party or its properties may be bound or affected. There is no
action, suit, proceeding or investigation pending against, or, to the best of
the Account Party's knowledge, threatened against or in any manner relating
adversely to (x) the Account Party or (y) except as related to actions, suits,
proceedings or investigations pending or threatened against TCIC (none of which
could reasonably be expected to have a materially adverse effect on the
business, assets, liabilities, financial position or results of operations of
the Account Party), any of the Account Party's assets.
(i) Accuracy and Completeness of Information. All information,
----------------------------------------
reports, and other writings and data relating to the Account Party and furnished
by or on behalf of the Account Party to the Bank were, at the time furnished,
true, complete and correct in all material respects to the extent necessary to
give the Bank true and accurate knowledge of the subject matter.
(j) Investment Company Act. The Account Party is not required to
----------------------
register under the provisions of the Investment Company Act of 1940, as amended,
and neither the entering into nor performance by the Account Party of this
Agreement nor the transactions contemplated hereby violates any provision of
such Act or requires any consent, approval or authorization of, or registration
with, the Securities and Exchange Commission or any other governmental or public
body or authority pursuant to any provisions of such Act.
(k) Solvency. After giving effect to this Agreement and the
--------
transactions contemplated hereby and assuming the Letter of Credit is fully
drawn by the Beneficiary as of the Agreement Date, (i) the Account Party is not
"insolvent" within the meaning of that term in the Federal Bankruptcy Code
Section 101(32), 11 U.S.C. Section 101(32), as amended, Section 2 of the Uniform
Fraudulent Conveyance Act, as amended, or Section 2 of the Uniform Fraudulent
Transfer Act, as amended, (ii) the Account Party does not have unreasonably
small capital to carry out its business as conducted or proposed to be
conducted, and (iii) the Account Party has not incurred and does not intend to
incur, or believe that it will incur, debts beyond its ability to pay such debts
as they come due or mature.
-17-
<PAGE>
(l) Business and Assets. The Account Party is engaged solely in
-------------------
the business of holding the Class A common stock of TCI and the TCI Joint
Venture Note, performing its obligations under this Agreement and the Robin
Media Put Agreement, entering into and performing its obligations under the $720
Million Letter of Credit Agreement and the other Credit Documents (as such term
is defined in the $720 Million Letter of Credit Agreement) and entering into and
performing its obligations under transactions expressly permitted by Article 7
of this Agreement. The Account Party conducts no business operations. The
Account Party has good, legal and marketable title to all of its assets, which
assets are described, as of the Agreement Date, as set forth on Schedule 1
attached hereto. No financing statement under the Uniform Commercial Code of any
state and no other filing which names the Account Debtor as debtor or covers or
purports to cover any of the Account Party's asset is on file in any state or
other jurisdiction. The Account Party has not signed any such financing
statement or filing or any agreement authorizing any Person to file any such
financing statement or filing, other than as provided hereunder.
Section 4.2 Survival of Representations and Warranties, etc. All
------------------------------------------------
representations and warranties made under this Agreement shall be deemed to be
made, and shall be true and correct, at and as of the Agreement Date and at and
as of the date of issuance of each Letter of Credit. All representations and
warranties made under this Agreement shall survive, and not be waived by, the
execution hereof by the Bank, any investigation or inquiry by the Bank, or by
the issuance of any additional Letter of Credit by the Bank under this
Agreement.
ARTICLE 5
General Covenants
-----------------
So long as the Letter of Credit or any of the Obligations is
outstanding:
Section 5.1 Preservation of Existence and Similar Matters. The
---------------------------------------------
Account Party will: (a) preserve and maintain its existence, rights, franchises,
licenses and privileges in the state of its incorporation, including, without
limiting the foregoing, all necessary government authorizations material to its
business and necessary for the conduct of its business; (b) qualify and remain
qualified and authorized to do business in each jurisdiction where the failure
to be so qualified could have a material adverse effect on the business or
assets or the condition, financial or otherwise, of the Account Party; (c)
maintain all necessary power and authority to own its properties and to carry on
its businesses as now being and hereafter proposed to be conducted; and (d)
comply in all respects with its articles of incorporation and by-laws and all
other agreements to which it is a party.
Section 5.2 Compliance with Applicable Law. The Account Party will
------------------------------
comply in all material respects with the requirements of all material Applicable
Laws except where
-18-
<PAGE>
compliance is being contested in good faith by appropriate proceedings and
adequate reserves have been set aside therefor.
Section 5.3 Accounting Methods and Financial Records. The Account
----------------------------------------
Party will maintain a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and keep adequate records and books of account in which complete entries will be
made in accordance with such accounting principles consistently applied and
reflecting all transactions required to be reflected by such accounting
principles.
Section 5.4 Visits and Inspections. The Account Party will permit
----------------------
any Person designated by the Bank to visit the offices of the Account Party, to
examine the books and records of the Account Party and accountants' reports
relating thereto and to make copies or extracts therefrom, and to discuss the
affairs, finances and accounts of the Account Party with the principal officers
and employees thereof, at all reasonable times, upon reasonable prior notice,
and, at all reasonable times, to examine and inspect the assets of the Account
Party and to meet and discuss the affairs of the Account Party with its
independent accounting firm. The Bank agrees, and agrees to use reasonable
efforts to obtain the agreement of any Person so designated by it, to keep all
information gathered pursuant to this Agreement confidential; provided, however,
that such information may be disclosed to directors, officers, employees,
agents, representatives or outside counsel of the Bank, or any auditor,
governmental official or examiner, or pursuant to any subpoena or other court
order, or to any assignee of or participant in, or prospective assignee or
participant in, the letter of credit arrangement provided hereby, or any part
thereof, who, in each case, agrees in writing to be bound by the terms of this
Section; and provided further, that no confidentiality obligation shall attach
to any information which (a) is or becomes publicly known through no wrongful
act on the part of any Person so designated, (b) is rightfully received by such
Person from a third party, (c) is independently developed by such Person or (d)
is explicitly approved for release by the Account Party.
Section 5.5 Indemnity. The Account Party hereby indemnifies,
---------
exonerates and holds the Bank and each of its officers, directors, employees and
agents, and their respective successors and assigns (collectively, the
"Indemnified Parties") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities, fines, penalties and
damages, and expenses incurred in connection therewith (irrespective of whether
any such Indemnified Party is a party to the action for which indemnification
hereunder is sought), including reasonable attorneys' fees and disbursements
(collectively, the "Indemnified Liabilities"), incurred by the Indemnified
Parties or any of them as a result of, or arising out of, or relating to: (a)
the transactions contemplated hereby; (b) the entering into and performance of
this Agreement by any of the Indemnified Parties; (c) any breach or alleged
breach by the Account Party of any representation or agreement made hereunder or
in connection herewith; or (d) allegations of any participation by the Bank in
the affairs of the Account Party or that the Bank has any joint liability with
the Account Party for any reason; except for any such Indemnified Liabilities
arising for the account of a particular Indemnified Party by reason of the
-19-
<PAGE>
relevant Indemnified Party's gross negligence or willful misconduct as
determined by a final, non-appealable order of a court of competent
jurisdiction. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Account Party hereby agrees to make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under Applicable Law.
ARTICLE 6
Information Covenants
---------------------
So long as the Letter of Credit or any of the Obligations is
outstanding, the Account Party will furnish or cause to be furnished to the
Bank:
Section 6.1 Quarterly Financial Statements and Information. Within
----------------------------------------------
seventy-five (75) days after the last day of each of the first three (3)
quarters of each fiscal year of the Account Party, the balance sheet of the
Account Party and the related statements of operations and cash flows of the
Account Party as of the end of and for the elapsed portion of the year ended
with the last day of such quarter, setting forth in each case after January 1,
1995 in comparative form the figures for the corresponding periods of the
previous fiscal year, all of which shall be certified by a Financial Officer of
the Account Party, to be, in his or her opinion, complete and correct in all
material respects and to present fairly, in accordance with generally accepted
accounting principles consistently applied (except as otherwise specified to
conform to exceptions to such principles as disclosed in the audited financial
statements delivered to the Bank pursuant to Section 6.2 hereof), the financial
position of the Account Party as of the end of and for the elapsed portion of
the year ended with the last day of such period, subject only to normal year-end
adjustments in accordance with generally accepted accounting principles,
consistently applied.
Section 6.2 Annual Financial Statements and Information. Within one
-------------------------------------------
hundred twenty (120) days after the end of each fiscal year of the Account
Party, including, without limitation, the fiscal year ended December 31, 1994,
the audited balance sheet of the Account Party as at the end of such fiscal year
and the related statements of operations, stockholders' equity and cash flows of
the Account Party for such fiscal year, setting forth in each case on and after
January 1, 1995 in comparative form the figures as at the end of and for the
previous fiscal year. Such annual financial statements shall be certified by
KPMG Peat Marwick, or such other firm of independent certified public
accountants of recognized standing as shall be selected by the Account Party and
satisfactory to the Bank, which certification shall (a) be accompanied by an
opinion of such accounting firm without any reservation or exception as to the
scope of its audit, (b) state that the examination by such accounting firm in
connection with such financial statements has been made in accordance with
generally accepted auditing standards, consistently applied, (c) include the
opinion of such accounting firm that such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied,
-20-
<PAGE>
except as otherwise specified in such opinion, and (d) state that, in making the
examination necessary for their audit of the financial statements of the Account
Party for such fiscal year, nothing came to their attention that caused them to
believe that the Account Party was not in compliance with the terms, covenants,
provisions or conditions of this Agreement, or that there shall have occurred
any condition or event which would constitute a Default or, if so, specifying in
such certificate all such instances of non-compliance and the nature and status
thereof.
Section 6.3 Certificates of No Default and Credit Availability. At
--------------------------------------------------
the time the financial statements are furnished pursuant to Section 6.1 and 6.2,
commencing with respect to the quarter ending March 31, 1995, a certificate of a
Financial Officer of the Account Party stating that, to the best of his or her
knowledge, no Default or Event of Default has occurred as at the end of such
quarterly period or year, as the case may be, including, without limitation,
under Section 8.1(1) or, if a Default or Event of Default has occurred,
disclosing each such Default or Event of Default and its nature, when it
occurred, whether it is continuing and the steps being taken by the Account
Party with respect to such Default or Event of Default.
Section 6.4 Copies of Other Reports. From time to time and promptly
-----------------------
upon each request of the Bank, data, certificates, reports, statements,
documents or further information regarding the business, assets, liabilities,
financial position, or results of operations of the Account Party or, upon the
occurrence or non-occurrence of any event contemplated by Section 6.5(d), Robin
Media.
Section 6.5 Notice of Litigation and Other Matters. Prompt notice
--------------------------------------
of the following events after the Account Party has received notice thereof or
otherwise becomes aware thereof:
(a) the commencement of any proceeding or investigation by or
before any governmental body or any action or proceeding in any court or before
any arbitrator against, or in any other way relating adversely to, or any entry
of an order or judgment against, the Account Party or any of its properties,
assets or business;
(b) any material adverse change with respect to the business,
assets, liabilities, financial position, or results of operations of the Account
Party;
(c) any Default or Event of Default or the occurrence or non-
occurrence of any event with constitutes, or which with the passage of time or
giving of notice or both would constitute a default by the Account Party under
any document or agreement other than this Agreement to which the Account Party
is party or by which it or its properties may be bound, giving the details
thereof and specifying the action proposed to be taken with respect thereto;
(d) the occurrence or non-occurrence of any event which
constitutes, or which with the passage of time or giving of notice, or both,
would constitute a "Put-able Event" (as such term is defined in the Robin Media
Put Agreement) or which would otherwise give rise to a
-21-
<PAGE>
claim by the lenders under the Robin Media Credit Agreement (or any of them) or
their agent against the Account Party in respect of the Robin Media Put
Agreement; and
(e) the occurrence of any merger of TCI or any other event which
effects a change in the shares of capital stock of TCI held by the Account Party
at any time, including, without limitation, any stock dividend, stock split,
reverse split or other subdivision, combination or reclassification of such
shares.
ARTICLE 7
Negative Covenants
------------------
So long as the Letter of Credit or any of the Obligations is
outstanding:
Section 7.1 Indebtedness. The Account Party shall not create,
------------
assume, incur or otherwise become or remain obligated in respect of, or permit
to be outstanding, any Indebtedness except:
(a) Indebtedness under this Agreement;
(b) Indebtedness in respect of the Robin Media Put Agreement, as
described on Schedule 2 attached hereto, which Indebtedness shall not exceed the
sum of $30,000,000 plus interest and fees accruing on such amount pursuant to
the Robin Media Credit Agreement as in effect on the date hereof;
(c) Indebtedness arising under the $720 Million Letter of Credit
Agreement, the principal amount of which Indebtedness shall not exceed
$720,000,000 in the aggregate at any time;
(d) Affiliate Subordinated Debt, provided that, simultaneously with
the incurrence of any Affiliate Subordinated Debt of the type described in
clause (a) of the definition thereof, the Account Party shall deliver to the
Collateral Agent (i) the original of the instrument evidencing such Affiliate
Subordinated Debt and (ii) if the proceeds of such Affiliated Subordinated Debt
are being used to acquire Class A common stock of TCI, the certificates
representing such stock, as reissued in the name of the Account Party, and
undated stock powers with respect thereto duly executed by an authorized
signatory of the Account Party in blank with appropriate signature guaranties;
and
(e) additional Indebtedness incurred in the ordinary course of its
business not exceeding at any time $100,000 in the aggregate.
-22-
<PAGE>
Section 7.2 Limitation on Liens. The Account Party shall not
-------------------
create, assume, incur or permit to exist or to be created, assumed, incurred or
permitted to exist, directly or indirectly, any Lien (other than Liens in favor
of the Bank) on any of its properties or assets, whether now owned or hereafter
acquired, except for:
(a) Liens in connection with workers' compensation, unemployment
insurance or other social security obligations (which phrase shall not be
construed to refer to ERISA);
(b) Mechanics', workmen's, carriers', warehousemen's,
materialmen's, landlords' or other like Liens arising in the ordinary course of
business with respect to obligations which are not due or which are being
contested in good faith and by appropriate proceedings diligently conducted;
(c) Liens for taxes, assessments, fees or governmental charges or
levies not delinquent or being contested in good faith and by appropriate
proceedings diligently conducted, and in respect of which adequate reserves
shall have been established in accordance with generally accepted accounting
principles, consistently applied, on the books of the Account Party;
(d) Purchase money Liens on property (other than investment
securities) acquired after the Agreement Date by Account Party in accordance
with this Agreement, which Liens are created contemporaneously with such
acquisition to secure or provide for the payment or financing of all or any part
of the purchase price thereof, provided that the Lien secured thereby shall
attach only to the property so acquired; and
(e) Permitted Liens.
Section 7.3 Liquidation; Formation of Subsidiaries; Change in
-------------------------------------------------
Ownership; Disposition or Acquisition of Assets. The Account Party shall not at
- -----------------------------------------------
any time: (a) liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up its affairs; (b) enter into any merger,
consolidation or any similar reorganization, except that (i) any Permitted
Subsidiary or any Permitted TCI Subsidiary may merge into and with the Account
Party, provided that the Account Party is the surviving corporation and that any
shares of the Class A common stock of TCI held by such Permitted Subsidiary or
by such Permitted TCI Subsidiary immediately before such merger have been
reissued in the name of the Account Party and delivered by the Account Party to
the Collateral Agent, together with undated stock powers with respect thereto
duly executed by an authorized signatory of the Account Party in blank with
appropriate signature guaranties, which shares shall be deemed to be pledged to
the Collateral Agent pursuant to the Security Agreement, and (ii) any Permitted
TCI Subsidiary may merge into and with a Permitted Subsidiary, provided that the
Permitted Subsidiary is the surviving corporation and that any shares of the
Class A common stock of TCI held by such Permitted TCI Subsidiary immediately
before such merger have been reissued in the name of the Permitted Subsidiary;
(c) create or acquire any Subsidiary or permit any Subsidiary to enter into or
agree,
-23-
<PAGE>
or otherwise become subject, to any agreement, contract or other arrangement
with any Person pursuant to the terms of which such Subsidiary is or would be
prohibited or restricted from making intercompany loans or advances to the
Account Party (except for restrictions which are not more restrictive than those
in existence on November 17, 1994), or permit any of its Subsidiaries so to do,
except that the Account Party may create one or more Permitted Subsidiaries and
may acquire one or more Permitted TCI Subsidiaries, provided that immediately
after giving effect thereto such Permitted TCI Subsidiary shall constitute a
Permitted Subsidiary, and provided further that the Account Party hereby agrees
that is shall cause each of its Subsidiaries to comply with the terms of
Articles 5 and 7 of this Agreement, but excluding Section 7.5 hereof, as if each
reference to the Account Party appearing therein also constituted a reference to
each Subsidiary of the Account Party; (d) sell, lease abandon, transfer or
otherwise dispose of any of its assets or business (including, without
limitation, any shares of capital stock of TCI), other than as expressly
provided in Section 7.3(e)(i) hereof, and sales in the ordinary course of
business of assets acquired in the ordinary course of business pursuant to
Section 7.3(e)(ii); (e) acquire or exchange any assets, except for acquisitions
of other assets in the ordinary course of business having an aggregate purchase
price not to exceed $100,000 during the term of this Agreement; (f) purchase or
otherwise acquire, hold or invest in the capital stock or other ownership
interests (however designated) of, or any other interest in, any Person, make
any loan or advance to, or enter into any arrangement for the purpose of
providing funds or credit to, or make any other investment in, any Person, or
guaranty the obligations of or otherwise provide credit support for, any Person,
however effected other than as permitted by the terms of the $720 Million Letter
of Credit Agreement as in effect on November 17, 1994 (whether or not the $720
Million Termination Date shall have occurred); or (g) engage in any business
other than as described in Section 4.1(1) hereof; provided, however, that the
Account Party may apply cash dividend payments and other cash distributions
received by it in respect of its assets to make investments in (i) short-term
certificates of deposit in United States dollars of the Bank and of banks
organized under the laws of the United States of America or any state thereof or
Canada or any province thereof having a combined capital, surplus and undivided
profits of not less than $500,000,000 or the Canadian equivalent, and (ii)
direct obligations of the United States of America and agencies thereof and in
commercial paper carrying the highest rating by a nationally recognized rating
bureau.
Section 7.4 Amendment and Waiver. Without the prior written consent
--------------------
of the Bank, the Account Party shall not enter into any amendment of, or agree
to or accept or consent to any waiver of any of the provisions of: (a) the Robin
Media Credit Agreement or the Robin Media Put Agreement (if the effect of such
amendment or waiver would be to increase the amount of the obligations required
to be purchased by the Account Party thereunder); (b) the Account Party's
articles of incorporation or by-laws; (c) the Affiliate Debt Insubordination
Agreement; (d) the $720 Million Letter of Credit Agreement (if the effect of
such amendment or waiver would be to increase the aggregate face amount of all
outstanding letters of credit issued thereunder or the aggregate principal
amount of the Account Party's reimbursement obligations thereunder); or (e) the
Security Agreement, the Registration Rights Agreement, the TCI Joint Venture
Note, the TCIC Subordinated Credit Agreement or any Affiliate Subordinated Debt.
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<PAGE>
Section 7.5 Dividends and Distributions. If a Default then exists
---------------------------
or would be caused thereby, the Account Party may not (a) declare or make any
dividend, distribution or other payment to any Person on account of or for the
redemption, repurchase or retirement of any shares of its capital stock or (b)
make payment of any management, consulting or similar fees to any Affiliate.
Section 7.6 Consolidated Tax Returns. The Account Party may not
------------------------
take unreimbursed payments of income taxes in an amount greater than the amount
of such taxes that would have been payable by the Account Party on an income tax
return filed for the Account Party, taking into account all permissible credits
losses and other tax benefits that would have been available to the Account
party for the tax year to which such return relates or for or related to any
prior tax year(s); or be obligated to make unreimbursed contributions on account
of income taxes in amounts in excess of its equitable share of the tax
obligations of TCI and its consolidated Subsidiaries.
ARTICLE 8
Defaults
--------
Section 8.1 Events of Default. Each of the following shall
-----------------
constitute an Event of Default, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgement or order of any court or any order, rule or regulation
of any governmental or non-governmental body:
(a) Any representation or warranty made under this Agreement shall
prove incorrect or misleading in any material respect when made or deemed made;
(b) (i) On or prior to the occurrence of the $720 Million
Termination Date, the Account Party shall default in the payment of any amount
hereunder as and when due, which shall include, without limitation, any failure
by the Account Party to make a deposit in the Letter of Credit Reserve Account
as required by Section 8.2(c) below immediately upon the Bank's demand therefor,
or (ii) following the occurrence of the $720 Million Termination Date, any such
default shall have occurred and shall not have been cured within a period of
five (5) days from the occurrence of such default;
(c) The Account Party shall default in the performance or observance
of the covenants contained in Article 7 hereof;
(d) The Account Party shall default in the performance or observance
of any other agreement or covenant contained in this Agreement not specifically
referred to elsewhere in this Section 8.1, and such default shall not be cured
within a period of thirty (30) days from the date the Account Party shall have
become aware of the occurrence of such default;
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<PAGE>
(e) There shall occur any default in the performance or observance
of any agreement or covenant or breach of any material representation or
warranty contained in any of the other documents related to this Agreement
(other than this Agreement and other Agreements which are specifically named in
this Section 8.1) which shall not be cured within a period of ten (10) days
after the Account Party shall have become aware of the occurrence of such
default, or the Account Party shall in any way challenge, or any proceedings
shall in any way be brought to challenge, the prior and perfected status of the
Bank's security interest with respect to the cash collateral, if any, held in
the Letter of Credit Reserve Account described in Section 8.2 hereof or the
collateral pledge pursuant to the Security Agreement, or the validity or
enforceability of such security interests;
(f) There shall be entered a decree or order by a court having
jurisdiction in the premises constituting an order for relief in respect of the
Account Party or any of its Subsidiaries, TCI UA (if at such time the $720
Million Termination Date shall not have occurred), TCIC, or TCI under Title 11
of the United States Code, as now constituted or hereafter amended, or any other
applicable Federal or state bankruptcy law or other similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or similar
official of the Account Party or any of its Subsidiaries, TCI UA (if at such
time the $720 Million Termination Date shall not have occurred), TCIC, or TCI or
any substantial part of their respective properties, or ordering the winding-up
or liquidation of the affairs of the Account Party or any of its Subsidiaries,
TCI UA (if at such time the $720 Million Termination Date shall not have
occurred), TCIC, or TCI and any such decree or order shall continue unstayed and
in effect for a period of sixty (60) consecutive days;
(g) The Account Party or any of its Subsidiaries, TCI UA (if at
such time the $720 Million Termination Date shall not have occurred), TCIC, or
TCI shall file a petition, answer or consent seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
applicable Federal or state bankruptcy law or other similar law, or the Account
Party or any of its Subsidiaries, TCI UA (if at such time the $720 Million
Termination Date shall not have occurred), TCIC, or TCI shall consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Account Party
or any of its Subsidiaries, TCI UA (if at such time the $720 Million Termination
Date shall not have occurred), TCIC, or TCI or of their respective properties,
or the Account Party or any of its Subsidiaries, TCI UA (if at such time the
$720 Million Termination Date shall not have occurred), TCIC, or TCI shall fail
generally to pay debts as they become due, or the Account Party or any of its
Subsidiaries, TCI UA (if at such time the $720 Million Termination Date shall
not have occurred), TCIC, or TCI shall take any action in furtherance of any
such action;
(h) There shall be a default under the TCIC Subordinated Credit
Agreement or any other document, instrument or agreement evidencing Indebtedness
of the Account Party, any of its Subsidiaries or TCI UA in a principal amount of
$1,000,000 or more, or of TCID in a
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<PAGE>
principal amount of $10,000,000 or more, or, if at such time the $720 Million
Termination Date shall not have occurred, of TCIC in a principal amount of
$50,000,000 or more, which default, in any such case, is not cured within any
grace or cure period applicable thereto;
(i) The Account Party shall fail to settle its obligations in
respect of the "Put Option" under the Robin Media Put Agreement in accordance
with the terms of such Agreement;
(j) Judgments or decrees in an aggregate amount equal to or
exceeding $500,000 in the case of the Account Party and its Subsidiaries or, if
at such time the $720 Million Termination Date shall not have occurred,
$10,000,000 in the case TCIC, shall be rendered against any such Person, which
shall be and remain unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of sixty (60) days;
(k) The Account Party shall cease to be an indirect wholly-owned
Subsidiary to TCIC or if TCIC ceases to be a wholly-owned Subsidiary of TCI, in
each case free and clear of all Liens;
(l) (i) The Account Party shall fail to own beneficially and of
record, free and clear of all Liens (other than Permitted Liens), or the
Collateral Agent shall fail to have, pursuant to the Security Agreement, a first
priority security interest in, at least 56,656,584 shares of the Class A common
stock of TCI (or the equivalent percentage of such shares outstanding as of
November 17, 1994), as the same may be adjusted for the effects of any stock
split, reverse split or other subdivision, combination or other reclassification
or similar event with respect to the Class A common stock of TCI; or (ii) for a
period in excess of four (4) consecutive Business Days, the product of (A) the
sum of (1) the undrawn face amount of any letter of credit issued pursuant to
the $720 Million Letter of Credit Agreement, plus the principal amount of all
loans outstanding under the $720 Million Letter of Credit Agreement, plus (2)
the Face Amount, plus the outstanding principal amount of all unreimbursed draws
under the Letter of Credit, plus (3) the maximum principal amount of the loans
under the Robin Media Credit Agreement which the Account Party is obligated (at
any time under any contingency) to purchase under the Robin Media Put Agreement
($30,000,000 on the date of this Agreement), multiplied by (B) 1.25 shall at any
time exceed the sum of (x) the product of (p) the number of shares of the Class
A common stock of TCI constituting TCI Class A Stock Collateral, multiplied by
(q) the price per share (determined as of the close of business on each day
based on the Daily Close Price) of such common stock, plus (y) the cash on
deposit in the Minimum Collateral Account (as such term is defined in the
Security Agreement);
(m) TCI shall dissolve or otherwise terminate its existence or
merge or consolidate with any other Person in which TCI shall not be the
surviving corporation of such merger or consolidation, or if for any reason
shares of TCI Class A common stock are no longer traded in the over-the-counter
market and reported on NASDAQ, or if for any reason trading in such shares is
suspended for a period exceeding one (1) Business Day;
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<PAGE>
(n) TCI or TCIC shall default in the performance or observance of
any of its obligations under the Registration Rights Agreement or the TCIC
Subordinated Credit Agreement;
(o) Any Event of Default shall occur under and as defined in any
TCIC Material Credit Agreement if at such time the $720 Million Termination Date
shall not have occurred;
(p) The Account Party shall pay, prepay or purchase any principal,
interest or other amounts owing under the TCIC Subordinated Credit Agreement or
under any Affiliate Subordinated Debt described in clause (a) of the definition
of Affiliate Subordinated Debt; or
(q) Any Event of Default shall occur under and as defined in the
$720 Million Letter of Credit Agreement or the Security Agreement, or any Put
Counterparty Event of Default shall occur under and as defined in the Robin
Media Put Agreement.
Section 8.2 Remedies. If an Event of Default shall have occurred
--------
and shall be continuing:
(a) With the exception of an Event of Default specified in Section
8.1(f) or 8.1(g), the Bank may declare that an Event of Default has occurred and
declare any and all Obligations under this Agreement to be forthwith due and
payable without presentment, demand, protest or notice of any kind, all of which
are hereby expressly waived, anything in this Agreement to the contrary
notwithstanding.
(b) Upon the occurrence and during the continuance of an Event of
Default specified in Section 8.1(f) or Section 8.1(g), all Obligations owed
under this Agreement at such time by the Account Party shall thereupon and
concurrently therewith automatically become due and payable, without any action
by the Bank and without presentment, demand, protest or other notice of any
kind, all of which are expressly waived, anything in this Agreement to the
contrary notwithstanding.
(c) In the event the Letter of Credit remains outstanding at the
time of any acceleration of the Obligations pursuant to the provisions of this
Section 8.2, the Account Party shall promptly upon demand by the Bank deposit in
a non-interest bearing Letter of Credit Reserve Account opened by the Bank an
amount equal to the aggregate then undrawn and unexpired amount of the Letter of
Credit. The Account Party hereby grants to the Bank a first priority Lien on,
security interest in and the security title to all property at any time held in
the Letter of Credit Reserve Account, as collateral for the Obligations. Amounts
held in such Letter of Credit Reserve Account shall be applied by the Bank to
the payment of drafts drawn under the Letter of Credit, and the unused portion
thereof after the Letter of Credit shall have expired or been fully drawn upon,
if any, shall be applied to repay other Obligations hereunder in the manner set
forth in Section 8.2(f) hereof. After the Letter of Credit has expired or has
been fully
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<PAGE>
drawn upon and all Obligations have been satisfied and paid in full, the
balance, if any, in such Letter of Credit Reserve Account shall be returned to
the Account Party or as otherwise required by Applicable Law. Except as
expressly provided hereinabove, presentment, demand, protest and all other
notices of any kind are hereby expressly waived by the Account Party.
(d) The Bank may exercise all other rights granted to it under the
related documents or under Applicable Law.
(e) The rights and remedies of the Bank hereunder shall be
cumulative, and not exclusive.
(f) Amounts held or collected by the Bank under this Section 8.2,
together with any other amounts received or collected hereunder or under any
other related document by the Bank, shall be applied in the following order of
priority: (i) against the Bank's costs of collection and counsel fees and
expenses in obtaining such amounts; (ii) to the payment of any fees then due and
payable hereunder; (iii) to the payment of any interest then due and payable
hereunder; (iv) to the payment of amounts drawn and not reimbursed in respect of
the Letter of Credit; (v) to the payment of all other amounts due and not
otherwise referred to in this Section 8.2(f) then due and payable hereunder; and
(vi) to the Account Party or as otherwise required by Applicable Law.
(g) Upon the occurrence and during the continuation of an Event of
Default, the Bank may exercise, on its own behalf or on the behalf of itself and
others, such rights as may be granted to the Bank under the Registration Rights
Agreement and the Security Agreement with respect to the capital stock pledged
as collateral for, among other things, the Obligations, pursuant to the Security
Agreement.
ARTICLE 9
Miscellaneous
-------------
Section 9.1 Notices.
-------
(a) All notices and other communications under this Agreement
shall be in writing and shall be deemed to have been given three (3) Business
Days from the date of deposit in the mail, designated as certified mail, return
receipt requested, post-prepaid, or one (1) Business Day after being entrusted
to a reputable commercial overnight delivery service, or when sent out by
telecopy addressed to the party to which such notice is directed as its address
determined as provided in this Section 9.1 during the recipient's normal
business hours. All notices and other communications under this Agreement shall
be given to the parties hereto at the following addresses:
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<PAGE>
(i) If to the Account Party, to it at:
TCI UA I, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111
Attn: Assistant Treasurer
Telecopy No.: (303) 488-3205
with a copy to:
General Counsel
TCI UA I, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111
Telecopy No.: (303) 488-3217
(ii) If to the Bank, to it at:
Chemical Bank
270 Park Avenue, 9th Floor
New York, New York 10017
Attn: Judith E. Smith
Telecopy No.: (212) 270-2056
(b) Any party hereto may change the address to which notices shall
be directed under this Section 9.1 given ten (10) days' written notice of such
change to the other parties.
Section 9.2 Expenses.
--------
The Account Party will promptly pay:
(a) all reasonable out-of-pocket expenses of the Bank in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the related documents, and the transactions contemplated hereunder
and thereunder and the issuance of the Letter of Credit hereunder, including,
but not limited to, the fees and disbursements of Simpson Thacher & Bartlett,
special counsel for the Bank;
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<PAGE>
(b) all reasonable out-of-pocket expenses of the Bank in
connection with the restructuring, refinancing and "work-out" of the
transactions contemplated by this Agreement and the related documents, and the
preparation, negotiation, execution and delivery of any waiver, amendment or
consent by the Bank relating to this Agreement or the related documents,
including, but not limited to, the fees and disbursements of Simpson Thacher &
Bartlett, or other special counsel for the Bank; and
(c) all reasonable costs and out-of-pocket expenses of obtaining
performance under this Agreement or the related documents and all reasonable
costs and out-of-pocket expenses of collection if default is made in the payment
hereunder, which in each case shall include fees for the Bank.
Section 9.3 Waivers. The rights and remedies of the Bank under
-------
this Agreement and the related documents shall be cumulative and not exclusive
of any rights or remedies which it would otherwise have. No failure or delay by
the Bank in exercising any right shall operate as a waiver of such right. The
Bank expressly reserves the right to require strict compliance with the terms of
this Agreement. Any waiver or indulgence granted by the Bank shall be set forth
in writing and shall not constitute a modification of this Agreement, except to
the extent expressly provided in such waiver or indulgence, or constitute a
course of dealing by the Bank at variance with the terms of the Agreement such
as to require further notice by the Bank of its intent to require strict
adherence to the terms of the Agreement in the future. Any such actions shall
not in any way affect the ability of the Bank, in its discretion, to exercise
any rights available to it under this Agreement or under any other agreement,
whether or not the Bank is a party, relating to the Account Party.
Section 9.4 Determination by Bank Presumptively Correct and
-----------------------------------------------
Binding. Absent manifest error, any determination required or expressly
- -------
permitted to be made by the Bank under this Agreement or any related document
shall be presumptively correct and binding on the parties.
Section 9.5 Set-Off. In addition to any rights now or hereafter
-------
granted under Applicable Law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of a Default the Bank is hereby
authorized by the Account Party at any time or from time to time, without notice
to the Account Party, or to any Person, any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all deposits (general
or special, time or demand, including, but not limited to, Indebtedness
evidenced by certificates of deposit, in each case whether matured or unmatured)
and any other Indebtedness at any time held or owning by the Bank to or for the
credit or the account of the Account Party, against and on account of the
obligations and liabilities of the Account Party to the Bank under this
Agreement and any related document, including, but not limited to, all claims of
any nature or description arising out of or connected with this Agreement,
irrespective of whether the Bank shall have made any demand hereunder.
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<PAGE>
Section 9.6 Assignment.
----------
(a) The Account Party may not assign or transfer any of its rights
nor delegate any of its obligations hereunder without the prior written consent
of the Bank.
(b) The Bank may at any time enter into assignment agreements with
one or more other banks or other Persons pursuant to which the Bank may assign
all or a portion of its interest under this Agreement and the related documents,
provided that, except for assignments made to an affiliate of any Bank, or any
Federal Reserve Bank, (i) no assignment shall be issued or sold without the
consent of the Account Party, such consent not to be unreasonably withheld or
delayed, and (ii) no such assignment shall cause the interests of the Bank in
the Letter of Credit to fall below 51%. Any Person purchasing an assignment from
the Bank shall have a minimum rating with respect to its long-term deposits of A
(or an equivalent rating) by two (2) nationally recognized statistical rating
organizations. Assignments permitted hereunder shall be made pursuant to an
Assignment and Assumption Agreement in form and substance reasonably
satisfactory to the Bank and the Account Party and shall be accompanied by the
issuance of new Letters of Credit hereunder by the Bank and its assignee in an
aggregate amount equal to the Face Amount of the Bank's then existing Letter of
Credit, which new Letters of Credit shall replace the Bank's Letter of Credit.
The Assignment and Assumption Agreement may provide that the Bank will not,
without the consent of the assignee, agree to any modification, amendment or
waiver of this Agreement which would (x) reduce or postpone any payment due
hereunder, or (y) release any collateral for the Obligations except as otherwise
provided hereby.
(c) Except as specifically set forth in Section 9.6(b) hereof,
nothing in this Agreement, expressed or implied, is intended to or shall confer
on any Person other than the respective parties hereto and thereto and their
successors and assignees permitted hereunder and thereunder any benefit or any
legal or equitable right, remedy or other claim under this Agreement.
Section 9.7 Counterparts. This Agreement may be executed in
------------
multiple counterparts, each of which shall be deemed to be an original, but all
such separate counterparts shall together constitute but one and the same
instrument.
Section 9.8 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
Section 9.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
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Section 9.10 Interest and Charges. (a) No provision of this
--------------------
Agreement or any other related document shall require the payment or permit the
collection of interest in excess of the maximum lawful rate permitted by
Applicable Law. If any excess amount of interest in such respect is provided
for, or shall be adjudicated to be so provided in connection with this
Agreement, the provisions of this Section 9.10(a) shall govern and prevail, and
neither the Account Party nor any sureties, guarantors, successors or assigns of
the Account Party shall be obligated to pay the excess amount of such interest
or any other excess sum paid for the use, forbearance, or detention of sums
loaned pursuant hereto. In the event the Account Party ever pays, or the Bank
ever receives, collects or applies as interest, any such sum, such amount which
would be in excess of the maximum amount permitted by Applicable Law shall be
applied as a payment in reduction of the principal, unless the Account Party
shall notify the Bank in writing that it elects to have such excess returned
forthwith. Because of the variable nature of the rates of interest that any
Indebtedness hereunder may bear, the total interest that will accrue cannot be
determined in advance. Neither the Account Party nor the Bank intends for the
Bank to contract for, charge or receive usurious interest.
(b) Notwithstanding the use by the Bank of the Alternate Base Rate as
the reference rate for the determination of interest, the Bank shall be under no
obligation to obtain funds from any particular source in order to charge
interest to the Account Party at interest rates tied to such reference rate, and
may obtain funds in any matter it sees fit.
Section 9.11 Headings. Headings used in this Agreement are for
--------
convenience only and shall not be used in connection with the interpretation of
any provision hereof.
Section 9.12 Amendment and Waiver. Neither this Agreement nor any
--------------------
term hereof may be amended orally, nor may any provision hereof be waived orally
buy only by an instrument in writing signed by the Bank and, in the case of an
amendment, by the Account Party. Following any assignment by the Bank of its
interests hereunder or under the Letter of Credit pursuant to Section 9.6
hereof, any amendment or waiver hereof shall be in writing signed by the Account
Party, on the one hand, and such of the Bank and its assignees the aggregate
Face Amount of whose Letters of Credit equals or exceeds sixty-six and two-
thirds (66-2/3) of the total Face Amount, on the other hand. Notwithstanding the
foregoing, amendments and waivers which (a) reduce or postpone any payment due
hereunder, (b) release or impair any collateral for the Obligations other than
as provided hereunder, (c) or amend or waive the terms of this Section, shall
require the written consent of the Account Party, the Bank and each of its
assignees.
Section 9.13 Entire Agreement. Except as otherwise expressly
----------------
provided herein, this Agreement and the other documents described or
contemplated herein embody the entire agreement and understanding between or
among any of the parties hereto and thereto and supersede all prior agreements
and understandings relating to the subject matter hereof and thereof.
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Section 9.14 Waiver of Jury Trial. IN CONSIDERATION OF THE AGREEMENT
--------------------
OF THE BANK TO ISSUE THE LETTER OF CREDIT HEREUNDER, THE ACCOUNT PARTY AGREES
THAT ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE LETTER
OF CREDIT OR ANY OTHER RELATED DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY MAY BE BROUGHT IN THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK OR THE STATE OF NEW YORK, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT THE ACCOUNT PARTY IRREVOCABLY SUBMITS TO THE NON-
EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THAT PURPOSE. THE ACCOUNT PARTY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION
OR PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
THE ACCOUNT PARTY AGREES THAT A FINAL JUDGMENT IN ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH A COURT, AFTER ALL APPROPRIATE APPEALS, SHALL BE
CONCLUSIVE AND BINDING UPON THE ACCOUNT PARTY. THE ACCOUNT PARTY AND THE BANK
HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A
JURY TRIAL AND ANY CLAIM FOR PUNITIVE DAMAGES.
ARTICLE 10
Administrative Agent
--------------------
In order to facilitate the various transactions contemplated by this
Agreement, Chemical Bank is hereby appointed to act as Administrative Agent on
behalf of the Banks which may from time to time become parties hereto. Each
Bank, automatically upon its becoming a party hereto, hereby irrevocably
designates and appoints Chemical Bank as the agent of such Bank under this
Agreement, and each such Bank irrevocably authorizes the Administrative Agent,
in such capacity, to take such action on its behalf under the provisions of this
Agreement and to exercise such powers and perform such duties as are expressly
delegated to or required of the Administrative Agent by the terms and provisions
hereof, together with such other powers as are reasonably incidental thereto.
The Administrative Agent is hereby expressly authorized on behalf of the Banks,
without limiting and implied authority, and agrees to take, the following
actions, subject to the terms and conditions of this Agreement: (a) to receive
on behalf of the Banks and payment under or in respect of the Letters of Credit
and to distribute to each Bank its proper share of all payments so received as
soon as practicable; (b) to give notice promptly on behalf of the Banks to the
Account Party of any Event of Default specified in this Agreement of which the
Administrative Agent has actual knowledge acquired in connection with its agency
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hereunder; and (c) to distribute promptly to each Bank copies of all notices,
agreements and other material provided to the Administrative Agent (in its
capacity as a Bank) by the Account Party.
Neither the Administrative Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any
action lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement (except for its or such Person's own gross
negligence or willful misconduct ) or (ii) responsible in any manner to any of
the Banks for any recitals, statements, representations or warranties made by
the Account Party or any officer thereof contained in this Agreement or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or for any failure of the Account Party to
perform its obligations hereunder or thereunder. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any writing,
resolution, notice, consent, certificate or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statement of legal counsel
(including, without limitation, counsel to the Account Party), independent
accountants and other experts selected by the Administrative agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement unless it shall first receive such advice or
concurrence of the Banks whose Letters of Credit equal or exceed 66-2/3 of the
total Face Amount as it deems appropriate or it shall first be indemnified to
its satisfaction by the Banks against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
The Administrative Agent and its Affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Account
Party as if it were not the Administrative Agent hereunder.
Each Bank expressly acknowledges that neither the Administrative Agent
nor any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it. Each Bank
represents to the Administrative Agent that it has, independently and without
reliance upon the Administrative Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also represents
that it will, independently and without reliance upon the Administrative Agent
or any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement.
The Banks agree (i) to reimburse the Administrative Agent in the
amount of such Bank's pro rata share (based on its share of the total Face
Amount of the Letters of Credit outstanding) of any expenses incurred for the
benefit of the Banks by the Administrative Agent, including reasonable counsel
fees and disbursements, and (ii) to indemnify and hold harmless the
Administrative Agent and any of its directors, officers, employees or agents, on
demand, in the
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<PAGE>
amount of its pro rata share, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time be
imposed on, incurred by or asserted against the Administrative Agent or such
other Person in any way relating to or arising out of this Agreement or any
action taken or omitted by any of them hereunder; provided that no Bank shall be
--------
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgements, suits, costs, expenses or disbursements
resulting solely from the Administrative Agent's (or such other Person's) gross
negligence or willful misconduct.
-36-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their duly authorized officers as of the day
and year first above written.
TCI UA I, INC., as Account Party
By:__________________________________________
Title: Vice President/Assistant Treasurer
CHEMICAL BANK, as a Bank and as
Administrative Agent
By:__________________________________________
Title:
THE TORONTO-DOMINION BANK, as
Departing Bank
By:__________________________________________
Title:
-37-
<PAGE>
AMENDMENT NO. 2
AMENDMENT NO. 2, dated as of February 26, 1996 (this "Amendment"), to
---------
the Amended and Restated Reimbursement Agreement, dated as of March 1, 1995 (as
heretofore amended, the "Agreement"), among TCI UA I, INC., a Colorado
---------
corporation (the "Account Party"), CHEMICAL BANK, in its capacity as issuing
-------------
bank of the Letter of Credit and as Administrative Agent, and TORONTO-DOMINION
BANK, as Departing Bank.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to the Agreement, Chemical Bank has issued its
letter of credit, dated March 1, 1995 (the "Existing Letter of Credit"), in the
-------------------------
face amount of $112,500,000 in favor of Chemical Bank (the "Beneficiary"); and
-----------
WHEREAS, the Account Party has requested that Chemical Bank issue on
February 26, 1996, a letter of credit in the amount of $141,250,000 in favor of
the Beneficiary to replace the Existing Letter of Credit (the "Replacement
-----------
Letter of Credit"), and Chemical Bank is willing to do so on the terms and
- ----------------
conditions of this Amendment;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
I. Defined Terms. Unless otherwise defined herein, capitalized
-------------
terms used herein which are defined in the Agreement shall have the meanings
therein defined.
II. Issuance of Replacement Letter of Credit. The Bank agrees on the
----------------------------------------
terms and subject to the conditions of this Amendment, including, without
limitation, the satisfaction of the conditions precedent set forth below, to
issue the Replacement Letter of Credit on February 26, 1996, in favor of the
Beneficiary in replacement of the Existing Letter of Credit.
III. Amendments to the Agreement. The Agreement is hereby amended as
---------------------------
follows:
1. Letter of Credit. Upon issuance of the Replacement Letter of
----------------
Credit by the Bank in accordance with this Amendment, all references to the
"Letter of Credit" in the Agreement shall hereafter be deemed to refer to the
Replacement Letter of Credit.
2. Amendment of Article 1. Article 1 is hereby amended as follows:
----------------------
(a) The definition of "Expiration Date" is hereby amended by
---------------
deleting the year "1996" and substituting therefor the year "1997."
<PAGE>
(b) The definition of "Face Amount" is hereby amended by
deleting such definition in its entirety and substituting therefor the
following:
"'Face Amount' shall mean at any time the undrawn face amount of
-----------
the Letter of Credit at such time, which undrawn face amount will
be $141,250,000 as of the date of issuance thereof."
3. Amendment of Section 2.3. Section 2.3(a) of the Agreement is
------------------------
hereby amended by deleting the first sentence thereof in its entirety and by
substituting therefor the following:
"The Account Party agrees to pay to the Bank a letter of credit
fee, which fee shall be payable at a rate per annum equal to
seven-eights of one percent (7/8%) on the Face Amount of the
Letter of Credit as in effect from time to time during the period
for which payment is made."
IV. Representations and Warranties. To induce the Bank to issue the
------------------------------
Replacement Letter of Credit, the Account Party confirms and reaffirms the
representations and warranties set forth in Article 4 of the Agreement as true
and correct in all material respects as of the Effective Date (as defined below)
of this Amendment provided that each reference to the Agreement therein shall be
--------
deemed to be a reference to the Agreement after giving effect to this Amendment,
and provided, further, that the unaudited balance sheet referred to in Section
-------- -------
4.1(f) thereof shall refer to the unaudited balance sheet as at the end of the
fiscal quarter ended September 30, 1995. The Account Party hereby represents
and warrants to the Bank as of the Effective Date of the Amendment that there
has been no change to the Articles of Incorporation or the Bylaws of the Account
Party subsequent to the Agreement Date.
V. Conditions Precedent to Issuance of the Replacement Letter
of Credit. The effectiveness of this Amendment and the obligation of the Bank to
issue the Replacement Letter of Credit are subject to the receipt by the Bank of
the following, each in form and substance satisfactory to it (the date upon
which the same shall have been so received, the "Effective Date" of this
--------------
Amendment):
1. True and correct copies of the resolution, in form and substance
satisfactory to the Bank, adopted by the Board of Directors of the Account
Party, duly certified by the Secretary or an Assistant Secretary of the Account
Party, evidencing approval of the transactions contemplated by this Amendment
and the other documents to be delivered hereunder, and the authorization of the
officer or officers of the Account Party authorized to execute and deliver this
Amendment and such other documents;
2. A duly executed Form U-1 of the Board of Governors of the Federal
Reserve System;
-2-
<PAGE>
3. Opinions of Sherman & Howard L.L.C., corporate counsel to the
Account Party, and Stephen M. Brett, Esq., in-house counsel to the Account
Party, in substantially the forms of Exhibits C and D of the Agreement,
respectively;
4. All fees due and payable to the Bank in respect of this Amendment
and the Replacement Letter of Credit required to be paid pursuant to that
certain letter agreement dated as of February 23, 1996, between the Account
Party and the Bank shall have been paid to the Bank.
5. The designation by the Account Party of the Obligations as
"Additional Senior Indebtedness" pursuant to, and as defined under, the
Affiliate Debt Subordination Agreement and the Bank shall have received written
evidence of the effectiveness of such designation; and
6. Such other documents as the Bank or its counsel may reasonably
request.
VI. Miscellaneous.
-------------
1. Payment of Expenses. The Account Party agrees to pay or
-------------------
reimburse the Bank for all of its out-of-pocket costs and reasonable expenses
incurred in connection with the preparation, negotiation, execution and delivery
of this Amendment and the related documents, and the transactions contemplated
hereby and the Replacement Letter of Credit hereunder, including, without
limitation, the reasonable fees and disbursements of Simpson Thacher & Bartlett,
special counsel for the Bank.
2. No Other Amendment; Confirmation. Except as expressly amended,
--------------------------------
modified and supplemented hereby, the provisions of the Agreement are and shall
remain in full force and effect.
3. Counterparts. This Amendment may be executed by the parties
------------
hereto in any number of counterparts, each of which shall be deemed to be an
original, and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
4. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused it to be executed under seal by their duly authorized officers, all as of
the day and year first above written.
TCI UA I, INC., as Account Party
By:__________________________________________
Title: Vice President/Assistant Treasurer
CHEMICAL BANK, as a Bank and as
Administrative Agent
By:__________________________________________
Title:
-4-
<PAGE>
DRAFT 8/1/95
AMENDMENT NO. 1
AND CONSENT
TO
TCI UA I, INC.
AMENDED AND RESTATED
REIMBURSEMENT AGREEMENT
-----------------------
AMENDMENT NO. 1 AND CONSENT, dated as of August 2, 1995, to the
Amended and Restated Reimbursement Agreement, dated as of March 1, 1995, among
TCI UA I, INC., CHEMICAL BANK, in its capacity as issuing bank of the Letter of
Credit and as Administrative Agent, and THE TORONTO-DOMINION BANK, as Departing
Bank (the "Agreement"). Capitalized terms used herein which are defined in the
---------
Agreement shall have the meanings therein defined.
The parties to the Agreement desire, on the conditions and subject to
the limitations contained herein, to amend certain provisions of the Agreement
and to consent to the Series F Exchange (as hereinafter defined).
Accordingly, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, and pursuant to
Section 9.12 of the Agreement, the parties hereto agree as follows:
1. The definition of Daily Close Price contained in Article I of the
-----------------
Agreement is hereby amended and restated in its entirety to read as follows;
"Daily Close Price" shall mean, on any day, the closing sale price (or
-----------------
the average of the quoted closing bid and asked prices if no sale is reported)
for such day for shares of (a) if prior to the Tracking Conversion Effective
Date, Class A Common Stock, par value $1.00 per share, of TCI or (b) if on or
after the Tracking Conversion Effective Date, TCI Series A Group Stock, in each
case as reported by NASDAQ.
2. Article I of the Agreement is hereby amended to add the following
new definitions of Series F Certificate of Designation, Series F Conversion,
----------------------------------- -------------------
Series F Exchange, Series F Exchange Agreement, TCI Certificate of Incorporation
- ----------------- --------------------------- --------------------------------
Amendment, TCI Series A Group Stock, TCI Series F Preferred Stock, Tracking
- --------- ------------------------ ---------------------------- --------
Conversion, Tracking Conversion Effective Time and Tracking Stock Proxy
- ---------- ---------------------------------- --------------------
Statement/Prospectus:
- --------------------
-5-
<PAGE>
"Series F Certificate of Designation": shall mean the Certificate of
-----------------------------------
Designation designating a series of Preferred Stock of TCI as "Convertible
redeemable Participating Preferred Stock, Series F" adopted by the Board of
Directors of TCI substantially in the form of Exhibit F.
"Series F Conversion": shall mean the conversion of all shares of TCI
-------------------
Series F Preferred Stock held by the Account Party into TCI Series A Group Stock
pursuant to and in accordance with the Series F Certificate of Designation.
"Series F Exchange": shall mean the exchange of 76,295,092 shares of
-----------------
TCI Series A Group Stock held by the Account Party and for shares of TCI Series
F Preferred Stock pursuant to and in accordance with the Series F Exchange
Agreement.
"Series F Exchange Agreement": shall mean the Stock Exchange Agreement
---------------------------
among TCI, the Account Party and certain other wholly owned subsidiaries of TCI,
substantially in the form of Exhibit G, as the same may be amended, supplemented
or otherwise modified from time to time in accordance with Section 7.4.
"TCI Certificate of Incorporation Amendment": shall mean the amendment
------------------------------------------
to the Restated Certificate of Incorporation of TCI implementing the Liberty
Media Group Stock Proposal and the Increased Authorization Proposal (as each
such term is defined in the Tracking Stock Proxy Statement/Prospectus)
substantially in the form set forth in Appendix III to the Tracking Stock Proxy
Statement/Prospectus.
"TCI Series A Group Stock": shall mean the Series A TCI Group Common
------------------------
Stock, par value $1.00 per share, of TCI into which the outstanding Class A
Common Stock, par value $1.00 per share, of TCI shall have been redesignated
pursuant to and in accordance with the TCI Certificate of Incorporation
Amendment.
"TCI Series F Preferred Stock": shall mean the Convertible Redeemable
----------------------------
Participating Preferred Stock, Series F, par value $.01 per share, of TCI issued
pursuant to the Series F Certificate of Designation.
"Tracking Conversion": shall mean the redesignation of all outstanding
-------------------
shares of Class A Common Stock, par value $1.00 per share, of TCI in to TCI
Series A Group Stock pursuant to and in accordance with the TCI Certificate of
Incorporation Amendment.
"Tracking Conversion Effective Date": shall mean the date on which the
----------------------------------
TCI Certificate of Incorporation Amendment shall become effective.
"Tracking Conversion Effective Time": shall mean the time at which the
----------------------------------
TCI Certificate of Incorporation Amendment shall have become effective.
-6-
<PAGE>
"Tracking Stock Proxy Statement/Prospectus": shall mean the Proxy
-----------------------------------------
Statement/Prospectus of TCI, dated June 29, 1995, for the annual meeting of
Shareholders to be held August 3, 1995.
3. Article 5 of the Agreement is hereby amended to add a new section
5.6 as follows:
5.6 Conversion of TCI Series F Preferred Stock
------------------------------------------
(a) Promptly, and in no event later than two Business Days following
the Series F Exchange, exercise its rights to convert all of the shares of TCI
Series F Preferred Stock owned by the Account Party into TCI Series A Group
Stock in accordance with the Series F Certificate of Designation and deliver or
cause to be delivered to the Collateral Agent, within one Business Day of such
exercise, (i) certificates representing such shares of TCI Series A Group Stock,
and if such conversion takes place prior to the final determination of any
adjustment to the conversion rate of the TCI Series F Preferred Stock resulting
from the Distribution (as defined in the Tracking Stock Proxy
Statement/Prospectus), any due bill or other instrument evidencing the right of
the holder to receive additional shares of TCI Series A Group Stock in respect
of its conversion of shares to TCI Series F Preferred Stock upon final
determination of such adjustment, (ii) undated stock powers with respect thereto
duly executed by an authorized signatory of the Account Party in blank with
appropriate signature guarantees and (iii) Federal Reserve Form U-1 for each
Bank, duly executed by an authorized signatory of the Account Party, in form and
substance satisfactory to the Administrative Agent.
(b) Promptly upon the final determination of any adjustment to the
conversion rate of the TCI Series F Preferred Stock resulting from the
Distribution (as defined in the Tracking Stock Proxy Statement/Prospectus),
deliver or cause to be delivered to the Collateral (i) certificates representing
the additional shares of TCI Series A Group Stock to be delivered in connection
with such final adjustment, (ii) undated stock powers with respect thereto duly
executed by an authorized signatory of the Account Party in blank with
appropriate signature guarantees and (iii) Federal reserve Form U-1 for each
Bank, duly executed by an authorized signatory of the Account Party, in form and
substance satisfactory to the Administrative Agent.
4. Section 7.3(f) of the Agreement is hereby amended to delete the
words "November 17, 1994" appearing immediately before the parenthetical at the
end of clause (f) and add in their place the words 'August 3, 1995".
5. Section 7.4 of the Agreement is hereby amended to delete the word
"or" appearing immediately before clause (e) and to add the following at the end
of Section 7.4:", or (f) the Series F Exchange Agreement."
6. Section 8.1(c) of the Agreement is hereby amended and restated in
its entirety as follows:
-7-
<PAGE>
(c) The Account Party shall default in the performance or observance
of the covenants contained in Article 7 hereof or Section 5.6; or
7. Section 8.1(1) of the Agreement is hereby amended and restated in
its entirety to read as follows:
(1)(i) The Account Party shall fail to own beneficially and of record,
free and clear of all Liens (other than Permitted Liens), or the Collateral
Agent shall fail to have, pursuant to the Security Agreement, a first priority
security interest in, at least 76,295,092 shares of the Class A common stock of
TCI, as the same may be changed or adjusted for the Tracking Conversion, the
Series F Exchanged, the Series F Conversion or for the effects of any stock
split, reverse split or other subdivision, combination or other reclassification
or similar event with respect to the Class A common stock of TCI; or (ii) for a
period in excess of four (4) consecutive Business Days, the product of (A) the
sum of (1) the undrawn face amount of any letter of credit issued pursuant to
the $720 Million Letter of Credit Agreement, plus the principal amount of all
loans outstanding under the $720 Million Letter of Credit Agreement, plus (2)
the Face Amount, plus the outstanding principal amount of all unreimbursed draws
under the Letter of Credit, plus (3) the maximum principal amount of the loans
under the Robin Media Credit Agreement which the Account Party is obligated (at
any time under any contingency) to purchase under the Robin Media Put Agreement
($30,000,000 on the date of this Agreement), multiplied by (B) 1.25 shall at any
time exceed the sum of:
(a) the product of:
(x) prior to the Series F Exchange, (1) the number of shares
of TCI Class A Stock constituting TCI Class A Stock Collateral
and (2) the price per share (determined as at the close of
business on each day based on the Daily Close Price) of the TCI
Class A Stock.
(y) on and after the Series F Exchange but prior to the
Series F Conversion, (1) the number of shares of TCI Series F
Preferred Stock constituting TCI Class A Stock Collateral
multiplied by the number of shares of TCI Series A Group Stock
into which such shares of TCI Series F Preferred Stock may, at
the option of the Company, immediately be converted (excluding
any shares of TCI Series A Group Stock issuable following the
final determination of any adjustment to the conversion rate of
the TCI Series F Preferred Stock) and (2) the price per share
(determined as at the close of business on each day based on the
Daily Close Price) of the TCI Series A Group Stock, or
(z) on and after the Series F Conversion, (1) the number of
shares of TCI Series A Group Stock constituting TCI Class A Stock
Collateral
-8-
<PAGE>
and (2) the price per share (determined as at the close of
business on each day based on the Daily Close Price) of the
TCI Series A Group Stock, and
(b) the cash on deposit in the Minimum Collateral Account
(as defined in the Security Agreement);
8. Section 8.1(m) of the Agreement is hereby amended and
restated in its entirety to read as follows:
(m) TCI shall dissolve or otherwise terminate its existence
or merge or consolidate with any other Person in which TCI shall not
be the surviving corporation of such merger or consolidation, or if
for any reason prior to the Tracking Conversion Date, shares of TCI
Class A common stock or, following the Tracking Conversion, shares of
TCI Series A Group Stock, are no longer traded in the over-the-counter
market and reported on NASDAQ, or if for any reason trading in such
shares is suspended for a period exceeding one (1) Business Day;
9. Section 8.1 of the Agreement is hereby amended to add a new
subsection (r) at the end as follows:
(r) if for any reason following the Tracking Conversion
Effective Date the Account Party shall not be entitled to convert TCI
Series F Preferred Stock into TCI Series A Group Stock in accordance
with the Series F Certificate of Designation or if for any reason TCI
shall fail, within one Business Day following exercise by the Account
Party or the Collateral Agent (as attorney-in-fact) of its conversion
rights, to perform its obligations under the Series F Exchange
Agreement to effect the conversion of TCI Series F Preferred Stock
owned by the Account Party or any of its Subsidiaries into TCI Series
A Group Stock or if for any reason TCI shall amend or seek to amend
(i) the Series F Certificate of Designation at any time on or prior to
the Series F Conversion or (ii) its Certificate of Incorporation if
the effect of such amendment to its Certificate of Incorporation would
change or alter any provision contained in the TCI Certificate of
Incorporation Amendment in a manner which would result in TCI not
reserving a sufficient number of shares of TCI Series A Group Stock to
consummate the Series F Conversion or which would otherwise in the
opinion of the Bank materially and adversely affect the TCI Class A
Stock Collateral or the rights of the Collateral Agent therein.
10. The Agreement is hereby amended to add Exhibits F and G
thereto in the forms attached hereto.
11. Notwithstanding anything to the contrary contained in the
Agreement, the Bank hereby consents to the Series F Exchange provided that:
-9-
<PAGE>
(a) Evidence of Action
------------------
(i) The Account Party. The Administrative Agent shall have
received a certificate of the Secretary or Assistant Secretary of the Account
Party (i) attaching a true and complete copy of the resolutions of its Board of
Directors and of all documents evidencing other necessary corporate or
shareholder action (in form and substance satisfactory to the Administrative
Agent) taken by it to authorize this Amendment, Amendment No. 1 to the Security
Agreement, the Series F Exchange Agreement, the Series F Conversion and the
transactions contemplated thereby, (ii) attaching a true and complete copy of
its Certificate of Incorporation and By-Laws, and (iii) setting forth the
incumbency of its officer or officers who may sign this Amendment and Amendment
No. 1 to the Security Agreement, including therein a signature specimen of such
officer or officers;
(ii) TCI. The Administrative Agent shall have received a
certificate of the Secretary or Assistant Secretary of TCI (i) attaching a true
and complete copy of the resolutions of its Board of Directors and of all
documents evidencing other necessary corporate or shareholder action (in form
and substance satisfactory to the Administrative Agent) taken by it to authorize
Amendment No. 1 to the Registration Rights Agreement, the TCI Certificate of
Incorporation Amendment, the Series F Certificate of Designation, the Series F
Exchange Agreement and the transactions contemplated thereby, (ii) attaching a
true and complete copy of its Certificate of Incorporation, as amended by the
TCI Certificate of Incorporation Amendment, the Series F Certificate of
Designation and its By-Laws, (iii) certifying that the TCI Certificate of
Incorporation Amendment and the Series F Certificate of Designation, have been
filed and have become effective and (iv) setting forth the incumbency of its
officer or officers who may sign Amendment No. 1 to the Registration Rights
Agreement and the Series F Exchange Agreement including therein a signature
specimen of such officer or officers.
(b) Security Agreement Amendment
----------------------------
The Administrative Agent shall have received Amendment No. 1
to the Security Agreement, substantially in the form of Attachment I hereto,
duly executed by an authorized signatory of the Account Party, the Collateral
Agent and each other party thereto together with certificates representing the
TCI Series F Preferred Stock received by the Account Party pursuant to the
Series F Exchange (which shall consist of not less than 76,295 shares of TCI
Series F Preferred Stock and undated stock powers with respect thereto duly
executed by an authorized signatory of the Account Party in blank with
appropriate signature guarantees.
(c) Registration, Rights Agreement
------------------------------
The Administrative Agent shall have received Amendment No. 1
to the Registration Rights Agreement substantially in the form of Attachment II
hereto, duly executed by an authorized signatory of TCI and the Collateral
Agent.
-10-
<PAGE>
(d) Federal Reserve Forms U-1
-------------------------
The Administrative Agent shall have received a Federal Reserve
Form U-1 for the Bank, duly executed by an authorized signatory of the Account
Party, the statements made in which shall be such, in the opinion of the
Administrative Agent, as to permit the transactions contemplated hereby in
accordance with Regulation U of the Board of Governors of the Federal Reserve
System, as is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
(e) Series F Exchange Agreement
---------------------------
The Administrative Agent shall have received a copy of the fully
executed Series F Exchange Agreement certified to be a true and complete copy
thereof by the Secretary of the Account Party;
(f) Tracking Stock Proxy Statement/ Prospectus
------------------------------------------
The Administrative Agent and the Bank shall have received a copy
of the Tracking Stock Proxy Statement/Prospectus certified to be a true and
complete copy thereof by the Secretary or Assistant Secretary of TCI;
(g) Litigation
----------
There shall be no injunction, writ, preliminary restraining order
or other order of any nature issued by any governmental body in any respect
affecting the Series F Exchange, the Tracking Conversion, the TCI Certificate of
Incorporation Amendment, the Series F Certificate of Designation, the
transactions contemplated by the Tracking Stock Proxy Statement/Prospectus or
the transactions provided for herein and no action or proceeding by or before
any governmental body shall have been commenced and be pending or, to the
knowledge of the Account Party or TCI, threatened, seeking to prevent or delay
the transactions contemplated by the Series F Exchange, the Tracking Conversion,
the TCI Certificate of Incorporation Amendment, the Series F Certificate of
Designation, or the transactions contemplated by the Tracking Stock Proxy
Statement/Prospectus or seeking any damages in connection therewith, and the
Administrative Agent shall have received a certificate of an authorized
signatory of the Account Party and TCI to the foregoing effects.
(h) Approvals
---------
The Administrative Agent shall have received a certificate of an
authorized signatory of the Account Party and TCI to the effect that all
approvals and consents of all Persons required to be obtained in connection with
the consummation and effectiveness of the transactions contemplated by the
Series F Exchange, the Tracking Conversion, the TCI Certificate of Incorporation
Amendment, the Series F Certificate of Designation, the Tracking
-11-
<PAGE>
Stock Proxy Statement/Prospectus and this Amendment have been duly obtained and
are in full force and effect, and that all required notices have been given and
all required waiting periods have expired.
(i) Compliance
----------
Immediately before and after giving effect to the Series F
Exchange, (i) the Account Party, TCI and TCIC shall be in compliance with all of
the terms, covenants and conditions of the Agreement, (ii) there shall exist no
Default or Event of Default and (iii) the Account Party shall be in compliance
with Section 8(1) based on the Daily Close Price of the TCI Class A Stock for
each of the three Business Days immediately preceding the Series F Exchange, and
the Administrative Agent shall have received a certificate of a Financial
Officer of the Account Party to such effect.
(j) Opinion of Counsel to the Account Party
---------------------------------------
The Administrative Agent shall have received opinions of (i)
Sherman & Howard L.L.C., counsel to the Account Party and TCI, and Stephen M.
Brett, general counsel of the Account Party and TCI, in each case addressed to
the Bank substantially in the form of Attachment III hereto, and covering such
additional matters as the Bank may reasonably request. It is understood that
such opinions are being delivered to the Bank upon the direction of the Account
Party and that the Bank may and will rely upon such opinions.
(k) Other Documents
---------------
The Administrative Agent shall have received such other
documents as the Administrative Agent or the Bank shall reasonably request.
12. In all other respects, the Agreement shall remain in full force
and effect.
13. This Amendment shall be deemed effective as of the date hereof
upon satisfaction of the following conditions precedent:
(a) The Administrative Agent shall have received this Amendment
as executed and delivered by the Account Party and the Bank; and
(b) The Administrative Agent shall have received a copy of
the fully executed Amendment No. 1, dated as of the date hereof, to
the $720 Million Letter of Credit Agreement and Amendment No. 2, dated
as of the date hereof, to the Robin Media Put Agreement substantially
in the forms of Attachments IV and V attached hereto, respectively.
-12-
<PAGE>
14. This Amendment may be executed in any number of counterparts
each of which shall be an original and all of which shall constitute one
agreement. It shall not be necessary in making proof of this Amendment to
produce or account for more than one counterpart.
15. This Amendment is being delivered in the State of New York and
shall be governed by and construed in accordance with the internal laws of the
State of New York without reference to its choice of law principles.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and the year first above written.
TCI UA I, INC., as Account Party
By:__________________________________________
Title: Vice President/Assistant Treasurer
CHEMICAL BANK, as a Bank and as
Administrative Agent
By:__________________________________________
Title:
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
-------------------------
Indemnification Agreement (this "Agreement"), dated as of
____________, 1996, between TCI Satellite Entertainment, Inc., a Delaware
corporation (the "Company") and TCI UA 1, Inc., a Colorado corporation (the
"Account Party").
RECITALS
A. Tele-Communications, Inc. ("TCI") owns all the issued and
outstanding capital stock of the Company (the "Company Stock"). TCI intends to
distribute (the "Distribution") the Company Stock to the holders of its Tele-
Communications, Inc. Series A TCI Group Common Stock and Tele-Communications,
Inc. Series B TCI Group Common Stock. As a result of the Distribution, the
Company will cease to be a subsidiary of TCI, and TCI and the Company will be
separate public companies.
B. The Account Party is a wholly owned subsidiary of TCI
Development Corporation, an indirect subsidiary of TCI. The Account Party has
arranged for the issuance by Chemical Bank (the "Issuing Bank") of its
Irrevocable Transferable Letter of Credit No. T-253097, dated February 26, 1996
(the "Letter of Credit"). The beneficiary of the Letter of Credit is Chemical
Bank, as Administrative Agent (the "Administrative Agent") under the Credit
Agreement dated as of March 9, 1994 (the "Credit Agreement") among PRIMESTAR
Partners, L.P. ("PRIMESTAR"), the Banks listed on the signature pages thereof,
The Bank of New York, Chemical Bank and Citibank, N.A., as Managing Agents, and
the Administrative Agent. The Letter of Credit provides collateral security for
the obligations of PRIMESTAR under the Credit Agreement. The Account Party is
obligated to reimburse the Issuing Bank for any drawings made under the Letter
of Credit pursuant to the Amended and Restated Reimbursement Agreement dated as
of March 1, 1995, only the Account Party, the Issuing Bank and The Toronto
Dominion Bank (the "Reimbursement Agreement"). The obligations of the Account
Party under the Reimbursement Agreement are secured by a pledge of certain
shares of capital stock of TCI owned of record by the Account Party.
C. In connection with the Distribution, certain subsidiaries of
TCI have agreed to transfer to subsidiaries of the Company an aggregate 20.86%
partnership interest in PRIMESTAR, constituting TCI's entire ownership interest
in PRIMESTAR. In that connection, the Company desires to assume all obligations
of the Account Party under the Reimbursement Agreement and to indemnify
1
<PAGE>
the Account Party for any and all losses, claims, damages, liabilities,
deficiencies, obligations, costs and expenses (collectively, "Losses") of the
Account Party relating thereto.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. REIMBURSEMENT AGREEMENT.
(a) The Company hereby assumes, and hereby covenants and agrees
to satisfy and discharge in full when due, all payment obligations of the
Account Party under the Reimbursement Agreement and the Letter of Credit,
whether now existing or hereafter arising. As soon as practicable after receipt
of any demand by the Issuing Bank for payment under the Reimbursement Agreement,
or after receipt of notice of any drawing or demand for payment under the Letter
of Credit, the Account Party shall give written notice thereof (or telephonic
notice, promptly confirmed in writing) to the Company (a "Payment Notice"),
setting forth the amount of the payment due under the Reimbursement Agreement in
respect of such event (the "Payment Amount"), the date and time such payment is
due, and the section of the Reimbursement Agreement under which such payment
obligation arises. Any failure or delay by the Account Party in giving any
Payment Notice hereunder shall not excuse the Company from any obligation of the
Company to the Account Party hereunder, except to the extent that such failure
or delay actually prejudices the Company.
(b) Promptly upon receipt of any Payment Notice hereunder, the
Company shall confirm to the Account Party the Company's intention to pay the
Payment Amount in accordance with the Reimbursement Agreement. If the Company
fails to give such confirmation by (i) 5:00 p.m., New York time, on the same day
that it receives any Payment Notice, if such Payment Notice is received by 11:00
a.m., New York time, on a business day, or (ii) 5:00 p.m., New York time, on the
next business day, if such Payment Notice is received after 11:00 a.m., New York
time, or on a day that is not a business day, or if, having given such
confirmation, the Company fails to make such payment by the later of (x) the
date such payment was due under the Reimbursement Agreement and (y) the second
business day after the date of such confirmation, then the Account Party shall
have the right (but not the obligation) to pay the Payment Amount (or any
portion thereof) in accordance with the Reimbursement Agreement, and, in such
event, the Company shall reimburse the Account Party for any amounts so paid,
plus interest thereon at an annual rate equal to the rate per annum from time to
time announced in New York City by The Bank of New York as its prime lending
rate, plus 2%. The Account Party shall not otherwise make any payment under the
Reimbursement Agreement without the consent of the Company, which shall not
unreasonably be withheld or delayed.
(c) The Account Party shall not consent to any modification or
amendment of the Reimbursement Agreement without the prior written consent of
the Company, which shall not unreasonably be withheld or delayed.
2
<PAGE>
SECTION 2. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold
harmless, to the fullest extent permitted by law, the Account Party and its
officers, directors, employees and agents, and each person who controls any of
the foregoing persons (each, an "Indemnified Party"), from and against any and
all Losses arising out of or relating to (i) any breach by the Company of its
obligations under Section 1 hereof, or (ii) any claim, action, suit or
proceeding by the Issuing Bank or any other third party (a "Claim") in
connection with the Reimbursement Agreement or the Letter of Credit. The Company
will reimburse each such Indemnified Party for all legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any Claims as they become due, including, subject to the last
sentence of Section 2(b), below, any amounts paid in settlement of a claim.
(b) Promptly after the receipt by any Indemnified Party of
notice of any Claim that is subject to indemnification hereunder, such
Indemnified Party shall give reasonable written notice to the Company. The
Indemnified Party shall be entitled, at the sole expense and liability of the
Company, to exercise full control of the defense, compromise or settlement of
any such Claim unless the Company, within a reasonable time after the giving of
such notice by the Indemnified Party, shall (i)acknowledge in writing to the
Indemnified Party the Company's liability to the Indemnified Party for such
Claim under the terms of this Section 2, (ii) notify the Indemnified Party in
writing of the Company's intention to assume the defense thereof, and (iii)
retain legal counsel reasonably satisfactory to the Indemnified Party to conduct
the defense of such Claim. The Indemnified Party shall cooperate with the
Company in assuming the defense, compromise or settlement of any such Claim in
accordance herewith in any manner that the Company may reasonably request. If
the Company so assumes the defense of any such Claim, the Indemnified Party
shall have the right to employ separate counsel and to participate in (but not
control) the defense, compromise, or settlement thereof, but the fees and
expenses of such counsel shall be the expense of the Indemnified Party unless
(i) the Company has agreed to pay such fees and expenses, (ii) any relief other
than the payment of money damages is sought against the Indemnified Party, or
(iii) the Indemnified Party shall have been advised by its counsel that there
may be one or more legal defenses available to it that are different from or
additional to those available to the Company, and in any such case the fees and
expenses of such separate counsel shall be borne by the Company. The Company
shall not settle or compromise any such claim in which any relief other than the
payment of money damages is sought against any Indemnified Party unless the
Indemnified Party consents in writing to such compromise or settlement. No
Indemnified Party shall settle or compromise any claim for which it is entitled
to indemnification hereunder without the prior written consent of the Company,
unless the Company shall have failed, after reasonable notice thereof, to
undertake control of such Claim in the manner provided above in this Section 2.
(c) As a condition to asserting any rights under this
Section 2, each Indemnified Party must appoint TCI as its sole agent for all
matters relating to any claim hereunder.
3
<PAGE>
SECTION 3. MISCELLANEOUS.
(a) No Offset. The due payment and performance in full of the
---------
Company's obligations to the Account Party hereunder shall be without regard to
any counterclaim, right of offset or any other claim whatsoever that the Company
may now or hereafter have against the Account Party or any other person, and no
such counterclaim or offset shall be asserted by the Company in any action, suit
or proceeding instituted by the Account Party or any other Indemnified Party for
payment of the Company's obligations under this Agreement or otherwise.
(b) Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior negotiations, agreements and understandings, oral and
written, between the parties hereto with respect to the subject matter hereof.
(c) No Waiver. No waiver by either party hereto of any term or
---------
condition of this Agreement, in any one or more instances, shall operate as a
waiver of such term or condition at any other time.
(d) Notices. Except as otherwise expressly provided herein, all
-------
notices, requests, demands, waivers and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given: (i)
on the date of service if served personally on the party to whom notice is to be
given; (ii) on the day of transmission if sent via facsimile transmission to the
facsimile number given below, and telephonic confirmation of receipt is obtained
promptly after completion of transmission; (iii) on the day after sending by
Federal Express or similar overnight courier or the Express Mail service of the
United States Postal Service; or (iv) on the fifth day after mailing, if mailed
to the party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid and properly addressed, to the party as follows:
If to the Account Party:
TCI UA, Inc.
c/o Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Facsimile: (303) 488-3245
Attention: General Counsel
4
<PAGE>
If to the Company:
TCI Satellite Entertainment, Inc.
8085 South Chester, Suite 300
Englewood, Colorado 80112
Facsimile (303) 712-4977
Attention: President
with a copy to the Company's Corporate Counsel at the same address.
A party may change its address for the purposes of this Agreement
by giving the other party written notice of its new address in the manner set
forth above. Notice of change of address shall be effective upon receipt
thereof.
(e) Amendment. This Agreement may not be amended or modified in
---------
any respect except by a written agreement signed by the parties hereto.
(f) Successors and Assigns; No Third-Party Beneficiaries. This
-----------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Nothing contained in this
Agreement is intended to confer upon any other persons other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement, other
than rights conferred upon Indemnified Parties under Section 2.
(g) Governing Law. This Agreement and the legal relations
-------------
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of Colorado, without giving effect to conflicts of laws.
(h) Severability. If any provision of this Agreement shall be
------------
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if not
containing the particular invalid or unenforceable provisions, and the rights
and obligations of each party shall be construed and enforced accordingly.
(i) No Joint Venture. Nothing contained herein shall constitute
----------------
either party an employee, agent or partner of, or joint venturer with, the other
party.
(j) Headings. The section headings contained in this Agreement
--------
are inserted for reference purposes only and shall not effect the meaning or
interpretation of this Agreement.
(k) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.
TCI UA 1, INC.
By: _____________________________
Name:
Title:
TCI SATELLITE ENTERTAINMENT, INC.
By: _____________________________
Name:
Title:
6
<PAGE>
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
-------------------------
Indemnification Agreement (this "Agreement"), dated as of
__________________, 1996, between TCI Satellite Entertainment, Inc., a Delaware
corporation (the "Company") and TCI Technology Ventures, Inc., a Delaware
corporation ("TCITV").
RECITALS
A. Tele-Communications, Inc. ("TCI") owns all the issued and
outstanding capital stock of the Company (the "Company Stock"). TCI intends to
distribute (the "Distribution") the Company Stock to the holders of its Tele-
Communications, Inc. Series A TCI Group Common Stock and Tele-Communications,
Inc. Series B TCI Group Common Stock. As a result of the Distribution, the
Company will cease to be a subsidiary of TCI, and TCI and the Company will be
separate public companies.
B. TCITV, a wholly owned subsidiary of TCI, is a party to an
Operating Services Agreement with Telesat Canada dated as of May 6, 1996 (the
"Operating Services Agreement," which term includes the related Security
Agreement and any other instrument or agreement entered into or delivered by
TCITV in connection therewith). Prior to the Distribution, TCITV will assign its
rights under the Operating Services Agreement to the Company or Tempo Satellite,
Inc., a subsidiary of the Company. Pursuant to the Operating Services Agreement,
TCITV will not be released from its obligations thereunder upon such assignment.
C. The Company desires to indemnify TCITV for any and all
losses, claims, damages, liabilities, deficiencies, obligations, costs and
expenses (collectively, "Losses") of TCITV arising out of or relating to any
third party claim relating to the Operating Services Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless, to
the fullest extent permitted by law, TCITV and its officers, directors,
employees and agents, and each person who controls any of the foregoing persons
(each, an "Indemnified Party"), from and against any and all Losses arising out
of or relating to any claim, action, suit or proceeding by Telesat Canada or any
1
<PAGE>
other third party (a "Claim") arising out of or relating to the Operating
Services Agreement. The Company will reimburse each such Indemnified Party for
all legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any Claims as they become due,
including, subject to the last sentence of Section 1(b), below, any amounts paid
in settlement of a Claim.
(b) Promptly after the receipt by any Indemnified Party of notice
of any Claim that is subject to indemnification hereunder, such Indemnified
Party shall give reasonable written notice to the Company. The Indemnified Party
shall be entitled, at the sole expense and liability of the Company, to exercise
full control of the defense, compromise or settlement of any such Claim unless
the Company, within a reasonable time after the giving of such notice by the
Indemnified Party, shall (i) acknowledge in writing to the Indemnified Party the
Company's liability to the Indemnified Party for such Claim under the terms of
this Section 1, (ii) notify the Indemnified Party in writing of the Company's
intention to assume the defense thereof, and (iii) retain legal counsel
reasonably satisfactory to the Indemnified Party to conduct the defense of such
Claim. The Indemnified Party shall cooperate with the Company in assuming the
defense, compromise or settlement of any such Claim in accordance herewith in
any manner that the Company may reasonably request. If the Company so assumes
the defense of any such Claim, the Indemnified Party shall have the right to
employ separate counsel and to participate in (but not control) the defense,
compromise, or settlement thereof, but the fees and expenses of such counsel
shall be the expense of the Indemnified Party unless (i) the Company has agreed
to pay such fees and expenses, (ii) any relief other than the payment of money
damages is sought against the Indemnified Party, or (iii) the Indemnified Party
shall have been advised by its counsel that there may be one or more legal
defenses available to it that are different from or additional to those
available to the Company, and in any such case the fees and expenses of such
separate counsel shall be borne by the Company. The Company shall not settle or
compromise any such Claim in which any relief other than the payment of money
damages is sought against any Indemnified Party unless the Indemnified Party
consents in writing to such compromise or settlement. No Indemnified Party shall
settle or compromise any Claim for which it is entitled to indemnification
hereunder without the prior written consent of the Company, unless the Company
shall have failed, after reasonable notice thereof, to undertake control of such
Claim in the manner provided above in this Section 1.
(c) As a condition to asserting any rights under this Section 1,
each Indemnified Party must appoint TCI as its sole agent for all maters
relating to any claim hereunder.
SECTION 2. MISCELLANEOUS.
(a) No Offset. The due payment and performance in full of the
---------
Company's obligations to TCITV hereunder shall be without regard to any
counterclaim, right of offset or any other claim whatsoever that the Company may
now or hereafter have against TCITV or any other person, and no such
counterclaim or offset shall be asserted by the Company in any action, suit or
proceeding instituted by TCITV or any other Indemnified Party for payment of the
Company's obligations under this Agreement or otherwise.
2
<PAGE>
EXHIBIT 10.2
(b) Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior negotiations, agreements and understandings, oral and
written, between the parties hereto with respect to the subject matter hereof.
(c) No Waiver. No waiver by either party hereto of any term or
---------
condition of this Agreement, in any one or more instances, shall operate as a
waiver of such term or condition at any other time.
(d) Notices. Except as otherwise expressly provided herein, all
-------
notices, requests, demands, waivers and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given: (i)
on the date of service if served personally on the party to whom notice is to be
given; (ii) on the day of transmission if sent via facsimile transmission to the
facsimile number given below, and telephonic confirmation of receipt is obtained
promptly after completion of transmission; (iii) on the day after sending by
Federal Express or similar overnight courier or the Express Mail service of the
United States Postal Service; or (iv) on the fifth day after mailing, if mailed
to the party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid and properly addressed, to the party as follows:
If to TCITV:
TCI Technology Ventures, Inc.
c/o Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Facsimile: (303) 488-3245
Attention: General Counsel
If to the Company:
TCI Satellite Entertainment, Inc.
8085 South Chester, Suite 300
Englewood, Colorado 80112
Facsimile (303) 712-4977
Attention: President
with a copy to the Company's Corporate Counsel at the same address.
A party may change its address for the purposes of this Agreement
by giving the other party written notice of its new address in the manner set
forth above. Notice of change of address shall be effective upon receipt
thereof.
(e) Amendment. This Agreement may not be amended or modified in
---------
any respect except by a written agreement signed by the parties hereto.
3
<PAGE>
(f) Successors and Assigns; No Third-Party Beneficiaries. This
-----------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Nothing contained in
this Agreement is intended to confer upon any other persons other than the
parties hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement, other
than rights conferred upon Indemnified Parties under Section 1.
(g) Governing Law. This Agreement and the legal relations
-------------
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of Colorado, without giving effect to conflicts of laws.
(h) Severability. If any provision of this Agreement shall be
------------
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if not
containing the particular invalid or unenforceable provisions, and the rights
and obligations of each party shall be construed and enforced accordingly.
(i) No Joint Venture. Nothing contained herein shall constitute
----------------
either party an employee, agent or partner of, or joint venturer with, the other
party.
(j) Headings. The section headings contained in this Agreement
--------
are inserted for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
(k) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.
TCI TECHNOLOGY VENTURES, INC.
By: ________________________
Name:
Title:
TCI SATELLITE ENTERTAINMENT, INC.
By: ________________________
Name:
Title:
5
<PAGE>
EXHIBIT 10.3
------------
TCI SATELLITE ENTERTAINMENT, INC.
1996 STOCK INCENTIVE PLAN
Article I
Purpose and Effectiveness
1.1 Purpose. The purpose of the TCI Satellite Entertainment, Inc. 1996
Stock Incentive Plan (the "Plan") is to promote the success of TCI Satellite
Entertainment, Inc. (the "Company") by providing a method whereby (i) eligible
employees of the Company and its Subsidiaries and (ii) eligible non-employee
consultants and advisors to the Company and its Subsidiaries may be awarded
additional remuneration for services rendered and encouraged to invest in
capital stock of the Company, thereby increasing their proprietary interest in
the Company's businesses, encouraging them to remain in the employ of the
Company or its Subsidiaries, and increasing their personal interest in the
continued success and progress of the Company or its Subsidiaries. The Plan is
also intended to aid in attracting persons of exceptional ability (i) to become
officers and employees of the Company and its Subsidiaries and (ii) to provide
services to the Company as non-employee consultants and advisors.
1.2 Effective Date. The Plan shall be effective as of the date it was
approved by both the Board of Directors of the Company and the sole stockholder
of the Company, ____________, 1996.
Article II
Definitions
2.1 Certain Defined Terms. Capitalized terms not defined elsewhere in the
Plan shall have the following meanings (whether used in the singular or plural):
"Affiliate" of the Company means any corporation, partnership, or
other business association that, directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with the Company.
"Agreement" means a stock option agreement, stock appreciation rights
agreement, restricted shares agreement, stock units agreement, performance
award agreement or agreement evidencing more than one type of Award, as
specified in Section 11.5, as any such Agreement may be supplemented or
amended from time to time.
"Approved Transaction" means any transaction in which the Board (or,
if approval of the Board is not required as a matter of law, the
stockholders of the
<PAGE>
Company) shall approve (i) any consolidation or merger of the Company, or
binding share exchange, pursuant to which shares of Common Stock would be
changed or converted into or exchanged for cash, securities or other
property, other than any such transaction in which the holders of the
Common Stock immediately prior to such transaction have the same
proportionate ownership of the common stock of, and voting power with
respect to, the surviving corporation immediately after such transaction,
(ii) any merger, consolidation or binding share exchange to which the
Company is a party as a result of which the persons who are holders of the
Common Stock immediately prior thereto have less than a majority of the
combined voting power of the outstanding capital stock of the Company
ordinarily (and apart from the rights accruing under special circumstances)
having the right to vote in the election of directors immediately following
such merger, consolidation or binding share exchange, (iii) the adoption of
any plan or proposal for the liquidation or dissolution of the Company, or
(iv) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the assets
of the Company.
"Award" means a Performance Award and/or a grant of Options, SARs,
Restricted Shares and/or Stock Units under this Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute or statutes thereto. Reference to any
specific Code section shall include any successor section.
"Committee" means the committee of the Board appointed pursuant to
Section 3.1 to administer the Plan.
"Common Stock" means the Series A Stock and the Series B Stock.
"Company" has the meaning ascribed to such term in Section 1.1.
"Disability" means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment that (a) can be expected to result in death or (b) has lasted or
can be expected to last for a continuous period of not less than 12 months.
"Dividend Equivalents" means, with respect to Restricted Shares to be
issued at the end of the Restriction Period, to the extent specified by the
Committee only, an amount equal to all dividends and other distributions
(or the economic equivalent thereof) that are payable to stockholders of
record during the Restriction Period on a like number of shares of Series A
Stock.
-2-
<PAGE>
"Domestic Relations Order" means a domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act, or
the rules thereunder.
"Effective Date" means the date on which the Plan became effective
pursuant to Section 1.2.
"Equity security" has the meaning ascribed to such term in Section
3(a)(11) of the Exchange Act, and an equity security of an issuer has the
meaning ascribed thereto in Rule 16a-1 promulgated under the Exchange Act,
or any successor Rule.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute or statutes thereto. Reference
to any specific Exchange Act section shall include any successor section.
"Fair Market Value" of a share of Series A Stock or Series B Stock on
any day means the last sale price (or, if no last sale price is reported,
the average of the high bid and low asked prices) for a share of Series A
Stock or Series B Stock, as applicable, on such day (or, if such day is not
a trading day, on the next preceding trading day) as reported on NASDAQ or,
if not reported on NASDAQ, as quoted by the National Quotation Bureau
Incorporated, or if the Series A Stock or Series B Stock is listed on an
exchange, on the principal exchange on which the Series A Stock or Series B
Stock, as applicable, is listed. If for any day the Fair Market Value of a
share of Series A Stock or Series B Stock, as applicable, is not
determinable by any of the foregoing means, then the Fair Market Value for
such day shall be determined in good faith by the Committee on the basis of
such quotations and other considerations as the Committee deems
appropriate.
"Free Standing SAR" has the meaning ascribed thereto in Section 7.1.
"Holder" means an employee or, subject to Section 11.2, former
employee of the Company or a Subsidiary, or a present or, subject to
Section 11.2, former consultant or advisor to the Company or a Subsidiary,
who has in either case received an Award under this Plan.
"Incentive Stock Option" means a stock option granted under Article VI
which is intended to be an incentive stock option within the meaning of
Section 422 of the Code.
"NASDAQ" means the Nasdaq Stock Market.
-3-
<PAGE>
"Nonqualified Stock Option" means a stock option granted under Article
VI that is designated a nonqualified stock option, or is otherwise not an
Incentive Stock Option.
"Option" means any Incentive Stock Option or Nonqualified Stock
Option.
"Plan" has the meaning ascribed thereto in Section 1.1.
"Performance Award" means an award made pursuant to Article X that is
subject to the attainment of one or more Performance Goals.
"Performance Goal" means a standard established by the Committee to
determine in whole or in part whether a Performance Award shall be earned.
"Restricted Shares" means shares of Series A Stock or the right to
receive shares of Series A Stock, as the case may be, awarded pursuant to
Article VIII.
"Restriction Period" means a period of time beginning on the date of
each award of Restricted Shares and ending on the Vesting Date with respect
to such award.
"Retained Distribution" has the meaning ascribed thereto in Section
8.3.
"SARs" means stock appreciation rights, awarded pursuant to Article
VII, with respect to shares of Series A Stock.
"Series A Stock" means the Series A Common Stock, $1.00 par value per
share, of the Company.
"Series B Stock" means the Series B Common Stock, $1.00 par value per
share, of the Company.
"Stock Unit Award" has the meaning ascribed thereto in Section 9.1.
"Subsidiary" of the Company means any present or future subsidiary (as
defined in Section 424(f) of the Code) of the Company, or any business
entity in which the Company owns, directly or indirectly, 50% or more of
the voting, capital or profits interests. An entity shall be deemed a
subsidiary of the Company for purposes of this definition only for such
periods as the requisite ownership or control relationship is maintained.
"Tandem SARs" has the meaning ascribed thereto in Section 7.1.
-4-
<PAGE>
"Vesting Date" with respect to any Restricted Shares awarded hereunder
means the date on which such Restricted Shares cease to be subject to a
risk of forfeiture, as designated in or determined in accordance with the
Agreement with respect to such award of Restricted Shares pursuant to
Article VIII. If more than one Vesting Date is designated for an award of
Restricted Shares, reference in the Plan to a Vesting Date in respect of
such Award shall be deemed to refer to each part of such Award and the
Vesting Date for such part.
Article III
Administration
3.1 Committee. The Plan shall be administered by the Compensation
Committee of the Board unless a different committee is appointed by the Board.
The Committee shall be comprised of not less than two persons. Each member of
the Committee shall be a member of the Board who (i) is not a current employee
of the Company, (ii) is not a former employee of the Company who receives
compensation from the Company for prior services (other than benefits under a
tax-qualified retirement plan) during the taxable year, (iii) has not ever been
an officer of the Company or any of its current affiliates, and (iv) does not
receive any remuneration from the Company, directly or indirectly, in any
capacity other than as a director (including, without limitation, payment in
exchange for goods or services), if any such relationship or transaction would
prevent such member from being an "outside director" with respect to the Company
for purposes of Section 162(m) of the Code and the rules and regulations of the
Treasury Department promulgated thereunder. Subject to the foregoing, the Board
may from time to time appoint members of the Committee in substitution for or in
addition to members previously appointed, may fill vacancies in the Committee
and may remove members of the Committee. The Committee shall select one of its
members as its chairman and shall hold its meetings at such times and places as
it shall deem advisable. A majority of its members shall constitute a quorum and
all determinations shall be made by a majority of such quorum. Any determination
reduced to writing and signed by all of the members shall be fully as effective
as if it had been made by a majority vote at a meeting duly called and held.
3.2 Powers. The Committee shall have full power and authority to grant
to eligible persons Options under Article VI of the Plan, SARs under Article VII
of the Plan, Restricted Shares under Article VIII of the Plan, Stock Units under
Article IX of the Plan, and/or Performance Awards under Article X of the Plan,
to determine the terms and conditions (which need not be identical) of all
Awards so granted, to interpret the provisions of the Plan and any Agreements
relating to Awards granted under the Plan and to supervise the administration of
the Plan. The Committee in making an Award may provide for the granting or
issuance of additional, replacement or alternative Awards upon the occurrence of
specified events, including the exercise of the original Award. The Committee
shall have sole authority in to select persons to whom Awards may be granted
under the Plan and to determine the timing, pricing and amount of any such
Award, subject only to the express provisions of the Plan. In making
determinations hereunder, the Committee may take into account the nature of the
services rendered by the respective employees, consultants and advisors, their
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present and potential contributions to the success of the Company and its
Subsidiaries and such other factors as the Committee in its discretion deems
relevant.
3.3 Interpretation. The Committee is authorized, subject to the
provisions of the Plan, to establish, amend and rescind such rules and
regulations as it deems necessary or advisable for the proper administration of
the Plan and to take such other action in connection with or in relation to the
Plan as it deems necessary or advisable. Each action and determination made or
taken pursuant to the Plan by the Committee, including any interpretation or
construction of the Plan, shall be final and conclusive for all purposes and
upon all persons. No member of the Committee shall be liable for any action or
determination made or taken by him or the Committee in good faith with respect
to the Plan.
Article IV
Shares Subject to the Plan
4.1 Number of Shares. Subject to the provisions of this Article IV, the
maximum number of shares of Series A Stock with respect to which Awards may be
granted during the term of the Plan shall be 3,200,000 shares. No shares of
Series B Stock may be the subject of Awards under the Plan. Shares of Series A
Stock will be made available from the authorized but unissued shares of the
Company or from shares reacquired by the Company, including shares purchased in
the open market. The shares of Series A Stock subject to (i) any Award granted
under the Plan that shall expire, terminate or be annulled for any reason
without having been exercised (or considered to have been exercised as provided
in Section 7.2), (ii) any Award of any SARs granted under the Plan that shall be
exercised for cash and (iii) any Award of Restricted Shares or Stock Units that
shall be forfeited prior to becoming vested (provided that the Holder received
no benefits of ownership of such Restricted Shares or Stock Units other than
voting rights and the accumulation of Retained Distributions and unpaid Dividend
Equivalents that are likewise forfeited), shall again be available for purposes
of the Plan.
4.2 Adjustments. If the Company subdivides its outstanding shares of
Series A Stock into a greater number of shares of Series A Stock (by stock
dividend, stock split, reclassification or otherwise) or combines its
outstanding shares of Series A Stock into a smaller number of shares of Series A
Stock (by reverse stock split, reclassification or otherwise), or if the
Committee determines that any stock dividend, extraordinary cash dividend,
reclassification, recapitalization, reorganization, split-up, split-off, spin-
off, combination, exchange of shares, warrants or rights offering to purchase
Series A Stock, or other similar corporate event (including mergers or
consolidations other than those which constitute Approved Transactions) affects
the Series A Stock such that an adjustment is required in order to preserve the
benefits or potential benefits intended to be made available under this Plan,
then the Committee shall, in its sole discretion and in such manner as the
Committee may deem equitable and appropriate, make such adjustments to any or
all of (i) the number and kind of shares which thereafter may be awarded,
optioned, or otherwise made subject to the benefits contemplated by the Plan,
(ii) the number and kind of shares subject to
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outstanding Awards, and (iii) the purchase or exercise price and the relevant
appreciation base with respect to any of the foregoing, provided, however, that
the number of shares subject to any Award shall always be a whole number. The
Committee may, if deemed appropriate, provide for a cash payment to any Holder
of an Award in connection with any adjustment made pursuant to this Section 4.2.
Article V
Eligibility
5.1 General. The persons who shall be eligible to participate in the
Plan and to receive Awards under the Plan shall be such employees (including
officers and, subject to Section 5.2, directors) of the Company and its
Subsidiaries or consultants or advisors to the Company and its Subsidiaries as
the Committee shall select. Awards may be made to employees, consultants and
advisors who hold or have held Awards under this Plan or hold or have held
awards under any other plan of the Company or any of its Affiliates.
5.2 Ineligibility. No member of the Committee, while serving as such,
shall be eligible to receive an Award.
Article VI
Stock Options
6.1 Grant of Options. Subject to the limitations of the Plan, the
Committee shall designate from time to time those eligible persons to be granted
Options, the time when each Option shall be granted to such eligible persons,
the number of shares subject to such Option, whether such Option is an Incentive
Stock Option or a Nonqualified Stock Option and, subject to Section 6.2, the
purchase price of the shares of Series A Stock subject to such Option. Subject
to the other provisions of the Plan, the same person may receive Incentive Stock
Options and Nonqualified Stock Options at the same time and pursuant to the same
Agreement, provided that Incentive Stock Options and Nonqualified Stock Options
are clearly designated as such.
6.2 Option Price. The price at which shares may be purchased upon
exercise of an Option shall be fixed by the Committee and may be more than, less
than or equal to the Fair Market Value of the Series A Stock as of the date the
Option is granted.
6.3 Term of Options. Subject to the provisions of the Plan with respect
to death, retirement and termination of employment, the term of each Option
shall be for such period as the Committee shall determine as set forth in the
applicable Agreement.
6.4 Exercise of Options. An Option granted under the Plan shall become
(and remain) exercisable during the term of the Option to the extent provided in
the applicable Agreement and this
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Plan and, unless the Agreement otherwise provides, may be exercised to the
extent exercisable, in whole or in part, at any time and from time to time
during such term; provided. however, that subsequent to the grant of an Option,
the Committee, at any time before complete termination of such Option, may
accelerate the time or times at which such Option may be exercised in whole or
in part (without reducing the term of such Option).
6.5 Manner of Exercise.
(a) Form of Payment. An Option shall be exercised by written notice
to the Company upon such terms and conditions as the Agreement may provide
and in accordance with such other procedures for the exercise of Options as
the Committee may establish from time to time. The method or methods of
payment of the purchase price for the shares to be purchased upon exercise
of an Option and of any amounts required by Section 11.10 shall be
determined by the Committee and may consist of (i) cash, (ii) check, (iii)
promissory note, (iv) whole shares of Series A Stock or Series B Stock
already owned by the Holder, (v) the withholding of shares of Series A
Stock issuable upon such exercise of the Option, (vi) the delivery,
together with a properly executed exercise notice, of irrevocable
instructions to a broker to deliver promptly to the Company the amount of
sale or loan proceeds required to pay the purchase price, (vii) any
combination of the foregoing methods of payment, or (viii) such other
consideration and method of payment as may be permitted for the issuance of
shares under the Delaware General Corporation Law. The permitted method or
methods of payment of the amounts payable upon exercise of an Option, if
other than in cash, shall be set forth in the applicable Agreement and may
be subject to such conditions as the Committee deems appropriate. Without
limiting the generality of the foregoing, if a Holder is permitted to elect
to have shares of Series A Stock issuable upon exercise of an Option
withheld to pay all or any part of the amounts payable in connection with
such exercise, then the Committee may reserve the discretion to approve or
disapprove such election, which approval or disapproval may be given after
such election is made.
(b) Value of Shares. Shares of Series A Stock or Series B Stock
delivered in payment of all or any part of the amounts payable in
connection with the exercise of an Option, and shares of Series A Stock
withheld for such payment, shall be valued for such purpose at their Fair
Market Value as of the exercise date.
(c) Issuance of Shares. The Company shall effect the transfer of the
shares of Series A Stock purchased under any Option as soon as practicable
after the exercise thereof and payment in full of the purchase price
therefor and of any amounts required by Section 11.10, and within a
reasonable time thereafter such transfer shall be evidenced on the books of
the Company. No Holder or other person exercising an Option shall have any
of the rights of a stockholder of the Company with respect to shares of
Series A Stock subject to an Option granted under the Plan until due
exercise and full payment has been made. No adjustment shall be made for
cash dividends or other rights for which the record date is prior to the
date of such due exercise and full payment.
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6.6 Nontransferability. Unless otherwise determined by the Committee and
provided in the applicable Agreement, Options shall not be transferable other
than by will or the laws of descent and distribution or pursuant to a Domestic
Relations Order and, except as otherwise required pursuant to a Domestic
Relations Order, Options may be exercised during the lifetime of the Holder
thereof only by such Holder (or his or her court appointed legal
representative).
Article VII
SARs
7.1 Grant of SARs. Subject to the limitations of the Plan, SARs may be
granted by the Committee to such eligible persons in such numbers and at such
times during the term of the Plan as the Committee shall determine. An SAR may
be granted to a Holder of an Option (hereinafter called a "related Option") with
respect to all or a portion of the shares of Series A Stock subject to the
related Option (a "Tandem SAR") or may be granted separately to an eligible
employee (a "Free Standing SAR"). Subject to the limitations of the Plan, SARs
shall be exercisable in whole or in part upon notice to the Company upon such
terms and conditions as are provided in the Agreement.
7.2 Tandem SARs. A Tandem SAR may be granted either concurrently with
the grant of the related Option or (if the related Option is a Nonqualified
Option) at any time thereafter prior to the complete exercise, termination,
expiration or cancellation of such related Option. Tandem SARs shall be
exercisable only at the time and to the extent that the related Option is
exercisable (and may be subject to such additional limitations on exercisability
as the Agreement may provide), and in no event after the complete termination or
full exercise of the related Option. Upon the exercise or termination of the
related Option, the Tandem SARs with respect thereto shall be canceled
automatically to the extent of the number of shares of Series A Stock with
respect to which the related Option was so exercised or terminated. Subject to
the limitations of the Plan, upon the exercise of a Tandem SAR, the Holder
thereof shall be entitled to receive from the Company, for each share of Series
A Stock with respect to which the Tandem SAR is being exercised, consideration
(in the form determined as provided in Section 7.4) equal in value to the excess
of the Fair Market Value of a share of Series A Stock on the date of exercise
over the related Option purchase price per share; provided, however, that the
Committee may, in any Agreement granting Tandem SARs, provide that the
appreciation realizable upon exercise thereof shall be measured from a base
higher than the related Option purchase price.
7.3 Free Standing SARs. Free Standing SARs shall be exercisable at the
time, to the extent and upon the terms and conditions set forth in the
applicable Agreement. The base price of a Free Standing SAR shall be not less
than 100% of the Fair Market Value of the Series A Stock on the date of grant of
the Free Standing SAR. Subject to the limitations of the Plan, upon the exercise
of a Free Standing SAR, the Holder thereof shall be entitled to receive from the
Company, for each share of Series A Stock with respect to which the Free
Standing SAR is being exercised, consideration (in the form determined as
provided in Section 7.4) equal in value to the excess of the
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Fair Market Value of a share of Series A Stock on the date of exercise over the
base price per share of such Free Standing SAR.
7.4 Consideration. The consideration to be received upon the exercise of
an SAR by the Holder shall be paid in cash, shares of Series A Stock (valued at
Fair Market Value on the date of exercise of such SAR) or a combination of cash
and shares of Series A Stock as specified in the Agreement, or, if so provided
in the Agreement, either as determined by the Committee in its sole discretion
or as elected by the Holder, provided that the Committee shall have the sole
discretion to approve or disapprove the election by a Holder to receive cash in
full or partial settlement of an SAR, which approval or disapproval shall be
given after such election is made. The Company's obligation arising upon the
exercise of an SAR may be paid currently or on a deferred basis with such
interest or earnings equivalent as the Committee may determine. No fractional
shares of Series A Stock shall be issuable upon exercise of an SAR and, unless
otherwise provided in the applicable Agreement, the Holder will receive cash in
lieu of fractional shares. Unless the Committee shall otherwise determine, to
the extent a Free Standing SAR is exercisable, it will be exercised
automatically for cash on its expiration date.
7.5 Limitations. The applicable Agreement may provide for a limit on the
amount payable to a Holder upon exercise of SARs at any time or in the
aggregate, for a limit on the number of SARs that may be exercised by the Holder
in whole or in part for cash during any specified period, for a limit on the
time periods during which a Holder may exercise SARs and for such other limits
on the rights of the Holder and such other terms and conditions of the SAR as
the Committee may determine, including, without limitation, a condition that the
SAR may be exercised only in accordance with rules and regulations adopted by
the Committee from time to time. Unless otherwise so provided in the applicable
Agreement, any such limit relating to a Tandem SAR shall not restrict the
exercisability of the related Option. Such rules and regulations may govern the
right to exercise SARs granted prior to the adoption or amendment of such rules
and regulations as well as SARs granted thereafter.
7.6 Exercise. For purposes of this Article VII, the date of exercise of
an SAR shall mean the date on which the Company shall have received notice from
the Holder of the SAR of the exercise of such SAR.
7.7 Nontransferability. Unless otherwise determined by the Committee and
provided in the applicable Agreement, SARs shall not be transferable other than
by will or the laws of descent and distribution or pursuant to a Domestic
Relations Order and, except as otherwise required pursuant to a Domestic
Relations Order, SARs may be exercised during the lifetime of the Holder thereof
only by such Holder (or his or her court appointed legal representative).
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Article VIII
Restricted Shares
8.1 Grant. Subject to the limitations of the Plan, the Committee shall
designate those eligible persons to be granted awards of Restricted Shares,
shall determine the time when each such Award shall be granted, whether shares
of Series A Stock covered by awards of Restricted Shares will be issued at the
beginning or the end of the Restriction Period and whether Dividend Equivalents
will be paid during the Restriction Period in the event shares of the Series A
Stock are to be issued at the end of the Restriction Period, and shall designate
(or set forth the basis for determining) the Vesting Date or Vesting Dates for
each award of Restricted Shares and may prescribe other restrictions, terms and
conditions applicable to the vesting of such Restricted Shares in addition to
those provided in the Plan. The Committee shall determine the price, if any, to
be paid by the Holder for the Restricted Shares; provided, however, that the
issuance of Restricted Shares shall be made for at least the minimum
consideration necessary to permit such Restricted Shares to be deemed fully paid
and nonassessable. All determinations made by the Committee pursuant to this
Section 8.1 shall be specified in the Agreement.
8.2 Issuance of Restricted Shares at Beginning of the Restriction
Period. If shares of Series A Stock are issued at the beginning of the
Restriction Period, the stock certificate or certificates representing such
Restricted Shares shall be registered in the name of the Holder to whom such
Restricted Shares shall have been awarded. During the Restriction Period,
certificates representing the Restricted Shares and any securities constituting
Retained Distributions shall bear a restrictive legend to the effect that
ownership of the Restricted Shares (and such Retained Distributions), and the
enjoyment of all rights appurtenant thereto, are subject to the restrictions,
terms and conditions provided in the Plan and the applicable Agreement. Such
certificates shall remain in the custody of the Company and the Holder shall
deposit with the Company stock powers or other instruments of assignment, each
endorsed in blank, so as to permit retransfer to the Company of all or any
portion of the Restricted Shares and any securities constituting Retained
Distributions that shall be forfeited or otherwise not become vested in
accordance with the Plan and the applicable Agreement.
8.3 Restrictions. Restricted Shares issued at the beginning of the
Restriction Period shall constitute issued and outstanding shares of Series A
Stock for all corporate purposes. The Holder will have the right to vote such
Restricted Shares, to receive and retain such dividends and distributions, as
the Committee may in its sole discretion designate, paid or distributed on such
Restricted Shares and to exercise all other rights, powers and privileges of a
Holder of Series A Stock with respect to such Restricted Shares; except, that
(a) the Holder will not be entitled to delivery of the stock certificate or
certificates representing such Restricted Shares until the Restriction Period
shall have expired and unless all other vesting requirements with respect
thereto shall have been fulfilled or waived; (b) the Company will retain custody
of the stock certificate or certificates representing the Restricted Shares
during the Restriction Period as provided in Section 8.2; (c) other than such
dividends and distributions as the Committee may in its sole discretion
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designate, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Shares (and such
Retained Distributions will be subject to the same restrictions, terms and
vesting and other conditions as are applicable to the Restricted Shares) until
such time, if ever, as the Restricted Shares with respect to which such Retained
Distributions shall have been made, paid or declared shall have become vested,
and such Retained Distributions shall not bear interest or be segregated in a
separate account; (d) the Holder may not sell, assign, transfer, pledge,
exchange, encumber or dispose of the Restricted Shares or any Retained
Distributions or his interest in any of them during the Restriction Period; and
(e) a breach of any restrictions, terms or conditions provided in the Plan or
established by the Committee with respect to any Restricted Shares or Retained
Distributions will cause a forfeiture of such Restricted Shares and any Retained
Distributions with respect thereto.
8.4 Issuance of Stock at End of the Restriction Period. Restricted
Shares issued at the end of the Restriction Period shall not constitute issued
and outstanding shares of Series A Stock and the Holder shall not have any of
the rights of a stockholder with respect to the shares of Series A Stock covered
by such an award of Restricted Shares, in each case until such shares shall have
been transferred to the Holder at the end of the Restriction Period. If and to
the extent that shares of Series A Stock are to be issued at the end of the
Restriction Period, the Holder shall be entitled to receive Dividend Equivalents
with respect to the shares of Series A Stock covered thereby either (i) during
the Restriction Period or (ii) in accordance with the rules applicable to
Retained Distributions, as the Committee may specify in the Agreement.
8.5 Cash Awards. In connection with any award of Restricted Shares, an
Agreement may provide for the payment of a cash amount to the Holder of such
Restricted Shares at any time after such Restricted Shares shall have become
vested. Such cash awards shall be payable in accordance with such additional
restrictions, terms and conditions as shall be prescribed by the Committee in
the Agreement and shall be in addition to any other salary, incentive, bonus or
other compensation payments which such Holder shall be otherwise entitled or
eligible to receive from the Company.
8.6 Completion of Restriction Period. On the Vesting Date with respect
to each award of Restricted Shares, and the satisfaction of any other applicable
restrictions, terms and conditions (a) all or the applicable portion of such
Restricted Shares shall become vested, (b) any Retained Distributions and any
unpaid Dividend Equivalents with respect to such Restricted Shares shall become
vested to the extent that the Restricted Shares related thereto shall have
become vested and (c) any cash award to be received by the Holder with respect
to such Restricted Shares shall become payable, all in accordance with the terms
of the applicable Agreement. Any such Restricted Shares, Retained Distributions
and any unpaid Dividend Equivalents that shall not become vested shall be
forfeited to the Company and the Holder shall not thereafter have any rights
(including dividend and voting rights) with respect to such Restricted Shares,
Retained Distributions and any unpaid Dividend Equivalents that shall have been
so forfeited. The Committee may, in its discretion, provide that the delivery of
any Restricted Shares, Retained Distributions and unpaid Dividend Equivalents
that shall have become vested, and payment of any cash awards that shall have
become payable, shall be deferred until such date or dates as the recipient may
elect. Any election of a
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recipient pursuant to the preceding sentence shall be filed in writing with the
Committee in accordance with such rules and regulations, including any deadline
for the making of such an election, as the Committee may provide.
Article IX
Stock Units
9.1 Grant. In addition to granting awards of Options, SARs and
Restricted Shares, the Committee shall have authority to grant to eligible
persons awards of Stock Units ("Stock Unit Awards") which may be in the form of
Series A Stock or units, the value of which is based, in whole or in part, on
the Fair Market Value of the Series A Stock. Subject to the provisions of the
Plan, including any rules established pursuant to Section 9.2, awards of Stock
Units shall be subject to such terms, restrictions, conditions, vesting
requirements and payment rules as the Committee may determine in its sole
discretion, which need not be identical for each Award. The determinations made
by the Committee pursuant to this Section 9.1 shall be specified in the
applicable Agreement.
9.2 Rules. The Committee may, in its sole discretion, establish any or
all of the following rules for application to an award of Stock Units :
(a) Any shares of Series A Stock which are part of an award of
Stock Units may not be assigned, sold, transferred, pledged or otherwise
encumbered prior to the date on which the shares are issued, or if later,
the date provided by the Committee at the time of the Award.
(b) Such Awards may provide for the payment of cash consideration
by the person to whom such Award is granted or provide that the Award, and
Series A Stock to be issued in connection therewith, if applicable, shall
be delivered without the payment of cash consideration; provided, however,
that the issuance of any shares of Series A Stock in connection with an
award of Stock Units shall be for at least the minimum consideration
necessary to permit such shares to be deemed fully paid and nonassessable.
(c) Awards of Stock Units may relate in whole or in part to
performance or other criteria established by the Committee at the time of
grant.
(d) Awards of Stock Units may provide for deferred payment
schedules, vesting over a specified period of employment, the payment (on a
current or deferred basis) of dividend equivalent amounts with respect to
the number of shares of Series A Stock covered by the Award, and elections
by the employee to defer payment of the Award or the lifting of
restrictions on the Award, if any.
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(e) In such circumstances as the Committee may deem advisable, the
Committee may waive or otherwise remove, in whole or in part, any
restrictions or limitations to which a Stock Unit Award was made subject at
the time of grant.
Article X
Performance Awards
10.1 Terms of Performance Awards. Subject to the limitations of the Plan,
the Committee shall designate those eligible persons to be granted Performance
Awards, shall determine the form and amount of each such award, the time when
each such award shall be granted, and the Performance Goals applicable thereto,
and may prescribe other restrictions, terms and conditions applicable to such
Award in addition to those provided in the Plan. A Performance Award may be
payable in the form of cash, property or securities of the Company, including,
without limitation, Options, SARs, Restricted Shares and/or Stock Units. A
Performance Award shall be paid, vested or otherwise deliverable solely on
account of the attainment of one or more pre-established, objective Performance
Goals established by the Committee prior to the earlier to occur of (i) 90 days
after the commencement of the period of service to which the Performance Goal
relates and (ii) the passage of 25% of the period of service (as scheduled in
good faith at the time the goal is established), and in any event while the
outcome is substantially uncertain. A Performance Goal is objective if a third
party having knowledge of the relevant facts could determine whether the goal is
met.
10.2 Performance Goal Criteria. A Performance Goal may be based on one or
more business criteria that apply to the individual, one or more business units
of the Company, or the Company as a whole, and may include one or more of the
following: revenue, net income, stock price, market share, earnings per share,
return on equity, return on assets or decrease in costs. Unless otherwise
stated, such a Performance Goal need not be based upon an increase or positive
result under a particular business criterion and could include, for example,
maintaining the status quo or limiting economic losses (measured, in each case,
by reference to specific business criteria). In interpreting Plan provisions
applicable to Performance Goals and Performance Awards, it is the intent of the
Plan to conform with the standards of Section 162(m) of the Code and Treasury
Regulation (S) 1.162-27(e)(2)(i), and the Committee in establishing such goals
and interpreting the Plan shall be guided by such provisions.
10.3 Committee Certification. Prior to the payment of any compensation
based on the achievement of Performance Goals, the Committee must certify in
writing that applicable Performance Goals and any of the material terms thereof
were, in fact, satisfied. Subject to the foregoing provisions, the terms,
conditions and limitations applicable to any Performance Awards made pursuant to
this Plan shall be determined by the Committee.
10.4 Certain Limitations. Notwithstanding anything to the contrary
contained in this Plan, any Performance Awards made hereunder shall be limited
so that no person may be granted
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Performance Awards consisting of cash or in any other form permitted under this
Plan (other than Awards consisting of Options or SARs or otherwise consisting of
shares of Common Stock or units denominated in such shares, or, in either case,
additional cash amounts related to such an Award) in respect of any one-year
period having a value determined on the date of grant in excess of $10,000,000.
Article XI
General Provisions
11.1 Acceleration of Options, SARs, Restricted Shares and Stock Units.
(a) Death or Disability. If a Holder's employment (which term shall
include, as the context shall require, a Holder's period of service to the
Company and its Subsidiaries as a consultant or advisor) shall terminate by
reason of death or Disability, notwithstanding any contrary waiting period,
installment period, vesting schedule or Restriction Period in any Agreement
or in the Plan, unless the applicable Agreement provides otherwise: (i) in
the case of an Option or SAR, each outstanding Option or SAR granted under
the Plan shall immediately become exercisable in full in respect of the
aggregate number of shares covered thereby; (ii) in the case of Restricted
Shares, the Restriction Period applicable to each such award of Restricted
Shares shall be deemed to have expired and all such Restricted Shares, any
related Retained Distributions and any unpaid Dividend Equivalents shall
become vested and any cash amounts payable pursuant to the applicable
Agreement shall be adjusted in such manner as may be provided in the
Agreement, (iii) in the case of Stock Units, each such award of Stock Units
shall become vested in full, and (iv) in the case of Performance Awards,
each such Performance Award shall become vested in full.
(b) Approved Transactions. In the event of any Approved
Transaction, notwithstanding any contrary waiting period, installment
period, vesting schedule or Restriction Period in any Agreement or in the
Plan, unless the applicable Agreement provides otherwise: (i) in the case
of an Option or SAR, each such outstanding Option or SAR granted under the
Plan shall become exercisable in full in respect of the aggregate number of
shares covered thereby; (ii) in the case of Restricted Shares, the
Restriction Period applicable to each such award of Restricted Shares shall
be deemed to have expired and all such Restricted Shares, any related
Retained Distributions and any unpaid Dividend Equivalents shall become
vested and any cash amounts payable pursuant to the applicable Agreement
shall be adjusted in such manner as may be provided in the Agreement; (iii)
in the case of Stock Units, each such award of Stock Units shall become
vested in full; and (iv) in the case of Performance Awards, all Performance
Goals shall thereupon be deemed to have been achieved, fully vested and
immediately payable; in each case effective immediately prior to
consummation of the Approved Transaction; provided, however, that any
Options, SARs or, if applicable, Stock Units not theretofore exercised
shall terminate upon consummation of the Approved Transaction.
Notwithstanding the foregoing, unless
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otherwise provided in the applicable Agreement, the Committee may, in its
discretion, determine that any or all outstanding Awards of any or all
types granted pursuant to the Plan will not vest or become exercisable on
an accelerated basis, nor Performance Goals be deemed to have been
achieved, in connection with an Approved Transaction and/or will not
terminate if not exercised prior to consummation of the Approved
Transaction, if the Board or the surviving or acquiring corporation, as the
case may be, shall have taken, or made effective provision for the taking
of, such action as in the opinion of the Committee is equitable and
appropriate to substitute a new Award for such Award or to assume such
Award and in order to make such new or assumed Award, as nearly as may be
practicable, equivalent to the old Award (before giving effect to any
acceleration of the vesting or exercisability thereof), taking into
account, to the extent applicable, the kind and amount of securities, cash
or other assets into or for which the Series A Stock may be changed,
converted or exchanged in connection with the Approved Transaction.
11.2 Termination of Employment.
(a) General. If a Holder's employment shall terminate prior to the
complete exercise of an Option or SAR (or deemed exercise thereof, as
provided in Section 7.2) or during the Restriction Period with respect to
any Restricted Shares or prior to the vesting or complete exercise of any
Stock Units or Performance Award, then such Option, SAR, Stock Unit or
Performance Award shall thereafter be exercisable, and the Holder's rights
to any unvested Restricted Shares, Retained Distributions, unpaid Dividend
Equivalents and cash amounts and any such unvested Stock Units shall
thereafter vest solely to the extent provided in the applicable Agreement;
provided, however, that (i) no Option or SAR may be exercised after the
scheduled expiration date thereof; (ii) if the Holder's employment
terminates by reason of death or Disability, the Option or SAR shall remain
exercisable for a period of at least one year following such termination
(but not later than the scheduled expiration of such Option or SAR); and
(iii) any termination by the Company for cause will be treated in
accordance with the provisions of Section 11.2.
(b) Termination by Company for Cause. If a Holder's employment with
the Company or a Subsidiary shall be terminated by the Company or such
Subsidiary during the Restriction Period with respect to any Restricted
Shares, or prior to the exercise of any Option or SAR, or prior to the
vesting or exercise of any Stock Unit, or prior to the vesting of any
Performance Award, for cause, then (i) all Options and SARs and all
unvested or unexercised Stock Units held by such Holder shall immediately
terminate, (ii) such Holder's rights to all Restricted Shares, Retained
Distributions, any unpaid Dividend Equivalents and any cash awards shall be
forfeited immediately, and (iii) such Holder's interest in all unvested
Performance Awards shall be forfeited immediately. For purposes of this
Section 11.2, "cause" shall have the meaning ascribed thereto in any
employment agreement to which such Holder is a party or, in the absence
thereof, shall include but not be limited to, insubordination, dishonesty,
incompetence, moral turpitude, other misconduct of any kind or refusal to
perform one's duties and responsibilities for any reason other than illness
or
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<PAGE>
incapacity; provided, however, that if such termination occurs within 12
months after an Approved Transaction, "cause" shall mean only a felony
conviction for fraud, misappropriation or embezzlement.
(c) Miscellaneous. The Committee may determine whether any given
leave of absence constitutes a termination of employment; provided,
however, that, without limiting the generality of the foregoing, for
purposes of the Plan (i) any leave of absence, duly authorized in writing
by the Company for military service or sickness, or for any other purpose
approved by the Company if the period of such leave does not exceed 90
days, and (ii) any leave of absence in excess of 90 days, duly authorized
in writing by the Company, if the employee's right to reemployment is
guaranteed either by statute or contract, shall not be a termination of
employment. Awards made under the Plan shall not be affected by any change
of employment so long as the Holder continues to be an employee of the
Company or any Subsidiary.
11.3 Right of Company to Terminate Employment. Nothing contained in the
Plan or in any Award, and no action of the Company or the Committee with respect
thereto, shall confer or be construed to confer on any Holder any right to
continue in the employ of the Company or any of its Subsidiaries or interfere in
any way with the right of the Company or a Subsidiary to terminate the
employment of the Holder at any time, with or without cause; subject, however,
to the provisions of any employment agreement between the Holder and the Company
or any Subsidiary.
11.4 Nonalienation of Benefits. No right or benefit under the Plan shall
be subject to anticipation, alienation, sale, assignment, hypothecation, pledge,
exchange, transfer, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or
charge the same shall be void. No right or benefit hereunder shall in any manner
be liable for or subject to the debts, contracts, liabilities or torts of the
person entitled to such benefits.
11.5 Written Agreement. Each grant of an Option under the Plan shall be
evidenced by a stock option agreement which shall designate the Options granted
thereunder as Incentive Stock Options or Nonqualified Stock Options; each SAR
shall be evidenced by a stock appreciation rights agreement; each award of
Restricted Shares shall be evidenced by a restricted shares agreement; each
award of Stock Units shall be evidenced by a stock units agreement; and each
Performance Award shall be evidenced by a performance award agreement; each in
such form and containing such terms and provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve;
provided, however, that if more than one type of Award is made to the same
Holder, such Awards may be evidenced by a single agreement with such Holder.
Each grantee of an Option, SAR, Restricted Shares, Stock Units or Performance
Awards shall be notified promptly of such grant and a written agreement shall be
promptly executed and delivered by the Company and the grantee, provided that,
in the discretion of the Committee, such grant of Options, SARs, Restricted
Shares or Stock Units, or such Performance Award, as applicable, shall terminate
if such written agreement is not signed by such grantee (or his attorney) and
delivered to the Company within 60 days after the
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<PAGE>
date the Committee approved such grant. Any such written agreement may contain
(but shall not be required to contain) such provisions as the Committee deems
appropriate (i) to insure that the penalty provisions of Section 4999 of the
Code will not apply to any stock or cash received by the Holder from the Company
or (ii) to provide cash payments to the Holder to mitigate the impact of such
penalty provisions upon the Holder. Any such agreement may be supplemented or
amended from time to time as approved by the Committee as contemplated by
Section 11.8(b).
11.6 Designation of Beneficiaries. Each person who shall be granted an
Award under the Plan may designate a beneficiary or beneficiaries and may change
such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Committee on a form to be prescribed by
it, provided that no such designation shall be effective unless so filed prior
to the death of such person.
11.7 Right of First Refusal. The Agreements may contain such provisions
as the Committee shall determine to the effect that if a Holder elects to sell
all or any shares of Series A Stock that such Holder acquired upon the exercise
of an Option or SAR or upon the vesting of Restricted Shares or Stock Units
awarded under the Plan, then such Holder shall not sell such shares unless such
Holder shall have first offered in writing to sell such shares to the Company at
Fair Market Value on a date specified in such offer (which date shall be at
least three business days and not more than ten business days following the date
of such offer). In any such event, certificates representing shares issued upon
exercise of Options or SARs and the vesting of Restricted Shares or Stock Units
shall bear a restrictive legend to the effect that transferability of such
shares are subject to the restrictions contained in the Plan and that the
applicable Agreement and the Company may cause the transfer agent for the Series
A Stock to place a stop transfer order with respect to such shares.
11.8 Termination and Amendment.
(a) General. No Awards may be made under the Plan on or after the
tenth anniversary of the Effective Date, or such earlier date as the Plan
may be terminated as provided herein. The Board or the Committee may at any
time prior to the tenth anniversary of the Effective Date terminate the
Plan, and may, from time to time, suspend or discontinue the Plan or modify
or amend the Plan in such respects as it shall deem advisable; except that
no such modification or amendment shall be effective prior to approval by
the Company's stockholders to the extent such approval is then required
pursuant to Section 162(m) of the Code in order to preserve the
deductibility to the Company of any compensation expense that may be
incurred by the Company with respect to any Award then outstanding (unless
the Company waives such condition with respect to any such amendment and/or
any such Award) or to the extent stockholder approval is otherwise required
by applicable legal requirements.
(b) Modification. No termination, modification or amendment of the
Plan may, without the consent of the person to whom any Award shall
theretofore have been granted,
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<PAGE>
adversely affect the rights of such person with respect to such Award. No
modification, extension, renewal or other change in any Award granted under
the Plan shall be made after the grant of such Award, unless the same is
consistent with the provisions of the Plan. With the consent of the Holder
and subject to the terms and conditions of the Plan (including Section
11.8(a)), the Committee may amend outstanding Agreements with any Holder,
including, without limitation, any amendment which would (i) accelerate the
time or times at which the Award may be exercised and/or (ii) extend the
scheduled expiration date of the Award. Without limiting the generality of
the foregoing, the Committee may, but solely with the Holder's consent
unless otherwise provided in the Agreement, agree to cancel any Award under
the Plan and issue a new Award in substitution therefor, provided that the
Award so substituted shall satisfy all of the requirements of the Plan as
of the date such new Award is made. Nothing contained in the foregoing
provisions of this Section 11.8(b) shall be construed to prevent the
Committee from providing in any Agreement that the rights of the Holder
with respect to the Award evidenced thereby shall be subject to such rules
and regulations as the Committee may, subject to the express provisions of
the Plan, adopt from time to time, or impair the enforceability of any such
provision.
11.9 Government and Other Regulations. The obligation of the Company with
respect to Awards shall be subject to all applicable laws, rules and regulations
and such approvals by any governmental agencies as may be required, including,
without limitation, the effectiveness of any registration statement required
under the Securities Act of 1933, and the rules and regulations of any
securities exchange or automated quotation system on which the Series A Stock
may be listed or quoted. For so long as the Series A Stock is registered under
the Exchange Act, the Company shall use its reasonable efforts to comply with
any legal requirements (i) to maintain a registration statement in effect under
the Securities Act of 1933 with respect to all shares of Series A Stock that may
be issued to Holders under the Plan, and (ii) to file in a timely manner all
reports required to be filed by it under the Exchange Act.
11.10 Withholding. The Company's obligation to deliver shares of Series A
Stock or pay cash in respect of any Award under the Plan shall be subject to
applicable federal, state and local tax withholding requirements. Federal, state
and local withholding tax due at the time of an Award, upon the exercise of any
Option or SAR or upon the vesting of, or expiration of restrictions with respect
to, Restricted Shares or Stock Units, as appropriate, may, in the discretion of
the Committee, be paid in shares of Series A Stock or Series B Stock already
owned by the Holder or through the withholding of shares otherwise issuable to
such Holder, upon such terms and conditions (including, without limitation, the
conditions referenced in Section 6.5) as the Committee shall determine. If the
Holder shall fail to pay, or make arrangements satisfactory to the Committee for
the payment, to the Company of all such federal, state and local taxes required
to be withheld by the Company, then the Company shall, to the extent permitted
by law, have the right to deduct from any payment of any kind otherwise due to
such Holder an amount equal to any federal, state or local taxes of any kind
required to be withheld by the Company with respect to such Award.
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<PAGE>
11.11 Non-Exclusivity of the Plan. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options and the awarding of
stock and cash otherwise then under the Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
11.12 Exclusion from Pension and Profit-Sharing Computation. By acceptance
of an Award, unless otherwise provided in the applicable Agreement, each Holder
shall be deemed to have agreed that such Award is special incentive compensation
that will not be taken into account, in any manner, as salary, compensation or
bonus in determining the amount of any payment under any pension, retirement or
other employee benefit plan, program or policy of the Company or any Subsidiary.
In addition, each beneficiary of a deceased Holder shall be deemed to have
agreed that such Award will not affect the amount of any life insurance
coverage, if any, provided by the Company on the life of the Holder which is
payable to such beneficiary under any life insurance plan covering employees of
the Company or any Subsidiary.
11.13 Unfunded Plan. Neither the Company nor any Subsidiary shall be
required to segregate any cash or any shares of Series A Stock which may at any
time be represented by Awards, and the Plan shall constitute an "unfunded" plan
of the Company. Except as provided in Article VIII with respect to awards of
Restricted Shares and except as expressly set forth in writing, no employee
shall have voting or other rights with respect to shares of Series A Stock prior
to the delivery of such shares. Neither the Company nor any Subsidiary shall, by
any provisions of the Plan, be deemed to be a trustee of any Series A Stock or
any other property, and the liabilities of the Company and any Subsidiary to any
employee pursuant to the Plan shall be those of a debtor pursuant to such
contract obligations as are created by or pursuant to the Plan, and the rights
of any employee, former employee or beneficiary under the Plan shall be limited
to those of a general creditor of the Company or the applicable Subsidiary, as
the case may be. In its sole discretion, the Board may authorize the creation of
trusts or other arrangements to meet the obligations of the Company under the
Plan, provided, however, that the existence of such trusts or other arrangements
is consistent with the unfunded status of the Plan.
11.14 Governing Law. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
11.15 Accounts. The delivery of any shares of Series A Stock and the
payment of any amount in respect of an Award shall be for the account of the
Company or the applicable Subsidiary, as the case may be, and any such delivery
or payment shall not be made until the recipient shall have paid or made
satisfactory arrangements for the payment of any applicable withholding taxes as
provided in Section 11.10.
11.16 Legends. In addition to any legend contemplated by Section 11.7,
each certificate evidencing Series A Stock subject to an Award shall bear such
legends as the Committee deems
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<PAGE>
necessary or appropriate to reflect or refer to any terms, conditions or
restrictions of the Award applicable to such shares, including, without
limitation, any to the effect that the shares represented thereby may not be
disposed of unless the Company has received an opinion of counsel, acceptable to
the Company, that such disposition will not violate any federal or state
securities laws.
11.17 Company's Rights. The grant of Awards pursuant to the Plan shall not
affect in any way the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business structure or
to merge, consolidate, liquidate, sell or otherwise dispose of all or any part
of its business or assets.
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<PAGE>
EXHIBIT 10.4
------------
1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
OF
TCI SATELLITE ENTERTAINMENT, INC.
1. Purpose of the Plan. This Nonemployee Director Stock Option Plan
(the "Plan") is intended as an incentive to retain and attract persons of
training, experience and ability to serve as independent directors on the Board
of Directors (the "Board") of TCI Satellite Entertainment, Inc., a Delaware
corporation (the "Company"), to encourage the sense of proprietorship of such
persons and to stimulate the active interest of such persons in the development
and financial success of the Company. It is further intended that the options
granted pursuant to this Plan (the "Options") will be nonqualified options
within the meaning of Section 83 of the Internal Revenue Code of 1986, as
amended (the "Code").
2. Effective Date. The Plan shall be effective as of ____________,
1996 (the "Effective Date"), the date on which it was approved by both the Board
and the sole stockholder of the Company.
3. Designation of Participants; Automatic Grant of Options. Each
director of the Company who is not an employee of the Company or any Subsidiary
(as hereinafter defined) of the Company, and who is not an employee of Tele-
Communications, Inc., a Delaware corporation ("TCI") or any Subsidiary of TCI
(any such director being hereinafter referred to as a "Nonemployee Director")
shall be granted Options as described hereunder. Each Nonemployee Director who
is a director as of the Determination Date (as hereinafter defined) shall
automatically be granted Options to purchase ________ shares of the Series A
Common Stock, $1.00 par value per share of the Company (the "Common Stock") on
the date (the "Determination Date") which is 20 business days after the date on
which TCI distributes all the issued and outstanding shares of capital stock of
the Company to the holders of shares of Tele-Communications, Inc. Series A TCI
Group Common Stock and Tele-Communications, Inc. Series B TCI Group Common
Stock. Thereafter, each individual who becomes a Nonemployee Director shall
automatically be granted Options to purchase _________ shares of Common Stock
(in each case subject to adjustment as provided in Paragraph 10) on the date
such person first becomes a Nonemployee Director. Notwithstanding the foregoing,
in the case of any grant of Options made on a date subsequent to the Effective
Date, such grant shall only be made if the number of shares subject to future
grant under this Plan is sufficient to make all automatic grants required to be
made pursuant to this Plan on such date of grant. As used herein, the term
"Subsidiary" of any person means any corporation of which such person directly
or indirectly owns shares representing more than 50% of the voting power of all
classes or series of capital stock of such corporation that have the right to
vote generally on matters submitted to a vote of the stockholders of such
corporation.
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<PAGE>
4. Option Agreement. Each Option granted hereunder shall be embodied
in a written option agreement ("Option Agreement"), which shall be subject to
the terms and conditions set forth above and shall be signed by the Optionee (as
hereinafter defined) and by the Chief Executive Officer, the President, or any
Vice President of the Company for and on behalf of the Company. As used herein,
the term "Optionee" means any Nonemployee Director to whom Options are granted
hereunder.
5. Common Stock Reserved for the Plan. Subject to adjustment as
provided in Paragraph 10 hereof, a total of ____________ shares of Common Stock
shall be reserved for issuance upon the exercise of Options granted pursuant to
this Plan. The Board and the appropriate officers of the Company shall from time
to time take whatever actions are necessary to execute, acknowledge, file and
deliver any documents required to be filed with or delivered to any governmental
authority or any stock exchange or transaction reporting system on which shares
of Common Stock are listed or quoted in order to make shares of Common Stock
available for issuance to an Optionee pursuant to this Plan. Common Stock
subject to Options that are forfeited or terminated or expire unexercised in
such a manner that all or some of the shares subject thereto are not issued to
an Optionee shall immediately become available for the granting of Options.
6. Option Price.
(a) The purchase price of each share of Common Stock that is subject
to an Option granted pursuant to this Plan shall be the Fair Market Value of
such share of Common Stock on the date the Option is granted, such percentage
rounded down to the nearest quarter dollar.
(b) The Fair Market Value of a share of Common Stock on a particular
date shall be the average of the daily closing prices for the Common Stock for
the most recent period of ten trading days on which such stock trades
immediately preceding such date, appropriately adjusted to take into account the
actual occurrence, during the period following the first of such ten trading
days and ending on such date, of any stock dividends, splits, reverse splits,
combinations and the like. The closing price for each day shall be the last sale
price (or, if no last sale price is reported, the average of the high bid and
low asked prices) for a share of Common Stock, as applicable, on such day (or,
if such day is not a trading day, on the next preceding trading day) as reported
on the Nasdaq Stock Market or, if not reported on the Nasdaq Stock Market, as
quoted by the National Quotation Bureau Incorporated, or if the Common Stock is
listed on an exchange, on the principal exchange on which the Common Stock is
listed.
7. Option Period. Each Option granted pursuant to this Plan shall
terminate and be of no force and effect with respect to any shares of Common
Stock not purchased by the Optionee upon the earliest to occur of the following:
(a) the expiration of ten years following the date upon which the Option is
granted; (b) the expiration of one year following the date upon which the
Optionee ceases to be a Director for any reason other than voluntary
termination of Director status; or (c) the expiration of three months following
the date on which the Optionee voluntarily ceases his status as a Director.
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<PAGE>
8. Exercise of Options.
(a) Options granted pursuant to this Plan shall be exercisable, on a
cumulative basis, as follows: (i) with respect to 20% of the total number of
shares of Common Stock initially subject to any Option, such Option shall be
exercisable on the first anniversary of the date of grant; and (ii) with respect
to the remaining shares of Common Stock subject to any Option, such Option shall
be exercisable with respect to an additional 20% of the total number of shares
initially subject thereto as of the second, third, fourth and fifth
anniversaries of the date of the grant.
(b) An Option may be exercised solely by the Optionee during his
lifetime or after his death by the person or persons entitled thereto under his
will or the laws of descent and distribution.
(c) Except as provided in Paragraph 8(e) hereof, in the event that an
Optionee voluntarily ceases his status as a Director, an Option granted to such
Optionee may be exercised only to the extent such Option was exercisable at the
time he ceased to serve in such capacity.
(d) In the event that an Optionee ceases to serve as a Director for
any reason other than voluntary termination of Director status, at a time when
an Option granted hereunder is still in force and unexpired under the terms of
Paragraph 7 hereof, each such unmatured Option shall be accelerated. Such
acceleration shall be effective as of the date of termination of Director status
and each Option so accelerated shall be exercisable in full for so long as it is
still in force and unexpired under the terms of Paragraph 7 hereof.
(e) Upon the occurrence of a Change in Control, as defined in
Paragraph 10(c), all Options previously granted and still in force and unexpired
under the terms of Paragraph 7 hereof shall be accelerated effective as of such
Change in Control.
(f) The purchase price of the shares as to which an Option is
exercised shall be paid in full at the time of the exercise. The method or
methods of payment of the purchase price for the shares to be purchased upon
exercise of an Option and of any amounts required by Section 12 shall be
determined by the Board and may consist of (i) cash, (ii) check, (iii)
promissory note, (iv) whole shares of Common Stock or of Series B Common Stock
of the Company already owned by the Optionee, (v) the withholding of shares of
Common Stock issuable upon such exercise of the Option, (vi) the delivery,
together with a properly executed exercise notice, of irrevocable instructions
to a broker to deliver promptly to the Company the amount of sale or loan
proceeds required to pay the purchase price, (vii) any combination of the
foregoing methods of payment, or (viii) such other consideration and method of
payment as may be permitted for the issuance of shares under the Delaware
General Corporation Law. The permitted method or methods of payment of the
amounts payable upon exercise of an Option, if other than in cash, shall be set
forth in the applicable Agreement and shall be subject to such terms and
conditions, if any, as the Board deems appropriate. Without limiting the
generality of the foregoing, if an Optionee is permitted to elect to have shares
of Common Stock issuable upon exercise of an Option withheld to pay all or any
part of the amounts payable in connection with such exercise, then the Board
shall have the sole discretion to approve
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<PAGE>
or disapprove such election, which approval or disapproval may be given after
such election is made. No holder of an Option shall be, or have any of the
rights or privileges of, a stockholder of the Company in respect of any shares
subject to any Option unless and until certificates evidencing such shares shall
have been issued by the Company to such holder.
9. Assignability. No Option shall be assignable or otherwise
transferable except by will or the laws of descent and distribution or pursuant
to a domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder. Any attempted
assignment of an Option in violation of this Paragraph 9 shall be null and void.
10. Adjustments.
(a) The existence of outstanding Options shall not affect in any
manner the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the capital stock of the Company or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred stock
or other debt or equity securities (whether or not such issue is prior to, on a
parity with or junior to the Common Stock) or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding of any kind, whether or not
of a character similar to that of the acts or proceedings enumerated above.
(b) If the Company subdivides its outstanding shares of Common Stock
into a greater number of shares of Common Stock (by stock dividend, stock split,
reclassification or otherwise) or combines its outstanding shares of Common
Stock into a smaller number of shares of Common Stock (by reverse stock split,
reclassification or otherwise), or if the Board determines that any stock
dividend, extraordinary cash dividend, reclassification, recapitalization,
reorganization, split-up, split-off, spin-off, combination, merger,
consolidation, exchange of shares, warrants or rights offering to purchase
Common Stock, or other similar corporate event affects the Common Stock such
that an adjustment is required in order to preserve the benefits or potential
benefits intended to be made available under the Plan, then the Board shall, in
its sole discretion and in such manner as the Board may deem equitable and
appropriate, make such adjustments to any or all of (i) the number and kind of
shares reserved under this Plan, (ii) the number and kind of shares subject to
any outstanding Options, and (iii) the exercise price with respect to any
outstanding Options, provided, however, that the number of shares subject to any
Option shall always be a whole number. The Board may, if it deems appropriate,
provide for a cash payment to any Optionee in connection with any adjustment
made pursuant to this Section 10(b). In the event of a corporate merger,
consolidation, acquisition of property or stock, reorganization, liquidation or
similar transaction, the Board shall be authorized to issue or assume stock
options by means of substitution of new options for previously issued options or
an assumption of previously issued options, or to make provision for the
acceleration of the exercisability of, or lapse of restrictions with respect to,
the termination of unexercised options in connection with such transaction.
(c) An Option shall become fully exercisable upon a Change in Control
of the Company. As used herein, "Change in Control" means the occurrence of any
of the following
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<PAGE>
events: (a) an event required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), whether or not the Company is then subject to
such reporting requirement; (b) after the Effective Date, any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act), other than TCI
and other than a person that is a director of the Company on the Effective Date
or any person controlled by such a director, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding voting securities; (c) the Company is a party
to a merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board in office immediately
prior to such transaction or event constitute less than a majority of the Board
thereafter; or (d) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board and any new directors
whose election or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such period, taken together, cease for
any reason to constitute at least a majority of the Board.
11. Purchase for Investment. Unless the Options and shares of Common
Stock covered by the Plan have been registered under the Securities Act of 1933,
as amended, each person exercising an Option under the Plan may be required by
the Company to give a representation in writing in form and substance
satisfactory to the Company to the effect that he is acquiring such shares for
his own account for investment and not with a view to, or for sale in connection
with, the distribution of such shares or any part thereof.
12. Taxes. The Company may make such provisions as it may deem
appropriate for the withholding of any taxes that it determines is required in
connection with any Options granted to any Optionee hereunder.
13. Amendments or Termination. The Board may amend, alter or
discontinue the Plan, except that (a) no amendment or alteration that would
impair the rights of any Optionee under any Option that he has been granted
shall be made without his consent, (b) no amendment or alteration shall be
effective prior to approval by the Company's stockholders to the extent such
approval is then required pursuant to Rule 16b-3 (or any successor provision)
under the Exchange Act in order to preserve the applicability of any exemption
provided by such rule to any Option then outstanding (unless the holder of such
Option consents) or to the extent stockholder approval is otherwise required by
applicable legal requirements, and (c) the Plan shall not be amended more than
once every six months to the extent such limitation is required by Rule 16b-
3(c)(2)(ii) (or any successor provision) under the Exchange Act as then in
effect.
14. Government Regulations. This Plan, and the granting and exercise
of Options hereunder, and the obligation of the Company to sell and deliver
shares of Common Stock under such Options, shall be subject to all applicable
laws, rules and regulations, and to such approvals on the part of any
governmental agencies or national securities exchanges or transaction reporting
systems as may be required.
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<PAGE>
15. Governing Law. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
16. Miscellaneous. The granting of any Option shall not impose upon
the Company, the Board or any other directors of the Company any obligation to
nominate any Optionee for election as a director, and the right of the
stockholders of the Company to remove any person as a director of the Company
shall not be diminished or affected by reason of the fact that an Option has
been granted to such person.
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<PAGE>
EXHIBIT 10.5
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
--------------------------------------
OF
--
TCI SATELLITE ENTERTAINMENT, INC.
---------------------------------
Draft Dated August 26, 1996
<PAGE>
I N D E X
---------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I NAME AND PURPOSE OF PLAN AND TRUST............ 1
ARTICLE II DEFINITIONS................................... 2
ARTICLE III PARTICIPATION................................. 10
ARTICLE IV CONTRIBUTIONS................................. 12
ARTICLE V DETERMINATION AND VESTING OF PARTICIPANTS'
ACCOUNTS...................................... 20
ARTICLE VI RETIREMENT DATE--DESIGNATION OF BENEFICIARY... 25
ARTICLE VII DISTRIBUTION FROM TRUST FUND.................. 27
ARTICLE VIII FIDUCIARY OBLIGATIONS......................... 35
ARTICLE IX PLAN ADMINISTRATOR AND PLAN COMMITTEE......... 38
ARTICLE X POWERS AND DUTIES OF THE TRUSTEE.............. 44
ARTICLE XI CONTINUANCE, TERMINATION, AND AMENDMENT OF
PLAN AND TRUST................................ 47
ARTICLE XII MISCELLANEOUS................................. 49
</TABLE>
<PAGE>
ARTICLE I
NAME AND PURPOSE OF PLAN AND TRUST
----------------------------------
The Company, by execution of this document, establishes a qualified stock
purchase plan, to be known as the TCI Satellite Entertainment, Inc. Employee
Stock Purchase Plan, to afford its employees a convenient means for regular and
systematic purchases of common stock of the Company and to instill a proprietary
interest in the Company. The Plan and Trust Fund are created for the exclusive
benefit of employee-participants and their beneficiaries. The Plan is intended
to qualify under Section 401(a) of the Code, and the trust created under the
Plan is intended to be exempt under Section 501(a) of the Code.
<PAGE>
ARTICLE II
DEFINITIONS
-----------
When used herein, the following words shall have the following meanings,
unless the context clearly indicates otherwise:
2.1 "Account," unless otherwise indicated, means a Participant's entire
interest in the Qualifying Employer Securities and any other assets in the Trust
Fund created by his or her Employer's contributions and his or her own
contributions, and the income, expenses, gains, and losses attributable to such
stock and assets.
2.2 "Anniversary Date" means the first day of each Plan Year.
2.3 "Associated Company" means any corporation which is deemed to be a member
of the group of corporations or trades or businesses under common control with
the Company (as determined under Code Sections 414(b) and 414(c)) and which
adopts this Plan and Trust with the consent of the Company. Any such Company
which subsequently is no longer a member of the controlled group shall be deemed
to have terminated this Plan and Trust immediately upon such failure to be a
member of the controlled group.
2.4 "Beneficiary" means the person who, under this Plan, becomes entitled to
receive a Participant's Account upon the Participant's death.
2.5 "Board of Directors" means the Board of Directors of the Company.
2.6 "Break in Service" for purposes of eligibility to participate means any 12-
month period, measured from the Employee's Employment Commencement Date or
Reemployment Commencement Date in which the Employee has completed no more than
500 Hours of Service. "One-year Break in Service" for vesting and all other
purposes means any Plan Year in which the Employee has completed no more than
500 Hours of Service. For purposes of this definition, Hours of Service shall
include service as an Employee in any capacity.
2.7 "Code" means the Internal Revenue Code of 1986, as amended, as it presently
is constituted, as it may be amended, or any successor statute of similar
purposes.
2.8 "Company" means TCI Satellite Entertainment, Inc., or any successor in
interest to it resulting from merger, consolidation, or transfer of
substantially all of its assets, which expressly may agree in writing to
continue this Plan.
2.9 "Compensation" means a Participant's wages, salaries, fees for professional
services, and other amounts received for personal services actually rendered in
the course of employment with the
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<PAGE>
Employer including, but not limited to, commissions paid salesmen, compensation
for services on the basis of a percentage of profits, commissions on insurance
premiums, tips, and bonuses. Compensation also shall include [a] amounts paid or
reimbursed by the Employer for moving expenses incurred by the Employee, but
only to the extent that these amounts are not deductible by the Employee under
Code Section 217, [b] amounts described in Code Sections 104(a)(3), 105(a) and
105(h), but only to the extent that these amounts are includable in the
Employee's gross income and only to the extent such amounts are not covered by
the application of Code Section 125, [c] amounts described in Code Section
105(d), whether or not includable in the Employee's gross income, [d] amounts
contributed to a cafeteria plan that are not includable in gross income because
of the application of Code Section 125, [e] amounts includable in the gross
income of the Employee as a result of the grant of a non-qualified stock option
to the employee or as a result of the employee making an election described in
Code Section 83(b), and [f] amounts deferred upon the employee's election
pursuant to a plan or arrangement qualified under Code Section 401(k) and
maintained by the Employer. Compensation shall not include [i] Employer
contributions to a deferred compensation plan that are not includable in the
Employee's gross income in the year in which contributed, [ii] Employer
contributions to a simplified employee pension plan described under Code Section
408(k) to the extent such contributions are deductible by the Employee, [iii]
any distributions from a deferred compensation plan, other than amounts received
from an unfunded non-qualified plan, [iv] amounts realized from the exercise of
a non-qualified stock option or when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer subject to
substantial risk of forfeiture, [v] amounts realized from the sale, exchange, or
other disposition of stock acquired under a qualified stock option, or [vi]
other amounts which receive special tax benefits, or Employer contributions to
purchase an annuity contract described in Code Section 403(b), whether or not
under a salary reduction agreement and whether or not the amounts actually are
excludable from the gross income of the Employee.
Pursuant to Code Section 401(a)(17), Compensation taken into account for all
purposes under this plan shall not exceed $150,000 (as adjusted by the Secretary
of the Treasury for cost of living increases each year) for any Plan Year. In
determining the Compensation of a Participant for purposes of the Code Section
401(a)(17) limitation, the rules of Code Section 414(q)(6) will apply, except
that the term "family" will include only the spouse of the Participant and any
lineal descendants of the Participant who have not attained age 19 before the
close of the year. If, as a result of the application of the rules of Code
Section 414(q)(6), the Code Section 401(a)(17) limitation is exceeded, then the
limitation shall be prorated among the affected individuals in proportion to
each such individual's Compensation, as determined above prior to the
application of the Code Section 401(a)(17) limitation.
2.10 "Effective Date" of this plan means ____________, 1996. For any
Associated Company which is not participating on the Effective Date, Effective
Date means that date designated by the Associated Company.
2.11 "Employee" means means any person, whether male or female, now or
hereafter in the employ of the Employer, including officers of the Employer, but
excluding [a] directors who are not
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<PAGE>
in the Employer's employ in any other capacity; [b] independent contractors; and
[c] any employee who is included in a unit of employees covered by a collective
bargaining agreement between Employee representatives and the Company, any
Associated Company, or any predecessor company (and a predecessor company will
include any company acquired by or merged with the Employer or any member of the
Employer's controlled group, as defined in Code Section 414, whether such
company is acquired by a stock or asset acquisition or in a merger), which
agreement does not provide for participation in the Plan and provided further
that retirement benefits were the subject of good faith bargaining between such
employee representatives and the Company, any Associated Company, or any such
predecessor company. For purposes of the exclusion under subparagraph [c],
employees included in a unit of employees covered under such a collective
bargaining agreement will remain excluded from the definition of "Employee"
under this section following the expiration of such collective bargaining
agreement and during the period between the expiration of such collective
bargaining agreement and the Effective Date of any successor collective
bargaining agreement covering such employees.
2.12 "Employer" means the Company and any Associated Company which has adopted
the Plan and Trust.
2.13 "Employment Commencement Date" means the date on which an Employee first
performs an Hour of Service for the Employer.
2.14 "Fiduciary" means a person who [a] exercises any discretionary authority
or discretionary control respecting management of the Plan or exercises any
authority or control respecting management or disposition of its assets, [b]
renders investment advice for a fee or other compensation, direct or indirect,
with respect to any moneys or other property of the Plan, or has any authority
or responsibility to do so, or [c] has any discretionary authority or
discretionary responsibility in the administration of the Plan. Such term
includes any person designated under section 8.2. If any money or other
property of the Plan is invested in securities issued by an investment company
registered under the Investment Company Act of 1940, such investment by itself
shall not cause such investment company or such investment company's investment
adviser or principal underwriter to be deemed to be a Fiduciary or a party in
interest.
2.15 "Highly Compensated Employee" means any Employee or former Employee who,
during the Plan Year or the preceding Plan Year was:
[a] at any time a five percent owner;
[b] received annual Compensation from the Employer in excess of $75,000, as
adjusted for increases in the cost of living;
[c] received annual Compensation from the Employer in excess of $50,000, as
adjusted for increases in the cost of living, and was in the top-paid group
of Employees for the Plan Year. An Employee is in the top-paid group of
Employees for any Plan Year if such Employee is
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<PAGE>
in the group consisting of the top twenty percent (20%) of the Employees
when ranked on the basis of Compensation paid during the Plan Year; or
[d] was at any time an officer and received Compensation greater than 50% of
the Code Section 415(b)(1)(A) limitation, as adjusted for increases in the
cost of living.
In determining which Employees are Highly Compensated Employees, an Employee not
described in paragraphs [b], [c] or [d] above for the preceding year will not be
treated as falling under the categories described in paragraphs [b], [c] or [d]
for the current year unless such Employee is in the group consisting of the 100
Employees with the highest Compensation from the Employer in the current year.
In determining an individual's Compensation under this section, Compensation
from each Employer required to be aggregated under Code Sections 414(b), (c),
and (m) shall be taken into account. For purposes of this section, the
determination of Compensation shall be made without regard to Code Sections 125,
402(e)(3), 402(h)(1)(B) and, in the case of Employer contributions made pursuant
to a salary reduction agreement, without regard to Code Section 403(b).
2.16 "Hour of Service" means:
[a] Each hour for which an Employee is paid or is entitled to payment, for the
performance of duties for his or her Employer during the applicable
computation period; and
[b] Each hour for which an Employee is paid or is entitled to payment, by his
or her Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship is
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty, or leave of absence; and
[c] Each hour for which back pay, irrespective of mitigation of damages, either
was awarded or agreed to by the Employer.
For purposes of section 2.16[b] the following rules shall apply:
[1] No more than 501 hours will be credited to any Employee on account of
a single continuous period during which the Employee performs no
duties;
[2] An hour shall not be credited on account of a period during which no
duties are performed if the payment for such hour is made or due under
a plan maintained solely for the purpose of complying with applicable
workmen's compensation, or unemployment compensation or disability
insurance laws;
[3] Hours shall not be credited for payments which reimburse an Employee
solely for medical or medically related expenses incurred by the
Employee; and
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<PAGE>
[4] A payment shall be deemed to be made by or due from the Employer
regardless of whether such payment is made by or due from the Employer
directly, or indirectly through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums.
These rules also shall apply to the extent that any back pay is agreed to
or awarded for a period of time during which an Employee did not or would
not have performed duties.
For purposes of this section 2.16, the same Hours of Service shall not be
credited under both section 2.16[a] or [b] and also under 2.16[c]. Each Hour of
Service shall be credited under this section 2.16 in accordance with 29 C.F.R.
(S) 2530.200b-2(b) and (c). Each Employee shall receive credit for Hours of
Service with any affiliated corporation within the meaning of Code Section
1563(a), determined without regard to Sections 1563(a)(4) or 1563(e)(3)(c) of
the Code, but each such Employee must be employed by the Employer to participate
in this Plan. An affiliated company within the meaning of Code Section 1563(a)
generally means any member of a controlled group of corporations.
For purposes of determining whether an Employee has experienced a Break in
Service, Hours of Service shall include each hour for which an Employee is
absent from work for any period:
[A] by reason of the pregnancy of the Employee;
[B] by reason of the birth of a child of the Employee;
[C] by reason of the placement of a child with the Employee in connection with
the adoption of such child by such Employee; or
[D] for purposes of caring for such child for a period beginning immediately
following such birth or placement.
The hours described in the preceding sentence shall be treated as hours of
service in the year in which the absence from work begins if the Participant
would be prevented from incurring a one-year Break in Service as a result of
such treatment or, in any other case, the hours shall be treated as hours of
service in the immediately following year. The hours described in the two
preceding sentences shall be the hours of service which otherwise would normally
have been credited to such Participant but for such absence, or in any case in
which the plan is unable to determine such hours, eight hours of service per
work day of such absence. No credit will be given pursuant to this paragraph
unless the Participant furnishes to the Plan Administrator such timely
information as the plan may require to establish that the absence from work is
for reasons described above and to establish the number of days for which there
was such an absence.
2.17 "Key Employee" means any Employee of an Employer who, at any time during
the Plan Year or any of the four preceding Plan Years, is:
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[a] an officer of an Employer having annual Compensation greater than 50
percent of the Code Section 415(b)(1)(A) limitation, as adjusted for
increases in the cost of living for the Plan Year;
[b] one of the ten Employees having annual Compensation from an Employer of
more than the $30,000 annual addition limitation as adjusted for increases
in the cost of living and owning both more than one-half percent interest
and the largest interests of the Employer;
[c] five percent owner of the Employer; or
[d] a one percent owner of the Employer having annual Compensation from the
Employer of more than $150,000.
For purposes of paragraph [a], no more than 50 Employees (or, if lesser, the
greater of 3 Employees or 10 percent of the Employees) shall be treated as
officers. For purposes of paragraph [b], if two Employees have the same
interest in an Employer, the Employee having greater annual Compensation from
the Employer shall be treated as having a larger interest. This paragraph shall
be interpreted to conform with Code Section 416. For purposes of this
definition, "Employee" shall have the same meaning as it does under Code Section
416(i)(1). Any Beneficiary of a Key Employee shall be treated as a Key
Employee.
2.18 "Named Fiduciary" means any Fiduciary who is named in this Plan, or who,
pursuant to a procedure specified in the Plan, is identified as a Fiduciary to
the Plan by the Company. Such named fiduciaries include, but are not limited
to, the Trustee, the Plan Committee, and the Plan Administrator.
2.19 "Normal Retirement Age" means the date a Participant attains age 65.
2.20 "Participant" means any Employee (as defined in section 2.11) who has
become a Participant under Article III of this Plan. Participation shall cease
upon the later of [a] distribution of a Participant's entire vested Account and
forfeiture of a Participant's entire nonvested Account or [b] termination of
employment.
2.21 "Plan" and "Plan and Trust" mean the Employee Stock Purchase Plan and
Trust set forth in and by this document and all subsequent amendments to it.
2.22 "Plan Administrator" means the person appointed by the Board of Directors
whose duties are provided in this Plan and Trust.
2.23 "Plan Committee" means the committee appointed by the Board of Directors
whose duties are provided in this Plan and Trust.
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<PAGE>
2.24 "Plan Year" means the Company's fiscal (taxable) year, as presently
established, and this shall be the fiscal (taxable) year of the trust
established under this Plan. If there is a change in the Company's fiscal year,
then "Plan Year" shall mean the Company's new fiscal year, and any short fiscal
year resulting from such change shall be considered a full year for all purposes
of this Plan.
2.25 "Qualifying Employer Security" means the common stock of TCI Satellite
Entertainment, Inc., or any Affiliated Company, and transferred to this Plan,
subject to the requirements of ERISA Section 407 and Code Section 409(l). Under
Code Section 409(l), if no common stock of the Company is readily tradeable on
an established securities market, the Qualifying Employer Security must be the
common stock issued by the Company or any controlled group member with the
Company which has a combination of voting power and dividend rights equal to or
in excess of [a] that class of common stock of the Company (or of any other such
corporation) having the greatest voting power, and [b] that class of common
stock of the Company (or of any other such corporation) having the greatest
dividend rights.
2.26 "Quarterly Anniversary Date" means January 1, April 1, July 1, or October
1 of each Plan Year.
2.27 "Reemployment Commencement Date" means the first date after a Break in
Service on which an Employee performs an Hour of Service for the Employer.
2.28 "Super Top Heavy Plan" means a Plan in which the aggregate of the Accounts
of Key Employees under the Plan exceeds 90 percent of the aggregate of the
Accounts of all Participants under the Plan (as of the Determination Date for
the Plan Year), excluding former Key Employees. The Accounts of Participants
shall be increased by the aggregate distributions made with respect to such
Participants during the five year period ending on the Determination Date.
"Determination Date" means, with respect to any Plan Year, the last day of the
preceding Plan Year (or in the case of the first Plan Year, the last day of such
Plan Year). This paragraph shall be interpreted to conform with Code Section
416.
2.29 "Termination of Employment" means the termination of a person's status as
an Employee as defined in section 2.11 or the termination of a person's status
as an Employee covered by a collective bargaining agreement as described in
section 2.11.
2.30 "Top Heavy Plan" means a Plan in which the aggregate of the Accounts of
Key Employees under the Plan exceeds 60 percent of the aggregate of the Accounts
of all Participants under the Plan (as of the Determination Date for the Plan
Year), excluding former Key Employees. The Accounts of Participants shall be
increased by the aggregate distributions made with respect to such Participants
during the five year period ending on the Determination Date. "Determination
Date" means, with respect to any Plan Year, the last day of the preceding Plan
Year (or in the case of the first Plan Year, the last day of such Plan Year).
This paragraph shall be interpreted to conform with Code Section 416. For
purposes of determining whether this and any aggregated Plans are top heavy or
super top heavy, all defined benefit and defined contribution Plans (including
any simplified
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<PAGE>
Employee pension Plan) maintained or ever maintained by the Employer in which a
Key Employee participates or on which any Plan in which a Key Employee
participates depends for qualification under Code Sections 401(a)(4) or 410 must
be aggregated. Other Plans maintained or ever maintained by the Employer may be
aggregated if, when considered as a group with the Plans that must be
aggregated, they would continue to satisfy the requirements of Code Sections
401(a)(4) and 410. Notwithstanding the above, if a Participant or former
Participant has not performed any services with the Employer at any time during
the five-year period ending on the Determination Date, the Account of such
Participant or former Participant shall not be taken into account in determining
whether the Plan is Top Heavy or Super Top Heavy.
2.31 "Total Disability" means a disability that permanently renders a
Participant unable to perform satisfactorily the usual duties of his or her
employment with his or her Employer, as determined by a physician selected by
the Plan Committee or its delegatee, and which results in the Participant's
termination of active employment with the Employer.
2.32 "Trustee" means the person or persons appointed as Trustee of the Trust
Fund established by this Plan and Trust and any duly appointed and qualified
successor Trustee.
2.33 "Trustee Responsibility" means any responsibility provided in the Plan to
manage or control the assets of this Plan.
2.34 "Trust Fund" means the assets of the trust established by this Plan and
Trust from which the benefits under this Plan shall be paid and shall include
all income of any nature earned by the fund and all changes in fair market
value.
2.35 "Year of Service" for purposes of eligibility to participate means any 12-
month period, measured from the Employee's Employment Commencement Date or
Reemployment Commencement Date, and the anniversary of such dates, in which the
Employee completes 1,000 or more Hours of Service. "Year of Service" for
vesting and all other purposes means any Plan Year in which the Employee
completes 1,000 or more hours of service. For purposes of this definition, Hours
of Service shall include service as an Employee in any capacity including
commissioned salesman and shall include service as an Employee of an Employer
under common control with the Company as defined in Code Section 1563(a) and the
regulations thereunder, or any other Company designated by the Plan Committee
from time to time. Year of Service also shall include service with any Company
that is acquired directly or indirectly by any Employer participating in this
Plan whether by acquisition of stock or assets if such Company becomes part of
the controlled group of corporations as defined in Code Section 1563(a) and the
regulations thereunder, of which TCI Satellite Entertainment, Inc., is a part.
Years of Service with Tele-Communications, Inc. prior to the Effective Date of
this Plan will count for purposes of eligibility and vesting under this Plan.
2.36 The masculine gender shall include the feminine, and the singular shall
include the plural.
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<PAGE>
ARTICLE III
PARTICIPATION
-------------
3.1 WHO MAY BECOME A PARTICIPANT:
----------------------------
[a] Generally: Any Employee who is a Participant on the Effective Date of this
---------
Plan or who has completed one Year of Service and who has attained age 18 on the
Effective Date of this Plan may participate in this Plan. Any other or new
Employee (as defined in section 2.11) of an Employer who has attained age 18 and
who has completed one Year of Service may become a Participant on any Quarterly
Anniversary Date of the Plan following his or her completion of one Year of
Service and attainment of age 18, provided such Employee must be an Employee of
the Employer when he or she becomes a Participant.
[b] Employees Involved in Acquisitions: Any Employee who becomes an Employee
----------------------------------
of an Employer by reason of the Employer's acquisition of any Company or
business (or assets of a Company or business), as determined by the Plan
Committee, and who has attained age 18 and completed one Year of Service with
such predecessor Employer (from which such acquisition is made), may become a
Participant as of the first payroll period commencing after the Employee
completes the Plan enrollment and election forms; provided that such election
forms are received by the Plan Manager within the first 45 days following the
closing date of such acquisition, as determined in any transaction agreement
between the Employer and any such predecessor Employer and provided further that
such Employee must be an Employee of the Employer when he or she becomes a
Participant.
3.2 AGREEMENT TO PARTICIPATE: An Employee who has become eligible to
------------------------
participate in the Plan will commence participation in the Plan under procedures
promulgated by the Plan Committee from time to time. By electing to participate
in the Plan, an Employee agrees to the following:
[a] His or her acceptance of participation in the Plan;
[b] His or her consent to make contributions to the Trust Fund under section
4.1;
[c] His or her consent that contributions be withheld from the Employee's
Compensation; and
[d] His or her consent to be bound by the terms and conditions of the Plan and
all its amendments.
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The failure to enroll as a Participant in the Plan under the enrollment
procedures promulgated by the Plan Committee will be deemed to be an election
not to become a Participant. An Employee may revoke this election and become a
Participant by enrolling as a Participant in the Plan under the enrollment
procedures promulgated by the Plan Committee before a subsequent Quarterly
Anniversary Date of the Plan, if he or she otherwise is eligible.
3.3 PARTICIPATION UPON REEMPLOYMENT: An Employee who has satisfied the age and
-------------------------------
service requirements under section 3.1 by reason of years of service prior to a
Break in Service of one year or longer may become a Participant immediately upon
his or her reemployment.
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<PAGE>
ARTICLE IV
CONTRIBUTIONS
-------------
4.1 CONTRIBUTIONS BY PARTICIPANTS: Each Participant shall make contributions
-----------------------------
to the Trust Fund only by means of regular payroll deductions or by salary
reductions. Participant after-tax contributions by payroll deduction shall be
referred to as voluntary contributions or after-tax contributions and
Participant pre-tax contributions shall be known as salary reductions or pre-tax
contributions. Subject to the limitations of section 4.11, each Participant
shall designate as a voluntary contribution or salary reduction an amount in
percentages or even dollars up to 10% of his or her Compensation in each payroll
period, until changed by the Participant. A Participant may change his
designation prospectively but not retroactively effective for any payroll period
by providing notice to the Plan Committee prior to the last two weeks of the
calendar quarter immediately preceding the quarter for which it is to be
effective. A Participant may suspend his or her contributions to the Plan for
any quarter by providing notice of suspension with the Plan Committee at any
time prior to the last two weeks of the calendar quarter immediately preceding
the calendar quarter in which it is to be effective. Such notice shall remain
effective until the Participant elects to make further Participant
contributions, and no Employer contributions shall be made on behalf of the
Participant with respect to such suspension period. A Participant may authorize
resumption of Participant contributions by providing a new contribution
designation to the Plan Committee at any time prior to the last two weeks of the
calendar quarter immediately preceding the calendar quarter in which it is to be
effective. The Plan Committee will promulgate procedures from time to time for
the designation, change, suspension, or resumption of Participant contributions.
4.2 DETERMINATION OF CONTRIBUTION BY THE EMPLOYER: The Plan Committee on
---------------------------------------------
behalf of each Employer shall pay into the Trust Fund at least annually any
amount up to 100% of each Participant's contributions to the Plan, as the Board
of Directors of the Company shall determine by resolution. In such case, the
Employer's contribution on behalf of each Participant shall be equal to a stated
and nondiscriminatory percentage of each Participant's contributions (both
voluntary contributions and salary reductions) under section 4.1 during the Plan
Year, except as provided in section 5.1. Any amounts forfeited under section
7.3 shall be used first to pay Plan expenses under section 8.6 and any remaining
forfeitures after the payment of Plan expenses will be used to reduce the
Employer's contribution under this section. Except as provided in section 7.3,
the amount of the Employer's contribution shall not exceed 10% of the aggregate
Compensation of all Participants under this Plan in the year for which the
contribution is being determined.
4.3 TIME AND METHOD OF PAYMENT OF CONTRIBUTION BY THE EMPLOYER: The Plan
----------------------------------------------------------
Committee on behalf of the Employer may make payment of its contribution for any
Plan Year in installments on any date or dates it elects, provided that the
amount of its contribution for any year shall be paid in full within the time
prescribed in order to qualify such payment as an income tax
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deduction for such year under the Code or any other provisions of law. Such
contribution may be made in cash, in Qualifying Employer Securities (as
determined by the Company), or in property of the character in which the Trustee
is authorized to invest the Trust Fund. Contributions of property other than
cash or Qualifying Employer Securities shall be subject to the approval of the
Trustee and the Plan Committee.
4.4 TO WHOM CONTRIBUTIONS ARE TO BE PAID: The Employer's contributions for any
------------------------------------
Plan Year shall be paid to the Trustee and shall become a part of the Trust
Fund. The Employer shall pay the salary reductions and voluntary contributions
elected by the Participants to the Trustee at the earliest reasonable time but
no later than the maximum number of days after the date on which the
Participants would have received the funds but for the Participants' salary
reduction or payroll deduction election, as required under regulations
promulgated by the Department of Labor.
4.5 RETURN OF EMPLOYER CONTRIBUTIONS: A contribution by the Employer to the
--------------------------------
Plan shall be returned to the Company, at the Employer's discretion, under any
of the following circumstances:
[a] if a contribution is made by the Employer by a mistake of fact, including a
mistaken excess contribution, within one year of its payment to the Plan;
[b] if initial qualification of the Plan is denied, within one year after the
date of denial of initial qualification of the Plan; or
[c] if all or any part of the deduction of the contribution is disallowed, to
the extent of the disallowance, within one year after the disallowance of the
deduction.
The Employer shall state by written request to the Trustee the amount of the
contribution to be returned and the reason for such return. Such amount shall
not include any earnings attributable to the contribution and shall be reduced
by any losses attributable to the contribution. Upon sending such request to
the Trustee, the Employer simultaneously shall send to the Plan Committee a copy
of the request. The Trustee shall return such contribution to the Employer
immediately upon receipt of the written request by the Employer. All
contributions by the Employer to the Plan are declared to be conditioned upon
both the initial qualification of the Plan under Code Section 401 and the
deductibility of such contributions under Code Section 404.
4.6 EMPLOYER'S OBLIGATIONS: The adoption and continuance of the Plan shall not
----------------------
be deemed to constitute a contract between the Employer and any Employee or
Participant, nor to be consideration for, or an inducement or condition of, the
employment of any person. Nothing in this Plan shall be deemed to give any
Employee or Participant the right to be retained in the employ of the Employer,
or to interfere with the right of the Employer to discharge any Employee or
Participant
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at any time, nor shall it be deemed to give the employer the right to require
the employee or participant to remain in its employ, nor shall it interfere with
the right of any employee or participant to terminate his employment at any
time.
4.7 LIMITATION ON ANNUAL ADDITION: Annual additions shall not include any
-----------------------------
direct transfer or any contribution made by a participant which qualifies under
law as a rollover contribution. The annual limitation year shall be the plan
year. If the annual addition to the Account of any participant, attributable to
all defined contribution plans (including money purchase pension plans and
profit-sharing plans of the employer), would exceed either [a] the greater of
$30,000 (as adjusted for cost of living increases by the Secretary of the
Treasury as of each January 1 for any limitation year ending during such
calendar year) or 25% of the dollar limitation in effect under Code Section
415(b)(1)(A), or [b] 25% of such participant's compensation, the excess amount
shall be disposed of as follows:
[1] Any participant contributions (including elective deferrals) to the extent
that the return would reduce the excess amount, shall be returned to the
participant.
[2] The amount of such excess attributable to employer contributions and any
forfeitures shall be allocated and reallocated to other participants' Accounts
in accordance with Article V to the extent that such allocations do not cause
the additions to any such participant's Account to exceed the lesser of the
maximum permissible amount or any other limitation provided in the plan.
[3] To the extent that the excess amounts described in paragraph [b] above
cannot be allocated to other participants' Accounts, such excess amounts shall
be allocated to the suspense account in accordance with Article V and allocated
to participants under the provisions of Article V; provided, however, that
elective deferrals may not be allocated to a suspense account at any time.
For purposes of this section, annual additions include employer contributions,
forfeitures, and participant contributions. In addition, amounts allocated to
an individual medical account (as defined in Code Section 415(l)2)) that is part
of a pension or annuity plan maintained by the Company, are treated as annual
additions to a defined contribution plan and amounts attributable to post-
retirement medical benefits that are allocated to a separate account for a Key
Employee (as defined in Code Section 419A(d)(3)) under a welfare benefit fund
(as defined in Code Section 419(e)) maintained by the Company are treated as
annual additions to a defined contribution plan.
4.8 LIMITATION ON COMBINED BENEFITS AND CONTRIBUTIONS OF ALL DEFINED BENEFIT
------------------------------------------------------------------------
AND DEFINED CONTRIBUTION PLANS OF THE EMPLOYER: In any year if the Employer
- ----------------------------------------------
makes contributions to a defined benefit plan on behalf of an Employee who also
is a Participant in this Plan, then the sum of the defined benefit plan fraction
and the defined contribution
-14-
<PAGE>
plan fraction (both as prescribed by law and as defined below) for such Employee
for such year shall not exceed 1.0. In any year if the sum of the defined
benefit plan fraction and the defined contribution plan fraction on behalf of an
Employee does exceed 1.0, then the Employer's contribution on behalf of such
Participant to this defined contribution plan of the Employer shall be reduced
to the extent necessary to prevent the sum of the defined contribution plan
fraction and the defined benefit plan fraction from exceeding 1.0. The
Employer's contribution on behalf of such Participant to this Plan may be
reallocated to other Participants under Article V to the extent necessary to
prevent the sum of the defined contribution plan fraction and the defined
benefit plan fraction from exceeding 1.0. If any amount cannot be allocated or
reallocated without exceeding the limits provided in this Article, such amount
may be allocated to the suspense Account established under Article V and
allocated to the Participants in accordance with the provisions of Article V.
For purposes of this section the limitation year shall be the Plan Year.
[a] Defined Benefit Plan Fraction: The defined benefit plan fraction is a
-----------------------------
fraction the numerator of which is the projected annual benefit of the
Participant under the Plan (determined as of the close of the year) and the
denominator of which is the lesser of the following amounts determined for such
year and for each prior Year of Service with the Employer:
[1] the product of 1.25 times the maximum benefit dollar limitation in effect
for the limitation year; or
[2] the product of 1.4 times 100% of the Participant's average Compensation for
his high three consecutive calendar years.
[b] Defined Contribution Plan Fraction: The defined contribution plan fraction
----------------------------------
is a fraction the numerator of which is the sum of the annual additions to the
Participant's Account under all defined contribution plans of the Employer as of
the close of the limitation year and the denominator of which is the sum of the
lesser of the following amounts determined for such year and for each prior Year
of Service with the Employer:
[1] the product of 1.25 times the dollar limitations in effect under Code
Section 415(c)(1)(A) for the limitation year (without regard to Code Section
415(c)(6)); or
[2] the product of 1.4 times an amount equal to 25% of the Participant's
Compensation for the limitation year.
[c] Transition Rules: The Plan Committee, in its discretion, may elect to use
----------------
the transition rules for calculating the defined contribution plan fraction as
provided in Code Sections 415(e)(4) and 415(e)(6).
4.9 TOP HEAVY PLAN PROVISIONS: The provisions of this section shall have
-------------------------
effect for any Plan Years in which the Plan is top heavy.
-15-
<PAGE>
[a] Minimum Contribution: If no other qualified Plan maintained by the
--------------------
Employer provides the minimum benefit or contribution for Participants as
required under Code Section 416(c) for a year that the Plan is top heavy, this
Plan shall provide a minimum allocation (which may include forfeitures otherwise
allocable) for such Plan Year for each Participant who is a non-Key Employee in
an amount equal to at least three percent of such Participant's Compensation for
such Plan Year. Notwithstanding the preceding sentence, the minimum allocation
required under this paragraph shall in no event exceed the percentage of
contributions (including elective deferrals) and forfeitures made under the Plan
for such year for the Key Employee for whom such percentage is the highest for
such year. If Employees who are Participants in this Plan also participate in a
defined benefit Plan maintained by the Employer and both Plans are top heavy in
any year, the Employer may elect to satisfy the minimum contribution
requirements of Code Section 416(c) and the regulations thereunder by providing
a minimum allocation (which may include forfeitures otherwise allocable) for
such Plan Year for each Participant (for purposes of Code Section 416(c) and the
regulations thereunder) who is a non-Key Employee in an amount equal to at least
5% of such Participant's Compensation for such Plan Year. For purposes of this
section, Participants who must be considered Participants to satisfy the
coverage requirements of Code Section 410(b) in accordance with Code Section
401(a)(5) and who have not separated from service at the end of the Plan Year
shall be eligible to share this minimum contribution including Participants who
have failed to complete 1,000 or more hours of service, who have declined to
make mandatory contributions to the Plan or who have been excluded because such
Participant's Compensation is less than a stated amount. Elective deferrals may
not be used to satisfy the minimum contribution required under this section.
[b] Modification Of Plan Fractions: The 1.25 factor in the defined benefit
------------------------------
Plan fraction and defined contribution Plan fraction (as such fractions are
defined in the preceding section) shall be reduced to 1.0 for any year that the
Plan is top heavy or super top heavy.
4.10 SALARY REDUCTION RULES:
----------------------
[a] Election To Reduce Salary: Subject to the rules of section 4.1, an
-------------------------
Employee eligible to participate in this Plan may elect to reduce his
Compensation by an amount determined at his discretion but which amount may not
exceed $9,500 (as adjusted for increases in the cost of living) in each calendar
year. A Participant must make this election according to the procedure
prescribed by the Plan Committee.
[b] Nondiscriminatory Benefits: Subject to the limitations of paragraph [a],
--------------------------
all Participants in this Plan are eligible to defer identical percentages of
their Compensation, regardless of the amount of such Compensation.
[c] Nonforfeitability Of Elective Contributions: All salary reduction
-------------------------------------------
contributions made on behalf of Participants to this Plan shall be vested
immediately.
-16-
<PAGE>
[d] Distributions Restriction: Salary reductions shall be subject to the
-------------------------
restrictions on withdrawals under section 7.6.
[e] Limit On Actual Deferral Percentage: The actual deferral percentage for
-----------------------------------
Highly Compensated Employees for each Plan Year must be no greater than either
[1] 1.25 times the actual deferral percentage for all other Employees for such
Plan Year, or [2] 2.0 times the actual deferral percentage for all other
Employees for such Plan Year if the actual deferral percentage for Highly
Compensated Employees is not more than two percentage points higher than the
actual deferral percentage for all other Employees for such Plan Year.
[f] Adjustments to Actual Deferral Percentage: In the event that the
-----------------------------------------
limitations set forth in paragraphs [a] or [e] are not met, the Plan Committee
shall adjust either the salary reductions or the Employer contributions pursuant
to one or more of the options set forth below, as determined by the Company:
[1] On or before the 15th day of the third month following the end of each
Plan Year, but in no event later than the close of the following Plan Year, each
Highly Compensated Employee, beginning with the Employee having the highest
"actual deferral percentage", shall have his or her portion of the excess
deferral or the excess Employer contribution (and any income allocable to such
portion as determined below) distributed to him or her until the limitations set
forth in paragraphs [a] and [e] are satisfied. Income or losses attributable to
excess elective deferrals will be determined under any reasonable method used by
the Plan to allocate income and losses on Plan assets. In determining the
income or loss attributable to excess Employer contributions, the term "elective
deferral" in the preceding sentences shall be replaced with "Employer
contribution." To the extent any such excess elective deferrals or excess
Employer contributions have been applied to the purchase of Qualifying Employer
Securities, any distributions under this paragraph will be made in whole shares
of such Qualifying Employer Securities and fractional shares shall be
distributed in cash.
[2] A Participant may elect to treat his or her excess elective deferrals
or excess Employer contributions as an amount distributed to the Participant and
then contributed by the Participant to the Plan as a voluntary after-tax
contribution, to the extent such recharacterized excess contributions in
combination with other Participant contributions made under the Plan do not
exceed the limitations on Participant contributions provided in the Plan,
including the average contribution percentage limitation. Recharacterized
contributions will be nonforfeitable and will be subject to the distribution and
withdrawal provisions applicable to salary reduction contributions.
Recharacterization must occur within two and one-half months after the close of
the Plan Year in which the excess contributions arose and recharacterization is
deemed to occur no earlier than the date the last Highly
-17-
<PAGE>
Compensated Employee is provided with notification of the amount recharacterized
and the consequences of such recharacterization. Recharacterized amounts will
be taxable to the Participant in the Participant's taxable year in which the
Participant would have received such amounts in cash but for the salary
reduction election.
[3] Within 30 days after the end of the Plan Year, the Employer may make a
contribution on behalf of Non-Highly Compensated Employees in an amount
sufficient to satisfy the limitations set forth in paragraph [e]. Such
contribution shall be allocated to the Account of each non-Highly Compensated
Employee in the same proportion that each non-Highly Compensated Employee's
deferred Compensation for the year bears to the total deferred Compensation of
all Non-Highly Compensated Employees.
[4] Any matching Employer contribution that is attributable to excess
elective deferrals distributed to a Participant under paragraph [1] above will
be forfeited as of the distribution date of the excess deferrals and such
forfeited amount will be used to reduce the Employer contribution to this Plan
under section 4.2 for the Plan Year in which such forfeiture occurs.
[5] If a Highly Compensated Employee participates in two or more cash or
deferred arrangements that have different plan years, all cash or deferred
arrangements ending with or within the same calendar year will be treated as a
single arrangement. In the event that this Plan satisfies the requirements of
Code Sections 401(k), 401(a)(4), or 410(b) only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of such Code
Sections only if aggregated with this Plan, then this section will be applied by
determining the actual deferral percentage of Participants as if all such plans
were a single plan. Plans may be aggregated in order to satisfy Code Section
401(k) only if they have the same Plan Year. The Company will maintain records
sufficient to demonstrate satisfaction of the actual deferral percentage test
and the amount of qualified non-elective contributions or qualified matching
contributions, or both, used in such test.
[g] Definitions:
[1] The "actual deferral percentage" for a specified group of Employees
for a Plan Year shall be the average of the ratios (calculated separately for
each Employee in such group) of the amount of Compensation deferred under the
Plan on behalf of each such Employee for the Plan Year to the Employee's
Compensation for such Plan Year. For purposes of determining the actual
deferral percentage, salary reduction contributions shall be considered, and the
Plan Committee shall determine whether vested Employer contributions shall be
considered.
[2] "Salary reductions" are those reductions in salary that each Employee
elects to defer.
-18-
<PAGE>
4.11 NONDISCRIMINATION REQUIREMENTS FOR EMPLOYEE AND MATCHING EMPLOYER
-----------------------------------------------------------------
CONTRIBUTIONS:
- -------------
[a] Limit on Average Contribution Percentage: The average contribution
----------------------------------------
percentage for Highly Compensated Employees shall not exceed the greater of [1]
1.25 times the average contribution percentage for all other Employees, or [2]
the lesser of 2.0 times the average contribution percentage for all other
Employees or the average contribution percentage for all other Employees plus
two percentage points.
[b] Adjustments to Average Contribution Percentage: In the event that the
----------------------------------------------
average contribution percentage test set forth in paragraph [a] above is not
met, on or before the 15th day of the third month following the end of each Plan
Year, but in no event later than the close of the following Plan Year, each
Highly Compensated Employee, beginning with the Employee having the highest
contribution percentage, shall have his or her portion of the excess aggregate
contribution (and any income allocable to such portion as determined below)
distributed to him or her until the test set forth in paragraph [a] is
satisfied. Income or losses attributable to excess aggregate contributions will
be determined under any reasonable method used by the Plan to allocate income
and losses on Plan assets. To the extent any such excess aggregate
contributions have been applied to the purchase of Qualifying Employer
Securities, any distributions under this paragraph will be made in whole shares
of such Qualifying Employer Securities and fractional shares shall be
distributed in cash.
[c] Average Contribution Percentage: The "average contribution percentage" for
-------------------------------
a specified group of Employees for a Plan Year shall be the average of the
ratios (calculated separately for each Employee in such group) of the sum of the
matching Employer contributions and the Participant voluntary after-tax
contributions made on behalf of each such Employee for the Plan Year to the
Employee's Compensation for such Plan Year. For purposes of determining the
contribution percentage, the Plan Committee may elect to treat salary reduction
contributions as Company matching contributions.
[d] Multiple Use: If the sum of the average contribution percentage and the
------------
actual deferral percentage for Highly Compensated Employees exceeds the
aggregate limit described below, such excess amount will be treated as an excess
Employer contribution or an excess aggregate contribution, as determined by the
Plan Committee, and such excess contributions will be distributed to Highly
Compensated Employees, beginning with the Highly Compensated Employee with the
highest actual deferral percentage or the highest contribution percentage,
respectively, in the same manner as excess Employer contributions and excess
aggregate contributions are distributed as provided in section 4.11[f] or in
paragraph [b] above. The aggregate limit is the greater of [1] the sum of [A]
1.25 times the greater of the actual deferral percentage for Non-Highly
Compensated Employees or the average contribution percentage for Non-Highly
Compensated Employees for the Plan Year plus [B] the lesser of two times or two
plus the lesser of such actual deferral percentage or average contribution
percentage; or [2] the sum of [A] 1.25 times the lesser of the actual
-19-
<PAGE>
deferral percentage for Non-Highly Compensated Employees or the average
contribution percentage for Non-Highly Compensated Employees for the Plan Year
plus [B] the lesser of two times or two plus the greater of such actual deferral
percentage or average contribution percentage.
[e] Other Rules: The average contribution percentage for the Plan Year for any
------------
Highly Compensated Employee who is eligible to have contribution percentage
amounts allocated to his or her Account under two or more arrangements described
in Code Section 401(k) that are maintained by the Company will be determined as
if such contribution percentage amounts were made under a single arrangement.
If a Highly Compensated Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash or deferred arrangements
ending with or within the same calendar year will be treated as a single
arrangement. In the event that this Plan satisfies the requirements of Code
Sections 401(m), 401(a)(4), or 410(b) only if aggregated with one or more other
plans, or if one or more other plans satisfy the requirements of such Code
Sections only if aggregated with this Plan, then this section will be applied by
determining the contribution percentage of Participants as if all such plans
were a single plan. Plans may be aggregated in order to satisfy Code Section
401(m) only if they have the same Plan Year. The Company will maintain records
sufficient to demonstrate satisfaction of the average contribution percentage
test and the amount of qualified non-elective contributions or qualified
matching contributions, or both, used in such test.
-20-
<PAGE>
ARTICLE V
DETERMINATION AND VESTING OF PARTICIPANTS' ACCOUNTS
---------------------------------------------------
5.1 DETERMINATION OF PARTICIPANTS' ACCOUNTS:
---------------------------------------
[a] Allocation Of Contributions: As of the last day of each calendar quarter
---------------------------
the Plan Committee shall allocate to the Account of each Participant any amounts
contributed by the Employer to the trust on behalf of such Participant under
section 4.2 for the calendar quarter then ended. Forfeitures remaining after
the payment of Plan expenses under section 8.6 will be used to reduce Employer
contributions and shall be allocated during the first calendar quarter after the
end of the year in which the forfeitures occur, along with Employer
contributions made during that quarter. Voluntary contributions and salary
reductions under section 4.1 shall be allocated to the Account of the
Participant making such contribution.
[b] Allocation Of Earnings, Losses And Changes In Fair Market Value Of The Net
--------------------------------------------------------------------------
Assets Of The Trust Fund; Allocation Of Qualifying Employer Securities:
- ----------------------------------------------------------------------
Qualifying Employer Securities shall be allocated to the Accounts of
Participants as of the end of each calendar quarter after acquired by the Trust
Fund in the ratio that contributions under section 4.1 made to each Account in
the calendar quarter bear to the total contributions under section 4.1 made to
all Accounts for the calendar quarter. Any dividends, cash or stock, paid on
Qualifying Employer Securities shall be allocated along with the Qualifying
Employer Securities on which they are paid. Once Qualifying Employer Securities
are allocated to a Participant's Accounts, any dividends, cash, or stock paid on
such allocated securities shall be allocated directly to such Accounts.
Earnings and losses of the Trust Fund (other than on Qualifying Employer
Securities) shall be computed and allocated to the Participants in the ratio
which the total dollar value of the Account (whether or not vested and excluding
Qualifying Employer Securities) of each Participant in the Trust Fund bears to
the aggregate dollar value of the Accounts (whether or not vested and excluding
Qualifying Employer Securities) of all Participants as of the quarterly
computation date. Only Participants in the Plan on the last day of a Plan
quarter shall share in the allocation of earnings, losses and changes in fair
market value of the net assets of the Trust Fund (other than Qualifying Employer
Securities) for that quarter.
[c] Participants' Accounts: The Plan Committee shall maintain an Account for
----------------------
each Participant showing the number of shares allocated to his Account in the
Trust Fund as of the last previous computation date attributable to any
contributions made by the Employer, including any Employer contributions for the
year ending on such date. This Account shall be known as the Employer
contributions Account. Separate Accounts also shall be kept, known as the
Employee contributions Account, showing the voluntary and salary reduction
contributions of each Participant, shares allocated, and the earnings, losses
and changes in fair market value thereof. The Employer contributions Account
and the Employee contributions
-21-
<PAGE>
Account for Participants shall be considered separate contracts for purposes of
Code Section 72(e). The Plan Committee shall distribute, or cause to be
distributed, to each Participant at least annually a written statement setting
forth the value of such Participant's Accounts as of the last day of the Plan
Year, and such other information as the Plan Committee shall determine.
[d] Valuation Dates: The valuation date of the Trust Fund shall be each
---------------
Quarterly Anniversary Date, at which time the Plan Committee shall determine the
value of the net assets of the Trust Fund (i.e., the value of all the assets of
----
the Trust Fund at their then current fair market value, less all liabilities)
and the value of contributions by each Employer and all Participants for such
quarter. Qualifying Employer Securities shall be valued at the closing dealer
"bid" price of the stock in the over-the-counter market as reported by the
National Association of Securities Dealers, Inc., or National Quotation Bureau,
Inc.
[e] Computation Dates: The Plan Committee shall compute the value of each
-----------------
Participant's Account on each Quarterly Anniversary Date. For distribution or
withdrawal purposes, the value of the Participant's Account will equal the
number of shares of Qualifying Employer Securities allocated to the
Participant's Account as of the Quarterly Anniversary Date immediately preceding
such distribution or withdrawal date plus the dollar value of the any assets
other than Qualifying Employer Securities which are allocated to the
Participant's Account as of the Quarterly Anniversary Date immediately preceding
such distribution or withdrawal date. If a Participant is entitled to receive
any distribution or withdrawal in cash, as expressly provided under Article VII,
the Participant will receive the proceeds from the sale of the Qualifying
Employer Securities allocated to his or her vested Account, plus the value of
any assets other than Qualifying Employer Securities allocated to his or her
Account valued as described above as of the Quarterly Anniversary Date
immediately preceding the distribution or withdrawal from the Participant's
Account. The sale of Qualifying Employer Securities pursuant to this section
5.1[e] will be made within a reasonable period of time after the Plan
Administrator receives the Participant's request for a distribution or
withdrawal in cash, as expressly provided under Article VII. The Plan
Committee, in its discretion, may provide for more frequent Valuation Dates than
each Quarterly Anniversary Date.
[f] Suspense Account For Unallocated Amounts: If the amount to be allocated to
----------------------------------------
any Participant's Account would exceed the contribution limitations of sections
4.8 or 4.9, a separate suspense Account shall be established to hold such
unallocated amounts for any year or years provided that:
[1] no Employer contributions may be made at any time when their
allocations would be precluded by Section 415 of the Code;
[2] investment gains and losses and other income are not allocated to the
suspense Account; and
-22-
<PAGE>
[3] the amounts in the suspense Account are allocated under section 5.1[a]
as of each allocation date on which such amounts may be allocated until the
suspense Account is exhausted.
In the event of Plan termination, the balance of such suspense Account may
revert to the Company, subject to regulations governing such reversion.
[g] Allocation Of Employer Contributions For Payroll Period Of Withdrawal Or
------------------------------------------------------------------------
Termination Of Employment: Any Participant who withdraws all or any part of his
- -------------------------
own contributions under section 7.6 shall receive an allocation of Employer
contributions for the payroll period of his withdrawal, if he is otherwise
entitled to a contribution. Any Participant who terminates employment for any
reason shall receive an allocation of Employer contributions for the payroll
period of his termination if he is otherwise entitled to a contribution.
5.2 VESTING OF PARTICIPANTS' ACCOUNTS:
---------------------------------
[a] General Rules: If any Participant reaches his or her Normal Retirement
-------------
Age, dies, or suffers Total Disability while employed with the Employer, the
Participant's entire Account shall become fully vested without regard to the
number of years of service such Participant has had with the Employer. Any
Account, whether vested or forfeitable, shall become payable to a Participant or
his or her Beneficiaries only to the extent provided in this Plan. A
Participant or former Participant who has designated a Beneficiary and who dies
shall cease to have any interest in this Plan or in his or her Account, and his
or her Beneficiary shall become entitled to distribution of the Participant's
Account under this Plan and not as a result of any transfer of the interest or
Account. A Participant's Account attributable to his or her own contributions
or attributable to a rollover contribution shall be fully vested at all times.
[b] Vesting Schedule: A Participant shall have a vested interest in the
----------------
portion of his Account attributable to Employer contributions, in accordance
with the following schedule:
Percentage of Account
Years of Service Which Is Vested
---------------- ---------------------
<TABLE>
<CAPTION>
<S> <C>
Fewer than 1 0
1 or more but fewer than 2 20
2 or more but fewer than 3 30
3 or more but fewer than 4 45
4 or more but fewer than 5 60
5 or more but fewer than 6 80
6 or more 100
</TABLE>
-23-
<PAGE>
5.3 FULL VESTING UPON TERMINATION OR PARTIAL TERMINATION OF PLAN OR UPON
--------------------------------------------------------------------
COMPLETE DISCONTINUANCE OF EMPLOYER CONTRIBUTIONS: Upon the termination or
- -------------------------------------------------
partial termination of this Plan or upon complete discontinuance of Employer
contributions, the Accounts of all Participants affected, as of the date such
termination, partial termination, or complete discontinuance of Employer
contributions occurred, shall be fully vested.
5.4 SERVICE INCLUDED IN DETERMINATION OF VESTED ACCOUNTS: All years of service
----------------------------------------------------
with the Company and any Associated Company shall be included for the purpose of
determining a Participant's vested Account under section 5.2, except years of
service excluded by reason of a Break in Service under section 5.5.
5.5 EFFECT OF BREAK IN SERVICE ON VESTING: With respect to a Participant who
-------------------------------------
has five or more consecutive one-year breaks in service, years of service after
such Break in Service shall not be taken into account for purposes of computing
the Participant's vested Account balance attributable to Employer contributions
made before such five or more year period.
5.6 EFFECT OF CERTAIN DISTRIBUTIONS: The provisions of this section shall not
-------------------------------
apply to any Participant contributions (including salary reductions) or rollover
contributions.
[a] Repayment Of Distribution: A Participant who terminates participation for
-------------------------
any reason prior to attainment of Normal Retirement Age, disability, or death
while any portion of his Account in the Trust Fund is forfeitable and who
receives a distribution of his vested Account attributable to Employer
contributions not later than the close of the second Plan Year following the
Plan Year in which such termination of participation occurs, shall have the
right to pay back such distribution to the Plan. Such repayment may be made [1]
only if the Participant has returned to the employ of the Company or any
Associated Company at the time of such repayment, and [2] in the case of a
distribution upon Termination of Employment, before the earlier of the date on
which the Participant experiences five consecutive one-year breaks in service or
five years from the date of reemployment with the Company or any Associated
Company, or, in the case of any other distribution, five years from the date of
distribution. Repayment of a Participant's Account attributable to his salary
reduction contributions or his voluntary contributions, if any, shall not be
permitted under this section. A Participant who desires to make repayment of a
distribution under this paragraph [a] shall make repayment directly to the Plan
Committee. If a Participant repays a distribution under this section, the value
of his Account shall be the amount of his Account prior to distribution,
unadjusted for any subsequent gains or losses. The amount of the Participant's
Account that was forfeited previously shall be restored from one or more of the
following sources, at the discretion of the Plan Committee: income or gain to
the Plan, forfeitures or Employer contributions.
-24-
<PAGE>
[b] Forfeiture Of Account When Repayment Of Distribution Is Not Made: If
----------------------------------------------------------------
distribution is made to a Participant and he does not repay such distribution
under the terms of paragraph [a] when the time limit for repayment expires under
paragraph [a] above, the Participant shall forfeit the entire portion of his
nonvested Account (as adjusted for gains and losses) which was not distributed
to him. The Account shall be unadjusted for any increase in vesting for service
completed during the repayment period.
-25-
<PAGE>
ARTICLE VI
RETIREMENT DATE--DESIGNATION OF BENEFICIARY
-------------------------------------------
6.1 NORMAL RETIREMENT DATE: A Participant shall be entitled to retire
----------------------
voluntarily, for purposes of this Plan, on the last date of the quarter in which
a Participant attains his Normal Retirement Age. At any time thereafter such
Participant may retire. Until retirement, a Participant shall continue to
participate in the Plan unless he elects otherwise.
6.2 DESIGNATION OF BENEFICIARY: A Participant's full vested Account balance
--------------------------
shall be payable, on the death of the Participant, to the Participant's
surviving spouse or to his designated Beneficiary if there is no surviving
spouse or if the spouse consents to such Beneficiary designation in writing.
This spousal consent shall acknowledge the effect of such consent and shall be
witnessed by a Plan Committee member or a notary public. If there is no
surviving spouse or in the case of a spousal election not to receive the
Account, a Participant shall designate a Beneficiary to receive his Account in
the Trust Fund upon his death on the form prescribed by and delivered to the
Plan Committee. The Participant shall have the right to change or revoke a
designation at any time by filing a new designation or notice of revocation with
the Plan Administrator. No notice to any Beneficiary other than the spouse nor
consent by any Beneficiary other than the spouse shall be required to effect any
change of designation or revocation. If a Participant fails to designate a
Beneficiary before his death, or if no designated Beneficiary survives the
Participant, the Plan Committee shall direct the Trustee to pay his Account in
the Trust Fund to his surviving spouse, or if none, to his personal
representative. If no personal representative has been appointed, and if the
benefit payable does not exceed the minimum amount for which an estate or
inheritance tax release is required under applicable state law, or for which a
personal representative must be appointed under applicable state law, the Plan
Committee may direct the Trustee to pay the benefit to the person or persons
entitled to it under the laws of the state where such Participant was domiciled
at the date of his death. In such case, the Plan Committee may require such
proof of right or identity from such person as the Plan Committee may deem
necessary. If the benefit exceeds the minimum amount for which an estate or
inheritance tax release or the appointment of a personal representative is
required under applicable state law, the Plan Committee may direct the Trustee
to hold the benefit in a segregated Account until a personal representative has
been appointed.
6.3 PARTICIPANT OR BENEFICIARY WHOSE WHEREABOUTS ARE UNKNOWN: In the case of
--------------------------------------------------------
any Participant or Beneficiary whose whereabouts are unknown, the Plan Committee
shall notify such Participant or Beneficiary at his last known address by
certified mail with return receipt requested advising him of his right to a
pending distribution. If the Participant or Beneficiary cannot be located in
this manner, the Plan Committee may direct the Trustee to establish a custodial
Account for such Participant or Beneficiary for the purpose of holding the
Participant's Account until it is claimed by the Participant or Beneficiary or
until proof of death satisfactory to the Plan
-26-
<PAGE>
Committee is received by the Plan Committee. If such proof of death is
received, the Plan Committee shall direct the Trustee to distribute the
Participant's Account in accordance with the provisions of section 6.2. Any
Trustee fees or other administrative expenses attributable to a custodial
Account established and maintained under this section shall be charged against
such Account.
-27-
<PAGE>
ARTICLE VII
DISTRIBUTION FROM TRUST FUND
----------------------------
7.1 WHEN ACCOUNTS BECOME DISTRIBUTABLE AND EFFECT OF DISTRIBUTION: If a
-------------------------------------------------------------
Participant dies, suffers Total Disability, retires, or terminates his
employment for any other reason, the portion of his vested Account attributable
to Employer contributions, to Participant contributions, and to any rollover
contributions shall be distributable under section 7.2. When his Account
becomes distributable, such Participant shall cease to have any further interest
or participation in the Trust Fund or any subsequent accruals or contributions
to the Trust Fund except as provided below:
[a] a Participant shall retain the right to receive distribution of his Account
as determined under section 5.1;
[b] a Participant shall retain the right to receive allocations of earnings,
losses, and changes in fair market value on the assets held in the Participant's
Account until his or her entire Account is distributed, as determined under
section 5.1; and
[c] except as provided in section 5.1, a Participant who makes contributions
during any quarter shall retain the right to receive his share in the Employer's
contribution allocated to his Account for such quarter.
7.2 DISTRIBUTION OF ACCOUNTS:
------------------------
[a] Notification Of Trustee And Nature Of Distribution: Quarterly after a
--------------------------------------------------
Participant's vested Account becomes distributable, the Plan Committee shall
notify the Trustee in writing of the Participant's name and address, the amount
of his vested Account which is distributable and the reason for its being
distributable. A Participant's Account shall be distributed in whole shares of
Qualifying Employer Securities, and cash will be distributed in lieu of
fractional shares.
[b] Distribution Upon Retirement: If a Participant's Account becomes
----------------------------
distributable upon his termination of employment with the Employer because such
Participant has attained Normal Retirement Age, the Trustee shall distribute to
the Participant his vested Account balance in a lump sum within a reasonable
time after the close of the quarter in which such Termination of Employment
occurred. If the Participant dies before receiving his vested Account, the
remaining Account balance shall be paid to his Beneficiary under this section.
[c] Distribution Upon Total Disability: If a Participant's Account becomes
----------------------------------
distributable upon his termination of employment with the Employer because of
such Participant's Total
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<PAGE>
Disability, the Trustee shall distribute to the Participant his vested Account
balance in a lump sum within a reasonable time after the close of the quarter in
which such Termination of Employment occurred or, in the discretion of the
Participant, at the close of any later quarter. If the Participant dies before
receiving his vested Account, the remaining Account balance shall be paid to his
Beneficiary under this section.
[d] Distribution Upon Death: If a Participant's Account becomes distributable
-----------------------
because of his death, the Trustee shall distribute to the Participant's
Beneficiary the total Account balance in a lump sum within a reasonable time
after the close of the quarter in which the Participant died. If the
Beneficiary dies before receiving the Participant's vested Account, the Account
balance shall be made to the contingent Beneficiary, if any. If the Participant
has not designated a Beneficiary, or if he has designated a Beneficiary who dies
and the Participant has not designated a contingent Beneficiary, the
Participant's vested Account shall be paid in a lump sum under section 6.2.
[e] Distribution Upon Other Termination Of Employment: If a Participant's
-------------------------------------------------
Account becomes distributable upon his Termination of Employment for any reason
other than retirement, disability, or death, the Trustee shall distribute to the
Participant his vested Account balance in a lump sum within a reasonable time
after the close of the quarter in which such Termination of Employment occurred
or, in the discretion of the Participant, at the close of any later quarter (but
not later than the quarter following the Participant's death or attainment of
Normal Retirement Age). If the Participant dies prior to receiving his vested
Account, the Account balance shall be distributed to his Beneficiary under this
section. A Participant shall be considered to have terminated employment for
purposes of this section on the date the Company disposes of substantially all
of the assets used by the Company in a trade or business if such Participant
continues employment with the entity acquiring such assets. For purposes of
this section, if the Company disposes of its interest in a subsidiary of the
Company, a Participant who continues employment with such subsidiary shall be
treated as if he terminated employment with the Company on the date the Company
disposed of its interest in the subsidiary.
7.3 DISPOSITION OF FORFEITABLE ACCOUNT ON TERMINATION OF EMPLOYMENT: If a
---------------------------------------------------------------
Participant's employment is terminated for any reason prior to attainment of
Normal Retirement Age, death, or Total Disability, while any part of his Account
in the Trust Fund is forfeitable, then that portion of his Account which is
forfeitable shall be forfeited by him on the earlier of the date the Participant
receives a distribution of his Account or the date on which he experiences five
or more consecutive one-year breaks in service. Any amount forfeited by a
Participant shall reduce the contribution of his Employer for the first quarter
of the Plan Year after it is forfeited, as provided under section 4.2. If any
such Participant returns to the employment of the Employer and has not incurred
five or more consecutive one-year breaks in service, the Employer shall restore
to the Participant's Account out of its next contribution the exact number of
shares of
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<PAGE>
Qualifying Employer Securities plus any other amounts that he forfeited, if the
Participant repays the distributed amount pursuant to section 5.6.
7.4 ASSIGNMENT OF BENEFITS:
----------------------
[a] General Rules: Except as provided below, all amounts payable by the
-------------
Trustee shall be paid only to the person entitled to them, and all such payments
shall be paid directly to such person and not to any other person or
corporation. Such payments shall not be subject to the claim of any creditor of
a Participant, nor shall such payments be taken in execution by attachment or
garnishment or by any other legal or equitable proceedings. No person shall
have any right to alienate, anticipate, commute, pledge, encumber, or assign any
payments or benefits which he may expect to receive, contingently or otherwise,
under this Plan, except the right to designate a Beneficiary or Beneficiaries;
provided, that this section shall not affect, restrict, or abridge any right of
setoff or lien which the trust may have by law.
[b] Qualified Domestic Relations Orders: Paragraph [a] shall not apply with
-----------------------------------
respect to payments in accordance with the requirements of a qualified domestic
relations order. A qualified domestic relations order creates or recognizes the
existence of an alternate payee's right to, or assigns to an alternate payee the
right to, receive all or a portion of the benefits otherwise payable to a
Participant under the Plan. A domestic relations order means any judgment,
decree, or order (including approval of a property settlement agreement) that
relates to the provision of child support, alimony payments, or marital property
rights to a spouse, former spouse, child, or other dependent of a Participant,
and is made pursuant to a state domestic relations law (including a community
property law). To qualify, the domestic relations order must:
[1] clearly state the name and last known mailing address of the
Participant and the name and mailing address of each alternate payee covered by
the order;
[2] clearly state the amount or percentage of the Participant's benefits
to be paid by the Plan to each alternate payee, or the manner in which the
amount or percentage is to be determined;
[3] clearly state the number of payments or period to which the order
applies;
[4] identify each Plan to which the order applies;
[5] not require the Plan to provide any type or form of benefits, or any
option, not otherwise provided under the Plan;
[6] not require the Plan to provide increased benefits (determined on the
basis of actuarial value); and
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<PAGE>
[7] not require the payment of benefits to an alternate payee that are
required to be paid to another alternate payee under another order previously
determined to be a qualified domestic relations order.
In the case of any distribution before a Participant has separated from service,
a qualified domestic relations order shall not fail to meet the requirements of
section 7.4[b][5] solely because such order requires that payment of benefits be
made to an alternate payee [A] on or after the date the Participant attains the
earliest retirement age, [B] as if the Participant had retired on the date on
which such payment is to begin under such order, and [C] in any form in which
benefits may be paid under the Plan to the Participant (other than in the form
of a qualified joint and survivor annuity with respect to the alternate payee
and his subsequent spouse). Payment of benefits before Termination of
Employment solely by reason of payments to an alternate payee under a qualified
domestic relations order shall not be deemed to be a violation of Code Section
401(a) or (k). Notwithstanding any other provision of this Plan, payments to an
alternate payee pursuant to a qualified domestic relations order may be made at
any time prescribed by such order without violating the terms of this Plan or
the Code.
[c] Definitions:
-----------
[1] "Alternate payee" means any spouse, former spouse, child, or other
dependent of a Participant who is recognized by a qualified domestic relations
order as having a right to receive all, or a portion of, the benefits payable
under a Plan with respect to such Participant.
[2] "Earliest retirement age" means the earliest of the date on which the
Participant's Account becomes distributable or the date the Participant attains
age 50.
7.5 OTHER RULES FOR DISTRIBUTION OF FUND: Notwithstanding any other provision
------------------------------------
in this Plan, any vested Account which becomes distributable for any reason
shall be distributed pursuant to section 7.2; provided that no amount (taking
into consideration both Employer and Participant contributions) may be
distributed to a Participant prior to the later of Normal Retirement Age or age
62 unless the amount is distributed in a lump sum of $3,500 or less or the
Participant consents to the distribution. Notwithstanding any other provisions
of this Plan, the following distribution rules shall apply:
[a] Before Death: The entire Account of each Participant will be distributed
------------
to him not later than the required beginning date.
[b] After Death: If a Participant dies before distribution of the
-----------
Participant's Account has been made, the total vested Account balance of the
Participant shall be distributed within five
-31-
<PAGE>
years after the death of the Participant. If the designated Beneficiary is the
surviving spouse of the Participant, the date on which the distributions are
required shall not be earlier than the date on which the Participant would have
attained age 70-1/2, and if the surviving spouse dies before the distribution to
such spouse, distributions shall be made as if the surviving spouse were the
Participant.
[c] Required Beginning Date: Required beginning date means April 1 of the
-----------------------
calendar year following the calendar year in which the Participant attains age
70-1/2.
[d] Designated Beneficiary: Designated Beneficiary means any individual
----------------------
designated as a Beneficiary by the Participant.
[e] Treatment Of Payments To Children: Under regulations prescribed by the
---------------------------------
Secretary of Treasury, any amount paid to a child shall be treated as if it had
been paid to the surviving spouse if such amount will become payable to the
surviving spouse upon such child reaching majority (or such other designated
event permitted under regulations).
[f] Spouse, Trust For Benefit Of Spouse, Or Estate As Beneficiary: If
------------------------------------------------- -----------
distribution prior to a Participant's death has not commenced and if the
Participant designates his spouse, a trust for the benefit of his spouse, or his
estate as his Beneficiary, the provisions of this paragraph shall apply (subject
to the limitations in this section):
[1] Spouse As Beneficiary: If a Participant designates his spouse as his
---------------------
Beneficiary, upon the death of the Participant the spouse shall receive the
entire Account of the Participant in a lump sum distribution.
[2] QTIP Trust As Beneficiary: If a Participant designates as his
-------------------------
Beneficiary a qualified terminable interest property (QTIP) trust for the
benefit of his spouse, upon the death of the Participant the Trustee of the QTIP
trust shall receive the entire Account of the Participant in a lump sum
distribution.
[3] General Power Of Appointment Trust As Beneficiary: If the Participant
-------------------------------------------------
designates as his Beneficiary a trust over which his spouse has a general power
of appointment, upon the death of the Participant the spouse shall receive the
entire Account of the Participant in a lump sum distribution.
[4] Estate As Beneficiary: If the Participant designates his estate as
---------------------
his Beneficiary with a specific bequest of his income in respect of decedent to
his spouse, upon the death of the Participant the personal representative of the
Participant (or the successor of the personal representative) shall receive the
entire Account of the Participant in a lump sum distribution.
7.6 WITHDRAWALS:
-----------
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<PAGE>
[a] Employer Contributions: A Participant may withdraw all or any part of his
----------------------
or her Account attributable to Employer contributions, including any earnings,
losses, and changes in fair market value of such contributions, upon attaining
age 59 1/2, but only if the Participant is 100% vested in his or her total
Account balance. Such withdrawal upon attaining age 59 1/2 may be made only
once in each Plan Year and such withdrawal upon age 59 1/2 may be made without
any suspension of Plan participation as a result of such withdrawal.
[b] Voluntary Contributions: A Participant may request withdrawal of all or
-----------------------
any part of his or her Account attributable to voluntary after-tax contributions
effective at the end of any Plan quarter and such withdrawal will be distributed
within a reasonable period of time after the end of the Plan quarter if the
Participant files a written request with the Plan Committee at least two weeks
before the end of the Plan quarter. In the event the withdrawal is a result of
a serious financial hardship, as defined in section 7.6[c][1] below, the Plan
Committee, in its discretion, may direct that such withdrawal be made prior to
the end of the Plan quarter. A Participant who has not attained age 59 1/2 and
who makes withdrawal of any portion of his or her voluntary after-tax
contributions under this paragraph [b], including any hardship withdrawal, may
not again contribute to the Trust Fund under section 4.1 until the first
calendar quarter commencing six months after the withdrawal is made, but such
Participant shall receive an allocation of Employer contributions for the
calendar quarter of his or her withdrawal date. Any expenses attributable to
any withdrawal under this section 7.6[b] may be charged to the Account of the
Participant requesting the withdrawal. Vested benefits under the Plan may not
be forfeited because a Participant withdraws his or her voluntary after-tax
contributions.
[c] Salary Reductions: Salary reduction contributions may be withdrawn in the
-----------------
following circumstances:
[1] A Participant may withdraw his or her salary reduction contributions
to this Plan, excluding any earnings on such contributions, upon serious
financial hardship. Serious financial hardship means an immediate and heavy
financial need of the Participant on account of medical expenses of the
Participant or the Participant's dependents, the purchase or preservation from
foreclosure of the Participant's principal residence (excluding normal mortgage
payments), the prevention of the eviction of the Participant from his or her
principal residence, the payment of the next twelve months of post-secondary
tuition and related educational expenses for the Participant or the
Participant's dependents, or the occurrence of any other event deemed by the
Secretary of the Treasury to create an immediate and heavy financial need under
Income Tax Regulation Section 1.401(k)-1(d)(2)(iv)(C). No other event shall be
considered a serious financial hardship under the terms of the Plan. A hardship
distribution cannot exceed the amount required to meet the immediate financial
need and cannot be reasonably available to the Participant from other resources,
including insurance reimbursement, reasonable asset liquidation, cessation of
Participant contributions to this Plan, or borrowing from commercial sources on
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<PAGE>
reasonable terms. The Company adopts the deemed hardship standards of Income
Tax Regulation Sections 1.401(k)-1(d)(2)(iv), as described above, as the sole
means of hardship withdrawal of salary reduction contributions. If the Plan
Committee determines in accordance with a uniform and nondiscriminatory policy
that serious financial hardship exists, it may direct the Trustee to distribute
the amount requested to the Participant. A Participant who makes a hardship
withdrawal under this section may not contribute to the Trust Fund under section
4.1 until the first calendar quarter commencing twelve months after such
hardship withdrawal, but shall receive an allocation of Employer contributions
for the calendar quarter of his or her withdrawal date. A Participant who makes
a hardship withdrawal in a Plan Year under this section may not make salary
reduction contributions in the next succeeding year in excess of the maximum
deferral amounts provided in section 4.11[a] less the salary reductions made in
the year of the hardship withdrawal. Any expenses attributable to the hardship
withdrawal may be charged to the Account of the Participant requesting the
withdrawal. A Participant requesting a hardship withdrawal under this paragraph
[1] may elect to receive such withdrawal in cash. In the event of a cash
withdrawal election, the Plan Committee will direct the Trustee to sell the
number of shares attributable to the Participant's salary reduction
contributions that will satisfy the hardship withdrawal and the Participant will
receive the cash proceeds from such sale as a hardship withdrawal.
[2] A Participant may withdraw all or any part of his or her salary
reduction contributions, including any earnings, losses, and changes in fair
market value of such contributions, upon attaining age 59 1/2, but only if the
Participant is 100% vested in his or her total Account balance. Such withdrawal
upon attaining age 59 1/2 will be distributed as of the end of any Plan quarter
if a request to receive the withdrawal is filed with the Plan Committee at least
two weeks prior to the end of the Plan quarter. A withdrawal upon attaining age
59 1/2 may be made only once in each Plan Year and such withdrawal upon age 59
1/2 may be made without any suspension of Plan participation as a result of such
withdrawal.
[d] Withdrawals From Other Plans: Any withdrawal from any Plan maintained by
----------------------------
any Company which is a member of a group of corporations or trades or businesses
under common control with the Company will be deemed to be a withdrawal from
this Plan for purposes of applying the withdrawal limitations and suspension of
Plan participation provisions of this section 7.6. Common control will be
determined pursuant to Code Section 414(b) and the regulations thereunder.
7.7 ELIGIBLE ROLLOVER DISTRIBUTIONS:
-------------------------------
[a] General Rule: Notwithstanding any provision of the Plan to the contrary
------------
that otherwise would limit a Participant's distribution election under this
Article, a Participant may elect,
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<PAGE>
at the time and in the manner prescribed by the Plan Committee, to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement Plan specified by the Participant in a direct rollover.
[b] Limitations on Direct Rollover Distributions: This Plan will not be
--------------------------------------------
required to make any direct rollover distribution if the total amount to be
distributed to the Participant during the Plan Year is less than $200. If the
amount of the distribution is $500 or less, any direct rollover distribution
must consist of the entire distribution amount. The Participant may elect only
one eligible retirement Plan to which a direct rollover distribution will be
made.
[c] Definitions:
-----------
[1] An "eligible rollover distribution" is any distribution of all or any
portion of the balance to the credit of the Participant, except that an eligible
rollover distribution does not include [A] any distribution that is one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the distributee's
designated Beneficiary, or for a specified period of ten years or more; [B] any
distribution to the extent such distribution is required under Code Section
401(a)(9); and [C] the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for net unrealized
appreciation with respect to Employer securities).
[2] An "eligible retirement Plan" is an individual retirement Account
described in Code Section 408(a), an individual retirement annuity described in
Code Section 408(b), an annuity Plan described in Code Section 403(a), or a
qualified trust described in Code Section 401(a), that accepts the distributee's
eligible rollover distribution. However, in the case of an eligible rollover
distribution to a surviving spouse, an eligible retirement Plan is an individual
retirement Account or individual retirement annuity.
[3] A "distributee" includes a Participant or former Participant. In
addition, the Participant's or former Participant's surviving spouse and the
Participant's or former Participant's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in Code
Section 414(p), are distributees with regard to the interest of the spouse or
former spouse.
[4] A "direct rollover" is a payment by the Plan to the eligible
retirement Plan specified by the distributee.
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<PAGE>
ARTICLE VIII
FIDUCIARY OBLIGATIONS
---------------------
8.1 GENERAL FIDUCIARY DUTIES: A Fiduciary shall discharge his duties under the
------------------------
Plan solely in the interest of the Participants and the Beneficiaries and for
the exclusive purpose of providing benefits to Participants and to their
Beneficiaries and defraying reasonable expenses of administering the Plan. All
fiduciaries shall act with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims. Except as authorized by regulations of the
Secretary of Labor, no Fiduciary may maintain the indicia of ownership of any
assets of the Plan outside the jurisdiction of the district courts of the United
States. A Fiduciary shall act in accordance with the documents and instruments
governing the Plan to the extent such documents and instruments are consistent
with the requirements of law.
8.2 ALLOCATION OF FIDUCIARY RESPONSIBILITY: A Named Fiduciary may designate
--------------------------------------
persons other than named fiduciaries to carry out Fiduciary responsibilities
(other than Trustee responsibilities) under the plan.
8.3 LIABILITY OF FIDUCIARIES:
------------------------
[a] Extent Of Liability: A Fiduciary who breaches any of the responsibilities,
-------------------
obligations, or duties imposed upon him by this plan or by the requirements of
law shall be personally liable only [1] to make good to the plan any losses
resulting from his breach [2] to restore to the plan any profits the Fiduciary
has made through the use of plan assets for his personal Account, and [3] to pay
those penalties prescribed by law arising from his breach. A Fiduciary shall be
subject to such other equitable or remedial relief as a court of law may deem
appropriate, including removal of the Fiduciary. A Fiduciary also may be
removed for a violation of section 8.8 (prohibition against certain persons
holding certain positions). No Fiduciary shall be liable with respect to the
breach of a Fiduciary duty if such breach was committed before he became a
Fiduciary or after he ceased to be a Fiduciary.
[b] Liability Of Fiduciary For Breach By Co-Fiduciary: A Fiduciary shall be
-------------------------------------------------
liable for a breach of Fiduciary responsibility of another Fiduciary of this
plan, only if he [1] participates knowingly in, or knowingly undertakes to
conceal, an act or omission of the other Fiduciary, and knows such act or
omission by the other Fiduciary is a breach of the other Fiduciary's duties, [2]
enables another Fiduciary to commit a breach, by his failure to comply with
section 8.1 in the administration of the specific responsibilities which give
rise to his status as a Fiduciary, or [3] has knowledge of a breach of another
Fiduciary and does not make reasonable efforts under the circumstances to remedy
the breach.
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<PAGE>
[c] Liability For Improper Delegation Of Fiduciary Responsibility: A Named
-------------------------------------------------------------
Fiduciary who allocates any of his Fiduciary responsibilities to any person or
designates any person to carry out any of his Fiduciary responsibilities shall
be liable for the act or omission of such person in carrying out the
responsibility only to the extent that the Named Fiduciary fails to satisfy his
general Fiduciary duties of section 8.1 with respect to the allocation or
designation, with respect to the establishment or implementation of the
procedure by which he allocates the responsibilities, or in continuing the
allocation or designation. Nothing in this paragraph shall prevent a Named
Fiduciary from being liable if he otherwise would be liable for an act or
omission under paragraph [b].
[d] Fiduciary To Whom Responsibilities Are Allocated: Any person who has been
------------------------------------------------
designated to carry out Fiduciary responsibilities under section 8.2 shall be
liable for such responsibilities under this section to the same extent as any
Named Fiduciary.
[e] Liability Insurance And Indemnification: Nothing in this plan shall
---------------------------------------
preclude a Fiduciary from purchasing insurance to cover liability from and for
his own Account. The Company may purchase insurance to cover potential
liability of those persons who serve in a Fiduciary capacity with regard to the
plan or may indemnify a Fiduciary against liability and expenses reasonably
incurred by him in connection with any action to which such Fiduciary may be
made a party by reason of his being or having been a Fiduciary.
8.4 PROHIBITED TRANSACTIONS: No Fiduciary shall cause the plan to engage in a
-----------------------
transaction if the Fiduciary knows or should know that the transaction
constitutes a prohibited transaction under law. No disqualified person under
law (other than a Fiduciary acting only as such) shall engage in a prohibited
transaction as prescribed by law.
8.5 RECEIPTS OF BENEFITS BY FIDUCIARIES: Nothing shall prohibit any Fiduciary
-----------------------------------
from receiving any benefit to which he may be entitled as a Participant or
Beneficiary in the plan, if such benefit is computed and paid on a basis which
is consistent with the terms of the plan as applied to all other Participants
and Beneficiaries. The determination of any matters affecting the payment of
benefits to any Fiduciary other than the Plan Committee shall be determined by
the Plan Committee. If the Plan Committee is an individual, the determination of
any matters affecting the payment of benefits to the Plan Committee shall be
made by a temporary Plan Committee who shall be appointed by the Board of
Directors for such purpose. If the Plan Committee is a group of individuals,
the determination of any matters affecting the payment of benefits to any
individual Plan Committee member shall be made by the remaining Plan Committee
members without the vote of such individual Plan Committee member. If the
remaining Plan Committee members are unable to agree on any matter affecting the
payment of such benefits, the Board of Directors shall appoint a temporary Plan
Committee to decide the matter.
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<PAGE>
8.6 COMPENSATION AND EXPENSES OF FIDUCIARIES:
----------------------------------------
[a] General Rules: A Fiduciary shall be entitled to receive any reasonable
-------------
Compensation for services rendered or for the reimbursement of expenses properly
and actually incurred in the performance of his duties under the plan. However,
no Fiduciary who already receives full-time pay from an Employer shall receive
Compensation from the plan, except for reimbursement of expenses properly and
actually incurred. All Compensation and expenses shall be paid by the plan,
unless the Company, in its discretion, elects to pay all or any part of such
Compensation and expenses. In its discretion, the Plan Committee may direct
that all such Compensation and expenses be paid from forfeitures under the plan
or from general plan assets.
[b] Compensation Of Plan Committee And Plan Administrator: A Plan Administrator
-----------------------------------------------------
who is not a full-time Employee of an Employer shall be entitled to such
reasonable Compensation as the Plan Committee and the Plan Administrator
mutually shall determine. A Plan Committee member who is not a full-time
Employee of an Employer shall be entitled to such reasonable Compensation as the
Company and the Plan Committee mutually shall determine. Any expenses properly
and actually incurred by the Plan Committee or the Plan Administrator due to a
request by a Participant shall be charged to the Account of the Participant on
whose behalf such expenses are incurred.
[c] Compensation Of Trustee: A Trustee who is not a full-time Employee of an
-----------------------
Employer shall be entitled to such reasonable Compensation for its services as
the Plan Committee and the Trustee mutually shall determine.
[d] Compensation Of Persons Retained Or Employed By Named Fiduciary: The
---------------------------------------------------------------
Compensation of all agents, counsel, or other persons retained or employed by a
Named Fiduciary shall be determined by the Named Fiduciary employing such
person, with the Plan Committee's approval, provided that a person who is a
full-time Employee of an Employer shall receive no Compensation from the plan.
8.7 SERVICE BY FIDUCIARIES AND DISQUALIFIED PERSONS: Nothing in this plan
-----------------------------------------------
shall prohibit anyone from serving as a Fiduciary in addition to being an
officer, Employee, agent, or other representative of a disqualified person as
defined in the Code.
8.8 PROHIBITION AGAINST CERTAIN PERSONS HOLDING CERTAIN POSITIONS: No person
-------------------------------------------------------------
who has been convicted of a felony shall be permitted to serve as an
administrator, Fiduciary, officer, Trustee, custodian, counsel, agent, or
Employee of this plan, or as a consultant to this plan, unless permitted under
law. The Plan Committee shall ascertain to the extent practical that no
violation of this section occurs. In any event, no person knowingly shall
permit any other person to serve in any capacity which would violate this
section.
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<PAGE>
ARTICLE IX
PLAN ADMINISTRATOR AND PLAN COMMITTEE
-------------------------------------
9.1 APPOINTMENT OF PLAN ADMINISTRATOR AND PLAN COMMITTEE: The Board of
----------------------------------------------------
Directors by resolution shall appoint a Plan Administrator and Plan Committee,
both of whom shall hold office until resignation, death, or removal by the Board
of Directors. If the Board of Directors fails to appoint the Plan Committee or
Plan Administrator, or both, the Board of Directors shall be the Plan Committee,
the Plan Administrator, or both. Any person may serve in more than one
Fiduciary capacity, including service as Plan Administrator and Plan Committee
member. Any group of persons appointed by the Board of Directors may serve in
the capacity of Plan Committee, Plan Administrator, or both.
9.2 ORGANIZATION AND OPERATION OF OFFICES OF PLAN ADMINISTRATOR AND PLAN
--------------------------------------------------------------------
COMMITTEE: The Plan Administrator and Plan Committee may adopt such procedures
- ---------
as each deems desirable for the conduct of his respective affairs and may
appoint or employ a secretary or other agents, any of whom may be, but need not
be, an officer or Employee of the Company or any Associated Company. Any agent
may be removed at any time by the person appointing or employing him.
9.3 INFORMATION TO BE MADE AVAILABLE TO PLAN COMMITTEE AND PLAN ADMINISTRATOR:
-------------------------------------------------------------------------
To enable the Plan Committee and the Plan Administrator to perform all of their
respective duties under the plan, each Employer shall provide the Plan Committee
and the Plan Administrator with access to the following information for each
Employee: [a] name and address, [b] social security number, [c] birthdate, [d]
dates of commencement and Termination of Employment, [e] reason for Termination
of Employment, [f] hours worked during each year,[g] annual Compensation, [h]
Employer contributions, and such other information as the Plan Committee or the
Plan Administrator may require. To the extent the information is available in
Employer records, an Employer shall provide the Plan Committee and Plan
Administrator with access to information relating to each Employee's Participant
contributions, benefits received under the plan, and marital status. If such
information is not available from the Employer records, the Plan Committee shall
obtain such information from the Participants. The Plan Committee, the Plan
Administrator and the Employer may rely on and shall not be liable because of
any information which an Employee provides, either directly or indirectly. As
soon as possible following any Participant's death, Total Disability,
retirement, or other Termination of Employment, his Employer shall certify in
writing to the Plan Committee and Plan Administrator such Participant's name and
the date and reason for his Termination of Employment.
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<PAGE>
9.4 RESIGNATION AND REMOVAL OF PLAN ADMINISTRATOR OR PLAN COMMITTEE MEMBER;
-----------------------------------------------------------------------
APPOINTMENT OF SUCCESSORS: Any Plan Administrator or Plan Committee member may
- -------------------------
resign at any time by giving written notice to the Board of Directors, effective
as stated in such notice, otherwise upon receipt of such notice. At any time
the Plan Administrator or any Plan Committee member may be removed by the Board
of Directors without cause. As soon as practical, following the death,
resignation, or removal of any Plan Administrator or Plan Committee member, the
Board of Directors shall appoint a successor by resolution. Written notice of
the appointment of a successor Plan Administrator or successor Plan Committee
member shall be given by the Company to the Trustee. Until receipt by the
Trustee of such written notice, the Trustee shall not be charged with knowledge
or notice of such change.
9.5 DUTIES AND POWERS OF PLAN ADMINISTRATOR--REPORTING AND DISCLOSURE:
-----------------------------------------------------------------
[a] General Requirements: The Plan Administrator shall be responsible for all
--------------------
applicable reporting and disclosure requirements of law. The Plan Administrator
shall prepare, file with the Secretary of Labor, the Secretary of the Treasury,
or the Pension Benefit Guaranty Corporation, when applicable, and furnish to
plan Participants and Beneficiaries, when applicable, the following:
[1] summary plan description;
[2] description of modifications and changes;
[3] annual report;
[4] terminal and supplementary reports;
[5] registration statement; and
[6] any other return, report, or document required by law.
[b] Statement Of Benefits Accrued And Vested: The Plan Administrator is to
----------------------------------------
furnish any plan Participant or Beneficiary who so requests in writing, a
statement indicating, on the basis of the latest available information, the
total benefits accrued and the vested benefits, if any, which have accrued, or
the earliest date on which benefits will become vested. The Plan Administrator
shall furnish a written statement to any Participant who terminates employment
during the Plan Year and is entitled to a deferred vested benefit under the Plan
as of the end of the Plan Year, if no retirement benefits have been paid with
respect to such Participant during the Plan Year. The statement shall be an
individual statement and shall contain the information required in the annual
registration statement which the Plan Administrator is required to file with the
Secretary of the Treasury. The Plan Administrator
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<PAGE>
shall furnish the individual statement to the Participant before the expiration
of the time prescribed for filing the annual registration statement with the
Secretary of the Treasury.
[c] Inspection Of Documents: The Plan Administrator is to make available for
-----------------------
inspection copies of the Plan description and the latest annual report and the
agreements under which the Plan was established or is operated. Such documents
shall be available for examination by any Participant or Beneficiary in the
principal office of the Plan Administrator and in such other places as may be
necessary to make available all pertinent information to all Participants. Upon
written request by any Participant or Beneficiary, the Plan Administrator is to
furnish a copy of the latest updated summary Plan description, Plan description,
and the latest annual report, any terminal report, and any agreements under
which the Plan is established or operated. In addition, the Plan Administrator
is to comply with every other requirement imposed on him by law.
[d] Employment Of Advisers And Persons To Carry Out Responsibilities: The Plan
----------------------------------------------------------------
Administrator may appoint one or more persons to render advice with regard to
any responsibility the Plan Administrator has under the Plan and may employ one
or more persons (other than a Named Fiduciary) to carry out any of his
responsibilities under the Plan.
9.6 DUTIES AND POWERS OF PLAN COMMITTEE--IN GENERAL: The Plan Committee shall
-----------------------------------------------
decide all questions arising in the administration, interpretation, and
application of the Plan and Trust, including all questions relating to
eligibility, vesting, and distribution, except as may be reserved under this
Plan to the Company, its Board of Directors or any Associated Company. The Plan
Committee may designate any person (other than the Plan Administrator or
Trustee) to carry out any of the Plan Committee's Fiduciary responsibilities
under the Plan (other than a Trustee Responsibility) and may appoint one or more
persons to render advice with regard to any responsibility the Plan Committee
has under the Plan. The Plan Committee from time to time shall direct the
Trustee concerning the payments to be made out of the Trust Fund pursuant to
this Plan. All notices, directions, information, and other communications from
the Plan Committee shall be in writing.
9.7 DUTIES AND POWERS OF PLAN COMMITTEE--KEEPING OF RECORDS: The Plan
-------------------------------------------------------
Committee shall keep a record of all the Plan Committee's proceedings and shall
keep all such books of Account, records, and other data as may be necessary or
advisable in its judgment for the administration of this Plan and Trust,
including records to reflect the affairs of this Plan, to determine the amount
of vested and/or forfeitable interests of the respective Participants in the
Trust Fund, and to determine the amount of all benefits payable under this Plan.
The Plan Committee shall maintain separate Accounts for each Participant as
provided under section 5.1. Subject to the requirements of law, any person
dealing with the Plan Committee may rely on, and shall incur no liability in
relying on, a certificate or memorandum in writing signed by the Plan Committee
as evidence of any action taken or resolution adopted by the Plan Committee.
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<PAGE>
9.8 DUTIES AND POWERS OF PLAN COMMITTEE--CLAIMS PROCEDURE:
-----------------------------------------------------
[a] Filing And Initial Determination Of Claim: Any Participant, Beneficiary or
-----------------------------------------
his duly authorized representative may file a claim for a Plan benefit to which
the claimant believes that he is entitled. Such a claim must be in writing and
delivered to the Plan Committee in person or by certified mail, postage prepaid.
Within 90 days after receipt of such claim, the Plan Committee shall send to the
claimant by certified mail, postage prepaid, notice of the granting or denying,
in whole or in part, of such claim unless special circumstances require an
extension of time for processing the claim. In no event may the extension
exceed 90 days from the end of the initial period. If such extension is
necessary the claimant will receive a written notice to this effect prior to the
expiration of the initial 90-day period. The Plan Committee shall have full
discretion pursuant to the Plan to deny or grant a claim in whole or in part.
If notice of the denial of a claim is not furnished in accordance with this
paragraph [a], the claim shall be deemed denied and the claimant shall be
permitted to exercise his right of review pursuant to paragraphs [c] and [d] of
this section.
[b] Duty Of Plan Committee Upon Denial Of Claim: The Plan Committee shall
-------------------------------------------
provide to every claimant who is denied a claim for benefits written notice
setting forth in a manner calculated to be understood by the claimant:
[1] the specific reason or reasons for the denial;
[2] specific reference to pertinent Plan provisions on which the denial is
based;
[3] a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such material is
necessary; and
[4] an explanation of the Plan's claim review procedure.
[c] Request For Review Of Claim Denial: Within 60 days after receipt by the
----------------------------------
claimant of written notification of the denial in whole or in part of his claim,
the claimant or his duly authorized representative, upon written application to
the Plan Committee in person or by certified mail, postage prepaid, may request
a review of such denial, may review pertinent documents and may submit issues
and comments in writing. Upon its receipt of the request for review, the Plan
Committee shall notify the Board of Directors of the request.
[d] Claims Reviewer: Upon its receipt of notice of a request for review, the
---------------
Board of Directors shall appoint a person other than a Plan Committee member to
be the claims reviewer. The Plan Committee shall deliver to the claims reviewer
all documents submitted by the claimant and all other documents pertinent to the
review. The claims reviewer shall make a prompt decision on the review. The
decision on review shall be written in a manner calculated to be understood by
the claimant, and shall include specific reasons for the decision and specific
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<PAGE>
references to the pertinent Plan provisions on which the decision is based. The
decision on review shall be made not later than 60 days after the Plan
Committee's receipt of a request for a review, unless special circumstances
require an extension of time for processing, in which case a decision shall be
rendered not later than 120 days after receipt of a request for review. If such
extension is necessary the claimant shall be given written notice of the
extension prior to the expiration of the initial 60-day period. If notice of the
decision on review is not furnished in accordance with this paragraph [d], the
claim shall be deemed denied and the claimant shall be permitted to exercise his
right to legal remedy pursuant to paragraph [e] of this section.
[e] Legal Remedy: After exhaustion of the claims procedure as provided under
------------
this Plan, nothing shall prevent any person from pursuing any other legal
remedy.
9.9 DUTIES AND POWERS OF PLAN COMMITTEE--FUNDING POLICY: The policy of each
---------------------------------------------------
Employer is that this Plan shall be funded with Employer contributions and
Participant contributions. The Plan Committee shall determine the Plan's short-
run and long-run financial needs and regularly communicate these requirements to
the appropriate persons. The Plan Committee will determine whether the Plan has
a short-run need for liquidity, (e.g., to pay benefits) or whether liquidity is
----
a long-run goal and investment growth is a more current need. The Plan
Committee shall communicate such information to the Trustee so that investment
policy can be coordinated appropriately with Plan needs.
9.10 DUTIES AND POWERS OF PLAN COMMITTEE--BONDING OF FIDUCIARIES AND PLAN
--------------------------------------------------------------------
OFFICIALS: The Plan Committee shall procure bonds for every Fiduciary of the
- ---------
Plan and every Plan Official, if he handles funds of the Plan, in an amount not
less than 10% of the amount of funds handled and in no event less than $1,000,
except the Plan Committee shall not be required to procure such bonds if:
[a] the person is excepted from the bonding requirement by law, or
[b] the Secretary of Labor exempts the Plan from the bonding requirements.
The bonds shall conform to the requirements of law.
9.11 DUTIES AND POWERS OF PLAN COMMITTEE--QUALIFIED DOMESTIC RELATIONS ORDERS:
------------------------------------------------------------------------
The Plan Committee shall establish reasonable procedures for determining the
qualification status of a domestic relations order. Such procedures:
[a] shall be in writing;
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<PAGE>
[b] shall provide to each person specified in a domestic relations order as
entitled to payment of Plan benefits notification of such procedures promptly
upon receipt by the Plan of the order; and
[c] shall permit an alternate payee to designate a representative for receipt
of copies of notices that are sent to the alternate payee.
Within a reasonable period of time after receipt of such order, the Plan
Committee shall determine whether such order is a qualified domestic relations
order and notify the Participant and each alternate payee of such determination.
During any period in which the issue of whether a qualified domestic relations
order is a qualified domestic relations order is being determined, the Plan
Committee shall segregate in a separate Account the amounts which would have
been payable to the alternate payee during such period if the order had been
determined to be a qualified domestic relations order. If, within 18 months the
order is determined not to be a qualified domestic relations order or the issue
as to whether such order is a qualified domestic relations order is not
resolved, then the Plan Committee shall pay under the terms of the Plan the
segregated amounts to the person or persons who would have been entitled to such
amounts if there had been no order. If a Plan Fiduciary acts in accordance with
the Fiduciary responsibility provisions of ERISA, then the Plan's obligation to
the Participant and each alternate payee shall be discharged to the extent of
any payment made.
9.12 ADVICE TO DESIGNATED FIDUCIARIES: Any Fiduciary designated by the Plan
--------------------------------
Committee or Plan Administrator may appoint with the consent of the Plan
Committee or Plan Administrator, respectively, one or more persons to render
advice with regard to any responsibility such designated Fiduciary has under the
Plan.
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<PAGE>
ARTICLE X
POWERS AND DUTIES OF THE TRUSTEE
--------------------------------
10.1 INVESTMENT OF TRUST FUND:
------------------------
[a] Duties of Trustee: The duty of the Trustee is to hold in trust the funds
-----------------
it receives. The Trustee shall have exclusive authority and discretion to
manage and control the assets of the Plan and to manage, invest, and reinvest
the Trust Fund and the income from it under this article, without distinction
between principal and income, and shall be responsible only for such sums that
it actually receives as Trustee. The Trustee shall have no duty to collect any
sums from the Plan Committee.
[b] Powers of Trustee: The Trustee shall apply the funds it receives primarily
-----------------
to purchase shares of Qualifying Employer Securities, and the Trustee may invest
in Qualifying Employer Securities, up to 100% of the value of Plan assets,
without regard to the diversification requirement or the prudence requirement to
the extent it requires diversification. Purchases of stock may be made by the
Trustee in the open market or by private purchase, or, if available, from the
Company, or as the Trustee may determine in its sole discretion, provided only
that no private purchase or purchase from the Company may be made at a price
greater than the current market price for Qualifying Employer Securities on the
day of such purchase. The Trustee also may purchase stock from Participants who
receive distributions from this trust, provided that all such purchases shall be
made at the current market price on the day of such purchase. The Trustee also
shall have the power to invest and/or reinvest any and all money or property of
any description at any time held by it and constituting a part of the Trust
Fund, without previous application to, or subsequent ratification of, any court,
tribunal, or commission, or any federal or state governmental agency and may
invest in real property and all interests in real property, in bonds, notes,
debentures, mortgages, commercial paper, preferred stocks, common stocks, or
other securities, rights, obligations, or property, real or personal, including
shares or certificates of participation issued by regulated investment companies
or regulated investment trusts, shares or units of participation in qualified
common Trust Funds, in qualified pooled funds, or in pooled investment funds of
an insurance company qualified to do business in the state. If the Trustee is a
bank or similar financial institution supervised by the United States or a
state, it may invest Plan assets in its own deposits (savings Accounts and
certificates of deposit) if such deposits bear a reasonable rate of interest.
[c] Diversification and Prudence Requirements: Except to the extent the
-----------------------------------------
Trustee invests in the Qualifying Employer Securities, the Trustee shall
diversify the investments of the Plan to minimize the risk of large losses,
unless under the circumstances it is clearly prudent not to do so. The Trustee
shall act with the care skill, prudence, and diligence under the
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<PAGE>
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims.
10.2 ADMINISTRATIVE POWERS OF THE TRUSTEE: Subject to the requirements imposed
------------------------------------
by law, the Trustee shall have all powers necessary or advisable to carry out
the provisions of this Plan and Trust and all inherent, implied, and statutory
powers now or subsequently provided by law, including specifically the power to
do any of the following:
[a] to cause any securities or other property to be registered and held in its
name as Trustee, or in the name of one or more of its nominees, without
disclosing the Fiduciary capacity, or to keep the same in unregistered form
payable to bearer;
[b] to sell, grant options to sell, exchange, pledge, encumber, mortgage, deed
in trust, or use any other form of hypothecation, or otherwise dispose of the
whole or any part of the Trust Fund on such terms and for such property or cash,
or part cash and credit, as it may deem best; to retain, hold, maintain, or
continue any securities or investments which it may hold as part of the Trust
Fund for such length of time as it may deem advisable; and generally, in all
respects, to do all things and exercise each and every right, power, and
privilege in connection with and in relation to the Trust Fund as could be done,
exercised, or executed by an individual holding and owning such property in
absolute and unconditional ownership;
[c] to abandon, compromise, contest, and arbitrate claims and demands; to
institute, compromise, and defend actions at law (but without obligation to do
so); in connection with such powers, to employ counsel as the Trustee shall deem
advisable and as approved by the Plan Committee; and to exercise such powers all
at the risk and expense of the Trust Fund;
[d] to borrow money for this trust upon such terms and conditions as the
Trustee shall deem advisable, and to secure the repayment of such by the
mortgage or pledge of any assets of the Trust Fund, provided that the Trustee
may not borrow money to purchase Qualifying Employer Securities;
[e] to vote in person or by proxy any shares of stock or rights held in the
Trust Fund as directed by the Plan Committee; to participate in and to exchange
securities or other property in reorganization, liquidation, or dissolution of
any corporation, the securities of which are held in the Trust Fund; and
[f] to pay any amount due on any loan or advance made to the Trust Fund, to
charge against and pay from the Trust Fund all taxes of any nature levied,
assessed, or imposed upon the Trust Fund, and to pay all reasonable expenses and
attorney fees necessarily incurred by the Trustee and approved by the Plan
Committee with respect to any of the foregoing matters.
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<PAGE>
10.3 ADVICE OF COUNSEL: The Trustee may consult with legal counsel, who may be
-----------------
counsel for the Company or any Associated Company, or Trustee's own counsel,
with respect to the meaning or construction of the Plan and Trust or Trustee's
obligations or duties. The Trustee shall be protected from any responsibility
with respect to any action taken or omitted by it in good faith pursuant to the
advice of such counsel, to the extent permitted by law.
10.4 RECORDS AND ACCOUNTS OF THE TRUSTEE: The Trustee shall keep all such
-----------------------------------
records and Accounts which may be necessary in the administration and conduct of
this trust. The Trustee's records and Accounts shall be open to inspection by
the Company, any Associated Company, the Plan Committee, and the Plan
Administrator, at all reasonable times during business hours. All income,
profits, recoveries, contributions, forfeitures, and any and all moneys,
securities, and properties of any kind at any time received or held by the
Trustee shall be held for investment purposes as a commingled Trust Fund.
Separate Accounts or records may be maintained for operational and accounting
purposes, but no such Account or record shall be considered as segregating any
funds or property from any other funds or property contained in the commingled
fund, except as otherwise provided. After the close of each year of the trust,
the Trustee shall render to the Company and the Plan Committee a statement of
assets and liabilities of the Trust Fund for such year.
10.5 APPOINTMENT, RESIGNATION, REMOVAL, AND SUBSTITUTION OF TRUSTEE: The Board
--------------------------------------------------------------
of Directors by resolution shall appoint a Trustee or Trustees, each of which
shall hold office until resignation or removal by the Board of Directors. The
Trustee may resign at any time upon 30 days' written notice to the Company. The
Trustee may be removed at any time by the Company upon written notice to the
Trustee with or without cause. Upon resignation or removal of the Trustee, the
Company, by action of its Board of Directors, shall appoint a successor Trustee
which shall have the same powers and duties as are conferred upon the Trustee
appointed under this Plan. The resigning or removed Trustee shall deliver to
its successor Trustee all property of the Trust Fund, less a reasonable amount
necessary to provide for its Compensation, expenses, and any taxes or advances
chargeable or payable out of the Trust Fund. If the Trustee is an individual,
death shall be treated as a resignation, effective immediately. If any
corporate Trustee at any time shall be merged, or consolidated with, or shall
sell or transfer substantially all of its assets and business to another
corporation, whether state or federal, or shall be reorganized or reincorporated
in any manner, then the resulting or acquiring corporation shall be substituted
for such corporate Trustee without the execution of any instrument and without
any action upon the part of the Company, any Participant or Beneficiary, or any
other person having or claiming to have an interest in the Trust Fund or under
the Plan.
10.6 APPOINTMENT OF TRUSTEE--ACCEPTANCE IN WRITING: The Trustee shall accept
---------------------------------------------
its appointment as soon as practical by executing this Plan or by delivering a
signed document to the Company, a copy of which shall be sent to the Plan
Committee by the Trustee. The Board of Directors shall appoint a new Trustee if
the Trustee fails to accept its appointment in writing.
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<PAGE>
ARTICLE XI
CONTINUANCE, TERMINATION, AND AMENDMENT OF PLAN AND TRUST
---------------------------------------------------------
11.1 TERMINATION OF PLAN: The expectation of each Employer is to continue this
-------------------
Plan indefinitely, but the continuance of the Plan is not assumed as a
contractual obligation by the Employer and the right is reserved to each
Employer, by action of its Board of Directors, to terminate this Plan in whole
or in part at any time. The termination of this Plan by an Employer in no event
shall have the effect of revesting any part of the Trust Fund in the Employer.
The Plan created by execution of this agreement with respect to any Employer
shall be terminated automatically in the event of the dissolution,
consolidation, or merger of such Employer or the sale by such Employer of
substantially all of its assets, if the resulting successor corporation or
business entity shall fail to adopt the Plan and Trust under section 11.3. If
this Plan is disqualified, the Board of Directors of the Company, in its
discretion, may terminate this Plan.
11.2 TERMINATION OF TRUST: The trust created by execution of this agreement
--------------------
shall continue in full force and effect for such time as may be necessary to
accomplish the purposes for which it is created, unless sooner terminated and
discontinued by the Company's Board of Directors. Notice of such termination
shall be given to the Trustee by the Plan Committee in the form of an instrument
in writing executed by the Company pursuant to the action of its Board of
Directors, together with a certified copy of the resolution of the Board of
Directors to that effect. In its discretion the Plan Committee may receive a
favorable determination letter from the Internal Revenue Service stating that
the prior qualified status of the Plan has not been affected by such
termination. Such termination shall take effect as of the date of the delivery
of the notice of termination and favorable determination letter, if obtained, to
the Trustee. The Plan Administrator shall file such terminal reports as are
required in Article IX.
11.3 CONTINUANCE OF PLAN AND TRUST BY SUCCESSOR BUSINESS: With the approval of
---------------------------------------------------
the Company, a successor business may continue this Plan and Trust by proper
action of the proprietor or partners, if not a corporation, and, if a
corporation, by resolution of its Board of Directors, and by executing a proper
supplemental agreement to this Plan and Trust with the Trustee. Within 90 days
from the Effective Date of such dissolution, consolidation, merger, or sale of
assets of a Employer, if such successor business does not adopt and continue
this Plan and Trust, this Plan shall be terminated automatically as of the end
of such 90-day period.
11.4 MERGER, CONSOLIDATION, OR TRANSFER OF ASSETS OR LIABILITIES OF THE PLAN:
-----------------------------------------------------------------------
The Board of Directors of the Company may merge or consolidate this Plan with
any other Plan or may transfer the assets or liabilities of the Plan to any
other Plan if each Participant in the Plan (if the Plan then terminated) would
receive a benefit immediately after the merger,
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<PAGE>
consolidation, or transfer which is equal to or greater than the benefit he
would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had then terminated). If any merger,
consolidation, or transfer of assets or liabilities occurs, the Plan
Administrator shall file such reports as are required in Article IX.
11.5 DISTRIBUTION OF TRUST FUND ON TERMINATION OF TRUST: If the trust is
--------------------------------------------------
terminated under this article, the Trustee shall determine the value of the
Trust Fund and of the respective interests of the Participants and Beneficiaries
under Article V as of the business day next following the date of such
termination. The value of the Account of each respective Participant or
Beneficiary in the Trust Fund shall be vested in its entirety as of the date of
the termination of the Plan. The Trustee then shall transfer to each
Participant or Beneficiary the net balance of the Participant's Account unless
the Plan Committee directs the Trustee to retain the assets and pay them under
the terms of this Plan as if no termination had occurred.
11.6 AMENDMENTS TO PLAN AND TRUST: At any time the Company may amend this Plan
----------------------------
and Trust by action of its Board of Directors, provided that no amendment shall
cause the Trust Fund to be diverted to purposes other than for the exclusive
benefit of the Participants and their Beneficiaries. No amendment shall
decrease the vested interest of any Participant nor shall any amendment increase
the contribution of any Employer or Participant to the Plan. If an amended
vesting schedule is adopted, any Participant who has three or more years of
service at the later of the date the amendment is adopted or becomes effective
and who is disadvantaged by the amendment, may elect to remain under the Plan's
prior vesting schedule. Such election must be made within a period established
by the Plan Committee, in accordance with applicable regulations, and on a form
provided by and delivered to the Plan Committee. No amendment to the Plan
(including a change in the actuarial basis for determining optional benefits)
shall be effective to the extent that it has the effect of decreasing a
Participant's accrued benefit. For purposes of this paragraph, a Plan amendment
that has the effect of [a] eliminating or reducing an early retirement benefit
or a retirement-type subsidy, or [b] eliminating an optional form of benefit,
with respect to benefits attributable to service before the amendment will be
treated as reducing accrued benefits. No amendment shall discriminate in favor
of Employees who are officers, shareholders, or Highly Compensated Employees.
Notwithstanding anything in this Plan and Trust to the contrary, the Plan and
Trust may be amended at any time to conform to the provisions and requirements
of federal and state law with respect to Employees' trusts or any amendments to
such laws or regulations or rulings issued pursuant to them. No such amendment
shall be considered prejudicial to the interest of any Participant or
Beneficiary under this Plan.
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<PAGE>
ARTICLE XII
MISCELLANEOUS
-------------
12.1 BENEFITS TO BE PROVIDED SOLELY FROM THE TRUST FUND: All benefits payable
--------------------------------------------------
under this Plan shall be paid or provided solely from the Trust Fund, and no
Employer assumes liability or responsibility for payment of benefits.
12.2 NOTICES FROM PARTICIPANTS TO BE FILED WITH PLAN COMMITTEE: Whenever
---------------------------------------------------------
provision is made in the Plan that a Participant may exercise any option or
election or designate any Beneficiary, the action of each Participant shall be
evidenced pursuant to procedures promulgated by the Plan Committee. If a form
is furnished by the Plan Committee any for such purpose, a Participant shall
give written notice of his exercise of any option or election or of his
designation of any Beneficiary on the form provided for such purpose. Written
notice shall not be effective until received by the Plan Committee.
12.3 TEXT TO CONTROL: The headings of articles and sections are included
---------------
solely for convenience of reference. If any conflict between any heading and
the text of this Plan and Trust exists, the text shall control.
12.4 SEVERABILITY: If any provision of this Plan and Trust is illegal or
------------
invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions. On the contrary, such remaining provisions shall be fully
severable, and this Plan and Trust shall be construed and enforced as if such
illegal or invalid provisions never had been inserted in the agreement.
12.5 JURISDICTION: This Plan shall be construed and administered under the
------------
laws of the State of Colorado when the laws of that jurisdiction are not in
conflict with federal substantive law.
12.6 PLAN FOR EXCLUSIVE BENEFIT OF PARTICIPANTS; REVERSION PROHIBITED: This
----------------------------------------------------------------
Plan and Trust has been established for the exclusive benefit of the
Participants and their Beneficiaries. Under no circumstances shall any funds
contributed to or held by the Trustee at any time revert to or be used by or
enjoyed by an Employer except to the extent permitted by Article IV.
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<PAGE>
This Plan and Trust has been approved by the Board of Directors of the
Company and is accepted by the Plan Administrator and the Trustees as of the
dates indicated below.
Plan Administrator
Date:
BANK ??
By:
Date:
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EXHIBIT 21.
LIST OF SUBSIDIARIES OF THE COMPANY
1. TCISE Partner 1, Inc.
2. TCISE Partner 2, Inc.
3. Tempo Satellite, Inc.
