<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File Number 0-21317
TCI SATELLITE ENTERTAINMENT, INC.
---------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1299995
- ---------------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
8085 South Chester, Suite 300
Englewood, Colorado 80112
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 712-4600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock, par value $1.00 per share
Series B Common Stock, par value $1.00 per share
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates
of TCI Satellite Entertainment, Inc., computed by reference to the last sales
price of such stock, as of the close of trading on December 31, 1996, was
$614,901,673.
The number of shares outstanding of TCI Satellite Entertainment,
Inc.'s common stock as of December 31, 1996 was:
Series A Common Stock - 57,946,044 shares; and
Series B Common Stock - 8,466,564 shares.
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
1996 ANNUAL REPORT ON FORM 10-K
Table of Contents
Page
----
PART I
Item 1. Business............................................. I-1
Item 2. Properties........................................... I-43
Item 3. Legal Proceedings.................................... I-44
Item 4. Submission of Matters to a Vote of Security Holders.. I-44
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters......................... II-1
Item 6. Selected Financial Data.............................. II-2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. II-3
Item 8. Financial Statements and Supplementary Data.......... II-14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............. II-14
PART III
Item 10. Directors and Executive Officers of the Registrant III-1
Item 11. Executive Compensation.............................. III-4
Item 12. Security Ownership of Certain Beneficial Owners
and Management..................................... III-11
Item 13. Certain Relationships and Related Transactions...... III-16
PART IV
Item 14. Exhibits, Financial Statements and Financial Statement
Schedules, and Reports on Form 8-K................. IV-1
<PAGE>
Item 1. Business.
- ------ --------
(a) General Development of Business
-------------------------------
TCI Satellite Entertainment, Inc. ("TSAT" or the "Company") is a
leading provider of digital satellite-based entertainment programming in the
United States. The company distributes the PRIMESTAR/(R)/ programming service
("PRIMESTAR/(R)/"), a medium power digital satellite service, under the brand
names "PRIMESTAR By TCI" and "PRIMESTAR By TSAT" and owns an aggregate 20.86%
partnership interest in PRIMESTAR Partners L.P. ("PRIMESTAR Partners" or the
"Partnership"), which owns and operates the PRIMESTAR/(R) /service. Through
March 9, 1997, the PRIMESTAR/(R) /service was broadcast from Satcom K-2 ("K-2"),
a medium power satellite that was nearing the end of its operational life.
Since March 10, 1997, the PRIMESTAR/(R) /service has been broadcast from GE-2
("GE-2") a medium power satellite that was launched into the 85(degrees) West
Longitude ("W.L.") orbital position on January 30, 1997. The additional
transponders on GE-2 provide the PRIMESTAR/(R) /service with the capacity to
increase the number of channels of programming to approximately 150, as compared
to 95 under K-2. For additional information, see "Narrative Description of
Business - Company Overview - PRIMESTAR By TSAT."
Through its wholly owned subsidiary, Tempo Satellite, Inc. ("Tempo"), the
Company holds a construction permit issued by the Federal Communications
Commission ("FCC"), authorizing construction of a high power direct broadcast
satellite ("DBS") system consisting of two or more satellites delivering DBS
service in 11 frequencies at the 119(degrees) W.L. orbital position and 11
frequencies at the 166(degrees) W.L. orbital position (the "FCC Permit"). Tempo
is a party to a satellite construction agreement (the "Satellite Construction
Agreement") with Space Systems/Loral, Inc. ("Loral") pursuant to which Tempo
arranged for the construction of two high power direct broadcast satellites (the
"Company Satellites"). On March 8, 1997, one of the Company Satellites ("Tempo
DBS-1") was launched into geosynchronous orbit, to be stationed in Tempo's
119(degrees) W.L. orbital position. Tempo DBS-1 is currently undergoing in-orbit
testing and is expected to begin commercial operations in the second half of
1997. Construction of the other Company Satellite is substantially complete. For
additional information, see "Narrative Description of Business - Company
Overview - High Power Satellites."
I-1
<PAGE>
The Company was formed in connection with the distribution (the
"Distribution") by Tele-Communications, Inc. ("TCI") to certain of its
stockholders of all the issued and outstanding Series A Common Stock, $1.00 par
value per share, of the Company (the "Series A Common Stock"), and Series B
Common Stock, $1.00 par value per share, of the Company (the "Series B Common
Stock" and, together with the Series A Common Stock, the "Company Common
Stock"), to own and operate certain businesses of TCI Communications, Inc.
("TCIC"), a subsidiary of TCI, constituting TCI's collective interests ("TCI
SATCO") in the Digital Satellite Business. As used herein, "Digital Satellite
Business" means the business of distributing programming services directly to
consumers in the U.S. via digital medium or high power satellite, including the
rental and sale of customer premises equipment relating thereto. The
Distribution was made on December 4, 1996 (the "Distribution Date") as a
dividend 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"), other than certain subsidiaries of TCI that
waived such dividend, at the close of business on November 12, 1996 (the "Record
Date"), on the basis of one share of the 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.
References herein to the "Company" may, as the context requires, refer to
(i) TCI SATCO prior to the Distribution Date and (ii) TSAT and its consolidated
subsidiaries on and after the Distribution Date. Additionally, unless the
context indicates otherwise, references herein to "TCI" and "TCIC" are to TCI
and TCIC and their respective consolidated subsidiaries (other than the
Company).
On the Distribution Date, the Company issued 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 (other than interim advances of
$73,786,000 made in connection with the funding of the Company Satellites, which
have since been repaid) was assumed by TCI on the Distribution Date, in part in
the form of a capital contribution to the Company and in part as consideration
for the Company's assumption of TCI's obligations under certain stock options.
The Company and TCI also entered into a number of intercompany agreements in
connection with the Distribution covering, among other things, such matters as
financing, tax sharing, indemnification, services provided by TCI, the use of
the "TCI" name and share purchase rights. For information concerning such
agreements, see "Certain Relationships and Related Transactions" in Part III of
this Report.
TSAT was incorporated in Delaware in November 1996. Prior to the
Distribution, the Company was wholly owned by TCI, which, through various
subsidiaries, was engaged in the business of distributing PRIMESTAR/(R)/ from
December 1990 until the consummation of the Distribution. TSAT's predecessor
was incorporated in February 1995 to consolidate TCI's PRIMESTAR/(R)/
distribution business into one subsidiary, and was merged into TSAT in
connection with the Distribution.
I-2
<PAGE>
Effective as of October 21, 1996, the Company acquired 4.99% of the
issued and outstanding capital stock of ResNet Communications, Inc. ("ResNet").
ResNet was formed by LodgeNet Entertainment Corporation ("LodgeNet") in February
1996 to engage in the business of operating as a ''private cable operator''
under applicable federal law, providing video on demand, basic and premium cable
television programming, and other interactive, multi-media entertainment and
information services to subscribers in multiple dwelling units, with facilities
that do not use any public right-of-way (the "ResNet Business"). ResNet agreed
to purchase from the Company up to $40 million in satellite reception equipment,
to be used in connection with the ResNet Business exclusively, over a five-year
period (subject to a one-year extension at the option of ResNet if ResNet has
not purchased the full $40 million in equipment during the five-year initial
term). The Company also agreed to make a subordinated convertible term loan to
ResNet, the proceeds of which can be used only to purchase such equipment from
the Company. For additional information, see "Narrative Description of Business
- - Company Overview - PRIMESTAR By TSAT - ResNet Transaction."
On December 31, 1996, the Company entered into a senior secured reducing
revolving credit facility (the "Bank Credit Facility") with aggregate
commitments of $750,000,000, subject to the Company's compliance with operating
and financial covenants and other customary conditions. The Company's initial
borrowings under the Bank Credit Facility were used to repay the Company Note.
See note 9 to the financial statements of the Company in Part II of this Report.
On February 20, 1997, the Company issued 10-7/8% Senior Subordinated
Notes due 2007 having an aggregate principal amount of $200,000,000 the ("Senior
Subordinated Notes") and 12-1/4% Senior Subordinated Discount Notes due 2007
having an aggregate principal amount at maturity of $275,000,000 (the "Senior
Subordinated Discount Notes, and together with the Senior Subordinated Notes,
the "Notes"). The issuance of the Notes resulted in aggregate net proceeds to
the Company of approximately $340,500,000, after deducting offering expenses.
The Company initially used $244,404,000 of such net proceeds to repay amounts
outstanding under the Bank Credit Facility and expects to use the remaining net
proceeds to fund capital expenditures and operations and to provide for working
capital and for other general corporate purposes. For additional information,
see note 9 to the financial statements of the Company in Part II of this
Report.
The International Bureau (the "International Bureau") of the FCC has
granted EchoStar Satellite Corporation ("EchoStar") a conditional authorization
to construct, launch and operate a Ku-band domestic fixed satellite into the
orbital position at 83 degrees W.L., immediately adjacent to that occupied by
GE-2, the spacecraft now used to provide the PRIMESTAR/(R)/ service. Contrary to
previous FCC policy, EchoStar was authorized to operate at a power level of 130
watts. If EchoStar were to launch its high power satellite authorized to 83
degrees W.L. and commence operations at that location at a power level of 130
watts, it would likely cause harmful interference to the reception of the
PRIMESTAR/(R)/ signal by subscribers to such service.
Subsequently, GE American Communications, Inc., a subsidiary of General
Electric Corporation ("GE Americom") and PRIMESTAR Partners separately requested
reconsideration of the International Bureau's authorization for EchoStar to
operate at 83 degrees W.L. These requests were opposed by EchoStar and others.
These reconsideration requests currently are pending at the International
Bureau. In addition, GE Americom and PRIMESTAR Partners have attempted to
resolve potential coordination problems directly with EchoStar. It is uncertain
whether any coordination between PRIMESTAR Partners and EchoStar will resolve
such interference. There can be no assurance that the International Bureau will
change slot assignments, or power levels, in a fashion that eliminates the
potential for harmful interference.
The Company and other partners in the Partnership are currently
discussing the possibility of a transaction that would consolidate the business
of PRIMESTAR Partners and each of its authorized distributors into the Company.
Any such transaction would be subject to numerous conditions, including the
negotiation, execution and delivery of definitive documentation, consents from
third parties and regulatory requirements. No agreement has yet been reached
regarding any such transaction and there can be no assurance that any such
transaction will be consummated.
I-3
<PAGE>
Certain statements in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company, or industry results,
to differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors include, among others: general economic and
business conditions and industry trends; the continued strength of the
multichannel video programming distribution industry and the satellite services
industry and the growth of the market for satellite delivered television
programming; uncertainties inherent in proposed business strategies and
development plans, including uncertainties regarding the Company's proposed
"Cable Plus Strategy" described below; future financial performance, including
availability, terms and deployment of capital; the ability of vendors to deliver
required equipment, software and services; product launches; availability of
qualified personnel; changes in, or the failure or the inability to comply with,
government regulation, including, without limitation, regulations of the Federal
Communications Commission, and adverse outcomes from regulatory proceedings;
changes in the nature of key strategic relationships with partners and joint
venturers; competitor responses to 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; and other factors referenced in this
Report. These forward-looking statements speak only as of the date of this
Report. The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
(b) Financial Information about Industry Segments
---------------------------------------------
Not applicable.
I-4
<PAGE>
(c) Narrative Description of Business
---------------------------------
INDUSTRY OVERVIEW
General
- -------
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 ("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. The assigned spectrum is divided into 32
frequency channels, each with a useable bandwidth of 24 megahertz ("MHz"). Such
frequency channels are sometimes referred to as ''transponders'' because each
transponder on a satellite generally transmits on one of such channels. At
standard levels of digital compression technology currently deployed, each
frequency channel can be converted on average into five or more analog channels
of video programming, thereby enabling the digital satellite service operator to
offer a broader variety of programming choices than analog satellite systems.
Advanced compression technologies currently being tested are expected to result
in substantially greater compression ratios. Digital technology enables
subscribers 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 satellite, fiber optics or
microwave transmissions. The digital satellite service operator 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. 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 and
authorized to receive it.
In order to receive programming, a subscriber requires (i) a properly
installed HSD, which includes a dish-shaped antenna, low noise block converter
(''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 pay-per-view
channels.
I-5
<PAGE>
The FCC authorizes two types of satellite services for transmission of
television programming: Broadcast Satellite Service ("BSS"), which operates at
high power in the Ku-band, and Fixed Satellite Service ("FSS"), which includes
medium power services transmitting in the Ku-band, as well as low power analog
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 generally be received by HSDs of approximately 13 1/2 to 18
inches in diameter (depending on the geographical location of the HSD and
wattage per channel), while medium power signals require HSDs of 27 to 39 inches
in diameter (depending on the geographical location of the HSD and wattage per
channel). However, both high power and medium power digital satellite services
provide the same high video and audio quality.
Market for Digital Satellite Services
- --------------------------------------
As of December 31, 1996, there were approximately 4.4 million active
authorized IRD units ("Authorized Units") nationwide. This installed base
represents a nearly 100% increase from the approximately 2.2 million units as of
the end of 1995 and more than eight times the approximately 500,000 units
installed as of the end of 1994. According to industry sources, there are
approximately 98 million television households in the U.S., and it is estimated
that approximately 64 million cable subscribers pay an average of approximately
$33 per month for multichannel programming services. The Company believes that
the potential market in the U.S. for video, audio and data programming services
via satellite 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 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,
(iv) the commercial marketplace, including restaurants, bars, hotels, motels,
multiple dwelling units ("MDUs"), businesses and schools (the "Commercial
Market"), and (v) the approximately 2.2 million low power C-band subscribers who
may desire to migrate to digital service.
PRIMESTAR Partners estimates that, based on the number of Authorized
Units installed, its share of current digital satellite television subscribers
was approximately 39.8% as of December 31, 1996, as compared to an estimated
51.7% share for DirecTv, Inc. ("DirecTv") combined with United States Satellite
Broadcasting Corporation ("USSB"), an estimated 7.9% share for EchoStar and an
estimated 0.6% share for Alphastar, Inc. ("Alphastar"), as of such date.
I-6
<PAGE>
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 21 million households are
in areas served by cable systems with fewer than 40 channels. Cable systems with
sufficient channel capacity (generally 54 or more channels) and good quality
cable plant will not require costly upgrades to add bandwidth or incur
significant maintenance costs in order to offer digital programming services.
The Company believes, however, that based on current compression technology, the
number of channels that a cable system would have to remove from its existing
service offerings in order to use them for digital services may, in the case of
cable systems with limited channel capacity, degrade the value of their analog
programming offering and alienate subscribers. Accordingly, pending the
availability of advanced high compression digital statistical multiplexing
technology now under development, such smaller cable systems will be required to
incur substantial costs to upgrade their plant to expand channel capacity before
they can introduce digital services. 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.
Accordingly, the Company believes that households not passed by cable or served
by cable systems with fewer than 40 channels continue to provide an opportunity
for market growth.
Commercial Market. The Company believes that digital satellite
services are well suited for hotels, motels, bars, MDUs, businesses, schools and
other organizations within the Commercial Market. The Company expects that some
commercial organizations will in the future provide a market for educational,
foreign language, and other niche video and audio programming, as well as data
services, in addition to its wide variety of entertainment, sports, news and
other general programming.
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 that this trend will continue and consumers will desire even
more programming choices than are available through cable television. 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.
I-7
<PAGE>
Business Strategy
- ------------------
The Company's primary objective is to maintain its position in the
market as one of the leading providers of satellite delivered entertainment
programming and to continue to grow its subscriber base. To achieve this
objective, the Company has adopted the following strategy:
Provide High Quality Digital Programming at an Attractive Price. The
Company offers consumers the PRIMESTAR/(R)/ service, which consists of 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 the image and sound quality of the PRIMESTAR/(R)/ service is
superior to that provided by most existing cable systems and wireless cable
providers, which transmit analog signals to their subscribers, and is comparable
to that of other digital satellite television providers, including those using
compression methods based on the MPEG-2 digital compression architecture. 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. In April 1997, PRIMESTAR/(R)/
will increase its channel offerings from 95 video and audio channels to
approximately 150 channel offerings, and will begin offering subscribers in the
majority of the U.S. the opportunity to use HSDs of approximately 27 to 29
inches in diameter, as compared to 36 inches currently. See "PRIMESTAR By TSAT
- -The PRIMESTAR/(R)/ Service."
Continue to Develop and Expand Diverse Distribution Channels. The
Company continues to increase its customer base through its multiple sales and
distribution channels, which include master sales agents and their sub-agents,
direct sales representatives, telemarketing agents, and consumer retail outlets.
The Company also distributes its services on a non-exclusive basis through Radio
Shack, a unit of Tandy Corporation and 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. As of December 31,
1996, PRIMESTAR/(R)/ was available for sale in approximately 2,300 Radio Shack
stores located in the Company's authorized distribution territories, and the
Company estimates that when the arrangement is fully implemented, PRIMESTAR/(R)
/will be available for sale in over 2,500 such stores. The Company supports its
multiple distribution channels with a wide variety of advertising, marketing and
promotional activities. The Company intends to expand on its existing satellite
retailer distribution network and presence with additional consumer electronics
outlets. See "PRIMESTAR By TSAT-Distribution" and "PRIMESTAR By TSAT-Marketing."
Focus Marketing Effort on Customers 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.
I-8
<PAGE>
Differentiate the Company's Offerings through Superior Customer Service.
The Company believes that providing outstanding service, convenience and value
are essential to 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 access to a National Call Center ("National
Call Center"), providing customers with round-the-clock telephone support for
sales, installation, authorization and billing, as well as scheduling of repair
and customer service calls, 365 days per year. See "PRIMESTAR By TSAT-
Distribution."
Provide Subscribers Attractive Alternatives to Obtain Digital Satellite
Equipment. 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 and PRIMESTAR By TSAT are each 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 TSAT are generally lower than the up-front costs to new subscribers
of the Company's competitors, who must typically purchase and install HSDs,
satellite receivers 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. See "PRIMESTAR By TSAT-Equipment and Installation."
Expand Commercial Opportunities for Digital Satellite Service.
The Company believes that the Commercial Market offers a substantial
opportunity for growth and is therefore of strategic importance. With the
enhanced channel capacity in its audio and video entertainment programming
provided by GE-2, 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 is exploring opportunities to work together with At Home Corporation, a
joint venture among TCI, Kleiner Perkins Caufield & Byers, Comcast Corporation
("Comcast") and Cox Communications, Inc. ("Cox"), to deliver Internet 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.
Form Alliances with Strategic Marketing Partners. 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 relationship with the Bose Corporation ("Bose"). See
"PRIMESTAR By TSAT-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.
I-9
<PAGE>
Pursue High Power DBS Opportunities. The Company continues to assess
strategies for delivering high power digital satellite signals to the consumer's
home. The Company's current strategy is to implement a high power DBS system,
either directly or through PRIMESTAR Partners, by deploying Tempo DBS-1 in the
119 (degrees) W.L. orbital slot pursuant to the FCC Permit, using such DBS
system to provide a mix of sports, multiplexed movies, pay-per-view and popular
cable networks that could be marketed as an adjunct to traditional off-the-air
(i.e., broadcast) television, basic cable and other analog programming services
(the "Cable Plus Strategy"). The Company believes that, if successfully
implemented, such a complementary service could be effectively marketed by cable
operators (particularly those with limited channel capacity and a relatively low
density of subscribers per head-end) as an alternative to a digital cable
upgrade, which could require costly improvements by the operator to cable plant
and head-end equipment. A cable operator that distributed the Company's high
power service could offer its customers a digital upgrade without reducing the
number of analog cable channels available to customers who choose not to take
the new service. In contrast, if such an operator were to upgrade its cable
system directly and provide digital service comparable to the Company's proposed
service, the cable operator would be required to drop up to 11 channels from its
existing analog service, degrading the value of that service and alienating
those customers that choose to continue with their existing analog service.
To facilitate such a complementary service, the Company is currently
working with manufacturers to develop designs and specifications for a new set-
top box that would accommodate separate inputs from an analog cable system and a
digital satellite dish, and allow the customer to switch between digital
programming and analog channels (including the local programming currently not
generally available by satellite) with a single remote control unit. The Company
expects that such a combination cable converter/IRD will be available in
commercial quantities by the fall of 1997. However, the Company has not entered
into a purchase contract with the potential manufacturers, and there can be no
assurance that this equipment will be available on schedule. In addition to the
Cable Plus Strategy, the Company intends to market its high power DBS services
directly to consumers. The Company is currently in discussions, but has not
entered into any agreements, with cable operators, programming suppliers and
PRIMESTAR Partners with respect to the establishment of such a high power
digital satellite service to be marketed in part by cable and other system
operators as described above.
I-10
<PAGE>
PRIMESTAR By TSAT
- ------------------
The PRIMESTAR/(R)/ Service. PRIMESTAR Partners was formed as a limited
partnership in 1990 by subsidiaries of TCI, several other large cable operators
and G.E. American Services, Inc. ("GEAS"), a subsidiary of General Electric
Corporation ("G.E."). 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 transmission and compression technology to
offer superior delivery of picture and sound. Through March 1997, PRIMESTAR
Partners will provide 95 channels of entertainment programming throughout the
continental U.S., via medium power satellite, to HSDs approximately 36 inches in
diameter. In April 1997, using the additional capacity of GE-2, PRIMESTAR/(R)/
will increase its offerings to approximately 150 channels of programming and
will begin to offer subscribers in the majority of the U.S. the opportunity to
use HSDs of 29 inches in diameter, with some subscribers able to use dishes as
small as 27 inches in diameter. Dishes of 27 to 29 inches can be attached more
easily to a subscriber's wall or roof than the 36 inch dishes currently used by
PRIMESTAR/(R)/.
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 via satellite 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 GE-2, a medium power
Ku-band satellite owned and operated by GE Americom, a subsidiary of G.E. and
the parent company of GEAS, one of the partners of PRIMESTAR Partners. Digital
satellite television service requires that subscribers install HSDs for a clear
line of sight to the transmitting satellite. GE-2 is located at 85 (degrees)
W.L. in the FSS orbital 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, GE-2'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 seaboard,
minimizing potential interference from bad weather. The overall PRIMESTAR/(R)
/system is designed for high availability and; based on PRIMESTAR Partners'
experience with GE-2's predecessor, K-2; operates consistently without any
significant interference approximately 99.8% of the time.
I-11
<PAGE>
PRIMESTAR Partners currently uses proprietary authorization, encryption
and high compression digital statistical multiplexing technology developed by an
affiliate of General Instruments Corporation ("GI"). The Company believes that
the compression technology used by PRIMESTAR Partners, which is known as
DigiCipher-1/(R)/, produces picture and sound quality comparable to that of
other digital satellite television providers, including those using compression
methods based on the MPEG-2 digital compression architecture. Uplinking,
encoding and compression services are provided by National Digital Television
Center, Inc., a subsidiary of TCI (formerly Western Tele-Communications, Inc.),
("NDTC"), under a Master Digital Transmission Agreement between NDTC and the
Partnership. Although the DigiCipher-1/(R)/ satellite receiver used by
PRIMESTAR/(R) /customers is not currently compatible with MPEG-2 compression
systems, it can be upgraded to be compatible through equipment provided by GI,
the cost of which equipment is projected to range from $150 to $200 at
commercial volumes.
PRIMESTAR Partners has entered into an Amended and Restated Memorandum,
effective as of October 18, 1996, with GE Americom (the "GE-2 Agreement"),
pursuant to which GE Americom has agreed to provide the Partnership with service
on 24 transponders on GE-2, subject to an interim period during which one of the
transponders will be unavailable. GE-2 was launched on January 30, 1997, and
accepted as commercially operational, effective March 6, 1997.
The Partnership is currently entitled to nonpreemptible service on 18 of
the transponders on GE-2, and preemptible service on five transponders, with a
sixth preemptible transponder available on or about August 1, 1997. Preemptible
transponders are transponders that may be reassigned to restore service to
protected customers if such protected customers experience satellite failure.
The Company does not believe 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.
As currently in effect, the GE-2 Agreement provides for an initial term
of six years from the availability of GE-2, extendible for the remainder of the
useful life of GE-2 at the option of PRIMESTAR Partners (the "End-of-Life
Option"). The End-of-Life Option expires if not exercised by December 31,
1997. Under the GE-2 Agreement, if PRIMESTAR Partners does not exercise the
End-of-Life Option, it will not be entitled to any in-orbit spare for GE-2.
However, if PRIMESTAR Partners exercises the End-of-Life Option, GE Americom
will be required to make available another communications satellite, GE-3 ("GE-
3"), to serve as an in-orbit spare for GE-2 at the 85 (degrees) W.L. orbital
position, providing the Partnership with "orbital location protected service,"
effective upon the successful launch of GE-4 ("GE-4"), as described below. If
such orbital location protected service becomes effective, the Partnership's
transponders will become nonpreemptible and the Partnership will be entitled to
restoration on GE-3 of any transponders on GE-2 that suffer a transponder
failure. If PRIMESTAR Partners exercises the End-of-Life Option, during the
period between the launch of GE-3 and the launch of GE-4, the Partnership will
be entitled to protection for GE-2 transponder failures, but its preemptible
transponders will remain preemptible. If PRIMESTAR Partners exercises the End-
of-Life Option, PRIMESTAR Partners will have a further right to negotiate to
obtain capacity on any successor satellite to GE-2 launched by GE Americom at
85(degrees) W.L.
I-12
<PAGE>
If, after exercise of the End-of-Life Option, PRIMESTAR Partners intends
to use more than six of its transponders for uses other than providing the
PRIMESTAR/(R)/ service, GE Americom may reduce service from orbital location
protected service to nonpreemptible or preemptible service, as the case may be.
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 ("Distributors")
of PRIMESTAR/(R)/. However, the Limited Partnership Agreement of PRIMESTAR
Partners (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 of
PRIMESTAR Partners, which manages and controls the business and affairs of the
Partnership and is composed of representatives of each of the partners and two
independent members (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 NDTC 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 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.
I-13
<PAGE>
The Company markets and distributes equipment and services to households
and businesses in its assigned territories under the names PRIMESTAR By TCI and
PRIMESTAR By TSAT. 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., as of December 31, 1996. The Company estimates
that approximately 38% of the country's 98 million television households reside
in the Company's territories.
Programming. At December 31, 1996, the Company offered consumers three
primary programming packages, which provide a wide variety of programming
selections, as detailed in the chart below. The PrimeFamily/SM/ package offers
75 channels of programming with 14 commercial-free premium movie channels in
addition to a selection of other channels. The PrimeEntertainment/SM/ package
offers 65 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 PrimeValue/SM/ package offers customers 53 channels of expanded programming.
Each of the packages includes a free monthly programming guide. As of December
31, 1996, the monthly prices for the PrimeFamily/SM/ package, the
PrimeEntertainment/SM/ package and the PrimeValue/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 for equipment rental, which
includes free maintenance and 24-hour customer service.
The Company also offers nine channels of pay-per-view movies and events
and niche services on an a la carte basis such as ABC, NBC, CBS, FOX and PBS (to
those subscribers unable to receive such networks through local affiliates), The
Golf Channel, TV Japan and Ingenius.
I-14
<PAGE>
At December 31, 1996, the Company's three primary programming packages
consisted of the following:
<TABLE>
<CAPTION>
PRIMEVALUE/SM/ PRIMEENTERTAINMENT/SM/ PRIMEFAMILY/SM/
PACKAGE 53 CHANNELS PACKAGE 65 CHANNELS PACKAGE 75 CHANNELS
<S> <C> <C>
All PrimeValue/SM/Channels Plus: All PrimeEntertainment/SM/
A&E Channels
Cartoon Classic Sports Plus:
CNBC CMT
CNN CNN International/CNN-FN Cinemax-Multichannel (2)
Comedy Central E! Cinemax-Selecciones (2)
CSPAN1 Encore HBO-Multichannel (3)
Discovery Encore Multiplex (2) HBO en Espanol (3)
Disney(2) ESPN2
ESPN Sci-Fi
Family Channel STARZ!
Headline News TCM
Learning Channel The Weather Channel
Lifetime
MTV
Nickelodeon
Odyssey
Prevue
QVC
Regional Sports Network (14)
TBS
TNN
TNT
TV Land
Univision
USA
Digital Audio Channels (14)
</TABLE>
I-15
<PAGE>
Utilizing the additional transponder capacity provided by GE-2,
PRIMESTAR Partners has announced that it will increase its total channel
offerings to approximately 150 in April 1997. Based on the proposed new line-
up, the Company expects that its primary programming packages will be revised as
follows:
<TABLE>
<CAPTION>
PRIMEVALUE/SM/ PACKAGE PRIMEENTERTAINMENT/SM/ PRIMEHITSFAMILY /SM/
76 CHANNELS PACKAGE 96 CHANNELS PACKAGE 101 CHANNELS
<S> <C> <C>
All PrimeValue/SM/Channels All PrimeEntertainment/SM/
Channels
A&E Plus: Plus any two of the
AMC following:
BET Classic Sports
Cartoon CMT Multichannel HBO (3)
CNBC CNN International/CNN-FN Multichannel Showtime (2)
CNN Court TV Multichannel Cinemax (2)
CNN Headline News E!
CNN SI Encore
Comedy Central Encore Multiplex (2)
CSPAN1 ESPN2
CSPAN2 Game Show Network
Discovery HGTV
Disney (2) Independent Film Channel
ESPN Outdoor Life
Family Channel Sci-Fi
History Channel Speedvision
Learning Channel STARZ!
Lifetime Sundance
Local Regional Sports TCM
Network(1) The Weather Channel
MSNBC WGN
MTV
Much Music
Nickelodeon
Odyssey
Prevue
QVC
Regional Weather (10)
Romance Classics
TBS
TNN
TNT
TV Food
TV Land
Univision
USA
VH1
Digital Audio Channels (30)
</TABLE>
I-16
<PAGE>
The expanded channel offerings will also include 21 channels of pay-
per-view movies and events, a 24 channel sports tier and niche services on an a
la carte basis such as ABC, NBC, CBS, FOX and PBS (to those subscribers unable
to receive such networks through local affiliates), The Golf Channel and TV
Japan. The monthly prices for the expanded PrimeHits/SM/ package, the
PrimeEntertainment/SM/ package and the PrimeValue/SM/ package will be $49.99,
$39.99 and $24.99, respectively.
As of December 31, 1996, the Company had an installed base of
approximately 805,000 Authorized Units, of which approximately 44% received
the Company's premier programming package, the PrimeFamily/SM/ package.
Exclusive of installation revenue, the Company's average monthly revenue per
Authorized Unit was $44 and $41 for the years ended December 31, 1996 and 1995,
respectively. At December 31, 1996, the Company's Authorized Units represented
approximately 45% of PRIMESTAR Partners' estimated 1.8 million installed
Authorized Units.
The Company contracts with and bills its residential and commercial
subscribers directly for the PRIMESTAR/(R)/ service. Most residential
subscribers may terminate their service at any time upon notice to the Company.
Commercial subscribers' service contracts automatically renew for successive
terms unless the commercial subscribers provide 90 days' prior written notice to
the Company of their intent to terminate their service at the end of the current
term. In addition, a commercial customer can terminate the contract prior to
the expiration of the contractual term by paying 75% of the remaining amount
due.
Satellite reception equipment reclaimed from terminating subscribers
is tested, refurbished as necessary and placed back into service.
Distribution. The Company distributes PRIMESTAR/(R)/ services through
multiple distribution channels. The Company's Master Agent Program, direct sales
force, its access to the National Call Center for orders, information and
customer service and its agreement with Radio Shack/(R)/ 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 December 31, 1996, the Company's Master Agents had over 1,700 active
sub-agents, and in the year ended December 31, 1996, the Master Agent Program
accounted for approximately 49% of the Company's new business.
I-17
<PAGE>
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 (generally five years). 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 December 31, 1996, the direct
sales force consisted of approximately 760 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
National Call Center for authorization, which in turn dispatches the new orders
to the nearest TCI cable system or third party contractor 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 and certain other third party contractors. In
connection with the Distribution, the Company and TCIC entered into a
fulfillment agreement effective January 1, 1997 (the "Fulfillment Agreement")
with respect to customers of the PRIMESTAR/(R)/ medium power service. The
Fulfillment Agreement, among other things, sets forth the responsibilities of
TCIC with respect to fulfillment services, including performance standards and
penalties for nonperformance, and provides scheduled rates 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 Fulfillment Agreement
has an initial term of two years and is terminable by the Company, on 180 days
notice to TCIC at any time during the first six months following the
Distribution Date. The Company and TCIC are currently discussing certain
proposed changes to the Fulfillment Agreement, but there can be no assurances
that any such changes will be agreed to or that the Company will not exercise
its right to terminate the Fulfillment Agreement if an acceptable amendment is
not agreed to prior to the end of the Company's six-month termination window.
There can be no assurance that the terms of the Fulfillment Agreement are not
more or less favorable than those which could be obtained by the Company from
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
"Certain Relationships and Related Transactions" in Part III of this Report.
I-18
<PAGE>
The National Call Center, which, as of December 31, 1996, housed more
than 560 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 year ended
December 31, 1996, the National Call Center handled over 3.7 million customer
service calls and over 1.1 million sales calls. In addition, the Company engages
a teleservices vendor to assist the Company in providing these services. The
Company trains the employees of the teleservices vendor and works closely with
such employees to ensure that its existing and potential subscribers receive
quality customer service.
On March 20, 1997, the Company announced its intention to contribute
its National Call Center to a new joint venture to be owned by the Company and
TCI. The new joint venture, which will be run as a separate company, will own
and operate customer service call centers and provide services to TCI, the
Company and other potential clients on an out-sourcing basis. In addition to
the two Englewood, Colorado based facilities of the Company's National Call
Center, the new venture will initially include call center facilities
contributed by TCI in Denver, Colorado, Boise, Idaho and Tucson, Arizona. See
"Certain Relationships and Related Transactions" in Part III of this Report.
In addition to the Master Agent Program, direct sales force and
National Call Center, the Company distributes its services through certain
national consumer electronics retailers. In February 1996, PRIMESTAR Partners
entered into a national agreement with Radio Shack, a unit of Tandy Corporation
and one of the nation's largest consumer electronics retailers, under which
PRIMESTAR/(R)/ is expected to be available on a non-exclusive basis through more
than 6,500 Radio Shack stores nationwide. Under this agreement, Radio Shack is
compensated based on the number of installations generated. As of December 31,
1996, PRIMESTAR/(R) /is available for sale in approximately 2,300 Radio Shack
stores located in the Company's authorized distribution territories, and the
Company estimates that when the arrangement is fully implemented, PRIMESTAR/(R)
/will be available for sale in over 2,500 such stores. The Company's
distribution network is further supported by approximately 1,130 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 two years and will continue to fuel subscriber growth.
During the two year period from December 1994 to December 1996, the Company
expanded its points of sale over fifteen times, from 325 to approximately 5,160.
Furthermore, the Company's sub-agents ranked highest in customer satisfaction in
a study conducted by the Satellite Broadcasting and Communications Association
("SBCA") in August 1995. The Company's sub-agents scored highest for post-sale
customer 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.
I-19
<PAGE>
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
($10 per month at December 1996), which includes ongoing maintenance and
service at no additional charge. 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 GI, and packaged by GI
with remote controls, 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 currently
provides two alternative purchase options: (i) subscribers who agree to purchase
the PrimeEntertainment/SM/ or PrimeFamily/SM/ package for one year and who pay
in full for such package in advance are given the option to purchase a single
satellite receiver for $199 plus an installation charge of $199 and (ii)
subscribers who wish to purchase two satellite receivers are given the option to
purchase the first receiver for $199 and a second used receiver for $325, with
the installation charge of the first receiver set at $199 and the installation
price of the second receiver set at $75, and such subscribers are not required
to commit to a one-year subscription and may purchase either the PrimeValue/SM/,
PrimeEntertainment/SM/ or PrimeFamily/SM/ package. In both cases, the Company
from time to time provides a promotional offer of $149 for the installation of
the first receiver. For those customers who elect one of the purchase options
described above, the Company currently provides a free one-year in-home service
warranty for the purchased equipment.
In addition to monthly fees for programming and the purchase or lease
of equipment, the Company charges new subscribers an installation fee ranging
from $99 to $199. Installation of the second receiver is generally available at
a reduced price ($75 at December 31, 1996). 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 has, from time to
time, offered qualified subscribers an opportunity to enter into subscription
contracts that allowed 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. Currently, the Company is offering a promotional rate
of $149 for the installation of the first receiver. Certain of the Company's
competitors offer consumers the option of self-installation of the HSD and other
equipment for their digital satellite systems, with an installation kit that
retails for approximately $70.
I-20
<PAGE>
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 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 the Bose
Corporation ("Bose") under the co-brand name "PRIMESTAR/Bose Home Theater
systems." Pursuant to this alliance, the Company and Bose 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.
I-21
<PAGE>
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/(R)/ 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 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 December 31, 1996, over 2,000 schools have
enrolled in the program.
The Company intends to continue and increase its joint marketing
efforts to bundle products and services to the marketplace. The Company believes
such efforts will assist the Company in maximizing its potential market share.
ResNet Transaction. Effective as of October 21, 1996, the Company
acquired 4.99% of the issued and outstanding capital stock of ResNet. ResNet was
formed by LodgeNet in February 1996 to engage in the ResNet Business. ResNet
agreed to purchase from the Company, at a price that approximates the Company's
cost, up to $40,000,000 in satellite reception equipment, to be used in
connection with the ResNet Business exclusively, over a five-year period
(subject to a one-year extension at the option of ResNet if ResNet has not
purchased the full $40,000,000 in equipment during the five-year initial term).
The Company also agreed to make a subordinated convertible term loan
to ResNet, the proceeds of which can be used only to purchase such equipment
from the Company. The term of the loan is five years with an option by ResNet to
extend the term for one additional year. The total principal and accrued and
unpaid interest under the loan is convertible over a four-year period into
shares of common stock of ResNet representing an additional 32% of the issued
and outstanding common stock of ResNet. The Company's only recourse with respect
to repayment of the loan is conversion into ResNet stock or warrants as
described below. Under current interpretations of the FCC rules and regulations
related to restrictions on the provision of cable and satellite master antenna
television services, in certain areas the Company could be prohibited from
holding 5% or more of the stock of ResNet and consequently could not exercise
the conversion rights under the convertible loan agreement. The Company is
required to convert the convertible loan at such time as conversion would not
violate such currently applicable regulatory restrictions.
I-22
<PAGE>
In addition, ResNet granted the Company an option to acquire an
additional 13.01% of the issued and outstanding common stock of ResNet at
appraised fair market value at the time of exercise of the option. The option is
exercisable between December 21, 1999 and the maturity of the convertible loan.
Upon the maturity date of the convertible loan, if the Company has been
prevented from converting the loan or exercising the option in full due to the
previously described regulatory restrictions, ResNet will issue warrants to the
Company to acquire the stock that has not been issued pursuant to conversion of
the loan and the stock that the Company has a right to acquire by exercise of
the option. The exercise price of the warrants to be issued in respect of the
convertible loan will be de minimis, and the exercise price of the warrants to
be issued in respect of the option will be equivalent to the exercise price
under such option. The Company has agreed to customary standstill provisions
with respect to acquisitions of more than 10% of the outstanding stock of
LodgeNet and any additional shares of ResNet.
The Company also entered into a long-term signal availability
agreement with ResNet, pursuant to which the Company is committed to transport
for a fee to "private cable systems" owned and operated by ResNet, the
satellite signal used by PRIMESTAR Partners to transmit its programming services
(the "PRIMESTAR Satellite Signal") or the signal of a substantially comparable
service. "Private cable system" means a satellite master antenna television
system that provides television programming services to residential MDUs through
cable plant or other equipment that is located entirely on private property and
does not constitute a direct-to-home distribution system or a franchised cable
system. The Company is acting solely to make the PRIMESTAR Satellite Signal
available to ResNet and is not acting as a distributor of any PRIMESTAR/(R)/
programming services to ResNet. ResNet must obtain its own rights from the
applicable programming networks to receive the programming services and to
distribute them to ResNet's subscribers.
NDTC has the right from PRIMESTAR Partners to use the PRIMESTAR
Satellite Signal for delivery of programming for the benefit of third parties,
including private cable systems (the "simultaneous use rights"). NDTC has
agreed with the Company that private cable systems designated by the Company,
including the ResNet private cable systems, will receive the transport of the
PRIMESTAR Satellite Signal by NDTC in exchange for the payment by the Company of
a fee per subscriber per video program signal. The agreement between the Company
and NDTC is coextensive with the agreement between NDTC and PRIMESTAR Partners,
which expires on March 31, 2001, and there is no assurance that the Company will
continue to have the ability to make the PRIMESTAR Satellite Signal available
after that date.
I-23
<PAGE>
In its agreement with ResNet, the Company has committed to make the
PRIMESTAR Satellite Signal or the signal of a substantially comparable service
available for a term that extends substantially beyond March 31, 2001. If the
Company loses its contractual ability to make the PRIMESTAR Satellite Signal
available and is not able to make the signal of a substantially comparable
service available, the Company is obligated to reimburse ResNet for its costs in
obtaining a digital signal from another source, including the cost of
replacement equipment if the new digital signal is not compatible with ResNet's
equipment. While it is not possible at this time to quantify the amount that the
Company would be obligated to pay to ResNet under the circumstances described
above, the Company believes that the costs could be significant, particularly if
it were to lose its ability to make a signal available towards the end of its
agreement with ResNet.
The Company has also entered into a shorter term signal availability
agreement with one other customer and intends to pursue other signal
availability opportunities as they arise.
Counsel to PRIMESTAR Partners has advised the Company of the
Partnership's position that there are certain preconditions to NDTC's
simultaneous use rights which have not yet been satisfied and that such rights
are not assignable by NDTC to the Company. The Company believes that its
transaction with ResNet and similar transactions are permitted under the
agreement between NDTC and the Partnership. The Company does not believe that
any potential dispute with the Partnership regarding this issue is likely to
have a material adverse effect on the Company.
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 names PRIMESTAR By TCI and
PRIMESTAR By TSAT. 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.
High Power Satellites
- ---------------------
Tempo DBS System. The Company currently plans to participate,
directly or through PRIMESTAR Partners, in the high power segment of the digital
satellite industry. The Company, through Tempo, holds the FCC Permit,
authorizing construction of a high power DBS system consisting of two or more
satellites delivering DBS service in 11 frequencies at the 119(degrees) W.L.
orbital position and 11 frequencies at the 166(degrees) W.L. orbital position.
The 119(degrees) W.L. orbital position is generally visible to HSDs throughout
the entire continental U.S.; the 166(degrees) W.L. orbital position is visible
only in the western half of the continental U.S., as well as Alaska and Hawaii.
I-24
<PAGE>
Tempo is also a party to the Satellite Construction Agreement with
Loral, pursuant to which Tempo arranged for the construction of Tempo DBS-1 and
the other Company Satellite and has an option to purchase up to three additional
satellites. As constructed, each Company Satellite can operate in either
"single transponder" mode (with 32 transponders broadcasting at 113 watts per
channel) or in "paired transponder" mode (with 16 transponders broadcasting at
220 watts per channel). Either such configuration can be selected at any time,
either before or after launch.
Tempo DBS-1 was outfitted with an antenna designed for operation at
the 119(degrees) W.L. orbital location and was launched into geosynchronous
orbit on March 8, 1997. The satellite is currently undergoing in-orbit testing
pursuant to the Satellite Construction Agreement. Assuming the successful in-
orbit testing of Tempo DBS-1, the Company intends to operate such satellite in
paired transponder mode, broadcasting on 11 of the 16 available transponder
pairs, in accordance with the FCC Permit. The remaining five transponder pairs
would be available as in-orbit spares. Operating in paired transponder mode, at
current levels of digital compression, Tempo DBS-1 would be able to deliver 70
to 85 channels of digital video and music programming, depending on the mix of
programming content, to HSDs of less than 14 inches in diameter. If advances in
compression technology currently being tested become commercially available in
the future, Tempo DBS-1 would be able to deliver up to 150 channels of
programming. The Company intends to operate Tempo DBS-1, either directly or
through PRIMESTAR Partners, as a complementary service to basic cable and other
channel-constrained analog services, providing DBS services on a wholesale basis
to those system operators wishing to avoid the high cost of digital plant
upgrades, or, subject to future advances in high compression digital statistical
multiplexing technology, as a stand-alone DBS service. See "-Cable Plus
Strategy," and "-Competitive Position of the Company's Proposed High Power DBS
System".
The Company has had discussions regarding the possible sale of the
other Company Satellite ("Satellite No. 2"), but has not reached agreement
regarding any such transaction. Any such transaction would be subject to the
successful commercial operation of Tempo DBS-1 (for which Satellite No. 2 serves
as ground spare), the prior approval of PRIMESTAR Partners and prior regulatory
approvals and other conditions. Pursuant to an option agreement between Tempo
and PRIMESTAR Partners (the "Tempo Option Agreement"), any net cash proceeds
received by the Company from the sale of Satellite No. 2 would be paid to
PRIMESTAR Partners, to satisfy certain advances by PRIMESTAR Partners to the
Company to fund construction of the Company Satellites. There can be no
assurance that the Company will be able to sell Satellite No. 2 on terms
acceptable to the Company.
I-25
<PAGE>
Cable Plus Strategy. At current compression ratios, the Company's
transponder frequencies at 119(degrees) W.L. may be used to broadcast 70 to 85
channels of digital video and music programming, depending on the mix of
programming content. Operating Tempo DBS-1 in paired transponder mode at 220
watts per channel (higher than any current DBS services), the Company believes
that its signal could be received by households in the majority of the U.S.
using HSDs of less than 14 inches in diameter. The Company is currently
developing a plan to use its proposed high power DBS system to provide a mix of
sports, multiplexed movies, pay-per-view and popular cable networks that could
be marketed as an adjunct to traditional off-the-air (i.e., broadcast)
television, basic cable and other analog programming services. The Company
believes that, if successfully implemented, such a complementary service could
be effectively marketed by cable operators (particularly those with limited
channel capacity and a relatively low density of subscribers per head-end) as an
alternative to a digital cable upgrade, which could require costly improvements
by the operator to cable plant and head-end equipment. A cable operator that
distributed the Company's high power service could offer its customers a digital
upgrade without reducing the number of analog cable channels available to
customers who choose not to take the new service (in contrast to upgrading the
cable system directly, which could require up to 11 channels to be dropped from
the operator's analog service to provide digital service comparable to that
expected to be offered by the Company). To facilitate such a complementary
service, the Company is currently working with manufacturers to develop designs
and specifications for a new set-top box that would accommodate separate inputs
from an analog cable system and a digital satellite dish, and allow the customer
to switch between digital programming and analog channels (including the local
programming generally not available by satellite) with a single remote control
unit. The Company expects that the combination cable converter/IRD will be
available in commercial quantities by the fall of 1997. However, the Company has
not entered into a purchase contract with any potential manufacturers, and there
can be no assurance that this equipment will be available on schedule. The
Company is currently in discussions, but has not entered into any agreements,
with cable operators, programming suppliers and PRIMESTAR Partners with respect
to the establishment of a high power digital satellite service to be marketed in
part by cable and other system operators as described above.
Competitive Position of the Company's Proposed High Power DBS System.
It is expected that the Company's proposed high power DBS system will broadcast
from 11 transponders at the 119(degrees) W.L. orbital position. At current
compression ratios, the Company's 11 transponders could be used to broadcast 70
to 85 channels of entertainment and/or information programming, depending on the
type of programming. Although such a programming service would have relatively
limited channel capacity compared to DirecTv and the proposed service to be
offered by the recently announced alliance of EchoStar, The News Corporation
("News Corp.") and MCI Communications Corp. ("MCI") , the Company believes that
such potential competitive disadvantage may be offset in part (i) by the
possibility of using smaller HSDs (less than 14 inches in diameter) than those
currently offered by DirecTv and EchoStar, (ii) by offering programming, such as
multiplexed premium movies, sports, pay-per-view and a selection of popular
cable networks and (iii) by marketing such service as an adjunct to cable
service in areas served by cable systems with relatively limited channel
capacity. See "-Cable Plus Strategy."
I-26
<PAGE>
However, the Company does not currently have any agreements with
PRIMESTAR Partners or any programming vendors with respect to the operation of
any such DBS programming service, and does not currently have agreements with
any antenna manufacturers with respect to the purchase of HSDs of less than 14
inches. No assurances can be given that any such agreements can be obtained on
terms satisfactory to the Company, or that the Company or PRIMESTAR Partners
will be successful in pursuing such a strategy, or will not elect to pursue an
alternative strategy with respect to one or both of the Company Satellites.
Moreover, although advances in high compression digital statistical
multiplexing technology currently under development by third parties may in the
future enable the Company to obtain greater channel capacity from the 11
transponders on Tempo DBS-1, there can be no assurance that such new technology
will be successfully implemented or that, if implemented, the Company or
PRIMESTAR Partners will be able to obtain the rights to use such technology on
satisfactory terms. However, NDTC has agreed that if, prior to September 1,
1997, the Company engages NDTC to provide digitization, compression and
uplinking services for any high power DBS system operated by the Company, and
NDTC is authorized to use certain proprietary technology of Imedia Corporation
currently under development or other proprietary technologies to provide
multiplexing of digitally compressed video signals for the Company, NDTC shall
provide such multiplexing services to the Company for an agreed fee, based on
NDTC's incremental costs and other factors. The Company's rights under its
agreement with NDTC are assignable by the Company to any affiliate of the
Company, including for this purpose PRIMESTAR Partners.
If advances in high compression digital statistical multiplexing
technology becomes available to the Company, such technology (or similar
technology) will likely also be made available to cable operators and/or other
competitors of the Company and PRIMESTAR Partners.
Satellite Launches. Pursuant to the Satellite Construction Agreement
Loral must conduct in-orbit testing following the launch of a satellite. As
noted above, Tempo DBS-1 was launched on March 8, 1997, and is currently in the
process of in-orbit testing. Delivery of a satellite takes place upon Tempo's
acceptance of such satellite after completion of in-orbit testing
("Delivery"). 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. 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.
I-27
<PAGE>
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. Loral has also 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.
Tempo Option. In February 1990, Tempo entered into the Tempo Option
Agreement with PRIMESTAR Partners, 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 FCC Permit. Under the Tempo Option Agreement, upon the exercise of the
Tempo Option, PRIMESTAR Partners is obligated to pay Tempo $1,000,000 (the
"Exercise Fee") and to lease or purchase the entire capacity of the DBS
system, with the purchase price (or aggregate lease payments) for such capacity
sufficient to cover the costs of constructing, launching and operating such DBS
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 is in turn supported by letters of credit arranged for by
affiliates of the partners of the Partnership (other than GEAS). At December
31, 1996, the aggregate funding provided to Tempo by PRIMESTAR Partners was
$457,685,000, and the balance due under the PRIMESTAR Credit Facility was
$521,000,000, including amounts borrowed to pay interest charges.
The Tempo Letter Agreements permit the Partnership to apply its
advances to Tempo against any payments (other than the Exercise Fee) due under
the Tempo Option (which the Company believes has been exercised) and would not
require Tempo to repay such advances. In the event that it is determined that
the Tempo Option has not been exercised in accordance with its terms, Tempo, in
lieu of repaying such advances, could elect to assign all of its rights relating
to the Company Satellites to the Partnership.
I-28
<PAGE>
On February 7, 1997, the Partners Committee adopted a resolution (i)
affirming that PRIMESTAR Partners had unconditionally exercised the Tempo
Option, (ii) approving the proposed launch of Tempo DBS-1 into the 119(degrees)
W.L. orbital position and the use of Satellite No. 2 as a spare or back-up for
Tempo DBS-1, pending other deployment or disposition as determined by PRIMESTAR
Partners, and (iii) authorizing the payment by PRIMESTAR Partners to Tempo of
the Exercise Fee and other amounts in connection with the Tempo Option and the
Tempo Letter Agreements, including funding of substantially all construction and
related costs relating to the Company Satellites not previously funded by the
Partnership. See "Certain Relationships and Related Transactions" in Part III of
this Report.
The Company currently intends to pursue its high power strategy
through PRIMESTAR Partners, consistent with such resolution. Although the
Company and PRIMESTAR Partners have not entered into an agreement with respect
to the lease or purchase of 100% of the capacity of Tempo DBS-1 pursuant to the
Tempo Option, or the implementation of the Cable Plus Strategy, and there can be
no assurances that areas of potential disagreement will not arise as such
agreements are negotiated, the Company does not currently believe that any such
potential disagreement is reasonably likely to have a material adverse effect on
the Company.
Regardless of the outcome of any uncertainties with respect to the
Company Satellites, the Company believes that, although no assurance can be
given, alternative courses of action are available that would allow the Company
to recover the costs of constructing the Company Satellites.
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.
Cable Television. Cable television is currently available for
purchase by more than 90% of the approximately 98 million U.S. television
households. The cable television industry is an established provider of
multichannel programming, with approximately 65% 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.
I-29
<PAGE>
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 yet found it efficient to
provide any local broadcast programming and, third the Satellite Home Viewer Act
of 1994, prohibits the retransmission by a satellite carrier of a television
broadcast signal of a network television station to households that receive an
adequate quality over-the-air signal of a television broadcast station
affiliated with such network and to households that receive (or within the past
90 days had received) through a cable system the signal of a television station
affiliated with such network. 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 MDUs that do not facilitate or allow the installation of satellite
television equipment. Fourth, because IRDs are currently 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 significant additional cost.
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 systems with adequate channel capacity may offer
digital service without major rebuilds, the Company believes that, given the
limits of current compression technology, other cable systems that have limited
channel capacity will have to be upgraded to add bandwidth in order to provide
digital service, and that such upgrades will 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, subject to
advances in high compression digital statistical multiplexing technology
currently under development.
I-30
<PAGE>
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.
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 may also be operated by DirecTv to provide
additional capacity. DirecTv's satellites, which are high power satellites, are
located at 101(degrees) W.L. DirecTv operates 27 transponders on each of its
existing satellites, enabling it to offer over 200 channels of digital
programming. As of December 31, 1996, according to trade publications, DirecTv
served approximately 2.3 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 over 25
channels of premium video programming not available from DirecTv. USSB's
selection of programming services (and its use of transponders on the same
satellite used by DirecTv, which enables subscribers to receive both DirecTv and
USSB signals with a single HSD) allows it to be marketed as complementary to
DirecTv, partially offsetting the competitive handicap caused by its relatively
limited channel capacity. As of December 31, 1996, approximately 53% of
DirecTv's 2.3 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
certain locations on the Pacific Rim.
I-31
<PAGE>
EchoStar launched a high power satellite in December 1995, commenced
national broadcasting of programming channels in March 1996 and, as of December
31, 1996, broadcasts over 120 such channels. 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 ("DirectSat"). Following such merger, DirectSat, which became an
EchoStar subsidiary, launched a second satellite into the 119(degrees) W.L.
orbital location in September 1996. EchoStar is expected to increase its program
offering to approximately 125 channels when the EchoStar/DirectSat system is
fully operational. In addition, EchoStar acquired 24 frequencies at
148(degrees) W.L. for $52.3 million in an FCC auction held in January 1996 (the
"FCC Auction"), and in August 1996, the FCC approved the prior assignment of
Direct Broadcasting Satellite Corporation's DBS permit for 11 frequencies at
61.5(degrees) W.L. and 11 frequencies at 175(degrees) W.L. to another subsidiary
of EchoStar.
MCI acquired 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 satellite system at 110(degrees) W.L.
On February 24, 1997, News Corp. and EchoStar announced that News
Corp. will purchase 50% of EchoStar in a transaction valued at $1 billion.
Pursuant to the transaction, the companies will combine their DBS businesses
into a new company, which will operate under the name Sky. EchoStar's
shareholders will own approximately 50% of Sky, News Corp. will own
approximately 40% of Sky and MCI, which already owns 13.5% of News Corp., will
hold 20% of News Corp.'s 50% interest of EchoStar, or approximately 10% of Sky.
According to the terms of the transaction, News Corp. will contribute its
American Sky Broadcasting subsidiary, the joint venture that News Corp. owns
with MCI, with satellites, cash and transmission stations valued at $1 billion,
to the new company. The new Sky service, which is scheduled to launch in early
1998, is expected to include seven satellites. In addition, the two companies
contend that Sky will offer 500 channels of digital television, Internet
services and local broadcast network television signals, capable of reaching
more than 50% of all television households upon the launch of Sky and 75% of all
television households by the end of 1998. In a separate proceeding, British
Telecommunications, plc, a United Kingdom company, has proposed to acquire
control of MCI. Regulatory approval of these transactions will be necessary,
and the outcome cannot be predicted.
Alphastar commenced offering approximately 100 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, rather than the 18 inch satellite dishes used by
customers of the high power services of DirecTv, USSB and EchoStar.
I-32
<PAGE>
In 1996, the United States entered into a bilateral agreement with
Mexico which would allow, subject to certain conditions, the use of satellites
licensed in Mexico to provide DBS service to U.S. consumers. According to press
reports, Mexico is expected to begin licensing procedures for its DBS satellites
later this year. The Company is unable to predict the effect of such existing
and future DBS service upon its operations.
In addition, other potential competitors may provide television
programming 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 the PRIMESTAR/(R) /medium power service can
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/(R)/ is marketed as a
service, with programming, equipment rental, maintenance and 24-hour customer
service included in the monthly price, which, as of December 31, 1996, ranged
from $32.99 to $54.99. In addition, each of the PRIMESTAR/(R)/ programming
packages includes a free monthly programming guide. The up-front costs to new
subscribers of PRIMESTAR/(R)/, 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. C-band systems have been popular (mostly
in rural and semi-rural areas) since the late 1970s, and in the aggregate serve
approximately 2.2 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 and
suburban areas.
I-33
<PAGE>
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 high compression digital
statistical multiplexing 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 interests 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 generally 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
recently announced alliance of EchoStar, News Corp. and MCI and AT&T's agreement
with, and investment in, DirecTv, certain regional telephone companies and other
long distance telephone companies have expressed an interest in becoming
subscription television providers and could become significant competitors in
the future. Legislation recently passed by Congress removes barriers to entry
which previously inhibited telephone companies from competing, or made it more
difficult for telephone companies to compete, in the provision of video
programming and information services. 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. Estimates for the timing of wide-scale deployment of such multichannel
video service vary, as several telephone companies have delayed originally
announced deployment schedules.
As more telephone companies begin to provide subscription television
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.
I-34
<PAGE>
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
each major market is generally limited in the number of available programming
channels. Congress is expected to consider the release of additional digital
spectrum for use by VHF/UHF broadcasters later this year.
Regulatory Matters
- ------------------
General. Tempo, as the holder of the FCC Permit, and NDTC, as the
holder of an authorization to construct 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 NDTC's uplink facilities
that will be used to transmit signals to such satellites. 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 and alien ownership restrictions. In December 1996,
the International Bureau of the FCC concluded that foreign ownership
restrictions do not apply to subscription DBS service. This decision, however,
is subject to a pending review by the FCC. 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 four to seven percent of channel capacity for
noncommercial programming of an educational and informational nature. In
addition, other regulations may affect the distribution of programming by a
satellite carrier. For example, the Satellite Home Viewer Act ("SHVA")
prohibits the retransmission by a satellite carrier of a television broadcast
signal of a network television station to households that receive an adequate
quality over-the-air signal of a television broadcast station affiliated with
such network and to households that receive (or within the past 90 days had
received) through a cable system the signal of a television station affiliated
with such network. PRIMESTAR Partners, EchoStar, and Netlink reportedly have
agreed to develop with broadcasters pre-screening techniques for customers based
on zip codes and maps in order to ensure complaince with SHVA. It has also been
reported that the four major television networks and certain of their affiliates
have commenced action against a competitor of the Company, PrimeTime 24, under
the SHVA. No similar action has been taken, or to the knowledge of the Company,
threatened against the Company.
I-35
<PAGE>
While Tempo and NDTC 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, NDTC or the Company.
FCC Permits and Licenses. Tempo holds the FCC Permit, authorizing
construction of two or more satellites to operate 11 transponders at the
119(degrees) W.L. orbital location and 11 transponders the 166(degrees) W.L.
orbital location. 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 (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 applicable to Tempo require that a DBS
permittee place its satellites in operation within six years following the
initial grant of a construction permit. Tempo's FCC Permit was issued in May
1992, and the permit would expire in May 1998, absent completion of the system
or an approved extension. Tempo DBS-1 was launched on March 8, 1997, and will be
stationed in Tempo's DBS slot at 119(degrees) W.L. following the completion of
in-orbit testing. At present, Tempo must continue to demonstrate that it is
exercising due diligence in progressing toward the completion of its system at
166(degrees) W.L. Tempo believes it is currently meeting this requirement
through the Satellite Construction Agreement with Loral.
There can be no assurance that Tempo will be able to comply with the
FCC's due diligence obligations for 166(degrees) W.L. 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. 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 at 166(degrees) W.L.
Tempo cannot be certain that such 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 (i) to subscribers exclusively or primarily as an
ancillary or supplementary cable service, and (ii) 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.
I-36
<PAGE>
In a rulemaking proceeding concluded in December 1995, the FCC removed
the marketing conditions set forth above. The FCC noted, however, that it could
in the future, reimpose such restrictions on Tempo or any other DBS operator.
DirecTv has appealed the FCC's decision to the U.S. Court of Appeals for the
District of Columbia Circuit, arguing, among other things, that the FCC'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 or whether the FCC will reimpose such restrictions in the future.
In an order, released February 24, 1997, the International Bureau of
the FCC granted, subject to certain conditions, Tempo's request to launch and
operate its satellite at 119(degrees) W.L. and to test its satellite at
109.8(degrees) W.L. for eight weeks. In addition, the International Bureau
required Tempo to submit to the Commission information required to initiate
advance publication and notification of Tempo's operations in accordance with
the Radio Regulations of the International Telecommunications Union. In the
February 1997 order, the International Bureau also granted Tempo authority to
modify its satellite design, as requested in a July 1993 application, and denied
oppositions which had been filed by numerous existing and potential DBS
competitors. Opposing parties had until [MARCH 26, 1997] to seek review of this
order, and the FCC has until April 7, 1997 to reconsider this decision on its
own motion.
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 any
such request, 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.
In a rulemaking proceeding concluded in December 1995, the FCC
announced that it would auction twenty-eight channels at 110(degrees) W.L. and
twenty-four channels at 148(degrees) W.L. 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 was heard on October 1, 1996; however, no
decision has been made and the 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, which 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 affect its operations, or the
operations of its competitors.
On November 21, 1996 the International Bureau of the FCC granted
EchoStar a conditional authorization to construct, launch and operate a
Ku-band domestic fixed satellite into the orbital position at 83 degrees W.L.,
immediately adjacent to that occupied by GE-2, the spacecraft now used to
provide the PRIMESTAR/(R)/ service. Contrary to previous FCC policy, EchoStar
was authorized to operate at a power level of 130 watts. If EchoStar were to
launch its high power satellite authorized to 83 degrees W.L. and commence
operations at that location at a power level of 130 watts, it would likely
cause harmful interference to the reception of the PRIMESTAR/(R)/ signal by
subscribers to such service.
On December 23, 1996, GE Americom and PRIMESTAR Partners separately
requested reconsideration of the International Bureau's authorization for
EchoStar to operate at 83 degrees W.L. These requests were opposed by EchoStar
and others. These reconsideration requests currently are pending at the
International Bureau. In addition, GE Americom and PRIMESTAR Partners have
attempted to resolve potential coordination problems directly with EchoStar. It
is uncertain whether any coordination between PRIMESTAR Partners and EchoStar
will resolve such interference. There can be no assurance that the International
Bureau will change slot assignments, or power levels, in a fashion that
eliminates the potential for harmful interference.
I-37
<PAGE>
The Telecommunications Act of 1996. The Telecommunications Act of
1996 ("1996 Telecom Act") clarifies that the FCC has exclusive jurisdiction
over direct-to-home satellite services, and that criminal penalties may be
imposed for piracy of direct-to-home satellite services. 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 or other regulations that impair a viewer's ability to receive video
programming services through the use of DBS receive-only dishes in residential
areas. The FCC has adopted rules it believes comply with the statutory
requirements. 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.
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.
I-38
<PAGE>
PRIMESTAR Partnership Agreement
- --------------------------------
Pursuant to the PRIMESTAR Partnership Agreement, the business and
affairs of the Partnership are managed and controlled by the Partners Committee,
composed of representatives of each of the partners and two independent members.
The Company has two voting representatives on the Partners Committee, Time
Warner has two voting representatives, and Cox, Comcast, Continental Cablevision
Inc. ("Continental") Newhouse Broadcasting Corporation ("Newhouse") and G.E.
each have one voting representative. Ordinary decisions of the Partners
Committee require the consent of a majority of the members of the Partners
Committee, which majority must include 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 the 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; the selection of satellites (including successor satellite
capacity, the decision whether the Partnership should provide services at BSS or
higher frequencies and the decision to exercise the End-of-Life Option); the
determination to take any action that would cause the amount of the letters of
credit required to be issued in connection with the Partnership's obligations
under the GE-2 Agreement to exceed $100,000,000; the decision to effect certain
material changes to the GE-2 Agreement and certain related agreements with
respect to the letters of credit issued in connection with the GE-2 Agreement;
and the decision to provide any optional letters of credit, or pledge, grant a
security interest in or otherwise create a lien on any material assets of the
Partnership to secure the payment of reimbursement obligations of the
Partnership with respect to letters of credit issued in connection with the GE-2
Agreement 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 and other partners in the Partnership are currently
discussing the possibility of a transaction that would consolidate the business
of PRIMESTAR Partners and each of its Distributors into the Company. Any such
transaction would be subject to numerous conditions, including the negotiation,
execution and delivery of definitive documentation, consents from third parties
and regulatory requirements. No agreement has yet been reached regarding any
such transaction and there can be no assurance that any such transaction will be
consummated.
I-39
<PAGE>
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. Tempo 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"). 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 if a party transfers assets to a person that is not
majority owned or controlled by such party but which person either is the
"ultimate parent" of, or has the same "ultimate parent" as, such party, then
such party must cause such affiliate to become a party to the Tag-Along
Agreement. The term "ultimate parent" as used in the Tag-Along Agreement has
the meaning ascribed to such term in the Hart-Scott-Rodino Antitrust Improvement
Act of 1974, as amended ("HSR Act"). Generally under the HSR Act, the
"ultimate parent" of a person is an entity that directly or indirectly owns at
least 50% of the voting securities of such person or has the contractual right
to designate 50% or more of a board of directors of such person. 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.
I-40
<PAGE>
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 courses of action: (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 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 foregoing alternatives 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.
Other
- -----
Legislative, administrative and/or judicial action may change all or
portions of the foregoing statements relating to competition and regulation.
The Company has not expended material amounts during the last three
fiscal years on research and development activities.
There is no one customer or affiliated group of customers to whom
sales are made in an amount which exceeds 10% of the Company's revenue.
Compliance with federal, state and local provisions which have been
enacted or adopted regulating the discharge of material into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, results of operations or competitive
position of the Company.
I-41
<PAGE>
The Company had approximately 1,800 employees as of December 31, 1996.
None of the Company's employees are represented by a union and the Company
believes its employee relations are good. Pursuant to a Transition Services
Agreement and a Fulfillment Agreement, TCI provides certain services to the
Company. See "Certain Relationships and Related Transactions" in Part III of
this Report.
(d) Financial Information about Foreign and Domestic Operations and
---------------------------------------------------------------
Export Sales
------------
Not applicable.
I-42
<PAGE>
Item 2. Properties.
- ------ ----------
The Company owns no real property. The Company has entered into
noncancellable 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 December 31, 1996:
<TABLE>
<CAPTION>
Approximate Expiration
Description/Use Location Square Footage of Lease
- --------------------------- ---------------- -------------- ----------
<S> <C> <C> <C>
Corporate Headquarters Englewood, Colorado 56,371 6/30/2001
National Call Center Englewood, Colorado 50,009 6/30/2001 (1)
National Call Center Englewood, Colorado 33,745 12/31/1997(1)
Northwest Regional Office Lake Oswego, Oregon 3,236 3/31/1998
Northeast Regional Office State College, 7,073 8/31/2000
Pennsylvania
Great Lakes Regional Office St. Charles, 4,300 2/28/1998
Missouri
South Central Regional Farmers Branch, 4,328 8/31/1998
Office Texas
Southeast Regional Office Atlanta, Georgia 5,308 1/31/2002
Stand-Alone Office Hazelhurst, 2,300 7/1/2000 (2)
Georgia
</TABLE>
(1) The Company has entered into an agreement in principle to contribute this
facility to a newly-formed joint venture with TCI. See "Narrative
Description of Business-Company Overview-PRIMESTAR By TSAT-Distribution."
(2) 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 this facility.
The Company leases additional properties as field offices to support its
sales force.
I-43
<PAGE>
Item 3. 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.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
None.
I-44
<PAGE>
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- ------ ---------------------------------------------------------------------
On December 5, 1996, shares of Series A Common Stock, and Series B
Common Stock, commenced trading on the Nasdaq National Market tier of the Nasdaq
Stock Market under the symbols "TSATA" and "TSATB", respectively. The following
table sets forth the range of high and low sale prices of shares of Series A
Common Stock and Series B Common Stock for the periods indicated as furnished by
Nasdaq. The prices have been rounded up to the nearest eighth, and do not
include retail markups, markdowns, or commissions.
Series A Series B
--------------- ---------------
High Low High Low
------ ------- ------ -------
Fourth quarter 1996 (beginning
December 5, 1996) $12-5/8 9-7/8 11 10
As of January 31, 1997, there were 6,246 and 391 holders of the Series
A Common Stock and Series B Common Stock, respectively (which amounts do not
include the number of shareholders whose shares are held of record by brokerage
houses but include each brokerage house as one shareholder).
The Company has not paid cash dividends on its Series A Common Stock
and Series B Common Stock and has no present intention of so doing. Payment of
cash dividends, if any, in the future will be determined by the Company's Board
of Directors in light of its earnings, financial condition and other relevant
considerations.
II-1
<PAGE>
Item 6. Selected Financial Data.
- ------ -----------------------
Selected financial data related to the Company's financial condition
and results of operations for the five years ended December 31, 1996 are
summarized as follows (such information should be read in conjunction with the
accompanying financial statements of the Company):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
amounts in thousands
Summary Statement of Operations Data:
- -------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 417,461 208,903 30,279 11,679 4,614
Operating, selling,general and
administrative expenses (410,390) (214,117) (25,106) (7,069) (2,268)
Depreciation (1) (191,355) (55,488) (14,317) (6,513) (2,602)
--------- --------- --------- --------- ---------
Operating loss (184,284) (60,702) (9,144) (1,903) (256)
Share of losses of PRIMESTAR Partners (3,275) (8,969) (11,722) (5,524) (4,561)
Other, net 1,618 306 306 88 --
Income tax benefit 45,937 21,858 6,872 2,505 1,581
--------- --------- --------- --------- ---------
Net loss $(140,004) (47,507) (13,688) (4,834) (3,236)
========= ========= ========= ========= =========
Pro forma net loss per common share (2) $ (2.11) (.72)
========= =========
December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
amounts in thousands
Summary Balance Sheet Data:
- ---------------------------
<S> <C> <C> <C> <C> <C>
Property and equipment, net $1,107,654 889,220 397,798 95,323 15,791
Investment in, and related advances
to, PRIMESTAR Partners $ 32,240 17,963 9,793 19,625 485
Total assets $1,180,273 933,443 410,105 116,495 18,583
Due to PRIMESTAR Partners $ 457,685 382,900 278,772 71,164 --
Debt $ 247,230 -- -- -- --
Equity $ 372,358 483,584 120,526 43,349 17,537
</TABLE>
___________________________
(1) Effective October 1, 1996, the Company (i) changed the method used to
depreciate its subscriber installation costs, and (ii) reduced the
estimated useful life of certain satellite reception equipment. The
inception-to-date effect of the change in depreciation method aggregated
55,304,000, and was recorded during the fourth quarter of 1996. The
effect of the reduction in estimated useful life was accounted for on a
prospective basis. For additional information concerning the nature and
quantified effects of such accounting changes, see note 3 to the
accompanying financial statements of the Company.
(2) In connection with the December 4, 1996 consummation of the Distribution,
the Company issued 66,407,608 shares of Company Common Stock. The pro
forma net loss per common share amounts assume that the shares issued
pursuant to the Distribution were issued and outstanding since January 1,
1995. Accordingly the calculation of the pro forma net loss per share
assumes weighted average shares outstanding of 66,408,025 and 66,407,608
for the years ended December 31, 1996 and 1995, respectively.
II-2
<PAGE>
Item 7. 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 accompanying financial statements of the Company.
Summary of Operations
- ----------------------
The Company reported net losses of $140,004,000, $47,507,000 and
$13,688,000 during the years ended December 31, 1996, 1995 and 1994,
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.
During the years ended December 31, 1996, 1995 and 1994, (i) the
Company's annualized subscriber churn rate (which represents the annualized
number of subscriber terminations divided by the weighted average number of
subscribers during the period) was 38.5%, 24.7% and 16.1%, respectively, and
(ii) the average subscriber life implied by such subscriber churn rate was 2.6
years, 4.1 years and 6.2 years, respectively.
As set forth above, the Company has experienced an increase during
1996 in the rate of subscriber churn, as compared to prior periods. The Company
believes that the higher 1996 churn rate is primarily attributable to
identifiable circumstances that are not expected to have a continuing impact. In
general, these circumstances stemmed from the Company's efforts to maximize its
subscriber growth during the fourth quarter of 1995 and the first six months of
1996.
One result of the Company's subscriber maximization efforts, which
included, for example, marketing programs that allowed subscribers to initiate
service by paying 33% of the normal installation fee with no credit approval,
was that the Company added, during the fourth quarter of 1995 and the first six
months of 1996, a significant number of customers whose service was terminated
during the first six months of 1996 after their accounts became delinquent. As
set forth below, such delinquent accounts contributed to a significant increase
in the Company's bad debt expense during 1996. The Company has addressed this
issue by implementing more stringent credit policies. In this regard, the
Company began to institute more selective credit policies during the third
quarter of 1996 and further tightened such policies during the fourth quarter of
1996. The Company believes that a significant percentage of the subscribers
whose service was terminated during 1996 would not have been allowed to initiate
service if the credit policies that are currently in effect had been in place
during 1995.
II-3
<PAGE>
Although no assurance can be given, the Company expects future churn
rates to improve from levels experienced in 1996. If the Company's churn rates
were to continue at the 1996 levels or to increase, the Company believes that
its financial condition and results of operations would be adversely affected.
In October 1996, the Company initiated a marketing program that allows
subscribers to purchase the Company's proprietary satellite reception equipment
at a price that is less than the Company's cost. There is no assurance that the
difference between the Company's costs and the revenue generated from the sale
of the equipment would be recoverable. To date, the number of customers
selecting this marketing program has been insignificant. The Company cannot
presently predict whether a significant number of customers will take advantage
of this marketing program in the future.
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 805,000,
535,000, and 100,000 at December 31, 1996, 1995 and 1994, 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.
TCIC has historically provided the Company with certain customer
fulfillment services for PRIMESTAR/(R)/ customers enrolled by the Company's
direct sales force or the National Call Center. Charges for such services have
been allocated to the Company by TCIC based on scheduled rates. TCIC continues
to provide fulfillment services on an exclusive basis to the Company following
the Distribution with respect to customers of the PRIMESTAR/(R)/ medium power
service, pursuant to the Fulfillment Agreement. Such services, which include
installation, maintenance, retrieval, inventory management and other customer
fulfillment services, are to be performed in accordance with specified
performance standards. The Fulfillment Agreement has 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 Company and
TCIC are currently discussing certain proposed changes to the Fulfillment
Agreement, but there can be no assurance that any such changes will be agreed to
or that the Company will not exercise its right to terminate the Fulfillment
Agreement if an acceptable amendment is not agreed to prior to the end of the
Company's six-month termination window. 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.
II-4
<PAGE>
Installation charges from TCIC include direct and indirect costs of
performing installations. Through the Distribution Date, the Company
capitalized a portion of such charges as subscriber installation costs based
upon amounts charged by unaffiliated third parties to perform similar services.
Subsequent to the Distribution Date, the Company has capitalized the full amount
of installation fees paid to TCIC. Additionally, the scheduled rates for the
services provided by TCIC under the Fulfillment Agreement, as currently
executed, exceed the scheduled rates upon which charges, historically, were
allocated to the Company for such services. In this regard, installation
charges allocated to the Company by TCIC aggregated $62,461,000 during the year
ended December 31, 1996. If the Fulfillment Agreement had been in effect on
January 1, 1996, the estimated installation fees payable by the Company to TCIC
would have been $86,186,000. The amounts payable in future periods by the
Company to TCIC under the Fulfillment Agreement will be dependent upon the level
of fulfillment services provided by TCIC to the Company.
In connection with the Distribution, the Company and TCI also entered
into the "Transition Services Agreement", and certain other agreements. In
general, such agreements will result in increases in the expenses to be incurred
by the Company following the Distribution, as compared to the amounts allocated
to the Company by TCI prior to the Distribution.
II-5
<PAGE>
Certain financial information concerning the Company's operations is
presented below (dollar amounts in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
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 $ 351,548 84% $ 133,688 64% $ 18,641 62%
Installation 65,913 16 75,215 36 11,638 38
---------- ------- ---------- ------- ---------- -------
Total revenue 417,461 100 208,903 100 30,279 100
---------- ------- ---------- ------- ---------- -------
Operating costs and expenses:
Programming, satellite, national
marketing and distribution charges
from PRIMESTAR Partners (188,724) (45) (78,250) (37) (11,632) (38)
Other operating:
Allocations from TCIC (20,365) (5) (15,916) (8) (4,367) (14)
Other (8,181) (2) (1,884) (1) -- --
---------- ------- ---------- ------- ---------- -------
(28,546) (7) (17,800) (9) (4,367) (14)
Selling, general and administrative:
Selling and regional marketing (106,562) (25) (79,189) (38) (1,777) (6)
Bad debt (19,235) (5) (10,549) (5) (1,529) (5)
Allocations from TCIC (18,120) (4) (7,817) (4) (1,080) (4)
Other general and administrative (49,203) (12) (20,512) (9) (4,721) (16)
---------- ------- ---------- ------- ---------- -------
(193,120) (46) (118,067) (56) (9,107) (31)
---------- ------- ---------- ------- ---------- -------
Operating Cash Flow (deficit)(1) 7,071 2 (5,214) (2) 5,173 17
Depreciation (191,355) (46) (55,488) (27) (14,317) (47)
---------- ------- ---------- ------- ---------- -------
Operating loss $(184,284) (44)% $(60,702) (29)% $ (9,144) (30)%
========== ======= ========== ======= ========== =======
</TABLE>
________________________
(1) Operating Cash Flow is a commonly used measure of value and borrowing
capacity within the Company's industry, and 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.
II-6
<PAGE>
Revenue increased $208,558,000 or 100% and $178,624,000 or 590% during
1996 and 1995, as compared to the corresponding prior year. Exclusive of
installation revenue, the Company's average monthly revenue per Authorized Unit
was $44, $41 and $28 during 1996, 1995 and 1994, respectively. The 7% increase
from 1995 to 1996 in the average monthly revenue per Authorized Unit was
primarily a result of 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 equipment rental fee. Such positive effects more
than offset the effects of a 1996 promotional campaign that provided certain new
customers with one month of free service. The 46% increase from 1994 to 1995 in
the average monthly revenue per Authorized Unit 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. The average
installation revenue from each Authorized Unit installed was $127, $161 and $175
during 1996, 1995 and 1994, respectively. The decrease from 1995 to 1996 is
primarily attributable to certain promotional campaigns that were in effect
during 1996. See related discussion above.
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 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
services increased $110,474,000 or 141% and $66,618,000 or 573% during 1996 and
1995, respectively, as compared to the corresponding prior year. The average
aggregate monthly amount per Authorized Unit charged by PRIMESTAR Partners was
$23, $24 and $17 during 1996, 1995 and 1994, respectively. The increase in the
amount charged per Authorized Unit from 1994 to 1995 reflects higher programming
expenses that PRIMESTAR Partners began to incur following the July 1994
completion of the conversion from an analog to a digital signal. For additional
information concerning the operations of PRIMESTAR Partners, see related
discussion below.
Other operating expenses, which are primarily comprised of amounts
related to customer fulfillment activities, increased $10,746,000 or 60% and
$13,433,000 or 308% during 1996 and 1995, respectively, as compared to the
corresponding prior year. 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
provided by TCIC following the Distribution.
Selling, general and administrative expenses increased $75,053,000 or
64% and $108,960,000 or 1,196% during 1996 and 1995, respectively, as compared
to the corresponding prior year. During 1996 and 1995, selling and marketing
expenses represented 25% and 38%, respectively, of revenue and bad debt expense
represented 5% and 5%, respectively, of revenue. Such relatively high
percentages are attributable to the Company's efforts to increase its subscriber
base. See related discussion above.
II-7
<PAGE>
Through December 31, 1996, general and administrative allocations from
TCIC were generally based upon the estimated cost of the general and
administrative services provided to the Company. Effective January 1, 1997,
charges for administrative services provided by TCIC will be made pursuant to
the Transition Services Agreement. The amounts charged to the Company pursuant
to the Transition Services Agreement are expected to significantly exceed the
amounts that were allocated by TCIC to the Company during 1996. If the
Transition Services Agreement had been effective as of the Distribution Date the
general and administrative charges from TCIC would have been approximately
$23,200,000 for the year ended December 31, 1996.
The $135,867,000 or 245% and $41,171,000 or 288% increases in
depreciation during 1996 and 1995, respectively, as compared to the
corresponding prior year, are the result of changes in the Company's
depreciation policies (as described below) and increases in the Company's
depreciable assets due primarily to capital expenditures with respect to the
Company's satellite reception equipment. Effective October 1, 1996, the Company
(i) changed the method used to depreciate its subscriber installation costs, and
(ii) reduced the estimated useful life of certain satellite reception equipment.
The inception-to-date effect on depreciation expense of the change in
depreciation method aggregated $55,304,000, and was recorded during the fourth
quarter of 1996. The effect of the reduction in estimated useful life was
accounted for on a prospective basis. For additional information concerning the
nature and quantified effects of such accounting changes, see note 3 to the
accompanying financial statements of the Company.
The Company's 20.86% share of PRIMESTAR Partners' net losses decreased
$5,694,000 or 63% and $2,753,000 or 23% during 1996 and 1995, respectively, as
compared to the corresponding prior year periods. Such decrease is primarily
attributable to a significant increase in the revenue derived by PRIMESTAR
Partners from the Company and other Distributors of the PRIMESTAR/(R)/ service.
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 subscriber 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 recognized interest expense of $2,023,000 during 1996.
Substantially all of such interest expense was incurred on the borrowings
outstanding pursuant to the Company Note. As a result of the December 31, 1996
completion of the Bank Credit Facility and February 1997 issuance of the Notes,
the Company expects that its interest expense in 1997 and future periods will
significantly exceed the amount incurred during 1996. See "Liquidity and
Capital Resources" below.
The Company recognized interest income of $2,648,000, $306,000 and
$306,000 during 1996, 1995 and 1994, respectively. The 1996 amount is primarily
comprised of interest income from PRIMESTAR Partners.
II-8
<PAGE>
The Company's income tax benefit was $45,937,000, $21,858,000 and
$6,872,000 during 1996, 1995 and 1994, respectively. The effective tax rates
associated with such benefits were 25%, 32% and 33% respectively. In connection
with the Distribution, the Company became a party to the Tax Sharing Agreement
that exists among TCI, TCIC and certain other subsidiaries of TCI (the ''Tax
Sharing Agreement''). For additional information, see note 11 to the
accompanying financial statements of the Company. The Company's income tax
benefits include intercompany allocations from TCI of current income tax
benefits of $70,645,000, $36,530,000 and $9,611,000 for 1996, 1995 and 1994,
respectively. As a result of the Distribution, the Company is no longer a part
of the TCI consolidated tax group, and accordingly, is only 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.
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 years ended December 31, 1996,
1995 and 1994, such advances aggregated $250,189,000, $397,529,000 and
$90,952,000, respectively. On the Distribution Date, the Company issued the
Company Note to TCIC and TCIC agreed to provide the Company with financing
pursuant to a credit facility (the "TCIC Credit Facility") that provided for
TCIC's commitment to make revolving loans to the Company (the "TCIC Revolving
Loans") and the Company's obligations with respect to the TCIC Revolving Loans
and the Company Note, including the Company's best efforts obligations to
refinance the TCIC Credit Facility. On December 31, 1996, the Company entered
into the Bank Credit Facility and used proceeds therefrom to repay the Company
Note in full. In connection with the February 1997 issuance of the Notes and
the March 1997 determination that GE-2 was commercially operational, borrowing
availability pursuant to the TCIC Credit Facility was terminated. Accordingly,
TCI is not expected to be a source of financing for the Company in future
periods.
On February 20, 1997, the Company issued the 10-7/8% Senior
Subordinated Notes due 2007 having an aggregate principal amount at maturity of
$200,000,000 and the 12-1/4% Senior Subordinated Discount Notes due 2007 having
a principal amount at maturity of $275,000,000. The net proceeds from the
issuance of the Notes (approximately $340,500,000 after deducting offering
expenses) were initially held in escrow and were subsequently released to the
Company on March 17, 1997. The Company initially used $244,404,000 of such net
proceeds to repay amounts outstanding under the Bank Credit Facility and expects
to use the remaining net proceeds to fund capital expenditures and operations
and to provide for working capital and for other general corporate purposes.
II-9
<PAGE>
Cash interest on the Senior Subordinated Notes will be payable semi-
annually in arrears on February 15 and August 15, commencing August 15, 1997.
Cash interest will not accrue or be payable on the Senior Subordinated Discount
Notes prior to February 15, 2002. Thereafter cash interest will accrue at a
rate of 12-1/4% per annum and will be payable semi-annually in arrears on
February 15 and August 15, commencing August 15, 2002, provided however, that at
any time prior to February 15, 2002, the Company may make a Cash Interest
Election (as defined) on any interest payment date to commence the accrual of
cash interest from and after the Cash Election Date (as defined). The Notes will
be redeemable at the option of the Company, in whole or in part, at any time
after February 15, 2002 at specified redemption prices. In addition, prior to
February 15, 2000, the Company may use the net cash proceeds from certain
specified equity transactions to redeem up to 35% of the Senior Subordinated
Notes and up to 35% of the Senior Subordinated Discount Notes at specified
redemption prices. The Notes were not originally registered under the Securities
Act of 1933, as amended (the "Securities Act") and the Company will incur
interest penalties if the Notes are not registered under the Securities Act by
July 5, 1997 and under certain other circumstances relating to such
registration.
At December 31, 1996, the Company's aggregate borrowings under the
Bank Credit Facility were $246,000,000. As a result of the February 1997
issuance of the Notes and the March 1997 determination that GE-2 was
commercially operational, the available commitments under the Bank Credit
Facility were increased from $350,000,000 to $750,000,000, subject to the
Company's compliance with operating and financial covenants and other customary
conditions. Commencing March 31, 2001, aggregate commitments under the Bank
Credit Facility will be reduced quarterly in accordance with a schedule, until
final maturity at June 30, 2005. For additional information concerning the Bank
Credit Facility, see note 9 to the accompanying financial statements of the
Company.
The Company also has relied upon advances from PRIMESTAR Partners to
finance the cost of constructing the Company Satellites. Such advances, which
aggregate $457,685,000 at December 31, 1996, are reflected as a liability in the
balance sheets included in the accompanying financial statements of the Company.
See related discussion below.
During 1996, TCIC made intercompany advances to the Company to fund
the majority of the construction and related costs associated with the Company
Satellites. Prior to 1996, PRIMESTAR Partners had funded substantially all of
the construction and related costs associated with the Company Satellites. In
connection with the Distribution, a determination was made to provide that such
1996 advances from TCIC would be repaid by the Company to TCIC to the extent
(and only to the extent) that Tempo received corresponding advances from
PRIMESTAR Partners. As a result of negotiations between the Company and
PRIMESTAR Partners to resolve a disagreement concerning the Company Satellites,
PRIMESTAR Partners advanced $73,786,000 to Tempo in December 1996 to reimburse
Tempo for all of the 1996 costs which previously had been funded by TCIC. Upon
receipt, such advance was paid to TCIC by Tempo in repayment of such 1996
advances made by TCIC.
II-10
<PAGE>
During the years ended December 31, 1996, 1995 and 1994, the Company's
operating activities provided cash of $115,201,000, $64,193,000 and $20,122,000,
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 $8,378,000, $(4,007,000) and
$5,392,000 during the years ended December 31, 1996, 1995 and 1994,
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 years ended December 31, 1996, 1995 and 1994, the Company
used cash of $74,785,000, $104,128,000 and $207,608,000, respectively, to fund
the cost of constructing the Company Satellites and $326,621,000, $442,782,000
and $109,184,000, respectively, to fund (i) the acquisition and installation of
satellite reception equipment, and (ii) certain other capital expenditures.
Based upon current business plans, the Company estimates that its aggregate
capital expenditures will range from $630,000,000 to $670,000,000 for its medium
power satellite business during the two-year period ended December 31, 1998. The
Company expects that the majority of such estimated capital expenditures will be
used to fund the acquisition and installation of satellite reception equipment.
The actual amount of capital to be required will be primarily a function of (i)
subscriber growth and churn rates, and (ii) the actual cost of purchasing and
installing satellite reception equipment. Accordingly, no assurance can be given
that the Company's actual capital expenditures during the two-year period ended
December 31, 1998 will not exceed the estimated capital expenditures set forth
above. As described above, the scheduled rates for the services to be provided
by TCIC pursuant to the Fulfillment Agreement exceed the schedule rates upon
which charges were allocated to the Company for such services through December
31, 1996.
Pursuant to the Company's Cable Plus Strategy, the Company intends to
operate Tempo DBS-1, either directly or through PRIMESTAR Partners, as a
complementary service to basic cable and other channel constrained analog
services, providing DBS services on a wholesale basis to those system operators
wishing to avoid the high cost of digital plant upgrades. Additionally, subject
to future advances in high compression digital statistical compression
multiplexing technology, the Company may elect to operate Tempo DBS-1 as a
stand-alone DBS offering. The aforementioned estimated capital expenditure
amounts do not include any amounts that would be required if the Company were to
pursue the Cable Plus Strategy or another strategy with respect to the high
power segment of the digital satellite industry, to complete any significant
acquisitions, or to enter into any other business activities. The Company
presently is unable to reasonably estimate the amount of capital expenditures
that would be required in connection with any such high power satellite
strategy, acquisitions or other business activities that might be pursued by the
Company.
At December 31, 1996, the Company's future minimum commitments to
purchase satellite reception equipment aggregated approximately $10,600,000.
II-11
<PAGE>
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 years ended December 31, 1996 and 1995,
residual payments to such master sales agents aggregated $11,848,000 and
$2,178,000, respectively and were charged to expense in the period paid.
In connection with the Distribution, the Company entered into the
Indemnification Agreements with TCIC and TCI UA 1, Inc. ("TCI UA 1"). The
Indemnification Agreement with TCIC provides for the Company to reimburse TCIC
for any amounts drawn under an irrevocable transferable letter of credit issued
by the Bank of New York for the account of TCIC to support the Company's share
of PRIMESTAR Partners' obligations under the GE-2 Agreement. The drawable amount
of such letter of credit is $25,000,000.
Subsequent to December 31, 1996, an additional irrevocable
transferable letter of credit was issued pursuant to the Bank Credit Facility
for the account of TSAT to support the Company's share of PRIMESTAR Partners'
obligations under the GE-2 Agreement. The initial drawable amount of this
letter of credit is $25,000,000, increasing to $50,000,000 if PRIMESTAR Partners
exercises the End-Of-Life Option.
The Indemnification Agreement with TCI UA 1 provides for the Company
to reimburse TCI UA 1 for any amounts drawn under the TCI UA 1 Letter of Credit,
which supports the PRIMESTAR Credit Facility. At December 31, 1996, the
drawable amount of the TCI UA 1 Letter of Credit was $141,250,000.
Subsequent to December 31, 1996, an additional irrevocable
transferable letter of credit was issued pursuant to the Bank Credit Facility
for the account of TSAT to support the PRIMESTAR Credit Facility. The drawable
amount of this letter of credit is $5,000,000.
The Indemnification Agreements provide for the Company to indemnify and hold
harmless TCIC and TCI UA 1 and certain related persons from and against any
losses, claims, and liabilities arising out of the respective letters of credit
or any drawings thereunder. The payment obligations of the Company to TCIC and
TCI UA1, respectively, under such Indemnification Agreements are subordinated in
right of payment with respect to the obligations of the Company under the Bank
Credit Facility.
The amounts advanced by PRIMESTAR Partners to the Company to fund the
cost of constructing the Company Satellites ($457,685,000 at December 31, 1996)
have been financed by PRIMESTAR Partners' borrowings under the PRIMESTAR Credit
Facility, which is in turn supported by letters of credit arranged for by
affiliates of all but one of the partners of PRIMESTAR Partners. At December
31, 1996, PRIMESTAR Partners' indebtedness under the PRIMESTAR Credit Facility
aggregated $521,000,000, including amounts borrowed to pay interest charges.
The PRIMESTAR Credit Facility matures on June 30, 1997 and the Company and
PRIMESTAR Partners are currently evaluating long-term refinancing alternatives
with respect to the Company Satellites. In the interim, it is anticipated that
PRIMESTAR Partners will seek to extend the maturity date of the PRIMESTAR Credit
Facility. No assurance can be given that the maturity date of the PRIMESTAR
Credit Facility will be extended on terms that are acceptable to PRIMESTAR
Partners or that the Company and PRIMESTAR Partners will be successful in
obtaining long-term financing for the Company Satellites.
II-12
<PAGE>
Subsequent to December 31, 1996, TCI agreed to cause TCI UA 1 to renew
the letters of credit arranged by them on the Company's behalf, through December
31, 1997. The Company believes (but cannot assure) that during such period the
Company and/or PRIMESTAR Partners will be able to obtain permanent financing for
the Company Satellites (to the extent not sold to a person other than PRIMESTAR
Partners) on a basis that does not require the Company to post a letter of
credit with respect thereto. If such permanent financing is not available, under
certain maintenance covenants contained in the Bank Credit Facility, the Company
would be unable to provide or arrange for such a letter of credit unless (i) the
lenders under the Bank Credit Facility were to agree to amend or waive such
covenants to permit the posting of such letter of credit by the Company, (ii)
TCI were to agree to renew the TCI UA 1 Letter of Credit for an additional
period, or (iii) the Company were to achieve a greater than anticipated increase
in Operating Cash Flow. If the Company and/or PRIMESTAR Partners are unable to
refinance the Company Satellites (to the extent not sold to a person other than
PRIMESTAR Partners) without a letter of credit and is unable to post (or arrange
for the posting of) such a letter of credit (a "Letter of Credit Event"), the
Company could be adversely affected.
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, those subsidiaries of the Company that are general
partners of PRIMESTAR Partners are 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 notes 6 and 13 to the accompanying financial
statements of the Company.
The International Bureau of the FCC has granted EchoStar a conditional
authorization to construct, launch and operate a Ku-band domestic fixed
satellite into the orbital position at 83 degrees W.L., immediately adjacent to
that occupied by GE-2, the spacecraft now used to provide the PRIMESTAR(R)
service. Contrary to previous FCC policy, EchoStar was authorized to operate at
a power level of 130 watts. If EchoStar were to launch its high power satellite
authorized to 83 degrees W.L. and commence operations at that location at a
power level of 130 watts, it would likely cause harmful interference to the
reception of the PRIMESTAR(R) signal by subscribers to such services.
Subsequently, GE Americom and PRIMESTAR Partners separately requested
reconsideration of the International Bureau's authorization for EchoStar to
operate at 83 degrees W.L. These requests were opposed by EchoStar and others.
These requests currently are pending at the International Bureau. In addition,
GE Americom and PRIMESTAR Partners have attempted to resolve potential
coordination problems directly with EchoStar. It is uncertain whether any
coordination between PRIMESTAR Partners and EchoStar will resolve such
interference. There can be no assurance that the International Bureau will
change slot assignments, or power levels, in a fashion that eliminates the
potential for harmful interference. Although the ultimate outcome of this
matter cannot presently be predicted, the Company believes that any such outcome
would not have a material adverse effect on the Company's financial condition
and results of operations.
At December 31, 1996, 9,027,439 shares of Series A Common Stock were
reserved for issuance pursuant to certain option agreements and certain
arrangements with TCIC. See note 10 to the accompanying financial statements of
the Company
Effective as of October 21, 1996, the Company acquired 4.99% of the
issued and outstanding capital stock of ResNet for a purchase price of
$5,396,000. Prior to the investment by the Company, ResNet was a wholly owned
subsidiary of LodgeNet. ResNet was formed by LodgeNet in February 1996 to
engage in the ResNet Business. ResNet agreed to purchase from the Company up to
$40,000,000 in satellite reception equipment, to be used in connection with the
ResNet Business exclusively over a five-year period (subject to a one-year
extension at the option of ResNet if ResNet has not purchased the full
$40,000,000 in equipment during the five-year initial term).
The Company also agreed to make a subordinated convertible term loan
to ResNet, in the principal amount of $34,604,000, the proceeds of which can be
used only to purchase such equipment from the Company. The term of the loan is
five years with an option by ResNet to extend the term for one additional year.
The total principal and accrued and unpaid interest under the loan is
convertible over a four-year period into shares of common stock of ResNet
representing 32% of the issued and outstanding common stock of ResNet. The
Company's only recourse with respect to repayment of the loan is conversion into
ResNet stock or warrants as described below. Under current interpretations of
the FCC rules and regulations related to restrictions on cross-ownership of
cable and satellite master antenna television operations, the Company would be
prohibited from holding 5% or more of the stock of ResNet and consequently could
not exercise the conversion rights under the convertible loan agreement. The
Company is required to convert the convertible loan at such time as conversion
would not violate such currently applicable regulatory restrictions. For
additional information concerning this transaction, see note 8 to the
accompanying financial statements of the Company.
II-13
<PAGE>
The Company believes that the net proceeds from the sale of the Notes,
borrowing availability pursuant to the Bank Credit Facility and any funds
generated by the Company's operating activities will be sufficient through
December 31, 1998, to fund the Company's working capital, debt service and
currently projected capital expenditure requirements associated with its medium
power satellite distribution business and the proposed Cable Plus Strategy, if
implemented as described herein. However, to the extent that the Company (i)
funds all or any significant portion of the cost of the Company Satellites, (ii)
pursues a strategy with respect to the high power segment of the digital
satellite industry other than, or in addition to, the Cable Plus Strategy, (iii)
completes any significant acquisitions, (iv) enters into any other business
activities, other than the Cable Plus Strategy and its existing medium power
satellite distribution business, (v) suffers a Letter of Credit Event or is
required to meet other significant future liquidity requirements in addition to
those described above, the Company anticipates that it would be required to
obtain additional debt or equity financing. No assurance can be given, however,
that the Company would be able to obtain additional financing on terms
acceptable to it, or at all.
The Company is highly leveraged. The degree to which the Company is
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 repay or refinance its debt will require
the Company to increase its Operating Cash Flow or to obtain additional debt or
equity financing. There can be no assurance that the Company will be successful
in increasing its Operating Cash Flow by a sufficient magnitude or in a timely
manner or in raising sufficient additional debt or equity financing to enable it
to repay or refinance its debt.
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
The consolidated financial statements of the Partnership are filed
under this item beginning on page II-15. All financial statement schedules are
omitted as they are not required or are not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------ ---------------------------------------------------------------
Financial Disclosure.
--------------------
None.
II-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TCI Satellite Entertainment, Inc.:
We have audited the accompanying balance sheets of TCI Satellite
Entertainment, Inc., (as defined in note 1) as of December 31, 1996 and 1995 and
the related combined statements of operations, equity, and cash flows for each
of the years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present
fairly, in all material respects, the financial position of TCI Satellite
Entertainment, Inc., as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 25, 1997
II-15
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
---------- ----------
amounts in thousands
Assets
- ------
Cash and cash equivalents $ 6,560 1,801
Accounts receivable 24,731 29,192
Less allowance for doubtful accounts 4,666 4,819
---------- ----------
20,065 24,373
---------- ----------
Prepaid expenses 927 86
Investment in, and related advances to,
PRIMESTAR Partners L.P., ("PRIMESTAR
Partners") (note 6) 32,240 17,963
Property and equipment, at cost:
Satellite reception equipment 595,249 422,070
Subscriber installation costs 175,553 128,870
Support equipment 28,332 12,395
Cost of satellites under construction (note 7) 457,685 382,900
---------- ----------
1,256,819 946,235
Less accumulated depreciation 149,165 57,015
---------- ----------
1,107,654 889,220
---------- ----------
Other assets (note 8) 12,827 --
---------- ----------
$1,180,273 933,443
========== ==========
(continued)
II-16
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
BALANCE SHEETS, CONTINUED
December 31, 1996 and 1995
1996 1995
---------- ----------
amounts in thousands
Liabilities and Equity
- ----------------------
Accounts payable $ 18,860 11,378
Accrued charges from PRIMESTAR Partners (note 6) 37,943 26,420
Accrued charges from TCI Communications, Inc.
("TCIC) (note 12) 8,381 --
Other accrued expenses 15,567 11,483
Subscriber advance payments 22,249 13,244
Due to PRIMESTAR Partners (note 7) 457,685 382,900
Debt (note 9) 247,230 --
Deferred income taxes (note 11) -- 4,434
---------- ----------
Total liabilities 807,915 449,859
---------- ----------
Equity:
Preferred stock, $.01 par value;
authorized 5,000,000; none issued -- --
Series A common stock, $1 par value;
authorized 185,000,000;
issued 57,946,044 in 1996 57,946 --
Series B common stock, $1 par value;
authorized 10,000,000 shares;
issued 8,466,564 in 1996 8,467 --
Additional paid-in capital 521,724 --
Accumulated deficit (215,779) (75,775)
Due to TCIC (notes 2 and 12) -- 559,359
---------- ----------
Total equity 372,358 483,584
---------- ----------
Commitments and contingencies
(notes 2, 6, 7, 8, 9, 10, 12 and 13)
$1,180,273 933,443
========== ==========
See accompanying notes to financial statements.
II-17
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
COMBINED STATEMENTS OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
amounts in thousands
<S> <C> <C> <C>
Revenue:
Programming and equipment rental $ 351,548 133,688 18,641
Installation 65,913 75,215 11,638
--------- ------- -------
417,461 208,903 30,279
--------- ------- -------
Operating costs and expenses:
Programming and other charges
from PRIMESTAR Partners (note 6) 188,724 78,250 11,632
Other operating:
TCIC (note 12) 20,365 15,916 4,367
Other 8,181 1,884 --
Selling, general and administrative:
TCIC (note 12) 18,120 7,817 1,080
Other 175,000 110,250 8,027
Depreciation (note 3) 191,355 55,488 14,317
--------- ------- -------
601,745 269,605 39,423
--------- ------- -------
Operating loss (184,284) (60,702) (9,144)
--------- ------- -------
Other income (expense):
Interest expense:
TCIC (note 9) (1,946) -- --
Other (77) -- --
Interest income 2,648 306 306
Share of losses of PRIMESTAR
Partners (note 6) (3,275) (8,969) (11,722)
Other, net 993 -- --
--------- ------- -------
(1,657) (8,663) (11,416)
--------- ------- -------
Loss before income taxes (185,941) (69,365) (20,560)
Income tax benefit (note 11) 45,937 21,858 6,872
--------- ------- -------
Net loss $(140,004) (47,507) (13,688)
========= ======= =======
Pro forma net loss per common share
(note 4) $ (2.11) (.72)
========= =======
</TABLE>
See accompanying notes to financial statements.
II-18
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
COMBINED STATEMENTS OF EQUITY
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- paid-in Accumulated Total
Series A Series B capital deficit Due to TCI equity
-------- -------- ------- ----------- ---------- ------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ -- -- -- (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 -- -- -- -- 12,136 12,136
Net cash transfers from TCIC -- -- -- -- 354,168 354,168
-------- -------- ------- ----------- ---------- ------
Balance at December 31, 1995 -- -- -- (75,775) 559,359 483,584
Net loss -- -- -- (140,004) -- (140,004)
Allocation of TCIC expenses -- -- -- -- 38,485 38,485
Allocation of TCIC installation
costs -- -- -- -- 53,169 53,169
Intercompany income tax allocation -- -- -- -- (70,645) (70,645)
Net cash transfers from TCIC -- -- -- -- 228,622 228,622
Recognition of deferred tax assets
upon transfer of PRIMESTAR Partners
investment in connection with
Distribution (note 11) -- -- -- -- 29,142 29,142
Adjustment to reflect consummation
of Distribution (note 2) 57,941 8,467 521,724 -- (838,132) (250,000)
Issuance of Series A Common Stock
upon conversion of convertible
notes of a TCI subsidiary 5 -- -- -- -- 5
-------- -------- ------- ----------- ---------- -------
Balance at December 31, 1996 $57,946 8,467 521,724 $(215,779) -- 372,358
======== ======== ======= =========== ========== =======
</TABLE>
See accompanying notes to financial statements.
II-19
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
amounts in thousands
(see note 5)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(140,004) (47,507) (13,688)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 191,355 55,488 14,317
Share of losses of PRIMESTAR
Partners 3,275 8,969 11,722
Deferred income tax expense 24,708 14,672 2,739
Other non-cash charges (credits) (311) 901 (87)
Changes in operating assets and
liabilities:
Change in receivables 4,364 (21,859) (1,809)
Change in prepaids (841) (86) --
Change in accruals and payables 23,650 42,135 5,624
Change in subscriber advance
payments 9,005 11,480 1,304
--------- -------- --------
Net cash provided by
operating activities 115,201 64,193 20,122
--------- -------- --------
Cash flows from investing activities:
Capital expended for construction
of satellites (74,785) (104,128) (207,608)
Capital expended for property
and equipment (326,621) (442,782) (109,184)
Additional investments, in and related
advances to, PRIMESTAR Partners (17,552) (17,139) (32,082)
Investment in ResNet Communications,
Inc. (5,458) -- --
Repayment of advances to PRIMESTAR
Partners -- 30,192
--------- -------- --------
Net cash used in investing
activities (424,416) (564,049) (318,682)
--------- -------- --------
Cash flows from financing activities:
Increase in due to PRIMESTAR Partners 74,785 104,128 207,608
Increase in due to TCIC 250,189 397,529 90,952
Borrowings of debt 259,000 -- --
Repayments of debt (263,000) -- --
Payment of deferred financing costs (7,000) -- --
--------- -------- --------
Net cash provided by financing
activities 313,974 501,657 298,560
--------- -------- --------
Net increase in cash and
cash equivalents 4,759 1,801 --
Cash and cash equivalents:
Beginning of period 1,801 -- --
--------- -------- --------
End of period $ 6,560 1,801 --
========= ========= ========
</TABLE>
See accompanying notes to financial statements.
II-20
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(1) Basis of Presentation
---------------------
The accompanying financial statements of TCI Satellite Entertainment,
Inc. ("TSAT") include the historical financial information of (i) certain
satellite television assets (collectively, "TCI SATCO") of TCIC, a
subsidiary of Tele-Communications, Inc. ("TCI") for periods prior to the
December 4, 1996 consummation of the distribution transaction (the
"Distribution") described in note 2, and (ii) TSAT and its consolidated
subsidiaries for the period following such date. Upon consummation of the
Distribution, TSAT became the owner of the assets that comprise TCI SATCO,
which assets include (i) a 100% ownership interest in the TCIC business
that distributed 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"), and (iii) a 20.86%
aggregate ownership interest in PRIMESTAR Partners.
Tempo holds a permit (the "FCC Permit") issued by the Federal
Communications Commission ("FCC") authorizing the construction, launch and
operation of a direct broadcast satellite ("DBS") system. Tempo is also a
party to a construction agreement (the "Satellite Construction Agreement")
with Space Systems/Loral, Inc. ("Loral"), pursuant to which Tempo arranged
for the construction of two high power communications satellites (the
"Company Satellites") and has an option to purchase up to three additional
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 TSAT and certain other authorized
distributors.
In the following text, the "Company" may, as the context requires, refer to
"TCI SATCO" (prior to the December 4, 1996 completion of the Distribution),
TSAT and its consolidated subsidiaries (subsequent to the December 4, 1996
completion of the Distribution) or both. See note 2. 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 and intercompany transactions have been
eliminated.
As further discussed in note 12, the accompanying combined statements
of operations include allocations of certain costs and expenses of TCI.
Although such allocations are not 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.
(continued)
II-21
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
(2) Distribution Transaction
------------------------
General
On June 17, 1996, the Board of Directors of TCI (the "TCI Board")
announced its intention to distribute 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"). On December 4, 1996, the Distribution was effected as a
distribution by TCI to holders of record of its TCI Group Common Stock as
of the close of business on November 12, 1996 (the "Record Date") 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 did 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.
Stockholders of record of TCI Group Common Stock on the Record Date
received 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 were not issued. Fractions of one-
half or greater of a share were rounded up and fractions of less than one-
half of a share were rounded down to the nearest whole number of shares of
Series A Common Stock and Series B Common Stock. Immediately following the
Distribution, 57,941,044 shares of Series A Common Stock and 8,466,564
shares of Series B Common Stock were issued and outstanding.
Subsequent to the Distribution, the Company and TCI have operated
independently, and neither has 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 into various agreements, including the "Reorganization
Agreement (see below)," the "Fulfillment Agreement (see note 12)," the
"Indemnification Agreements (see note 13)," the "TCIC Credit Facility (see
note 9)," the "Transition Services Agreement (see note 12)," and an
amendment to TCI's existing "Tax Sharing Agreement (see note 11)."
(continued)
II-22
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
Reorganization Agreement
The Reorganization Agreement provided for, among other things, the
transfer to the Company of the assets of TCI SATCO, and for the assumption
by the Company of related liabilities. No consideration was payable by the
Company for these transfers, except that two subsidiaries of the Company
purchased TCIC's partnership interests in PRIMESTAR Partners for
consideration payable by delivery of promissory notes issued by such
subsidiaries, which notes were assumed by TCI on or before the Distribution
Date, in the form of a capital contribution to the Company. The
Reorganization Agreement also provides 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 makes 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 having been a subsidiary of TCI.
Pursuant to the Reorganization Agreement, on the Distribution Date,
the Company issued 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. On December 31, 1996, the
Company entered into a bank credit agreement with respect to a senior
secured reducing revolving credit facility (the "Bank Credit Facility") and
used a portion of the borrowing availability thereunder to repay in full
all principal and interest due to TCIC pursuant to the Company Note. See
note 9 and related discussion below.
Pursuant to the Reorganization Agreement, the remainder of the
Company's intercompany balance owed to TCIC on the Distribution Date (other
than certain advances made to the Company by TCIC in 1996 to fund certain
construction and related costs associated with the Company Satellites, as
described in note 7) was assumed by TCI in the form of a capital
contribution to the Company. In addition, the Company (i) assumed TCI's
obligations under options to be granted on the Distribution Date to certain
key employees of TCI (who are not employees of the Company) representing,
in aggregate, 2.5% of the shares of Company Common Stock issued and
outstanding on the Distribution Date, after giving effect to the
Distribution, and (ii) granted to TCI an option to purchase up to 4,765,000
shares of Series A Common Stock, at an exercise price of $1.00 per share,
as required by TCI from time to time to meet its obligations under the
conversion features of certain convertible securities of TCI as such
conversion features were adjusted as a result of the Distribution. See note
10 for related discussion.
(continued)
II-23
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
(3) Changes in Accounting
---------------------
During the fourth quarter of 1996, the Company re-evaluated certain of
its depreciation policies. After considering relevant accounting
literature, current accounting practices in similar industries, and other
factors, the Company concluded that the most appropriate depreciation
policy for its subscriber installation costs was to depreciate subscriber
installation costs on a straight line basis over the estimated average life
of a subscriber, and charge to depreciation expense the unamortized balance
of installation costs associated with customers who have terminated service
with the Company. The Company believes the new policy is more appropriate
than the prior method since, under the new policy, subscriber installation
costs associated with subscribers whose service has been terminated are no
longer carried on the Company's balance sheet after the date of
termination. This change was adopted effective October 1, 1996 and was
treated as a change in accounting policy that was inseparable from a change
in estimate. Accordingly, the cumulative effect of such change for periods
prior to October 1, 1996, together with the fourth quarter 1996 effect of
such change, was included in the Company's depreciation expense for the
fourth quarter of 1996. Consequently, this change in policy resulted in
increases to the Company's depreciation expense, net loss and pro forma net
loss per share for the year ended December 31, 1996 of $55,304,000
($8,754,000 of which relates to periods prior to January 1, 1996)
$41,478,000 ($6,566,000 of which relates to periods prior to January 1,
1996) and $.62 ($.10 of which relates to periods prior to January 1, 1996),
respectively).
In connection with the aforementioned discussion of the Company's
accounting policies with respect to subscriber installation costs, the
Company also determined that a reduction in the estimated useful life of
certain satellite reception equipment was appropriate in light of certain
changes in the Company's expectations with respect to technological and
other factors. This change in estimate was given effect on a prospective
basis as of October 1, 1996. This change in estimate resulted in increases
to the Company's depreciation expense, net loss and pro forma net loss per
share for the year ended December 31, 1996 of $7,796,000, $5,847,000 and
$.09, respectively.
(continued)
II-24
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
(4) Summary of Significant Accounting Policies
------------------------------------------
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the date of acquisition to be cash equivalents.
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 6 years (4 to 8
years through September 30, 1996) for satellite reception equipment and 3
to 10 years for support equipment. Subscriber installation costs are
depreciated over the estimated average life of a subscriber (4 years). Any
subscriber installation costs that have not been fully depreciated at the
time service to a subscriber is terminated are charged to depreciation
expense during the period in which such termination occurs. See note 3.
Installation charges from TCIC include direct and indirect costs of
performing installations. Through the Distribution Date, the Company
capitalized a portion of such charges as subscriber installation costs
based upon amounts charged by unaffiliated third parties to perform similar
services. Subsequent to the Distribution Date, the company has capitalized
the full amount of installation fees paid to TCIC.
Repairs and maintenance are charged to operations, and betterments and
additions are capitalized. At the time of ordinary retirements of satellite
reception equipment, 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 the Satellite Construction
Agreement. See note 7.
(continued)
II-25
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
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") 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. The Company adopted
Statement No. 121 effective January 1, 1996. 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. TSAT
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.
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 13.
(continued)
II-26
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement No. 123") was issued by the Financial
Accounting Standards Board 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. As
allowed by Statement No. 123, the Company continued to account for stock-
based employee compensation pursuant to Accounting Principles Board Opinion
No. 25. For the year ended December 31, 1996, the Company estimates that
stock compensation expense would not be materially different under
Statement No. 123.
Pro Forma Net Loss Per Common Share
As described in note 2, TSAT issued 66,407,608 shares of Company
Common Stock pursuant to the Distribution. The pro forma net loss per
share amounts set forth in the accompanying combined statements of
operations assume that the shares issued pursuant to the Distribution were
issued and outstanding since January 1, 1995. Accordingly, the calculation
of the pro forma net loss per share assumes weighted average shares
outstanding of 66,408,025 and 66,407,608 for the years ended December 31,
1996 and 1995, respectively.
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.
(5) Supplemental Disclosures to Combined Statements of Cash Flows
-------------------------------------------------------------
Cash paid for interest was $1,946,000 during the year ended December
31, 1996, and was not significant during the years ended December 31, 1995
and 1994. Cash paid for income taxes was not material during the years
ended December 31, 1996, 1995 and 1994.
With the exception of certain non-cash transactions described in notes
11 and 12, transactions effected through the intercompany account with TCIC
for periods prior to the Distribution have been considered to be
constructive cash receipts and payments for purposes of the accompanying
combined statements of cash flows.
The non-cash effects of the Distribution are set forth in the
accompanying combined statements of equity.
Accrued capital expenditures of $7,713,000 at December 31, 1996 have
been excluded from the accompanying combined statements of cash flows.
(continued)
II-27
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
(6) Investment in PRIMESTAR Partners
--------------------------------
Summarized unaudited financial information for PRIMESTAR Partners is as
follows (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
---------- -------------
<S> <C> <C>
Financial Position
------------------
Current assets $ 137,048 72,638
Property and equipment, net 18,131 9,990
Cost of satellites under construction 525,746 419,256
Other assets, net 7,348 14,078
--------- --------
Total assets $ 688,273 515,962
========= ========
PRIMESTAR Credit Facility expected
to be refinanced $ 521,000 419,000
Other current liabilities 63,907 37,911
Other liabilities 4,227 7,210
Partners' capital 99,139 51,841
--------- --------
Total liabilities and partners'
capital $ 688,273 515,962
========= ========
<CAPTION>
Years ended December 31,
------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Results of Operations
- ----------------------
Revenue $ 412,999 180,595 27,841
Operating, selling, general and
administrative expenses (426,561) (216,100) (78,175)
Depreciation and amortization (3,261) (2,890) (2,700)
--------- -------- ----------
Operating loss (16,823) (38,395) (53,034)
Other, net 1,121 (3,642) (2,682)
--------- -------- ----------
Net loss $ (15,702) (42,037) (55,716)
========= ======== ==========
</TABLE>
(continued)
II-28
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
The bank credit facility of PRIMESTAR Partners (the "PRIMESTAR Credit
Facility") was obtained by PRIMESTAR Partners to finance advances to Tempo
for payments due in respect of the construction of the Company Satellites,
and is supported by letters of credit arranged for by affiliates of all but
one of the partners of PRIMESTAR Partners. The PRIMESTAR Credit Facility
matures on June 30, 1997. PRIMESTAR is currently seeking to extend the
maturity date of, or otherwise refinance the PRIMESTAR Credit Facility.
See notes 7 and 13.
Since March 10, 1997, PRIMESTAR Partners has broadcast from a medium
power satellite ("GE-2") that was launched on January 30, 1997 by GE
American Communications, Inc. ("GE Americom"). Pursuant to an Amended and
Restated Memorandum of Agreement, effective as of October 18, 1996, between
PRIMESTAR Partners and GE Americom, with respect to PRIMESTAR Partners' use
of transponders on GE-2 (the "GE-2 Agreement"), it is anticipated that
PRIMESTAR Partners will be required to make minimum lease payments for an
initial term of six years from the date of commercial operation,
extendible, at the option of PRIMESTAR Partners for the remainder of the
operational life of GE-2 (the "End-Of-Life Option"). The End-Of-Life
Option expires if not exercised by December 31, 1997.
PRIMESTAR Partners provides programming services to the Company and
other authorized distributors in exchange for a fee based upon the number
of subscribers receiving 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, 1996 and
1995, the charges from PRIMESTAR Partners included approximately
$124,074,000 and $53,006,000, respectively, for programming services, and
$64,650,000 and $25,244,000, respectively, for other items.
(continued)
II-29
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO 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. PRIMESTAR Partners has
contingent liabilities related to legal and other matters arising in the
ordinary course of business. Management of PRIMESTAR Partners is unable at
this time to assess the impact, if any, of such matters on PRIMESTAR
Partners' results of operations, financial position, or cash flows.
(7) Satellites under Construction
-----------------------------
Tempo DBS System
The Company, through Tempo, holds the FCC Permit authorizing construction
of a high power DBS system consisting of two or more satellites delivering
DBS service in 11 frequencies at the 119(degrees) West Longitude ("W.L.")
orbital position and 11 frequencies at the 166(degrees) W.L. orbital
position. The 119(degrees) W.L. orbital position is generally visible to
home satellite dishes throughout the entire continental U.S.; the
166(degrees) W.L. orbital position is visible only in the western half of
the continental U.S. as well as Alaska and Hawaii.
Tempo is also a party to the Satellite Construction Agreement with
Loral, pursuant to which Tempo has arranged for the construction of the
Company Satellites at a fixed contract price of $487,159,500, and has an
option to purchase up to three additional satellites. The cost of
constructing the Company Satellites is reflected in "Cost of satellites
under construction" in the accompanying balance sheets.
As constructed, each Company Satellite can operate in either "single
transponder" mode (with 32 transponders broadcasting at 113 watts per
channel) or in "paired transponder" mode (with 16 transponders broadcasting
at 220 watts per channel). Either such configuration can be selected at any
time, either before or after launch.
(continued)
II-30
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
One of the Company Satellites ("Tempo DBS-1") was outfitted with an antenna
designed for operation at the 119(degrees) W.L. orbital location, and was
launched into geosynchronous orbit on March 8, 1997. The satellite is
currently undergoing in-orbit testing pursuant to the Satellite
Construction Agreement. Assuming the successful in-orbit testing of Tempo
DBS-1, the Company intends to operate such satellite in "paired
transponder" mode, broadcasting on 11 of the 16 available transponder
pairs, in accordance with the FCC Permit. The remaining five transponder
pairs would be available as in-orbit spares. Operating in paired
transponder mode, at current levels of digital compression, Tempo DBS-1
would be able to deliver 70 to 85 channels of digital video
and music programming, depending on the mix of programming content, to home
satellite dishes of less than 14 inches in diameter. If advances in
compression technology currently being tested become commercially
available, Tempo DBS-1 would be able to deliver up to 150 channels of
programming. The Company intends, directly or through PRIMESTAR Partners,
to operate Tempo DBS-1 as a complementary service to basic cable and other
channel-constrained analog services, providing DBS services to those system
operators wishing to avoid the high cost of digital plant upgrades, or,
subject to future advances in high compression digital statistical
multiplexing technology, as a stand-alone DBS service.
The Company has had discussions regarding the possible sale of the
other Company Satellite ("Satellite No. 2"), but has not reached agreement
regarding any such transaction. Any such transaction would be subject to
the successful commercial operation of Tempo DBS-1 (for which Satellite No.
2 serves as ground spare), the prior approval of PRIMESTAR Partners, prior
regulatory approvals, definitive documentation, and other conditions.
Pursuant to an option agreement between Tempo and PRIMESTAR Partners (the
"Tempo Option Agreement"), any proceeds received by the Company from the
sale of Satellite No. 2 would be paid to PRIMESTAR Partners to satisfy
certain advances by PRIMESTAR Partners to the Company to fund construction
of the Company Satellites. There can be no assurance that the Company will
be able to sell Satellite No. 2 on terms acceptable to the Company.
(continued)
II-31
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
Satellite Launches
Pursuant to the Satellite Construction Agreement, Loral must conduct
in-orbit testing. As noted above, Tempo DBS-1 was launched on March 8,
1997 and is currently in the process of in-orbit testing. Delivery of a
satellite takes place upon Tempo's acceptance of such satellite after
completion of in-orbit testing ("Delivery"). 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.
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.
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.
(continued)
II-32
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
Tempo Option
In February 1990, Tempo entered into the Tempo Option Agreement with
PRIMESTAR Partners 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 FCC Permit. Under the Tempo Option Agreement, upon the exercise of the
Tempo Option, PRIMESTAR Partners is obligated to pay Tempo $1,000,000 (the
"Exercise Fee") and to lease or purchase the entire capacity of the DBS
system with the purchase price (or aggregate lease payments) being
sufficient to cover the costs of constructing, launching and operating such
DBS 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 PRIMESTAR Partners to Tempo. PRIMESTAR Partners
financed such advances to Tempo through borrowings under the PRIMESTAR
Credit Facility, which is supported by letters of credit arranged for by
affiliates of all but one of the partners of PRIMESTAR Partners. The
aggregate funding provided to Tempo by PRIMESTAR Partners ($457,685,000 at
December 31, 1996) is reflected in "Due to PRIMESTAR Partners" in the
accompanying balance sheets. At December 31, 1996, the amount borrowed by
PRIMESTAR Partners under the PRIMESTAR Credit Facility was $521,000,000,
including amounts borrowed to pay interest charges. See note 6.
During 1996, TCIC made intercompany advances to the Company to fund
the majority of the construction and related costs associated with the
Company Satellites. Prior to 1996, PRIMESTAR Partners had funded
substantially all of the construction and related costs associated with the
Company Satellites. In connection with the Distribution, a determination
was made that such 1996 advances from TCIC would be repaid by the Company
to TCIC, to the extent (and only to the extent) that Tempo received
corresponding advances from PRIMESTAR Partners. As a result of negotiations
between the Company and PRIMESTAR Partners to resolve a disagreement
concerning the Company Satellites, PRIMESTAR Partners advanced $73,786,000
to Tempo in December 1996 to reimburse Tempo for all of the 1996 costs
which previously had been funded by TCIC. Upon receipt, such advance was
paid to TCIC by Tempo in repayment of such 1996 advances by TCIC.
(continued)
II-33
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
The Tempo Letter Agreements permit PRIMESTAR Partners to apply its
advances to Tempo against any payments (other than the Exercise Fee) due
under the Tempo Option (which the Company believes has been exercised) and
would not require Tempo to repay such advances. In the event that it is
determined that the Tempo Option has not been exercised in accordance with
its terms, Tempo, in lieu of repaying such advances, could elect to assign
all of its rights relating to the Company Satellites to PRIMESTAR Partners.
On February 7, 1997, the Partners Committee of PRIMESTAR Partners adopted a
resolution (i) affirming that PRIMESTAR Partners had unconditionally
exercised the Tempo Option, (ii) approving the proposed launch of Tempo
DBS-1 into the 119(degrees) W.L. orbital position and the use of Satellite
No. 2 as a spare or back-up for Tempo DBS-1, pending other deployment or
disposition as determined by PRIMESTAR Partners, and (iii) authorizing the
payment by PRIMESTAR Partners to Tempo of the Exercise Fee and other
amounts in connection with the Tempo Option and the Tempo Letter
Agreements, including funding of substantially all construction and related
costs relating to the Company Satellites not previously funded by the
Partnership.
The Company currently intends to pursue its high power strategy
through PRIMESTAR Partners, consistent with such resolution. Although the
Company and PRIMESTAR Partners have not entered into an agreement with
respect to the lease or purchase of 100% of the capacity of Tempo DBS-1
pursuant to the Tempo Option, and there can be no assurances that potential
disagreements will not arise as such agreements are negotiated, the Company
does not currently believe that any such potential disagreement is
reasonably likely to have a material adverse effect on the Company.
(8) Other Assets
------------
The components of other assets are as follows (amounts in thousands):
December 31,
1996
------------
Deferred financing costs (a) $ 7,000
Investment in, and advances to, ResNet
Communications, Inc. ("ResNet") (b) 5,827
-------
$12,827
=======
(a) Represents deferred financing costs incurred in connection with
the Bank Credit Facility. Such costs are amortized over the term of
the Bank Credit Facility. See note 9.
(continued)
II-34
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
(b) Effective as of October 21, 1996, the Company acquired 4.99% of
the issued and outstanding capital stock of ResNet for a purchase
price of $5,396,000. ResNet was formed by LodgeNet Entertainment
Corporation ("LodgeNet"), a Delaware corporation, in February 1996 to
engage in the business of providing video services to subscribers in
multiple dwelling units (the "ResNet Business"). ResNet agreed to
purchase from the Company, at a price that approximates the Company's
cost, up to $40 million in satellite reception equipment to be used in
connection with the ResNet Business exclusively, over a five year
period (subject to a one-year extension at the option of ResNet if
ResNet has not purchased the full $40 million in equipment during the
five-year initial term).
The Company also agreed to make a subordinated convertible term
loan to ResNet, in the principal amount of $34,604,000, the proceeds
of which can be used only to purchase such equipment from the Company.
The term of the loan is five years with an option by ResNet to extend
the term for one additional year. The total principal and accrued and
unpaid interest under the loan is convertible over a four-year period
into shares of common stock of ResNet representing an additional 32%
of the issued and outstanding common stock of ResNet. The Company's
only recourse with respect to repayment of the loan is conversion into
ResNet stock or warrants as described below. Under current
interpretations of the FCC rules and regulations related to
restrictions on the provision of cable and satellite master antenna
television services in certain areas, the Company could be prohibited
from holding 5% or more of the stock of ResNet and consequently could
not exercise the conversion rights under the convertible loan
agreement. The Company is required to convert the convertible loan at
such time as conversion would not violate such currently applicable
regulatory restrictions.
In addition, ResNet granted the Company an option to acquire an
additional 13.01% of the issued and outstanding common stock of ResNet
at appraised fair market value at the time of exercise of the option.
The option is exercisable between December 21, 1999 and the maturity
of the convertible loan.
(continued)
II-35
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
The Company also entered into a long-term signal availability
agreement with ResNet, pursuant to which the Company is committed to
transport for a fee to certain defined private cable systems owned and
operated by ResNet, the satellite signal used by PRIMESTAR Partners to
transmit the PRIMESTAR/(R)/ programming service (the "PRIMESTAR
Satellite Signal") or the signal of a substantially comparable
service. The Company is acting solely to make the PRIMESTAR Satellite
Signal available to ResNet and is not acting as a distributor of any
PRIMESTAR/(R)/ programming services to ResNet. ResNet must obtain its
own rights from the applicable programming networks to receive the
programming services and to distribute them to ResNet's subscribers.
The National Digital Television Center of TCI ("NDTC") has the
right from PRIMESTAR Partners to use the PRIMESTAR Satellite Signal
for delivery of programming for the benefit of third parties,
including private cable systems (the "Simultaneous Use Rights"). NDTC
has agreed with the Company that private cable systems designated by
the Company, including the ResNet private cable systems, will receive
the transport of the PRIMESTAR Satellite Signal by NDTC in exchange
for the payment by the Company of a per subscriber per video program
signal. The agreement between the Company and NDTC is coextensive with
the agreement between NDTC and PRIMESTAR Partners, expiring on March
31, 2001, and there is no assurance that the Company will continue to
have the ability to make the PRIMESTAR Satellite Signal available
after that date.
In its agreement with ResNet, the Company has committed to make
the PRIMESTAR Satellite Signal or the signal of a substantially
comparable service available for a term that extends substantially
beyond March 31, 2001. If the Company loses its contractual ability to
make the PRIMESTAR Satellite Signal available and is not able to make
the signal of a substantially comparable service available, the
Company is obligated to reimburse ResNet for its costs in obtaining a
digital signal from another source, including the cost of replacement
equipment if the new digital signal is not compatible with ResNet's
equipment. While it is not possible at this time to quantify the
amount that the Company would be obligated to pay to ResNet under the
circumstances described above, the Company believes that the costs
could be significant, particularly if it were to lose its ability to
make a signal available towards the end of its agreement with ResNet.
Counsel to PRIMESTAR Partners has advised the Company of the
Partnership's position that there are certain preconditions to NDTC's
Simultaneous Use Rights which have not yet been satisfied and that
such rights are not assignable by NDTC to the Company. The Company
believes that its transaction with ResNet and similar transactions are
permitted under the agreements between NDTC and PRIMESTAR Partners.
The Company does not believe that any potential dispute with the
Partnership regarding this issue is likely to have a material adverse
effect on the Company.
(continued)
II-36
<PAGE>
TCI SATELLITE ENTERTAINMENT,INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
(9) Debt
----
The components of debt are as follows (amounts in thousands):
December 31,
1996
------------
Bank Credit Facility (a) $246,000
TCIC Credit Facility (b) --
Other 1,230
--------
$247,230
========
(a) Bank Credit Facility
On December 31, 1996, the Company entered into the Bank Credit
Facility. As a result of the February 1997 issuance of the Notes and
the March 1997 determination that GE-2 was commercially operational,
the available commitments under the Bank Credit Facility were
increased from $350,000,000 to $750,000,000, subject to the Company's
compliance with operating and financial covenants and other customary
conditions. Commencing March 31, 2001, aggregate commitments will be
reduced quarterly in accordance with a schedule, until final maturity
at June 30, 2005. The Company's initial borrowings under the Bank
Credit Facility were used to repay in full the principal amount of
and accrued interest on the Company Note and to fund financing costs
associated with the arrangement of the facility.
Borrowings under the Bank Credit Facility bear interest at variable
rates (9.75% at December 31, 1996). In addition, the Company is
required to pay a commitment fee equal to 0.250% on unavailable
commitments and 0.375% on the average daily unused portion of the
available commitments, payable quarterly in arrears and at maturity.
Aggregate commitment fees during the year ended December 31, 1996
were not significant.
(continued)
II-37
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
Borrowings under the Bank Credit Facility are guaranteed by TSAT's
restricted subsidiaries (currently all of the Company's subsidiaries
except Tempo) (the "Restricted Subsidiaries"), and secured by
collateral assignments or other security interests in (i) all capital
stock of each of the Company's Restricted Subsidiaries and (ii)
substantially all of the Company's assets (other than the Company
Satellites). The Bank Credit Facility contains affirmative covenants
regarding minimum subscribers, revenue per subscriber and debt service
coverage, as well as negative covenants that restrict the Company and
its Restricted Subsidiaries from, among other things, (i) incurring
indebtedness, (ii) creating liens and other encumbrances, (iii)
entering into merger or consolidation transactions, (iv) entering into
transactions with affiliates, (v) making investments, (vi) making
capital expenditures, (vii) paying dividends and other distributions,
(viii) redeeming stock, (ix) redeeming or purchasing of subordinated
debt (except under certain limited circumstances) (x) paying interest
on or principal of subordinated debt during the continuation of (A) an
event of default under the Bank Credit Facility or (B) a default under
the Bank Credit Facility of which management of the Company has actual
or constructive notice, (xi) entering into sale and leaseback
transactions and (xii) engaging in non-designated activities. The Bank
Credit Facility also contains customary events of default and
provisions for mandatory prepayments and commitment reductions in the
event of certain asset sales.
Subsequent to December 31, 1996, two letters of credit with an
aggregate drawable amount of $30,000,000 were issued for the account
of TSAT pursuant to the Bank Credit Facility. See note 13.
(b) TCIC Credit Facility
In connection with the Distribution, the Company and TCIC entered into
the TCIC Credit Facility to provide for the terms of the Company Note
and to provide for a revolving credit facility (the "TCIC Revolving
Loans"). The TCIC Credit Facility required the Company to use its best
efforts to obtain external debt or equity financing after the
Distribution Date and provided for mandatory prepayment of the TCIC
Revolving Loans and the Company Note from the proceeds thereof. As
described in (a) above, the initial borrowings under the Bank Credit
Facility were used to repay the Company Note in full. In connection
with the February 1997 issuance of the Notes (see note 15) and the
March 1997 determination that GE-2 was commercially operational,
borrowing availability pursuant to the TCIC Credit Facility was
terminated.
(continued)
II-38
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1996, annual maturities of the Company's debt for each
of the next five years were as follows (amounts in thousands):
1997 $321
1998 324
1999 578
2000 --
2001 --
The Company believes that the fair value and the carrying value of the
Company's debt were approximately equal at December 31, 1996.
On February 20, 1997, the Company issued 10-7/8% Senior Subordinated
Notes due 2007 having an aggregate principal amount of $200,000,000 the
("Senior Subordinated Notes") and 12-1/4% Senior Subordinated Discount
Notes due 2007 having a principal amount at maturity of $275,000,000 (the
"Senior Subordinated Discount Notes" at maturity, and together with the
Senior Subordinated Notes, the "Notes"). The net proceeds from the
issuance of the Notes (approximately $340,500,000 after deducting offering
expenses) were initially held in escrow and were subsequently released to
the Company on March 17, 1997. The Company initially used $244,404,000 of
such net proceeds to repay amounts outstanding under the Bank Credit
Facility and expects to use the remaining net proceeds to fund capital
expenditures and operations and to provide for working capital and for
other general corporate purposes.
Cash interest on the Senior Subordinated Notes will be payable semi-
annually in arrears on February 15 and August 15, commencing August 15,
1997. Cash interest will not accrue or be payable on the Senior
Subordinated Discount Notes prior to February 15, 2002. Thereafter cash
interest will accrue at a rate of 12-1/4% per annum and will be payable
semi-annually in arrears on February 15 and August 15, commencing August
15, 2002, provided however, that at any time prior to February 15, 2002,
the Company may make a Cash Interest Election (as defined) on any interest
payment date to commence the accrual of cash interest from and after the
Cash Election Date (as defined). The Notes will be redeemable at the
option of the Company, in whole or in part, at any time after February 15,
2002 at specified redemption prices. In addition, prior to February 15,
2000, the Company may use the net cash proceeds from certain specified
equity transactions to redeem up to 35% of the Senior Subordinated Discount
Notes at specified redemption prices. The Notes were not originally
registered under the Securities Act of 1933, as amended (the "Securities
Act") and the Company may incur interest penalties in the event that the
Notes are not registered under the Securities Act by July 5, 1997, and
under certain other circumstances relating to such registration.
(continued)
II-39
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
(10) Stockholders' Equity
--------------------
Common Stock
The Series A Common Stock has one vote per share and the Series B
Common Stock has ten votes per share. Each share of Series B Common Stock
is convertible, at the option of the holder, into one share of Series A
Common Stock.
Preferred Stock
TSAT is authorized to issue 5,000,000 shares of Preferred Stock. The
Preferred Stock may be issued from time to time as determined by the Board
of Directors, without stockholder approval. Such Preferred Stock may be
issued in such series and with such designations, preferences, conversion
or other rights, voting powers, qualifications, limitations, or
restrictions as shall be stated or expressed in a resolution or resolutions
providing for the issue of such series adopted by the Board of Directors.
The Board of Directors has not authorized the issuance of any shares of
Preferred Stock and has no current plans for the issuance of any shares of
Preferred Stock.
Employee Benefit Plans
TSAT's Employee Stock Purchase Plan (the "TSAT ESPP"), which became
effective on January 1, 1997, provides eligible employees with an
opportunity to invest in TSAT and to create a retirement fund. Terms of
the TSAT ESPP provide for eligible employees to contribute up to 10% of
their compensation to a trust for investment in TSAT common stock. TSAT,
by annual resolution of the TSAT Board of Directors, may elect to
contribute up to 100% of the amount contributed by employees.
Stock Options
On the Distribution Date, the Company Board adopted, and TCI as the
sole stockholder of the Company prior to the Distribution, approved, the
TCI Satellite Entertainment, Inc. 1996 Stock Incentive Plan (the "1996
Plan"). The 1996 Plan provides 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,
stock appreciation rights ("SARs"), restricted shares, stock units,
performance awards or any combination thereof (collectively, "Awards").
Awards may be made to employees and to consultants and advisors to the
Company who are not employees. Shares of Series A Common Stock that are
subject to Awards that expire, terminate or are annulled for any reason
without having been exercised (or deemed exercised, by virtue of the
exercise of a related SAR), or are forfeited prior to becoming vested, will
return to the pool of such shares available for grant under the 1996 Plan.
(continued)
II-40
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
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 two executive officers of TCI who are not employees
of the Company (the "TCI Officers"), of 1.0% of the net equity of the
Company. The TCI Board also approved the acquisition by a former executive
officer of TCIC who is also the chief executive officer and a director of
the Company (the "Company Officer"), of 1.0% of the net equity of the
Company and the acquisition by an executive officer of certain TCI
subsidiaries who is also a director, but not an employee, of the Company
(the "TCI Subsidiary Officer"), of 0.5% of the net equity of the Company.
The TCI Board determined to structure such transactions as grants by the
Company to such persons of options to purchase shares of Series A Common
Stock representing 1.0% (in the case of each of the TCI Officers and the
Company Officer) and 0.5% (in the case of the TCI Subsidiary Officer) of
the shares of Series A Common Stock and Series B Common Stock issued and
outstanding on the Distribution Date, determined immediately after giving
effect to the Distribution, but before giving effect to any exercise of
such options (the "Distribution Date Options"). The aggregate exercise
price for each such option is equal to 1.0% (in the case of each of the TCI
Officers and the Company Officer) and 0.5% (in the case of the TCI
Subsidiary Officer) of TCI's Net Investment (as defined below) as of the
first to occur of the Distribution Date and the date on which such option
first becomes exercisable, but excluding any portion of TCI's Net
Investment that as of such date is represented by a promissory note or
other evidence of indebtedness from the Company to TCI. TCI's Net
Investment is defined for this purpose as the cumulative amount invested by
TCI and its predecessor in the Company and its predecessors prior to and
including the applicable date of determination, less the aggregate amount
of all dividends and distributions made by the Company and its predecessors
to TCI and its predecessor prior to and including such date. Distribution
Date Options to purchase 2,324,266 shares of Series A Common Stock at a per
share price of $8.86 were granted on the Distribution Date, will vest in
20% cumulative increments in each of the first five anniversaries of
February 1, 1996, and will be exercisable for up to ten years following
February 1, 1996.
The Company Officer received 664,076 of the Distribution Date Options
and such options were granted pursuant to the 1996 Plan. As of the grant
date, the Distribution Date Options received by the Company Officer had an
estimated aggregate fair value of $5,806,000. Such estimated fair value is
based on the Black-Scholes model and is stated in current annualized
dollars on a present value basis. The key assumptions used in the model
for purposes of this calculation include the following: (a) a 6.22%
discount rate; (b) a 35% volatility factor, (c) the 10-year option term;
(d) the closing price of Series A Common Stock on December 5, 1996; and (e)
a per share exercise price of $8.86. The actual value that the Company
Officer 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 realized by the Company Officer will not necessarily
be the value determined by the model. Compensation expense with respect to
the Distribution Date Options held by the Company Officer, aggregated
$95,000 during the year ended December 31, 1996.
(continued)
II-41
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
Pursuant to the Reorganization Agreement, and (in the case of the TCI
Officers and the TCI Subsidiary Officer) in partial consideration for the
capital contribution made by TCI to the Company in connection with the
Distribution, the Company agreed, effective as of the Distribution Date, to
bear all obligations under such options and to enter into stock option
agreements with respect to such options with each of the TCI Officers, the
Company Officer and the TCI Subsidiary Officer
Subsequent to December 31, 1996, certain key employees of TSAT were
granted, pursuant to the 1996 Plan, an aggregate of 820,000 options in
tandem with stock appreciation rights to acquire shares of Series A Common
Stock at a per share exercise price of $8.00, and an aggregate of 325,000
restricted shares of Series A Common Stock. Each such grant of options
with tandem appreciation rights vests evenly over five years with such
vesting period beginning January 1, 1997, first become exercisable on
January 1, 1998 and expires on December 31, 2006. Each such grant of
restricted shares vests as to 50% on January 1, 2001, and as to the
remaining 50% on January 1, 2002.
Other
In connection with the Distribution, TCI and the Company also entered
into a "Share Purchase Agreement" to sell to each other from time to time,
at the then current market price, shares of Series A TCI Group Common Stock
and Series A Common Stock, respectively, as necessary to satisfy their
respective obligations after the Distribution Date under certain stock
options and SARS held by their respective employees and non-employee
directors.
At December 31, 1996, there were 2,324,266, 1,938,173 and 4,765,000
shares of Series A Common Stock reserved for issuance pursuant to the
Distribution Date Options, the Share Purchase Agreements and the
Reorganization Agreement, respectively, (see note 2). In addition, as a
result of the above-described convertibility feature of the Series B Common
Stock, one share of Series A Common Stock is reserved for each share of
outstanding Series B Common Stock.
(11) Income Taxes
------------
Prior to the Distribution, the Company was included in the
consolidated Federal and state income tax returns of TCI. Income tax
benefit for the Company was based on those items in TCI's consolidated
calculation applicable to the Company. Intercompany tax allocation
represented 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 was recorded as an increase or decrease in "Due
to TCIC," as reflected in the accompanying balance sheets. Effective as of
the Distribution Date, the Company became a separate tax paying entity, and
accordingly, is no longer a part of the TCI consolidated tax group.
(continued)
II-42
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
A tax sharing agreement (the "Tax Sharing Agreement") among TCI, 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 has been calculated in accordance with
the Tax Sharing Agreement. In connection with the Distribution, the Tax
Sharing Agreement was 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)
II-43
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
Income tax benefit (expense) for the years ended December 31, 1996, 1995 and
1994 consists of (amounts in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
<S> <C> <C> <C>
Year ended December 31, 1996:
Intercompany allocation $70,645 -- 70,645
Federal -- (17,699) (17,699)
State and local -- (7,009) (7,009)
------- ------- -------
$70,645 (24,708) 45,937
======= ======= =======
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
======= ======= =======
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):
Years ended December 31
--------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Computed "expected" tax benefit $65,079 24,278 7,196
State and local income taxes, net
of Federal income tax benefit (2,672) (2,361) (315)
Change in valuation allowance (16,371) -- --
Other (99) (59) (9)
------- ------- ------
$45,937 21,858 6,872
======= ======= ======
</TABLE>
(continued)
II-44
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are presented below (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
--------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry
forwards $ 21,628 6,668
Investment in PRIMESTAR
Partners:
Due to an increase in tax
basis upon transfer from
TCIC to the Company 29,142 --
Due principally to losses
recognized for financial
statement purposes in
excess of losses recognized
for tax purposes 957 1,049
Future deductible amounts
principally due to accruals
deductible in later periods 1,631 1,906
-------- ------
Total deferred tax assets 53,358 9,623
Less-valuation allowance (16,371) --
-------- ------
Net deferred tax assets 36,987 9,623
Deferred tax liability-
Property and equipment,
principally due to
differences in depreciation
net of increase in
tax basis resulting from
intercompany transfer 36,987 14,057
------- ------
Net deferred tax liability $ -- 4,434
======== ======
</TABLE>
On February 22, 1995, the assets (primarily property and equipment) and
liabilities comprising the TCIC business that distributed the PRIMESTAR(R)
programming service were transferred from certain subsidiaries of TCIC to
the predecessor of TSAT. Such transfer, which resulted in an increased tax
basis for such assets, was recorded at TCIC's carryover basis for financial
reporting purposes. In connection with such transfers, the Company recorded
an $12,136,000 non-cash increase to the intercompany amount owed to TCIC,
and an $12,136,000 non-cash decrease to the Company's deferred tax
liability.
Immediately prior to the Distribution, the investment in PRIMESTAR
Partners was transferred from TCIC to the Company. Such transfer, which
resulted in an increased tax basis for the investment in PRIMESTAR
Partners, was recorded at TCIC's carryover basis for financial reporting
purposes. In connection with such transfer, the Company recorded a
$29,142,000 non-cash increase to the intercompany account owed to TCIC and
$29,142,000 non-cash decrease to the Company's deferred tax liability.
(continued)
II-45
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
The Company has analyzed the sources and expected reversal periods of
its deferred tax assets. The Company believes that the tax benefits
attributable to deductible temporary differences will be realized to the
extent of future reversals of existing taxable temporary differences.
At December 31, 1996, the Company had net operating loss carry
forwards for income tax purposes aggregating approximately $59,790,000 of
which, if not utilized to reduce taxable income in future periods,
$13,967,000 expire in 2009, $39,278,000 expire in 2010 and $6,545,000
expired in 2011.
(12) Transactions with Related Parties
---------------------------------
Through the Distribution Date, the effects of all transactions between
the Company and TCI were reflected as adjustments to a non-interest bearing
intercompany account. As described in note 2, all but $250,000,000 of this
intercompany account was forgiven in connection with the Distribution.
Subsequent to the Distribution Date, the effects of all transactions (other
than those related to the TCIC Credit Facility) will be reflected in a non-
interest bearing account between the Company and TCIC to be settled
periodically in cash.
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, 1996, 1995 and 1994, the
Company's capitalized installation costs included amounts allocated from
TCIC of $53,169,000, $57,058,000 and $15,369,000, respectively.
Maintenance, retrieval and other operating expenses allocated from TCIC to
the Company aggregated $20,365,000, $15,916,000 and $4,367,000 during the
years ended December 31, 1996, 1995 and 1994, respectively.
(continued)
II-46
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
Effective January 1, 1997, charges for customer fulfillment services
provided by TCI will be made pursuant to the Fulfillment Agreement entered
into by the Company and TCIC in connection with the Distribution. Pursuant
to the Fulfillment Agreement, TCIC has continued to provide fulfillment
services on an exclusive basis to the Company following the Distribution
with respect to customers of the PRIMESTAR/(R)/ medium power service. Such
services, which include installation, maintenance, retrieval, inventory
management and other customer fulfillment services, are to be performed in
accordance with specified performance standards. The Fulfillment Agreement
has 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 standard charges
allocated to the Company for such services through December 31, 1996. The
Company and TCIC are currently discussing certain proposed changes to the
Fulfillment Agreement, but there can be no assurance that any such changes
will be agreed to or that the Company will not exercise its right to
terminate the Fulfillment Agreement if an acceptable amendment is not
agreed prior to the end of the Company's six-month termination window.
There can be no assurance that the terms of the Fulfillment Agreement are
not more or less favorable than those which could be obtained by the
Company from third parties, or that comparable services could be obtained
by the Company from third parties on any terms if the Fulfillment Agreement
is terminated.
(continued)
II-47
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
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
$18,120,000, $7,817,000 and $1,080,000 during the years ended December 31,
1996, 1995 and 1994, respectively.
Effective on the Distribution Date, charges for administrative
services provided by TCIC are made pursuant to the Transition Services
Agreement entered into by the Company and TCI in connection with the
Distribution. Pursuant to the Transition Services Agreement between TCI
and the Company, TCI is obligated to provide to the Company certain
services and other benefits, including certain administrative and other
services that were provided by TCI prior to the Distribution. Pursuant to
the Transition Services Agreement, TCI has also agreed to provide the
Company with certain most-favored-customer rights to programming services
that TCI or a wholly-owned subsidiary of TCI may own in the future and
access to any volume discounts that may be available to TCI for purchase of
home satellite dishes, satellite receivers and other equipment. As
compensation for the services rendered and for the benefits made available
to the Company pursuant to the Transition Services Agreement, the Company
is required to pay TCI a monthly fee of $1.50 per qualified subscribing
household or other residential or commercial unit (counted as one
subscriber regardless of the number of satellite receivers), up to a
maximum of $3,000,000 per month, and to reimburse TCI quarterly for direct,
out-of-pocket expenses incurred by TCI to third parties in providing the
services. The Transition Services Agreement continues in effect until the
close of business on December 31, 1999, and will be renewed automatically
for successive one-year periods thereafter, unless earlier terminated by
(i) either party at the end of the initial term or the then current renewal
term, as applicable, on not less than 180 days' prior written notice to the
other party, (ii) TCI upon written notice to the Company following certain
changes in control of the Company, and (iii) either party if the other
party is the subject of certain bankruptcy or insolvency-related events.
Certain key employees of the Company hold stock options in tandem with
SARs with respect to certain common stock of TCI. In connection with the
Distribution, the Company assumed the stock compensation liability with
respect to such TCI options and SARs. Estimates of the compensation
related to the options and/or SARs 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 such estimated
stock compensation liability, which are included in the above-described
TCIC administrative expense allocations, aggregated $(541,000), $901,000
and ($87,000) during the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company has entered into indemnification agreements with TCIC.
See note 13.
(continued)
II-48
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
(13) Commitments and Contingencies
-----------------------------
At December 31, 1996, the Company's future minimum commitments to
purchase satellite reception equipment aggregated approximately
$10,600,000.
In 1994, the Company began to engage master sales 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 subscribers. As part of the compensation for such services, the
Company pays certain residual sales commissions equal to a percentage of
the programming revenue collected from a subscriber installed by a master
sales agent during specified periods following the initiation of service
(generally five years). Residual payments to Master Agents aggregated
$11,848,000 and $2,178,000 during 1996 and 1995, respectively and were not
significant in 1994.
The Company leases business offices and uses certain equipment under
lease arrangements. Rental expense under such arrangements amounted to
$2,095,000 and $1,257,000 in 1996 and 1995 and was not significant in 1994.
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.
On the Distribution Date, the Company entered into Indemnification
Agreements (the "Indemnification Agreements") with TCIC and TCI UA 1, Inc.,
an indirect subsidiary of TCIC, ("TCI UA 1"). The Indemnification Agreement
with TCIC provides for the Company to reimburse TCIC for any amounts drawn
under an irrevocable transferable letter of credit issued for the account
of TCIC to support the Company's share of PRIMESTAR Partners' obligations
under the GE-2 Agreement. The drawable amount of such letter of credit is
$25,000,000.
Subsequent to December 31, 1996, an additional irrevocable
transferable letter of credit was issued pursuant to the Bank Credit
Facility for the account of TSAT to support the Company's share of
PRIMESTAR Partners' obligations under the GE-2 Agreement. The initial
drawable amount of this letter of credit is $25,000,000, increasing to
$50,000,000 if PRIMESTAR Partners exercises the End-Of-Life Option.
The Indemnification Agreement with TCI UA 1 provides for the Company
to reimburse TCI UA 1 for any amounts drawn under an irrevocable
transferable letter of credit issued for the account of TCI UA 1 (the "TCI
UA 1 Letter of Credit"), which supports the PRIMESTAR Credit Facility. The
drawable amount of the TCI UA 1 Letter of Credit was $141,250,000 at
December 31, 1996. See notes 6 and 7.
(continued)
II-49
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
Subsequent to December 31, 1996, an additional irrevocable
transferable letter of credit was issued pursuant to the Bank Credit
Facility for the account of TSAT to support the PRIMESTAR Credit Facility.
The drawable amount of this letter of credit is $5,000,000. See notes 6, 7
and 9.
The Indemnification Agreements provide for the Company to indemnify
and hold harmless TCIC and TCI UA 1 and certain related persons from and
against any losses, claims, and liabilities arising out of the respective
letters of credit or any drawings thereunder. The payment obligations of
the Company to TCIC and TCI UA 1 under such Indemnification Agreements are
subordinated in right of payment with respect to the obligations of the
Company under the Bank Credit Facility. See note 9.
Subsequent to December 31, 1996, TCI agreed to cause TCI UA 1 to renew
the letters of credit arranged by them on the Company's behalf, through
December 31, 1997. The Company believes (but cannot assure) that during
such period the Company and/or PRIMESTAR Partners will be able to obtain
permanent financing for the Company Satellites (to the extent not sold to a
person other than PRIMESTAR Partners) on a basis that does not require the
Company to post a letter of credit with respect thereto. If such permanent
financing is not available, under certain maintenance covenants contained
in the Bank Credit Facility, the Company would be unable to provide or
arrange for such a letter of credit unless (i) the lenders under the Bank
Credit Facility were to agree to amend or waive such covenants to permit
the posting of such letter of credit by the Company, (ii) TCI were to agree
to renew the TCI UA 1 Letter of Credit for an additional period, or (iii)
the Company were to achieve a greater than anticipated increase in
operating income before depreciation and amortization. If the Company
and/or PRIMESTAR Partners are unable to refinance the Company Satellites
(to the extent not sold to a person other than PRIMESTAR Partners) without
a letter of credit and is unable to post (or arrange for the posting of)
such a letter of credit, the Company could be adversely affected. See
notes 6 and 7.
The International Bureau (the "International Bureau") of the FCC has
granted EchoStar Satellite Corporation ("EchoStar") a conditional
authorization to construct, launch and operate a Ku-band domestic fixed
satellite into the orbital position at 83 degrees W.L., immediately
adjacent to that occupied by GE-2, the spacecraft now used to provide the
PRIMESTAR/(R)/ service. Contrary to previous FCC policy, EchoStar was
authorized to operate at a power level of 130 watts. If EchoStar were to
launch its high power satellite authorized to 83 degrees W.L. and commence
operations at that location at a power level of 130 watts, it would likely
cause harmful interference to the reception of the PRIMESTAR(R) signal by
subscribers to such service.
Subsequently, GE Americom and PRIMESTAR Partners separately requested
reconsideration of the International Bureau's authorization for EchoStar to
operate at 83 degrees W.L. These requests were opposed by EchoStar and
others. These requests currently are pending at the International Bureau.
In addition, GE Americom and PRIMESTAR Partners have attempted to resolve
potential coordination problems directly with EchoStar. It is uncertain
whether any coordination between PRIMESTAR Partners and EchoStar will
resolve such interference. There can be no assurance that the International
Bureau will change slot assignments, or power levels, in a fashion that
eliminates the potential for harmful interference. Although the ultimate
outcome of this matter cannot presently be predicted, the Company believes
that any such outcome would not have a material adverse effect on the
Company's financial condition and results of operations.
The Company has contingent liabilities related to legal proceedings
and other matters arising in the ordinary course of business. Although it
is reasonably possible the Company may incur losses upon conclusion of such
matters, an estimate of any loss or range of loss cannot be made. In the
opinion of management, it is expected that amounts, if any, which may be
required to satisfy such contingencies will not be material in relation to
the accompanying combined financial statements.
(continued)
II-50
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
(See note 1)
NOTES TO FINANCIAL STATEMENTS
(14) Quarterly Financial Information (Unaudited)
-------------------------------------------
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in thousands,
1996: except per share amounts
-----
<S> <C> <C> <C> <C>
Revenue $ 95,760 97,887 106,602 117,212
Operating loss $ (19,154) (27,352) (34,760) (103,018)
Income tax benefit $ 5,867 9,003 10,936 20,131
Net loss $ (13,571) (19,317) (23,706) (83,410)
Pro forma net loss
per common share $ (.20) (.29) (.36) (1.26)
1995:
-----
Revenue $ 24,098 37,513 58,808 88,484
Operating loss $ (5,676) (9,345) (9,900) (35,781)
Income tax benefit $ 2,563 4,267 3,603 11,425
Net loss $ (5,411) (7,625) (9,350) (25,121)
Pro forma net loss
per common share $ (.08) (.12) (.14) (.38)
</TABLE>
The increased net loss during the fourth quarter of 1996 is primarily
attributable to changes in the Company's depreciation policies. See note
3.
The increased net loss during the fourth quarter of 1995 is primarily
attributable to the overall increase in expenses that resulted from the
Company's efforts to increase its subscriber base.
II-51
<PAGE>
PART III.
Item 10. Directors and Executive Officers of the Registrant.
- -------- --------------------------------------------------
The following lists the directors and executive officers of the
Company, their birth dates, a description of their business experience and
positions held with the Company as of March 1, 1997.
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
John C. Malone Has served as Chairman of the Board
Born March 7, 1941 and a director of the Company since
December 1996. Has served as Chief
Executive Officer of TCI since
January 1994, and as Chairman of the
Board of TCI since November 1996. Dr.
Malone served as President of TCI
from January 1994 to March 1997, 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, TCI Pacific Communications,
Inc., BET Holdings, Inc., Home
Shopping Network, Inc. and The Bank
of New York.
Gary S. Howard Has served as President of the
Born February 22, 1951 Company since February 1995, a
director of the Company since
November 1996 and Chief Executive
Officer of the Company since December
1996. Mr Howard served as Senior
Vice President of TCIC from October
1994 to December 1996, and as Vice
President of TCIC from December 1991
through October 1994.
David P. Beddow Has served as a director of the
Born December 27, 1943 Company since December 1996. Mr.
Beddow has served as Senior Vice
President of TCITV and NDTC 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
President of United Video Satellite
Group, Inc. ("UVSG") since February
1997, and as a director of UVSG since
January 1996.
William E. Johnson Has served as a director of the
Born June 23, 1941 Company since December 1996. Mr.
Johnson served as Chief Executive
Officer of 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.
</TABLE>
III-1
<PAGE>
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
John W. Goddard Has served as a director of the
Born May 4, 1941 Company since December 1996. Mr.
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.
Kenneth G. Carroll Has served as Senior Vice President
Born April 21, 1955 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 USA, a
subsidiary of TCI 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.
Lloyd S. Riddle III Has served as Senior Vice President
Born September 16, 1960 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
Born January 26, 1952 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 and
Born March 23, 1958 Treasurer of the Company since
September 1996. Mr. Myers served as
Vice President of TCI Cable
Management Corporation from November
1994 through August 1996. Mr. Myers
served as Director of Finance of TCI
from December 1991 to November 1994.
</TABLE>
III-2
<PAGE>
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.
The Company's charter provides for a classified Board of Directors of
not less than three members, divided into three classes of approximately equal
size, with each class to be elected for a three-year term at each annual meeting
of stockholders. The exact number of directors, currently five, is fixed by
resolution of the Company Board. 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.
There are no family relations by blood, marriage or adoption, of first
cousin or closer, among the above named individuals.
During the past five years, none of the persons named above has had
any involvement in such legal proceedings as would be material to an evaluation
of his ability or integrity.
Section 16(a) of the Security Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Security and Exchange
Commission ("SEC"). Officers, directors and greater-than-ten-percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on review of the copies of Forms 3, 4 and 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, or written representations that no Forms 5 were required, the
Company believes that, during the year ended December 31, 1996, its officers,
directors and greater-than-ten-percent beneficial owners complied with all
Section 16(a) filing requirements.
III-3
<PAGE>
Item 11. Executive Compensation.
- -------- ----------------------
(a) Summary Compensation Table. Certain directors, officers and
--------------------------
employees of TCI and its subsidiaries (including the Company, prior to the
Distribution) 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 Board of Directors of TCI (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 was one.
The TCI Plan Committee and the TCI Board determined that, immediately
prior to the Distribution, each TCI Option would 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 aggregate exercise price of
each TCI Option was allocated between the Add-on Company Option and the Adjusted
TCI Option into which it was divided, and all other terms, including date of
grant, of the Add-on Company Option and Adjusted TCI Option are in all material
respects the same as the terms of such TCI Option, except that references
therein to TCI generally refer to the Company with respect to Adjusted TCI
Options and Add-on Company Options (and related stock appreciation rights
("SARs") held by Company Employees (as defined below). Similar adjustments were
made to the outstanding TCI SARs, resulting in the holders thereof holding
Adjusted TCI SARs and Add-on Company SARs instead of TCI SARs, and to
outstanding restricted share awards, resulting in the holders thereof holding
restricted shares of Series A Common Stock in addition to restricted shares of
Series A TCI Group Common Stock, effective immediately prior to the
Distribution. The foregoing adjustments were 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 remained TCI
employees or non-employee directors after the Distribution and certain persons
who were TCI employees prior to the Distribution but became Company employees
after the Distribution hold both Adjusted TCI Options and separate Add-on
Company Options and/or 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 are 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 were Company employees at the time
of the Distribution and following the Distribution are no longer TCI employees
("Company Employees") are obligations solely of the Company. Prior to the
Distribution, TCI and the Company entered 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. See "Certain
Relationships and Related Transactions."
III-4
<PAGE>
TCI, in addition to the TCI Group Common Stock, 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 ("Series A Liberty Media
Group Common Stock"), and the Tele-Communications, Inc. Series B Liberty Media
Group Common Stock, $1.00 par value per share ("Series B Liberty Media Group
Common Stock"), which are intended to reflect the separate performance of TCI's
programming and electronic retailing businesses (the "Liberty Media Group").
Prior to the Distribution, the Company was a member of the group of TCI
businesses not attributed to the Liberty Media Group (the "TCI Group") and all
of the assets and businesses transferred to the Company were included in the TCI
Group. Accordingly, the Distribution was made to the TCI Group Stockholders and
the holders of Liberty Media Group Common Stock did not participate in the
Distribution.
The following table is a summary of all forms of compensation paid by
the Company (or by TCI or any other subsidiary of TCI) to the officers named
therein for services rendered in all capacities to the Company (and, prior to
the Distribution, TCI) for the fiscal years ended December 31, 1996 and 1995
(total of five persons).
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------------- -----------------------------
Securities
Name and Principal Other Annual Restricted Underlying All Other
Position with the Compensation Stock Options/ Compensation
Company Year Salary ($) Bonus ($) ($)(1) ($)(2) SARs (3) ($)(5)
- --------------------------- ---- ------------ ------------ ------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary S. Howard (President 1996 $275,000 $23,210 (6) $4,230 $ -- 664,076 (3) $15,000
and Chief Executive Officer) 1995 $262,500 $23,210 (6) $3,415 $309,375 165,000 (4) $15,000
Lloyd S. Riddle III (Senior 1996 $140,000 $41,212 $3,263 $ -- -- $15,000
Vice President & Chief 1995 $123,078 $34,478 $1,557 $ -- 19,250 (4) $13,439
Operating Officer)
Kenneth G. Carroll (Senior 1996 $119,423 $33,150 $ -- $ -- -- $ 9,500
Vice President and Chief 1995 $ 98,845 $27,199 $ 861 $ -- 19,250 (4) $ 3,668
Financial Officer)
William D. Myers (Vice 1996 $115,010 $ 5,000 $2,683 $ -- -- $ 8,639
President and Treasurer) 1995 $108,130 $ -- $2,425 $ -- 11,000 (4) $ 8,839
Christopher Sophinos 1996 $ 96,865(7) $10,750 (7) $ -- $ -- -- $ --
(Senior Vice President)
</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 13, 1995, Mr. Howard was granted 15,000
restricted shares of Series A TCI Group Common Stock, and in connection
with the Distribution, received 1,500 restricted shares of Series A 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 1996 was $210,750. TCI and the Company
have not paid cash dividends on the Series A TCI Group Common Stock and
Series A Common Stock, respectively, and do not anticipate declaring and
paying cash dividends on the Series A TCI Group Common Stock and Series A
Common Stock, respectively, at any time in the foreseeable future.
(3) For additional information regarding this award, see "-Option and SARs in
Last Fiscal Year," below.
III-5
<PAGE>
(4) On December 13, 1995, pursuant to the Tele-Communications, Inc. 1995 Stock
Incentive 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. Messrs. Howard, Riddle, Carroll
and Myers were granted 150,000, 17,500, 17,500 and 10,000 options,
respectively. In connection with the Distribution, Messrs. Howard, Riddle,
Carroll and Myers received 15,000, 1,750, 1,750 and 1,000 Add-on Company
Options, respectively. Each such grant of options with tandem stock
appreciation rights vests evenly over five years with such vesting period
beginning August 4, 1995, first became exercisable on August 4, 1996 and
expires on August 4, 2005. Notwithstanding the vesting schedule as set
forth in the option agreement, the option shares shall become available for
purchase if the grantee's employment with the Company (a) shall terminate
by reason of (i) termination by the Company without cause (ii) termination
by the grantee for good reason (as defined in the agreement) or (iii)
disability, (b) shall terminate pursuant to provisions of a written
employment agreement, if any, between the grantee and the Company which
expressly permits the grantee to terminate such employment upon occurrence
of specified events (other than the giving of notice and passage of time),
or (c) if the grantee dies while employed by the Company. Further, the
option shares will become available for purchase in the event of an
Approved Transaction, Board Change, or Control Purchase (each as defined
with reference to TCI), unless in the case of an Approved Transaction, the
Compensation Committee of TCI under the circumstances specified determines
otherwise.
(5) The accounts in the TCI Employee Stock Purchase Plan ("TCI ESPP") of all
employees of the Company became vested in full as of the effective time of
the Distribution. Directors who are not employees of TCI are ineligible to
participate in the TCI ESPP. The TCI ESPP, a defined contribution plan,
enables participating employees to acquire a proprietary interest in TCI
and benefits upon retirement. Under the terms of the TCI ESPP, employees
are eligible for participation after one year of service. The TCI 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
TCI 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.
Although TCI has not expressed an intent to terminate the TCI ESPP, it may
do so at any time. Effective January 1, 1997, the TSAT adopted an Employee
Stock Purchase Plan, and, effective as of the Distribution Date, employees
of the Company discontinued making contributions to the TCI ESPP.
(6) This amount reflects the amortization of obligations under an employment
contract between Mr. Howard and a prior employer, which obligations were
assumed by TCI in connection with the acquisition of such prior employer,
and were assumed by the Company in connection with the Distribution.
(7) Mr. Sophinos commenced employment on February 27, 1996, and accordingly,
the 1996 compensation information included in the table reflects ten months
of employment.
III-6
<PAGE>
(b) Option and SARs Grants in Last Fiscal Year. On the Distribution
-------------------------------------------
Date, the Company Board adopted, and TCI, as the sole stockholder of the Company
prior to the Distribution, approved, the TCI Satellite Entertainment, Inc. 1996
Stock Incentive Plan (the "1996 Plan"). The 1996 Plan provides 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, SARs, restricted shares, stock units, performance awards or any
combination thereof (collectively, "Awards"). Awards may be made to employees
and to consultants and advisors to the Company who are not employees. Shares of
Series A Common Stock that are subject to Awards that expire, terminate or are
annulled for any reason without having been exercised (or deemed exercised, by
virtue of the exercise of a related SAR), or are forfeited prior to becoming
vested, will return to the pool of such shares available for grant under the
1996 Plan.
The following table discloses information regarding stock options
granted in tandem with stock appreciation rights during the year ended December
31, 1996 to each of the named executive officers of the Company in respect of
shares of Series A Common Stock under the 1996 Plan.
<TABLE>
<CAPTION>
No. of % of Total
Securities Options Exercise Market
Underlying Granted to or Price Grant Date
Options Employees in Base Price on Grant Expiration Present
Name Granted 1995 ($/Sh) Date($/Sh) Date Value $
- ---- ------------ ------------ ---------- -------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Gary S. Howard 664,076 28.6% (1) $8.86 $12.625 (2) February 1, 2006 $5,806,083(3)
</TABLE>
(1) On the Distribution Date, Mr. Howard was granted an option to purchase
shares of Series A Common Stock representing 1.0% of the number of shares
of Company Common Stock issued and outstanding on the Distribution Date,
determined immediately after giving effect to the Distribution, but before
giving effect to the exercise of such option or certain other options. For
additional information concerning such grant, see "Certain Relationships
and Related Transactions - Other Arrangements".
(2) Represents the closing market price per share of Series A Common Stock on
December 5, 1996, the first day of trading following the date of grant.
(3) The value shown is based on the Black-Scholes model and are stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
(a) a 6.22% discount rate; (b) a 35% volatility factor; (c) the 10-year
option term; (d) the closing price of Series A Common Stock on December 5,
1996; and (e) a per share exercise price of $8.86. 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.
III-7
<PAGE>
Effective February 3, 1997, certain key employees of TSAT were
granted, pursuant to the 1996 Plan, an aggregate of 820,000 options in tandem
with stock appreciation rights to acquire shares of Series A Common Stock at a
per share exercise price of $8.00 per share and an aggregate of 325,000
restricted shares of Series A Common Stock (the "1997 Grant"). Mr. Howard was
granted 125,000 restricted shares, and each of Messrs. Riddle, Carroll, Myers
and Sophinos were granted 100,000 options in tandem with stock appreciation
rights and 50,000 restricted shares. Each such grant of options with tandem
stock appreciation rights vests evenly over five years with such vesting period
beginning January 1, 1997, first becomes exercisable on January 1, 1998 and
expires on December 31, 2006. Each such grant of restricted shares vests as to
50% on January 1, 2001 and as to the remaining 50% on January 1, 2002.
Notwithstanding the vesting schedule as set forth in the option agreement, the
option shares shall become available for purchase if the grantee's employment
with the Company (a) shall terminate by reason of (i) termination by the Company
without cause (ii) termination by the grantee for good reason (as defined in the
agreement) or (iii) disability, (b) shall terminate pursuant to provisions of a
written employment agreement, if any, between the grantee and the Company which
expressly permits the grantee to terminate such employment upon occurrence of
specified events (other than the giving of notice and passage of time), or (c)
if the grantee dies while employed by the Company. Further, the option shares
will become available for purchase in the event of an Approved Transaction,
Board Change, or Control Purchase (each as defined), unless in the case of an
Approved Transaction, the Compensation Committee of the Company under the
circumstances specified determines otherwise.
III-8
<PAGE>
(c) Aggregated TCI Option/SAR Exercises and Fiscal Year-End TCI
-----------------------------------------------------------
Option/SAR Values. The following table provides, for the executives named in
- -----------------
the Summary Compensation Table, information on the exercise during the year
ended December 31, 1996, of Add-on Company Options, Adjusted TCI Options and
options to purchase Series A Liberty Media Group Common Stock, the number of
shares of Series A Common Stock, Series A TCI Group Common Stock and Series A
Liberty Media Group Common Stock represented by unexercised options owned by
them at December 31, 1996, and the value of those options as of the same date.
The number of options granted to purchase shares of Series A Liberty Group
Common Stock and the price to purchase such options has been adjusted to give
effect to the distribution on January 14, 1997 by TCI of one share of Series A
Liberty Media Group Common Stock for each two shares of Series A Liberty Media
Group Common Stock held of record and one share of Series A Liberty Media Group
Common Stock for each two shares of Series B Liberty Media Group Common Stock
held of record.
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Unexercised Value of
Options/SARs Unexercised In-
at the-Money
December31, Options/SARs at
Shares 1996 (#) December 31, 1996
Acquired on Value Realized Excercisable/ ($)Excercisable/
Name Exercise (#) ($) Unexercisable(1) Unexercisable(1)
- ---------------------------------- ------------ --------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Gary S. Howard
Exercisable
Series A -- -- 12,750 $ --
Series A TCI Group -- -- 127,500 $ 179,219
Series A Liberty Media -- -- 36,563 $ 261,865
Unexercisable
Series A -- -- 681,326 $ 674,037
Series A TCI Group -- -- 172,500 $ 52,031
Series A Liberty Media -- -- 19,687 $ 115,685
Lloyd S. Riddle III
Exercisable
Series A -- -- 510 $ --
Series A TCI Group -- -- 5,100 $ --
Series A Liberty Media -- -- 600 $ 2,623
Unexercisable
Series A -- -- 1,640 $ --
Series A TCI Group -- -- 16,400 $ --
Series A Liberty Media -- -- 900 $ 3,935
Kenneth G. Carroll
Exercisable
Series A -- -- 510 $ --
Series A TCI Group -- -- 5,100 $ --
Series A Liberty Media -- -- 600 $ 2,623
Unexercisable
Series A -- -- 1,640 $ --
Series A TCI Group -- -- 16,400 $ --
Series A Liberty Media -- -- 900 $ 3,935
William D. Myers
Exercisable
Series A -- -- 560 $ --
Series A TCI Group -- -- 5,600 $ --
Series A Liberty Media -- -- 1,350 $ 5,902
Unexercisable
Series A -- -- 1,340 $ --
Series A TCI Group -- -- 13,400 $ --
Series A Liberty Media -- -- 2,025 $ 8,853
- ----------------------
</TABLE>
(1) Share numbers and values do not include any amounts with respect to the
1997 Grant. See "- Option and SARs Grants in Last Fiscal Year" above.
III-9
<PAGE>
(d) 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, do 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, receive a retainer of $30,000 per year.
All members of the Company Board are also reimbursed for expenses incurred to
attend any meetings of the Company Board or any committee thereof.
(e) Employment Contracts and Termination of Employment and Change of
----------------------------------------------------------------
Control Arrangements.
- ---------------------
None.
(f) Additional Information with respect to Compensation Committee
-------------------------------------------------------------
Interlocks and Insider Participation in Compensation Decisions.
- ---------------------------------------------------------------
None.
III-10
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- --------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners. The following
------------------------------------------------
table lists stockholders believed by the Company to be the beneficial owners of
more than five percent of the outstanding Company Common Stock as of December
31, 1996. Shares issuable upon exercise of options 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 believed 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 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 of Dr. Malone includes
interests in shares held by the trustee of the TCI ESPP. So far as is known to
the Company, the persons indicated below have sole voting and investment power
with respect to the shares indicated as believed to be owned by them except as
otherwise stated in the notes to the table, and except for the shares held by
the trustee of the TCI ESPP for the benefit of Dr. Malone, which shares are
voted at the discretion of the trustee.
<TABLE>
<CAPTION>
Number of
Shares
Name and Address Title Beneficially Percent Voting
of Beneficial Owner of Class Owned of Class (1) Power (1)
- ---------------------------------------- -------- ----------------- ------------ ---------
<S> <C> <C> <C> <C>
Donne F. Fisher (individually and as Series A 411,069 (2)(3) * 22.0%
Co-Personal Representative of the Series B 3,103,493 (2) 36.7%
Estate of Bob Magness)
5619 DTC Parkway
Englewood, Colorado
Daniel L. Ritchie (as Co-Personal Series A 352,432 (2) * 21.8%
Representative of the Estate of Bob Series B 3,078,586 (2) 36.4%
Magness)
5619 DTC Parkway
Englewood, Colorado
John C. Malone, Chairman of the Board Series A 217,271 (4)(5) * 17.9%
5619 DTC Parkway Series B 2,533,208 (6) 29.9%
Englewood, CO
Kearns-Tribune Corporation Series A 879,251 (7) 1.5% 7.0%
400 Tribune Building Series B 911,250 (7) 10.8%
Salt Lake City, Utah
The Associated Group, Inc Series A 1,247,997 (7) 2.2% 5.8%
200 Gateway Towers Series B 707,185 (8) 8.4%
Pittsburgh, Pennsylvania
Kim Magness (individually and Series A 231,533 (9) * 5.0%
as Personal Representative of the Series B 686,421 (9) 8.1%
Estate of Betsy Magness)
4000 E. Belleview
Greenwood Village, Colorado
J. P. Morgan & Co., Incorporated Series A 6,804,348 (10) 11.7% 4.8%
60 Wall Street Series B -- --
New York, New York
Wellington Management Company, LLP Series A 3,075,820 (11) 5.3% 2.2%
75 State Street Series B -- --
Boston, Massachusetts
</TABLE>
III-11
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares
Name and Address Title Beneficially Percent Voting
of Beneficial Owner of Class Owned of Class (1) Power (1)
- -------------------------------- -------- -------------- ------------ ---------
<S> <C> <C> <C> <C>
The Capital Group Series A 2,996,060 (12) 5.2% 2.1%
Companies, Inc. Series B -- --
333 South Hope Street
Los Angeles, California
- ------------------------
</TABLE>
* Less than one percent.
(1) Based on 57,946,044 shares of Series A Common Stock and 8,466,564 shares of
Series B Common Stock outstanding as of December 31, 1996.
(2) Includes 352,432 shares of Series A Common Stock and 3,078,586 shares of
Series B Common Stock held by the Estate of Bob Magness. Messrs. Fisher
and Ritchie are each deemed to have beneficial ownership over such shares
as Co-Personal Representatives of the Estate of Bob Magness. Assumes the
exercise in full of all Add-On Company Options and Add-On Company SARs,
whether or not then exercisable or in-the-money, in respect of the
following: (i) stock options granted in tandem with stock appreciation
rights in November of 1992 to acquire 100,000 shares of Series A Common
Stock; and (ii) stock options granted in tandem with stock appreciation
rights in December of 1995 to acquire 100,000 shares of Series A Common
Stock. All options became fully vested upon the death of Bob Magness and,
pursuant to the applicable TCI Plans, must be exercised within one year.
(3) Assumes the exercise in full of all Add-On Company Options and Add-on
Company SARs, whether or not then exercisable or in-the-money, in respect
of the following: (i) stock options granted in tandem with stock
appreciation rights in November of 1994 to acquire 20,000 shares of Series
A Common Stock, of which options to acquire 8,000 shares are currently
exercisable; and (ii) stock options granted in January of 1996 to acquire
5,000 shares of Series A Common Stock, of which options to acquire 1,000
shares are currently exercisable. Also includes 20,000 shares of Series A
Common Stock held by Mr. Fisher's children, of which Mr. Fisher disclaims
any beneficial ownership.
(4) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARs, whether or not then exercisable or in-the-money, in respect
of the following: (i) stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 100,000 shares of Series
A Common Stock, of which options to acquire 80,000 shares are currently
exercisable; and (ii) stock options granted in tandem with stock
appreciation rights in December of 1995 to acquire 100,000 shares of Series
A Common Stock, of which options to purchase 20,000 shares are currently
exercisable.
(5) On February 27 and 28, 1997, Dr. Malone purchased in open market
transactions 1,450,000 shares of Series A Common Stock for an aggregate
purchase price of $11,587,500. If such purchases had been included in the
foregoing table, Dr. Malone's percentage ownership of the outstanding
Series A Common Stock would have increased to 2.9% and Dr. Malone's voting
interests with respect to the outstanding Company Common Stock would have
increased to 18.9%.
(6) Includes 117,300 shares of Series B Common Stock held by Dr. Malone's wife,
Mrs. Leslie Malone, but Dr. Malone disclaims any beneficial ownership of
such shares.
III-12
<PAGE>
(7) The number of shares in the table is based on information provided by the
respective stockholder.
(8) The number of shares in the table is based upon a Schedule 13D, dated
December 12, 1996, filed by The Associated Group, which Schedule 13D
reflects that said corporation has shared voting power and dispositive
power over 707,185 shares of Series B Common Stock.
(9) Includes 210,533 shares of Series A Common Stock and 634,621 shares of
Series B Common Stock held by the Estate of Betsy Magness. Mr. Magness is
deemed to have beneficial ownership over such shares as Personal
Representative of the Estate of Betsy Magness. Also assumes the exercise in
full of all Add-on Company Options and Add-on Company SARs, whether or not
then exercisable or in-the-money of stock options granted in November of
1994 to acquire 5,000 shares of Series A Common Stock, of which options to
acquire 2,000 shares are currently exercisable.
(10) The number of shares in the table is based upon a Schedule 13G, dated
December 31, 1996, filed by J.P. Morgan & Co. Incorporated, which Schedule
13G reflects that said corporation has sole voting power over 4,386,198
shares, shared voting power over 53,773 shares, sole dispositive power over
6,717,998 shares and shared dispositive power over 82,560 shares of Series
A Common Stock.
(11) The number of shares in the table is based upon a Schedule 13G, dated
January 24, 1997, filed by Wellington Management Company, LLP which
Schedule 13G reflects that said corporation has shared voting power over
2,629,137 shares and shared dispositive power over 3,075,820 shares of
Series A Common Stock.
(12) The number of shares in the table is based upon a Schedule 13G, dated
February 12, 1997, filed by The Capital Group Companies, Inc. which
Schedule 13G reflects that said corporation has sole voting power over
286,920 shares and sole dispositive power over 2,996,060 shares of Series A
Common Stock.
(b) Security Ownership of Management. The following table lists the
---------------------------------
number of shares of Company Common Stock believed 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 as of
December 31, 1996, according to data furnished by the persons named. Shares
issuable upon exercise of options 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 believed 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 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 the TCI
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 have sole voting and investment power with
respect to the shares indicated as believed to be owned by them except for the
shares held by the trustee of the TCI ESPP for the benefit of such person, which
shares are voted at the discretion of the trustee.
III-13
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Beneficially Owned Percent of Class(1)
----------------------------- -------------------------- Voting
Name Series A(2) Series B Series A(2) Series B Power(1)(2)
- --------------------------- -------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Directors:
John C. Malone 217,271(3)(4) 2,533,208 (5) * 29.9% 17.9%
Gary S. Howard 699,986(6) -- 1.2% -- *
David P. Beddow 364,526(7) -- * -- *
William E. Johnson 1,900 10 * * *
John W. Goddard 1,408(8) 1,425 (8) * * *
Other Named Executive Officers:
Kenneth G. Carroll 2,340(9) -- * -- *
Lloyd S. Riddle III 2,736(9) -- * -- *
William D. Myers 2,386(10) -- * -- *
Christopher Sophinos -- -- -- -- --
All directors and executive
officers as a group
nine persons) 1,292,553(11) 2,534,643 (5)(6) 2.2% 29.9% 18.5%
</TABLE>
* Less than one percent.
(1) Based on 57,946,044 shares of Series A Common Stock and 8,466,564 shares of
Series B Common Stock outstanding as of December 31, 1996.
(2) Amounts and percentages do not give effect to the 1997 Grant. If the
shares underlying the options in tandem with SARs, and the restricted stock
awards granted to all directors and executive officers as a group had been
included in the foregoing table, (i) the aggregate number of shares of
Series A Common Stock beneficially owned by such persons would have
increased to 2,017,553; (ii) the aggregate percentage of Series A Common
Stock beneficially owned by such persons would have increased to 3.4%; and
the aggregate voting interests of such persons with respect to the Company
Common Stock would have increased to 19.1%. See "- Options and SARs Grants
in Last Fiscal Year."
(3) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARs, whether or not then exercisable or in-the-money, in respect
of the following: (i) stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 100,000 shares of Series
A Common Stock, of which options to acquire 80,000 shares are currently
exercisable; and (ii) stock options granted in tandem with stock
appreciation rights in December of 1995 to acquire 100,000 shares of Series
A Common Stock, of which options to purchase 20,000 shares are currently
exercisable.
(4) On February 27 and 28, 1997, Dr. Malone purchased in open market
transactions 1,450,000 shares of Series A Common Stock for an aggregate
purchase price of $11,587,500. If such purchases had been included in the
foregoing table, Dr. Malone's percentage ownership of Series A Common Stock
would have increased to 2.9% and Dr. Malone's voting interests with respect
to Company Common Stock would have increased to 18.9%.
(5) Includes 117,300 shares of Series B Common Stock held by Dr. Malone's wife,
Mrs. Leslie Malone, but Dr. Malone disclaims any beneficial ownership of
such shares.
III-14
<PAGE>
(6) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARs, whether or not then exercisable or in-the-money, in respect
of the following: (i) stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 5,000 shares of Series A
Common Stock, of which options to acquire 4,000 shares are currently
exercisable; (ii) stock options in tandem with stock appreciation rights
granted in October of 1993 to acquire 5,000 shares of Series A Common
Stock, of which options to acquire 3,750 shares are currently exercisable;
(iii) stock options in tandem with stock appreciation rights granted in
November of 1994 to acquire 5,000 shares of Series A Common Stock, of which
options to acquire 2,000 shares are currently exercisable; (iv) stock
options granted in tandem with stock appreciation rights in December of
1995 to purchase 15,000 shares of Series A Common Stock, of which options
to acquire 3,000 shares are currently exercisable; and (v) stock options
granted in December of 1996 to purchase 664,076 shares of Series A Common
Stock, of which options to acquire 132,815 shares are currently
exercisable. Additionally assumes the vesting in full of 1,500 restricted
shares of Series A Common Stock, none of which are currently vested. Also
includes 1,022 shares of Series A Common Stock held by trusts in which Mr.
Howard is beneficial owner as trustee for his children.
(7) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARs, whether or not then exercisable or in-the-money, in respect
of the following: (i) stock options granted in tandem with stock
appreciation rights in October of 1993 to acquire 750 shares of Series A
Common Stock, of which options to acquire 562 shares are currently
exercisable; (ii) stock options granted in tandem with stock appreciation
rights in November of 1994 to acquire 5,000 shares of Series A Common
Stock, of which options to purchase 2,000 shares are currently exercisable;
(iii) stock options granted in tandem with stock appreciation rights in
December of 1995 to purchase 25,000 shares of Series A Common Stock, of
which options to purchase 5,000 shares are currently exercisable; and (iv)
stock options granted in December of 1996 to purchase 332,038 shares of
Series A Common Stock, of which options to acquire 66,407 shares are
currently exercisable. Additionally assumes the vesting in full of 1,500
restricted shares of Series A Common Stock, none of which are currently
vested.
(8) Includes 478 shares of Series A Common Stock held by Mr. Goddard's wife, of
which Mr. Goddard is beneficial owner, and 129 shares of Series B Common
Stock held by a trust in which Mr. Goddard is beneficial owner as trustee.
(9) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARs, whether or not then exercisable or in-the-money, in respect
of the following: (i) stock options granted in tandem with stock
appreciation rights in November of 1994 to acquire 400 shares of Series A
Common Stock, of which options to acquire 160 shares of Series A Common
Stock are currently exercisable; and (ii) stock options granted in tandem
with stock appreciation rights in December of 1995 to purchase 1,750 shares
of Series A Common Stock, of which options to purchase 350 shares of Series
A Common Stock are currently exercisable.
(10) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARs, whether or not then exercisable or in-the-money, in respect
of the following: (i) stock options granted in tandem with stock
appreciation rights in November of 1994 to acquire 900 shares of Series A
Common Stock, of which options to acquire 360 shares of Series A Common
Stock are currently exercisable; and (ii) stock options granted in tandem
with stock appreciation rights in December of 1995 to purchase 1,000 shares
of Series A Common Stock, of which options to purchase 200 shares are
currently exercisable.
(11) See notes (2), (3), (4) (5), (6), (7) (8) (9) and (10) above.
III-15
<PAGE>
Item 13. Certain Relationships and Related Transactions.
- -------- ----------------------------------------------
John Malone is currently the Chairman of the Board and a director of
TCI and is also the Chairman of the Board and a director of the Company. Dr.
Malone is also a principal stockholder of both TCI and the Company. See "-
Security Ownership of Certain Beneficial Owners and Management" above. In
addition, as an officer of TCIC prior to the Distribution, Gary Howard, the
President and a director of the Company, had the benefit of certain undertakings
of indemnification from TCI and TCIC, which have survived the Distribution. See
"-Other Arrangements" below.
The Company was formed in connection with the Distribution to own and
operate certain businesses of TCI constituting all of TCI's interests in the
Digital Satellite Business. On the Distribution Date, TCI distributed all the
shares of Company Common Stock held by TCI to the holders of record of TCI Group
Common Stock (other than certain subsidiaries of TCI that waived their right to
participate in such distribution) 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.
TCI, through various subsidiaries, was engaged in the business of
distributing PRIMESTAR(R) from December 1990 until the consummation of the
Distribution. 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.
Since the consummation of the Distribution, the Company and TCI have
operated independently, and neither has any stock ownership, beneficial or
otherwise, in the other. However, 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
into various agreements, including the "Reorganization Agreement," the
"Transition Services Agreement," an amendment to TCI's existing "Tax Sharing
Agreement," the "Indemnification Agreements," the "Trade Name and Service Mark
Agreement" and the "Share Purchase Agreement," all of which are described below.
In addition, TCIC continues to provide installation, maintenance, retrieval and
other customer fulfillment services for certain customers of the Company,
pursuant to the "Fulfillment Agreement," and entered into the "TCIC Credit
Facility" with the Company, both of which are described below.
Reorganization Agreement. On the Distribution Date, TCI, TCIC and a
number of other TCI subsidiaries, including the Company, entered into the
Reorganization Agreement, which provided 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.
III-16
<PAGE>
Certain of the Company's assets relating to the Digital Satellite
Business were historically owned by subsidiaries of TCI other than the Company
and its predecessors. These assets include the capital stock of Tempo and the
20.86% partnership interests in PRIMESTAR Partners. The Reorganization Agreement
provided for, among other things, the transfer of these assets to the Company
and for the assumption by the Company of related liabilities. No consideration
was payable by the Company for these transfers, except that two subsidiaries of
the Company purchased TCI'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 were assumed by TCI on
the Distribution Date in the form of a capital contribution to the Company. The
Reorganization Agreement also provides 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 makes 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's having been a subsidiary of
TCI. The Reorganization Agreement further provided 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 the Distribution Date,
the Company issued 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. See "-TCIC Credit Facility" below. Pursuant to the
Reorganization Agreement, the remainder of the Company's intercompany balance
owed to TCIC on the Distribution Date (other than certain advances to the
Company made by TCIC in 1996 to fund certain construction and related costs
associated with the Company Satellites, as described below under "-Reimbursement
of Certain Satellite Expenses"), and the indebtedness represented by the K-1
Notes were assumed by TCI in the form of (i) a $100 million capital contribution
to the Company, (ii) consideration for the Company's assumption of TCI's
obligations under options granted to Brendan R. Clouston, Larry E. Romrell and
David P. Beddow to purchase shares of Series A Common Stock representing 1.0%,
1.0% and 0.5%, respectively, of the shares of Company Common Stock issued and
outstanding on the Distribution Date, determined immediately after giving effect
to the Distribution but before giving effect to the issuance of the shares of
Series A Common Stock issuable upon exercise of such options, and (iii)
consideration for the Company's grant of an option to TCI to purchase up to
4,765,000 shares of Series A Common Stock (as such number may be adjusted to
reflect stock dividends, stock splits and the like), for a purchase price equal
to the par value of such shares, as necessary to satisfy TCI's obligations to
deliver shares of Series A Common Stock upon conversion of certain convertible
securities of TCI as a result of the Distribution. See "-Other Arrangements."
III-17
<PAGE>
Transition Services Agreement. Pursuant to the Transition Services
Agreement between TCI and the Company, TCI is obligated to provide to the
Company certain services and other benefits, including certain administrative
and other services that were provided by TCI prior to the Distribution. Such
services 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 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) technology support and consulting services, 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.
Pursuant to the Transition Services Agreement, TCI has also agreed to
provide the Company with certain most-favored-customer rights to programming
services that TCI or a wholly owned subsidiary of TCI may own in the future and
access to any volume discounts that may be available to TCI for purchase of
HSDs, satellite receivers and other equipment.
As compensation for services rendered to the Company and for the
benefits made available to the Company pursuant to the Transition Services
Agreement, the Company is required to pay TCI a fee of $1.50 per qualified
subscribing household or other residential or commercial unit (counted as one
subscriber regardless of the number of satellite receivers) per month,
commencing with the Distribution Date, up to a maximum of $3 million per month,
and reimburse TCI quarterly for direct, out-of-pocket expenses incurred by TCI
to third parties in providing the services.
The Transition Services Agreement continues in effect until the close
of business on December 31, 1999 and will be renewed automatically for
successive one-year periods thereafter, unless earlier terminated by (i) either
party at the end of the initial term or the then current renewal term, as
applicable, on not less than 180 days' prior written notice to the other party,
(ii) TCI upon written notice to the Company following certain changes in control
of the Company, and (iii) either party if the other party is the subject of
certain bankruptcy or insolvency-related events. During the period commencing
with the Distribution Date and ending on December 31, 1996, the Company paid
$763,000 to TCIC pursuant to the Transition Services Agreement.
III-18
<PAGE>
Tax Sharing Agreement. Through the Distribution Date, the Company's
results of operations were 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 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. Prior to the Distribution Date, the Tax Sharing Agreement
was amended to provide that the Company be treated as if it had been a party to
the Tax Sharing Agreement, effective July 1, 1995.
Indemnification Agreements. On the Distribution Date, the Company
entered into the Indemnification Agreements with TCIC and TCI UA 1. The
Indemnification Agreement with TCIC provides for the Company to reimburse TCIC
for any amounts drawn under an irrevocable transferable letter of credit issued
by the Bank of New York for the account of TCIC to support the Company's share
of PRIMESTAR Partners' obligations under the GE-2 Agreement, with respect to
PRIMESTAR Partners' use of transponders on GE-2. The drawable amount of
such letter of credit is $25,000,000. See "Business - Narrative Description of
Business - PRIMESTAR By TCI - The PRIMESTAR/(R)/ Service" in Part I of this
Report.
The Indemnification Agreement with TCI UA 1 provides for the Company
to reimburse TCI UA 1 for any amounts drawn under the TCI UA 1 Letter of Credit,
which supports the PRIMESTAR Credit Facility that was obtained by PRIMESTAR
Partners to finance advances to Tempo for payments due in respect of the
construction of the Company Satellites and that is supported by letters of
credit arranged for by affiliates of the partners of the Partnership (other than
GEAS). The amount of the TCI UA 1 Letter of Credit was $141,250,000 at December
31, 1996.
The Indemnification Agreements further provide for the Company to
indemnify and hold harmless TCIC and TCI UA 1 and certain related persons from
and against any losses, claims, and liabilities arising out of the respective
letters of credit or any drawings thereunder. The payment obligations of the
Company to TCIC and TCI UA 1, under such Indemnification Agreements are
subordinated in right of payment with respect to certain future obligations of
the Company to financial institutions. During the year ended December 31, 1996,
the aggregate amount paid by the Company to TCI under the Indemnification
Agreements was $1,623,000. Such amount represents the aggregate fees incurred
by TCI with respect to the TCI UA 1 Letter of Credit from the Distribution Date
through December 31, 1996.
III-19
<PAGE>
Trade Name and Service Mark License Agreement. Pursuant to the Trade Name
and Service Mark License Agreement (the "License Agreement"), TCI granted 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
provides, 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.
Fulfillment Agreement. TCIC has historically provided the Company with
certain customer fulfillment services for PRIMESTAR customers enrolled by the
Company's direct sales force or the National Call Center. Charges for such
services have been allocated to the Company by TCIC based on scheduled rates.
Pursuant to the Fulfillment Agreement entered into by TCIC and the Company,
TCIC continues to provide fulfillment services to the Company following the
Distribution with respect to customers of the PRIMESTAR medium power service.
Such services include installation, maintenance, retrieval, inventory management
and other customer fulfillment services. The Fulfillment Agreement became
effective on January 1, 1997. Among other matters, the Fulfillment Agreement (i)
sets forth the responsibilities of TCIC with respect to fulfillment services,
including performance standards and penalties for nonperformance, (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 scheduled rates 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 are 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 Kuband,
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 has 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 scheduled rates for
the services to be provided by TCIC under the Fulfillment Agreement exceed the
scheduled rates upon which charges historically have been 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. The Company and TCIC are currently discussing certain proposed
changes to the Fulfillment Agreement, but there can be no assurance that any
such changes will be agreed to or that the Company will not exercise its rights
to terminate the Fulfillment Agreement if an acceptable amendment is not agreed
to prior to the end of the Company's six-month termination window. 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. During the year ended
December 31, 1996, the aggregate amount paid by the Company to TCIC for
fulfillment services was $74,049,000 (including $6,432,000 paid subsequent to
the Distribution Date)
III-20
<PAGE>
TCIC Credit Facility. In connection with the Distribution, the Company and
TCIC entered into the TCIC Credit Facility to provide for the terms of the
Company Note and to provide for a revolving credit facility (the "TCIC Revolving
Loans"). The TCIC Credit Facility required the Company to use its best efforts
to obtain external debt or equity financing after the Distribution Date and
provided for mandatory prepayment of the TCIC Revolving Loans and the Company
Note from the proceeds thereof. The initial borrowings under the Bank Credit
Facility were used to repay the Company Note in full. In connection with the
February 1997 issuance for the Notes and the March 1997 determination that GE-2
was commercially operational, borrowing availability pursuant to the TCIC Credit
Facility was terminated.
Borrowings under the TCIC Revolving Loans bore interest at 10% per annum,
compounded semi-annually. Commitment fees equal to 3/8% of the average
unborrowed availability under the TCIC Credit Facility were payable to TCIC
annually. Commitment fees paid to TCIC during the year ended December 31, 1996
aggregated $141,000. From the Distribution Date through December 31, 1996, the
aggregate amount of interest paid by the Company to TCIC pursuant to the TCIC
Credit Facility was $1,946,000.
Reimbursement of Certain Satellite Expenses. During 1996, TCIC made
intercompany advances to the Company to fund the majority of the construction
and related costs associated with the Company Satellites. Prior to 1996,
PRIMESTAR Partners had funded substantially all of the construction and related
costs associated with the Company Satellites. In connection with the
Distribution, a determination was made to provide that such 1996 advances from
TCIC would be repaid by the Company to TCIC (notwithstanding the Reorganization
Agreement), to the extent (and only to the extent) that Tempo received
corresponding advances from PRIMESTAR Partners.
As a result of negotiations between the Company and PRIMESTAR Partners,
PRIMESTAR Partners advanced $73,786,000 to Tempo in December 1996 to reimburse
Tempo for all the 1996 costs which previously had been funded by TCIC. Upon
receipt, such advance was paid to TCIC by Tempo in repayment of such 1996
advance by TCIC. See "Business - Narrative Description of Business - Company
Overview-High Power Satellites" in Part I of this Report.
Call Center JV. In March 1997, TSAT and TCI agreed to form a limited
liability company (the "Call Center LLC") through which TSAT and TCI will
conduct various customer call service operations. The initial ownership
interests of TSAT and TCI in the Call Center LLC will be 28% and 72%,
respectively, and will be subject to adjustment based on various categories of
operating data for the last three quarters of 1997, including call center volume
attributable to their customers. The Call Center LLC will be managed by a
four-member board of directors, two members of which will be appointed by TCI
and two members of which will be appointed by TSAT. Any decision by the board of
directors will require approval by all four directors. Initially, the Call
Center LLC will provide customer call services only for TCI cable subscribers
and TSAT DBS subscribers, but it is expected that those services in the future
will be made available to third parties, including, for example, unaffiliated
cable companies. The hourly rates for services provided by the Call Center LLC
to TSAT and TCI through December 31, 1997, have been fixed based on their
respective expense budgets for those services. Thereafter, TSAT and TCI expect
that the rates charged to them will be fair market rates, as established by
agreement between TSAT and TCI.
III-21
<PAGE>
TCI has agreed to contribute assets comprising certain currently operating
call center facilities, as well as a facility under construction. The assets
being contributed by TCI include two operating call centers and the facility
under construction. TSAT has agreed to contribute assets comprising two
currently operating call center facilities, both effective as of April 1, 1997.
At December 31, 1996, the historical cost of the assets to be contributed by
TSAT to the Call Center LLC was approximately $7,200,000. Transfers of various
of the call center assets to the Call Center LLC will be subject to receipt of
consents of third parties, including governmental authorities. Pending receipt
of any required third-party consents and regulatory approvals, TSAT and TCI have
agreed to provide to the Call Center LLC the use of the call center assets to be
contributed under services agreements or similar arrangements to the extent
feasible. Operating obligations relating to the contributed assets, including
leases of real and personal property (but not including any indebtedness for
borrowed money), will be assumed by the Call Center LLC.
Effective April 1, 1996, TSAT will cease to consolidate the assets
contributed to the Call Center LLC and will begin using the equity method of
accounting to account for its investment in the Call Center LLC.
Other Arrangements. On the Distribution Date, TCI and the Company entered
into the Share Purchase Agreement, which obligates TCI and the Company 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 Adjusted TCI Options and
Add-on Company Options held after the Distribution Date by their respective
employees and non-employee directors.
Certain officers of the Company who were officers or directors of TCI
and/or TCIC prior to the Distribution received undertakings of indemnification
from TCI and/or TCIC. Such undertakings survived 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 prior to the Distribution Date 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 P. Beddow, an executive
officer of certain TCI subsidiaries and a director of the Company, of 0.5% of
the net equity of the Company. The TCI Board determined to structure such
transactions as grants 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 immediately after giving effect to the
Distribution, but before giving effect to any exercise of such options
("Distribution Date Options"). The aggregate exercise price for each such option
is 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 as of the
Distribution Date, but excluding any portion of TCI's Net Investment that as of
such date was represented by a promissory note or other evidence of indebtedness
from the Company to TCI. Distribution Date Options to purchase 2,324,266 shares
of Series A Common Stock at a per share price of $8.86 were granted on the
Distribution Date, will vest in 20% cumulative increments on each of the first
five anniversaries of February 1, 1996, and will be exercisable for up to ten
years following February 1, 1996. Pursuant to the Reorganization Agreement, and
(in the case of the options granted to Messrs. Clouston, Romrell and Beddow) in
partial consideration for the capital contribution made by TCI to the Company in
connection with the Distribution, the Company agreed, effective as of the
Distribution Date, to bear all obligations under such options and to enter into
stock option agreements with respect to such options with each of Messrs.
Clouston, Romrell, Howard and Beddow.
III-22
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statements and Financial Statement Schedules
- -------- ----------------------------------------------------------------
and Reports on Form 8-K
-----------------------
<TABLE>
<S> <C> <C>
(a) (1) Financial Statements
--------------------
Included in Part II of this Report: Page No.
--------
Independent Auditors' Report II-15
Balance Sheets, December 31, 1996 and 1995 II-16
Combined Statements of Operations, Years ended
December 31, 1996, 1995 and 1994 II-18
Combined Statements of Equity, Years ended
December 31, 1996, 1995 and 1994 II-19
Combined Statements of Cash Flows, Years ended
December 31, 1996, 1995 and 1994 II-20
Notes to Financial Statements, December 31,
1996, 1995 and 1994 II-21
(a) (2) Financial Statement Schedules
-----------------------------
Included in Part IV of this Report:
(i) Financial Statement Schedules required to be filed:
All schedules have been omitted because they are not applicable, or
the required information is set forth in the applicable financial
statements or notes thereto.
(ii) Separate financial statements for PRIMESTAR Partners, L.P.
Financial Statements Page No.
-------------------- ---------
Report of Independent Accountants IV-6
Balance Sheet, December 31, 1996 and 1996 IV-7
Statement of Operations, Years ended December
31, 1996, 1995, and 1994 IV-8
Statement of Changes in Partners Capital,
Years ended December 31, 1996, 1995 and 1994 IV-9
Notes to Financial Statements, December 31,
1996, 1995 and 1994 IV-10
</TABLE>
IV-1
<PAGE>
(a) (3) Exhibits
--------
The following exhibits are filed herewith or are incorporated by reference
herein (according to the number assigned to them in Item 601 of Regulation S-K)
as noted:
2 - Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
2.1 Reorganization Agreement, dated as of December 4, 1996, among Tele-
Communications, Inc. ("TCI"), TCI Communications, Inc. ("TCIC"), Tempo
Enterprises, Inc., TCI Digital Satellite Entertainment, Inc., TCI K-1,
Inc. ("TCI K-1"), United Artists K-1 Investments, Inc. ("UA K-1"), TCI
SE Partner 1, Inc. ("TCISE 1"), TCI SE Partner 2, Inc. ("TCISE 2") and
TCI Satellite Entertainment, Inc. (the "Company"). (a)
3 - Articles of Incorporation and Bylaws:
3.1 Amended and Restated Certificate of Incorporation of the Company. (b)
3.2 Bylaws of the Company. (b)
4 - Instruments Defining the Rights of Security Holders:
4.1 Specimen certificate representing shares of Series A Common Stock of the
Company. (b)
4.2 Specimen certificate representing shares of Series B Common Stock of the
Company.(b)
4.3 Indenture dated as of February 20, 1997 between the Company and Bank of
New York, as Trustee with respect to $200 million principal amount of
10-7/8% Senior Subordinated Notes due 2007.(a)
4.4 Indenture dated as of February 20, 1997 between the Company and Bank of
New York, as Trustee with respect to $275 million principal amount of
12-1/4% Senior Subordinated Discount Notes due 2007.(a)
4.5 Registration Rights Agreement - Senior Subordinated Notes, dated as of
February 20, 1997 among the Company and Donaldson, Lufkin and Jenrette
Securities Corporation; Merrill Lynch, Pierce, Fenner and Smith
Incorporated; Nationsbanc Capital Markets, Inc.; and Scotia Capital
Markets (USA) Inc. (a)
4.6 Registration Rights Agreement - Senior Subordinated Discount Notes, dated
as of February 20, 1997 among the Company and Donaldson, Lufkin and
Jenrette Securities Corporation; Merrill Lynch, Pierce, Fenner and
Smith Incorporated; Nationsbanc Capital Markets, Inc.; and Scotia
Capital Markets (USA) Inc. (a)
IV-2
<PAGE>
10 - Material Contracts
10.1 Indemnification Agreement dated as of December 4, 1996, by and between
the Company and TCI UA 1, Inc. (a)
10.2 Indemnification Agreement dated as of December 4, 1996, by and between
the Company and TCIC. (a)
10.3 TCI Satellite Entertainment, Inc. 1996 Stock Incentive Plan. (b)
10.4 Qualified Employee Stock Purchase Plan of the Company. (a)
10.5 Indemnification Agreement dated December 4, 1996, by and between TCI and
Gary S. Howard. (a)
10.6 Option Agreement, dated as of December 4, 1996, by and between the
Company and Gary S. Howard. (a)
10.7 Option Agreement, dated as of December 4, 1996, by and between the
Company and Larry E. Romrell.(a)
10.8 Option Agreement, dated as of December 4, 1996, by and between the
Company and Brendan R. Clouston. (a)
10.9 Option Agreement, dated as of December 4, 1996, by and between the
Company and David P. Beddow. (a)
10.10 1996 Ancillary Agreement Among Partners dated as of October 18, 1996,
among PRIMESTAR Partners, L.P., the Participating Partners named
therein, GE American Services, Inc. and its affiliate GE American
Communications, Inc. (b)
10.11 Annex A to the 1996 Ancillary Agreement Among Partners. (b)
10.12 Equipment Sale Agreement, dated as of October 21, 1996, between ResNet
Communications, Inc. ("ResNet") and the Company. (b)
10.13 Subordinated Convertible Term Loan Agreement, dated as of October 21,
1996, by and between ResNet, as Borrower, and the Company, as
Lender. (b)
10.14 Option Agreement, dated as of October 21, 1996, between ResNet and the
Company. (b)
10.15 Standstill Agreement, dated as of October 21, 1996, by and between
LodgeNet Entertainment Corporation ("LodgeNet") and the Company.
(b)
10.16 Stockholders' Agreement, dated as of October 21, 1996, between LodgeNet
and the Company.(b)
IV-3
<PAGE>
10 - Material Contracts (continued)
10.17 Subscription Agreement, dated as of October 21, 1996, between ResNet and
the Company. (b)
10.18 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. (b)
10.19 Amendment to Limited Partnership Agreement dated September 1, 1993. (b)
10.20 Amendment to Limited Partnership Agreement dated December 15, 1993. (b)
10.21 Amendment to Limited Partnership Agreement dated October 18, 1996. (b)
10.22 Tag Along Agreement dated as of February 8, 1990, among Cox Enterprises,
Inc., Comcast Corporation, Continental Cablevision, Inc., Newhouse
Broadcasting Corporation, Tempo Satellite, Inc. ("Tempo"), TCI
Development Corporation and TCI. (b)
10.23 Option Agreement dated February 8, 1990, between Tempo and K Prime
Partners, L.P. (b)
10.24 Letter Agreement dated July 30, 1993, between Tempo and PRIMESTAR
Partners, L.P. relating to FSS. (b)
10.25 Letter Agreement dated July 30, 1993, between Tempo and PRIMESTAR
Partners, L.P. relating to BSS. (b)
10.26 Amended and Restated Reimbursement Agreement dated March 1, 1995,
between TCI UA 1, Inc., Chemical Bank and The Toronto Dominion Bank.
(b)
10.27 TPO-1-290 BSS Construction Agreement dated as of February 22, 1990,
between Tempo and Space Systems/Loral, Inc.(b)(c)
10.28 U.S. $750,000,000 Credit Agreement dated as of December 31, 1996 among
the Company, The Bank of Nova Scotia, Nationsbank of Texas, N.A.,
Credit Lyonnais New York Branch, and various financial
institutions.(a)
10.29 First Amendment to Credit Agreement dated as of February 19, 1997 among
the Company, certain financial institutions, and the Bank of Nova
Scotia, as Administrative Agent for the Lenders.(a)
10.30 Trade Name and Service Mark License Agreement dated as of December 4,
1996, between TCI and the Company. (a)
IV-4
<PAGE>
10 - Material Contracts (continued)
10.31 Transition Services Agreement dated as of December 4, 1996, between TCI
and the Company. (a)
10.32 Fulfillment Agreement dated as of August 30, 1996, between TCIC and the
Company. (b)
10.33 Tax Sharing Agreement effective July 1, 1995, among TCIC and certain
other subsidiaries of TCI. (b)
10.34 First Amendment to Tax Sharing Agreement dated as of October 1995, among
TCIC and certain other subsidiaries of TCI.(b)
10.35 Second Amendment to Tax Sharing Agreement dated as of December 3, 1996,
among TCIC and certain other subsidiaries of TCI. (a)
10.36 Amended and Restated Credit Agreement dated as of February 19, 1997
between TCIC and the Company (a)
10.37 Share Purchase Agreement dated as of December 4, 1996, between TCI and
the Company. (a)
10.38 Option Agreement dated as of December 4, 1996, between TCI and the
Company.(a)
21 Subsidiaries of the Registrant.(a)
23 Consent of Experts and Counsel
23.1 Consent of KPMG Peat Marwick LLP (a)
23.2 Consent of Price Waterhouse LLP (a)
27 Financial Data Schedule.(a)
- ---------------
(a) Filed herewith.
(b) Incorporated by reference to the Company's Registration Statement on Form
10 filed with the Securities and Exchange Commission ("SEC") on November
15, 1996 (Registration No. 0-21317).
(c) This document has been redacted and has been granted Confidential
Treatment by the SEC.
(b) Reports on Form 8-K filed during the quarter ended December 31, 1996:
None.
IV-5
<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, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, 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 1997 operating budget reflects cash requirements in excess
of the current aggregate capital commitment of its partners. In addition, the
Partnership's credit facility becomes due in June 1997. 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
February 14, 1997, except as to Note 13,
which is as of March 9, 1997.
IV-6
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Balance Sheet
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
(in thousands)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,145 $ 10,956
Restricted cash 803 689
Accounts receivable - related parties, net 91,024 60,444
Prepaid and other current assets 33,076 549
--------- ---------
Total current assets 137,048 72,638
Property and equipment, net 18,131 9,990
Costs of satellites under construction 525,746 419,256
Other assets, net 7,348 14,078
--------- ---------
$ 688,273 $ 515,962
========= =========
<CAPTION>
Liabilities and Partners' Capital
<S> <C> <C>
Current liabilities:
Borrowings under credit facility expected to be refinanced $ 521,000
Current portion of satellite obligation 255
Accounts payable and other accrued expenses 47,623 $ 29,132
Accounts payable - related party 7,501 4,690
Accrued payroll 3,990 2,373
Accrued interest 4,538 1,716
--------- ---------
Total current liabilities 584,907 37,911
Borrowings under long-term credit facility 419,000
Long-term obligation - satellite 4,227
Deferred rent - related party 7,210
--------- ---------
Total liabilities 589,134 464,121
--------- ---------
Commitments and contingencies
Partners' capital:
Contributed capital 314,968 251,968
Accumulated loss (215,829) (200,127)
--------- ---------
Total partners' capital 99,139 51,841
--------- ---------
$ 688,273 $ 515,962
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-7
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Statement of Operations
For the Years Ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Income:
Subscriber revenues - related parties $412,999 $180,595 $ 27,841
Interest 1,845 1,252 405
-------- -------- --------
414,844 181,847 28,246
-------- -------- --------
Expenses:
Operating 316,763 147,948 41,832
Selling, general and administrative 109,798 68,152 36,343
Depreciation and amortization 3,261 2,890 2,700
Interest expense 737 8 61
Loss on deferred option payments 4,886 1,767
(Gain) loss on disposal of property and
equipment (13) 1,259
-------- -------- --------
430,546 223,884 83,962
-------- -------- --------
Net loss $(15,702) $(42,037) $(55,716)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-8
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Statement of Changes in Partners' Capital
For the Years Ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contributed Accumulated
capital loss Total
----------- ----------- -----
(in thousands)
<S> <C> <C> <C>
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
Capital contributions 63,000 63,000
Net loss (15,702) (15,702)
-------- --------- --------
Balance at December 31, 1996 $314,968 $(215,829) $ 99,139
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-9
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Statement of Cash Flows
For the Years ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (15,702) $ (42,037) $ (55,716)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 4,178 2,890 2,700
Loss on deferred option payments 4,886 1,767
(Gain) loss on disposal of property
and equipment (13) 1,259
Change in assets and liabilities:
Accounts receivable, related
parties (30,580) (48,245) (10,379)
Deposits (28) 757 (808)
Prepaid and other assets (23,637) (13,024) (1,220)
Accounts payable, accrued
expenses, and accrued interest 22,930 18,984 7,767
Accounts payable - related party 2,811 1,846 2,844
Deferred rent (7,210) (3,968) (2,598)
--------- --------- ---------
Net cash used in operating
activities (47,251) (77,911) (54,384)
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment
and payments on satellite
construction (116,345) (133,867) (224,097)
--------- --------- ---------
Cash flows from financing activities:
Increase in deferred financing fees (1,573)
Loans from partners 48,184
Repayment of loans from partners (119,348)
Capital contributions 63,000 68,062 78,300
Borrowings under credit facility 102,000 129,000 290,000
Principal payments of long-term
satellite obligation (101)
Increase in restricted cash (114) (298) (391)
--------- --------- ---------
Net cash provided by
financing activities 164,785 196,764 295,172
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 1,189 (15,014) 16,691
Cash and cash equivalents at
beginning of year 10,956 25,970 9,279
--------- --------- ---------
Cash and cash equivalents at end
of year $ 12,145 $ 10,956 $ 25,970
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
IV-10
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
1. Organization and Business
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 700 such
distributors, all of which are owned by the Partnership's partners. In
addition, the Partnership purchases a portion of its programming services
from affiliates of certain partners.
The Partnership currently delivers programming services from leased
transponders on a medium-powered satellite (K-2). This satellite will be
replaced when another medium-power satellite (GE-2), which was launched
January 30, 1997, becomes operational (see Notes 7 and 13). The
Partnership also has two high-powered satellites under construction, one
of which will be launched in the first quarter of 1997 (see Note 13). The
other high-powered satellite will be used as a ground spare or backup
satellite until the launched high-powered satellite is operational, or
otherwise used, deployed or disposed of as determined by the Partnership
(see Note 6).
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 can prevent or limit commercial
operation or reduce the satellite's useful life.
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
$270,300 in cash as of December 31, 1996 and have made additional
aggregate cash contributions of $28,400 in 1997.
. 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 10.)
IV-11
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
Distributions and allocations:
Net profits and net losses are allocated to each partner in accordance
with their stated percentage 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; 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 1997 operating budget
reflects cash requirements which are in excess of the current aggregate
capital commitment of its partners. In addition, the Partnership's
credit facility becomes due in June 1997 (see Note 8). 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
April 1997. Presently, the partners determine the amount of additional
capital commitments on a quarterly basis. The Partnership is currently
negotiating to refinance its credit facility and management believes
either such refinancing will occur prior to its expiration or that the
due date of the current facility will be extended until refinancing
occurs. There can be no assurance the Partnership will be able to
refinance the credit facility.
Revenue Recognition:
Subscriber revenues are billed to distributors and recognized when
related programming services are delivered. Included in accounts
receivable at December 31, 1996 and 1995 are $39,489 and $27,244,
respectively, of unbilled programming services.
IV-12
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
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:
Depreciation is provided over the estimated useful lives of the assets
(5 to 7 years) using the straight-line method. Maintenance and repairs
are expensed as incurred and the cost of betterments are capitalized.
Intangible assets:
The intangible asset associated with the in-kind capital contribution is
being amortized over the term of the related lease agreement and is
fully amortized as of December 31, 1996 (see Note 7).
Deferred financing fees:
Deferred financing fees of $1,732 at December 31, 1996, 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 for the years
ended December 31, 1996 and 1995 and $470 for the year ended December
31, 1994. 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.
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.
IV-13
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
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 adopted 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 in the period such impairment becomes evident. There
was no financial statement effect from the adoption of FAS 121.
3. Accounts Receivable - Related Parties
Accounts receivable - related parties, represents 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 14%, 9% and 11% of the Partnership's subscriber revenues for
1996, 1995 and 1994, respectively. The allowance for doubtful accounts was
$1,576, $812 and $146 at December 31, 1996, 1995 and 1994, respectively.
4. Notes Receivable
On November 15, 1990, the Partnership assumed from a partner two revolving
credit promissory 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.
IV-14
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
Under the terms of the revolving credit promissory note with the third
party, 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 Direct Broadcast Satellite (DBS) construction permit or license. During
1994, the third party 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, 1996 is approximately
$543.
5. Property and Equipment
Property and equipment at December 31, 1996 and 1995 comprise the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Construction in progress - control center $ 6,323 $
Control center, compression/lab equipment 9,496 8,223
Other furniture and equipment 7,147 5,540
------- -------
22,966 13,763
Accumulated depreciation (4,835) (3,773)
------- -------
$18,131 $ 9,990
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1995 and 1994
was $2,302, $1,932 and $1,271, respectively.
6. Costs of Satellites Under Construction
In 1990, the Partnership entered into an Option Agreement with an affiliate
of a Partner (the "Related Party"). The Related Party ultimately became a
FCC authorized Broadcast Satellite Services (BSS) satellite licensee with a
permit to construct, launch and operate BSS satellites within an 11
transponder authorization at the 119 degree BSS location. Under the Option
Agreement, the Partnership obtained the exclusive rights to lease or
purchase all of the Related Party's transponder capacity in satellite
locations allocated to the Related Party under the FCC permit. In
consideration of these rights, the Option Agreement required the
Partnership to reimburse the Related Party for actual costs incurred by the
Related Party related to maintaining the Option Agreement, not to exceed
$2,000. Since the Option Agreement is considered an integral part of the
Partnership's strategy to improve the distribution of its programming,
cumulative payments under the Option Agreement were 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.
IV-15
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
In 1993, through various arrangements entered into through the Related
Party, the Partnership also obtained the rights to a fixed price contract
with Space Systems/Loral, Inc. for the construction and launch of two
satellites. In 1994, the Partnership commenced construction of two BSS
satellites. Through December 31, 1996, 1995 and 1994, the Partnership
reimbursed the Related Party $457,685, $382,840 and $278,772, respectively,
for the construction of the satellites. Included in the cost of the
satellites under construction as of December 31, 1996 is approximately
$1,300, representing the amount due under the Option Agreement and other
costs related to the maintenance of the 11 transponder authorization. These
costs are included in accounts payable - related party as of December 31,
1996.
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, 1996, 1995
and 1994 was $30,448, $25,521 and $10,432, respectively.
The Partnership also incurred costs related to its pursuit of licenses for
other orbital locations. Through December 31, 1995, such costs totaled
approximately $6,700. Management determined that, for various reasons, such
costs may not be recoverable and reserved approximately $4,900 and $1,800
in 1995 and 1994, respectively. At December 31, 1996, $4,600 of such costs
remain in accounts payable - related party.
On February 7, 1997, the Partnership approved a resolution effective
December 31, 1996 reaffirming that the Partnership had unconditionally
exercised its option pursuant to the Option Agreement, authorized the
launch of one of the BSS satellites (Satellite No. 2) into the 119 degree
orbital location (the only full conus location available to the
Partnership) and ordered Satellite No. 1 to be used either as a spare or
back-up for Satellite No. 2 or to be deployed or disposed of as determined
by the Partnership (see Note 13). In addition, the Related Party and its
affiliates confirmed in writing that Satellite No. 1 would be used as a
spare or backup for Satellite No. 2 or otherwise deployed or disposed of as
determined by the Partnership. Consistent with the resolution, the
Partnership paid $73,786 to the Related Party in December 1996 to reimburse
the Related Party for 1996 satellite construction costs through December.
In addition, the Partnership agreed to reimburse the Related Party $7,535
for the amounts due under the Option Agreement for the exercise of the
option, for deployment of the DBS satellites and for other consulting,
legal and engineering expenses. As of December 31, 1996, Satellite No. 2
was scheduled for launch in the February - March 1997 timeframe.
IV-16
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
7. Other Assets
Other assets at December 31, 1996 and 1995 comprise the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Bargain element of transponder lease (see Note 10) $ 6,706
Less: accumulated amortization (5,747)
------- -------
Net 959
------- -------
Prepaid transponder space (see Note 10) 28,560 12,362
Less: current portion (21,420)
------- ------
7,140 12,362
------- ------
Deposits 101 73
Deferred financing fees, net 107 684
------- -------
$ 7,348 $14,078
======= =======
</TABLE>
IV-17
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
8. Satellite Construction 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 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). 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 Chase Manhattan 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 million in
the case of LIBOR and CD rate loans and $1 million in the case of Alternate
Base Rate loans, or in each case, any greater multiple of $1 million. 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, 1996, LIBOR borrowings outstanding bear interest at rates
ranging from 5.94% to 6.06% and mature at varying dates through March 17,
1997. Also outstanding at December 31, 1996 is an Alternate Base Rate
borrowing bearing interest at 8.25%, which
IV-18
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
matured on January 3, 1997. As borrowings mature, the Partnership
refinances them under the same facility as provided by the
agreements. The Partnership intends to refinance the credit facility, which
matures on June 30, 1997, on a long-term basis.
Interest incurred for the years ended December 31, 1996, 1995 and 1994
totaled $29,607, $24,511 and $8,435, respectively. Commitment fees for the
years ended December 31, 1996, 1995 and 1994 totaled $245, $419 and $573,
respectively. The interest incurred and commitment fees were capitalized
into costs of satellites under construction.
9. Long-term Obligation - Satellite
Effective November 1996, the Partnership entered into an agreement which
provides for access to a medium-power satellite (K-2) through June 1997.
The agreement requires the Partnership to make payments of $48 per month
through July 2008. The present value of these payments was recorded as an
intangible asset and a long-term obligation using an interest rate of
7.32%. The intangible asset will be amortized over the expected service
life from mid-November 1996 through June 1997. Amortization expense for the
year ended December 31, 1996 totaled $917. Future minimum payments under
this agreement are as follows:
<TABLE>
<CAPTION>
Year
<S> <C>
1997 $ 575
1998 575
1999 575
2000 575
2001 575
Thereafter 3,785
------
Total minimum payments 6,660
Less: amounts representing interest (2,178)
------
4,482
Less: current portion (255)
------
Long-term obligation $4,227
======
</TABLE>
The Partnership will also lease transponders on the satellite (see Note
10).
IV-19
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
10. Commitments
The Partnership has long-term lease commitments for office space, satellite
services, equipment and transponders which are accounted for as operating
leases.
At December 31, 1996, future minimum lease payment commitments under these
leases are as follows:
<TABLE>
<CAPTION>
Transponders
-----------------
Year K-2 GE-2 Other
---- --- ---- -----
<S> <C> <C> <C>
1997 $10,500 $ 14,500 $1,710
1998 42,040 1,671
1999 46,800 1,088
2000 46,800 537
2001 46,800 341
Thereafter 54,600
------- -------- ------
Total minimum rentals $10,500 $251,540 $5,347
======= ======== ======
</TABLE>
The K-1 transponder lease arrangement, which terminated in November 1996
provided for fixed payments, as well as payments which escalated over the
term of the lease; further, the agreement provided for a deferral of
payments until later years. The Partnership recognized 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 1995, the Partnership entered into a satellite transponder service
agreement with an affiliate of a Partner for satellite service on 14
transponders on an FSS medium power satellite (GE-2) to be launched into
the 85 degree orbital location. This medium power satellite will replace
the satellite (K-2) currently used by the Partnership, which is nearing the
end of its useful life. Service on GE-2 was scheduled to commence in March
1997 (see Note 13). Under this agreement, the Partnership obtained
unprotected service on 14 transponders for a period of one year with an
option to extend the service for an additional one-year period. Payments of
$16,198 and $12,362 were made to the affiliate in 1996 and 1995,
respectively.
In 1996, the Partnership amended this agreement to provide the Partnership
with service on up to 24 transponders on the satellite. The agreement also
extended the initial term to four years at an annual rate of $46,800 when
the satellite is fully utilized. The term of this agreement was extendable
at the option of the Partnership, for the remainder of the useful life of
the satellite, along with protection afforded by another satellite (GE-3)
to be launched in the fourth quarter of 1997 (see Note 13).
At the beginning of 1996, the Partnership's business was being operated on
14 transponders on the K-1 medium power satellite operated at 85 degrees.
The K-1 satellite was expected to reach its useful end of life in the
fourth quarter of 1996. To assure continuity of service, the Partnership in
1995 had entered into an agreement with an affiliate of a Partner to
provide the Partnership with temporary satellite service through July 1997
(under certain conditions) on 14-15 transponders on another medium power
satellite (K-2) to be located at the 85 degree location. In November 1996,
all the Partnership's operations were transferred from K-1 to K-2
successfully. Service on this satellite will continue until GE-2 is deemed
commercially operational (see Notes 9 and 13).
A subsidiary of a partner provides satellite uplink services to the
Partnership. Total payments for such services were approximately $10,721,
$10,581 and $5,610 for 1996, 1995 and 1994, respectively.
In addition to the fixed minimum rentals above, all of the transponder
leases include 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, 1996, 1995 and 1994 were approximately $11,613, $5,550 and
$1,035, respectively.
Rent expense under operating leases for the years ended December 31, 1996,
1995 and 1994 was approximately $25,536, $23,500 and $22,208, respectively.
11. 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
IV-20
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
to contribute up to 10% of their annual pre-tax compensation and the
Partnership makes 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, 1996, 1995 and 1994 totaled
approximately $179, $80 and $61, respectively.
The Partnership has a Long-Term Incentive Compensation Program for senior
management. Under the program participants may be awarded 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, 1996 and 1995, 3,535 and 2,115 units
have been awarded with values of $3,535 and $2,115, respectively.
Compensation expense for the years ended December 31, 1996 and 1995 totaled
$755 and $471, respectively. Through December 31, 1996, 323 units with a
value of $323 have vested. 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.
12. Litigation and Contingencies
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. The consent judgment
on the states expires as of October 1997.
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 restraint of trade. The CID issued
by the DOJ does not identify the Partnership as the subject of the
investigation. Management does not believe that the Partnership has engaged
in any
IV-21
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
unlawful conduct, but has cooperated with the DOJ in its investigation. 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;
management, however, does not reasonably foresee any additional activity on
this matter.
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. The Partnership has
received challenges from certain network affiliates. In response to such
challenges, the Partnership has disconnected the challenged broadcast
network service from certain subscribers. None of the networks or
affiliates has asserted any claim for damages under applicable law against
the Partnership. Discussions are continuing between representatives of the
Partnership and representatives of the networks and their affiliates
concerning reporting and signal measurement issues under the Act, and both
parties will be continuing negotiations toward a final written agreement.
If a written agreement is reached, management believes that it is unlikely
that the networks and their affiliates will initiate litigation against the
Partnership. In the event a written agreement is not reached, management
believes it is likely that the networks and their affiliates will initiate
litigation against the Partnership. The Act provides for remedies which 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 remains unable to
determine upon what basis such damages would be calculated or what their
amount might be. Therefore, management is unable at this time to assess the
impact, if any, of the unasserted claim on the Partnership's results of
operations, financial position or cash flows.
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, 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
IV-22
<PAGE>
PRIMESTAR Partners, L.P.
(a limited partnership)
Notes to Financial Statements
For the Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
- --------------------------------------------------------------------------------
distributors) utilization of DigiCipher Equipment for the provision of the
Partnership's service to its distributors (and their customers). The
Partnership has made 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, financial position or cash flows.
The Partnership is currently involved in a contractual dispute with
a multi-channel program provider, with respect to whether the Partnership
has a contractual obligation to add four (4) additional programming
channels upon the transition of its service to GE-2. The program provider
has threatened litigation if the matter is not successfully addressed. The
parties are currently in discussions to settle the matter. Notwithstanding
a failure by the parties to successfully resolve this matter, management
believes the matter will not have a material effect on the Partnership's
results of operations, financial position or cash flows.
On November 21, 1996, the International Bureau of the Federal
Communications Commission ("FCC") granted EchoStar Satellite Corporation
("EchoStar") a conditional authorization to construct, launch and operate a
Ku-band domestic fixed satellite into the orbital position at 83 degrees
immediately adjacent to that occupied by GE-2. Contrary to previous
FCC policy, EchoStar was authorized to operate at a power level of 130
watts. If EchoStar were to launch its high power satellite authorized to 83
degrees and commence operations at that location at a power level of
130 watts, it would likely cause harmful interferences to the reception of
the Partnership's signal by its customers.
On December 23, 1996, an affiliate of a Partner and the Partnership
separately requested reconsideration of the International Bureau's
authorization for EchoStar to operate at 83 degrees. These requests
were opposed by EchoStar and others. These reconsideration requests
currently are pending at the International Bureau. In addition, the
affiliate and the Partnership have attempted to resolve potential
coordination problems directly with EchoStar. It is uncertain whether any
coordination between the Partnership and EchoStar will resolve such
interference. There can be no assurance that the International Bureau will
change slot assignments, or power levels, in a fashion that eliminates the
potential for harmful interference. Management is unable at this time to
assess the impact, if any, of the aforesaid matter on the Partnership's
results of operations, financial position or cash flows.
13. Subsequent Events
On February 19, 1997, the Partnership amended its four year unprotected
satellite service agreement with an affiliate of a Partner for service on
GE-2 (see Note 10). This amendment revised the agreement to a six year
protected arrangement with an option to extend to the end of life, if the
option is exercised by December 31, 1997. Under the amendment, annual
payments increase to $69,840 from $46,800. If, however, the Partnership
exercises the End of Life option of the agreement on or before December 31,
1997, the annual rate will be $62,640. GE-2 became commercially operational
on March 1, 1997.
The affiliate is constructing a spare satellite (GE-3) for this medium
power satellite, whereby effective upon the commercial operation date of
GE-3, the satellite would be available to the Partnership for the purpose
of providing orbital location protected service. Launch of GE-3 is
scheduled for the fourth quarter of 1997.
On March 8, 1997, Satellite No. 2 was successfully launched and is
currently undergoing deployment to its orbital location but awaits final
checkout on the number of transponders operating in accordance with the
specifications (see Note 6).
Effective March 9, 1997, each of the Partners/Partner Affiliates issued
letters of credit totaling $20,000, which increased the total credit
facility to $585,000 (see Notes 2 and 8).
IV-23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
-------------------------------
Name: Gary S. Howard
Title: Chief Executive Officer
Dated March 28, 1997
Pursuant to the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/s/John C. Malone March 28, 1997
-------------------
John C. Malone Chairman of the Board and
Director
/s/Gary S. Howard March 28, 1997
------------------
Gary S. Howard Director, Chief Executive
Officer and President
/s/David P. Beddow March 28, 1997
------------------
David P. Beddow Director
/s/Kenneth G. Carroll March 28, 1997
----------------------
Kenneth G. Carroll Senior Vice President and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
IV-24
<PAGE>
EXHIBIT 2.1
-----------
REORGANIZATION AGREEMENT
among
Tele-Communications, Inc.
TCI Communications, Inc.
Tempo Enterprises, 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 December 4, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
THE MERGERS
<S> <C> <C>
Section 1.1 The Mergers............................................2
Section 1.2 Effective Time of The Mergers..........................2
Section 1.3 Effect of The Mergers..................................2
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
ASSUMPTION OF INDEBTEDNESS
Section 6.1 Assumption and Novation................................7
Section 6.2 Allocation of Consideration............................7
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...........................8
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 7.2 Reclassification of Company Common Stock...............8
Section 7.3 The Distribution.......................................9
Section 7.4 Conditions to the Distribution.........................9
Section 7.5 Treatment of Outstanding Options and SARs.............10
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
Section 8.1 Representations And Warrantiesof the Parties..........11
Section 8.2 Additional Representations and Warranties of TCIC.....12
Section 8.3 Additional Representatives and Warranties of the
Company, Sub 1 and Sub 2..............................13
ARTICLE IX
COVENANTS
Section 9.1 Cross-Indemnities.....................................13
Section 9.2 Further Assurances....................................14
Section 9.3 Specific Performance..................................14
Section 9.4 Access to Information.................................15
Section 9.5 Confidentiality.......................................15
ARTICLE X
CLOSING
Section 10.1 Closing...............................................16
Section 10.2 Conditions to Closing.................................16
Section 10.3 Deliveries at Closing.................................17
ARTICLE XI
TERMINATION
Section 11.1 Termination...........................................20
Section 11.2 Effect of Termination.................................20
ARTICLE XII
MISCELLANEOUS
Section 12.1 No Third-Party Rights.................................21
Section 12.2 Notices...............................................21
Section 12.3 Entire Agreement......................................21
Section 12.4 Amendment, Modification or Waiver.....................22
Section 12.5 Binding Effect; Benefit; Successors And Assigns.......22
Section 12.6 Costs And Expenses....................................22
Section 12.7 Severability..........................................22
Section 12.8 Miscellaneous.........................................22
</TABLE>
ii
<PAGE>
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 7.5(d) -- Company Stock Options
SCHEDULE 9.1(b) -- Certain Agreements
iii
<PAGE>
INDEX TO DEFINITIONS
The following terms used in this Agreement are defined in the sections
indicated:
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Add-on Company Option Section 7.5(b)(i)
Adjusted TCI Option Section 7.5(b)(ii)
Agents Section 9.5(a)
Agreement Preamble
Assumed Liabilities Section 3.3(b)
Assumption Amount Section 6.1
Certificates of Merger Section 1.2
Closing Section 10.1
Closing Date Section 10.1
Code Section 2.2
Colorado Act Section 1.1(a)
Company Preamble
Company Charter Section 7.1
Company Common Stock Section 7.3(a)
Company Employees Section 7.5(c)
Company Note Article IV
Company Stock Options Section 7.5(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 9.1(b)(i)(B)
Digital Satellite Business Recitals
Digital Stock Section 1.6(a)(ii)
Digital Surviving Corporation Section 1.1(a)
Disclosing Party Section 9.5(b)
Distribution Recitals
Distribution Date Section 7.3(b)
Effective Time of the Mergers 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 7.5(d)
Interests Section 3.1(b)
Losses Section 9.1(a)
Mergers Section 1.1(b)
Oklahoma Act Section 1.1(b)
Partnership Section 3.1(a)
Partnership Agreement Section 3.1(a)
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Party Section 9.4(a)
Proprietary Information Section 9.5(b)
receiving Party Section 9.5(b)
Reclassification Section 7.2
Record Date Section 7.3(b)
Series A Common Stock Section 7.2
Series A TCI Group Common Stock Recitals
Series B Common Stock Section 7.2
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 7.4(a)
TCIC Preamble
TCI Group Common Stock Recitals
TCI Group Stockholders Section 7.3(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 7.5(a)
TCI Plan Committee Section 7.5(a)
TCI Plans Section 7.5(a)
TCI SARs Section 7.5(a)
Tempo Recitals
Tempo Shares Section 2.1
Tempo Stock Section 2.1
UA K-1 Preamble
UA K-1 Assumed Liabilities Section 3.3(b)
UA K-1 Interest Section 3.1(b)
</TABLE>
v
<PAGE>
REORGANIZATION AGREEMENT
Reorganization Agreement (this "Agreement"), dated as of December 4,
----------
1996, among Tele-Communications, Inc., a Delaware corporation ("TCI"), TCI
Communications, Inc., a Delaware corporation ("TCIC"), Tempo Enterprises, Inc.,
an Oklahoma corporation ("Enterprises"), 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 is a subsidiary 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 the Distribution.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises contained herein, the parties hereto agree as follows:
<PAGE>
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 (as defined below), 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").
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
2
<PAGE>
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.
(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,
3
<PAGE>
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 Merger,
--------------
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.
4
<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 to UA K-1 a
promissory note, substantially in the form of Exhibit A attached hereto (the
"Sub 2
5
<PAGE>
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.
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.
6
<PAGE>
ARTICLE VI
ASSUMPTION OF INDEBTEDNESS
Section 6.1 Assumption and Novation.
At the Closing, immediately following the consummation of the
transaction provided for in Article V of this Agreement, TCI shall assume
indebtedness of the Company and/or its subsidiaries 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 "Assumption Amount").
Such assumption of indebtedness shall be effected 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 Assumption Amount. Such assumption of indebtedness shall be
applied first against the Subsidiary Notes, and then against the Company Note,
to the extent that the Assumption 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.
Section 6.2 Allocation of Consideration.
The consideration received by the Company as a result of the assumption of
indebtedness provided for in Section 6.1 shall be allocated as follows:
7
<PAGE>
(a) $100,000,000 of such indebtedness shall be assumed by TCI
as a capital contribution to the Company by TCI; and
(b) the remainder of such indebtedness shall be assumed by TCI as
consideration for (i) the assumption by the Company at the Closing of TCI's
obligations under the Company Stock Options, as provided in Section 7.5(d) of
this Agreement and (ii) the grant by the Company to TCI of an option to purchase
up to 4,765,000 shares of Company Common Stock, at an exercise price of $1.00
per share, as required by TCI from time to time to meet its obligations under
the conversion features of the TCI Series D Convertible Preferred Stock and the
Convertible Notes due December 12, 2021, of TCI UA, Inc., as such conversion
features are adjusted as a result of the Distribution, as provided in the Option
Agreement dated as of the date hereof between TCI and the Company.
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 7.1, the Company will
reclassify (the "Reclassification") all of the issued and outstanding common
stock of the Company, which at such time will consist
8
<PAGE>
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 7.2, and subject to the conditions to the Distribution
set forth in Section 7.4, 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
or any subsidiary of TCI (such holders, the "TCI Group 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
7.3(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.
9
<PAGE>
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.
(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 aggregate exercise price of
each TCI Option shall be allocated between the Add-on Company Option and the
Adjusted TCI Option into which it is divided, and all other terms of the Add-on
Company Option and Adjusted TCI Option shall in all material respects be the
same as such TCI Option, except that references therein to TCI shall generally
refer to the Company with respect to Adjusted TCI Options and Add-on Company
Options (and related SARs) held by Company Employees (as defined in Section
7.5(c)). 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. Notwithstanding the foregoing, in order to give the Company an
opportunity to file a registration statement on Form S-3 with respect to the
shares of Series A Common Stock issuable upon exercise of Add-on Company Options
and Add-on Company SARs, such options and SARs will not be exercisable for
Series A Common Stock during the first fifteen months following the
Distribution, and Add-on Company Options (and Add-on Company SARs) which would
otherwise have expired during the first eighteen months following the
Distribution will remain in effect until the expiration of such eighteen month
period. Such deferral will not otherwise affect the vesting schedule or other
terms and conditions of the Add-on Company Options (and Add-on Company SARs).
(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 at the time of the Distribution and following the Distribution
are no longer TCI employees ("Company 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.
10
<PAGE>
(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 7.5(d) attached hereto, effective as of the date of the Closing, (the
"Grant Date"), of an option to purchase that number of shares of Series A Common
Stock as shall represent, on the Grant Date after, giving effect to the
Distribution, that percentage of the total outstanding equity of the Company as
is set forth opposite the name of such person on such Schedule 7.5(d), at an
aggregate exercise price equal to that same percentage of TCI's total investment
in the Company as of the Grant Date (other than any portion of such investment
represented by a promissory note on the Grant Date) (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 Section 6.2(b) 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 7.5(d) a stock
option agreement substantially in the form of Exhibit D attached hereto, dated
as of the Grant Date and otherwise having the terms and conditions set forth in
Schedule 7.5(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 7.5(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.
Section 7.6. Assumption of Executive Employment Contract.
On the Distribution Date, subject to the conditions to the
Distribution set forth in Section 7.4, the Company shall assume all obligations
of TCI to Gary S. Howard with respect to Mr. Howard's former employment contract
with United Cable Television Corporation. In that connection, the Company shall
make the payments in respect of such employment contract to the same effect as
if Mr. Howard had continued to remain an employee of TCI.
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.
11
<PAGE>
(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 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.
12
<PAGE>
(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, 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
9.1(a), and except as otherwise expressly provided herein or in any of the
agreements set forth on Schedule 9.1(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
13
<PAGE>
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.
(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.
14
<PAGE>
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.
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 9.4(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 9.4 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
15
<PAGE>
"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 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
XI hereto, and subject to the satisfaction of all conditions set forth in
Section 10.2 (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:
16
<PAGE>
(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)
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;
17
<PAGE>
(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.
(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; and
(iii) 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
18
<PAGE>
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 shalldeliver 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 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;
19
<PAGE>
(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.
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.
20
<PAGE>
Section 11.2 Effect of Termination.
In the event of termination of this Agreement as provided by Section
11.1, 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.
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.
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
21
<PAGE>
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.
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.
22
<PAGE>
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 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.
<TABLE>
<S> <C>
TELE-COMMUNICATIONS, INC. TCI K-1, INC.
By: /s/ Stephen M. Brett By: /s/ Gary S. Howard
----------------------------- -----------------------------
Name: Stephen M. Brett Name: Gary S. Howard
Title: Executive Vice President Title: President
TCI COMMUNICATIONS, INC. UNITED ARTISTS K-1 INVESTMENTS, INC.
By: /s/ Stephen M. Brett By: /s/ Gary S. Howard
----------------------------- -----------------------------
Name: Stephen M. Brett Name: Gary S. Howard
Title: Senior Vice President Title: President
TEMPO ENTERPRISES, INC. TCISE PARTNER 1, INC.
By: /s/ Stephen M. Brett By: /s/ Gary S. Howard
----------------------------- -----------------------------
Name: Stephen M. Brett Name: Gary S. Howard
Title: Vice President Title: President
TCI DIGITAL SATELLITE TCISE PARTNER 2, INC.
ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
By: /s/ Gary S. Howard -----------------------------
----------------------------- Name: Gary S. Howard
Name: Gary S. Howard Title: President
Title: President
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
-----------------------------
Name: Gary S. Howard
Title: President
</TABLE>
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]
D-1
<PAGE>
SCHEDULE 7.5(d)
Company Stock Options
---------------------
<TABLE>
<CAPTION>
Grantee Percentage
------- ----------
<S> <C>
Brendan R. Clouston 1%
Larry E. Romrell 1%
David P. Beddow 1/2%
</TABLE>
S-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 TCIC
and the Company.
6. Fulfillment Agreement dated as of September __, 1996, between TCIC and the
Company.
S-2
<PAGE>
EXHIBIT 4.3
================================================================================
INDENTURE
DATED AS OF FEBRUARY 20, 1997
BETWEEN
TCI SATELLITE ENTERTAINMENT, INC., AS ISSUER,
AND
THE BANK OF NEW YORK, AS TRUSTEE
__________________
$200,000,000
10 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
10 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- --------------- ----------
<S> <C>
(S) 310(a)(1)............................................. 7.10
(a)(2)............................................. 7.10
(a)(3)............................................. N.A.
(a)(4)............................................. N.A.
(a)(5)............................................. 7.08, 7.10.
(b)................................................ 7.08; 7.10; 13.02
(c)................................................ N.A.
(S) 311(a)................................................ 7.11
(b)................................................ 7.11
(c)................................................ N.A.
(S) 312(a)................................................ 2.05
(b)................................................ 13.03
(c)................................................ 13.03
(S) 313(a)................................................ 7.06
(b)(1)............................................. 7.06
(b)(2)............................................. 7.06
(c)................................................ 7.06; 13.02
(d)................................................ 7.06
(S) 314(a)................................................ 4.11; 4.12; 13.02
(b)................................................ 14.02
(c)(1)............................................. 13.04
(c)(2)............................................. 13.04
(c)(3)............................................. N.A.
(d)................................................ 14.03;14.04
(e)................................................ 13.05
(f)................................................ N.A.
(S) 315(a)................................................ 7.01(b)
(b)................................................ 7.05; 13.02
(c)................................................ 7.01(a)
(d)................................................ 7.01(c)
(e)................................................ 6.11
(S) 316(a)(last sentence)................................. 2.09
(a)(1)(A).......................................... 6.05
(a)(1)(B).......................................... 6.04
(a)(2)............................................. N.A.
(b)................................................ 6.07
(c)................................................ 10.04
(S) 317(a)(1)............................................. 6.08
(a)(2)............................................. 6.09
(b)................................................ 2.04
(S) 318(a)................................................ 13.01
</TABLE>
________________
N.A. MEANS NOT APPLICABLE.
NOTE: THIS CROSS-REFERENCE TABLE SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE A
PART OF THE INDENTURE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C>
SECTION 1.01. Definitions.............................................................. 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act........................ 25
SECTION 1.03. Rules of Construction.................................................... 25
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.......................................................... 26
SECTION 2.02. Execution and Authentication............................................. 26
SECTION 2.03. Registrar and Paying Agent............................................... 27
SECTION 2.04. Paying Agent To Hold Assets in Trust..................................... 27
SECTION 2.05. Securityholder Lists..................................................... 28
SECTION 2.06. Transfer and Exchange.................................................... 28
SECTION 2.07. Replacement Securities................................................... 28
SECTION 2.08. Outstanding Securities................................................... 29
SECTION 2.09. Treasury Securities...................................................... 29
SECTION 2.10. Temporary Securities..................................................... 29
SECTION 2.11. Cancellation............................................................. 29
SECTION 2.12. Defaulted Interest....................................................... 30
SECTION 2.13. CUSIP Number............................................................. 30
SECTION 2.14. Deposit of Moneys........................................................ 30
SECTION 2.15. Book-Entry Provisions for Global Securities.............................. 30
SECTION 2.16. Registration of Transfers and Exchanges.................................. 31
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee....................................................... 35
SECTION 3.02. Selection of Securities To Be Redeemed................................... 35
SECTION 3.03. Notice of Redemption..................................................... 36
SECTION 3.04. Effect of Notice of Redemption........................................... 36
SECTION 3.05. Deposit of Redemption Price.............................................. 36
SECTION 3.06. Securities Redeemed in Part.............................................. 37
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE FOUR
COVENANTS
<S> <C>
SECTION 4.01. Payment of Securities.................................................... 37
SECTION 4.02. Maintenance of Office or Agency.......................................... 37
SECTION 4.03. Transactions with Affiliates............................................. 37
SECTION 4.04. Limitation on Indebtedness............................................... 38
SECTION 4.05. Disposition of Proceeds of Asset Sales................................... 42
SECTION 4.06. Limitation on Restricted Payments........................................ 45
SECTION 4.07. Corporate Existence...................................................... 48
SECTION 4.08. Payment of Taxes and Other Claims........................................ 48
SECTION 4.09. Notice of Defaults....................................................... 49
SECTION 4.10. Maintenance of Properties and Insurance.................................. 49
SECTION 4.11. Compliance Certificate................................................... 49
SECTION 4.12. Provision of Financial Information....................................... 50
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.................................. 50
SECTION 4.14. Change of Control........................................................ 51
SECTION 4.15. Limitation on Senior Subordinated Indebtedness........................... 51
SECTION 4.16. Limitations on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries............................................ 52
SECTION 4.17. Designation of Unrestricted Subsidiaries; Designation of Tempo as a
Restricted Subsidiary.............................................. 52
SECTION 4.18. Limitation on Liens...................................................... 54
SECTION 4.19. Deposit of Funds with Escrow Agent; Offer to Purchase upon a GE-2
Satellite Event.................................................... 54
SECTION 4.20. Guaranty of Notes by Subsidiaries........................................ 56
SECTION 4.21. Amendments to Certain Agreements......................................... 56
SECTION 4.22. Company Satellites; Maintenance of Insurance............................. 56
SECTION 4.23. Payments for Consent..................................................... 57
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Sale of Assets, etc............................................. 57
SECTION 5.02. Successor Corporation Substituted........................................ 59
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default........................................................ 59
SECTION 6.02. Acceleration............................................................. 61
SECTION 6.03. Other Remedies........................................................... 62
SECTION 6.04. Waiver of Past Default................................................... 62
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.05. Control by Majority...................................................... 63
SECTION 6.06. Limitation on Suits...................................................... 63
SECTION 6.07. Rights of Holders To Receive Payment..................................... 63
SECTION 6.08. Collection Suit by Trustee............................................... 64
SECTION 6.09. Trustee May File Proofs of Claim......................................... 64
SECTION 6.10. Priorities............................................................... 64
SECTION 6.11. Undertaking for Costs.................................................... 65
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee........................................................ 65
SECTION 7.02. Rights of Trustee........................................................ 66
SECTION 7.03. Individual Rights of Trustee............................................. 67
SECTION 7.04. Trustee's Disclaimer..................................................... 67
SECTION 7.05. Notice of Defaults....................................................... 67
SECTION 7.06. Reports by Trustee to Holders............................................ 67
SECTION 7.07. Compensation and Indemnity............................................... 68
SECTION 7.08. Replacement of Trustee................................................... 69
SECTION 7.09. Successor Trustee by Merger, etc......................................... 69
SECTION 7.10. Eligibility; Disqualification............................................ 70
SECTION 7.11. Preferential Collection of Claims Against Company........................ 70
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness........................... 70
SECTION 8.02. No Payment on Securities in Certain Circumstances........................ 70
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc........................... 71
SECTION 8.04. Subrogation.............................................................. 72
SECTION 8.05. Obligations of Company Unconditional..................................... 73
SECTION 8.06. Notice to Trustee........................................................ 73
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent........... 74
SECTION 8.08. Trustee's Relation to Senior Indebtedness................................ 74
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the Company
or Holders of Senior Indebtedness.................................. 75
SECTION 8.10. Securityholders Authorize Trustee To Effectuate Subordination of
Securities......................................................... 75
SECTION 8.11. This Article Not To Prevent Events of Default............................ 75
SECTION 8.12. Trustee's Compensation Not Prejudiced.................................... 75
SECTION 8.13. No Waiver of Subordination Provisions.................................... 75
SECTION 8.14. Subordination Provisions Not Applicable to Collateral Held in Trust for
Securityholders and Money Held in the Escrow Account; Payments
May Be Paid Prior to Dissolution................................... 76
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8.15. Acceleration of Securities............................................... 76
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01. Termination of Company's Obligations..................................... 76
SECTION 9.02. Application of Trust Money............................................... 78
SECTION 9.03. Repayment to Company..................................................... 78
SECTION 9.04. Reinstatement............................................................ 78
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.............................................. 78
SECTION 10.02. With Consent of Holders................................................. 79
SECTION 10.03. Compliance with Trust Indenture Act..................................... 81
SECTION 10.04. Revocation and Effect of Consents....................................... 81
SECTION 10.05. Notation on or Exchange of Securities................................... 81
SECTION 10.06. Trustee To Sign Amendments, etc......................................... 81
ARTICLE ELEVEN
GUARANTY
SECTION 11.01. Unconditional Guaranty.................................................. 82
SECTION 11.02. Severability............................................................ 82
SECTION 11.03. Release of a Guarantor.................................................. 82
SECTION 11.04. Limitation of Guarantor's Liability..................................... 83
SECTION 11.05. Contribution............................................................ 83
SECTION 11.06. Subordination of Subrogation and Other Rights........................... 83
SECTION 11.07. Applicability of Article Eleven......................................... 83
ARTICLE TWELVE
SUBORDINATION OF GUARANTY
SECTION 12.01. Guaranty Obligations Subordinated to Guarantor Senior Indebtedness...... 84
SECTION 12.02. No Payment on Guaranties in Certain Circumstances....................... 84
SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc.......................... 85
SECTION 12.04. Subrogation............................................................. 86
SECTION 12.05. Obligations of Guarantors Unconditional................................. 86
SECTION 12.06. Notice to Trustee....................................................... 87
SECTION 12.07. Reliance on Judicial Order or Certificate of Liquidating Agent.......... 88
SECTION 12.08. Trustee's Relation to Guarantor Senior Indebtedness..................... 88
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions of the
Guarantors or Holders of Guarantor Senior Indebtedness............. 88
SECTION 12.10. Securityholders Authorize Trustee To Effectuate Subordination of
Guaranty........................................................... 88
SECTION 12.11. This Article Not To Prevent Events of Default........................... 89
SECTION 12.12. Trustee's Compensation Not Prejudiced................................... 89
SECTION 12.13. No Waiver of Guaranty Subordination Provisions.......................... 89
SECTION 12.14. Payments May Be Paid Prior to Dissolution............................... 89
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls............................................ 89
SECTION 13.02. Notices................................................................. 90
SECTION 13.03. Communications by Holders with Other Holders............................ 91
SECTION 13.04. Certificate and Opinion as to Conditions Precedent...................... 91
SECTION 13.05. Statements Required in Certificate or Opinion........................... 91
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar............................... 92
SECTION 13.07. Governing Law........................................................... 92
SECTION 13.08. No Recourse Against Others.............................................. 92
SECTION 13.09. Successors.............................................................. 92
SECTION 13.10. Counterpart Originals................................................... 92
SECTION 13.11. Severability............................................................ 92
SECTION 13.12. No Adverse Interpretation of Other Agreements........................... 92
SECTION 13.13. Legal Holidays.......................................................... 92
ARTICLE FOURTEEN
COLLATERAL AND SECURITY
SECTION 14.01. Escrow Agreement........................................................ 93
SECTION 14.02. Recording and Opinions.................................................. 93
SECTION 14.03. Release of Collateral................................................... 94
SECTION 14.04. Certificates of the Company............................................. 94
SECTION 14.05. Authorization of Actions to Be Taken by the Trustee Under the Escrow
Agreement.......................................................... 95
SECTION 14.06. Authorization of Receipt of Funds by the Trustee Under the Escrow
Agreement.......................................................... 95
SECTION 14.07. Termination of Security Interest........................................ 95
SIGNATURES............................................................................. S-1
EXHIBIT A Form of Series A Security................................................ A-1
EXHIBIT B Form of Series B Security................................................ B-1
</TABLE>
-v-
<PAGE>
<TABLE>
<S> <C>
EXHIBIT C Form of Legend for Global Securities..................................... C-1
EXHIBIT D Form of Transfer Certificate............................................. D-1
EXHIBIT E Form of Transfer Certificate for Institutional Accredited Investors...... E-1
EXHIBIT F Form of Transference Certificate for Regulation S Transfers.............. F-1
</TABLE>
_________________
NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-vi-
<PAGE>
INDENTURE dated as of February 20, 1997, between TCI SATELLITE
ENTERTAINMENT, INC., a Delaware corporation (the "Company"), and THE BANK OF NEW
-------
YORK, a New York banking corporation, as trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Accredited Investor Global Security" see Section 2.01.
-----------------------------------
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
---------------------
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any
---------------
other Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of
-----------
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by the Company or any Restricted
Subsidiary, in either case pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated or merged with or into the
Company or any Restricted Subsidiary or (ii) any acquisition by the Company or
any Restricted Subsidiary of the assets of any Person which constitute
substantially all of an operating unit or line of business of such Person or
which is otherwise outside of the ordinary course of business.
"Additional Interest" has the meaning provided in Section 4(a) of the
-------------------
Registration Rights Agreement.
"Affiliate" of any specified Person means any other Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that (i) beneficial ownership of 10.0% or more of the voting power of the then
outstanding voting securities of a Person shall be deemed to be control; (ii) so
long as the Company or any Subsidiary of the Company owns a partnership interest
in PRIMESTAR Partners, PRIMESTAR Partners shall be deemed an Affiliate of the
Company; (iii) so long as any of the Permitted Holders is an Affiliate of TCI
and the Company, TCI shall be deemed an Affiliate of the Company and its
Subsidiaries; and (iv) no individual, other than a director of the Company or an
officer
<PAGE>
-2-
of the Company with a policy making function, shall be deemed an Affiliate of
the Company or any of its Subsidiaries, solely by reason of such individual's
employment, position or responsibilities by or with respect to the Company or
any of its Subsidiaries.
"Affiliate Transaction" see Section 4.03.
---------------------
"Agent" means any Registrar, Paying Agent or co-Registrar.
----
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
----------
lease (that has the effect of a disposition) or other disposition (including,
without limitation, any merger, consolidation or sale-leaseback transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary, in
one transaction or a series of related transactions, of (i) any Equity Interest
of any Restricted Subsidiary; (ii) any material license, franchise or other
authorization of the Company or any Restricted Subsidiary; (iii) any assets of
the Company or any Restricted Subsidiary which constitute substantially all of
an operating unit or line of business of the Company or any Restricted
Subsidiary; or (iv) any other property or asset of the Company or any Restricted
Subsidiary outside of the ordinary course of business (including the receipt of
proceeds paid on account of the loss of or damage to any property or asset and
awards of compensation for any asset taken by condemnation, eminent domain or
similar proceedings). The term "Asset Sale" shall also include the receipt of
any damages or other amounts due under the Satellite Construction Agreement to
the Company or any Subsidiary (including, without limitation, the refund of the
full purchase price of any Company Satellite which has not been delivered
pursuant to the terms thereof) from a Person other than the Company or its
Subsidiaries. The term "Asset Sale" shall not include (a) any transaction
consummated in compliance with Section 5.01 and the creation of any Lien not
prohibited by Section 4.18; provided, however, that any transaction consummated
in compliance with Section 5.01 involving a sale, conveyance, assignment,
transfer, lease or other disposal of less than all of the properties or assets
of the Company and the Restricted Subsidiaries shall be deemed to be an Asset
Sale with respect to the properties or assets of the Company and Restricted
Subsidiaries that are not so sold, conveyed, assigned, transferred, leased or
otherwise disposed of in such transaction; (b) sales of property or equipment
that has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary, as the
case may be; (c) any transaction consummated in compliance with Section 4.06;
and (d) sales of accounts receivable for cash at fair market value. In
addition, solely for purposes of Section 4.05, any sale, conveyance, transfer,
lease or other disposition of any property or asset, whether in one transaction
or a series of related transactions, involving assets with a Fair Market Value
not in excess of $10.0 million in any fiscal year shall be deemed not to be an
Asset Sale.
"Bankruptcy Law" see Section 6.01.
--------------
"Basic Documents" means the Reorganization Agreement, the Transition
---------------
Services Agreement, the Tax Sharing Agreement, the Indemnification Agreements,
the Trade Name and Service Mark License Agreement, the Fulfillment Agreement,
the TCIC Credit Facility, the Share Purchase Agreement, the Partnership
Agreement, the Partnership Credit Agreement, the Tempo Option, the Tag-Along
Agreement and the Tempo Letter Agreements.
"Board of Directors" means the Board of Directors of the Company or
------------------
any Guarantor, as the case may be, or any authorized committee of that Board.
"Board Resolution" means, with respect to any Person, a duly adopted
----------------
resolution of the Board of Directors of such Person.
<PAGE>
-3-
"Business Day" means a day (other than a Saturday or Sunday) on which
------------
the Depository and banks in New York are open for business.
"C-Band Dividend" see Section 4.06.
---------------
"C-Band Entity" see Section 4.06.
-------------
"C-Band Investment" see Section 4.06.
-----------------
"Cable Plus" has the meaning set forth in the Confidential Offering
----------
Memorandum dated as of February 14, 1997 with respect to the initial offering of
the Securities.
"Capital Lease Obligation" means, at the time any determination
------------------------
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Cash Equivalents" means: (a) U.S. dollars; (b) securities issued or
----------------
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition; (c) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(b) and (c) entered into with any financial institution meeting the
qualifications specified in clause (c) above; and (e) commercial paper rated P-
1, A-1 or the equivalent thereof by Moody's Investors Service, Inc. or Standard
& Poor's Corporation, respectively, and in each case maturing within six months
after the date of acquisition.
"Change of Control" shall mean the occurrence of any of the following
-----------------
events (whether or not approved by the Board of Directors of the Company): (a)
any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of
the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act),
excluding Permitted Holders, is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time upon the happening of an event or otherwise), directly or
indirectly, of more than 35% of the total voting power of the then outstanding
Voting Equity Interests of the Company; (b) the Company consolidates with, or
merges with or into, another Person or the Company or the Restricted
Subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of all
or substantially all of the assets of the Company and the Restricted
Subsidiaries (determined on a consolidated basis) to any Person (other than a
Wholly Owned Restricted Subsidiary), or any Person consolidates with, or merges
with or into, the Company, in any such event pursuant to a transaction in which
the outstanding Voting Equity Interests of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Equity Interests of the Company is
converted into or exchanged for (1) Qualified Equity Interests of the surviving
or transferee corporation or (2) cash, securities or other property in an amount
which could be paid by the Company as a Restricted Payment under this Indenture
and (ii) immediately after such transaction the Person or Persons that
"beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only
<PAGE>
-4-
after the passage of time) immediately prior to such transaction, directly or
indirectly, a majority of the total voting power of the then outstanding Voting
Equity Interests of the Company "beneficially own" (as so determined) a majority
of the total voting power of the then outstanding Voting Equity Interests of the
surviving or transferee Person; (c) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by the
Board of Directors of the Company or whose nomination for election by the
stockholders of the Company was approved by a vote of at least a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason (other than by action of the Permitted Holders)
to constitute a majority of the Board of Directors of the Company then in
office; or (d) the liquidation or dissolution of the Company. Anything contained
herein to the contrary notwithstanding, the issuance of Voting Equity Interests
of the Company to Permitted Holders in connection with the acquisition of all
the partnership interests in PRIMESTAR Partners held by such Permitted Holders
(provided that the amount of partnership interests held by such Permitted
Holders on the date of such acquisition is not less than the amount held by such
Permitted Holders on the Issue Date otherwise than pursuant to the transfer of
partnership interests in PRIMESTAR Partners to another Permitted Holder whose
partnership interests have been or simultaneously therewith will be acquired by
the Company or any Restricted Subsidiary or the dilution of such Permitted
Holder's partnership interests in PRIMESTAR Partners solely due to its failure
to pay capital contributions required by the Partnership Agreement), so long as
in connection with such acquisition of such partnership interests the Company or
a Restricted Subsidiary acquires all rights of such Permitted Holders (and its
Affiliates) to distribute the PRIMESTAR programming services, shall not
constitute a Change of Control for purposes of this Indenture or the Securities.
"Change of Control Date" see Section 4.14.
----------------------
"Collateral" has the meaning provided in Section 6(a) of the Escrow
----------
Agreement.
"Communications Act" means the Communications Act of 1934, as amended.
------------------
"Company" means the Person named as the "Company" in the first
-------
paragraph of this Indenture until a successor shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
"Company Request" or "Company Order" means a written request or order
--------------- -------------
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President, a Vice President or its Treasurer, and by
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Company Satellite" means either of the two high power direct
-----------------
broadcast satellites which Tempo has agreed to purchase from Loral pursuant to
the Satellite Construction Agreement.
"Consolidated Income Tax Expense" means, with respect to the Company
-------------------------------
for any period, the provision for federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for
-----------------------------
any period, without duplication, the sum of (i) the interest expense of the
Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount; (b) the net cost under Interest Rate
Protection Obligations (including any amortization
<PAGE>
-5-
of discounts); (c) the interest portion of any deferred payment obligation; (d)
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing; and (e) all capitalized
interest and all accrued interest; (ii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the
Company and the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP; and (iii) dividends and
distributions in respect of Disqualified Equity Interests actually paid in cash
by the Company during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net
-----------------------
income of the Company and the Restricted Subsidiaries for such period determined
on a consolidated basis in accordance with GAAP, adjusted, to the extent
included in calculating such net income, by excluding, without duplication, (a)
all extraordinary gains or losses and all gains and losses from the sales or
other dispositions of assets out of the ordinary course of business (net of
taxes, fees and expenses relating to the transaction giving rise thereto) for
such period; (b) that portion of such net income derived from or in respect of
investments in Persons other than Restricted Subsidiaries, except to the extent
actually received in cash by the Company or any Restricted Subsidiary (subject,
in the case of any Restricted Subsidiary, to the provisions of clause (e) of
this definition); (c) the portion of such net income (or loss) allocable to
minority interests in any Person (other than a Restricted Subsidiary) for such
period, except to the extent actually received in cash by the Company or any
Restricted Subsidiary (subject, in the case of any Restricted Subsidiary, to the
provisions of clause (e) of this definition); (d) net income (or loss) of any
other Person combined with the Company or any Restricted Subsidiary on a
"pooling of interests" basis attributable to any period prior to the date of
combination; and (e) the net income of any Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time (regardless of any waiver)
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted Subsidiary or its Equity
Interest holders.
"Consolidated Operating Cash Flow" means, with respect to any period,
--------------------------------
Consolidated Net Income for such period increased (without duplication) by the
sum of (a) Consolidated Income Tax Expense for such period to the extent
deducted in determining Consolidated Net Income for such period; (b)
Consolidated Interest Expense for such period to the extent deducted in
determining Consolidated Net Income for such period; (c) all dividends on
Preferred Equity Interests to the extent not taken into account for computing
Consolidated Net Income for such period; and (d) depreciation, amortization and
any other non cash items for such period to the extent deducted in determining
Consolidated Net Income for such period (other than any non cash item which
requires the accrual of, or a reserve for, cash charges for any future period)
of the Company and the Restricted Subsidiaries, including, without limitation,
amortization of capitalized debt issuance costs for such period, all of the
foregoing determined on a consolidated basis in accordance with GAAP minus non
cash items to the extent they increase Consolidated Net Income (including the
partial or entire reversal of reserves taken in prior periods) for such period.
Consolidated Operating Cash Flow for the Company for any period shall be
calculated by subtracting therefrom (1) the Consolidated Operating Cash Flow for
such period of the High Power Satellite Transmission Subsidiary to the extent
that Investments have been made pursuant to clause (x) of the second paragraph
of Section 4.06 with such Consolidated Operating Cash Flow and (2) any C-Band
Dividends in such period and the Consolidated Operating Cash Flow for such
period of each Restricted C-Band Subsidiary in each case to the extent that
Restricted Payments have been made pursuant to clause (xii) of the second
paragraph of Section 4.06 with such C-Band Dividends or such Consolidated
Operating Cash Flow.
"Corporate Trust Office of the Trustee" shall be at the address of the
-------------------------------------
Trustee specified in Section 13.02 or such other address as the Trustee may give
notice to the Company.
<PAGE>
-6-
"Cumulative Operating Cash Flow" means, as at any date of
------------------------------
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on the Issue Date and ending on the last day of the
most recent fiscal quarter immediately preceding the date of determination for
which consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Custodian" see Section 6.01.
---------
"DBS" means direct broadcast satellite.
---
"Debt to Operating Cash Flow Ratio" means the ratio of (a) the Total
---------------------------------
Consolidated Indebtedness as of the date of calculation (the "Determination
-------------
Date") to (b) four times the Consolidated Operating Cash Flow for the latest
- ----
fiscal quarter for which financial information is available immediately
preceding such Determination Date (the "Measurement Period"). For purposes of
------------------
calculating Consolidated Operating Cash Flow for the Measurement Period
immediately prior to the relevant Determination Date, (I) any Person that is a
Restricted Subsidiary on the Determination Date (or would become a Restricted
Subsidiary on such Determination Date in connection with the transaction that
requires the determination of such Consolidated Operating Cash Flow) will be
deemed to have been a Restricted Subsidiary at all times during such Measurement
Period, (II) any Person that is not a Restricted Subsidiary on such
Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated Operating Cash Flow) will be deemed not to
have been a Restricted Subsidiary at any time during such Measurement Period,
and (III) if the Company or any Restricted Subsidiary shall have in any manner
(x) acquired (including through an Acquisition or the commencement of activities
constituting such operating business) or (y) disposed of (including by way of an
Asset Sale or the termination or discontinuance of activities constituting such
operating business) any operating business during such Measurement Period or
after the end of such period and on or prior to such Determination Date, such
calculation will be made on a pro forma basis in accordance with GAAP as if, in
the case of an Acquisition or the commencement of activities constituting such
operating business, all such transactions had been consummated on the first day
of such Measurement Period and, in the case of an Asset Sale or termination or
discontinuance of activities constituting such operating business, all such
transactions had been consummated prior to the first day of such Measurement
Period; provided, however, that such pro forma adjustment shall not give effect
to the Consolidated Operating Cash Flow of any Acquired Person to the extent
that such Person's net income would be excluded pursuant to clause (e) of the
definition of "Consolidated Net Income." For purposes of determining Total
Consolidated Indebtedness as of any Determination Date, the sum of all
Indebtedness outstanding under the Senior Credit Facility on such Determination
Date and all amounts that the Company or any Restricted Subsidiary could borrow
under the Senior Credit Facility on such Determination Date (assuming the
satisfaction of all conditions precedent under the Senior Credit Facility other
than conditions relating solely to incremental amounts being available under the
Senior Credit Facility) shall be deemed to be outstanding and added to Total
Consolidated Indebtedness on such Determination Date (but without duplication).
"Default" means any event that is, or after notice or lapse of time or
------
both would become, an Event of Default.
"Depository" means, with respect to the Securities issued in the form
----------
of one or more Global Securities, The Depository Trust Company or another Person
designated as Depository by the Company, which must be a clearing agency
registered under the Exchange Act.
<PAGE>
-7-
"Designated Guarantor Senior Indebtedness" means, with respect to any
----------------------------------------
Guarantor, (a) any Indebtedness of such Guarantor outstanding under the Senior
Credit Facility and (b) any other Guarantor Senior Indebtedness of such
Guarantor which, at the time of determination, has an aggregate outstanding
principal amount outstanding, together with any commitments to lend additional
amounts, of at least $25.0 million if the instrument governing such Guarantor
Senior Indebtedness expressly states that such Indebtedness is Guarantor Senior
Indebtedness for purposes of this Indenture and a Board Resolution setting forth
such designation by the Company has been filed with the Trustee.
"Designated Senior Indebtedness" means (a) any Indebtedness of the
------------------------------
Company outstanding under the Senior Credit Facility and (b) any other Senior
Indebtedness which, at the time of determination, has an aggregate principal
amount outstanding, together with any commitments to lend additional amounts, of
at least $25.0 million, if the instrument governing such Senior Indebtedness
expressly states that such Indebtedness is "Designated Senior Indebtedness" for
purposes of this Indenture and a Board Resolution setting forth such designation
by the Company has been filed with the Trustee.
"Designation" see Section 4.17.
-----------
"Designation Amount" see Section 4.17.
------------------
"Determination Date" has the meaning set forth in the definition of
------------------
"Debt to Operating Cash Flow Ratio" above.
"Disposition" means, with respect to any Person, any merger,
-----------
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
----------------------------
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the earlier
of the maturity date of the Securities or the date on which no Securities remain
outstanding.
"Distribution" means the distribution by TCI on December 4, 1996, in
------------
the form of a dividend, to the holders of record of Tele-Communications, Inc.
Series A TCI Group Common Stock, $1.00 par value per share, and Tele-
Communications, Inc. Series B TCI Group Common Stock, $1.00 par value per share,
on November 12, 1996 (other than certain subsidiaries of TCI that waived such
dividend) of all the issued and outstanding shares of Company common stock.
"Eligible Institution" means a commercial banking institution that has
--------------------
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated Investment Grade at the time as of which
any investment or rollover therein is made.
"Equity Interest" in any Person means any and all shares, interests,
---------------
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
<PAGE>
-8-
"Escrow Account" has the meaning set forth in Section 2 of the Escrow
--------------
Agreement.
"Escrow Agent" has the meaning set forth in the first paragraph of the
------------
Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement dated as of February 20,
----------------
1997 among the Company, the Trustee and the Escrow Agent, as amended and in
effect from time to time.
"Escrow Funds" has the meaning set forth in Section 1 of the Escrow
------------
Agreement.
"Event of Default" see Section 6.01.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated by the SEC thereunder.
"Existing Indebtedness" means any Indebtedness of the Company and its
---------------------
Subsidiaries in existence on the Issue Date until such amounts are repaid
(including, without limitation, obligations pursuant to the Indemnification
Agreements and the Reorganization Agreement).
"Expiration Date" has the meaning set forth in the definition of
---------------
"Offer to Purchase" below.
"Fair Market Value" means, with respect to any asset, the price (after
-----------------
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.
"FCC Permit" means the construction permit held by Tempo and issued by
----------
the Federal Communications Commission to build, launch and operate a DBS system.
"Final Maturity Date" means February 15, 2007.
-------------------
"Fulfillment Agreement" means the agreement dated as of August 30,
---------------------
1996 between TCIC and the Company, pursuant to which TCIC provides fulfillment
services to the Company with respect to certain customers of the PRIMESTAR
medium power service, as amended and in effect from time to time.
"Funding Guarantor" see Section 11.05.
-----------------
"GAAP" means, at any date of determination, generally accepted
----
accounting principles in effect in the United States which are applicable at the
date of determination and which are consistently applied for all applicable
periods.
"GE Americom" means GE American Communications, Inc., a Delaware
-----------
corporation, and its successors.
"GEAS" means GE Americom Services, Inc., a Delaware corporation and a
----
partner of PRIMESTAR Partners, and its successors.
<PAGE>
-9-
"GE-2 Acceptance" see Section 4.19.
---------------
"GE-2 Agreement" means the Amended and Restated Memorandum of
--------------
Agreement, effective as of October 18, 1996, between PRIMESTAR Partners and GE
Americom and, upon the execution of the Service Agreement (as defined in the GE-
2 Agreement) between PRIMESTAR Partners and GE Americom contemplated therein,
shall include such Service Agreement, as amended and in effect from time to
time.
"GE-2 Satellite" means the GE Americom medium power satellite with
--------------
which GE Americom intends to replace the medium power satellite currently being
used by PRIMESTAR Partners (K-2).
"GE-2 Satellite Event" see Section 4.19.
--------------------
"GE-3 Satellite" means the GE Americom medium power satellite that is
--------------
expected to serve as an in-orbit spare for the GE-2 Satellite.
"Global Security" means a security evidencing all or a portion of the
---------------
Securities issued to the Depository or its nominee in accordance with Section
2.01 and bearing the legend set forth in Exhibit C hereto.
---------
"Government Securities" means direct obligations of, or obligations
---------------------
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"guarantee" means, as applied to any obligation, (i) a guarantee
---------
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guarantor Blockage Period" see Section 12.02(a).
-------------------------
"Guarantor Payment Blockage Notice" see Section 12.02(a).
---------------------------------
"Guarantor Senior Indebtedness" means, with respect to any Guarantor,
-----------------------------
at any date, (a) all Obligations of such Guarantor under the Senior Credit
Facility; (b) all Interest Rate Protection Obligations of such Guarantor; (c)
all Obligations of such Guarantor under stand-by letters of credit; and (d) all
other Indebtedness of such Guarantor for borrowed money, including principal,
premium, if any, and interest (including Post-Petition Interest) on such
Indebtedness, unless the instrument under which such Indebtedness of such
Guarantor for money borrowed is Incurred expressly provides that such
Indebtedness for money borrowed in not senior or superior in right of payment to
such Guarantor's Guaranty of the Securities, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Guarantor Senior Indebtedness shall not include (a) any obligation of
such Guarantor under the TCIC Credit Facility; (b) to the extent that it may
constitute Indebtedness, any Obligation for federal, state, local or other
taxes; (c) any Indebtedness between such Guarantor and any Subsidiary of such
Guarantor; (d) to the extent that it may constitute Indebtedness, any Obligation
in respect of any trade payable incurred for the purchase of goods or materials,
or for services obtained, in the ordinary course of business; (e) that portion
of any Indebtedness
<PAGE>
-10-
that is Incurred in violation of this Indenture; provided, however, that such
Indebtedness shall be deemed not to have been Incurred in violation of this
Indenture for purposes of this clause (e) if (i) the holder(s) of such
Indebtedness or their representative or the Company shall have furnished to the
Trustee an opinion of independent legal counsel, unqualified in all material
respects, addressed to the Trustee (which legal counsel may, as to matters of
fact, rely upon an Officers' Certificate of the Company) to the effect that the
Incurrence of such Indebtedness does not violate the provisions of this
Indenture or (ii) in the case of any Obligations under the Senior Credit
Facility, the holder(s) of such Obligations or their agent or representative
shall have received a representation from the Company to the effect that the
Incurrence of such Indebtedness does not violate the provisions of this
Indenture; (f) Indebtedness evidenced by such Guarantor's Guaranty of the
Securities; (g) Indebtedness of such Guarantor that is expressly subordinate or
junior in right of payment to any other Indebtedness of such Guarantor; (h) to
the extent that it may constitute Indebtedness, any obligation owing under
leases (other than Capitalized Lease Obligations) or management agreements; and
(i) any obligation that by operation of law is subordinated to any general
unsecured obligations of such Guarantor.
"Guarantors" means each Restricted Subsidiary, whether formed or
----------
acquired before or after the Issue Date, which is required to become a Guarantor
of the Securities pursuant to Section 4.20.
"Guaranty" see Section 4.20.
--------
"High Power Satellite Transmission Business" means the business of the
------------------------------------------
acquisition, transmission and sale of programming in the high power direct
broadcast satellite business utilizing broadcast satellite service operating in
the Ku-band (including any provision of such services to cable operators or
other media providers), which may utilize all or part of satellites owned or
leased by PRIMESTAR Partners or a Subsidiary and all other activities relating
thereto or arising therefrom other than the construction, sale or financing of
broadcast satellites.
"High Power Satellite Transmission Subsidiary" means a direct, Wholly-
--------------------------------------------
Owned Restricted Subsidiary of the Company which engages in, or acts as a
distributor for, the High Power Satellite Transmission Business.
"Holder," "holder of Securities," "Securityholders" or other similar
------ -------------------- ---------------
terms mean the registered holder of any Security.
"Incur" means, with respect to any Indebtedness or other obligation of
-----
any Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing).
"Indebtedness" means (without duplication), with respect to any
------------
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (a) every obligation of such Person for money
borrowed; (b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business which
are not overdue or which are being contested in
<PAGE>
-11-
good faith); (e) every Capital Lease Obligation of such Person; (f) every net
obligation under interest rate swap or similar agreements or foreign currency
hedge, exchange or similar agreements of such Person; (g) every obligation of
the type referred to in clauses (a) through (f) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has guaranteed or is responsible or liable for, directly or indirectly, as
obligor, guarantor or otherwise; and (h) any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (a) through
(g) above. Indebtedness (a) shall never be calculated taking into account any
cash and cash equivalents held by such Person; (b) shall not include obligations
of any Person (x) arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn against
insufficient funds in the ordinary course of business, provided that such
obligations are extinguished within two Business Days of their incurrence unless
covered by an overdraft line, (y) resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business and consistent
with past business practices and (z) under stand-by letters of credit to the
extent collateralized by cash or Cash Equivalents; (c) which provides that an
amount less than the principal amount thereof shall be due upon any declaration
of acceleration thereof shall be deemed to be incurred or outstanding in an
amount equal to the accreted value thereof at the date of determination; (d)
shall include the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Equity Interests of the Company or
any Restricted Subsidiary; and (e) shall not include obligations under
performance bonds, performance guarantees, surety bonds and appeal bonds,
letters of credit or similar obligations, incurred in the ordinary course of
business (other than obligations under or in respect of any direct or indirect
credit support for obligations of PRIMESTAR Partners or any Unrestricted
Subsidiary). For avoidance of doubt, Indebtedness of the Company or any
Restricted Subsidiary shall not include Indebtedness of PRIMESTAR Partners (so
long as PRIMESTAR Partners is not insolvent) solely by virtue of the Company or
such Restricted Subsidiary being a general partner of PRIMESTAR Partners to the
extent that there does not exist any judgment or other adjudication of liability
against the Company or any Restricted Subsidiary that is a general partner of
PRIMESTAR Partners or any of its properties.
"Indemnification Agreements" means the indemnification agreements
--------------------------
between (i) the Company and TCI UA 1, dated as of December 4, 1996, which
supports the Partnership Credit Agreement and (ii) the Company and TCIC, dated
as of December 4, 1996, relating to a letter of credit issued for the account of
two subsidiaries of TCI to support the Company's share of PRIMESTAR Partners'
obligations under the GE-2 Agreement, with respect to PRIMESTAR Partners' use of
transponders on GE-2, each as amended and in effect from time to time.
"Indenture" means this Indenture as amended or supplemented from time
---------
to time.
"Indentures" means this Indenture and the Senior Subordinated Discount
----------
Notes Indenture.
"Independent Financial Advisor" means a nationally recognized,
-----------------------------
accounting, appraisal, investment banking firm or consultant engaged in the
satellite business that is, in the judgment of the Company's Board of Directors,
qualified to perform the task for which it has been engaged (i) which does not,
and whose directors, officers and employees or Affiliates do not, have a direct
or indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
------------------
Corporation, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, NationsBanc Capital Markets, Inc. and Scotia Capital Markets (USA)
Inc.
<PAGE>
-12-
"In-Orbit Insurance" means, with respect to a Company Satellite (or
------------------
any replacement thereof), In-Orbit insurance providing coverage beginning not
earlier than 180 days after the launch of such Company Satellite (or any
replacement thereof) in an amount which is equal to or greater than the cost of
construction, launch and insurance of such Company Satellite (or any replacement
thereof), which insurance shall provide pro rata benefits to the insured upon a
loss of more than 20% of the capacity of such Company Satellite (or any
replacement thereof) and shall compensate the insured for a total loss upon a
loss of more than 50% of the capacity of such Company Satellite (or any
replacement thereof).
"Insolvency or Liquidation Proceeding" means, with respect to any
------------------------------------
Person, any liquidation, dissolution or winding up of such Person, or any
bankruptcy, reorganization, insolvency, receivership or similar proceeding with
respect to such Person, whether voluntary or involuntary.
"Institutional Accredited Investor" means an institution that is an
---------------------------------
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"interest" means, with respect to the Securities, the sum of any cash
--------
interest and any Additional Interest on the Securities.
"Interest Payment Date" means each semiannual interest payment date on
---------------------
February 15 and August 15 of each year, commencing August 15, 1997.
"Interest Rate Protection Obligations" means, with respect to any
------------------------------------
Person, the Obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Interest Record Date" for the interest payable on any Interest
--------------------
Payment Date (except a date for payment of defaulted interest) means the
February 1 or August 1 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date.
"Investment" means, with respect to any Person, any direct or indirect
---------
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. The amount
of any Investment shall be the original cost of such Investment, plus the cost
----
of all additions thereto, and minus the amount of any portion of such Investment
-----
repaid to such Person in cash as a repayment of principal or a return of
capital, as the case may be, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment. In determining the amount of any investment involving a transfer of
any property or asset other than cash, such property shall be valued at its fair
market value at the time of such transfer, as determined in good faith by the
board of directors (or comparable body) of the Person making such transfer.
"Investment Grade" means with respect to a security, that such
----------------
security is rated, by at least two nationally recognized statistical rating
organizations, in one of each such organization's four highest generic rating
categories.
"Issue Date" means the original issue date of the Securities, February
----------
20, 1997.
<PAGE>
-13-
"Lien" means any lien, mortgage, charge, security interest,
----
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof, and any agreement to give any security interest).
"Loral" means Space Systems/Loral, Inc., a Delaware corporation, and
-----
its successors.
"Marketable Securities" means Government Securities maturing not later
---------------------
than 30 days after the date of acquisition.
"Maturity Date" means the Stated Maturity of the Securities.
-------------
"MDUs" means hotels, motels, bars, restaurants, businesses, schools
----
and other multiple dwelling units.
"Measurement Period" has the meaning set forth in the definition of
------------------
"Debt to Operating Cash Flow Ratio" above.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash
-----------------
or Cash Equivalents received by the Company or any Restricted Subsidiary in
respect of any Asset Sale, including all cash or Cash Equivalents received upon
any sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale (provided that the amount of any such reserves shall be deemed
to constitute Net Cash Proceeds at the time such reserves shall have been
released or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Subsidiaries, the portion of such cash payments
attributable to Persons holding a minority interest in such Subsidiary.
"Non-U.S. Person" means a person who is not a U.S. Person, as defined
---------------
in Regulation S.
"Obligations" means any principal, interest (including, without
-----------
limitation, Post-Petition Interest), penalties, fees, indemnifications,
reimbursement obligations, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to
-----
Purchase" below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
----------------- -----
behalf of the Company by first-class mail, postage prepaid, to each holder at
his address appearing in the register for the Securities on the date of the
Offer offering to purchase up to the principal amount of Securities specified in
such Offer at the purchase price specified in such Offer (as determined pursuant
to this Indenture). Unless otherwise required by applicable law, the Offer
shall specify an expiration date (the "Expiration Date") of the Offer to
---------------
Purchase, which shall be not less than 20 Business Days nor more than 60 days
after the date of such Offer, and a settlement date (the "Purchase Date") for
-------------
purchase of Securities to occur no later than five Business Days after the
Expiration Date. The Company shall notify the Trustee at least 15 Business Days
(or such shorter period
<PAGE>
-14-
as is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be mailed
by the Company or, at the Company's request, by the Trustee in the name and at
the expense of the Company; provided, however, that the Company may notify the
Trustee on the same Business Day as the mailing of the Offer of the Company's
obligation to make an Offer to Purchase pursuant to Section 4.19. The Offer
shall contain all the information required by applicable law to be included
therein. The Offer shall also contain information concerning the business of the
Company and its Subsidiaries which the Company in good faith believes will
enable such Holders to make an informed decision with respect to the Offer to
Purchase (which at a minimum will include (i) the most recent annual and
quarterly financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the document
required to be filed with the trustee pursuant to this Indenture (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein). The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Securities pursuant to
the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Securities
offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such amount has been
determined pursuant to the Section of this Indenture requiring the Offer to
Purchase) (the "Purchase Amount");
---------------
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Securities accepted for payment (as specified
pursuant to this Indenture) (the "Purchase Price");
--------------
(5) that the holder may tender all or any portion of the Securities
registered in the name of such holder and that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where Securities are to be surrendered for
tender pursuant to the Offer to Purchase;
(7) that interest on any Security not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Security being accepted for payment pursuant to the Offer
to Purchase and that interest thereon shall cease to accrue on and after
the Purchase Date;
(9) that each Holder electing to tender all or any portion of a
Security pursuant to the Offer to Purchase will be required to surrender
such Security at the place or places specified in the Offer prior to the
close of business on the Expiration Date (such Security being, if the
Company
<PAGE>
-15-
or the Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the Holder thereof or his attorney duly authorized in
writing);
(10) that Holders will be entitled to withdraw all or any portion of
Securities tendered if the Company (or its Paying Agent) receives, not
later than the close of business on the fifth Business Day next preceding
the Expiration Date, a facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security the Holder
tendered, the certificate number of the Security the Holder tendered and a
statement that such Holder is withdrawing all or a portion of his tender;
(11) that (a) if Securities in an aggregate principal amount less than
or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase all such
Securities and (b) if Securities in an aggregate principal amount in excess
of the Purchase Amount are tendered and not withdrawn pursuant to the Offer
to Purchase, the Company shall purchase Securities having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis (with
such adjustments as may be deemed appropriate so that only Securities in
denominations of $1,000 principal amount or integral multiples thereof
shall be purchased); and
(12) that in the case of any Holder whose Security is purchased only
in part, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in an aggregate principal amount equal to and in exchange for the
unpurchased portion of the Security so tendered.
An Offer to Purchase shall be governed by and effected in accordance
with the provisions above pertaining to any Offer.
"Officer" means the Chairman, any Vice Chairman, the President, any
-------
Vice President, the Chief Financial Officer, the Treasurer, or the Secretary of
the Company.
"Officers' Certificate" means a certificate signed by two Officers or
---------------------
by an Officer and an Assistant Treasurer or Assistant Secretary of the Company
complying with Sections 13.04 and 13.05.
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Other Indebtedness" see Section 4.05.
------------------
"Participant" has the meaning set forth in Section 2.15.
-----------
"Partnership Agreement" means the Limited Partnership Agreement of
---------------------
PRIMESTAR Partners (then known as K Prime Partners, L.P.), dated as of February
8, 1990, as amended and in effect from time to time.
"Partnership Credit Agreement" means the Credit Agreement dated as of
----------------------------
March 9, 1994 among PRIMESTAR Partners, the banks party thereto, The Bank of New
York, The Chase Manhattan Bank (formerly known as Chemical Bank) and Citibank,
N.A., as Managing Agent, The Bank of New York, as
<PAGE>
-16-
Documentation Agent, and The Chase Manhattan Bank (formerly known as Chemical
Bank), as Administrative Agent, as amended and in effect from time to time.
"Paying Agent" has the meaning provided in Section 2.03.
------------
"Payment Blockage Notice" see Section 8.02(a).
-----------------------
"Payment Blockage Period" see Section 8.02(a).
-----------------------
"Permitted Holder" means any of (i) the estate or the heirs of Bob
----------------
Magness (a shareholder of the Company), (ii) John C. Malone (a shareholder of
the Company, and a director of TCI and of the Company), (iii) the Kearns-Tribune
Corporation (a Utah corporation and a shareholder of the Company), (iv)
PRIMESTAR Partners (so long as all the then other partners in PRIMESTAR Partners
were partners in PRIMESTAR Partners on the Issue Date), (v) Persons who were
partners of PRIMESTAR Partners on the Issue Date, (vi) TCI, (vii) any of the
Permitted Transferees of the Persons referred to in clauses (i) through (vi),
and (viii) any Person or group controlled by each or any of the Persons referred
to in clauses (i) through (vii).
"Permitted Indebtedness" see Section 4.04.
----------------------
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
---------------------
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to employees made in the ordinary course of business not to exceed $1.0
million in the aggregate at any one time outstanding; (d) Interest Rate
Protection Obligations; (e) bonds, notes, debentures or other securities
received as a result of Asset Sales permitted under Section 4.05 not to exceed
15% of the total consideration for such Asset Sales; (f) transactions with
officers, directors and employees of the Company, or any Restricted Subsidiary
entered into in ordinary course of business (including compensation or employee
benefit arrangements with any such director or employee) and consistent with
past business practices; (g) Investments existing as of the Issue Date and any
amendment, extension, renewal or modification thereof to the extent that any
such amendment, extension, renewal or modification does not require the Company
or any Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; (h) any Investment to the
extent that the consideration therefor consists of Qualified Equity Interests of
the Company; (i) any Investment consisting of a guarantee by a Restricted
Subsidiary of Senior Indebtedness or any guarantee permitted under clause (e) of
the second paragraph of Section 4.04; (j) shares of Equity Interests of TCI
purchased pursuant to the Share Purchase Agreement; (k) shares of the common
stock of ResNet acquired pursuant to the conversion of the ResNet Subordinated
Loan; (l) warrants of ResNet acquired pursuant to the conversion of the ResNet
Subordinated Loan or the exercise of the ResNet Option; (m) shares of the common
stock of ResNet acquired pursuant to any exercise of warrants at a de minimis
exercise price; and (n) so long as the Company or any Restricted Subsidiary
holds partnership interests in PRIMESTAR Partners, the provision of any
guarantee, letter of credit or other credit support with respect to (x) an
obligation of PRIMESTAR Partners incurred under the Partnership Credit Agreement
(or any refinancing thereof) to the extent such obligation was incurred by
PRIMESTAR Partners to finance any Company Satellite or (y) any obligation of
PRIMESTAR Partners under the GE-2 Agreement, in each case in an amount not to
exceed the product of (I) a fraction, the numerator of which is the Company's
equity interest in PRIMESTAR Partners, and the denominator of which is all
partners' equity interest in PRIMESTAR Partners except GEAS, and (II) such
obligation of PRIMESTAR Partners incurred to finance such Company Satellite or
such obligation of PRIMESTAR Partners under the GE-2 Agreement, as the case may
be; provided, however that in no event shall the amount of such Permitted
Investment exceed $75.0 mil-
<PAGE>
-17-
lion in the case of the GE-2 Agreement and $146.0 million in the case of such
obligation under the Partnership Credit Agreement (or any refinancing thereof).
"Permitted Junior Securities" means any securities of the Company or
---------------------------
any other Person that are (i) equity securities without special covenants or
(ii) subordinated in right of payment to all Senior Indebtedness or Guarantor
Senior Indebtedness, as the case may be, that may at the time be outstanding, to
substantially the same extent as, or to a greater extent than, the Securities
are subordinated as provided in this Indenture, in any event pursuant to a court
order so providing and as to which (a) the rate of interest on such securities
shall not exceed the effective rate of interest on the Securities on the date of
this Indenture, (b) such securities shall not be entitled to the benefits of
covenants or defaults materially more beneficial to the holders of such
securities than those in effect with respect to the Securities on the date of
this Indenture and (c) such securities shall not provide for amortization
(including sinking fund and mandatory prepayment provisions) commencing prior to
the date six months following the final scheduled maturity date of the Senior
Indebtedness or Guarantor Senior Indebtedness, as the case may be (as modified
by the plan of reorganization of readjustment pursuant to which such securities
are issued).
"Permitted Liens" means (a) Liens on property of a Person existing at
---------------
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens
and other similar Liens arising in the ordinary course of business which secure
payment of obligations not more than 60 days past due or which are being
contested in good faith and by appropriate proceedings; (c) Liens existing on
the Issue Date; (d) Liens securing only the Securities; (e) Liens in favor of
the Company or any Restricted Subsidiary so long as held by the Company or any
Restricted Subsidiary; (f) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted;
provided, however, that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (g) easements,
reservation of rights of way, restrictions and other similar easements,
licenses, restrictions on the use of properties, or minor imperfections of title
that in the aggregate are not material in amount and do not in any case
materially detract from the properties subject thereto or interfere with the
ordinary conduct of the business of the Company and the Restricted Subsidiaries;
(h) Liens resulting from the deposit of cash or notes in connection with
contracts, tenders or expropriation proceedings, or to secure workers'
compensation, surety or appeal bonds, costs of litigation when required by law
and public and statutory obligations or obligations under franchise arrangements
entered into in the ordinary course of business; (i) Liens securing Indebtedness
consisting of Capitalized Lease Obligations, Purchase Money Indebtedness,
mortgage financings, industrial revenue bonds or other monetary obligations, in
each case incurred solely for the purpose of financing all or any part of the
purchase price or cost of construction or installation of assets used in the
business of the Company or the Restricted Subsidiaries, or repairs, additions or
improvements to such assets; provided, however, that (I) such Liens secure
Indebtedness in an amount not in excess of the original purchase price or the
original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness), (II) such Liens do not extend to any other
assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the Incurrence of such Indebtedness is permitted by Section
4.04, and (IV) such Liens attach within 90 days of such purchase, construction,
installation, repair, addition or improvement; (j) Liens to secure any
refinancings, renewals, extensions, modifications or replacements (collectively,
"refinancing") (or successive refinancings), in whole or in part, of any
-----------
Indebtedness se-
<PAGE>
-18-
cured by Liens referred to in the clauses above so long as such Lien does not
extend to any other property (other than improvements thereto); (k) Liens
securing letters of credit entered into in the ordinary course of business and
consistent with past business practice; (l) Liens on and pledges of the Equity
Interests of any Unrestricted Subsidiary securing any Indebtedness of such
Unrestricted Subsidiary; and (m) any calls or rights of first refusal with
respect to any partnership interests, and any right of the Partnership to remove
a partner's representative from the partners committee of the Partnership, under
the Partnership Agreement as in effect on the Issue Date.
"Permitted Transferee" means, with respect to any Person: (a) in the
--------------------
case of any Person who is a natural person, such individual's spouse or
children, any trust for such individual's benefit or the benefit of such
individual's spouse or children, or any corporation or partnership in which the
direct and beneficial owner of all of the equity interest is such Person or such
individual's spouse or children or any trust for the benefit of such persons;
(b) in the case of any Person who is a natural person, the heirs, executors,
administrators or personal representatives upon the death of such Person or upon
the incompetency or disability of such Person for purposes of the protection and
management of such individual's assets; and (c) in the case of any Person who is
not a natural person, any Affiliate of such Person.
"Person" means any individual, corporation, limited liability company,
------
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Physical Securities" has the meaning set forth in Section 2.01.
-------------------
"Placement Agreement" means the Purchase Agreement dated February 14,
-------------------
1997 between the Company and the Initial Purchasers.
"Post-Petition Interest" means, with respect to any Senior
----------------------
Indebtedness of any Person, all interest accrued or accruing on such
Indebtedness after the commencement of any Insolvency or Liquidation Proceeding
against such Person in accordance with and at the contract rate (including,
without limitation, any rate applicable upon default) specified in the agreement
or instrument creating, evidencing or governing such Indebtedness, whether or
not, pursuant to applicable law or otherwise, the claim for such interest is
allowed as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest," in any Person, means an Equity Interest
-------------------------
of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over
Equity Interests of any other class in such Person.
"PRIMESTAR Partners" means PRIMESTAR Partners L.P., a Delaware
------------------
partnership.
"principal" of a debt security means the principal of the security,
--------
plus, when appropriate, the premium, if any, on the security.
"Private Placement Legend" means the legend initially set forth on the
------------------------
Securities in the form set forth on Exhibit A hereto.
---------
<PAGE>
-19-
"Public Equity Offering" means an underwritten public offering of
----------------------
Qualified Equity Interests of the Company pursuant to an effective registration
statement filed under the Securities Act (excluding registration statements
filed on Form S-8).
"Purchase Amount" has the meaning set forth in the definition of
---------------
"Offer to Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer
-------------
to Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
---------------------------
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property
(other than integrated receiver/decoders or related equipment); provided,
however, that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.
"Purchase Price" has the meaning set forth in the definition of "Offer
--------------
to Purchase" above.
"Qualified Institutional Buyer" or "QIB" means a "qualified
----------------------------- ---
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
"QIB Global Security" see Section 2.01.
-------------------
"Qualified Equity Interest" in any Person means any Equity Interest in
-------------------------
such Person other than any Disqualified Equity Interest.
"Redemption Date," when used with respect to any Security to be
----------------
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Security to be
----------------
redeemed, means the price fixed for such redemption pursuant to this Indenture
as set forth in the form of Security annexed hereto as Exhibit A.
---------
"Registered Exchange Offer" means the offer to exchange the Series B
-------------------------
Securities for all of the outstanding Series A Securities in accordance with the
Registration Rights Agreement.
"Registrar" see Section 2.03.
---------
"Registration" means a registered Exchange Offer for the Securities by
------------
the Company or other registration of the Securities under the Securities Act
pursuant to and in accordance with the terms of the Registration Rights
Agreement.
"Registration Rights Agreement" means the Senior Subordinated Notes
-----------------------------
Registration Rights Agreement dated as of February 20, 1997 between the Company
and the Initial Purchasers.
"Registration Statement" means the registration statement(s) as
----------------------
defined and described in the Registration Rights Agreement.
<PAGE>
-20-
"Regulation S" means Regulation S under the Securities Act.
------------
"Regulation S Global Security" see Section 2.01.
----------------------------
"Related Acquisition" see Section 4.04.
-------------------
"Reorganization Agreement" means the agreement entered into on
------------------------
December 4, 1996 by TCI, TCIC and a number of other TCI subsidiaries, including
the Company and its subsidiaries, which provided for, among other things, the
principal corporate transactions 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, as amended and in
effect from time to time.
"Required Designation" see Section 4.17.
--------------------
"Required Filing Date" see Section 4.12.
--------------------
"ResNet" means ResNet Communications, Inc., a Delaware corporation,
------
and its successors.
"ResNet Option" means the Option Agreement between the Company and
-------------
ResNet dated October 21, 1996, as amended and in effect from time to time.
"ResNet Subordinated Loan" means the subordinated loan in the
------------------------
principal amount of $36,604,000 made by the Company to ResNet, as amended and in
effect from time to time.
"Restricted C-Band Subsidiary" see Section 4.06.
----------------------------
"Restricted Investment" means any Investment other than a Permitted
---------------------
Investment.
"Restricted Payments" see Section 4.06.
-------------------
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
-------------------
under the Securities Act; provided, that the Trustee shall be entitled to
request and conclusively rely upon an Opinion of Counsel with respect to whether
any Security is a Restricted Security
"Restricted Subsidiary" means any Subsidiary of the Company that has
---------------------
not been designated by the Board of Directors of the Company, by a resolution of
the Board of Directors of the Company delivered to the Trustee, as an
Unrestricted Subsidiary pursuant to Section 4.17; provided, however, that Tempo
is designated as an Unrestricted Subsidiary as of the Issue Date (which
designation may be changed in accordance with Section 4.17) and such resolution
as of the Issue Date need not be delivered. Any such designation may be revoked
by a resolution of the Board of Directors of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"Revocation" see Section 4.17.
----------
"Rule 144A" means Rule 144A under the Securities Act.
---------
"Satellite Construction Agreement" means the fixed price satellite
--------------------------------
construction agreement between Loral and Tempo dated as of February 22, 1990, as
amended and in effect from time to time.
<PAGE>
-21-
"Satellite No. 1" means the Company Satellite outfitted with an
---------------
antenna designed for the 119 degrees W.L. orbital location.
"Satellite No. 2" means the Company Satellite outfitted with an
---------------
antenna designed for the 82 degrees W.L. orbital location.
"Satellite Subsidiary" see Section 4.17.
--------------------
"SEC" means the Securities and Exchange Commission.
---
"Securities" means the Series A Securities and the Series B Securities
----------
treated as a single class of securities, as amended or supplemented from time to
time in accordance with the terms of this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated by the SEC thereunder.
"Securities Amount" see Section 4.05.
-----------------
"Securities Portion of Unutilized Net Cash Proceeds" see Section 4.05.
--------------------------------------------------
"Senior Credit Facility" means the Credit Agreement, dated as of
----------------------
December 31, 1996, between the Company, the lenders named therein, and The Bank
of Nova Scotia, as Agent, including any deferrals, renewals, waivers,
extensions, replacements, refinancings or refundings thereof, or amendments,
modifications or supplements thereto and any agreement providing therefor,
whether by or with the same or any other lender, creditor, group of lenders or
group of creditors, and including related notes, guarantees, security
agreements, pledge agreements, mortgages, other collateral documents (including
all Loan Documents (as defined in the Senior Credit Facility)) and note
agreements and other instruments and agreements executed in connection
therewith.
"Senior Indebtedness" means, at any date, (a) all Obligations of the
-------------------
Company under the Senior Credit Facility; (b) all Interest Rate Protection
Obligations of the Company; (c) all Obligations of the Company under stand-by
letters of credit; and (d) all other Indebtedness of the Company for borrowed
money, including principal, premium, if any, and interest (including Post-
Petition Interest) on such Indebtedness, unless the instrument under which such
Indebtedness of the Company for money borrowed is Incurred expressly provides
that such Indebtedness for money borrowed is not senior or superior in right of
payment to the Securities, and all renewals, extensions, modifications,
amendments or refinancings thereof. Notwithstanding the foregoing, Senior
Indebtedness shall not include (a) any obligation of the Company under the TCIC
Credit Facility; (b) to the extent that it may constitute Indebtedness, any
Obligation for federal, state, local or other taxes; (c) any Indebtedness
between the Company and any Subsidiary of the Company; (d) to the extent that it
may constitute Indebtedness, any Obligation in respect of any trade payable
Incurred for the purchase of goods or materials, or for services obtained, in
the ordinary course of business; (e) that portion of any Indebtedness that is
Incurred in violation of this Indenture; provided, however, that such
Indebtedness shall be deemed not to have been Incurred in violation of this
Indenture for purposes of this clause (e) if (I) the holder(s) of such
Indebtedness or their representative or the Company shall have furnished to the
Trustee an opinion of independent legal counsel, unqualified in all material
respects, addressed to the Trustee (which legal counsel may, as to matters of
fact, rely upon an Officers' Certificate of the Company) to the effect that the
Incurrence of such Indebtedness does not violate the provisions of this
Indenture or (II) in the case of any Obligations under the
<PAGE>
-22-
Senior Credit Facility, the holder(s) of such Obligations or their agent or
representative shall have received a representation from the Company to the
effect that the Incurrence of such Indebtedness does not violate the provisions
of this Indenture; (f) Indebtedness evidenced by the Securities; (g)
Indebtedness of the Company that is expressly subordinate or junior in right of
payment to any other Indebtedness of the Company; (h) to the extent that it may
constitute Indebtedness, any obligation owing under leases (other than
Capitalized Lease Obligations) or management agreements; and (i) any obligation
that by operation of law is subordinate to any general unsecured obligations of
the Company.
"Senior Subordinated Discount Notes" means the 12 1/4 % Senior
----------------------------------
Subordinated Discount Notes due 2007, Series A, issued pursuant to the terms of
the Senior Subordinated Discount Notes Indenture, and the 12 1/4% Senior
Subordinated Discount Notes due 2007, Series B, to be issued in exchange for the
12 1/4% Senior Subordinated Discount, Series A, in a registered exchange offer
pursuant to the terms of the Senior Subordinated Discount Notes Indenture and
the Senior Subordinated Discount Notes Registration Rights Agreement.
"Senior Subordinated Discount Notes Indenture" means the Indenture
--------------------------------------------
dated as of February 20, 1996 between the Company and The Bank of New York, as
trustee, pursuant to which the Senior Subordinated Notes of the Company were
issued, as the same may be amended, modified and supplemented from time to time.
"Senior Subordinated Discount Notes Registration Rights Agreement"
----------------------------------------------------------------
means the Senior Subordinated Discount Notes Registration Rights Agreement dated
as of February 20, 1997 between the Company and the Initial Purchasers.
"Series A Securities" means the 10 7/8% Senior Subordinated Notes due
-------------------
2007, Series A, of the Company issued pursuant to this Indenture and sold
pursuant to the Placement Agreement.
"Series B Securities" means the 10 7/8% Senior Subordinated Notes due
-------------------
2007, Series B, of the Company to be issued in exchange for the Series A
Securities pursuant to the Registered Exchange Offer and the Registration Rights
Agreement.
"Share Purchase Agreement" means the share purchase agreement entered
------------------------
into by TCI and the Company on December 4, 1996, as amended and in effect from
time to time.
"Significant Restricted Subsidiary" means, at any date of
---------------------------------
determination, (a) any Restricted Subsidiary that, together with its
Subsidiaries that constitute Restricted Subsidiaries (i) for the most recent
fiscal year of the Company accounted for more than 5.0% of the consolidated
revenues of the Company and the Restricted Subsidiaries or (ii) as of the end of
such fiscal year, owned more than 5.0% of the consolidated assets of the Company
and the Restricted Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Restricted Subsidiaries for such year prepared
in conformity with GAAP, and (b) any Restricted Subsidiary which, when
aggregated with all other Restricted Subsidiaries that are not otherwise
Significant Restricted Subsidiaries and as to which any event described in
clause (6), (7), (8), (9) or (10) of Section 6.01 has occurred, would constitute
a Significant Restricted Subsidiary under clause (a) of this definition.
"Stated Maturity" means (i) with respect to any debt security, the
---------------
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
<PAGE>
-23-
"Strategic Equity Investor" means a corporation or entity with an
-------------------------
equity market capitalization, a net asset value or annual revenues of at least
$1.5 billion that primarily owns and operates businesses in the
telecommunications, information systems, entertainment, cable television,
programming, electronics or similar or related industries.
"Subordinated Indebtedness" means any Indebtedness of the Company
-------------------------
which is expressly subordinated in right of payment to the Securities.
"Subsidiary" means, with respect to any Person, (a) any corporation of
---------
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or
----------------
that makes any Disposition, the Person formed by or surviving such Disposition
or the Person to which such Disposition is made.
"Tag-Along Agreement" means the 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, as amended and in effect from time to time.
"Tax Sharing Agreement" means the tax sharing agreement effective as
---------------------
of July 1, 1995 among TCI, TCIC and certain other consolidated subsidiaries of
TCI, as amended and in effect from time to time.
"TCI" means Tele-Communications, Inc., a Delaware corporation, and its
---
successors.
"TCIC" means TCI Communications, Inc., a Delaware corporation, and its
----
successors.
"TCIC Credit Facility" means the amended and restated credit agreement
--------------------
dated as of February 19, 1997 between TCIC and the Company, as amended and in
effect from time to time.
"TCIC Loan Amount" see Section 4.19.
----------------
"Tempo" means Tempo Satellite, Inc., an Oklahoma corporation, and its
-----
successors.
"Tempo Letter Agreements" means the two letter agreements dated as of
-----------------------
July 30, 1993 entered into by Tempo and PRIMESTAR Partners in connection with
the Tempo Option and certain related matters and any refinancings thereof, as
amended and in effect from time to time.
"Tempo Option" means PRIMESTAR Partners' right and option, granted by
------------
Tempo under the option agreement entered into by Tempo and PRIMESTAR Partners in
February 1991 to purchase or lease 100% of the capacity of a DBS system to be
built, launched, and operated by Tempo pursuant to the FCC Permit.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)77aaa-
---
77bbbb), as amended, as in effect on the date of this Indenture, except as
provided in Section 10.03.
<PAGE>
-24-
"Total Consolidated Indebtedness" means, as at any date of
-------------------------------
determination, an amount equal to the aggregate amount of all Indebtedness and
Disqualified Equity Interests of the Company and the Restricted Subsidiaries
outstanding as of such date of determination.
"Trade Name and Service Mark License Agreement" means the trade name
---------------------------------------------
and service mark license agreement between the Company and TCI dated December 4,
1996, a subsidiary of TCI, as amended and in effect from time to time.
"Transition Services Agreement" means the agreement dated as of
-----------------------------
December 4, 1996 between TCI and the Company, pursuant to which TCI provides to
the Company certain services and other benefits, including certain
administrative and other services that were provided to the Company by TCI prior
to the Distribution, as amended and in effect from time to time.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
-------------
department (or any successor group of the Trustee) including any vice president,
assistant vice president, assistant secretary or any other officer or assistant
officer of the Trustee customarily performing functions similar to those
performed by the persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such trust matter is referred because of his knowledge of and familiarity
with the particular subject.
"UCC" means the Uniform Commercial Code as in effect from time to time
---
in the State of New York.
"United States Government Obligations" see Section 9.01.
------------------------------------
"Unrestricted Subsidiary" means any Subsidiary of the Company
-----------------------
designated as such pursuant to Section 4.17. Any such designation may be
revoked by a resolution of the Board of Directors of the Company delivered to
the Trustee, subject to the provisions of Section 4.17.
"Unutilized Net Cash Proceeds" see Section 4.05(a).
----------------------------
"U.S. Person" means a "U.S. person" as defined in Rule 902 under the
-----------
Securities Act.
"Voting Equity Interests" means Equity Interests in a corporation or
-----------------------
other Person with voting power under ordinary circumstances entitling the
holders thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
<PAGE>
-25-
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
----------------------------------
all of the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
"W.L." means West Longitude.
----
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles in effect
from time to time, and any other reference in this Indenture to "generally
accepted accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision.
<PAGE>
-26-
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Series A Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of Exhibit A hereto,
---------
which is hereby incorporated in and expressly made a part of this Indenture.
The Series B Securities and the Trustee's certificate of authentication thereof
shall be substantially in the form of Exhibit B hereto, which is hereby
---------
incorporated in and expressly made a part of this Indenture. The Securities may
have notations, legends or endorsements (including notations relating to the
Guaranties) required by law, stock exchange rule or usage. The Company and the
Trustee shall approve the form of the Securities and any notation, legend or
endorsement (including notations relating to the Guaranties) on them. Each
Security shall be dated the date of its issuance and shall show the date of its
authentication.
Securities initially offered and sold by the Initial Purchasers (i) to
Qualified Institutional Buyers in reliance on Rule 144A, (ii) to Institutional
Accredited Investors or (iii) in offshore transactions in reliance on Regulation
S shall, unless the applicable Holder requests Securities in the form of
Certificated Securities in registered form ("Physical Securities"), which shall
-------------------
be in substantially the form set forth in Exhibit A, be issued initially in the
---------
form of one or more permanent Global Securities in registered form,
substantially in the form set forth in Exhibit A hereto, deposited with the
---------
Trustee, as custodian for the Depository, and shall bear the legend set forth on
Exhibit C hereto. One or more separate Global Securities shall be issued to
- ---------
represent Securities held by (i) Qualified Institutional Buyers (a "QIB Global
----------
Security"), (ii) Institutional Accredited Investors (an "Accredited Investor
- -------- --------------------
Global Security") and (iii) Persons acquiring Securities in offshore
- -----------------
transactions in reliance on Regulation S (a "Regulation S Global Security").
----------------------------
The Company shall cause the QIB Global Securities, Accredited Investor Global
Securities and Regulation S Global Securities to have separate CUSIP numbers.
The aggregate principal amount of any Global Security may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depository, as hereinafter provided.
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Series A Securities for original
issue in the aggregate principal amount not to exceed $200,000,000 and (ii)
Series B Securities from time to time only in exchange for a like principal
amount of Series A Securities, in each case upon a written order of the Company
in the form of
<PAGE>
-27-
an Officers' Certificate. The Officers' Certificate shall specify the amount of
Securities to be authenticated, the series of Securities and the date on which
the Securities are to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed $200,000,000, except as
provided in Section 2.07. Upon receipt of a written order of the Company in the
form of an Officers' Certificate, the Trustee shall authenticate Securities in
substitution for Securities originally issued to reflect any name change of the
Company.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
---------
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
------------
notices and demands in respect of the Securities and this Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company, upon notice to the Trustee, may appoint one
or more co-Registrars and one or more additional Paying Agents. The term
"Paying Agent" includes any additional Paying Agent. Except as provided herein,
the Company, or any Subsidiary may act as Paying Agent, Registrar or co-
Registrar. Neither the Company, any Subsidiary, nor any of their respective
Affiliates may act as Paying Agent for purposes of any Offer to Purchase
required or permitted by Section 4.19 hereof.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, or interest on, the Securities, and shall notify the Trustee of
any Default by the Company in making any such payment. The Company at any time
may require a Paying Agent to distribute all assets held by it to the Trustee
and account for any assets disbursed and the Trustee may at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee and
to account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Company to the Paying Agent (if
other
<PAGE>
-28-
than the Company), the Paying Agent shall have no further liability for such
assets. If the Company, any Subsidiary or any of their respective Affiliates
acts as Paying Agent, it shall, on or before each due date of the principal of
or interest on the Securities, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay the principal or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee before each Interest Record Date and at such other times as the Trustee
may request in writing a list as of such date and in such form as the Trustee
may reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when Securities
are presented to the Registrar or a co-Registrar with a request to register the
transfer of such Securities or to exchange such Securities for an equal
principal amount of Securities of other authorized denominations of the same
series, the Registrar or co-Registrar shall register the transfer or make the
exchange as requested if its requirements for such transaction are met;
provided, however, that the Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Securities at the Registrar's or co-Registrar's
written request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other governmental charge
payable upon exchanges or transfers pursuant to Section 2.02, 2.10, 3.06, 4.05,
4.14, 4.19 or 10.05). The Registrar or co-Registrar shall not be required to
register the transfer or exchange of any Security (i) during a period beginning
at the opening of business 15 days before the mailing of a notice of redemption
of Securities and ending at the close of business on the day of such mailing and
(ii) selected for redemption in whole or in part pursuant to Article Three
hereof, except the unredeemed portion of any Security being redeemed in part.
Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee, and any Agent of the Company shall treat the
person in whose name the Security is registered as the owner thereof for all
purposes whether or not the Security shall be overdue, and neither the Company,
the Trustee, nor any such Agent shall be affected by notice to the contrary.
Any Holder of a Global Security shall, by acceptance of such Global Security,
agree that transfers of beneficial interests in such Global Security may be
effected only through a book-entry system maintained by the Depository (or its
agent), and that ownership of a beneficial interest in a Global Security shall
be required to be reflected in a book entry.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements for replacement of Securities are met.
Such
<PAGE>
-29-
Holder must provide an indemnity bond or other indemnity, sufficient in the
judgment of both the Company and the Trustee, to protect the Company, the
Trustee and any Agent from any loss which any of them may suffer if a Security
is replaced and evidence to their satisfaction of the apparent loss, destruction
or theft of such Security. The Company may charge such Holder for its
reasonable out-of-pocket expenses in replacing a Security, including reasonable
fees and expenses of counsel.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those cancelled by it, those delivered
to it for cancellation and those described in this Section 2.08 as not
outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date, Purchase Date or the Final Maturity Date the
Paying Agent holds money sufficient to pay all of the principal and interest due
on the Securities payable on that date, then on and after that date such
Securities cease to be outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, the Guarantors or any of their respective Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities that a Trust Officer of the Trustee actually knows are so owned shall
be disregarded.
The Trustee may require an Officers' Certificate listing Securities
owned by the Company, the Guarantors or their respective Affiliates.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate upon receipt of a written order of the Company pursuant to Section
2.02 definitive Securities in exchange for temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no
<PAGE>
-30-
one else, shall cancel all Securities surrendered for transfer, exchange,
payment or cancellation and deliver to the Company such cancelled Securities for
disposal. Subject to Section 2.07, the Company may not issue new Securities to
replace Securities that it has paid or delivered to the Trustee for
cancellation. If the Company or any Guarantor shall acquire any of the
Securities, such acquisition shall not operate as a redemption or satisfaction
of the Indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of principal or interest on the
Securities, it shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the rate per annum borne by the Securities, to the
extent lawful.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities will use a "CUSIP" number and
the Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed only
on the other identification numbers printed on the Securities. The Company
shall promptly notify the Trustee of any changes in CUSIP numbers.
SECTION 2.14. Deposit of Moneys.
Prior to 10:00 a.m. New York City time on each Interest Payment Date,
Redemption Date, Purchase Date and the Final Maturity Date, the Company shall
deposit with the Paying Agent in immediately available funds money sufficient to
make cash payments, if any, due on such Interest Payment Date, Redemption Date,
Purchase Date or Final Maturity Date, as the case may be, in a timely manner
which permits the Paying Agent to remit payment to the Holders on such Interest
Payment Date, Redemption Date, Purchase Date or Final Maturity Date, as the case
may be.
SECTION 2.15. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Exhibit C hereto.
---------
Members of, or participants in, the Depository ("Participants") shall
------------
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under such
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and Participants, the operation of customary practices governing the exercise of
the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of
<PAGE>
-31-
the Depository and the provisions of Section 2.16. In addition, Physical
Securities shall be transferred to all beneficial owners in exchange for their
beneficial interests in Global Securities if (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for any Global
Security and a successor Depository is not appointed by the Company within 90
days of such notice or (ii) an Event of Default has occurred and is continuing
and the Registrar has received a request from the Depository to issue Physical
Securities.
(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and make available for delivery, to
each beneficial owner identified by the Depository in exchange for its
beneficial interest in the Global Securities, an equal aggregate principal
amount of Physical Securities of authorized denominations.
(d) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) of this Section 2.15 shall, except as otherwise provided by Section 2.16,
bear the Private Placement Legend.
(e) The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Participants and Persons that may hold
interests through Participants, to take any action which a Holder is entitled to
take under this Indenture or the Securities.
SECTION 2.16. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Securities. When Physical
Securities are presented to the Registrar or co-Registrar with a request:
(i) to register the transfer of the Physical Securities; or
(ii) to exchange such Physical Securities for an equal number
of Physical Securities of other authorized denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.16 for such transactions are met; provided, however, that the Physical
Securities presented or surrendered for registration of transfer or exchange:
(I) shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Registrar or co-
Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(II) in the case of Physical Securities the offer and sale of
which have not been registered under the Securities Act, such Physical
Securities shall be accompanied, in the sole discretion of the Company, by
the following additional information and documents, as applicable:
(A) if such Physical Security is being delivered to the Registrar
or co-Registrar by a Holder for registration in the name of
such Holder, without transfer, a certification from such
Holder to that effect (substantially in the form of Exhibit D
---------
hereto); or
<PAGE>
-32-
(B) if such Physical Security is being transferred to a Qualified
Institutional Buyer in accordance with Rule 144A, a
certification to that effect (substantially in the form of
Exhibit D hereto); or
---------
(C) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and a transferee certificate for
---------
Institutional Accredited Investors substantially in the form
of Exhibit E hereto; or
---------
(D) if such Physical Security is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a
---------
transferor certificate for Regulation S transfers
substantially in the form of Exhibit F hereto and an Opinion
---------
of Counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the
Securities Act; or
(E) if such Physical Security is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and an Opinion of Counsel reasonably
---------
satisfactory to the Company to the effect that such transfer
is in compliance with the Securities Act; or
(F) if such Physical Security is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially
in the form of Exhibit D hereto) and an Opinion of Counsel
---------
reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act.
(b) Restrictions on Transfer of a Physical Security for a
Beneficial Interest in a Global Security. A Physical Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Registrar
or co-Registrar of a Physical Security, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Registrar or
co-Registrar, together with:
(A) certification, substantially in the form of Exhibit D hereto,
---------
that such Physical Security is being transferred (I) to a
Qualified Institutional Buyer, (II) to an Accredited Investor
or (III) in an offshore transaction in reliance on Regulation
S; and
(B) written instructions directing the Registrar or co-Registrar
to make, or to direct the Depository to make, an endorsement
on the applicable Global Security to reflect an increase in
the aggregate amount of the Securities represented by the
Global Security,
then the Registrar or co-Registrar shall cancel such Physical Security and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar or
co-Registrar, the principal amount of Securities represented by the applicable
Global Security to be increased accordingly. If no Global Security representing
Securities held by Qualified Institutional Buyers, Institutional Accredited
Investors or Persons acquiring Securities in offshore transactions in reliance
on Regulation S, as the case may be, is then outstanding, the Company shall
issue and the Trustee shall, upon written
<PAGE>
-33-
instructions from the Company in accordance with Section 2.02, authenticate such
a Global Security in the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor. Upon receipt by the Registrar or Co-Registrar of written
instructions, or such other instruction as is customary for the Depository, from
the Depository or its nominee, requesting the registration of transfer of an
interest in a QIB Global Security, an Accredited Investor Global Security or
Regulation S Global Security, as the case may be, to another type of Global
Security, together with the applicable Global Securities (or, if the applicable
type of Global Security required to represent the interest as requested to be
transferred is not then outstanding, only the Global Security representing the
interest being transferred), the Registrar or Co-Registrar shall cancel such
Global Securities (or Global Security) and the Company shall issue and the
Trustee shall, upon written instructions from the Company in accordance with
Section 2.02, authenticate new Global Securities of the types so cancelled (or
the type so cancelled and applicable type required to represent the interest as
requested to be transferred) reflecting the applicable increase and decrease of
the principal amount of Securities represented by such types of Global
Securities, giving effect to such transfer. If the applicable type of Global
Security required to represent the interest as requested to be transferred is
not outstanding at the time of such request, the Company shall issue and the
Trustee shall, upon written instructions from the Company in accordance with
Section 2.02, authenticate a new Global Security of such type in principal
amount equal to the principal amount of the interest requested to be
transferred.
(d) Transfer of a Beneficial Interest in a Global Security for a
Physical Security.
(i) Any Person having a beneficial interest in a Global Security
may upon request exchange such beneficial interest for a Physical Security.
Upon receipt by the Registrar or co-Registrar of written instructions, or
such other form of instructions as is customary for the Depository, from
the Depository or its nominee on behalf of any Person having a beneficial
interest in a Global Security and upon receipt by the Trustee of a written
order or such other form of instructions as is customary for the Depository
or the Person designated by the Depository as having such a beneficial
interest containing registration instructions and, in the case of any such
transfer or exchange of a beneficial interest in Securities the offer and
sale of which have not been registered under the Securities Act, the
following additional information and documents:
(A) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial
owner, a certification from such Person to that effect
(substantially in the form of Exhibit D hereto); or
---------
(B) if such beneficial interest is being transferred to a
Qualified Institutional Buyer in accordance with Rule l44A, a
certification to that effect (substantially in the form of
Exhibit D hereto); or
---------
(C) if such beneficial interest is being transferred to an
Institutional Accredited Investor, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and a transferee certificate for
---------
Institutional Accredited Investors substantially in the form
of Exhibit E hereto; or
---------
(D) if such beneficial interest is being transferred in reliance
on Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a
---------
<PAGE>
-34-
transferor certificate for Regulation S transfers
substantially in the form of Exhibit F hereto and an Opinion
---------
of Counsel reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the
Securities Act; or
(E) if such beneficial interest is being transferred in reliance
on Rule 144 under the Securities Act, delivery of a
certification to that effect (substantially in the form of
Exhibit D hereto) and an Opinion of Counsel reasonably
---------
satisfactory to the Company to the effect that such transfer
is in compliance with the Securities Act; or
(F) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of
the Securities Act, a certification to that effect
(substantially in the form of Exhibit D hereto) and an
---------
Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act,
then the Registrar or co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository and
the Registrar or co-Registrar, the aggregate principal amount of the
applicable Global Security to be reduced and, following such reduction, the
Company will execute and, upon receipt of an authentication order in the
form of an Officers' Certificate in accordance with Section 2.02, the
Trustee will authenticate and deliver to the transferee a Physical Security
in the appropriate principal amount.
(ii) Securities issued in exchange for a beneficial interest in a
Global Security pursuant to this Section 2.16(d) shall be registered in
such names and in such authorized denominations as the Depository, pursuant
to instructions from its direct or indirect participants or otherwise,
shall instruct the Registrar or co-Registrar in writing. The Registrar or
co-Registrar shall deliver such Physical Securities to the Persons in
whose names such Physical Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar or co-Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the transfer, exchange or replacement of Securities
bearing the Private Placement Legend, the Registrar or co-Registrar shall
deliver only Securities that bear the Private Placement Legend unless, and the
Trustee is hereby authorized to deliver Securities without the Private Placement
Legend if, (i) there is delivered to the Trustee an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act or (ii)
such Security has been sold pursuant to an effective registration statement
under the Securities Act.
(g) General. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
<PAGE>
-35-
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among Participants or
beneficial owners of interest in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by the terms
of, this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company wants to redeem Securities pursuant to paragraph 5 or 6
of the Securities at the applicable redemption price set forth thereon, it shall
notify the Trustee in writing of the Redemption Date and the principal amount of
Securities to be redeemed. The Company shall give such notice to the Trustee at
least 45 days before the Redemption Date (unless a shorter notice shall be
agreed to by the Trustee in writing), together with an Officers' Certificate
stating that such redemption will comply with the conditions contained herein.
SECTION 3.02. Selection of Securities To Be Redeemed.
If less than all of the Securities are to be redeemed pursuant to
paragraph 5 of the Securities, the Trustee shall select the Securities to be
redeemed in compliance with the requirements of the national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
or in such other manner as the Trustee shall deem fair and appropriate.
Selection of the Securities to be redeemed pursuant to paragraph 6 of the
Securities shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to the procedures of the Depository)
based on the aggregate principal amount of Securities held by each Holder. The
Trustee shall make the selection from the Securities then outstanding, subject
to redemption and not previously called for redemption.
The Trustee may select for redemption pursuant to paragraph 5 or 6 of
the Securities portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
<PAGE>
-36-
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail to each Holder
whose Securities are to be redeemed at such Holder's registered address;
provided, however, that notice of a redemption pursuant to paragraph 6 of the
Securities shall be mailed to each Holder whose Securities are to be redeemed no
later than 60 days following the consummation of the last Public Equity Offering
or sale of Qualified Equity Interests of the Company to Strategic Equity
Investors resulting in gross cash proceeds to the Company, when aggregated with
all prior Public Equity Offerings and sales of Qualified Equity Interests of the
Company to Strategic Equity Investors, of at least $100.0 million.
Each notice of redemption shall identify the Securities to be redeemed
(including the CUSIP number thereon) and shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) the name and address of the Paying Agent to which the Securities
are to be surrendered for redemption;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrete on
and after the Redemption Date and the only remaining right of the Holders
is to receive payment of the redemption price upon surrender to the Paying
Agent; and
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion thereof will
be issued.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the redemption
price. Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price, plus accrued interest thereon, if any, to the Redemption Date,
but interest installments whose maturity is on or prior to such Redemption Date
shall be payable to the Holders of record at the close of business on the
relevant Interest Record Date.
SECTION 3.05. Deposit of Redemption Price.
At least one Business Day before the Redemption Date, the Company
shall deposit with the Paying Agent (or if the Company is its own Paying Agent,
shall, on or before the Redemption Date, segregate
<PAGE>
-37-
and hold in trust) money sufficient to pay the redemption price of and accrued
interest, if any, on all Securities to be redeemed on that date other than
Securities or portions thereof called for redemption on that date which have
been delivered by the Company to the Trustee for cancellation.
If any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid on the Redemption Date due to the failure of
the Company to deposit with the Paying Agent money sufficient to pay the
redemption price thereof, the principal and accrued and unpaid interest, if any,
thereon shall, until paid or duly provided for, bear interest as provided in
Sections 2.12 and 4.01 with respect to any payment default.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee
shall authenticate for the Holder a new Security equal in principal amount to
the unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the Securities
in the manner provided in the Securities and the Registration Rights Agreement.
An installment of principal or interest shall be considered paid on the date due
if the Trustee or Paying Agent (other than the Company, a Subsidiary or an
Affiliate of the Company) holds on that date money designated for and sufficient
to pay the installment in full and is not prohibited from paying such money to
the Holders of the Securities pursuant to the terms of this Indenture.
The Company shall pay cash interest on overdue principal at the same
rate per annum borne by the Securities. The Company shall pay cash interest on
overdue installments of interest at the same rate per annum borne by the
Securities, to the extent lawful, as provided in Section 2.12.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03. The Company shall
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13.02
hereof. The Company hereby initially designates the Trustee at its address set
forth in Section 13.02 hereof as its office or agency in The Borough of
Manhattan, The City of New York, for such purposes.
SECTION 4.03. Transactions with Affiliates.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, conduct any business or enter into any
transaction (or series of related transactions) with or for
<PAGE>
-38-
the benefit of any of their respective Affiliates or any beneficial holder of
10% or more of the Equity Interests of the Company or any officer, director or
employee of the Company or any Restricted Subsidiary (each an "Affiliate
---------
Transaction"), unless such Affiliate Transaction is on terms which are no less
- -----------
favorable to the Company or such Restricted Subsidiary, as the case may be, than
would be available in a comparable transaction with an unaffiliated third party.
If such Affiliate Transaction (or series of related Affiliate Transactions)
involves aggregate payments or other consideration having a Fair Market Value in
excess of $15.0 million, the Company shall not, and shall not cause or permit
any Restricted Subsidiary to, enter into such Affiliate Transaction, unless a
majority of the disinterested members of the Board of Directors of the Company
shall have approved such Affiliate Transaction and determined that such
Affiliate Transaction complies with the foregoing provisions; provided, however,
that if such Affiliate Transaction is in the ordinary course of business
consistent with the past practice of any business of the Company or a Restricted
Subsidiary, including the High Power Satellite Transmission Business, then there
shall be no need to comply with this sentence. In the event that the Company
obtains a written opinion from an Independent Financial Advisor (and files the
same with the Trustee) stating that the terms of an Affiliate Transaction are
fair, from a financial point of view, to the Company or the Restricted
Subsidiary involved in such Affiliate Transaction, as the case may be, such
opinion will conclusively meet the requirements of the first sentence of this
paragraph and there shall be no need to comply with the second sentence of this
paragraph.
Notwithstanding the foregoing, the restrictions set forth in this
covenant shall not apply to (i) transactions with or among the Company and any
Restricted Subsidiary or between or among Restricted Subsidiaries; (ii)
customary directors' fees, indemnification and similar arrangements, consulting
fees, employee salaries, bonuses or employment agreements, compensation or
employee benefit arrangements and incentive arrangements with any officer,
director or employee of the Company entered into in the ordinary course of
business (including customary benefits thereunder) and payments under any
indemnification arrangements permitted by applicable law; (iii) the Basic
Documents, each as in effect on the Issue Date, including any amendment or
extension thereof that does not otherwise violate any other covenant set forth
in this Indenture, and any transactions undertaken pursuant to any other
contractual obligations in existence on the Issue Date (as in effect on the
Issue Date); (iv) the issue and sale by the Company to its stockholders of
Qualified Equity Interests; (v) any Restricted Payments made in compliance with
Section 4.06; (vi) loans and advances to officers, directors and employees of
the Company and the Restricted Subsidiaries for travel, entertainment, moving
and other relocation expenses, in each case made in the ordinary course of
business and consistent with past business practices; (vii) the Incurrence of
intercompany Indebtedness permitted pursuant to clause (d) of the second
paragraph of Section 4.04 hereof; and (viii) the pledge of Equity Interests of
Unrestricted Subsidiaries to support the Indebtedness thereof.
SECTION 4.04. Limitation on Indebtedness.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness (including
Acquired Indebtedness) or issue any Disqualified Equity Interests except for
Permitted Indebtedness; provided, however, that the Company may Incur
Indebtedness and the Company may issue Disqualified Equity Interests if, at the
time of and immediately after giving pro forma effect to such Incurrence of
Indebtedness or issuance of Disqualified Equity Interests and the application of
the proceeds therefrom, the Debt to Operating Cash Flow Ratio would be less than
or equal to (i) 7.25 to 1.0 if the date of such Incurrence is on or before
December 31, 1999, (ii) 6.50 to 1.0 if the date of such Incurrence is after
December 31, 1999 and on or prior to December 31, 2001, and (iii) 5.75 to 1.0 if
the date of such Incurrence is after December 31, 2001.
<PAGE>
-39-
The foregoing limitations will not apply to the Incurrence by the
Company (or any Restricted Subsidiary with respect to clauses (b), (d), (e),
(g), (i), (j), (l) and (n) below of this paragraph) of any of the following
(collectively, "Permitted Indebtedness"), each of which shall be given
----------------------
independent effect:
(a) Indebtedness under the Senior Subordinated Discount Notes, the
Securities and the Indentures;
(b) Existing Indebtedness;
(c) Indebtedness under the Senior Credit Facility in an aggregate
principal amount at any one time outstanding not to exceed the sum of (A)
$750.0 million, which amount shall be reduced by (x) any permanent
reduction of commitments thereunder and (y) any other repayment accompanied
by a permanent reduction of commitments thereunder (other than in
connection with any refinancing thereof where the aggregate principal
amount outstanding and commitments thereunder immediately prior thereto are
not greater than such amounts immediately thereafter), and increased (but
not above $750.0 million in the aggregate) by any increase in the aggregate
commitments under the Senior Credit Facility agreed to in connection with
the occurrence of a Replacement Satellite Event (as defined in the Senior
Credit Facility as in effect on the Issue Date) thereunder (provided that
such increase shall not be effective for purposes of this paragraph (c)
until (x) the successful launch and commencement of operations of a
permanent substitute satellite to the GE-2 Satellite pursuant to a
procedure of acceptance substantially similar to the procedure regarding
acceptance of the GE-2 Satellite or (y) the successful implementation, as
certified by the Company to the Trustee, of a plan of continued operation
of the PRIMESTARO business agreed to in writing by the Company and the
arranging agents under the Senior Credit Facility; plus (B) any amounts
----
outstanding under the Senior Credit Facility that utilize subparagraph (o)
of this paragraph of this covenant;
(d) (x) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary and (y) Indebtedness of the
Company owed to and held by any Restricted Subsidiary which is unsecured
and subordinated in right of payment to the payment and performance of the
Company's obligations under any Senior Indebtedness, this Indenture and the
Securities (or pledged to secure any Senior Indebtedness); provided,
however, that an Incurrence of Indebtedness that is not permitted by this
clause (d) shall be deemed to have occurred upon (i) any sale or other
disposition of any Indebtedness of the Company or any Restricted Subsidiary
referred to in this clause (d) to a Person (other than the Company or any
Restricted Subsidiary), (ii) any sale or other disposition of Equity
Interests of any Restricted Subsidiary which holds Indebtedness of the
Company or another Restricted Subsidiary such that such Restricted
Subsidiary ceases to be a Restricted Subsidiary, or (iii) the designation
of a Restricted Subsidiary which holds Indebtedness of the Company or any
other Restricted Subsidiary as an Unrestricted Subsidiary;
(e) guarantees by any Restricted Subsidiary of Senior Indebtedness of
the Company; provided, however, that if any such guarantee shall be
Incurred in respect of any Senior Indebtedness of the Company which has
registration rights (including the requirement to effect an exchange offer
registered under the Securities Act) or which is registered under the
Securities Act, such Restricted Subsidiary shall guarantee the Securities
on a senior subordinated basis as provided in Section 4.20 hereof;
(f) Interest Rate Protection Obligations of the Company relating to
Indebtedness of the Company (which Indebtedness (i) bears interest at
fluctuating interest rates and (ii) is otherwise per-
<PAGE>
-40-
mitted to be Incurred under this covenant); provided, however, that the
notional principal amount of such Interest Rate Protection Obligations does
not exceed the principal amount of the Indebtedness to which such Interest
Rate Protection Obligations relate;
(g) Purchase Money Indebtedness and Capitalized Lease Obligations
which do not exceed $35.0 million in the aggregate at any one time
outstanding;
(h) Indebtedness or Disqualified Equity Interests to the extent
representing a replacement, renewal, refinancing or extension
(collectively, a "refinancing") of outstanding Indebtedness or Disqualified
Equity Interests Incurred in compliance with the Debt to Operating Cash
Flow Ratio of the first paragraph of this Section 4.04 or clause (a), (b),
(i), (j), (k), (l) or (n) of this paragraph of this Section 4.04; provided,
however, that (i) any such refinancing shall not exceed the sum of the
principal amount (or, if such Indebtedness or Disqualified Equity Interests
provide for a lesser amount to be due and payable upon a declaration of
acceleration thereof at the time of such refinancing, an amount no greater
than such lesser amount) of the Indebtedness or Disqualified Equity
Interests being refinanced, plus the amount of accrued interest or
----
dividends thereon, plus the amount of any reasonably determined prepayment
----
premium necessary to accomplish such refinancing and such reasonable fees
and expenses incurred in connection therewith, (ii) Indebtedness
representing a refinancing of Indebtedness other than Senior Indebtedness
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced,
(iii) Indebtedness that is pari passu with the Securities may only be
refinanced with Indebtedness that is made pari passu with or subordinate in
right of payment to the Securities and Subordinated Indebtedness or
Disqualified Equity Interests may only be refinanced with Subordinated
Indebtedness or Disqualified Equity Interests, (iv) no Restricted
Subsidiary may Incur Indebtedness to refinance Indebtedness of the Company,
and (v) with respect to any refinancing of Indebtedness Incurred pursuant
to clauses (i), (j), (k) or (l) of this paragraph, such refinancing
pursuant to this clause (h) shall also be deemed to be Incurred pursuant to
clause (i), (j), (k) or (l), as the case may be, of this paragraph (for the
avoidance of doubt, the result of which is that a refinancing does not
create new debt Incurrence capacity under such clauses);
(i) Indebtedness (including Acquired Indebtedness) not to exceed
$180.0 million in aggregate principal amount at any time outstanding
Incurred in connection with the acquisition by the Company or any
Restricted Subsidiary of partnership interests in PRIMESTAR Partners not
owned by the Company or any Restricted Subsidiary (including, without
limitation, the acquisition of a Person (other than the Company or any
Restricted Subsidiary) that owns partnership interests in PRIMESTAR
Partners); provided, however, that (i) after giving effect to such purchase
the Company or a Restricted Subsidiary owns such partnership interests and
all right and title with respect thereto (including the income and profits
therefrom); and (ii) any such Indebtedness Incurred by any Restricted
Subsidiary shall only be permitted to be Incurred if it is Acquired
Indebtedness and shall not be Incurred if such Acquired Indebtedness was
Incurred in connection with, in contemplation of or with a view to such
transaction;
(j) Indebtedness (including Acquired Indebtedness) Incurred in
connection with the acquisition of any Person distributing PRIMESTAR(R)
television programming or the acquisition of any subscribers of any
distributor of PRIMESTAR(R) television programming and the right to
distribute PRIMESTAR(R) television programming to such subscribers (and
related assets and rights); provided, however, that (i) the aggregate
amount of any such Indebtedness Incurred in connection with any such
acquisition shall not exceed $750.00 per subscriber acquired in such
acquisition; (ii) such acquisition
<PAGE>
-41-
is effected through the Company or any Restricted Subsidiary or a Person
that becomes a Restricted Subsidiary; and (iii) any such Indebtedness
Incurred by any Restricted Subsidiary shall only be permitted to be
Incurred if it is Acquired Indebtedness and shall not be Incurred if such
Acquired Indebtedness was Incurred in connection with, in contemplation of
or with a view to such transaction;
(k) Indebtedness to fund purchases of inventory of integrated
receiver decoders and other related subscriber equipment to be used in the
business of the Company and the Restricted Subsidiaries not to exceed in
the aggregate at any time outstanding the lesser of (x) 50% of the
aggregate cost of such decoders and equipment and (y) $50.0 million;
(l) Indebtedness (including Acquired Indebtedness) Incurred to effect
the acquisition of other satellite communications businesses (or Persons
engaged in such business) (a "Related Acquisition") or to make C-Band
-------------------
Investments (so long as such C-Band Investment results in the ownership by
the Company or any Restricted Subsidiary of not less than 50% of the
economic Equity Interests and 50% of the Voting Equity Interests in the
subject Person or is made to fund the acquisition of other satellite
communications businesses by such Person in whom the C-Band Investment is
being made (so long as such acquisition is effected by such Person or one
of its Subsidiaries)); provided, however, that (i) the aggregate amount of
any such Indebtedness Incurred to effect any such Related Acquisition shall
not exceed (x) $750.00 per subscriber acquired in such Related Acquisition
if such Related Acquisition is in the medium or high power segment of the
satellite communications industry or (y) $500.00 per subscriber acquired in
such Related Acquisition if such Related Acquisition is in the C-band
segment of the satellite communications industry; (ii) such Related
Acquisition is effected through the Company or any Restricted Subsidiary or
a Person that becomes a Restricted Subsidiary; (iii) the aggregate amount
of any such Indebtedness Incurred to effect any C-Band Investments shall
not exceed (x) if such C-Band Investment is the initial Investment in the
Person in whom the C-Band Investment is being made, $250.00 per subscriber
existing at the time thereof of such Person in whom such C-Band Investment
is being made and (y) $250.00 per subscriber acquired if such C-Band
Investment is made to fund the acquisition by the Person in whom such C-
Band Investment is being made of other satellite communications businesses;
and (iv) any such Indebtedness Incurred by any Restricted Subsidiary shall
only be permitted to be Incurred if it is Acquired Indebtedness and shall
not be Incurred if such Acquired Indebtedness was Incurred in connection
with, in contemplation of or with a view to such transaction;
(m) Indebtedness under the TCIC Credit Facility pursuant to the terms
thereof as in effect on the date hereof Incurred on or after the occurrence
of the GE-2 Satellite Event in an aggregate amount outstanding not to
exceed (x) at any time prior to the payment of the Purchase Price for all
Securities tendered pursuant to an Offer to Purchase required pursuant to
Section 4.19, $50.0 million, and (y) at any time after the payment of the
Purchase Price for all Securities tendered pursuant to an Offer to Purchase
required pursuant to Section 4.19, $100.0 million; provided, however, that
no Indebtedness pursuant to the TCIC Credit Facility may be Incurred by the
Company unless the final maturity thereof is after March 31, 2001 (not
including any requirement to repay such Indebtedness upon the successful
launch and viable operation of the GE-3 Satellite);
(n) Indebtedness under any guarantee, letter of credit or other
credit support with respect to (x) any obligations of PRIMESTAR Partners
under the Partnership Credit Agreement (or any refinancing thereof) to the
extent such obligation was Incurred by PRIMESTAR Partners to finance any
Company Satellite or (y) any obligations of PRIMESTAR Partners under the
GE-2
<PAGE>
-42-
Agreement, in each case, to the extent the provision thereof is a Permitted
---------
Investment under clause (n) of the definition of "Permitted Investments";
----------
and
(o) in addition to the items referred to in clauses (a) through (n)
above, Indebtedness of the Company (including any Indebtedness under the
Senior Credit Facility that utilizes this subparagraph (o)) having an
aggregate principal amount not to exceed $50.0 million at any time
outstanding; provided, however, that so long as no Default or Event of
Default shall have occurred and be continuing, such amount shall be
increased to a maximum of $100.0 million if, as of the end of the most
recently completed fiscal quarter of the Company after the Issue Date, the
Company shall have provided an Officers' Certificate to the Trustee that
the Company and the Restricted Subsidiaries had as of such date in excess
of 1.2 million subscribers.
Indebtedness of any Person or any of its Subsidiaries existing at the
time such Person becomes a Restricted Subsidiary (or is merged into or
consolidated with the Company or any Restricted Subsidiary), whether or not such
Indebtedness was incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary (or being merged into or consolidated
with the Company or any Restricted Subsidiary), shall be deemed Incurred at the
time any such Person becomes a Restricted Subsidiary or merges into or
consolidates with the Company or any Restricted Subsidiary; provided, however,
that any Indebtedness of any Unrestricted Subsidiary existing at the time of its
designation as a Restricted Subsidiary pursuant to the Required Designation
shall not be deemed Incurred at such time for purposes of the covenant.
If the Company Incurs any Indebtedness pursuant to the Debt to
Operating Cash Flow Ratio of the first paragraph of this covenant and included
in the calculation thereof the Consolidated Operating Cash Flow of the High
Power Satellite Transmission Subsidiary, C-Band Dividends or the Consolidated
Operating Cash Flow of any Restricted C-Band Subsidiary, then such Indebtedness
will be deemed to not have been Incurred in compliance with this covenant
(unless otherwise incurrable at such time under any of subparagraphs (a) - (o)
of the second paragraph of this covenant) if the Company or any Restricted
Subsidiary thereafter makes any Restricted Payment pursuant to clause (x) or
(xii) of the second paragraph of Section 4.06 and such Indebtedness could not
have been Incurred at the time of its Incurrence if any such Investment were
made immediately prior to such Incurrence.
SECTION 4.05. Disposition of Proceeds of Asset Sales.
(a) The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, make any Asset Sale, unless
(i) the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets sold or otherwise disposed of and (ii) at least 85% of such
consideration consists of (A) cash or Cash Equivalents, (B) properties and
capital assets to be used in the same lines of business being conducted by the
Company or any Restricted Subsidiary at such time, or (C) Equity Interests in
one or more Persons which thereby become Restricted Subsidiaries whose assets
consist primarily of properties and capital assets used in the same line of
business being conducted by the Company or any Restricted Subsidiary at such
time. The amount of any (i) Indebtedness (other than any Subordinated
Indebtedness) of the Company or any Restricted Subsidiary that is actually
assumed by the transferee in such Asset Sale and from which the Company and the
Restricted Subsidiaries are fully released shall be deemed to be cash for
purposes of determining the percentage of cash consideration received by the
Company or the Restricted Subsidiaries and (ii) notes or other similar
obligations received by the Company or the Restricted Subsidiaries from such
transferee that are immediately converted, sold or exchanged (or are converted,
sold or exchanged within thirty days of the related Asset Sale) by the Company
or the Restricted Subsidiaries into cash shall be deemed to be cash, in an
amount equal
<PAGE>
-43-
to the net cash proceeds realized upon such conversion, sale or exchange for
purposes of determining the percentage of cash consideration received by the
Company or the Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 375 days of receipt thereof
to repay Senior Indebtedness and permanently reduce any related commitment, (ii)
commit in writing to acquire, construct or improve properties and capital assets
to be used in the same line of business being conducted by the Company or any
Restricted Subsidiary at such time and so apply such Net Cash Proceeds within
375 days after the receipt thereof, or (iii) apply the Net Cash proceeds of any
Asset Sale within 375 days after receipt thereof to the making of any Investment
which is permitted to be made under Section 4.06.
To the extent all or part of the Net Cash Proceeds of any Asset Sale
are not applied within 375 days of such Asset Sale as described in clause (i),
(ii) or (iii) of the immediately preceding paragraph (such Net Cash Proceeds,
the "Unutilized Net Cash Proceeds"), the Company shall, within 20 days after
----------------------------
such 375th day, make an Offer to Purchase all outstanding Securities up to a
maximum principal amount (expressed as a multiple of $1,000) of Securities equal
to the Securities Portion of Unutilized Net Cash Proceeds. Such Offer to
Purchase shall be made at a purchase price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Purchase Date; provided, however, that the Offer to Purchase may be deferred
until there are aggregate Unutilized Net Cash Proceeds equal to or in excess of
$15.0 million, at which time the entire amount of such Unutilized Net Cash
Proceeds, and not just the amount in excess of $15.0 million, shall be applied
as required pursuant to this paragraph.
In the event that any other Indebtedness of the Company which ranks
pari passu with the Securities (including the Senior Subordinated Discount
Notes) (the "Other Indebtedness") requires that an offer to purchase to be made
------------------
to repurchase such Other Indebtedness upon the consummation of any Asset Sale,
the Company may apply the Unutilized Net Cash Proceeds otherwise required to be
applied to an Offer to Purchase to offer to purchase such Other Indebtedness and
to an Offer to Purchase so long as the amount of such Unutilized Net Cash
Proceeds applied to repurchase the Securities is not less than the Securities
Portion of Unutilized Net Cash Proceeds. With respect to any Unutilized Net
Cash Proceeds, the Company shall make the Offer to Purchase in respect thereof
at the same time as the analogous offer to purchase is made under the Senior
Subordinated Discount Note Indenture and pursuant to any Other Indebtedness and
the Purchase Date in respect thereof shall be the same as the purchase date in
respect thereof pursuant to the Senior Subordinated Discount Note Indenture and
pursuant to any Other Indebtedness.
For purposes of this Section 4.05, "Securities Portion of Unutilized
--------------------------------
Net Cash Proceeds" means the amount of the Unutilized Net Cash Proceeds equal to
- -----------------
the product of (x) the Unutilized Net Cash Proceeds and (y) a fraction the
numerator of which is the principal amount of all Securities tendered pursuant
to the Offer to Purchase related to such Unutilized Net Cash Proceeds (the
"Securities Amount") and the denominator of which is the sum of the Securities
- ------------------
Amount and the lesser of the aggregate principal face amount or accreted value
as of the relevant purchase date of all Other Indebtedness tendered pursuant to
a concurrent offer to purchase such Other Indebtedness made at the time of such
Offer to Purchase.
With respect to any Offer to Purchase effected pursuant to this
Section 4.05, as among the Securities, to the extent that the principal amount
of the Securities tendered pursuant to such Offer to Purchase exceeds the
Securities Portion of Unutilized Net Cash Proceeds with respect thereto, such
Securities shall be purchased pro rata based on the principal amount of such
Securities tendered by each Holder.
<PAGE>
-44-
To the extent the Securities Portion of Unutilized Net Cash Proceeds
exceed the aggregate amount of Securities tendered by the Holders of the
Securities pursuant to the Offer to Purchase, the Company may retain and utilize
any portion of the Securities Portion of Unutilized Net Cash Proceeds not
applied to repurchase the Securities for any purpose consistent with the other
terms of this Indenture.
In the event that the Company makes an Offer to Purchase the
Securities, the Company shall comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act, and any violation of the provisions of this
Indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed an Event of Default or an event that with the
passing of time or giving of notice, or both, would constitute an Event of
Default.
(b) Each Holder shall be entitled to tender all or any portion of the
Securities owned by such Holder pursuant to the Offer to Purchase, subject to
the requirement that any portion of a Security tendered must be tendered in an
integral multiple of $1,000 principal amount and subject to any proration among
tendering Holders as described above.
(c) So long as there are any amounts owed or due by the Company or
any Subsidiary to PRIMESTAR Partners under the Tempo Letter Agreements, or the
Company or any Restricted Subsidiary is directly or indirectly obligated,
contingently or otherwise, for any obligations under the Partnership Credit
Agreement (pursuant to any letter of credit, guarantee or other credit support
or otherwise), for purposes of the foregoing covenant, the sale or lease of
either or both of the Company Satellites (whether or not the Subsidiary owning
such Company Satellite is a Restricted Subsidiary), or any transponder thereon
or capacity thereof, to PRIMESTAR Partners or any other Person shall be
considered an Asset Sale unless (i) if such sale or lease is to PRIMESTAR
Partners of both Company Satellites, any balance due by the Company or any
Subsidiary to PRIMESTAR Partners under the Tempo Letter Agreements shall be
permanently extinguished and if such sale or lease is to PRIMESTAR Partners of
only one Company Satellite, then 100% of the net proceeds thereof are applied to
the balance due by the Company or any Subsidiary to PRIMESTAR Partners under the
Tempo Letter Agreements and (ii) if such sale or lease is to any other Person,
100% of the net proceeds thereof are applied to the balance due under the
Partnership Credit Agreement to the extent that the Company or any Restricted
Subsidiary has any letter of credit, guarantee or other credit support
outstanding in respect thereof and thereafter to the balance due by the Company
or any Subsidiary to PRIMESTAR Partners under the Tempo Letter Agreements. The
Company shall not and shall not cause or permit any Subsidiary to enter into or
suffer to exist any agreement, instrument, encumbrance or restriction which
would, directly or indirectly, limit, prohibit or restrict the compliance by the
Company and its Subsidiaries with the foregoing sentence.
(d) If the Company or any Restricted Subsidiary is engaged in the
High Power Satellite Transmission Business, the Company shall not and shall not
cause or permit any such High Power Satellite Transmission Subsidiary to sell,
convey, transfer, lease, assign, or otherwise encumber (i) any Company Satellite
(or any contract rights related to the construction, launch or insurance
thereof), (ii) any orbital slot owned by the Company or any Subsidiary, (iii)
the Equity Interests of any Subsidiary which owns any Company Satellite or any
orbital slot or any right, license, authorization or permit with respect to any
such orbital slot owned by such Subsidiary, or any other interest in an orbital
slot which may be sold or otherwise disposed of in compliance with all
applicable law (including the Communications Act and the rules and regulations
promulgated thereunder) or (iv) the income or profits of any of the foregoing,
unless in any such case immediately after such a transaction the Company or such
- ------
High Power Satellite Transmission Subsidiary has in place a binding agreement
providing for dedicated satellite capacity sufficient to serve its High Power
Satellite
<PAGE>
-45-
Transmission Business in the ordinary course of such business at least until the
stated maturity of the Securities and files such agreement with the Trustee
together with an Officers' Certificate certifying that such agreement meets the
foregoing criteria.
SECTION 4.06. Limitation on Restricted Payments.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any
Equity Interests of the Company or any Restricted Subsidiary or make any
payment or distribution to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company or any Restricted
Subsidiary (other than any dividends, distributions and payments made to
the Company or any Restricted Subsidiary and dividends or distributions
payable to any Person solely in Qualified Equity Interests of the Company
or in options, warrants or other rights to purchase Qualified Equity
Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Restricted Subsidiary (other than
any such Equity Interests owned by the Company or any Restricted
Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any Subordinated Indebtedness (other
than any Subordinated Indebtedness held by any Restricted Subsidiary); or
(iv) make any Investment (other than Permitted Investments) in any
Person (other than in the Company, any Restricted Subsidiary or a Person
that becomes a Restricted Subsidiary, or is merged with or into or
consolidated with the Company or a Restricted Subsidiary (provided the
Company or a Restricted Subsidiary is the survivor) as a result of or in
connection with such Investment);
(such payments or any other actions (other than the exceptions thereto)
described in (i), (ii), (iii) and (iv) collectively, "Restricted Payments"),
-------------------
unless
(a) no Default or Event of Default shall have occurred and be
continuing at the time or after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of Indebtedness (other than Permitted
Indebtedness) under the Debt to Operating Cash Flow Ratio of the first
paragraph of Section 4.04; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date does not exceed an amount equal to the sum of (1) the
difference between (x) the Cumulative Operating Cash Flow determined at the
time of such Restricted Payment and (y) 150% of cumulative Consolidated
Interest Expense of the Company determined for the period commencing on the
Issue Date and ending on the last day of the most recent fiscal quarter
immediately preceding the date of such Restricted Payment for which
consolidated financial information of the Company is available, plus (2)
----
the aggregate net cash proceeds received by the Company either (x) as
capital contributions to the Company after the Issue Date or (y) from the
issue and sale (other than to a Restricted Subsidiary) of its Qualified
Equity Interests after the Issue Date (excluding the net proceeds from any
issuance and sale of Qualified Equity Interests fi-
<PAGE>
-46-
nanced, directly or indirectly, using funds borrowed from the Company or
any Restricted Subsidiary until and to the extent such borrowing is
repaid), plus (3) the principal amount (or accrued or accreted amount, if
----
less) of any Indebtedness of the Company or any Restricted Subsidiary
Incurred after the Issue Date which has been converted into or exchanged
for Qualified Equity Interests of the Company, plus (4) in the case of the
----
disposition or repayment of any Investment constituting a Restricted
Payment made after the Issue Date, an amount (to the extent not included in
the computation of Cumulative Operating Cash Flow) equal to the lesser of:
(i) the return of capital with respect to such Investment and (ii) the
amount of such Investment which was treated as a Restricted Payment, in
either case, less the cost of the disposition of such Investment and net of
taxes, plus (5) so long as the Designation thereof was treated as a
----
Restricted Payment made after the Issue Date, with respect to any
Unrestricted Subsidiary that has been redesignated as a Restricted
Subsidiary after the Issue Date in accordance with Section 4.17, the
Company's proportionate interest in an amount equal to the excess of (x)
the total assets of such Subsidiary, valued on an aggregate basis at the
lesser of book value and Fair Market Value, over (y) the total liabilities
of such Subsidiary, determined in accordance with GAAP (and provided that
such amount shall not in any case exceed the Designation Amount with
respect to such Restricted Subsidiary upon its Designation), plus (6) (to
----
the extent not included in the computation of Cumulative Operating Cash
Flow) the amount of cash dividends or cash distributions (other than to pay
taxes) received from any Unrestricted Subsidiary since the Issue Date,
minus (7) the greater of (i) $0 and (ii) the Designation Amount (measured
-----
as of the date of Designation) with respect to any Subsidiary of the
Company which has been designated as an Unrestricted Subsidiary after the
Issue Date in accordance with Section 4.17.
The foregoing provisions will not prevent (i) the payment of any
dividend or distribution on, or redemption of, Equity Interests within 60 days
after the date of declaration of such dividend or distribution or the giving of
formal notice of such redemption, if at the date of such declaration or giving
of formal notice such payment or redemption would comply with the provisions of
this Indenture; (ii) the purchase, redemption, retirement or other acquisition
of any Equity Interests of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of, Qualified Equity Interests of the Company; provided,
however, that any such net cash proceeds and the value of any Equity Interests
issued in exchange for such retired Equity Interests are excluded from clause
(c)(2) of the preceding paragraph (and were not included therein at any time);
(iii) the purchase, redemption, retirement, defeasance or other acquisition of
Subordinated Indebtedness, or any other payment thereon, made in exchange for,
or out of the net cash proceeds of, a substantially concurrent issue and sale
(other than to a Restricted Subsidiary) of (x) Qualified Equity Interests of the
Company; provided, however, that any such net cash proceeds and the value of any
Equity Interests issued in exchange for Subordinated Indebtedness are excluded
from clauses (c)(2) and (c)(3) of the preceding paragraph (and were not included
therein at any time) or (y) other Subordinated Indebtedness having no stated
maturity for the payment of principal thereof prior to the final stated maturity
of the Securities; (iv) Investments in PRIMESTAR Partners required pursuant to a
vote of the partners of PRIMESTAR Partners, not to exceed $60.0 million in the
aggregate since the Issue Date; (v) Investments made within three years of the
Issue Date in Persons engaged in the provision of C-band direct-to-home
television programming services (any such person, a "C-Band Entity"); provided,
-------------
however, that (x) immediately after giving effect to such Investment the Company
or a Restricted Subsidiary owns not less than 50.0% of the voting power of the
outstanding Voting Equity Interests in such C-Band Entity and not less than
50.0% of the outstanding economic Equity Interests in such C-Band Entity and
(y) the aggregate amount of such Investments made since the Issue Date shall not
exceed $90.0 million (any such Investment made pursuant to this clause (v) a
"C-Band Investment"); (vi) Investments in ResNet so long as ResNet is engaged in
-----------------
whole or in substantial part in the business of providing entertainment, data,
information and/or telecommunications services to MDUs and other commercial
markets, not to exceed $45.0 million in the aggregate since the Issue Date;
(vii) any Investment to
<PAGE>
-47-
the extent that the consideration therefor consists of the net cash proceeds of
the substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of Qualified Equity Interests of the Company; provided, however,
that any such net cash proceeds are excluded from clause (c)(2) of the preceding
paragraph (and were not included therein at any time); (viii) the purchase,
redemption or other acquisition, cancellation or retirement for value of Equity
Interests, or options, warrants, equity appreciation rights or other rights to
purchase or acquire Equity Interests, of the Company or any Restricted
Subsidiary, or similar securities, held by officers or employees or former
officers or employees of the Company or any Restricted Subsidiary (or their
estates or beneficiaries under their estates), upon death, disability,
retirement or termination of employment, not to exceed $3.0 million in any
calendar year and $15.0 million in the aggregate since the Issue Date; (ix) the
acquisition of any general or limited partnership interest in PRIMESTAR Partners
with the net proceeds of any Indebtedness Incurred pursuant to clause (i) of the
second paragraph of Section 4.04; (x) Investments in any Unrestricted Subsidiary
that holds any high power satellite or the governmental authorizations relating
thereto to be used solely to pay the operating and financing expenses of such
Unrestricted Subsidiary in an amount not to exceed the product of (x) the
Company's percentage equity interest in such Unrestricted Subsidiary, times (y)
such Unrestricted Subsidiary's share of satellite construction and financing
costs; provided, however, that the funds used for such Investments shall be
derived solely from Consolidated Operating Cash Flow since the Issue Date of the
High Power Satellite Transmission Subsidiary (so long as such Consolidated
Operating Cash Flow of the High Power Satellite Transmission Subsidiary shall
not have been otherwise expended); provided, however, that no such Investment
pursuant to this clause (x) shall be permitted to the extent that the
Consolidated Operating Cash Flow of the High Power Satellite Transmission
Subsidiary to be utilized to effect such Investment was included in the
calculation of the Cumulative Operating Cash Flow at any time prior to the
making of such Investment; (xi) Investments in any other Person engaged in the
satellite, telecommunications, entertainment, electronics or any related
industry, not to exceed $50.0 million in the aggregate outstanding at any time;
provided, however, that so long as no Default or Event of Default shall have
occurred and be continuing, such amount shall be increased to a maximum of (I)
$75.0 million in the aggregate outstanding at any time if, as of the end of the
most recently completed fiscal quarter of the Company after the Issue Date, the
Company shall have provided an Officers' Certificate to the Trustee that the
Company and the Restricted Subsidiaries had as of such date in excess of 1.2
million subscribers or (II) $90.0 million in the aggregate outstanding at any
time if, as of the end of the most recently completed fiscal quarter of the
Company after the Issue Date, the Company shall have provided an Officers'
Certificate to the Trustee that the Company and the Restricted Subsidiaries had
as of such date in excess of 1.6 million subscribers; (xii) the payment of
dividends in any period (I) on preferred stock of the Company issued in
connection with any C-Band Investment in a C-Band Entity, but only up to the
amount of cash dividends ("C-Band Dividends") received by the Company from such
----------------
C-Band Entity in the same period (to the extent that such cash dividends have
not otherwise been expended by the Company) or (II) issued in connection with
any C-Band Investment which results in any C-Band Entity becoming a Restricted
Subsidiary (such Restricted Subsidiary, a "Restricted C-Band Subsidiary"), but
----------------------------
only up to the amount of Consolidated Operating Cash Flow received as cash
dividends by the Company from the Restricted C-Band Subsidiaries in the same
period (to the extent that such cash dividends have not otherwise been expended
by the Company); provided, however, that no such dividends pursuant to this
clause (xii) shall be permitted to the extent that C-Band Dividends or the
Consolidated Operating Cash Flow of any Restricted C-Band Subsidiary to be
utilized to effect any such dividends was included in the calculation of
Cumulative Operating Cash Flow at any time prior to the payment of such
dividends; or (xiii) the repurchase of Equity Interests of the Company in an
amount not to exceed $10.0 million in the aggregate since the Issue Date;
provided, however, that in the case of each of clauses (ii), (iii), (iv), (v),
(vi), (vii), (x), (xi), (xii) and (xiii) no Default or Event of Default shall
have occurred and be continuing or would arise therefrom. For purposes of this
paragraph, any Investment made in any Person that subsequently becomes a
Restricted Subsidiary shall be deemed not to be outstanding so long as such
Person is a Restricted Subsidiary.
<PAGE>
-48-
For purposes of clause (x) of the preceding paragraph, in determining
Consolidated Operating Cash Flow of the High Power Satellite Transmission
Subsidiary, the definition of "Consolidated Operating Cash Flow" shall be used,
but references in such definition to the Company and the Restricted Subsidiaries
shall be deemed to refer to the High Power Satellite Transmission Subsidiary and
its Subsidiaries. The Company shall not calculate such Consolidated Operating
Cash Flow of the High Power Satellite Transmission Subsidiary in any manner, or
take any other action, that would result in such Consolidated Operating Cash
Flow being greater than what it would have been if the High Power Satellite
Transmission Subsidiary were an Affiliate of the Company that was not a
Restricted Subsidiary. For purposes of clause (xii) of the preceding paragraph,
in determining Consolidated Operating Cash Flow of any Restricted C-Band
Subsidiary, the definition of "Consolidated Operating Cash Flow" shall be used,
but references in such definition to the Company and the Restricted Subsidiaries
shall be deemed to refer to the Restricted C-Band Subsidiary and its
Subsidiaries. The Company shall not calculate such Consolidated Operating Cash
Flow of any Restricted C-Band Subsidiary in any manner, or take any other
action, that would result in such Consolidated Operating Cash Flow being greater
than what it would have been if such Restricted C-Band Subsidiary were an
Affiliate of the Company that was not a Restricted Subsidiary.
In determining the amount of Restricted Payments permissible under
this covenant, amounts expended pursuant to clauses (i), (viii), (x) and (xiii)
of the immediately preceding paragraph shall be included as Restricted Payments
and amounts expended pursuant to clauses (ii), (iii), (iv), (v), (vi), (vii),
(ix), (xi) and (xii) shall be excluded. The amount of any non-cash Restricted
Payment shall be deemed to be equal to the Fair Market Value thereof at the date
of the making of such Restricted Payment. If after the date of making any
Investment made in compliance with this covenant which is a guarantee, letter of
credit or other credit support any payments are made in respect of such
Investment, such payment shall not be deemed an additional Restricted Payment to
the extent the amount thereof, when added together with all other payments made
in respect of such Investment since the date such Investment was made, is not in
excess of the amount of the Investment.
SECTION 4.07. Corporate Existence.
Subject to Article Five, the Company shall do or shall cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each
Restricted Subsidiary in accordance with the respective organizational documents
of each such Restricted Subsidiary and the rights (charter and statutory) and
material franchises of the Company and the Restricted Subsidiaries; provided,
however, that the Company shall not be required to preserve any such right or
franchise, or the corporate existence of any Restricted Subsidiary, if the Board
of Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and the
Restricted Subsidiaries, taken as a whole, and that the loss thereof is not, and
will not be, adverse in any material respect to the Holders; provided, further,
however, that a determination of the Board of Directors of the Company shall not
be required in the event of a merger of one or more Wholly Owned Restricted
Subsidiaries of the Company with or into another Wholly Owned Restricted
Subsidiary of the Company or another Person, if the surviving Person is a Wholly
Owned Restricted Subsidiary of the Company organized under the laws of the
United States or a State thereof or of the District of Columbia.
SECTION 4.08. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Re-
<PAGE>
-49-
stricted Subsidiary and (2) all lawful claims for labor, materials and supplies
which, in each case, if unpaid, might by law become a material liability, or
Lien upon the property, of the Company or any Restricted Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which appropriate provision has been made.
SECTION 4.09. Notice of Defaults.
(a) In the event that any Indebtedness of the Company or any of its
Subsidiaries is declared due and payable before its maturity because of the
occurrence of any default (or any event which, with notice or lapse of time, or
both, would constitute such a default) under such Indebtedness, the Company
shall promptly give written notice to the Trustee of such declaration, the
status of such default or event and what action the Company is taking or
proposes to take with respect thereto.
(b) Upon becoming aware of any Default or Event of Default, the
Company shall promptly deliver an Officers' Certificate to the Trustee
specifying the Default or Event of Default.
SECTION 4.10. Maintenance of Properties and Insurance.
(a) The Company shall cause all material properties owned by or
leased to it or any Restricted Subsidiary and used or useful in the conduct of
its business or the business of any Restricted Subsidiary to be maintained and
kept in normal condition, repair and working order and supplied with all
necessary equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 4.10 shall prevent the Company or any
Restricted Subsidiary from discontinuing the use, operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Board of Directors or of the board of
directors of the Restricted Subsidiary concerned, or of an officer (or other
agent employed by the Company or of any Restricted Subsidiary) of the Company or
such Restricted Subsidiary having managerial responsibility for any such
property, desirable in the conduct of the business of the Company or any
Restricted Subsidiary, and if such discontinuance or disposal is not adverse in
any material respect to the Holders.
(b) The Company shall maintain, and shall cause the Restricted
Subsidiaries to maintain, insurance with responsible carriers against such risks
and in such amounts, and with such deductibles, retentions, self-insured amounts
and co-insurance provisions, as are customarily carried by similar businesses of
similar size, including property and casualty loss, and workers' compensation
insurance. Anything contained herein to the contrary notwithstanding, the
Company shall not be required to obtain business interruption insurance or any
satellite launch or in-orbit insurance, except as provided in Section 4.22
hereof.
SECTION 4.11. Compliance Certificate.
The Company shall deliver to the Trustee within 45 days after the end
of each of the first three fiscal quarters of the Company and within 90 days
after the close of each fiscal year a certificate signed by the principal
executive officer, principal financial officer or principal accounting officer
stating that a review of the activities of the Company has been made under the
supervision of the signing officers with a view to determining whether a Default
or Event of Default has occurred and whether or not the signers know of any
Default or Event of Default by the Company that occurred during such fiscal
quarter or fiscal year. If they do
<PAGE>
-50-
know of such a Default or Event of Default, the certificate shall describe all
such Defaults or Events of Default, their status and the action the Company is
taking or proposes to take with respect thereto. The first certificate to be
delivered by the Company pursuant to this Section 4.11 shall be for the fiscal
quarter ending March 31, 1997.
SECTION 4.12. Provision of Financial Information.
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, the Company shall file with
the SEC (if permitted by SEC practice and applicable law and regulations) the
annual reports, quarterly reports and other documents which the Company would
have been required to file with the SEC pursuant to such Section 13(a) or 15(d)
or any successor provision thereto if the Company were so subject, such
documents to be filed with the SEC on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required so to
---------------------
file such documents if the Company were so subject. The Company shall also in
any event (a) within 15 days of each Required Filing Date (whether or not
permitted or required to be filed with the SEC) (i) transmit (or cause to be
transmitted) by mail to all Holders, as their names and addresses appear in the
Security Register, without cost to such Holders, and (ii) file with the Trustee,
copies of the annual reports, quarterly reports and other documents which the
Company is required to file with the SEC pursuant to the preceding sentence, or,
if such filing is not so permitted, information and data of a similar nature,
and (b) if, notwithstanding the preceding sentence, filing such documents by the
Company with the SEC is not permitted by SEC practice or applicable law or
regulations, promptly upon written request supply copies of such documents to
any Holder. In addition, for so long as any Securities remain outstanding, the
Company will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of
Securities, if not obtainable from the SEC, information of the type that would
be filed with the SEC pursuant to the foregoing provisions, upon the request of
any such holder. The Company will also comply with (S) 314(a) of the TIA.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of the Trustee of any information contained
therein or determinable from information contained therein, including the
Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.
The Company and each Guarantor covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive the
Company or such Guarantor from paying all or any portion of the principal of
and/or interest, if any, on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the cove-
nants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company and each Guarantor hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
had been enacted.
<PAGE>
-51-
SECTION 4.14. Change of Control.
(a) Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall notify the
----------------------
Holders of the Securities of such occurrence in the manner prescribed by this
Indenture and shall, within 20 days after the Change of Control Date, make an
Offer to Purchase all Securities then outstanding at a purchase price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date. The Company's obligations may be
satisfied if a third party makes the Offer to Purchase in the manner, at the
times and otherwise in compliance with the requirements of this Indenture
applicable to an Offer to Purchase made by the Company and purchases all
Securities validly tendered and not withdrawn under such Offer to Purchase. Each
Holder shall be entitled to tender all or any portion of the Securities owned by
such Holder pursuant to the Offer to Purchase, subject to the requirement that
any portion of a Security tendered must be tendered in an integral multiple of
$1,000 principal amount.
(b) On or prior to the Purchase Date specified in the Offer to
Purchase, the Company shall (i) accept for payment all Securities or portions
thereof validly tendered pursuant to the Offer, (ii) deposit with the Paying
Agent or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 2.04) money sufficient to pay the Purchase Price
of all Securities or portions thereof so accepted and (iii) deliver or cause to
be delivered to the Trustee for cancellation all Securities so accepted together
with an Officers' Certificate stating the Securities or portions thereof
accepted for payment by the Company. The Paying Agent (or the Company, if so
acting) shall promptly mail or deliver to Holders of Securities so accepted,
payment in an amount equal to the Purchase Price for such Securities, and the
Trustee shall promptly authenticate and mail or deliver to each Holder of
Securities a new Security or Securities equal in principal amount to any
unpurchased portion of the Security surrendered as requested by the Holder. Any
Security not accepted for payment shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company shall publicly announce the results
of the Offer on or as soon as practicable after the Purchase Date.
(c) If the Company makes an Offer to Purchase, the Company will
comply with all applicable tender offer laws and regulations, including, to the
extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any
other applicable Federal or state securities laws and regulations and any
applicable requirements of any securities exchange on which the Securities are
listed, and any violation of the provisions of this Indenture relating to such
Offer to Purchase occurring as a result of such compliance shall not be deemed a
Default or an Event of Default.
SECTION 4.15. Limitation on Senior Subordinated Indebtedness.
(a) The Company shall not, directly or indirectly, Incur any
Indebtedness that by its terms would expressly rank senior in right of payment
to the Securities and expressly rank subordinate in right of payment to any
Senior Indebtedness.
(b) The Company shall not permit any Guarantor to, and no Guarantor
shall, directly or indirectly, Incur any Indebtedness that by its terms would
expressly rank senior in right of payment to the Guaranty of such Guarantor and
expressly rank subordinate in right to any Guarantor Senior Indebtedness of such
Guarantor.
<PAGE>
-52-
SECTION 4.16. Limitations on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions to
the Company or any other Restricted Subsidiary on its Equity Interests or with
respect to any other interest or participation in, or measured by, its profits,
or pay any Indebtedness owed to the Company or any other Restricted Subsidiary,
(b) make loans or advances to, or guarantee any Indebtedness or other
obligations of, the Company or any other Restricted Subsidiary, or (c) transfer
any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (i) the Senior Credit Facility, any Basic Document or any other
agreement of the Company or the Restricted Subsidiaries outstanding on the Issue
Date, in each case as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings thereof; provided, however,
that any such amendment, restatement, renewal, replacement or refinancing is no
more restrictive in the aggregate with respect to such encumbrances or
restrictions than those contained in the Senior Credit Facility on the Issue
Date; (ii) applicable law; (iii) any instrument governing Indebtedness or Equity
Interests of an Acquired Person acquired by the Company or any Restricted
Subsidiary as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred by such Acquired Person in connection with, as a
result of or in contemplation of such acquisition); provided, however, that such
encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary, or the properties or assets of the Company or any
Restricted Subsidiary, other than the Acquired Person; (iv) customary non-
assignment provisions in leases entered into in the ordinary course of business
and consistent with past practices; (v) Purchase Money Indebtedness for property
acquired in the ordinary course of business that only imposes encumbrances and
restrictions on the property so acquired; (vi) any agreement for the sale or
disposition of the Equity Interests or assets of any Restricted Subsidiary;
provided, however, that such encumbrances and restrictions described in this
clause (vi) are only applicable to such Restricted Subsidiary or assets, as
applicable, and any such sale or disposition is made in compliance with Section
4.05 to the extent applicable thereto; (vii) refinancing Indebtedness permitted
under clause (h) of the second paragraph of Section 4.04; provided, however,
that the encumbrances and restrictions contained in the agreements governing
such Indebtedness are no more restrictive in the aggregate than those contained
in the agreements governing the Indebtedness being refinanced immediately prior
to such refinancing; (viii) this Indenture or the Senior Subordinated Note
Indenture; or (ix) any such customary encumbrance or restriction existing under
any other security agreement, instrument or document hereafter in effect;
provided, however, that the terms and conditions of any such encumbrance or
restriction are not more restrictive than those contained in the Senior Credit
Facility as in effect on the Issue Date. Anything contained herein to the
contrary notwithstanding, the Company and its Subsidiaries shall in no event be
prohibited or restrained from granting, and causing to be effective, any lien or
security interest securing the obligations of the Company and the Restricted
Subsidiaries under the Senior Credit Facility.
SECTION 4.17. Designation of Unrestricted Subsidiaries; Designation of Tempo as
a Restricted Subsidiary.
(a) Tempo and its Subsidiaries are initially designated by the
Company as Unrestricted Subsidiaries as of the Issue Date. The Company may
designate after the Issue Date any other Subsidiary of the Company as an
"Unrestricted Subsidiary" under this Indenture (a "Designation") only if:
-----------
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
<PAGE>
-53-
(ii) at the time of and after giving effect to such Designation,
the Company could Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Debt to Operating Cash Flow Ratio of the
first paragraph of Section 4.04; and
(iii) the Company would be permitted to make an Investment (other
than a Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
Section 4.06 in an amount (the "Designation Amount") equal to the Fair
------------------
Market Value of the Company's proportionate interest in the net worth of
such Subsidiary on such date calculated in accordance with GAAP.
Notwithstanding the above, no Subsidiary of the Company shall be
designated an Unrestricted Subsidiary which (i) holds the partnership interest
in (or any debt or equity interest in) PRIMESTAR Partners or distributes,
directly or indirectly, PRIMESTAR(R) television programming service or has any
right, title or interest in the revenue or profits in, or holds any Lien in
respect of, such partnership interests or such distribution or (ii) conducts,
directly or indirectly, the High Power Satellite Transmission Business or the
business of distributing high power DBS services to subscribers (or, if the
proposed Cable Plus strategy is implemented, the business of distributing the
Cable Plus service to cable system operators), or has any interest in any such
business or the right to receive the income or profits therefrom.
Neither the Company nor any Restricted Subsidiary shall at any time
(x) provide credit support for, subject any of its property or assets (other
than the Equity Interests of any Unrestricted Subsidiary) to the satisfaction
of, or guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary, or (z) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary (other than
Tempo pursuant to the Senior Credit Facility), except, in the case of clause (x)
or (y), to the extent otherwise permitted under the terms of the Indentures,
including, without limitation, pursuant to Sections 4.05 and 4.06, and except
for any non-recourse guarantee given solely to support the pledge by the Company
or any Restricted Subsidiary of the Equity Interests of any Unrestricted
Subsidiary.
(b) The Company shall designate (the "Required Designation") Tempo
--------------------
(or any other Unrestricted Subsidiary which owns any Company Satellite or any
right or interest therein or holds a Lien in respect thereof or the right to
receive income or profits therefrom (Tempo or any such Unrestricted Subsidiary,
the "Satellite Subsidiary")) as a Restricted Subsidiary and revoke its
--------------------
designation as an Unrestricted Subsidiary if as of the end of any complete
fiscal quarter of such Satellite Subsidiary after the Issue Date, the remainder
of (x) Consolidated Operating Cash Flow of such Satellite Subsidiary for the
immediately preceding complete fiscal quarter, minus (y) Consolidated Interest
-----
Expense of such Satellite Subsidiary for such immediately preceding complete
fiscal quarter, minus (z) any scheduled principal payments in respect of
-----
Indebtedness of such Satellite Subsidiary made during such immediately preceding
complete fiscal quarter is greater than $1.0 million. For purposes of
determining Consolidated Operating Cash Flow and Consolidated Interest Expense
of any Satellite Subsidiary pursuant to the immediately preceding sentence, the
definitions of "Consolidated Operating Cash Flow" and "Consolidated Interest
Expense" shall be used, but references to the Company and the Restricted
Subsidiaries in such definitions shall be deemed to refer to the relevant
Satellite Subsidiary and its Subsidiaries.
(C) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
----------
<PAGE>
-54-
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of this
Indenture;
provided, however, that the foregoing shall not apply to the Required
Designation.
All Designations and Revocations must be evidenced by resolutions of
the Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
SECTION 4.18. Limitation on Liens.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, Incur any Liens of any kind against or
upon any of their respective properties or assets now owned or hereafter
acquired, or any proceeds therefrom or any income or profits therefrom, to
secure any Indebtedness unless contemporaneously therewith effective provision
is made to secure the Securities equally and ratably with such Indebtedness with
a Lien on the same properties and assets securing Indebtedness for so long as
such Indebtedness is secured by such Lien, except for (i) Liens securing any
Senior Indebtedness or any guarantee of Senior Indebtedness by any Restricted
Subsidiary and (ii) Permitted Liens.
SECTION 4.19. Deposit of Funds with Escrow Agent; Offer to Purchase upon a GE-2
Satellite Event.
(a) On the Issue Date, the Company shall deposit with the Escrow
Agent the net proceeds of the offering of the Securities after deducting
offering expenses ($193,734,268.00). All Collateral shall be held in the Escrow
Account until permitted to be disbursed pursuant to the Escrow Agreement and
then shall be disbursed strictly in accordance with the terms thereof.
(b) In order to secure the payment and performance of the Company's
obligation to repurchase the Securities tendered in connection with an Offer to
Purchase made upon a GE-2 Satellite Event, the Company hereby grants to the
Trustee, for the benefit of the Holders, a continuing security interest in and
to the Collateral, whether now owned or existing or hereafter acquired or
arising. The Trustee shall have no obligation to file any financing statement or
otherwise take any action to maintain or perfect any such security interest. The
Company covenants and agrees that such security interest shall be a first
priority security interest and that the Escrow Funds shall not be subject to any
other Lien. The Company will not seek to remove any Escrow Funds held in the
Escrow Account prior to the later of (i) the occurrence of the GE-2 Acceptance
or (ii) so long as the Company shall have purchased at the Purchase Price all
Securities tendered pursuant to the Offer to Purchase required upon a GE-2
Satellite Event, the day after the Purchase Date related to such Offer to
Purchase (or the day after acceptance and set-aside as described in the Section
4.19(g)), other than to fund any Offer to Purchase made pursuant to paragraph
(d) below of this Section 4.19.
(c) For purposes of this Section 4.19, "GE-2 Acceptance" means the
---------------
occurrence, by May 30, 1997, of each of the following: (i) PRIMESTAR Partners
shall have received notice from GE Americom pursuant to the GE-2 Agreement that
the GE-2 Satellite (or an equivalent satellite) has been successfully launched
into geosynchronous orbit at 85 degrees W.L., including certification from the
builder of the GE-2 Satellite (or such equivalent) that at least 15 transponders
thereon are "commercially operational" (as defined in the GE-2 Agreement as in
effect on the Issue Date) for use at medium power in the Ku-band, with an ex-
<PAGE>
-55-
pected life of at least 8 1/2 years (a copy of which notice shall be filed by
the Company with the Trustee) and (ii) PRIMESTAR Partners shall be entitled
under the GE-2 Agreement (as in effect on the Issue Date) to "nonpreemptible
service" (as defined under the GE-2 Agreement as in effect on the Issue Date) on
at least 14 of such transponders. For purposes of this Section 4.19, "GE-2
----
Satellite Event" means the failure of the GE-2 Acceptance to occur by May 30,
- ---------------
1997.
(d) (i) In the event of the occurrence of a GE-2 Satellite Event,
the Company shall notify the Holders of the Securities, in the manner prescribed
by this Indenture, of such occurrence and shall make an Offer to Purchase all
outstanding Securities at a purchase price in cash equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Purchase Date. The Expiration Date and Purchase Date of such Offer
to Purchase shall be no later than June 27, 1997. The Company shall not extend
the Expiration Date and Purchase Date of such Offer to Purchase unless required
by applicable tender offer laws or regulations. The Company shall, to the extent
that it is required to make, or as permitted by this Section 4.19 makes, an
Offer to Purchase described in the first sentence of this paragraph (d), draw on
May 30, 1997 TCIC Revolving Loans under the TCIC Credit Facility in an amount
sufficient to fund any shortfall (the "TCIC Loan Amount") of the Escrow Funds in
----------------
the Escrow Account to purchase all Securities tendered pursuant to such Offer to
Purchase.
(ii) If, at any time prior to May 30, 1997, the Company determines
that there is no reasonable likelihood that GE-2 Acceptance will occur by May
30, 1997, the Company shall have the right, but not the obligation, prior to May
30, 1997, to make an Offer to Purchase all outstanding Securities, at the same
price, and on the same terms, as the Offer to Purchase required by paragraph
(d)(i) above of this Section 4.19 provided that the Company makes a concurrent
Offer with respect to the Senior Subordinated Discount Notes, and, in such
event, on the Purchase Date for such Offer to Purchase, the Trustee shall direct
the Escrow Agent to transfer the Escrow Funds and other Collateral to the
Trustee (acting as Paying Agent for the Company) to fund the purchase of
Securities pursuant thereto. If the Company makes such an Offer to Purchase,
then, notwithstanding anything to the contrary contained herein, the Company
shall not be obligated to make an Offer to Purchase upon the occurrence of a GE-
2 Satellite Event, provided that the Company purchases all Securities tendered
pursuant to such earlier Offer to Purchase on or before June 27, 1997.
(e) If a GE-2 Satellite Event occurs, the Escrow Agent will transfer
the Escrow Funds and other Collateral to the Trustee (acting as Paying Agent for
the Company) in accordance with the Escrow Agreement to fund the repurchase of
Securities pursuant to an Offer to Purchase required by Section 4.19(d)(i). The
Company shall direct the Trustee to, within five Business Days of the receipt
thereof, transfer all such Escrow Funds and other Collateral, and the Company
shall within such five Business Days transfer the TCIC Loan Amount, into an
irrevocable trust for the sole and exclusive benefit of the Holders of
Securities (which trust and the funds and other securities therein shall not be
subject to the subordination provisions of Article Eight hereof) with the
Company only entitled to any residual after all Securities that are tendered are
purchased at the Purchase Price.
(f) If, on or before May 30, 1997, the Company delivers to the
Trustee an Officers' Certificate certifying that the GE-2 Acceptance has
occurred, the Trustee shall authorize the Escrow Agent to release all Escrow
Funds and other Collateral in the Escrow Account to the Company.
(g) Pending release of the Escrow Funds as provided in the Escrow
Agreement, the Escrow Funds will be invested in Marketable Securities (as
defined in the Escrow Agreement) as specifically directed in writing by the
Company. Any interest or other profit resulting from such investment will be
deposited in the Escrow Account.
<PAGE>
-56-
(h) Upon the purchase by the Company of all Securities tendered
pursuant to an Offer to Purchase made pursuant to Section 4.19(d), or the
setting aside after acceptance by the Company of all Securities tendered
pursuant to such Offer to Purchase by the Trustee, as applicable, of all Escrow
Funds and other Collateral in the Escrow Account necessary to purchase such
Securities and pay any related expenses pursuant to an irrevocable trust for the
sole and exclusive benefit of the Holders, any amounts remaining in the Escrow
Account and not so set aside shall promptly be released to the Company.
SECTION 4.20. Guaranty of Notes by Subsidiaries.
In the event that any Restricted Subsidiary (other than a Guarantor),
directly or indirectly, guarantees any Indebtedness of the Company pursuant to
Section 4.04(d), the Company shall cause such Restricted Subsidiary to
concurrently guarantee (a "Guaranty") the Company's Obligations under this
--------
Indenture and the Securities to the same extent that such Restricted Subsidiary
guaranteed the Company's Obligations under such other Indebtedness (including
waiver of subrogation, if any); provided, however, that the Guaranty shall be
subordinated in right of payment to all Guarantor Senior Indebtedness (which
shall include such guarantee of such other Indebtedness) pursuant to the
subordination provisions of Article Twelve; provided, further, however, that
each Subsidiary issuing a Guaranty will be automatically and unconditionally
released and discharged from its obligations under such Guaranty upon the
release or discharge of the guarantee of the Indebtedness that resulted in the
creation of such Guaranty, except a discharge or release by, or as a result of,
any payment under the guarantee of such Other Indebtedness by such Guarantor.
The Company shall cause each Restricted Subsidiary issuing a Guaranty to (i)
execute and deliver to the Trustee a supplemental indenture in form reasonably
satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall
become a party to this Indenture and thereby unconditionally guarantee all of
the Company's Obligations under the Securities and this Indenture on the terms
set forth in Article Eleven and Article Twelve hereof and (ii) deliver to the
Trustee an opinion of counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Subsidiary and constitutes
a legal, valid, binding and enforceable obligation of such Restricted Subsidiary
(which opinion may be subject to customary assumptions and qualifications).
Thereafter, such Restricted Subsidiary shall (unless released in accordance with
the terms of this Indenture) be a Guarantor for all purposes of this Indenture.
SECTION 4.21. Amendments to Certain Agreements.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, amend, modify or waive, or refrain from enforcing, any provision
of the Basic Documents in any manner adverse to the Company or any of its
Subsidiaries or the Holders of the Securities in any material respect as
determined by the Board of Directors of the Company. This covenant shall not be
construed to prohibit the Company or any Restricted Subsidiary from terminating
any of the Basic Documents, if a majority of the disinterested members of the
Board of Directors of the Company shall determine that it is in the best
interests of the Company to do so.
SECTION 4.22. Company Satellites; Maintenance of Insurance.
(a) Prior to the later of (x) December 31, 1997, and (y) 180 days
following the successful launch of any Company Satellite launched on or before
December 31, 1997, the Company shall not terminate the Satellite Construction
Agreement or amend, modify or refrain from enforcing any provision thereof in
any manner adverse to the Company or any of its Subsidiaries or the holders of
the Securities in any material respect, as determined by the Board of Directors
of the Company, and shall not amend, modify or refrain from enforcing any
provision thereof regarding the rights of the Company under the Satellite
Construction Agree-
<PAGE>
-57-
ment (if any) with respect to any failure of any Company Satellite that may
occur in connection with the launch thereof or during the 180 day period
immediately thereafter.
(b) If the Company or any Subsidiary is engaged in the High Power
Satellite Transmission Business, so long as a ground spare satellite of
comparable quality and capacity has not been completely constructed (other than
construction or installation of a suitable antenna) and available to be launched
and to provide (pursuant to a binding agreement, a copy of which has been filed
with the Trustee) sufficient capacity to the Company or the Subsidiary
conducting the High Power Satellite Transmission Business to conduct such
business on a competitive basis and service its subscribers, then within 30 days
after the acceptance of any Company Satellite by the Company or any Subsidiary
after completion of in-orbit testing by the builder thereof the Company shall,
or shall cause a Restricted Subsidiary to, obtain (to the extent commercially
available upon reasonable terms), and thereafter maintain, In-Orbit Insurance
with respect to such Company Satellite (or any permanent replacement thereof)
providing the servicing capacity with respect to such High Power Satellite
Transmission Business. The Company or such Restricted Subsidiary shall be named
as the insured under such In-Orbit Insurance (provided that only a senior
secured creditor of the Company or a Restricted Subsidiary may also be
designated as a named insured under such In-Orbit Insurance).
(c) In the event that the Company or any of its Subsidiaries receives
any damages or other amounts due under the Satellite Construction Agreement
(including, without limitation, the refund of the full purchase price of any
Company Satellite which has not been delivered pursuant to the terms thereof)
all such amounts shall be deemed to be Net Cash Proceeds from an Asset Sale, and
the Company shall apply such proceeds as required by the second and third full
paragraphs under subparagraph (a) of Section 4.05, except as provided by
subparagraph (c) thereof.
SECTION 4.23. Payments for Consent.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of a Security for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Securities unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Securities that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Sale of Assets, etc.
(a) The Company shall not consolidate with or merge with or into
(whether or not the Company is the Surviving Person) any other entity and the
Company shall not and shall not cause or permit any Restricted Subsidiary to,
sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of the Company's properties and assets (determined on a
consolidated basis for the Company and the Restricted Subsidiaries) to any
entity in a single transaction or series of related transactions, unless: (i)
either (x) the Company shall be the Surviving Person or (y) the Surviving Person
(if other than the Company) shall be a corporation organized and validly
existing under the laws of the United States of America or any State thereof
<PAGE>
-58-
or the District of Columbia, and shall, in any such case, expressly assume by a
supplemental indenture, the due and punctual payment of the principal of,
premium, if any, and interest on all the Securities and the performance and
observance of every covenant of this Indenture, the Escrow Agreement and the
Registration Rights Agreement to be performed or observed on the part of the
Company; (ii) immediately thereafter, no Default or Event of Default shall have
occurred and be continuing; and (iii) immediately after giving effect to any
such transaction involving the Incurrence by the Company or any Restricted
Subsidiary, directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of the Company or any Restricted
Subsidiary in connection with or as a result of such transaction as having been
Incurred at the time of such transaction), the Surviving Person could Incur, on
a pro forma basis after giving effect to such transaction as if it had occurred
at the beginning of the latest fiscal quarter for which consolidated financial
statements of the Company are available, at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the Debt to Operating
Cash Flow Ratio of the first paragraph of Section 4.04; provided, however, that
the condition set forth in this clause (iii) need not be satisfied in connection
with the merger or consolidation with or into the Company or any Restricted
Subsidiary of any Person holding partnership interests in PRIMESTAR Partners if
(x) such merger or consolidation is effected for the purpose of acquiring the
partnership interests in PRIMESTAR Partners held by such Person (provided that
the amount of partnership interests in PRIMESTAR Partners held by such Person on
the date of such merger or consolidation is not less than the amount held by
such Person on the Issue Date otherwise than pursuant to the transfer of
partnership interests in PRIMESTAR Partners to another Person who has been or
simultaneously therewith will be merged or consolidated with or into the Company
or any Restricted Subsidiary or the dilution of such Person's partnership
interests in PRIMESTAR Partners solely due to its failure to pay capital
contributions required by the Partnership Agreement) and (y) in connection with
such acquisition of such partnership interests the Company or a Restricted
Subsidiary acquires all rights of such Person (and its Affiliates) to distribute
PRIMESTAR(R) programming services.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interest of which constitutes all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
(b) Subject to the requirements of subparagraph (a) of this
Section 5.01, in the event of a sale of all or substantially all the assets of
any Guarantor or all of the Equity Interests of any Guarantor, by way of merger,
consolidation or otherwise, then the Surviving Person of any such merger or
consolidation, or such Guarantor, if all of its Equity Interests are sold, shall
be released and relieved of any and all obligations under the Guaranty of such
Guarantor if (i) the Person or entity surviving such merger or consolidation or
acquiring the Equity Interests of such Guarantor is not a Restricted Subsidiary,
and (ii) the Net Cash Proceeds from such sale are used after such sale in a
manner that complies with the provisions of Section 4.05. Except as provided in
the preceding sentence, no Guarantor shall consolidate with or merge with or
into another Person, whether or not such Person is affiliated with such
Guarantor and whether or not such Guarantor is the Surviving Person, unless (i)
the Surviving Person (if other than such Guarantor) is a corporation organized
and validly existing under the laws of the United States, any State thereof or
the District of Columbia, (ii) the Surviving Person (if other than such
Guarantor) assumes all the obligations of such Guarantor under the Securities,
this Indenture and the Registration Rights Agreement pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, (iii) at the time of
and immediately after such Disposition, no Default or Event of Default shall
have occurred and be continuing, and (iv) immediately after giving effect to any
such transaction involving the Incurrence by the Company or any Guarantor,
directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of the Company or any Guarantor in
<PAGE>
-59-
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person could Incur, on a pro forma
basis after giving effect to such transaction as if it had occurred at the
beginning of the latest fiscal quarter for which consolidated financial
statements of the Company are available, at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the Debt to Operating
Cash Flow Ratio of the first paragraph of Section 4.04; provided, however, that
clause (iv) of this paragraph shall not be a condition to a merger or
consolidation of a Guarantor if such merger or consolidation only involves the
Company and/or one or more Wholly Owned Restricted Subsidiaries.
SECTION 5.02. Successor Corporation Substituted.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in Section 5.01(a) or (b), as the case may
be, in which the Company or any Guarantor is not the Surviving Person and the
Surviving Person is to assume all the Obligations of the Company or any such
Guarantor under the Securities and this Indenture, the Escrow Agreement and the
Registration Rights Agreement pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Guarantor, as the case may be, and
the Company or such Guarantor, as the case may be, shall be discharged from its
Obligations under this Indenture, the Securities, the Escrow Agreement or its
Guaranty, as the case may be.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following shall be an "Event of Default" for purposes of
this Indenture:
(1) failure to pay any interest on any Security when the same becomes
due and payable and the Default continues for a period of 30 days, whether
or not such payment is prohibited by Article Eight hereof;
(2) failure to pay the principal of any Security when the same
becomes due and payable at maturity, upon redemption, upon repurchase
pursuant to an Offer to Purchase or otherwise, or the Company fails to pay
on the Purchase Date the Purchase Price for any Security tendered pursuant
to an Offer to Purchase, in each case whether or not such payment is
prohibited by Article Eight hereof;
(3) failure to perform or comply with any of the provisions of
Section 5.01 hereof;
(4) failure to perform or comply with any of the provisions of
Section 4.19 hereof or of the Escrow Agreement;
(5) failure to perform any other covenant, warranty or agreement
under this Indenture or in the Securities, and the Default continues for
the period and after the notice specified in the last paragraph of this
Section 6.01;
<PAGE>
-60-
(6) a default or defaults under the terms of one or more instruments
evidencing or securing Indebtedness of the Company or any Significant
Restricted Subsidiary or, so long as the Company or any Significant
Restricted Subsidiary is a general partner thereof or is (directly or
indirectly) obligated in any way (contingently or otherwise) with respect
to its Indebtedness, PRIMESTAR Partners having an outstanding principal
amount of $15.0 million or more individually or in the aggregate that has
resulted in the acceleration of the payment of such Indebtedness or the
Company or any Significant Restricted Subsidiary or, so long as the Company
or any Significant Restricted Subsidiary is a general partner thereof or is
(directly or indirectly) obligated in any way (contingently or otherwise)
with respect to its Indebtedness, PRIMESTAR Partners fails to pay principal
when due at the stated maturity of any such Indebtedness; provided,
however, that it shall not be an Event of Default if such Indebtedness
shall have been repaid in full or such acceleration shall have been
rescinded within 20 days;
(7) there shall have been any final judgment or judgments (not
subject to appeal) against the Company or any Significant Restricted
Subsidiary in an amount of $15.0 million or more (net of any amounts
covered by reputable and creditworthy insurance companies) which remain
undischarged or unstayed for a period of 60 days after the date on which
the right to appeal has expired;
(8) the Company or any Significant Restricted Subsidiary or, so long
as the Company or any Significant Restricted Subsidiary is a general
partner thereof or is (directly or indirectly) obligated in any way
(contingently or otherwise) with respect to its Indebtedness, PRIMESTAR
Partners pursuant to or within the meaning of any Bankruptcy Law:
(A) admits in writing its inability to pay its debts generally
as they become due,
(B) commences a voluntary case or proceeding,
(C) consents to the entry of an order for relief against it in
an involuntary case or proceeding,
(D) consents or acquiesces in the institution of a bankruptcy or
insolvency proceeding against it,
(E) consents to the appointment of a Custodian of it or for all
or substantially all of its property, or
(F) makes a general assignment for the benefit of its creditors,
or any of them takes any action to authorize or effect any of the
foregoing;
(9) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Restricted Subsidiary or, so long as the Company or any Significant
Restricted Subsidiary is a general partner thereof or is (directly or
indirectly) obligated in any way (contingently or otherwise) with
respect to its Indebtedness, PRIMESTAR Partners in an involuntary case
or proceeding,
<PAGE>
-61-
(B) appoints a Custodian of the Company or any Significant
Restricted Subsidiary or, so long as the Company or any Significant
Restricted Subsidiary is a general partner thereof or is (directly or
indirectly) obligated in any way (contingently or otherwise) with
respect to its Indebtedness, PRIMESTAR Partners or for all or
substantially all of its property, or
(C) orders the liquidation of the Company or any Significant
Restricted Subsidiary or, so long as the Company or any Significant
Restricted Subsidiary is a general partner thereof or is (directly or
indirectly) obligated in any way (contingently or otherwise) with
respect to its Indebtedness, PRIMESTAR Partners, and in each case the
order or decree remains unstayed and in effect for 60 days; provided,
however, that if the entry of such order or decree is appealed and
dismissed on appeal, then the Event of Default hereunder by reason of
the entry of such order or decree shall be deemed to have been cured;
(10) the Guaranty of any Guarantor which is a Significant Restricted
Subsidiary ceases to be in full force and effect (other than in accordance
with the terms of such Guaranty and this Indenture) or is declared null and
void and unenforceable or found to be invalid or any Guarantor which is a
Significant Restricted Subsidiary denies its liability under its Guaranty
(other than by reason of a release of such Guarantor from its Guaranty in
accordance with the terms of such Guaranty and this Indenture);
(11) the Escrow Funds become subject to any Lien other than the Lien
under the Escrow Agreement securing the Securities;
(12) the Company challenges the Lien on the Escrow Funds in favor of
the Holders prior to such time as the Escrow Funds are to be released to
the Company; or
(13) the Company shall have failed on the Issue Date to enter into the
Escrow Agreement or pursuant thereto fail to place the Initial Escrow
Amount (as defined in the Escrow Agreement) in the Escrow Account or the
Company shall repudiate, deny or disaffirm any of its material obligations
under the Escrow Agreement for any reason.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
--------------
Federal, state or foreign law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law.
A Default under clause (5) is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in principal amount
of the outstanding Securities notify the Company and the Trustee, of the Default
in writing and the Company does not cure the Default within 30 days after
receipt of the notice. The notice must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default." Such notice shall
be given by the Trustee if so requested by the Holders of at least 25% in
principal amount of the Securities then outstanding. When a Default is cured, it
ceases.
SECTION 6.02. Acceleration.
If an Event of Default with respect to the Securities (other than an
Event of Default specified in clause (8) or (9) of Section 6.01 with respect to
the Company) occurs and is continuing, the Trustee or the Holders of at least
25% in aggregate principal amount of the outstanding Securities by notice in
writing to the
<PAGE>
-62-
Company (and to the Trustee if given by the Holders) may declare the unpaid
principal of and accrued interest to the date of acceleration on all outstanding
Securities to be due and payable immediately and, upon any such declaration,
such principal amount and accrued interest, notwithstanding anything contained
in this Indenture or the Securities to the contrary, shall become immediately
due and payable; provided, however, that so long as the Senior Credit Facility
shall be in full force, if an Event of Default shall have occurred and be
continuing (other than an Event of Default specified in clause (8) or (9) of
Section 6.01 with respect to the Company), the Securities shall not become due
and payable until the earlier to occur of (x) five Business Days following
delivery of a written notice of such acceleration of the Securities to the agent
under the Senior Credit Facility and (y) the acceleration (ipso facto or
otherwise) of any Indebtedness under the Senior Credit Facility.
If an Event of Default specified in clause (8) or (9) of Section 6.01
with respect to the Company occurs, all unpaid principal of and accrued interest
on all outstanding Securities shall ipso facto become immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
After a declaration of acceleration, but before a judgment or decree
of the money due in respect of the Securities has been obtained, the Holders of
not less than a majority in aggregate principal amount of the Securities then
outstanding by written notice to the Trustee may rescind an acceleration and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and interest on the Securities which has become due solely by
virtue of such acceleration) have been cured or waived and if the rescission
would not conflict with any judgment or decree. No such rescission shall affect
any subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture or the Escrow
Agreement.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Upon a declaration of acceleration of the Securities in accordance
with Section 6.02, the Trustee shall foreclose on all Collateral and take all
other actions permitted of a secured party under the UCC or otherwise.
SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09, 6.07 and 10.02, prior to the declaration of
acceleration of the Securities, the Holders of not less than a majority in
aggregate principal amount of the outstanding Securities by written notice to
the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default in the payment of principal of or interest on any
Security as specified in clauses (1) and (2) of Section 6.01 or a Default in
respect of any term or provision of this Indenture that may not be amended or
modified without the consent of each Holder affected as provided in Section
10.02. The Company shall deliver to the Trustee an Officers' Certificate stating
that the requisite percentage of Holders have consented to such waiver and
attaching copies of such consents. In case of any such waiver, the Company, the
Trustee and the Holders
<PAGE>
-63-
shall be restored to their former positions and rights hereunder and under the
Securities, respectively. This paragraph of this Section 6.04 shall be in lieu
of (S) 316(a)(1)(B) of the TIA and such (S) 316(a)(1)(B) of the TIA is hereby
expressly excluded from this Indenture and the Securities, as permitted by the
TIA.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Securities, but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal amount
of the outstanding Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture or the Escrow Agreement,
that the Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; provided,
however, that the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction. In the event the Trustee takes
any action or follows any direction pursuant to this Indenture, the Trustee
shall be entitled to indemnification satisfactory to it in its sole discretion
against any loss or expense caused by taking such action or following such
direction. This Section 6.05 shall be in lieu of (S) 316(a)(1)(A) of the TIA,
and such (S) 316(a)(1)(A) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(i) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
the outstanding Securities make a written request to the Trustee to pursue
a remedy;
(iii) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(v) during such 60-day period the Holders of a majority in
principal amount of the outstanding Securities (excluding Affiliates of the
Company) do not give the Trustee a direction which, in the opinion of the
Trustee, is inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of or interest on a Security,
<PAGE>
-64-
on or after the respective due dates expressed in the Security, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any other obligor on the Securities for the whole amount of principal and
accrued interest remaining unpaid, together with interest overdue on principal
and to the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the
Securities and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Securities), its creditors or its property and shall
be entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article
Six or the Escrow Agreement, it shall pay out the money or property in the
following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
<PAGE>
-65-
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 shall not apply to a suit by the Trustee, a suit by
a Holder or group of Holders of more than 10% in aggregate principal amount of
the outstanding Securities, or to any suit instituted by any Holder for the
enforcement or the payment of the principal or interest on any Securities on or
after the respective due dates expressed in the Security.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the performance of
such duties as are specifically set forth herein; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions conforming to
the requirements of this Indenture or the Escrow Agreement; however, in the
case of any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall
examine such certificates and opinions to determine whether or not they
conform to the requirements of this Indenture or the Escrow Agreement.
(c) The Trustee shall not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
<PAGE>
-66-
(d) No provision of this Indenture or the Escrow Agreement shall
require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or to take
or omit to take any action under this Indenture or take any action at the
request or direction of Holders if it shall have reasonable grounds for
believing that repayment of such funds is not assured to it or it does not
receive from such Holders an indemnity satisfactory to it in its sole discretion
against such risk, liability, loss, fee or expense which might be incurred by it
in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and/or an Opinion of Counsel, which shall conform
to the provisions of Section 13.05. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through attorneys and agents of its selection
and shall not be responsible for the misconduct or negligence of any agent
or attorney (other than an agent who is an employee of the Trustee)
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(e) The Trustee may consult with counsel and the advice or opinion of
such counsel as to matters of law shall be full and complete authorization
and protection from liability in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
(f) Any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution.
<PAGE>
-67-
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture or the Escrow Agreement at
the request or direction of any of the Securityholders pursuant to this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction.
(h) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney.
(i) The Trustee shall not be deemed to have notice of any Event of
Default unless a Trust Officer of the Trustee has actual knowledge thereof
or unless the Trustee shall have received written notice thereof at the
Corporate Trust Office of the Trustee, and such notice references the
Securities and this Indenture.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee, subject to
Section 7.10 hereof. Any Agent may do the same with like rights. However, the
Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture, the Escrow Agreement or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company in this Indenture or any document issued in connection with the sale of
Securities or any statement in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and the
Trustee knows of such Defaults or Events of Default, the Trustee shall mail to
each Securityholder notice of the Default or Event of Default within 90 days
after the occurrence thereof. Except in the case of a Default or an Event of
Default in payment of principal of or interest on any Security or a Default or
Event of Default in complying with Section 4.19 or 5.01 hereof or any of the
provisions of the Escrow Agreement, the Trustee may withhold the notice if and
so long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interest of Securityholders. This Section 7.05
shall be in lieu of the proviso to (S) 315(b) of the TIA and such proviso to
(S) 315(b) of the TIA is hereby expressly excluded from this Indenture and the
Securities, as permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA (S) 313(a), within 60 days after each May 15
beginning with the May 15 following the date of this Indenture, the Trustee
shall mail to each Securityholder a report dated as of such May 15 that complies
with TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b), (c) and
(d).
A copy of each such report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange, if any, on
which the Securities are listed.
<PAGE>
-68-
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time agree in
writing for its services. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances (including fees, disbursements and expenses of its agents and
counsel) incurred or made by it in addition to the compensation for its services
except any such disbursements, expenses and advances as may be attributable to
the Trustee's negligence or bad faith. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents,
accountants, experts and counsel and any taxes or other expenses incurred by a
trust created pursuant to Section 9.01 hereof.
The Company shall indemnify the Trustee for, and hold it harmless
against any and all loss, damage, claims, liability or expense, including taxes
(other than franchise taxes imposed on the Trustee and taxes based upon,
measured by or determined by the income of the Trustee), arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent that such loss, damage, claim,
liability or expense is due to its own negligence or bad faith. The Trustee
shall notify the Company promptly of any claim asserted against the Trustee for
which it may seek indemnity. However, the failure by the Trustee to so notify
the Company shall not relieve the Company of its obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the defense
(and may employ its own counsel) at the Company's expense; provided, however,
that the Company's reimbursement obligation with respect to counsel employed by
the Trustee will be limited to the reasonable fees and expenses of such counsel.
The Company need not pay for any settlement made without its written
consent, which consent shall not be unreasonably withheld. The Company need not
reimburse any expense or indemnify against any loss or liability incurred by the
Trustee as a result of the violation of this Indenture by the Trustee.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Securities against all money or property
held or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of or interest on particular Securities
or the Purchase Price or redemption price of any Securities to be purchased or
pursuant to an Offer to Purchase or redeemed.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(8) or (9) occurs, the expenses (including the
reasonable fees and expenses of its agents and counsel) and the compensation for
the services shall be preferred over the status of the Holders in a proceeding
under any Bankruptcy Law and are intended to constitute expenses of
administration under any Bankruptcy Law. The Company's obligations under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Company's obligations pursuant to
Article Nine and any rejection or termination under any Bankruptcy Law.
<PAGE>
-69-
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company in
writing and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent under any
Bankruptcy Law;
(3) a custodian or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition, at the expense of the Company, any court of competent jurisdiction for
the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.
<PAGE>
-70-
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible to
act as Trustee under TIA (S)(S) 310(a)(1) and 310(a)(2). The Trustee shall have
a combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. If the Trustee has or shall acquire
any "conflicting interest" within the meaning of TIA (S) 310(b), the Trustee and
the Company shall comply with the provisions of TIA (S) 310(b); provided,
however, that there shall be excluded from the operation of TIA (S) 310(b)(1)
any indenture or indentures under which other securities or certificates of
interest or participation in other securities of the Company are outstanding if
the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. If
at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 7.10, the Trustee shall resign immediately in the
manner and with the effect hereinbefore specified in this Article Seven.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and the Trustee and each Holder of
the Securities by his acceptance thereof likewise covenant and agree, that all
Securities shall be issued subject to the provisions of this Article Eight; and
each person holding any Security, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees that all payments of the
principal of and interest on the Securities by the Company (other than any
payment made from Collateral held in the Escrow Account) shall, to the extent
and in the manner set forth in this Article Eight, be subordinated and junior in
right of payment to the prior payment in full in cash of all amounts payable
under Senior Indebtedness.
SECTION 8.02. No Payment on Securities in Certain Circumstances.
(a) No direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any distribution of
any Collateral held in the Escrow Account) by or on behalf of the Company of
principal of or interest on the Securities, whether pursuant to the terms of the
Securities, upon acceleration, pursuant to an Offer to Purchase or otherwise,
shall be made if, at the time of such payment, there exists a default in the
payment of all or any portion of the obligations on any Designated Senior
Indebtedness, whether at maturity, on account of mandatory redemption or
prepayment, acceleration or otherwise, and such default shall not have been
cured or waived or the benefits of this sentence waived by or on behalf of the
holders of such Designated Senior Indebtedness. In addition, during the
continuance of any non-payment event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be immediately
accelerated, and upon receipt by the Trustee of written notice (a "Payment
-------
Blockage Notice" ) from the holder or holders of such Designated Senior
- ---------------
Indebtedness or the trustee or agent acting on
<PAGE>
-71-
behalf of such Designated Senior Indebtedness, then, unless and until such event
of default has been cured or waived or has ceased to exist or such Designated
Senior Indebtedness has been discharged or repaid in full in cash or the
benefits of these provisions have been waived by the holders of such Designated
Senior Indebtedness, no direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any distribution of
any Collateral held in the Escrow Account) shall be made by or on behalf of the
Company of principal of or interest on the Securities, except from those funds
held in trust for the benefit of Holders of any Securities pursuant to the
procedures set forth in Article Nine hereof, to such Holders, during a period (a
"Payment Blockage Period") commencing on the date of receipt of such notice by
-----------------------
the Trustee and ending 179 days thereafter.
Notwithstanding anything herein or in the Securities to the contrary,
(x) in no event shall a Payment Blockage Period extend beyond 179 days from the
date the Payment Blockage Notice in respect thereof was given, (y) there shall
be a period of at least 181 consecutive days in each 360-day period when no
Payment Blockage Period is in effect and (z) not more than one Payment Blockage
Period may be commenced with respect to the Securities during any period of 360
consecutive days. No event of default that existed or was continuing on the
date of commencement of any Payment Blockage Period with respect to the
Designated Senior Indebtedness initiating such Payment Blockage Period (to the
extent the holder of Designated Senior Indebtedness, or trustee or agent, giving
notice commencing such Payment Blockage Period had knowledge of such existing or
continuing event of default) may be, or be made, the basis for the commencement
of any other Payment Blockage Period by the holder or holders of such Designated
Senior Indebtedness or the trustee or agent acting on behalf of such Designated
Senior Indebtedness, whether or not within a period of 360 consecutive days,
unless such event of default has been cured or waived for a period of not less
than 90 consecutive days.
Notwithstanding anything herein to the contrary, any Collateral
received or otherwise obtained by any Holder or the Trustee upon exercise of its
rights in respect thereof upon the occurrence of any Event of Default shall not
be subject to this Section 8.02.
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 8.02(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Designated Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Designated Senior Indebtedness
may have been issued, as their respective interests may appear, but only to the
extent that, upon notice from the Trustee to the holders of Designated Senior
Indebtedness that such prohibited payment has been made, the holders of the
Designated Senior Indebtedness (or their representative or representatives or a
trustee) notify the Trustee in writing of the amounts then due and owing on the
Designated Senior Indebtedness, if any, and only the amounts specified in such
notice to the Trustee shall be paid to the holders of Designated Senior
Indebtedness.
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities and
excluding any distribution of any Collateral held in the Escrow Account), upon
any dissolution or winding-up or liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all Senior Indebtedness shall first be paid in full in cash
before the Holders of the Securities or the Trustee on behalf of such Holders
shall be entitled to receive any payment by the Company of the principal of or
interest on the Securities, or any payment by the Company to
<PAGE>
-72-
acquire any of the Securities for cash, property or securities, or any
distribution with respect to the Securities of any cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities and
excluding any distribution of any Collateral held in the Escrow Account). Before
any payment may be made by, or on behalf of, the Company of the principal of or
interest on the Securities upon any such dissolution or winding-up or
liquidation or reorganization, any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property or
securities (excluding any payment or distribution of Permitted Junior Securities
and excluding any distribution of any Collateral held in the Escrow Account), to
which the Holders of the Securities or the Trustee on their behalf would be
entitled, but for the subordination provisions of this Indenture, shall be made
by the Company or by any receiver, trustee in bankruptcy, liquidation trustee,
agent or other Person making such payment or distribution, directly to the
holders of the Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Senior Indebtedness may
have been issued, as their respective interests may appear, to the extent
necessary to pay all such Senior Indebtedness in full in cash after giving
effect to any prior or concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities (excluding any payment or distribution of Permitted Junior
Securities and excluding any distribution of any Collateral held in the Escrow
Account), shall be received by the Trustee or any Holder of Securities at a time
when such payment or distribution is prohibited by Section 8.03(a) and before
all obligations in respect of Senior Indebtedness are paid in full in cash, or
payment provided for, such payment or distribution shall be received and held in
trust for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their respective
representatives, or to the trustee or trustees or agent or agents under any
indenture pursuant to which any of such Senior Indebtedness may have been
issued, as their respective interests may appear, for application to the payment
of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has
been paid in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
The consolidation of the Company with, or the merger of the Company
with or into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution, winding-
up, liquidation or reorganization for the purposes of this Section 8.03 if such
other corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated in Article Five.
(c) Notwithstanding anything herein to the contrary, any Collateral
received or otherwise obtained by any Holder or the Trustee upon exercise of its
rights in respect thereof upon the occurrence of any Event of Default shall not
be subject to this Section 8.03.
SECTION 8.04. Subrogation.
Upon the payment in full in cash of all Senior Indebtedness, or
provision for payment, the Holders of the Securities shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company made on such Senior
Indebtedness until the principal of and interest on the Securities shall be paid
in full in cash; and, for the purposes of such
<PAGE>
-73-
subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities or the Trustee on their behalf would be entitled except for the
provisions of this Article Eight, and no payment over pursuant to the provisions
of this Article Eight to the holders of Senior Indebtedness by Holders of the
Securities or the Trustee on their behalf shall, as between the Company, its
creditors other than holders of Senior Indebtedness, and the Holders of the
Securities, be deemed to be a payment by the Company to or on account of the
Senior Indebtedness. It is understood that the provisions of this Article Eight
are and are intended solely for the purpose of defining the relative rights of
the Holders of the Securities, on the one hand, and the holders of the Senior
Indebtedness, on the other hand.
If any payment or distribution to which the Holders of the Securities
would otherwise have been entitled but for the provisions of this Article Eight
shall have been applied, pursuant to the provisions of this Article Eight, to
the payment of all amounts payable under Senior Indebtedness, then and in such
case, the Holders of the Securities shall be entitled to receive from the
holders of such Senior Indebtedness any payments or distributions received by
such holders of Senior Indebtedness in excess of the amount required to make
payment in full, or provision for payment, of such Senior Indebtedness.
SECTION 8.05. Obligations of Company Unconditional.
Nothing contained in this Article Eight or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as among the Company and
the Holders of the Securities, the obligation of the Company, which is absolute
and unconditional, to pay to the Holders of the Securities the principal of and
interest on the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders of the Securities and creditors of the Company other than
the holders of the Senior Indebtedness, nor shall anything herein or therein
prevent the Holder of any Security or the Trustee on their behalf from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article Eight of the
holders of the Senior Indebtedness in respect of cash, property or securities of
the Company (other than Collateral held in the Escrow Account) received upon the
exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article Eight shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Senior Indebtedness then due
and payable shall first be paid in full before the Holders of the Securities or
the Trustee are entitled to receive any direct or indirect payment from the
Company of principal of or interest on the Securities.
SECTION 8.06. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities pursuant to the provisions of this
Article Eight. The Trustee shall not be charged with knowledge of the existence
of any event of default with respect to any Senior Indebtedness or of any other
facts which would prohibit the making of any payment to or by the Trustee unless
and until the Trustee shall have received notice in writing at its Corporate
Trust Office to that effect signed by an Officer of the Company, or by a holder
of Senior Indebtedness or trustee or agent therefor; and prior to the receipt of
any such written notice, the Trustee shall, subject to Article Seven, be
entitled to assume that no such facts exist; provided that if the Trustee shall
not have received the notice provided for in this Section 8.06 at least two
Business Days prior to the date upon which by the terms of this Indenture any
moneys shall become payable for any purpose (including, without
<PAGE>
-74-
limitation, the payment of the principal of or interest on any Security), then,
regardless of anything herein to the contrary, the Trustee shall have full power
and authority to receive any moneys from the Company and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such prior date.
Nothing contained in this Section 8.06 shall limit the right of the holders of
Senior Indebtedness to recover payments as contemplated by Section 8.03. The
Trustee shall be entitled to rely on the delivery to it of a written notice by a
Person representing himself or itself to be a holder of any Senior Indebtedness
(or a trustee on behalf of, or other representative of, such holder) to
establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Eight, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Eight, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities referred to
in this Article Eight, the Trustee and the Holders of the Securities shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to the Trustee or to the Holders of the
Securities for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article Eight.
SECTION 8.08. Trustee's Relation to Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Eight with respect to any Senior Indebtedness which
may at any time be held by it in its individual or any other capacity to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee or any Paying Agent of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Eight, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness (except as provided in
Section 8.03(b)). The Trustee shall not be liable to any such holders if the
Trustee shall in good faith mistakenly pay over or distribute to Holders of
Securities or to the Company or to any other person cash, property or securities
to which any holders of Senior Indebtedness shall be entitled by virtue of this
Article Eight or otherwise.
<PAGE>
-75-
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
The provisions of this Article Eight are intended to be for the benefit of, and
shall be enforceable directly by, the holders of Senior Indebtedness.
SECTION 8.10. Securityholders Authorize Trustee To Effectuate Subordination of
Securities.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Eight, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon an assignment for the benefit of
creditors or otherwise) tending towards liquidation of the business and assets
of the Company, the filing of a claim for the unpaid balance of its or his
Securities in the form required in those proceedings.
SECTION 8.11. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article shall not be
construed as preventing the occurrence of an Event of Default specified in
clause (1) or (2) of Section 6.01.
SECTION 8.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article shall apply to amounts due to the Trustee
pursuant to other sections in this Indenture.
SECTION 8.13. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 8.09, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article Eight or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Senior Indebtedness; and (d) exercise or refrain from exercising any rights
against the Company and any other Person.
<PAGE>
-76-
SECTION 8.14. Subordination Provisions Not Applicable to Collateral Held in
Trust for Securityholders and Collateral Held in the Escrow
Account; Payments May Be Paid Prior to Dissolution.
All money and United States Government Obligations deposited in trust
with the Trustee pursuant to and in accordance with Article Nine shall be for
the sole benefit of the Holders and shall not be subject to this Article Eight.
All Collateral deposited in the Escrow Account pursuant to and in accordance
with Section 4.19 and the Escrow Agreement shall be for the sole benefit of the
Holders and all payments or distributions therefrom to the Holders shall not be
subject to this Article Eight.
Nothing contained in this Article Eight or elsewhere in this Indenture
shall prevent (i) the Company, except under the conditions described in Section
8.02, from making payments of principal of and interest on the Securities, or
from depositing with the Trustee any moneys for such payments or from effecting
a termination of the Company's and the Guarantors' obligations under the
Securities and this Indenture as provided in Article Nine, or (ii) the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments of principal of on and interest on the Securities, to the
holders entitled thereto unless at least two Business Days prior to the date
upon which such payment becomes due and payable, the Trustee shall have received
the written notice provided for in Section 8.02(b) or in Section 8.06. The
Company shall give prompt written notice to the Trustee of any dissolution,
winding-up, liquidation or reorganization of the Company.
Nothing contained in this Article Eight or elsewhere in this Indenture
shall prevent the Escrow Agent from releasing the Collateral to the Trustee
(acting as Paying Agent) and the application by the Trustee of such amounts
released to it for the purpose of paying the Purchase Price pursuant to an Offer
to Purchase made pursuant to Section 4.19 nor shall any Holder receiving any
Collateral upon an Offer to Purchase made pursuant to Section 4.19 have any
obligation to turn any such Collateral over to the holders of Senior
Indebtedness.
SECTION 8.15. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of the Senior Indebtedness of
the acceleration.
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01. Termination of Company's Obligations.
Subject to the provisions of Article Eight, the Company may terminate
its and the Guarantors' substantive obligations in respect of the Securities by
delivering all outstanding Securities to the Trustee for cancellation and paying
all sums payable by it on account of principal of and interest on all Securities
or otherwise. In addition to the foregoing, subject to the provisions of Article
Eight with respect to the creation of the defeasance trust provided for in the
following clause (i), the Company may, provided that no Default or Event of
Default has occurred and is continuing or would arise therefrom (or, with
respect to a Default or Event of Default specified in Section 6.01(8) or (9),
occurs at any time on or prior to the 91st calendar day
<PAGE>
-77-
after the date of such deposit (it being understood that this condition shall
not be deemed satisfied until after such 91st day)) and provided that no default
under any Senior Indebtedness would result therefrom, terminate its and the
Guarantors' substantive obligations in respect of the Securities (except for its
obligations to pay the principal of and interest on the Securities and the
Guarantors' Guaranty thereof) by (i) depositing with the Trustee, under the
terms of an irrevocable trust agreement, money or direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged ("United States Government
------------------------
Obligations") sufficient (without reinvestment) to pay all remaining
- -----------
indebtedness on the Securities, (ii) delivering to the Trustee either an Opinion
of Counsel or a ruling directed to the Trustee from the Internal Revenue Service
to the effect that the Holders of the Securities will not recognize income, gain
or loss for federal income tax purposes as a result of such deposit and
termination of obligations, (iii) delivering to the Trustee an Opinion of
Counsel to the effect that the Company's exercise of its option under this
paragraph will not result in any of the Company, the Trustee or the trust
created by the Company's deposit of funds pursuant to this provision becoming or
being deemed to be an "investment company" under the Investment Company Act of
1940, as amended (the "Investment Company Act"), and (iv) delivering to the
----------------------
Trustee an Officers' Certificate and an Opinion of Counsel each stating
compliance with all conditions precedent provided for herein. In addition,
subject to the provisions of Article Eight with respect to the creation of the
defeasance trust provided for in the following clause (i), the Company may,
provided that no Default or Event of Default has occurred and is continuing or
would arise therefrom (or, with respect to a Default or Event of Default
specified in Section 6.01(8) or (9), occurs at any time on or prior to the 91st
calendar day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day)) and provided
that no default under any Senior Indebtedness would arise therefrom, terminate
all of its and the Guarantors' substantive obligations in respect of the
Securities (including its obligations to pay the principal of and interest on
the Securities and the Guarantors' guarantee thereof) by (i) depositing with the
Trustee, under the terms of an irrevocable trust agreement, money or United
States Government Obligations sufficient (without reinvestment) to pay all
remaining indebtedness on the Securities, (ii) delivering to the Trustee either
a ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders of the Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and termination of
obligations or an Opinion of Counsel based upon such a ruling addressed to the
Trustee or a change in the applicable Federal tax law since the date of this
Indenture to such effect, (iii) delivering to the Trustee an Opinion of Counsel
to the effect that the Company's exercise of its option under this paragraph
will not result in any of the Company, the Trustee or the trust created by the
Company's deposit of funds pursuant to this provision becoming or being deemed
to be an "investment company" under the Investment Company Act and (iv)
delivering to the Trustee an Officers' Certificate and an Opinion of Counsel
each stating compliance with all conditions precedent provided for herein.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.12, 2.13 and 4.01 (but not
with respect to termination of substantive obligations pursuant to the third
sentence of the foregoing paragraph), 4.02, 7.07, 7.08, 9.03 and 9.04 shall
survive until the Securities are no longer outstanding. Thereafter the Company's
obligations in Sections 7.07, 9.03 and 9.04 shall survive.
After such delivery or irrevocable deposit and delivery of an
Officers' Certificate and Opinion of Counsel, the Trustee upon request shall
acknowledge in writing the discharge of the Company's and the Guarantors'
obligations under the Securities and this Indenture except for those surviving
obligations specified above.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the United States Government
Obligations deposited pursuant to this Section 9.01
<PAGE>
-78-
or the principal and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of
outstanding Securities.
SECTION 9.02. Application of Trust Money.
The Trustee shall hold in trust money or United States Government
Obligations deposited with it pursuant to Section 9.01, and shall apply the
deposited money and the money from United States Government Obligations in
accordance with this Indenture solely to the payment of principal of and
interest on the Securities.
SECTION 9.03. Repayment to Company.
Subject to Sections 7.07 and 9.01, the Trustee shall promptly pay to
the Company upon written request any excess money held by it at any time. The
Trustee shall pay to the Company upon written request any money held by it for
the payment of principal or interest that remains unclaimed for two years;
provided, however, that the Trustee before being required to make any payment
may at the expense of the Company cause to be published once in a newspaper of
general circulation in The City of New York or mail to each Holder entitled to
such money notice that such money remains unclaimed and that, after a date
specified therein which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining shall
be repaid to the Company. After payment to the Company, Securityholders entitled
to money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another person and all liability of
the Trustee or Paying Agent with respect to such money shall thereupon cease.
SECTION 9.04. Reinstatement.
If the Trustee is unable to apply any money or United States
Government Obligations in accordance with Section 9.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and the Guarantors' obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 9.01 until such time as the Trustee is permitted to apply
all such money or United States Government Obligations in accordance with
Section 9.01; provided, however, that if the Company has made any payment of
interest on or principal of any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or United States
Government Obligations held by the Trustee.
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.
The Company and the Guarantors, when authorized by a resolution of
their respective Boards of Directors, and the Trustee may amend or supplement
this Indenture or the Securities without notice to or consent of any
Securityholder:
<PAGE>
-79-
(i) to cure any ambiguity, defect or inconsistency; provided,
however, that such amendment or supplement does not adversely affect the
rights of any Holder;
(ii) to effect the assumption by a successor Person of all
obligations of the Company under the Securities, this Indenture, the
Registration Rights Agreement and the Escrow Agreement in connection with
any transaction complying with Article Five of this Indenture;
(iii) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(iv) to comply with any requirements of the SEC in order to effect
or maintain the qualification of this Indenture under the TIA;
(v) to make any change that would provide any additional benefit
or rights to the Holders;
(vi) to make any other change that does not adversely affect the
rights of any Holder under this Indenture;
(vii) to evidence the succession of another Person to any Guarantor
and the assumption by any such successor of the covenants of such Guarantor
herein and in the Guaranty;
(viii) to add to the covenants of the Company or the Guarantors for
the benefit of the Holders, or to surrender any right or power herein
conferred upon the Company or any Guarantor;
(ix) to secure the Securities pursuant to the requirements of
Section 4.18 or otherwise; or
(x) to reflect the release of a Guarantor from its obligations
with respect to its Guarantee in accordance with the provisions of Section
11.03 and to add a Guarantor pursuant to the requirements of Section 4.20;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01.
SECTION 10.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Guarantors, when
authorized by a resolution of their respective Boards of Directors, and the
Trustee may amend or supplement this Indenture or the Securities with the
written consent of the Holders of at least a majority in principal amount of the
outstanding Securities. Subject to Section 6.07, the Holders of a majority in
principal amount of the outstanding Securities may waive compliance by the
Company or any Guarantor with any provision of this Indenture or the Securities.
However, without the consent of each Securityholder affected, an amendment,
supplement or waiver, including a waiver pursuant to Section 6.04, may not:
(1) change the Stated Maturity of the principal of or any installment
of interest on any Security or alter the optional redemption or repurchase
provisions of any Security or this Indenture in a manner adverse to the
Holders of the Securities;
(2) reduce the principal amount (or the premium) of any Security;
(3) reduce the rate of or extend the time for payment of interest on
any Security;
<PAGE>
-80-
(4) change the place or currency of payment of the principal of or
interest on any Security;
(5) modify any provisions of Section 6.04 (other than to add sections
of this Indenture or the Securities subject thereto) or 6.07 or this
Section 10.02 (other than to add sections of this Indenture or the
Securities which may not be amended, supplemented or waived without the
consent of each Securityholder affected);
(6) reduce the percentage of the principal amount of outstanding
Securities necessary for amendment to or waiver of compliance with any
provision of this Indenture or the Securities or for waiver of any Default;
(7) waive a default in the payment of the principal of or interest on
or redemption payment with respect to any Security (except a rescission of
acceleration of the Securities by the Holders as provided in Section 6.02
and a waiver of the payment default that resulted from such acceleration);
(8) modify the ranking or priority of the Securities or the
Guaranties is respect of any Guarantor, or modify the definition of Senior
Indebtedness or Guarantor Senior Indebtedness, or amend or modify any of
the provisions of Article Eight or Article Twelve in any manner adverse to
the Holders;
(9) release any Guarantor from any of its obligations under its
Guaranty or this Indenture otherwise than in accordance with this
Indenture;
(10) modify the provisions relating to any Offer to Purchase required
pursuant to Section 4.05, 4.14 or 4.19 in a manner materially adverse to
the Holders; or
(11) modify the provisions of the Escrow Agreement or Section 4.19 in
any manner adverse to the Holders or release any of the Collateral from the
Lien securing the Securities (unless a GE-2 Notice shall have been received
or the Company has purchased at the Purchase Price all Securities tendered
pursuant to an Offer to Purchase made pursuant to Section 4.19) or permit
any other Indebtedness or other obligation to be secured by the Escrow
Funds.
An amendment under this Section 10.02 may not make any change under
Article Eight, Article Nine, Article Eleven or Article Twelve hereof that
adversely affects in any material respect the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any representative thereof authorized to give a consent) shall have consented to
such change.
It shall not be necessary for the consent of the Holders under this
Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 10.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
<PAGE>
-81-
SECTION 10.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 10.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of that
Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of such
Security by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders of Securities entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders of such Securities after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (11) of Section 10.02. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
SECTION 10.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
Failure to make the appropriate notation or issue a new Security shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 10.06. Trustee To Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully protected
in relying upon, an Opinion of Counsel stating that the execution of any
amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company and
the Guarantors, enforceable in accordance with its terms (subject to customary
exceptions). The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under
<PAGE>
-82-
this Indenture or otherwise. In signing any amendment, supplement or waiver, the
Trustee shall be entitled to receive an indemnity reasonably satisfactory to it.
ARTICLE ELEVEN
GUARANTY
SECTION 11.01. Unconditional Guaranty.
Each Guarantor hereby unconditionally, jointly and severally,
guarantees to each Holder of a Security authenticated by the Trustee and to the
Trustee and its successors and assigns that: the principal of and interest on
the Securities will be promptly paid in full when due, subject to any applicable
grace period, whether at maturity, by acceleration or otherwise, and interest on
the overdue principal and interest on any overdue interest on the Securities and
all other obligations of the Company to the Holders or the Trustee hereunder or
under the Securities will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; subject, however, to the
limitations set forth in Section 11.04. Each Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or this Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the
Securities with respect to any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor. Each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that the
Guaranty will not be discharged except by complete performance of the
obligations contained in the Securities, this Indenture, and this Guaranty. If
any Holder or the Trustee is required by any court or otherwise to return to the
Company, any Guarantor, or any custodian, trustee, liquidator or other similar
official acting in relation to the Company or any Guarantor, any amount paid by
the Company or any Guarantor to the Trustee or such Holder, this Guaranty, to
the extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor further agrees that, as between each Guarantor, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six for
the purpose of this Guaranty, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article Six, such obligations (whether or not due and payable)
shall forth become due and payable by each Guarantor for the purpose of this
Guaranty.
SECTION 11.02. Severability.
In case any provision of this Guaranty shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Release of a Guarantor.
If the Securities are defeased in accordance with the terms of this
Indenture, or if Section 5.01(b) is complied with, or if Section 4.20 provides
for any Person who becomes a Guarantor after the Issue Date to be released from
its Guaranty then each Guarantor (in the case of defeasance) or the applicable
Guar-
<PAGE>
-83-
antor (in the case of compliance with Section 5.01(b) or Section 4.20, as the
case may be) shall be deemed released from all obligations under this Article
Eleven without any further action required on the part of the Trustee or any
Holder. The Trustee shall, at the sole cost and expense of the Company and upon
receipt at the reasonable request of the Trustee of an Opinion of Counsel that
the provisions of this Section 11.03 have been complied with, deliver an
appropriate instrument evidencing such release upon receipt of a request by the
Company accompanied by an Officers' Certificate certifying as to the compliance
with this Section 11.03. Any Guarantor not so released remains liable for the
full amount of principal of and interest on the Securities and the other
obligations of the Company hereunder as provided in this Article Eleven.
SECTION 11.04. Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirms that it is the intention of all such parties that the
guarantee by such Guarantor pursuant to its Guaranty not constitute a fraudulent
transfer or conveyance for purposes of title 11 of the United States Code, as
amended, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act or any similar U.S. Federal or state or other applicable law. To effectuate
the foregoing intention, the Holders and such Guarantor hereby irrevocably agree
that the obligations of such Guarantor under the Guaranty shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor and after giving effect to any collections
from or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guaranty or pursuant to Section
11.05, result in the obligations of such Guarantor under the Guaranty not
constituting such fraudulent transfer or conveyance.
SECTION 11.05. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
-----------------
Guaranty, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount, based on the net assets of each Guarantor
(including the Funding Guarantor), determined in accordance with GAAP, subject
to Section 11.04, for all payments, damages and expenses incurred by that
Funding Guarantor in discharging the Company's obligations with respect to the
Securities or any other Guarantor's obligations with respect to the Guaranty.
SECTION 11.06. Subordination of Subrogation and Other Rights.
Each Guarantor hereby agrees that any claim against the Company that
arises from the payment, performance or enforcement of such Guarantor's
obligations under its Guaranty or this Indenture, including, without limitation,
any right of subrogation, shall be subject and subordinate to, and no payment
with respect to any such claim of such Guarantor shall be made before, the
payment in full in cash of all outstanding Securities in accordance with the
provisions provided therefor in this Indenture.
SECTION 11.07. Applicability of Article Eleven.
Anything contained in this Article Eleven to the contrary
notwithstanding, Article Eleven shall not apply unless and until a Person is
required to become a Guarantor pursuant to Section 4.20 hereof.
<PAGE>
-84-
ARTICLE TWELVE
SUBORDINATION OF GUARANTY
SECTION 12.01. Guaranty Obligations Subordinated to Guarantor Senior
Indebtedness.
Each Guarantor covenants and agrees, and the Trustee and each Holder
of the Securities by his acceptance thereof likewise covenant and agree, that
the Guaranty shall be issued subject to the provisions of this Article Twelve;
and each person holding any Security, whether upon original issue or upon
transfer, assignment or exchange thereof, accepts and agrees that all payments
of the principal of and interest on the Securities pursuant to the Guaranty made
by or on behalf of any Guarantor shall, to the extent and in the manner set
forth in this Article Twelve, be subordinated and junior in right of payment to
the prior payment in full in cash of all amounts payable under Guarantor Senior
Indebtedness of such Guarantor.
SECTION 12.02. No Payment on Guaranties in Certain Circumstances.
(a) No direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities) by or on behalf of any Guarantor of
principal of or interest on the Securities pursuant to such Guarantor's
Guaranty, whether pursuant to the terms of the Securities, upon acceleration or
otherwise, shall be made if, at the time of such payment, there exists a default
in the payment of all or any portion of the obligations on any Designated
Guarantor Senior Indebtedness of such Guarantor, whether at maturity, on account
of mandatory redemption or prepayment, acceleration or otherwise, and such
default shall not have been cured or waived or the benefits of this sentence
waived by or on behalf of the holders of such Designated Guarantor Senior
Indebtedness. In addition, during the continuance of any non-payment event of
default with respect to any Designated Guarantor Senior Indebtedness pursuant to
which the maturity thereof may be immediately accelerated, and upon receipt by
the Trustee of written notice (the "Guarantor Payment Blockage Notice") from the
---------------------------------
holder or holders of such Designated Guarantor Senior Indebtedness or the
trustee or agent acting on behalf of such Designated Guarantor Senior
Indebtedness, then, unless and until such event of default has been cured or
waived or has ceased to exist or such Designated Guarantor Senior Indebtedness
has been discharged or paid in full in cash or the benefits of these provisions
have been waived by the holders of such Designated Guarantor Senior
Indebtedness, no direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities) shall be made by or on behalf of
such Guarantor of principal or interest on the Securities, except from those
funds held in trust for the benefit of the Holders of any Securities pursuant to
the procedures set forth in Article Nine hereof to such Holders, during a period
(a "Guarantor Blockage Period") commencing on the date of receipt of such notice
-------------------------
by the Trustee and ending 179 days thereafter.
Notwithstanding anything herein or in the Securities to the contrary,
(x) in no event shall a Guarantor Blockage Period extend beyond 179 days from
the date the Guarantor Payment Blockage Notice in respect thereof was given, (y)
there shall be a period of at least 181 consecutive days in each 360-day period
when no Guarantor Blockage Period is in effect and (z) not more than one
Guarantor Blockage Period may be commenced with respect to any Guarantor during
any period of 360 consecutive days. No event of default that existed or was
continuing on the date of commencement of any other Guarantor Blockage Period
with respect to the Designated Guarantor Senior Indebtedness initiating such
Guarantor Blockage Period (to the extent the holder of Designated Guarantor
Senior Indebtedness, or trustee or agent, giving notice commencing such
Guarantor Blockage Period had knowledge of such existing or continuing event of
default) may be, or be made, the basis for the commencement of any other
Guarantor Blockage Period by the holder or holders of such Designated Guarantor
Senior Indebtedness or the trustee or agent acting on behalf of such Designated
<PAGE>
-85-
Guarantor Senior Indebtedness, whether or not within a period of 360 consecutive
days, unless such event of default has been cured or waived for a period of not
less than 90 consecutive days.
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 12.02(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of such Designated Guarantor
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Designated Guarantor
Senior Indebtedness may have been issued, as their respective interests may
appear, but only to the extent that, upon notice from the Trustee to the holders
of such Designated Guarantor Senior Indebtedness that such prohibited payment
has been made, the holders of such Designated Guarantor Senior Indebtedness (or
their representative or representatives or a trustee) notify the Trustee in
writing of the amounts then due and owing on such Designated Guarantor Senior
Indebtedness, if any, and only the amounts specified in such notice to the
Trustee shall be paid to the holders of such Designated Guarantor Senior
Indebtedness.
SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of any
Guarantor of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities), upon any
dissolution or winding-up or liquidation or reorganization of such Guarantor,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all Guarantor Senior Indebtedness of such Guarantor shall
first be paid in full before the Holders of the Securities or the Trustee on
behalf of such Holders shall be entitled to receive any payment by such
Guarantor of the principal of or interest on the Securities pursuant to such
Guarantor's Guaranty, or any payment to acquire any of the Securities for cash,
property or securities, or any distribution with respect to the Securities of
any cash, property or securities (excluding any payment or distribution of
Permitted Junior Securities). Before any payment may be made by, or on behalf
of, any Guarantor of the principal of or interest on the Securities upon any
such dissolution or winding-up or liquidation or reorganization, any payment or
distribution of assets or securities of such Guarantor of any kind or character,
whether in cash, property or securities (excluding any payment or distribution
of Permitted Junior Securities), to which the Holders of the Securities or the
Trustee on their behalf would be entitled, but for the subordination provisions
of this Indenture, shall be made by such Guarantor or by any receiver, trustee
in bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, directly to the holders of the Guarantor Senior Indebtedness of
such Guarantor (pro rata to such holders on the basis of the respective amounts
of such Guarantor Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees or agent or agents under any
agreement or indenture pursuant to which any of such Guarantor Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all such Guarantor Senior Indebtedness in full in
cash after giving effect to any prior or concurrent payment, distribution or
provision therefor to or for the holders of such Guarantor Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of any Guarantor of any kind or character, whether in cash,
property or securities (excluding any payment or distribution of Permitted
Junior Securities), shall be received by the Trustee or any Holder of Securities
at a time when such payment or distribution is prohibited by Section 12.03(a)
and before all obligations in respect of the Guarantor Senior Indebtedness of
such Guarantor are paid in full in cash, or payment provided for, such payment
or distribution shall be received and held in trust for the benefit of, and
shall be paid over or delivered to, the holders of such Guarantor Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
such Guarantor Senior
<PAGE>
-86-
Indebtedness held by such holders) or their respective representatives, or to
the trustee or trustees or agent or agents under any indenture pursuant to which
any of such Guarantor Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of such
Guarantor Senior Indebtedness remaining unpaid until all such Guarantor Senior
Indebtedness has been paid in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders of
such Guarantor Senior Indebtedness.
The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another corporation or the liquidation or dissolution of
any Guarantor following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 12.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
SECTION 12.04. Subrogation.
Upon the payment in full in cash of all Guarantor Senior Indebtedness
of a Guarantor, or provision for payment, the Holders of the Securities shall be
subrogated to the rights of the holders of such Guarantor Senior Indebtedness to
receive payments or distributions of cash, property or securities of such
Guarantor made on such Guarantor Senior Indebtedness until the principal of and
interest on the Securities shall be paid in full in cash; and, for the purposes
of such subrogation, no payments or distributions to the holders of such
Guarantor Senior Indebtedness of any cash, property or securities to which the
Holders of the Securities or the Trustee on their behalf would be entitled
except for the provisions of this Article Twelve, and no payment over pursuant
to the provisions of this Article Twelve to the holders of such Guarantor Senior
Indebtedness by Holders of the Securities or the Trustee on their behalf shall,
as between such Guarantor, its creditors other than holders of such Guarantor
Senior Indebtedness, and the Holders of the Securities, be deemed to be a
payment by such Guarantor to or on account of such Guarantor Senior
Indebtedness. It is understood that the provisions of this Article Twelve are
and are intended solely for the purpose of defining the relative rights of the
Holders of the Securities, on the one hand, and the holders of Guarantor Senior
Indebtedness of each Guarantor, on the other hand.
If any payment or distribution to which the Holders of the Securities
would otherwise have been entitled but for the provisions of this Article Twelve
shall have been applied, pursuant to the provisions of this Article Twelve, to
the payment of all amounts payable under Guarantor Senior Indebtedness, then and
in such case, the Holders of the Securities shall be entitled to receive from
the holders of such Guarantor Senior Indebtedness any payments or distributions
received by such holders of Guarantor Senior Indebtedness in excess of the
amount required to make payment in full, or provision for payment, of such
Guarantor Senior Indebtedness.
SECTION 12.05. Obligations of Guarantors Unconditional.
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Securities or the Guaranties is intended to or shall impair,
as among the Guarantors and the Holders of the Securities, the obligation of
each Guarantor, which is absolute and unconditional, to pay to the Holders of
the Securities the principal of and interest on the Securities as and when the
same shall become due and payable in accordance with the terms of the Guaranty
of such Guarantor, or is intended to or shall affect the relative rights of the
Holders of the Securities and creditors of any Guarantor other than the holders
of Guarantor Senior Indebtedness of such Guarantor, nor shall anything herein or
therein prevent the Holder of any Security or the Trustee
<PAGE>
-87-
on their behalf from exercising all remedies otherwise permitted by applicable
law upon default under this Indenture, subject to the rights, if any, under this
Article Twelve of the holders of Guarantor Senior Indebtedness in respect of
cash, property or securities of any Guarantor received upon the exercise of any
such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article Twelve shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Guarantor Senior Indebtedness
of any Guarantor then due and payable shall first be paid in full before the
Holders of the Securities or the Trustee are entitled to receive any direct or
indirect payment from such Guarantor of principal of or interest on the
Securities pursuant to such Guarantor's Guaranty.
SECTION 12.06. Notice to Trustee.
The Company and each Guarantor shall give prompt written notice to the
Trustee of any fact known to the Company or such Guarantor which would prohibit
the making of any payment to or by the Trustee in respect of the Securities
pursuant to the provisions of this Article Twelve. The Trustee shall not be
charged with knowledge of the existence of any event of default with respect to
any Guarantor Senior Indebtedness or of any other facts which would prohibit the
making of any payment to or by the Trustee unless and until the Trustee shall
have received notice in writing at its Corporate Trust Office to that effect
signed by an Officer of the Company or such Guarantor, or by a holder of
Guarantor Senior Indebtedness or trustee or agent therefor; and prior to the
receipt of any such written notice, the Trustee shall, subject to Article Seven,
be entitled to assume that no such facts exist; provided that if the Trustee
shall not have received the notice provided for in this Section 12.06 at least
two Business Days prior to the date upon which by the terms of this Indenture
any moneys shall become payable for any purpose (including, without limitation,
the payment of the principal of or interest on any Security), then, regardless
of anything herein to the contrary, the Trustee shall have full power and
authority to receive any moneys from any Guarantor and to apply the same to the
purpose for which they were received, and shall not be affected by any notice to
the contrary which may be received by it on or after such prior date. Nothing
contained in this Section 12.06 shall limit the right of the holders of
Guarantor Senior Indebtedness to recover payments as contemplated by Section
12.03. The Trustee shall be entitled to rely on the delivery to it of a written
notice by a Person representing himself or itself to be a holder of any
Guarantor Senior Indebtedness (or a trustee on behalf of, or other
representative of, such holder) to establish that such notice has been given by
a holder of such Guarantor Senior Indebtedness or a trustee or representative on
behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article Twelve, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article Twelve, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
<PAGE>
-88-
SECTION 12.07. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities of a
Guarantor referred to in this Article Twelve, the Trustee and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which bankruptcy, dissolution, winding-up,
liquidation or reorganization proceedings are pending, or upon a certificate of
the receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of the Securities for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of Guarantor Senior Indebtedness
of such Guarantor and other indebtedness of such Guarantor, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article Twelve.
SECTION 12.08. Trustee's Relation to Guarantor Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Twelve with respect to any Guarantor Senior
Indebtedness which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Guarantor Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee or any
Paying Agent of any of its rights as such holder.
With respect to the holders of Guarantor Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Twelve, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior
Indebtedness (except as provided in Section 12.03(b)). The Trustee shall not be
liable to any such holders if the Trustee shall in good faith mistakenly pay
over or distribute to Holders of Securities or to the Company or to any other
person cash, property or securities to which any holders of Guarantor Senior
Indebtedness shall be entitled by virtue of this Article Twelve or otherwise.
SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions of the
Guarantors or Holders of Guarantor Senior Indebtedness.
No right of any present or future holders of any Guarantor Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
any Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by any Guarantor with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article Twelve are intended to
be for the benefit of, and shall be enforceable directly by, the holders of
Guarantor Senior Indebtedness.
SECTION 12.10. Securityholders Authorize Trustee To Effectuate Subordination of
Guaranty.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Twelve, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, liquidation or
reorganization of any Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of such Guarantor, the filing of a claim for the unpaid
balance of its or his Securities in the form required in those proceedings.
<PAGE>
-89-
SECTION 12.11. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Twelve shall not be
construed as preventing the occurrence of an Event of Default specified in
clauses (1) or (2) of Section 6.01.
SECTION 12.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article Twelve shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture.
SECTION 12.13. No Waiver of Guaranty Subordination Provisions.
Without in any way limiting the generality of Section 12.09, the
holders of Guarantor Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Twelve or the obligations hereunder of the Holders of the Securities to the
holders of Guarantor Senior Indebtedness, do any one or more of the following:
(a) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, Guarantor Senior Indebtedness or any instrument
evidencing the same or any agreement under which Guarantor Senior Indebtedness
is outstanding or secured; (b) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Guarantor Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Guarantor Senior Indebtedness; and (d) exercise or refrain from exercising any
rights against any Guarantor and any other Person.
SECTION 12.14. Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Twelve or elsewhere in this
Indenture shall prevent (i) a Guarantor, except under the conditions described
in Section 12.02, from making payments of principal of and interest on the
Securities, or from depositing with the Trustee any moneys for such payments, or
(ii) the application by the Trustee of any moneys deposited with it for the
purpose of making such payments of principal of and interest on the Securities,
to the holders entitled thereto unless at least two Business Days prior to the
date upon which such payment becomes due and payable, the Trustee shall have
received the written notice provided for in Section 12.02(b) or in Section
12.06. A Guarantor shall give prompt written notice to the Trustee of any
dissolution, winding-up, liquidation or reorganization of such Guarantor.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are
required to be a part of this Indenture, and shall, to the extent applicable, be
governed by such provisions. If any provision of this In-
<PAGE>
-90-
denture modifies any TIA provision that may be so modified, such TIA provision
shall be deemed to apply to this Indenture as so modified. If any provision of
this Indenture excludes any TIA provision that may be so excluded, such TIA
provision shall be excluded from this Indenture.
The provisions of TIA (S) 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included unless expressly
excluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
SECTION 13.02. Notices.
Any notice or communication shall be sufficiently given if in writing
and delivered in person, by facsimile and confirmed by overnight courier, or
mailed by first-class mail addressed as follows:
if to the Company or to the Guarantors:
TCI Satellite Entertainment, Inc.
8085 South Chester
Suite 300
Englewood, Colorado 80112
Attention: Chief Financial Officer
Facsimile: (303) 712-4973
Telephone: (303) 712-4600
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Attention: Marc A. Leaf
Facsimile: (212) 705-5125
Telephone: (212) 705-5097
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21West
New York, New York 10286
Attention: Corporate Trust Administration
Facsimile: (212) 815-5915
Telephone: (212) 815-5375
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
<PAGE>
-91-
Any notice or communication mailed, first-class, postage prepaid, to a
Holder including any notice delivered in connection with TIA (S) 310(b), TIA (S)
313(c), TIA (S) 314(a) and TIA (S) 315(b), shall be mailed to him at his address
as set forth on the Security Register and shall be sufficiently given to him if
so mailed within the time prescribed. To the extent required by the TIA, any
notice or communication shall also be mailed to any Person described in TIA (S)
313(c).
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA (S) 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance satisfactory to
the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory to the
Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with; provided, however, that
with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
<PAGE>
-92-
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a
meeting of Securityholders. The Paying Agent or Registrar may make reasonable
rules for its functions.
SECTION 13.07. Governing Law.
The laws of the State of New York shall govern this Indenture,
the Securities and the Guarantee without regard to principles of conflicts of
law.
SECTION 13.08. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the
Company or any Guarantor shall not have any liability for any obligations of the
Company or any Guarantor under the Securities, the Guaranty or this Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability.
SECTION 13.09. Successors.
All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of each Guarantor in this
Indenture and such Guarantor's Guaranty shall bind its successor. All agreements
of the Trustee in this Indenture shall bind its successor.
SECTION 13.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.11. Severability.
In case any provision in this Indenture, in the Securities or in
the Guaranty shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
SECTION 13.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
SECTION 13.13. Legal Holidays.
If a payment date is a not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
<PAGE>
-93-
ARTICLE FOURTEEN
COLLATERAL AND SECURITY
SECTION 14.01. Escrow Agreement.
The due and punctual payment of the principal of and interest on
the Securities when and as the same shall be due and payable on an Interest
Payment Date, at maturity or by acceleration, and interest on the overdue
principal of and interest (to the extent permitted by law), if any, on the
Securities and performance of all other obligations of the Company to the
Holders of Securities or the Trustee under this Indenture with respect to the
Securities and the Securities, according to the terms hereunder or thereunder,
shall be secured as provided in the Escrow Agreement which the Company, the
Escrow Agent and the Trustee have entered into simultaneously with the execution
of this Indenture. Upon the acceleration of the maturity of the Securities, the
Trustee shall foreclose upon the Collateral. Each Holder of Securities, by its
acceptance thereof, consents and agrees to the terms of the Escrow Agreement
(including, without limitation, the provisions providing for foreclosure and
disbursement of Collateral) as the same may be in effect or may be amended from
time to time in accordance with its terms and authorizes and directs the Escrow
Agent and the Trustee to enter into the Escrow Agreement and to perform its
obligations and exercise its rights thereunder in accordance therewith. The
Company shall deliver to the Trustee copies of the Escrow Agreement, and shall
do or cause to be done all such acts and things as may be necessary or proper,
or as may be required by the provisions of the Escrow Agreement, to assure and
confirm to the Trustee the security interest in the Collateral contemplated by
the Escrow Agreement or any part thereof, as from time to time constituted, so
as to render the same available for the security and benefit of this Indenture
with respect to, and of, the Securities, according to the intent and purposes
expressed in the Escrow Agreement. The Company shall take any and all actions
reasonably required to cause the Escrow Agreement to create and maintain (to the
extent possible under applicable law), as security for the obligations of the
Company hereunder, a valid and enforceable perfected first priority Lien in and
on all the Collateral, in favor of the Trustee for the benefit of the Holders of
Securities, superior to and prior to the rights of all third Persons and subject
to no other Liens. The Trustee shall have no responsibility for perfecting or
maintaining the perfection of the Trustee's security interest in the Collateral
or for filing any instrument, document or notice in any public office at any
time or times.
SECTION 14.02. Recording and Opinions.
(a) The Company shall furnish to the Trustee simultaneously with
the execution and delivery of this Indenture an Opinion of Counsel either (i)
stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, financing
statements or other instruments necessary to make effective the Lien intended to
be created by the Escrow Agreement and reciting the details of such action, or
(ii) stating that in the opinion of such counsel no such action is necessary to
make such Lien effective.
(b) The Company shall furnish to the Escrow Agent and the
Trustee on February 20, 1998 (unless on such date the balance of Escrow Funds
and other Collateral shall be zero) and on each February 20 thereafter until the
date upon which the balance of Escrow Funds and other Collateral shall have been
reduced to zero, an Opinion of Counsel, dated as of such date, either (i)
stating that (A) in the opinion of such counsel, action has been taken with
respect to the recording, registering, filing, re-recording, re-registering and
refiling of all supplemental indentures, financing statements, continuation
statements or other instruments of further assurance as is necessary to maintain
the Lien of the Escrow Agreement and reciting the details of such action
<PAGE>
-94-
or referring to prior Opinions of Counsel in which such details are given and
(B) based on relevant laws as in effect on the date of such Opinion of Counsel,
all financing statements and continuation statements have been executed and
filed that are necessary as of such date and during the succeeding 12 months
fully to preserve and protect, to the extent such protection and preservation
are possible by filing, the rights of the Holders of Securities and the Trustee
hereunder and under the Escrow Agreement with respect to the security interests
in the Collateral or (ii) stating that, in the opinion of such counsel, no such
action is necessary to maintain such Lien and assignment.
SECTION 14.03. Release of Collateral.
(a) Subject to subsections (b), (c) and (d) of this Section
14.03, Collateral may be released from the Lien and security interest created by
the Escrow Agreement only in accordance with the provisions of the Escrow
Agreement.
(b) Except to the extent that any Lien on proceeds of Collateral
is automatically released by operation of Section 9-306 of the Uniform
Commercial Code or other similar law, no Collateral shall be released from the
Lien and security interest created by the Escrow Agreement pursuant to the
provisions of the Escrow Agreement, other than to the Holders pursuant to the
terms thereof, unless there shall have been delivered to the Trustee the
certificate required by Section 14.03(d) and Section 14.04.
(c) At any time when an Event of Default shall have occurred and
be continuing and the maturity of the Securities shall have been accelerated
(whether by declaration or otherwise), no Collateral shall be released pursuant
to the provisions of the Escrow Agreement, and no release of Collateral in
contravention of this Section 14.03(c) shall be effective as against the Holders
of Securities, except for the disbursement of all Escrow Funds (as defined in
the Escrow Agreement) and other Collateral to the Trustee pursuant to Section
6(b) of the Escrow Agreement.
(d) The release of any Collateral from the Liens and security
interests created by this Indenture and the Escrow Agreement shall not be deemed
to impair the security under this Indenture in contravention of the provisions
hereof if and to the extent the Collateral is released pursuant to the terms
hereof or pursuant to the terms of the Escrow Agreement. To the extent
applicable, the Company shall cause TIA (S) 314(d) relating to the release of
property or securities from the Lien and security interest of the Escrow
Agreement to be complied with. Any certificate or opinion required by TIA (S)
314(d) may be made by an Officer of the Company except in cases where TIA (S)
314(d) requires that such certificate or opinion be made by an independent
Person, which Person shall be an independent engineer, appraiser or other expert
selected or approved by the Trustee in the exercise of reasonable care.
SECTION 14.04. Certificates of the Company.
The Company shall furnish to the Trustee, prior to any proposed
release of Collateral other than pursuant to the express terms of the Escrow
Agreement, (i) all documents required by TIA (S) 314(d) and (ii) an Opinion of
Counsel, which may be rendered by internal counsel to the Company, to the effect
that such accompanying documents constitute all documents required by TIA
(S) 314(d). The Trustee may, to the extent permitted by Section 7.01 and
Section 7.02, accept as conclusive evidence of compliance with the foregoing
provisions the appropriate statements contained in such documents and such
Opinion of Counsel.
<PAGE>
-95-
SECTION 14.05. Authorization of Actions to Be Taken by the Trustee Under
the Escrow Agreement.
Subject to the provisions of Section 7.01 and Section 7.02, the
Trustee may, without the consent of the Holders of Securities, on behalf of the
Holders of Securities, take all actions it deems necessary or appropriate in
order to (a) enforce any of the terms of the Escrow Agreement and (b) collect
and receive any and all amounts payable in respect of the obligations of the
Company hereunder. The Trustee shall have power to institute and maintain such
suits and proceedings as it may deem expedient to prevent any impairment of the
Collateral by any acts that may be unlawful or in violation of the Escrow
Agreement or this Indenture, and such suits and proceedings as the Trustee may
deem expedient to preserve or protect its interests and the interests of the
Holders of Securities in the Collateral (including power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance with
any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest hereunder or be
prejudicial to the interests of the Holders of Securities or of the Trustee).
SECTION 14.06. Authorization of Receipt of Funds by the Trustee Under the
Escrow Agreement.
The Trustee is authorized to receive any funds for the benefit of
the Holders of Securities disbursed under the Escrow Agreement, and to make
further distributions of such funds to the Holders of Securities according to
the provisions of this Indenture.
SECTION 14.07. Termination of Security Interest.
Upon the earliest to occur of (i) the date upon which the balance
of Escrow Funds and other Collateral shall have been reduced to zero, (ii) the
payment in full of all obligations of the Company under this Indenture and the
Securities, (iii) legal defeasance pursuant to Section 9.01 and (iv) covenant
defeasance pursuant to Section 9.01, the Trustee shall, at the written request
of the Company, release the Liens pursuant to this Indenture and the Escrow
Agreement upon the Company's compliance with the provisions of the TIA
pertaining to release of collateral.
[Signature Pages Follow]
<PAGE>
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
--------------------------------------------
Name: Gary S. Howard
Title: President and Chief Executive Officer
THE BANK OF NEW YORK,
AS TRUSTEE
By: /s/ Walter N. Gitlin
--------------------------------------------
Name: Walter N. Gitlin
Title: Vice President
<PAGE>
EXHIBIT A
---------
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AN
"ACCREDITED INVESTOR")) OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A
U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE
IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE TRUSTEE AND THE ISSUER SUCH CERTIFICATES, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
A-1
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC.
10 7/8% Senior Subordinated Note
due February 15, 2007, Series A
CUSIP No.:
No. [ ] $[ ]
TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Company", which term includes any successor corporation), for value received
- --------
promises to pay to [ ] or registered assigns, the principal sum of [ ]
Dollars, on February 15, 2007.
Interest Payment Dates: February 15 and August 15, commencing on
August 15, 1997.
Interest Record Dates: February 1 and August 1
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
TCI SATELLITE ENTERTAINMENT, INC.
By:____________________________________________
Name:
Title:
Attest:__________________
Name:
Title:
A-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 10 7/8% Senior Subordinated Notes due 2007, Series
A, described in the within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK,
as Trustee
By:_______________________________________
Authorized Signatory
A-3
<PAGE>
(REVERSE OF SECURITY)
TCI SATELLITE ENTERTAINMENT, INC.
10 7/8% Senior Subordinated Note
due February 15, 2007, Series A
1. Interest.
--------
TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security at
-------
the rate per annum shown above. Cash interest on the Securities will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from February 20, 1997. The Company will pay interest semi-annually
in arrears on each Interest Payment Date, commencing August 15, 1997. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to
time on demand at the rate borne by the Securities Interest and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except
defaulted interest) to the persons who are the registered Holders at the close
of business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are cancelled on registration of transfer or
registration of exchange after such Interest Record Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company shall
pay principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
----------
Tender"). However, the Company may pay principal and interest by wire transfer
- ------
of Federal funds (provided that the Paying Agent shall have received wire
instructions on or prior to the relevant Interest Record Date), or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
--------------------------
Initially, The Bank of New York (the "Trustee") will act as
-------
Paying Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar.
4. Indenture and Guarantees.
------------------------
The Company issued the Securities under an Indenture, dated as of
February 20, 1997 (the "Indenture"), between the Company and the Trustee.
---------
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-77bbbb) (the "TIA"), as in effect
---
on the date of the Indenture until such time as the Indenture is qualified under
the
A-4
<PAGE>
TIA, and thereafter as in effect on the date on which the Indenture is qualified
under the TIA. Notwithstanding anything to the contrary herein, the Securities
are subject to all such terms, and holders of Securities are referred to the
Indenture and the TIA for a statement of them. The Securities are general
obligations of the Company limited in aggregate principal amount to
$200,000,000. If any Restricted Subsidiary guarantees any Senior Indebtedness of
the Company which has registration rights (including the requirement to effect
an exchange offer registered under the Securities Act) or which is registered
under the Securities Act, payment on each Security shall be guaranteed (each, a
"Guaranty") on a senior subordinated basis, jointly and severally, by such
--------
Restricted Subsidiary (each, a "Guarantor") pursuant to Article Eleven and
---------
Article Twelve of the Indenture. In certain circumstances, the Guaranties may be
released.
5. Optional Redemption.
-------------------
The Securities will be redeemable at the option of the Company,
in whole or in part, at any time or from time to time, on or after February 15,
2002 at the redemption prices (expressed as a percentage of principal amount)
set forth below, plus accrued and unpaid interest thereon, if any, to the
redemption date if redeemed during the twelve-month period commencing on
February 15 of the years set forth below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 105.438%
2003 103.625%
2004 101.813%
2005 and thereafter 100.000%
</TABLE>
6. Optional Redemption upon Certain Equity Issuances.
-------------------------------------------------
At any time, or from time to time, prior to February 15, 2000,
the Company may, other than in any circumstance resulting in a Change of
Control, redeem up to 35% of the originally issued principal amount of
Securities at a redemption price equal to 110.875% of the principal amount of
the Securities so redeemed, plus accrued and unpaid interest thereon, if any, to
the redemption date, with the net cash proceeds of (a) one or more Public Equity
Offerings of common equity of the Company or (b) a sale or series of related
sales of Qualified Equity Interests of the Company to Strategic Equity
Investors, in any such case resulting in gross cash proceeds to the Company of
at least $100.0 million in the aggregate; provided, however, that at least 65%
of the originally issued principal amount of Securities remains outstanding
immediately after giving effect to any such redemption (excluding any Securities
owned by the Company or any of its Affiliates). Notice of any such redemption
must be given within 60 days after the date of the last Public Equity Offering
or sale of Qualified Equity Interests of the Company to Strategic Equity
Investors resulting in gross cash proceeds to the Company, when aggregated with
all prior Public Equity Offerings and sales of Qualified Equity Interests of the
Company to Strategic Equity Investors, of at least $100.0 million.
7. Notice of Redemption.
--------------------
Notice of redemption will be mailed by first-class mail at least
30 days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address; provided, however, that
notice of redemption pursuant to paragraph 6 of this Security will be mailed to
each Holder of Securities to be redeemed no later than 60 days following the
consummation of the last Public Equity Offering or sale of Qualified Equity
Interests of the Company to Strategic Equity Investors resulting in gross cash
proceeds to the Company, when aggregated with all prior Public Equity Offerings
and sales of Qualified Equity Interests of the Company to Strategic Equity
Investors, of at least $100.0 million. The Trus-
A-5
<PAGE>
tee may select for redemption portions of the principal amount of Securities
that have denominations equal to or larger than $1,000 principal amount.
Securities and portions of them the Trustee so selects shall be in amounts of
$1,000 principal amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture.
8. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all outstanding Securities at a purchase price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date.
9. Limitation on Disposition of Assets.
-----------------------------------
The Company is, subject to certain conditions, obligated to make
an offer to purchase Securities at a purchase price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Purchase Date.
10. Offer to Purchase upon a GE-2 Satellite Event.
---------------------------------------------
Upon the occurrence of a GE-2 Satellite Event, the Company is
obligated to make an offer to purchase all outstanding Securities at a purchase
price equal to 100% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the Purchase Date. In order to secure the
payment and performance of the Company's obligation to repurchase the Securities
tendered in connection with an Offer to Purchase made upon a GE-2 Satellite
Event, the Company has granted to the Trustee, for the sole and exclusive
benefit of the Holders, a continuing first priority security interest in and to
the Collateral subject to and pursuant to the Escrow Agreement. Upon a GE-2
Acceptance, all Escrow Funds and other Collateral shall be released to the
Company. The terms of the Securities include those stated in the Escrow
Agreement.
11. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
12. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner
of it for all purposes.
A-6
<PAGE>
13. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain
unclaimed for two years, the Trustee and the Paying Agent will repay the funds
to the Company at its written request. After that, all liability of the Trustee
and such Paying Agent with respect to such funds shall cease.
14. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guaranties except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guaranties, in each case upon satisfaction of certain conditions specified in
the Indenture.
15. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture, the Escrow
Agreement, the Securities and the Guaranties may be amended or supplemented with
the written consent of the Holders of at least a majority in aggregate principal
amount of the Securities then outstanding, and any existing Default or Event of
Default or compliance with any provision may be waived with the consent of the
Holders of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto may
amend or supplement the Indenture, the Escrow Agreement, the Securities and the
Guaranties to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities or comply with any requirements of the Commission in connection with
the qualification of the Indenture under the TIA, or make any other change that
does not materially adversely affect the rights of any Holder of a Security.
16. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets, to engage in transactions with affiliates or certain other related
persons or to engage in certain businesses. The limitations are subject to a
number of important qualifications and exceptions. The Company must quarterly
report to the Trustee on compliance with such limitations.
17. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Escrow Agreement, the Securities or the
Guaranties except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture, the Escrow Agreement, the Securities or the Guaranties
unless it has received indemnity satisfactory to it. The Indenture permits,
subject to certain limitations therein provided, Holders of a majority in
aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of certain continuing Defaults or Events of Default
if it determines that withholding notice is in their interest.
A-7
<PAGE>
18. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
19. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as
such, of the Company or any of its Affiliates shall have any liability for any
obligation of the Company under the Securities or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Security by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Securities.
20. Authentication.
--------------
This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on this Security.
21. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Securities as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
23. Governing Law.
-------------
The laws of the State of New York shall govern the Indenture,
this Security and any Guaranty thereof without regard to principles of conflicts
of laws.
A-8
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
_______________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint _______________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:__________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee: __________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.05, Section 4.14 or Section 4.19 of the Indenture,
check the appropriate box:
Section 4.05 [ ]
Section 4.14 [ ]
Section 4.19 [ ]
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.05, Section 4.14 or Section 4.19 of the
Indenture, state the amount: $_____________
Dated:___________________ Your Signature:_______________________________
(Signed exactly as name appears
on the other side of this
Security)
Signature Guarantee: ___________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
EXHIBIT B
---------
(FORM OF SERIES B SECURITY)
TCI SATELLITE ENTERTAINMENT, INC.
10 7/8% Senior Subordinated Note
due February 15, 2007, Series B
CUSIP No.:
No. [ ] $[ ]
TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Company", which term includes any successor corporation), for value received
-------
promises to pay to [ ] or registered assigns, the principal sum of
[ ] Dollars, on February 15, 2007.
Interest Payment Dates: February 15 and August 15, commencing on
August 15, 1997.
Interest Record Dates: February 1 and August 1
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
TCI SATELLITE ENTERTAINMENT, INC.
By:____________________________________________
Name:
Title:
Attest:___________________
Name:
Title:
B-1
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 10 7/8% Senior Subordinated Notes due 2007, Series
B, described in the within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK,
as Trustee
By:__________________________________________
Authorized Signatory
B-2
<PAGE>
(REVERSE OF SECURITY)
TCI SATELLITE ENTERTAINMENT, INC.
10 7/8% Senior Subordinated Note
due February 15, 2007, Series A
1. Interest.
--------
TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security at
-------
the rate per annum shown above. Cash interest on the Securities will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from February 20, 1997. The Company will pay interest semi-annually
in arrears on each Interest Payment Date, commencing August 15, 1997. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to
time on demand at the rate borne by the Securities Interest and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except
defaulted interest) to the persons who are the registered Holders at the close
of business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are cancelled on registration of transfer or
registration of exchange after such Interest Record Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company shall
pay principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
----------
Tender"). However, the Company may pay principal and interest by wire transfer
- -------
of Federal funds (provided that the Paying Agent shall have received wire
instructions on or prior to the relevant Interest Record Date), or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
--------------------------
Initially, The Bank of New York (the "Trustee") will act as
-------
Paying Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar.
4. Indenture and Guarantees.
------------------------
The Company issued the Securities under an Indenture, dated as of
February 20, 1997 (the "Indenture"), between the Company and the Trustee.
---------
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-77bbbb) (the "TIA"), as in effect
---
on the date of the Indenture until such time as the Indenture is qualified under
the
B-3
<PAGE>
TIA, and thereafter as in effect on the date on which the Indenture is
qualified under the TIA. Notwithstanding anything to the contrary herein, the
Securities are subject to all such terms, and holders of Securities are referred
to the Indenture and the TIA for a statement of them. The Securities are general
obligations of the Company limited in aggregate principal amount to
$200,000,000. If any Restricted Subsidiary guarantees any Senior Indebtedness of
the Company which has registration rights (including the requirement to effect
an exchange offer registered under the Securities Act) or which is registered
under the Securities Act, payment on each Security shall be guaranteed (each, a
"Guaranty") on a senior subordinated basis, jointly and severally, by such
--------
Restricted Subsidiary (each, a "Guarantor") pursuant to Article Eleven and
---------
Article Twelve of the Indenture. In certain circumstances, the Guaranties may be
released.
5. Optional Redemption.
-------------------
The Securities will be redeemable at the option of the Company,
in whole or in part, at any time or from time to time, on or after February 15,
2002 at the redemption prices (expressed as a percentage of principal amount)
set forth below, plus accrued and unpaid interest thereon, if any, to the
redemption date if redeemed during the twelve-month period commencing on
February 15 of the years set forth below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 105.438%
2003 103.625%
2004 101.813%
2005 and thereafter 100.000%
</TABLE>
6. Optional Redemption upon Certain Equity Issuances.
-------------------------------------------------
At any time, or from time to time, prior to February 15, 2000,
the Company may, other than in any circumstance resulting in a Change of
Control, redeem up to 35% of the originally issued principal amount of
Securities at a redemption price equal to 110.875% of the principal amount of
the Securities so redeemed, plus accrued and unpaid interest thereon, if any, to
the redemption date, with the net cash proceeds of (a) one or more Public Equity
Offerings of common equity of the Company or (b) a sale or series of related
sales of Qualified Equity Interests of the Company to Strategic Equity
Investors, in any such case resulting in gross cash proceeds to the Company of
at least $100.0 million in the aggregate; provided, however, that at least 65%
of the originally issued principal amount of Securities remains outstanding
immediately after giving effect to any such redemption (excluding any Securities
owned by the Company or any of its Affiliates). Notice of any such redemption
must be given within 60 days after the date of the last Public Equity Offering
or sale of Qualified Equity Interests of the Company to Strategic Equity
Investors resulting in gross cash proceeds to the Company, when aggregated with
all prior Public Equity Offerings and sales of Qualified Equity Interests of the
Company to Strategic Equity Investors, of at least $100.0 million.
7. Notice of Redemption.
--------------------
Notice of redemption will be mailed by first-class mail at least
30 days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address; provided, however, that
notice of redemption pursuant to paragraph 6 of this Security will be mailed to
each Holder of Securities to be redeemed no later than 60 days following the
consummation of the last Public Equity Offering or sale of Qualified Equity
Interests of the Company to Strategic Equity Investors resulting in gross cash
proceeds to the Company, when aggregated with all prior Public Equity Offerings
and sales of Qualified Equity Interests of the Company to Strategic Equity
Investors, of at least $100.0 million. The Trus-
B-4
<PAGE>
tee may select for redemption portions of the principal amount of Securities
that have denominations equal to or larger than $1,000 principal amount.
Securities and portions of them the Trustee so selects shall be in amounts of
$1,000 principal amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture.
8. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase the outstanding Securities at a purchase price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date.
9. Limitation on Disposition of Assets.
-----------------------------------
The Company is, subject to certain conditions, obligated to make
an offer to purchase Securities at a purchase price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Purchase Date.
10. Offer to Purchase upon a GE-2 Satellite Event.
---------------------------------------------
Upon the occurrence of a GE-2 Satellite Event, the Company is
obligated to make an offer to purchase all outstanding Securities at a purchase
price equal to 100% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the Purchase Date. In order to secure the
payment and performance of the Company's obligation to repurchase the Securities
tendered in connection with an Offer to Purchase made upon a GE-2 Satellite
Event, the Company has granted to the Trustee, for the sole and exclusive
benefit of the Holders, a continuing first priority security interest in and to
the Collateral subject to and pursuant to the Escrow Agreement. Upon a GE-2
Acceptance, all Escrow Funds and other Collateral shall be released to the
Company. The terms of the Securities include those stated in the Escrow
Agreement.
11. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
12. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner
of it for all purposes.
B-5
<PAGE>
13. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain
unclaimed for two years, the Trustee and the Paying Agent will repay the funds
to the Company at its written request. After that, all liability of the Trustee
and such Paying Agent with respect to such funds shall cease.
14. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guaranties except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guaranties, in each case upon satisfaction of certain conditions specified in
the Indenture.
15. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture, the Escrow
Agreement, the Securities and the Guaranties may be amended or supplemented with
the written consent of the Holders of at least a majority in aggregate principal
amount of the Securities then outstanding, and any existing Default or Event of
Default or compliance with any provision may be waived with the consent of the
Holders of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto may
amend or supplement the Indenture, the Escrow Agreement, the Securities and the
Guaranties to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities or comply with any requirements of the Commission in connection with
the qualification of the Indenture under the TIA, or make any other change that
does not materially adversely affect the rights of any Holder of a Security.
16. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets, to engage in transactions with affiliates or certain other related
persons or to engage in certain businesses. The limitations are subject to a
number of important qualifications and exceptions. The Company must quarterly
report to the Trustee on compliance with such limitations.
17. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture, the Escrow Agreement, the Securities or the
Guaranties except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture, the Escrow Agreement, the Securities or the Guaranties
unless it has received indemnity satisfactory to it. The Indenture permits,
subject to certain limitations therein provided, Holders of a majority in
aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of certain continuing Defaults or Events of Default
if it determines that withholding notice is in their interest.
B-6
<PAGE>
18. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
19. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as
such, of the Company or any of its Affiliates shall have any liability for any
obligation of the Company under the Securities or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Security by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Securities.
20. Authentication.
--------------
This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on this Security.
21. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Securities as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
23. Governing Law.
-------------
The laws of the State of New York shall govern the Indenture,
this Security and any Guaranty thereof without regard to principles of conflicts
of laws.
B-7
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:______________________________
(Signed exactly as name appears
on the other side of this
Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.05, Section 4.14 or Section 4.19 of the Indenture,
check the appropriate box:
Section 4.05 [ ]
Section 4.14 [ ]
Section 4.19 [ ]
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.05, Section 4.14 or Section 4.19 of the
Indenture, state the amount: $_____________
Dated:___________________ Your Signature:_____________________________
(Signed exactly as name
appears on the other side of
this Security)
Signature Guarantee: ___________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
EXHIBIT C
---------
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in the
case of a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
C-1
<PAGE>
EXHIBIT D
---------
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 10 7/8% Senior Subordinated Notes due 2007, Series A
and 10 7/8% Senior Subordinated Notes due 2007, Series B
(the "Securities"), of TCI Satellite Entertainment, Inc.
----------------------------------------------------------
This Certificate relates to $_______ principal amount of Securities
held in the form of* ___ a beneficial interest in a Global Security or* _______
Physical Securities by ______ (the "Transferor").
The Transferor:*
[_] has requested by written order that the Registrar deliver in exchange
for its beneficial interest in the Global Security held by the Depositary a
Physical Security or Physical Securities in definitive, registered form of
authorized denominations and an aggregate number equal to its beneficial
interest in such Global Security (or the portion thereof indicated above); or
[_] has requested that the Registrar by written order to exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such Security,
the Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Securities and the restrictions on
transfers thereof as provided in Section 2.07 of such Indenture, and that the
transfer of this Securities does not require registration under the Securities
Act of 1933, as amended (the "Act"), because*:
[_] Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.07 of the Indenture).
[_] Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
[_] Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Act).
[_] Such Security is being transferred in reliance on Regulation S under
the Act
[_] Such Security is being transferred in reliance on Rule 144 under the
Act.
[_] Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 or Regulation S under the Act to a person other than an
institutional "accredited investor."
______________________________
[INSERT NAME OF TRANSFEROR]
By: __________________________
[Authorized Signatory]
Date: _______________
*Check applicable box.
D-1
<PAGE>
EXHIBIT E
---------
Form of Certificate To Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
_______________, ____
The Bank of New York
101 Barclay Street, Floor 21West
New York, New York 10286
Attention: Corporate Trust Administration
Re: TCI Satellite Entertainment, Inc. (the "Company")
Indenture (the "Indenture") relating to
10 7/8% Senior Subordinated Notes due 2007, Series A,
or 10 7/8% Senior Subordinated Notes due 2007, Series B
-------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of 10 7/8% Senior
Subordinated Notes due 2007, Series A, or 10 7/8% Senior Subordinated Notes due
2007, Series B (the "Securities"), of the Company, we confirm that:
1. We have received such information as we deem necessary in order to
make our investment decision.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture
and the undersigned agrees to be bound by, and not to resell, pledge or
otherwise transfer the Securities except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act").
3. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not
be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are
acting as hereinafter stated, that if we should sell any Securities, we
will do so only (A) to the Company or any subsidiary thereof, (B) inside
the United States in accordance with Rule 144A under the Securities Act to
a "qualified institutional buyer" (as defined therein), (C) inside the
United States to an institutional "accredited investor" (as defined below)
that, prior to such transfer, furnishes (or has furnished on its behalf by
a U.S. broker-dealer) to the Trustee a signed letter substantially in the
form hereof, (D) outside the United States in accordance with Regulation S
under the Securities Act, (E) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), or (F)
pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing Securities from us
a notice advising such purchaser that resales of the Securities are
restricted as stated herein.
4. We understand that, on any proposed resale of Securities, we will
be required to furnish to the Trustee and the Company such certification,
legal opinions and other information as the
E-1
<PAGE>
Trustee and the Company may reasonably require to confirm that the proposed
sale complies with the foregoing restrictions. We further understand that
the Securities purchased by us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able
to bear the economic risk of our or their investment, as the case may be.
6. We are acquiring the Securities purchased by us for our account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By: __________________________
[Authorized Signatory]
E-2
<PAGE>
EXHIBIT F
---------
Form of Certificate To Be
Delivered in Connection
with Regulation S Transfers
_______________, ____
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Administration
Re: TCI Satellite Entertainment, Inc. (the "Company") 10 7/8%
Senior Subordinated Notes due 2007, Series A, and 10 7/8%
Senior Subordinated Notes due 2007, Series B (the "Securities")
---------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By: _________________________
[Authorized Signatory]
F-1
<PAGE>
EXHIBIT 4.4
================================================================================
INDENTURE
DATED AS OF FEBRUARY 20, 1997
BETWEEN
TCI SATELLITE ENTERTAINMENT, INC., AS ISSUER,
AND
THE BANK OF NEW YORK, AS TRUSTEE
__________________
$275,000,000
12 1/4% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2007, SERIES A
12 1/4% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2007, SERIES B
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- --------------- ---------
<S> <C>
(S) 310(a)(1).............................................. 7.10
(a)(2).............................................. 7.10
(a)(3).............................................. N.A.
(a)(4).............................................. N.A.
(a)(5).............................................. 7.08, 7.10.
(b)................................................. 7.08; 7.10; 13.02
(c)................................................. N.A.
(S) 311(a)................................................. 7.11
(b)................................................. 7.11
(c)................................................. N.A.
(S) 312(a)................................................. 2.05
(b)................................................. 13.03
(c)................................................. 13.03
(S) 313(a)................................................. 7.06
(b)(1).............................................. 7.06
(b)(2).............................................. 7.06
(c)................................................. 7.06; 13.02
(d)................................................. 7.06
(S) 314(a)................................................. 4.11; 4.12; 13.02
(b)................................................. 14.02
(c)(1).............................................. 13.04
(c)(2).............................................. 13.04
(c)(3).............................................. N.A.
(d)................................................. 14.03;14.04
(e)................................................. 13.05
(f)................................................. N.A.
(S) 315(a)................................................. 7.01(b)
(b)................................................. 7.05; 13.02
(c)................................................. 7.01(a)
(d)................................................. 7.01(c)
(e)................................................. 6.11
(S) 316(a)(last sentence).................................. 2.09
(a)(1)(A)........................................... 6.05
(a)(1)(B)........................................... 6.04
(a)(2).............................................. N.A.
(b)................................................. 6.07
(c)................................................. 10.04
(S) 317(a)(1).............................................. 6.08
(a)(2).............................................. 6.09
(b)................................................. 2.04
(S) 318(a)................................................. 13.01
</TABLE>
________________
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C>
SECTION 1.01. Definitions..................................................................1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act...........................26
SECTION 1.03. Rules of Construction.......................................................26
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.............................................................27
SECTION 2.02. Execution and Authentication................................................27
SECTION 2.03. Registrar and Paying Agent..................................................28
SECTION 2.04. Paying Agent To Hold Assets in Trust........................................29
SECTION 2.05. Securityholder Lists........................................................29
SECTION 2.06. Transfer and Exchange.......................................................29
SECTION 2.07. Replacement Securities......................................................30
SECTION 2.08. Outstanding Securities......................................................30
SECTION 2.09. Treasury Securities.........................................................30
SECTION 2.10. Temporary Securities........................................................31
SECTION 2.11. Cancellation................................................................31
SECTION 2.12. Defaulted Interest..........................................................31
SECTION 2.13. CUSIP Number................................................................31
SECTION 2.14. Deposit of Moneys...........................................................31
SECTION 2.15. Book-Entry Provisions for Global Securities.................................31
SECTION 2.16. Registration of Transfers and Exchanges.....................................32
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee..........................................................36
SECTION 3.02. Selection of Securities To Be Redeemed......................................36
SECTION 3.03. Notice of Redemption........................................................37
SECTION 3.04. Effect of Notice of Redemption..............................................38
SECTION 3.05. Deposit of Redemption Price.................................................38
SECTION 3.06. Securities Redeemed in Part.................................................38
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE FOUR
COVENANT
<S> <C>
SECTION 4.01. Payment of Securities.......................................................38
SECTION 4.02. Maintenance of Office or Agency.............................................39
SECTION 4.03. Transactions with Affiliates................................................39
SECTION 4.04. Limitation on Indebtedness..................................................40
SECTION 4.05. Disposition of Proceeds of Asset Sales......................................44
SECTION 4.06. Limitation on Restricted Payments...........................................46
SECTION 4.07. Corporate Existence.........................................................50
SECTION 4.08. Payment of Taxes and Other Claims...........................................50
SECTION 4.09. Notice of Defaults..........................................................50
SECTION 4.10. Maintenance of Properties and Insurance.....................................50
SECTION 4.11. Compliance Certificate......................................................51
SECTION 4.12. Provision of Financial Information..........................................51
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.....................................52
SECTION 4.14. Change of Control...........................................................52
SECTION 4.15. Limitation on Senior Subordinated Indebtedness..............................53
SECTION 4.16. Limitations on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries...............................................53
SECTION 4.17. Designation of Unrestricted Subsidiaries; Designation of Tempo as a
Restricted Subsidiary.................................................54
SECTION 4.18. Limitation on Liens.........................................................55
SECTION 4.19. Deposit of Funds with Escrow Agent; Offer to Purchase upon a GE-2
Satellite Event.......................................................55
SECTION 4.20. Guaranty of Notes by Subsidiaries...........................................57
SECTION 4.21. Amendments to Certain Agreements............................................58
SECTION 4.22. Company Satellites; Maintenance of Insurance................................58
SECTION 4.23. Payments for Consent........................................................58
SECTION 4.24. Calculation of Original Issue Discount......................................59
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Sale of Assets, etc................................................59
SECTION 5.02. Successor Corporation Substituted...........................................60
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default...........................................................61
SECTION 6.02. Acceleration................................................................63
SECTION 6.03. Other Remedies..............................................................64
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.04. Waiver of Past Default......................................................64
SECTION 6.05. Control by Majority.........................................................64
SECTION 6.06. Limitation on Suits.........................................................65
SECTION 6.07. Rights of Holders To Receive Payment........................................65
SECTION 6.08. Collection Suit by Trustee..................................................65
SECTION 6.09. Trustee May File Proofs of Claim............................................65
SECTION 6.10. Priorities..................................................................66
SECTION 6.11. Undertaking for Costs.......................................................66
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee...........................................................67
SECTION 7.02. Rights of Trustee...........................................................68
SECTION 7.03. Individual Rights of Trustee................................................69
SECTION 7.04. Trustee's Disclaimer........................................................69
SECTION 7.05. Notice of Defaults..........................................................69
SECTION 7.06. Reports by Trustee to Holders...............................................69
SECTION 7.07. Compensation and Indemnity..................................................69
SECTION 7.08. Replacement of Trustee......................................................70
SECTION 7.09. Successor Trustee by Merger, etc............................................71
SECTION 7.10. Eligibility; Disqualification...............................................71
SECTION 7.11. Preferential Collection of Claims Against Company...........................71
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness..............................72
SECTION 8.02. No Payment on Securities in Certain Circumstances...........................72
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc..............................73
SECTION 8.04. Subrogation.................................................................74
SECTION 8.05. Obligations of Company Unconditional........................................74
SECTION 8.06. Notice to Trustee...........................................................75
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent..............76
SECTION 8.08. Trustee's Relation to Senior Indebtedness...................................76
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the Company
or Holders of Senior Indebtedness.....................................76
SECTION 8.10. Securityholders Authorize Trustee To Effectuate Subordination of
Securities............................................................76
SECTION 8.11. This Article Not To Prevent Events of Default...............................77
SECTION 8.12. Trustee's Compensation Not Prejudiced.......................................77
SECTION 8.13. No Waiver of Subordination Provisions.......................................77
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8.14. Subordination Provisions Not Applicable to Collateral Held in Trust for
Securityholders and Collateral Held in the Escrow Account; Payments
May Be Paid Prior to Dissolution......................................77
SECTION 8.15. Acceleration of Securities..................................................78
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01. Termination of Company's Obligations........................................78
SECTION 9.02. Application of Trust Money..................................................79
SECTION 9.03. Repayment to Company........................................................79
SECTION 9.04. Reinstatement...............................................................80
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.................................................80
SECTION 10.02. With Consent of Holders....................................................81
SECTION 10.03. Compliance with Trust Indenture Act........................................82
SECTION 10.04. Revocation and Effect of Consents..........................................82
SECTION 10.05. Notation on or Exchange of Securities......................................83
SECTION 10.06. Trustee To Sign Amendments, etc............................................83
ARTICLE ELEVEN
GUARANTY
SECTION 11.01. Unconditional Guaranty.....................................................83
SECTION 11.02. Severability...............................................................84
SECTION 11.03. Release of a Guarantor.....................................................84
SECTION 11.04. Limitation of Guarantor's Liability........................................84
SECTION 11.05. Contribution...............................................................85
SECTION 11.06. Subordination of Subrogation and Other Rights..............................85
SECTION 11.07. Applicability of Article Eleven............................................85
ARTICLE TWELVE
SUBORDINATION OF GUARANTY
SECTION 12.01. Guaranty Obligations Subordinated to Guarantor Senior Indebtedness.........85
SECTION 12.02. No Payment on Guaranties in Certain Circumstances..........................85
SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc.............................86
SECTION 12.04. Subrogation................................................................87
SECTION 12.05. Obligations of Guarantors Unconditional....................................88
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 12.06. Notice to Trustee..........................................................88
SECTION 12.07. Reliance on Judicial Order or Certificate of Liquidating Agent.............89
SECTION 12.08. Trustee's Relation to Guarantor Senior Indebtedness........................89
SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions of the
Guarantors or Holders of Guarantor Senior Indebtedness................90
SECTION 12.10. Securityholders Authorize Trustee To Effectuate Subordination of
Guaranty..............................................................90
SECTION 12.11. This Article Not To Prevent Events of Default..............................90
SECTION 12.12. Trustee's Compensation Not Prejudiced......................................90
SECTION 12.13. No Waiver of Guaranty Subordination Provisions.............................90
SECTION 12.14. Payments May Be Paid Prior to Dissolution..................................91
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls...............................................91
SECTION 13.02. Notices....................................................................91
SECTION 13.03. Communications by Holders with Other Holders...............................92
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.........................92
SECTION 13.05. Statements Required in Certificate or Opinion..............................93
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar..................................93
SECTION 13.07. Governing Law..............................................................93
SECTION 13.08. No Recourse Against Others.................................................93
SECTION 13.09. Successors.................................................................93
SECTION 13.10. Counterpart Originals......................................................94
SECTION 13.11. Severability...............................................................94
SECTION 13.12. No Adverse Interpretation of Other Agreements..............................94
SECTION 13.13. Legal Holidays.............................................................94
ARTICLE FOURTEEN
COLLATERAL AND SECURITY
SECTION 14.01. Escrow Agreement...........................................................94
SECTION 14.02. Recording and Opinions.....................................................95
SECTION 14.03. Release of Collateral......................................................95
SECTION 14.04. Certificates of the Company................................................96
SECTION 14.05. Authorization of Actions to Be Taken by the Trustee Under the Escrow
Agreement.............................................................96
SECTION 14.06. Authorization of Receipt of Funds by the Trustee Under the Escrow
Agreement.............................................................96
SECTION 14.07. Termination of Security Interest...........................................96
SIGNATURES...............................................................................S-1
</TABLE>
-v-
<PAGE>
<TABLE>
<S> <C>
EXHIBIT A Form of Series A Security...................................................A-1
EXHIBIT B Form of Series B Security...................................................B-1
EXHIBIT C Form of Legend for Global Securities........................................C-1
EXHIBIT D Form of Transfer Certificate................................................D-1
EXHIBIT E Form of Transfer Certificate for Institutional Accredited Investors.........E-1
EXHIBIT F Form of Transference Certificate for Regulation S Transfers.................F-1
</TABLE>
__________________
NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-vi-
<PAGE>
INDENTURE dated as of February 20, 1997, between TCI SATELLITE
ENTERTAINMENT, INC., a Delaware corporation (the "Company"), and THE BANK OF NEW
-------
YORK, a New York banking corporation, as trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Accredited Investor Global Security" see Section 2.01.
-----------------------------------
"Accreted Value" means (a) as of any date prior to the Cash Interest
--------------
Election Date, if any (the "Specified Date"), with respect to each $1,000
--------------
principal face amount of Securities:
(i) if the Specified Date is one of the following dates (each a
"Semi-Annual Accrual Date"), the amount set forth opposite such date below:
------------------------
<TABLE>
<CAPTION>
Semi-Annual Accreted
Accrual Date Value
------------ ---------
<S> <C>
Issue Date ........................... $ 552.95
August 15, 1997 ........................... 585.66
February 15, 1998 ........................... 621.52
August 15, 1998 ........................... 659.59
February 15, 1999 ........................... 700.00
August 15, 1999 ........................... 742.87
February 15, 2000 ........................... 788.37
August 15, 2000 ........................... 836.66
February 15, 2001 ........................... 887.90
August 15, 2001 ........................... 942.29
February 15, 2002 ........................... $1,000.00
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the sum of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (b) an amount equal to the
product of (x) the Accreted Value for the Semi-Annual Accrual Date
immediately following the Specified Date less the Accreted Value for the
Semi-Annual Accrual Date immediately preceding the Specified Date and (y) a
fraction, the numerator of which is the number of days actually elapsed
from the immediately preceding Semi-Annual Accrual Date to the Specified
Date, using a 360-day year of twelve 30-day months, and the denominator of
which is 180; and
(iii) if the Specified Date is after February 15, 2002, $1,000; and
<PAGE>
-2-
(b) as of any date on and after the Cash Interest Election Date, with
respect to each $1,000 principal face amount of Securities, the Accreted Value
determined in accordance with the foregoing as of such Cash Interest Election
Date (without any further accretion).
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
---------------------
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any
---------------
other Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of
-----------
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by the Company or any Restricted
Subsidiary, in either case pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated or merged with or into the
Company or any Restricted Subsidiary or (ii) any acquisition by the Company or
any Restricted Subsidiary of the assets of any Person which constitute
substantially all of an operating unit or line of business of such Person or
which is otherwise outside of the ordinary course of business.
"Additional Interest" has the meaning provided in Section 4(a) of the
-------------------
Registration Rights Agreement.
"Affiliate" of any specified Person means any other Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that (i) beneficial ownership of 10.0% or more of the voting power of the then
outstanding voting securities of a Person shall be deemed to be control; (ii) so
long as the Company or any Subsidiary of the Company owns a partnership interest
in PRIMESTAR Partners, PRIMESTAR Partners shall be deemed an Affiliate of the
Company; (iii) so long as any of the Permitted Holders is an Affiliate of TCI
and the Company, TCI shall be deemed an Affiliate of the Company and its
Subsidiaries; and (iv) no individual, other than a director of the Company or an
officer of the Company with a policy making function, shall be deemed an
Affiliate of the Company or any of its Subsidiaries, solely by reason of such
individual's employment, position or responsibilities by or with respect to the
Company or any of its Subsidiaries.
"Affiliate Transaction" see Section 4.03.
---------------------
"Agent" means any Registrar, Paying Agent or co-Registrar.
----
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
----------
lease (that has the effect of a disposition) or other disposition (including,
without limitation, any merger, consolidation or sale-leaseback transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary, in
one transaction or a series of related transactions, of (i) any Equity Interest
of any Restricted Subsidiary; (ii) any material license, franchise or other
authorization of the Company or any Restricted Subsidiary; (iii) any assets of
the Company or any Restricted Subsidiary which constitute substantially all of
an operating unit or line of business
<PAGE>
-3-
of the Company or any Restricted Subsidiary; or (iv) any other property or asset
of the Company or any Restricted Subsidiary outside of the ordinary course of
business (including the receipt of proceeds paid on account of the loss of or
damage to any property or asset and awards of compensation for any asset taken
by condemnation, eminent domain or similar proceedings). The term "Asset Sale"
shall also include the receipt of any damages or other amounts due under the
Satellite Construction Agreement to the Company or any Subsidiary (including,
without limitation, the refund of the full purchase price of any Company
Satellite which has not been delivered pursuant to the terms thereof) from a
Person other than the Company or its Subsidiaries. The term "Asset Sale" shall
not include (a) any transaction consummated in compliance with Section 5.01 and
the creation of any Lien not prohibited by Section 4.18; provided, however, that
any transaction consummated in compliance with Section 5.01 involving a sale,
conveyance, assignment, transfer, lease or other disposal of less than all of
the properties or assets of the Company and the Restricted Subsidiaries shall be
deemed to be an Asset Sale with respect to the properties or assets of the
Company and Restricted Subsidiaries that are not so sold, conveyed, assigned,
transferred, leased or otherwise disposed of in such transaction; (b) sales of
property or equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Company or any
Restricted Subsidiary, as the case may be; (c) any transaction consummated in
compliance with Section 4.06; and (d) sales of accounts receivable for cash at
fair market value. In addition, solely for purposes of Section 4.05, any sale,
conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions, involving assets
with a Fair Market Value not in excess of $10.0 million in any fiscal year shall
be deemed not to be an Asset Sale.
"Bankruptcy Law" see Section 6.01.
--------------
"Basic Documents" means the Reorganization Agreement, the Transition
---------------
Services Agreement, the Tax Sharing Agreement, the Indemnification Agreements,
the Trade Name and Service Mark License Agreement, the Fulfillment Agreement,
the TCIC Credit Facility, the Share Purchase Agreement, the Partnership
Agreement, the Partnership Credit Agreement, the Tempo Option, the Tag-Along
Agreement and the Tempo Letter Agreements.
"Board of Directors" means the Board of Directors of the Company or
------------------
any Guarantor, as the case may be, or any authorized committee of that Board.
"Board Resolution" means, with respect to any Person, a duly adopted
----------------
resolution of the Board of Directors of such Person.
"Business Day" means a day (other than a Saturday or Sunday) on which
------------
the Depository and banks in New York are open for business.
"C-Band Dividend" see Section 4.06.
---------------
"C-Band Entity" see Section 4.06.
-------------
"C-Band Investment" see Section 4.06.
-----------------
"Cable Plus" has the meaning set forth in the Confidential Offering
----------
Memorandum dated as of February 14, 1997 with respect to the initial offering of
the Securities.
<PAGE>
-4-
"Capital Lease Obligation" means, at the time any determination
------------------------
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Cash Equivalents" means: (a) U.S. dollars; (b) securities issued or
----------------
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition; (c) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(b) and (c) entered into with any financial institution meeting the
qualifications specified in clause (c) above; and (e) commercial paper rated
P-1, A-1 or the equivalent thereof by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, respectively, and in each case maturing within
six months after the date of acquisition.
"Cash Interest Election" see paragraph 1 of the Securities.
----------------------
"Cash Interest Election Date" see paragraph 1 of the Securities.
---------------------------
"Change of Control" shall mean the occurrence of any of the following
-----------------
events (whether or not approved by the Board of Directors of the Company): (a)
any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of
the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act),
excluding Permitted Holders, is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time upon the happening of an event or otherwise), directly or
indirectly, of more than 35% of the total voting power of the then outstanding
Voting Equity Interests of the Company; (b) the Company consolidates with, or
merges with or into, another Person or the Company or the Restricted
Subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of all
or substantially all of the assets of the Company and the Restricted
Subsidiaries (determined on a consolidated basis) to any Person (other than a
Wholly Owned Restricted Subsidiary), or any Person consolidates with, or merges
with or into, the Company, in any such event pursuant to a transaction in which
the outstanding Voting Equity Interests of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Equity Interests of the Company
is converted into or exchanged for (1) Qualified Equity Interests of the
surviving or transferee corporation or (2) cash, securities or other property in
an amount which could be paid by the Company as a Restricted Payment under this
Indenture and (ii) immediately after such transaction the Person or Persons that
"beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time) immediately prior to
such transaction, directly or indirectly, a majority of the total voting power
of the then outstanding Voting Equity Interests of the Company "beneficially
own" (as so determined) a majority of the total voting power of the then
outstanding Voting Equity Interests of the surviving or transferee Person; (c)
during any consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any new
directors whose election by the Board of Directors of the Company or whose
nomination for election by the stockholders of the Company was approved by a
vote of at least a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease
<PAGE>
-5-
for any reason (other than by action of the Permitted Holders) to constitute a
majority of the Board of Directors of the Company then in office; or (d) the
liquidation or dissolution of the Company. Anything contained herein to the
contrary notwithstanding, the issuance of Voting Equity Interests of the Company
to Permitted Holders in connection with the acquisition of all the partnership
interests in PRIMESTAR Partners held by such Permitted Holders (provided that
the amount of partnership interests held by such Permitted Holders on the date
of such acquisition is not less than the amount held by such Permitted Holders
on the Issue Date otherwise than pursuant to the transfer of partnership
interests in PRIMESTAR Partners to another Permitted Holder whose partnership
interests have been or simultaneously therewith will be acquired by the Company
or any Restricted Subsidiary or the dilution of such Permitted Holder's
partnership interests in PRIMESTAR Partners solely due to its failure to pay
capital contributions required by the Partnership Agreement), so long as in
connection with such acquisition of such partnership interests the Company or a
Restricted Subsidiary acquires all rights of such Permitted Holders (and its
Affiliates) to distribute the PRIMESTAR(R) programming services, shall not
constitute a Change of Control for purposes of this Indenture or the Securities.
"Change of Control Date" see Section 4.14.
----------------------
"Collateral" has the meaning provided in Section 6(a) of the Escrow
----------
Agreement.
"Communications Act" means the Communications Act of 1934, as amended.
------------------
"Company" means the Person named as the "Company" in the first
-------
paragraph of this Indenture until a successor shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
"Company Request" or "Company Order" means a written request or order
--------------- -------------
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President, a Vice President or its Treasurer, and by
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Company Satellite" means either of the two high power direct
-----------------
broadcast satellites which Tempo has agreed to purchase from Loral pursuant to
the Satellite Construction Agreement.
"Consolidated Income Tax Expense" means, with respect to the Company
-------------------------------
for any period, the provision for federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for
-----------------------------
any period, without duplication, the sum of (i) the interest expense of the
Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount; (b) the net cost under Interest Rate
Protection Obligations (including any amortization of discounts); (c) the
interest portion of any deferred payment obligation; (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing; and (e) all capitalized interest and all accrued
interest; (ii) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by the Company and the Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP; and (iii) dividends and distributions in respect of
Disqualified Equity Interests actually paid in cash by the Company during such
period as determined on a consolidated basis in accordance with GAAP.
<PAGE>
-6-
"Consolidated Net Income" means, with respect to any period, the net
-----------------------
income of the Company and the Restricted Subsidiaries for such period determined
on a consolidated basis in accordance with GAAP, adjusted, to the extent
included in calculating such net income, by excluding, without duplication, (a)
all extraordinary gains or losses and all gains and losses from the sales or
other dispositions of assets out of the ordinary course of business (net of
taxes, fees and expenses relating to the transaction giving rise thereto) for
such period; (b) that portion of such net income derived from or in respect of
investments in Persons other than Restricted Subsidiaries, except to the extent
actually received in cash by the Company or any Restricted Subsidiary (subject,
in the case of any Restricted Subsidiary, to the provisions of clause (e) of
this definition); (c) the portion of such net income (or loss) allocable to
minority interests in any Person (other than a Restricted Subsidiary) for such
period, except to the extent actually received in cash by the Company or any
Restricted Subsidiary (subject, in the case of any Restricted Subsidiary, to the
provisions of clause (e) of this definition); (d) net income (or loss) of any
other Person combined with the Company or any Restricted Subsidiary on a
"pooling of interests" basis attributable to any period prior to the date of
combination; and (e) the net income of any Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time (regardless of any waiver)
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted Subsidiary or its Equity
Interest holders.
"Consolidated Operating Cash Flow" means, with respect to any period,
--------------------------------
Consolidated Net Income for such period increased (without duplication) by the
sum of (a) Consolidated Income Tax Expense for such period to the extent
deducted in determining Consolidated Net Income for such period; (b)
Consolidated Interest Expense for such period to the extent deducted in
determining Consolidated Net Income for such period; (c) all dividends on
Preferred Equity Interests to the extent not taken into account for computing
Consolidated Net Income for such period; and (d) depreciation, amortization and
any other non cash items for such period to the extent deducted in determining
Consolidated Net Income for such period (other than any non cash item which
requires the accrual of, or a reserve for, cash charges for any future period)
of the Company and the Restricted Subsidiaries, including, without limitation,
amortization of capitalized debt issuance costs for such period, all of the
foregoing determined on a consolidated basis in accordance with GAAP minus non
cash items to the extent they increase Consolidated Net Income (including the
partial or entire reversal of reserves taken in prior periods) for such period.
Consolidated Operating Cash Flow for the Company for any period shall be
calculated by subtracting therefrom (1) the Consolidated Operating Cash Flow for
such period of the High Power Satellite Transmission Subsidiary to the extent
that Investments have been made pursuant to clause (x) of the second paragraph
of Section 4.06 with such Consolidated Operating Cash Flow and (2) any C-Band
Dividends in such period and the Consolidated Operating Cash Flow for such
period of each Restricted C-Band Subsidiary in each case to the extent that
Restricted Payments have been made pursuant to clause (xii) of the second
paragraph of Section 4.06 with such C-Band Dividends or such Consolidated
Operating Cash Flow.
"Corporate Trust Office of the Trustee" shall be at the address of the
-------------------------------------
Trustee specified in Section 13.02 or such other address as the Trustee may give
notice to the Company.
"Cumulative Operating Cash Flow" means, as at any date of
------------------------------
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on the Issue Date and ending on the last day of the
most recent fiscal quarter immediately preceding the date of determination for
which consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Custodian" see Section 6.01.
---------
<PAGE>
-7-
"DBS" means direct broadcast satellite.
---
"Debt to Operating Cash Flow Ratio" means the ratio of (a) the Total
---------------------------------
Consolidated Indebtedness as of the date of calculation (the "Determination
-------------
Date") to (b) four times the Consolidated Operating Cash Flow for the latest
fiscal quarter for which financial information is available immediately
preceding such Determination Date (the "Measurement Period"). For purposes of
------------------
calculating Consolidated Operating Cash Flow for the Measurement Period
immediately prior to the relevant Determination Date, (I) any Person that is a
Restricted Subsidiary on the Determination Date (or would become a Restricted
Subsidiary on such Determination Date in connection with the transaction that
requires the determination of such Consolidated Operating Cash Flow) will be
deemed to have been a Restricted Subsidiary at all times during such Measurement
Period, (II) any Person that is not a Restricted Subsidiary on such
Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated Operating Cash Flow) will be deemed not to
have been a Restricted Subsidiary at any time during such Measurement Period,
and (III) if the Company or any Restricted Subsidiary shall have in any manner
(x) acquired (including through an Acquisition or the commencement of activities
constituting such operating business) or (y) disposed of (including by way of an
Asset Sale or the termination or discontinuance of activities constituting such
operating business) any operating business during such Measurement Period or
after the end of such period and on or prior to such Determination Date, such
calculation will be made on a pro forma basis in accordance with GAAP as if, in
the case of an Acquisition or the commencement of activities constituting such
operating business, all such transactions had been consummated on the first day
of such Measurement Period and, in the case of an Asset Sale or termination or
discontinuance of activities constituting such operating business, all such
transactions had been consummated prior to the first day of such Measurement
Period; provided, however, that such pro forma adjustment shall not give effect
to the Consolidated Operating Cash Flow of any Acquired Person to the extent
that such Person's net income would be excluded pursuant to clause (e) of the
definition of "Consolidated Net Income." For purposes of determining Total
Consolidated Indebtedness as of any Determination Date, the sum of all
Indebtedness outstanding under the Senior Credit Facility on such Determination
Date and all amounts that the Company or any Restricted Subsidiary could borrow
under the Senior Credit Facility on such Determination Date (assuming the
satisfaction of all conditions precedent under the Senior Credit Facility other
than conditions relating solely to incremental amounts being available under the
Senior Credit Facility) shall be deemed to be outstanding and added to Total
Consolidated Indebtedness on such Determination Date (but without duplication).
"Default" means any event that is, or after notice or lapse of time or
------
both would become, an Event of Default.
"Default Amount" means, (i) as of any date prior to the earlier of
--------------
February 15, 2002 and the Cash Interest Election Date, the Accreted Value of all
outstanding Securities (plus any applicable premium thereon) as of such date and
(ii) as of any date on or after the earlier of February 15, 2002 and the Cash
Interest Election Date, the principal amount at maturity of all outstanding
Securities (plus any applicable premium thereon), plus accrued and unpaid
interest, if any, thereon.
"Depository" means, with respect to the Securities issued in the form
----------
of one or more Global Securities, The Depository Trust Company or another Person
designated as Depository by the Company, which must be a clearing agency
registered under the Exchange Act.
"Designated Guarantor Senior Indebtedness" means, with respect to any
----------------------------------------
Guarantor, (a) any Indebtedness of such Guarantor outstanding under the Senior
Credit Facility and (b) any other Guarantor Senior Indebtedness of such
Guarantor which, at the time of determination, has an aggregate outstanding
principal
<PAGE>
-8-
amount outstanding, together with any commitments to lend additional amounts, of
at least $25.0 million if the instrument governing such Guarantor Senior
Indebtedness expressly states that such Indebtedness is Guarantor Senior
Indebtedness for purposes of this Indenture and a Board Resolution setting forth
such designation by the Company has been filed with the Trustee.
"Designated Senior Indebtedness" means (a) any Indebtedness of the
------------------------------
Company outstanding under the Senior Credit Facility and (b) any other Senior
Indebtedness which, at the time of determination, has an aggregate principal
amount outstanding, together with any commitments to lend additional amounts, of
at least $25.0 million, if the instrument governing such Senior Indebtedness
expressly states that such Indebtedness is "Designated Senior Indebtedness" for
purposes of this Indenture and a Board Resolution setting forth such designation
by the Company has been filed with the Trustee.
"Designation" see Section 4.17.
-----------
"Designation Amount" see Section 4.17.
------------------
"Determination Date" has the meaning set forth in the definition of
------------------
"Debt to Operating Cash Flow Ratio" above.
"Disposition" means, with respect to any Person, any merger,
-----------
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
----------------------------
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the earlier
of the maturity date of the Securities or the date on which no Securities remain
outstanding.
"Distribution" means the distribution by TCI on December 4, 1996, in
------------
the form of a dividend, to the holders of record of Tele-Communications, Inc.
Series A TCI Group Common Stock, $1.00 par value per share, and Tele-
Communications, Inc. Series B TCI Group Common Stock, $1.00 par value per share,
on November 12, 1996 (other than certain subsidiaries of TCI that waived such
dividend) of all the issued and outstanding shares of Company common stock.
"Eligible Institution" means a commercial banking institution that has
--------------------
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated Investment Grade at the time as of which
any investment or rollover therein is made.
"Equity Interest" in any Person means any and all shares, interests,
---------------
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Escrow Account" has the meaning set forth in Section 2 of the Escrow
--------------
Agreement.
"Escrow Agent" has the meaning set forth in the first paragraph of the
------------
Escrow Agreement.
<PAGE>
-9-
"Escrow Agreement" means the Escrow Agreement dated as of February 20,
----------------
1997 among the Company, the Trustee and the Escrow Agent, as amended and in
effect from time to time.
"Escrow Funds" has the meaning set forth in Section 1 of the Escrow
------------
Agreement.
"Event of Default" see Section 6.01.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated by the SEC thereunder.
"Existing Indebtedness" means any Indebtedness of the Company and its
---------------------
Subsidiaries in existence on the Issue Date until such amounts are repaid
(including, without limitation, obligations pursuant to the Indemnification
Agreements and the Reorganization Agreement).
"Expiration Date" has the meaning set forth in the definition of
---------------
"Offer to Purchase" below.
"Fair Market Value" means, with respect to any asset, the price (after
-----------------
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.
"FCC Permit" means the construction permit held by Tempo and issued by
----------
the Federal Communications Commission to build, launch and operate a DBS system.
"Final Maturity Date" means February 15, 2007.
-------------------
"Fulfillment Agreement" means the agreement dated as of August 30,
---------------------
1996 between TCIC and the Company, pursuant to which TCIC provides fulfillment
services to the Company with respect to certain customers of the PRIMESTAR(R)
medium power service, as amended and in effect from time to time.
"Funding Guarantor" see Section 11.05.
-----------------
"GAAP" means, at any date of determination, generally accepted
----
accounting principles in effect in the United States which are applicable at the
date of determination and which are consistently applied for all applicable
periods.
"GE Americom" means GE American Communications, Inc., a Delaware
-----------
corporation, and its successors.
"GEAS" means GE Americom Services, Inc., a Delaware corporation and a
----
partner of PRIMESTAR Partners, and its successors.
"GE-2 Acceptance" see Section 4.19.
---------------
"GE-2 Agreement" means the Amended and Restated Memorandum of
--------------
Agreement, effective as of October 18, 1996, between PRIMESTAR Partners and GE
Americom and, upon the execution of the
<PAGE>
-10-
Service Agreement (as defined in the GE-2 Agreement) between PRIMESTAR Partners
and GE Americom contemplated therein, shall include such Service Agreement, as
amended and in effect from time to time.
"GE-2 Satellite" means the GE Americom medium power satellite with
--------------
which GE Americom intends to replace the medium power satellite currently being
used by PRIMESTAR Partners (K-2).
"GE-2 Satellite Event" see Section 4.19.
--------------------
"GE-3 Satellite" means the GE Americom medium power satellite that is
--------------
expected to serve as an in-orbit spare for the GE-2 Satellite.
"Global Security" means a security evidencing all or a portion of the
---------------
Securities issued to the Depository or its nominee in accordance with Section
2.01 and bearing the legend set forth in Exhibit C hereto.
---------
"Government Securities" means direct obligations of, or obligations
---------------------
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"guarantee" means, as applied to any obligation, (i) a guarantee
---------
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guarantor Blockage Period" see Section 12.02(a).
-------------------------
"Guarantor Payment Blockage Notice" see Section 12.02(a).
---------------------------------
"Guarantor Senior Indebtedness" means, with respect to any Guarantor,
-----------------------------
at any date, (a) all Obligations of such Guarantor under the Senior Credit
Facility; (b) all Interest Rate Protection Obligations of such Guarantor; (c)
all Obligations of such Guarantor under stand-by letters of credit; and (d) all
other Indebtedness of such Guarantor for borrowed money, including principal,
premium, if any, and interest (including Post-Petition Interest) on such
Indebtedness, unless the instrument under which such Indebtedness of such
Guarantor for money borrowed is Incurred expressly provides that such
Indebtedness for money borrowed in not senior or superior in right of payment to
such Guarantor's Guaranty of the Securities, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Guarantor Senior Indebtedness shall not include (a) any obligation of
such Guarantor under the TCIC Credit Facility; (b) to the extent that it may
constitute Indebtedness, any Obligation for federal, state, local or other
taxes; (c) any Indebtedness between such Guarantor and any Subsidiary of such
Guarantor; (d) to the extent that it may constitute Indebtedness, any Obligation
in respect of any trade payable incurred for the purchase of goods or materials,
or for services obtained, in the ordinary course of business; (e) that portion
of any Indebtedness that is Incurred in violation of this Indenture; provided,
however, that such Indebtedness shall be deemed not to have been Incurred in
violation of this Indenture for purposes of this clause (e) if (i) the holder(s)
of such Indebtedness or their representative or the Company shall have furnished
to the Trustee an opinion of independent legal counsel, unqualified in all
material respects, addressed to the Trustee (which legal counsel may, as to
<PAGE>
-11-
matters of fact, rely upon an Officers' Certificate of the Company) to the
effect that the Incurrence of such Indebtedness does not violate the provisions
of this Indenture or (ii) in the case of any Obligations under the Senior Credit
Facility, the holder(s) of such Obligations or their agent or representative
shall have received a representation from the Company to the effect that the
Incurrence of such Indebtedness does not violate the provisions of this
Indenture; (f) Indebtedness evidenced by such Guarantor's Guaranty of the
Securities; (g) Indebtedness of such Guarantor that is expressly subordinate or
junior in right of payment to any other Indebtedness of such Guarantor; (h) to
the extent that it may constitute Indebtedness, any obligation owing under
leases (other than Capitalized Lease Obligations) or management agreements; and
(i) any obligation that by operation of law is subordinated to any general
unsecured obligations of such Guarantor.
"Guarantors" means each Restricted Subsidiary, whether formed or
----------
acquired before or after the Issue Date, which is required to become a Guarantor
of the Securities pursuant to Section 4.20.
"Guaranty" see Section 4.20.
--------
"High Power Satellite Transmission Business" means the business of the
------------------------------------------
acquisition, transmission and sale of programming in the high power direct
broadcast satellite business utilizing broadcast satellite service operating in
the Ku-band (including any provision of such services to cable operators or
other media providers), which may utilize all or part of satellites owned or
leased by PRIMESTAR Partners or a Subsidiary and all other activities relating
thereto or arising therefrom other than the construction, sale or financing of
broadcast satellites.
"High Power Satellite Transmission Subsidiary" means a direct, Wholly-
--------------------------------------------
Owned Restricted Subsidiary of the Company which engages in, or acts as a
distributor for, the High Power Satellite Transmission Business.
"Holder," "holder of Securities," "Securityholders" or other similar
------ -------------------- ---------------
terms mean the registered holder of any Security.
"Incur" means, with respect to any Indebtedness or other obligation of
-----
any Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing).
"Indebtedness" means (without duplication), with respect to any
------------
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (a) every obligation of such Person for money
borrowed; (b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business which
are not overdue or which are being contested in good faith); (e) every Capital
Lease Obligation of such Person; (f) every net obligation under interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements of such Person; (g) every obligation of the type referred to in
clauses (a) through (f) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable for, di-
<PAGE>
-12-
rectly or indirectly, as obligor, guarantor or otherwise; and (h) any and all
deferrals, renewals, extensions and refundings of, or amendments, modifications
or supplements to, any liability of the kind described in any of the preceding
clauses (a) through (g) above. Indebtedness (a) shall never be calculated taking
into account any cash and cash equivalents held by such Person; (b) shall not
include obligations of any Person (x) arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business, provided that such obligations are extinguished within two Business
Days of their incurrence unless covered by an overdraft line, (y) resulting from
the endorsement of negotiable instruments for collection in the ordinary course
of business and consistent with past business practices and (z) under stand-by
letters of credit to the extent collateralized by cash or Cash Equivalents; (c)
which provides that an amount less than the principal amount thereof shall be
due upon any declaration of acceleration thereof shall be deemed to be incurred
or outstanding in an amount equal to the accreted value thereof at the date of
determination; (d) shall include the liquidation preference and any mandatory
redemption payment obligations in respect of any Disqualified Equity Interests
of the Company or any Restricted Subsidiary; and (e) shall not include
obligations under performance bonds, performance guarantees, surety bonds and
appeal bonds, letters of credit or similar obligations, incurred in the ordinary
course of business (other than obligations under or in respect of any direct or
indirect credit support for obligations of PRIMESTAR Partners or any
Unrestricted Subsidiary). For avoidance of doubt, Indebtedness of the Company or
any Restricted Subsidiary shall not include Indebtedness of PRIMESTAR Partners
(so long as PRIMESTAR Partners is not insolvent) solely by virtue of the Company
or such Restricted Subsidiary being a general partner of PRIMESTAR Partners to
the extent that there does not exist any judgment or other adjudication of
liability against the Company or any Restricted Subsidiary that is a general
partner of PRIMESTAR Partners or any of its properties.
"Indemnification Agreements" means the indemnification agreements
--------------------------
between (i) the Company and TCI UA 1, dated as of December 4, 1996, which
supports the Partnership Credit Agreement and (ii) the Company and TCIC, dated
as of December 4, 1996, relating to a letter of credit issued for the account of
two subsidiaries of TCI to support the Company's share of PRIMESTAR Partners'
obligations under the GE-2 Agreement, with respect to PRIMESTAR Partners' use of
transponders on GE-2, each as amended and in effect from time to time.
"Indenture" means this Indenture as amended or supplemented from time
---------
to time.
"Indentures" means this Indenture and the Senior Subordinated Notes
----------
Indenture.
"Independent Financial Advisor" means a nationally recognized,
-----------------------------
accounting, appraisal, investment banking firm or consultant engaged in the
satellite business that is, in the judgment of the Company's Board of Directors,
qualified to perform the task for which it has been engaged (i) which does not,
and whose directors, officers and employees or Affiliates do not, have a direct
or indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
------------------
Corporation, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, NationsBanc Capital Markets, Inc. and Scotia Capital Markets (USA)
Inc.
"In-Orbit Insurance" means, with respect to a Company Satellite (or
------------------
any replacement thereof), In-Orbit insurance providing coverage beginning not
earlier than 180 days after the launch of such Company Satellite (or any
replacement thereof) in an amount which is equal to or greater than the cost of
construction, launch
<PAGE>
-13-
and insurance of such Company Satellite (or any replacement thereof), which
insurance shall provide pro rata benefits to the insured upon a loss of more
than 20% of the capacity of such Company Satellite (or any replacement thereof)
and shall compensate the insured for a total loss upon a loss of more than 50%
of the capacity of such Company Satellite (or any replacement thereof).
"Insolvency or Liquidation Proceeding" means, with respect to any
------------------------------------
Person, any liquidation, dissolution or winding up of such Person, or any
bankruptcy, reorganization, insolvency, receivership or similar proceeding with
respect to such Person, whether voluntary or involuntary.
"Institutional Accredited Investor" means an institution that is an
---------------------------------
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"interest" means, with respect to the Securities, the sum of any cash
--------
interest and any Additional Interest on the Securities.
"Interest Payment Date" means each semiannual interest payment date on
---------------------
February 15 and August 15 of each year, commencing August 15, 2002 or, if
earlier, the February 15 or August 15 immediately after the Cash Interest
Election Date (if any).
"Interest Rate Protection Obligations" means, with respect to any
------------------------------------
Person, the Obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Interest Record Date" for the interest payable on any Interest
--------------------
Payment Date (except a date for payment of defaulted interest) means the
February 1 or August 1 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date.
"Investment" means, with respect to any Person, any direct or indirect
---------
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. The amount
of any Investment shall be the original cost of such Investment, plus the cost
----
of all additions thereto, and minus the amount of any portion of such Investment
-----
repaid to such Person in cash as a repayment of principal or a return of
capital, as the case may be, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment. In determining the amount of any investment involving a transfer of
any property or asset other than cash, such property shall be valued at its fair
market value at the time of such transfer, as determined in good faith by the
board of directors (or comparable body) of the Person making such transfer.
"Investment Grade" means with respect to a security, that such
----------------
security is rated, by at least two nationally recognized statistical rating
organizations, in one of each such organization's four highest generic rating
categories.
"Issue Date" means the original issue date of the Securities, February
----------
20, 1997.
<PAGE>
-14-
"Lien" means any lien, mortgage, charge, security interest,
----
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof, and any agreement to give any security interest).
"Loral" means Space Systems/Loral, Inc., a Delaware corporation, and
-----
its successors.
"Marketable Securities" means Government Securities maturing not later
---------------------
than 30 days after the date of acquisition.
"Maturity Date" means the Stated Maturity of the Securities.
-------------
"MDUs" means hotels, motels, bars, restaurants, businesses, schools
----
and other multiple dwelling units.
"Measurement Period" has the meaning set forth in the definition of
------------------
"Debt to Operating Cash Flow Ratio" above.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash
-----------------
or Cash Equivalents received by the Company or any Restricted Subsidiary in
respect of any Asset Sale, including all cash or Cash Equivalents received upon
any sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale (provided that the amount of any such reserves shall be deemed
to constitute Net Cash Proceeds at the time such reserves shall have been
released or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Subsidiaries, the portion of such cash payments
attributable to Persons holding a minority interest in such Subsidiary.
"Non-U.S. Person" means a person who is not a U.S. Person, as defined
---------------
in Regulation S.
"Obligations" means any principal, interest (including, without
-----------
limitation, Post-Petition Interest), penalties, fees, indemnifications,
reimbursement obligations, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to
-----
Purchase" below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
----------------- -----
behalf of the Company by first-class mail, postage prepaid, to each holder at
his address appearing in the register for the Securities on the date of the
Offer offering to purchase up to the principal amount of Securities specified in
such Offer at the purchase price specified in such Offer (as determined pursuant
to this Indenture). Unless otherwise required by applicable law, the Offer
shall specify an expiration date (the "Expiration Date") of the Offer to
---------------
Purchase, which shall be not less than 20 Business Days nor more than 60 days
after the date of such Offer, and a settlement date (the "Purchase Date") for
-------------
purchase of Securities to occur no later than five Business Days after the
Expiration Date. The Company shall notify the Trustee at least 15 Business Days
(or such shorter period
<PAGE>
-15-
as is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be mailed
by the Company or, at the Company's request, by the Trustee in the name and at
the expense of the Company; provided, however, that the Company may notify the
Trustee on the same Business Day as the mailing of the Offer of the Company's
obligation to make an Offer to Purchase pursuant to Section 4.19. The Offer
shall contain all the information required by applicable law to be included
therein. The Offer shall also contain information concerning the business of the
Company and its Subsidiaries which the Company in good faith believes will
enable such Holders to make an informed decision with respect to the Offer to
Purchase (which at a minimum will include (i) the most recent annual and
quarterly financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the document
required to be filed with the trustee pursuant to this Indenture (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein). The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Securities pursuant to
the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate Accreted Value of the outstanding Securities
offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such amount has been
determined pursuant to the Section of this Indenture requiring the Offer to
Purchase) (the "Purchase Amount");
---------------
(4) the purchase price to be paid by the Company for each $1,000 of
Accreted Value (if the Purchase Date is prior to the earlier of February
15, 2002 and the Cash Interest Election Date) or $1,000 aggregate principal
amount at maturity (if the Purchase Date is on or after such earlier date)
of Securities accepted for payment (as specified pursuant to this
Indenture) (the "Purchase Price");
--------------
(5) that the holder may tender all or any portion of the Securities
registered in the name of such holder and that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal face
amount;
(6) the place or places where Securities are to be surrendered for
tender pursuant to the Offer to Purchase;
(7) that interest or Accreted Value on any Security not tendered or
tendered but not purchased by the Company pursuant to the Offer to Purchase
will continue to accrue or accrete, as the case may be;
(8) that on the Purchase Date the Purchase Price will become due
and payable upon each Security being accepted for payment pursuant to the
Offer to Purchase and that interest or Accreted Value, as the case may be,
thereon shall cease to accrue or accrete, as the case may be, on and after
the Purchase Date;
<PAGE>
-16-
(9) that each Holder electing to tender all or any portion of a
Security pursuant to the Offer to Purchase will be required to surrender
such Security at the place or places specified in the Offer prior to the
close of business on the Expiration Date (such Security being, if the
Company or the Trustee so requires, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly
authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion of
Securities tendered if the Company (or its Paying Agent) receives, not
later than the close of business on the fifth Business Day next preceding
the Expiration Date, a facsimile transmission or letter setting forth the
name of the Holder, the principal amount at maturity of the Security the
Holder tendered, the certificate number of the Security the Holder tendered
and a statement that such Holder is withdrawing all or a portion of his
tender;
(11) that (a) if Securities in an aggregate principal amount at
maturity less than or equal to the Purchase Amount are duly tendered and
not withdrawn pursuant to the Offer to Purchase, the Company shall purchase
all such Securities and (b) if Securities in an aggregate principal amount
at maturity in excess of the Purchase Amount are tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase Securities
having an aggregate principal amount at maturity equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only Securities in denominations of $1,000 principal
face amount or integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Security is purchased only
in part, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in an aggregate principal amount at maturity equal to and in
exchange for the unpurchased portion of the Security so tendered.
An Offer to Purchase shall be governed by and effected in accordance
with the provisions above pertaining to any Offer.
"Officer" means the Chairman, any Vice Chairman, the President, any
-------
Vice President, the Chief Financial Officer, the Treasurer, or the Secretary of
the Company.
"Officers' Certificate" means a certificate signed by two Officers or
---------------------
by an Officer and an Assistant Treasurer or Assistant Secretary of the Company
complying with Sections 13.04 and 13.05.
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Other Indebtedness" see Section 4.05.
------------------
"Participant" has the meaning set forth in Section 2.15.
-----------
"Partnership Agreement" means the Limited Partnership Agreement of
---------------------
PRIMESTAR Partners (then known as K Prime Partners, L.P.), dated as of February
8, 1990, as amended and in effect from time to time.
<PAGE>
-17-
"Partnership Credit Agreement" means the Credit Agreement dated as of
----------------------------
March 9, 1994 among PRIMESTAR Partners, the banks party thereto, The Bank of New
York, The Chase Manhattan Bank (formerly known as Chemical Bank) and Citibank,
N.A., as Managing Agent, The Bank of New York, as Documentation Agent, and The
Chase Manhattan Bank (formerly known as Chemical Bank), as Administrative Agent,
as amended and in effect from time to time.
"Paying Agent" has the meaning provided in Section 2.03.
------------
"Payment Blockage Notice" see Section 8.02(a).
-----------------------
"Payment Blockage Period" see Section 8.02(a).
-----------------------
"Permitted Holder" means any of (i) the estate or the heirs of Bob
----------------
Magness (a shareholder of the Company), (ii) John C. Malone (a shareholder of
the Company, and a director of TCI and of the Company), (iii) the Kearns-Tribune
Corporation (a Utah corporation and a shareholder of the Company), (iv)
PRIMESTAR Partners (so long as all the then other partners in PRIMESTAR Partners
were partners in PRIMESTAR Partners on the Issue Date), (v) Persons who were
partners of PRIMESTAR Partners on the Issue Date, (vi) TCI, (vii) any of the
Permitted Transferees of the Persons referred to in clauses (i) through (vi),
and (viii) any Person or group controlled by each or any of the Persons referred
to in clauses (i) through (vii).
"Permitted Indebtedness" see Section 4.04.
----------------------
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
---------------------
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to employees made in the ordinary course of business not to exceed $1.0
million in the aggregate at any one time outstanding; (d) Interest Rate
Protection Obligations; (e) bonds, notes, debentures or other securities
received as a result of Asset Sales permitted under Section 4.05 not to exceed
15% of the total consideration for such Asset Sales; (f) transactions with
officers, directors and employees of the Company, or any Restricted Subsidiary
entered into in ordinary course of business (including compensation or employee
benefit arrangements with any such director or employee) and consistent with
past business practices; (g) Investments existing as of the Issue Date and any
amendment, extension, renewal or modification thereof to the extent that any
such amendment, extension, renewal or modification does not require the Company
or any Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; (h) any Investment to the
extent that the consideration therefor consists of Qualified Equity Interests of
the Company; (i) any Investment consisting of a guarantee by a Restricted
Subsidiary of Senior Indebtedness or any guarantee permitted under clause (e) of
the second paragraph of Section 4.04; (j) shares of Equity Interests of TCI
purchased pursuant to the Share Purchase Agreement; (k) shares of the common
stock of ResNet acquired pursuant to the conversion of the ResNet Subordinated
Loan; (l) warrants of ResNet acquired pursuant to the conversion of the ResNet
Subordinated Loan or the exercise of the ResNet Option; (m) shares of the common
stock of ResNet acquired pursuant to any exercise of warrants at a de minimis
exercise price; and (n) so long as the Company or any Restricted Subsidiary
holds partnership interests in PRIMESTAR Partners, the provision of any
guarantee, letter of credit or other credit support with respect to (x) an
obligation of PRIMESTAR Partners incurred under the Partnership Credit Agreement
(or any refinancing thereof) to the extent such obligation was incurred by
PRIMESTAR Partners to finance any Company Satellite or (y) any obligation of
PRIMESTAR Partners under the GE-2 Agreement, in each case in an amount not to
exceed the product of (I) a fraction, the numerator of which is the Company's
equity interest in PRIMESTAR Partners, and the denominator of which is all
partners' equity interest in PRIMESTAR Partners except GEAS, and (II) such
obligation of PRIMESTAR Partners incurred to finance
<PAGE>
-18-
such Company Satellite or such obligation of PRIMESTAR Partners under the GE-2
Agreement, as the case may be; provided, however that in no event shall the
amount of such Permitted Investment exceed $75.0 million in the case of the GE-2
Agreement and $146.0 million in the case of such obligation under the
Partnership Credit Agreement (or any refinancing thereof).
"Permitted Junior Securities" means any securities of the Company or
---------------------------
any other Person that are (i) equity securities without special covenants or
(ii) subordinated in right of payment to all Senior Indebtedness or Guarantor
Senior Indebtedness, as the case may be, that may at the time be outstanding, to
substantially the same extent as, or to a greater extent than, the Securities
are subordinated as provided in this Indenture, in any event pursuant to a court
order so providing and as to which (a) the rate of interest on such securities
shall not exceed the effective rate of interest on the Securities on the date of
this Indenture, (b) such securities shall not be entitled to the benefits of
covenants or defaults materially more beneficial to the holders of such
securities than those in effect with respect to the Securities on the date of
this Indenture and (c) such securities shall not provide for amortization
(including sinking fund and mandatory prepayment provisions) commencing prior to
the date six months following the final scheduled maturity date of the Senior
Indebtedness or Guarantor Senior Indebtedness, as the case may be (as modified
by the plan of reorganization of readjustment pursuant to which such securities
are issued).
"Permitted Liens" means (a) Liens on property of a Person existing at
---------------
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens
and other similar Liens arising in the ordinary course of business which secure
payment of obligations not more than 60 days past due or which are being
contested in good faith and by appropriate proceedings; (c) Liens existing on
the Issue Date; (d) Liens securing only the Securities; (e) Liens in favor of
the Company or any Restricted Subsidiary so long as held by the Company or any
Restricted Subsidiary; (f) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted;
provided, however, that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (g) easements,
reservation of rights of way, restrictions and other similar easements,
licenses, restrictions on the use of properties, or minor imperfections of title
that in the aggregate are not material in amount and do not in any case
materially detract from the properties subject thereto or interfere with the
ordinary conduct of the business of the Company and the Restricted Subsidiaries;
(h) Liens resulting from the deposit of cash or notes in connection with
contracts, tenders or expropriation proceedings, or to secure workers'
compensation, surety or appeal bonds, costs of litigation when required by law
and public and statutory obligations or obligations under franchise arrangements
entered into in the ordinary course of business; (i) Liens securing Indebtedness
consisting of Capitalized Lease Obligations, Purchase Money Indebtedness,
mortgage financings, industrial revenue bonds or other monetary obligations, in
each case incurred solely for the purpose of financing all or any part of the
purchase price or cost of construction or installation of assets used in the
business of the Company or the Restricted Subsidiaries, or repairs, additions or
improvements to such assets; provided, however, that (I) such Liens secure
Indebtedness in an amount not in excess of the original purchase price or the
original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness), (II) such Liens do not extend to any other
assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the Incurrence of such Indebtedness is permitted by Section
4.04, and (IV) such Liens attach within 90 days of such purchase, construction,
installation, repair,
<PAGE>
-19-
addition or improvement; (j) Liens to secure any refinancings, renewals,
extensions, modifications or replacements (collectively, "refinancing") (or
-----------
successive refinancings), in whole or in part, of any Indebtedness secured by
Liens referred to in the clauses above so long as such Lien does not extend to
any other property (other than improvements thereto); (k) Liens securing letters
of credit entered into in the ordinary course of business and consistent with
past business practice; (l) Liens on and pledges of the Equity Interests of any
Unrestricted Subsidiary securing any Indebtedness of such Unrestricted
Subsidiary; and (m) any calls or rights of first refusal with respect to any
partnership interests, and any right of the Partnership to remove a partner's
representative from the partners committee of the Partnership, under the
Partnership Agreement as in effect on the Issue Date.
"Permitted Transferee" means, with respect to any Person: (a) in the
--------------------
case of any Person who is a natural person, such individual's spouse or
children, any trust for such individual's benefit or the benefit of such
individual's spouse or children, or any corporation or partnership in which the
direct and beneficial owner of all of the equity interest is such Person or such
individual's spouse or children or any trust for the benefit of such persons;
(b) in the case of any Person who is a natural person, the heirs, executors,
administrators or personal representatives upon the death of such Person or upon
the incompetency or disability of such Person for purposes of the protection and
management of such individual's assets; and (c) in the case of any Person who is
not a natural person, any Affiliate of such Person.
"Person" means any individual, corporation, limited liability company,
------
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Physical Securities" has the meaning set forth in Section 2.01.
-------------------
"Placement Agreement" means the Purchase Agreement dated February 14,
-------------------
1997 between the Company and the Initial Purchasers.
"Post-Petition Interest" means, with respect to any Senior
----------------------
Indebtedness of any Person, all interest accrued or accruing on such
Indebtedness after the commencement of any Insolvency or Liquidation Proceeding
against such Person in accordance with and at the contract rate (including,
without limitation, any rate applicable upon default) specified in the agreement
or instrument creating, evidencing or governing such Indebtedness, whether or
not, pursuant to applicable law or otherwise, the claim for such interest is
allowed as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest," in any Person, means an Equity Interest
-------------------------
of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over
Equity Interests of any other class in such Person.
"PRIMESTAR Partners" means PRIMESTAR Partners L.P., a Delaware
------------------
partnership.
"principal amount at maturity" means, with respect to the Securities,
----------------------------
$1,000 per $1,000 face amount of Securities; provided, however, that if the
Company shall have made a Cash Interest Election, the principal amount at
maturity with respect to each Security shall be the Accreted Value of such
Security as of the Cash Interest Election Date.
<PAGE>
-20-
"principal" of a debt security means the principal of the security,
--------
which in the case of the Securities as of any given date, is the Accreted Value
of the Securities as of such date, plus, when appropriate, the premium, if any,
on the security.
"Private Placement Legend" means the legend initially set forth on the
------------------------
Securities in the form set forth on Exhibit A hereto.
---------
"Public Equity Offering" means an underwritten public offering of
----------------------
Qualified Equity Interests of the Company pursuant to an effective registration
statement filed under the Securities Act (excluding registration statements
filed on Form S-8).
"Purchase Amount" has the meaning set forth in the definition of
---------------
"Offer to Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer
-------------
to Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
---------------------------
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property
(other than integrated receiver/decoders or related equipment); provided,
however, that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.
"Purchase Price" has the meaning set forth in the definition of "Offer
--------------
to Purchase" above.
"Qualified Institutional Buyer" or "QIB" means a "qualified
----------------------------- ---
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
"QIB Global Security" see Section 2.01.
-------------------
"Qualified Equity Interest" in any Person means any Equity Interest in
-------------------------
such Person other than any Disqualified Equity Interest.
"Redemption Date," when used with respect to any Security to be
----------------
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Security to be
----------------
redeemed, means the price fixed for such redemption pursuant to this Indenture
as set forth in the form of Security annexed hereto as Exhibit A.
---------
"Registered Exchange Offer" means the offer to exchange the Series B
-------------------------
Securities for all of the outstanding Series A Securities in accordance with the
Registration Rights Agreement.
"Registrar" see Section 2.03.
---------
"Registration" means a registered Exchange Offer for the Securities by
------------
the Company or other registration of the Securities under the Securities Act
pursuant to and in accordance with the terms of the Registration Rights
Agreement.
<PAGE>
-21-
"Registration Rights Agreement" means the Senior Subordinated Discount
-----------------------------
Notes Registration Rights Agreement dated as of February 20, 1997 between the
Company and the Initial Purchasers.
"Registration Statement" means the registration statement(s) as
----------------------
defined and described in the Registration Rights Agreement.
"Regulation S" means Regulation S under the Securities Act.
------------
"Regulation S Global Security" see Section 2.01.
----------------------------
"Related Acquisition" see Section 4.04.
-------------------
"Reorganization Agreement" means the agreement entered into on
------------------------
December 4, 1996 by TCI, TCIC and a number of other TCI subsidiaries, including
the Company and its subsidiaries, which provided for, among other things, the
principal corporate transactions 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, as amended and in
effect from time to time.
"Required Designation" see Section 4.17.
--------------------
"Required Filing Date" see Section 4.12.
--------------------
"ResNet" means ResNet Communications, Inc., a Delaware corporation,
------
and its successors.
"ResNet Option" means the Option Agreement between the Company and
-------------
ResNet dated October 21, 1996, as amended and in effect from time to time.
"ResNet Subordinated Loan" means the subordinated loan in the
------------------------
principal amount of $36,604,000 made by the Company to ResNet, as amended and in
effect from time to time.
"Restricted C-Band Subsidiary" see Section 4.06.
----------------------------
"Restricted Investment" means any Investment other than a Permitted
---------------------
Investment.
"Restricted Payments" see Section 4.06.
-------------------
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
-------------------
under the Securities Act; provided, that the Trustee shall be entitled to
request and conclusively rely upon an Opinion of Counsel with respect to whether
any Security is a Restricted Security
"Restricted Subsidiary" means any Subsidiary of the Company that has
---------------------
not been designated by the Board of Directors of the Company, by a resolution of
the Board of Directors of the Company delivered to the Trustee, as an
Unrestricted Subsidiary pursuant to Section 4.17; provided, however, that Tempo
is designated as an Unrestricted Subsidiary as of the Issue Date (which
designation may be changed in accordance with Section 4.17) and such resolution
as of the Issue Date need not be delivered. Any such designation may be revoked
by a resolution of the Board of Directors of the Company delivered to the
Trustee, subject to the provisions of such covenant.
<PAGE>
-22-
"Revocation" see Section 4.17.
----------
"Rule 144A" means Rule 144A under the Securities Act.
---------
"Satellite Construction Agreement" means the fixed price satellite
--------------------------------
construction agreement between Loral and Tempo dated as of February 22, 1990, as
amended and in effect from time to time.
"Satellite No. 1" means the Company Satellite outfitted with an
---------------
antenna designed for the 119 degrees W.L. orbital location.
"Satellite No. 2" means the Company Satellite outfitted with an
---------------
antenna designed for the 82 degrees W.L. orbital location.
"Satellite Subsidiary" see Section 4.17.
--------------------
"SEC" means the Securities and Exchange Commission.
---
"Securities" means the Series A Securities and the Series B Securities
----------
treated as a single class of securities, as amended or supplemented from time to
time in accordance with the terms of this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated by the SEC thereunder.
"Securities Amount" see Section 4.05.
-----------------
"Securities Portion of Unutilized Net Cash Proceeds" see Section 4.05.
--------------------------------------------------
"Semi-Annual Accrual Date" has the meaning set forth in the definition
------------------------
of "Accreted Value" above.
"Senior Credit Facility" means the Credit Agreement, dated as of
----------------------
December 31, 1996, between the Company, the lenders named therein, and The Bank
of Nova Scotia, as Agent, including any deferrals, renewals, waivers,
extensions, replacements, refinancings or refundings thereof, or amendments,
modifications or supplements thereto and any agreement providing therefor,
whether by or with the same or any other lender, creditor, group of lenders or
group of creditors, and including related notes, guarantees, security
agreements, pledge agreements, mortgages, other collateral documents (including
all Loan Documents (as defined in the Senior Credit Facility)) and note
agreements and other instruments and agreements executed in connection
therewith.
"Senior Indebtedness" means, at any date, (a) all Obligations of the
-------------------
Company under the Senior Credit Facility; (b) all Interest Rate Protection
Obligations of the Company; (c) all Obligations of the Company under stand-by
letters of credit; and (d) all other Indebtedness of the Company for borrowed
money, including principal, premium, if any, and interest (including Post-
Petition Interest) on such Indebtedness, unless the instrument under which such
Indebtedness of the Company for money borrowed is Incurred expressly provides
that such Indebtedness for money borrowed is not senior or superior in right of
payment to the Securities, and all renewals, extensions, modifications,
amendments or refinancings thereof. Notwithstanding the foregoing, Senior
Indebtedness shall not include (a) any obligation of the Company under the TCIC
Credit
<PAGE>
-23-
Facility; (b) to the extent that it may constitute Indebtedness, any Obligation
for federal, state, local or other taxes; (c) any Indebtedness between the
Company and any Subsidiary of the Company; (d) to the extent that it may
constitute Indebtedness, any Obligation in respect of any trade payable Incurred
for the purchase of goods or materials, or for services obtained, in the
ordinary course of business; (e) that portion of any Indebtedness that is
Incurred in violation of this Indenture; provided, however, that such
Indebtedness shall be deemed not to have been Incurred in violation of this
Indenture for purposes of this clause (e) if (I) the holder(s) of such
Indebtedness or their representative or the Company shall have furnished to the
Trustee an opinion of independent legal counsel, unqualified in all material
respects, addressed to the Trustee (which legal counsel may, as to matters of
fact, rely upon an Officers' Certificate of the Company) to the effect that the
Incurrence of such Indebtedness does not violate the provisions of this
Indenture or (II) in the case of any Obligations under the Senior Credit
Facility, the holder(s) of such Obligations or their agent or representative
shall have received a representation from the Company to the effect that the
Incurrence of such Indebtedness does not violate the provisions of this
Indenture; (f) Indebtedness evidenced by the Securities; (g) Indebtedness of the
Company that is expressly subordinate or junior in right of payment to any other
Indebtedness of the Company; (h) to the extent that it may constitute
Indebtedness, any obligation owing under leases (other than Capitalized Lease
Obligations) or management agreements; and (i) any obligation that by operation
of law is subordinate to any general unsecured obligations of the Company.
"Senior Subordinated Notes" means the 10 7/8% Senior Subordinated
-------------------------
Notes due 2007, Series A, issued pursuant to the terms of the Senior
Subordinated Notes Indenture, and the 10 7/8% Senior Subordinated Notes due
2007, Series B, to be issued in exchange for the 10 7/8% Senior Subordinated
Notes, Series A, in a registered exchange offer pursuant to the terms of the
Senior Subordinated Notes Indenture and the Senior Subordinated Notes
Registration Rights Agreement.
"Senior Subordinated Notes Indenture" means the Indenture dated as of
-----------------------------------
February 20, 1996 between the Company and The Bank of New York, as trustee,
pursuant to which the Senior Subordinated Notes of the Company were issued, as
the same may be amended, modified and supplemented from time to time.
"Senior Subordinated Notes Registration Rights Agreement" means the
-------------------------------------------------------
Senior Subordinated Notes Registration Rights Agreement dated as of February 20,
1997 between the Company and the Initial Purchasers.
"Series A Securities" means the 12 1/4% Senior Subordinated Discount
-------------------
Notes due 2007, Series A, of the Company issued pursuant to this Indenture and
sold pursuant to the Placement Agreement.
"Series B Securities" means the 12 1/4% Senior Subordinated Discount
-------------------
Notes due 2007, Series B, of the Company to be issued in exchange for the Series
A Securities pursuant to the Registered Exchange Offer and the Registration
Rights Agreement.
"Share Purchase Agreement" means the share purchase agreement entered
------------------------
into by TCI and the Company on December 4, 1996, as amended and in effect from
time to time.
"Significant Restricted Subsidiary" means, at any date of
---------------------------------
determination, (a) any Restricted Subsidiary that, together with its
Subsidiaries that constitute Restricted Subsidiaries (i) for the most recent
fiscal year of the Company accounted for more than 5.0% of the consolidated
revenues of the Company and the Restricted Subsidiaries or (ii) as of the end of
such fiscal year, owned more than 5.0% of the consolidated assets of the Company
and the Restricted Subsidiaries, all as set forth on the consolidated financial
statements
<PAGE>
-24-
of the Company and the Restricted Subsidiaries for such year prepared in
conformity with GAAP, and (b) any Restricted Subsidiary which, when aggregated
with all other Restricted Subsidiaries that are not otherwise Significant
Restricted Subsidiaries and as to which any event described in clause (6), (7),
(8), (9) or (10) of Section 6.01 has occurred, would constitute a Significant
Restricted Subsidiary under clause (a) of this definition.
"Stated Maturity" means (i) with respect to any debt security, the
---------------
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Strategic Equity Investor" means a corporation or entity with an
-------------------------
equity market capitalization, a net asset value or annual revenues of at least
$1.5 billion that primarily owns and operates businesses in the
telecommunications, information systems, entertainment, cable television,
programming, electronics or similar or related industries.
"Subordinated Indebtedness" means any Indebtedness of the Company
-------------------------
which is expressly subordinated in right of payment to the Securities.
"Subsidiary" means, with respect to any Person, (a) any corporation of
---------
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or
----------------
that makes any Disposition, the Person formed by or surviving such Disposition
or the Person to which such Disposition is made.
"Tag-Along Agreement" means the 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, as amended and in effect from time to time.
"Tax Sharing Agreement" means the tax sharing agreement effective as
---------------------
of July 1, 1995 among TCI, TCIC and certain other consolidated subsidiaries of
TCI, as amended and in effect from time to time.
"TCI" means Tele-Communications, Inc., a Delaware corporation, and its
---
successors.
"TCIC" means TCI Communications, Inc., a Delaware corporation, and its
----
successors.
"TCIC Credit Facility" means the amended and restated credit agreement
--------------------
dated as of February 19, 1997 between TCIC and the Company, as amended and in
effect from time to time.
"TCIC Loan Amount" see Section 4.19.
----------------
"Tempo" means Tempo Satellite, Inc., an Oklahoma corporation, and its
-----
successors.
"Tempo Letter Agreements" means the two letter agreements dated as of
-----------------------
July 30, 1993 entered into by Tempo and PRIMESTAR Partners in connection with
the Tempo Option and certain related matters and any refinancings thereof, as
amended and in effect from time to time.
<PAGE>
-25-
"Tempo Option" means PRIMESTAR Partners' right and option, granted by
------------
Tempo under the option agreement entered into by Tempo and PRIMESTAR Partners in
February 1991 to purchase or lease 100% of the capacity of a DBS system to be
built, launched, and operated by Tempo pursuant to the FCC Permit.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)77aaa-
---
77bbbb), as amended, as in effect on the date of this Indenture, except as
provided in Section 10.03.
"Total Consolidated Indebtedness" means, as at any date of
-------------------------------
determination, an amount equal to the aggregate amount of all Indebtedness and
Disqualified Equity Interests of the Company and the Restricted Subsidiaries
outstanding as of such date of determination.
"Trade Name and Service Mark License Agreement" means the trade name
---------------------------------------------
and service mark license agreement between the Company and TCI dated December 4,
1996, a subsidiary of TCI, as amended and in effect from time to time.
"Transition Services Agreement" means the agreement dated as of
-----------------------------
December 4, 1996 between TCI and the Company, pursuant to which TCI provides to
the Company certain services and other benefits, including certain
administrative and other services that were provided to the Company by TCI prior
to the Distribution, as amended and in effect from time to time.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
-------------
department (or any successor group of the Trustee) including any vice president,
assistant vice president, assistant secretary or any other officer or assistant
officer of the Trustee customarily performing functions similar to those
performed by the persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such trust matter is referred because of his knowledge of and familiarity
with the particular subject.
"UCC" means the Uniform Commercial Code as in effect from time to time
---
in the State of New York.
"United States Government Obligations" see Section 9.01.
------------------------------------
"Unrestricted Subsidiary" means any Subsidiary of the Company
-----------------------
designated as such pursuant to Section 4.17. Any such designation may be
revoked by a resolution of the Board of Directors of the Company delivered to
the Trustee, subject to the provisions of Section 4.17.
"Unutilized Net Cash Proceeds" see Section 4.05(a).
----------------------------
"U.S. Person" means a "U.S. person" as defined in Rule 902 under the
-----------
Securities Act.
"Voting Equity Interests" means Equity Interests in a corporation or
-----------------------
other Person with voting power under ordinary circumstances entitling the
holders thereof to elect the Board of Directors or other governing body of such
corporation or Person.
<PAGE>
-26-
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
----------------------------------
all of the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
"W.L." means West Longitude.
----
SECTION 1.01. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.02. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
in effect from time to time, and any other reference in this Indenture to
"generally accepted accounting principles" refers to GAAP;
(3) "or" is not exclusive;
<PAGE>
-27-
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Series A Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of Exhibit A hereto,
---------
which is hereby incorporated in and expressly made a part of this Indenture.
The Series B Securities and the Trustee's certificate of authentication thereof
shall be substantially in the form of Exhibit B hereto, which is hereby
---------
incorporated in and expressly made a part of this Indenture. The Securities may
have notations, legends or endorsements (including notations relating to the
Guaranties) required by law, stock exchange rule or usage. The Company and the
Trustee shall approve the form of the Securities and any notation, legend or
endorsement (including notations relating to the Guaranties) on them. Each
Security shall be dated the date of its issuance and shall show the date of its
authentication.
Securities initially offered and sold by the Initial Purchasers (i) to
Qualified Institutional Buyers in reliance on Rule 144A, (ii) to Institutional
Accredited Investors or (iii) in offshore transactions in reliance on Regulation
S shall, unless the applicable Holder requests Securities in the form of
Certificated Securities in registered form ("Physical Securities"), which shall
-------------------
be in substantially the form set forth in Exhibit A, be issued initially in the
---------
form of one or more permanent Global Securities in registered form,
substantially in the form set forth in Exhibit A hereto, deposited with the
---------
Trustee, as custodian for the Depository, and shall bear the legend set forth on
Exhibit C hereto. One or more separate Global Securities shall be issued to
- ---------
represent Securities held by (i) Qualified Institutional Buyers (a "QIB Global
----------
Security"), (ii) Institutional Accredited Investors (an "Accredited Investor
- -------- -------------------
Global Security") and (iii) Persons acquiring Securities in offshore
- ----------------
transactions in reliance on Regulation S (a "Regulation S Global Security").
----------------------------
The Company shall cause the QIB Global Securities, Accredited Investor Global
Securities and Regulation S Global Securities to have separate CUSIP numbers.
The aggregate principal amount of any Global Security may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depository, as hereinafter provided.
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Company by manual or facsimile
signature.
<PAGE>
-28-
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Series A Securities for original
issue in the aggregate principal face amount not to exceed $275,000,000 and (ii)
Series B Securities from time to time only in exchange for a like principal face
amount of Series A Securities, in each case upon a written order of the Company
in the form of an Officers' Certificate. The Officers' Certificate shall
specify the amount of Securities to be authenticated, the series of Securities
and the date on which the Securities are to be authenticated. The aggregate
principal face amount of Securities outstanding at any time may not exceed
$275,000,000, except as provided in Section 2.07. Upon receipt of a written
order of the Company in the form of an Officers' Certificate, the Trustee shall
authenticate Securities in substitution for Securities originally issued to
reflect any name change of the Company.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
---------
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
------------
notices and demands in respect of the Securities and this Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company, upon notice to the Trustee, may appoint one
or more co-Registrars and one or more additional Paying Agents. The term
"Paying Agent" includes any additional Paying Agent. Except as provided herein,
the Company, or any Subsidiary may act as Paying Agent, Registrar or co-
Registrar. Neither the Company, any Subsidiary, nor any of their respective
Affiliates may act as Paying Agent for purposes of any Offer to Purchase
required or permitted by Section 4.19 hereof.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed.
<PAGE>
-29-
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, or interest on, the Securities, and shall notify the Trustee of
any Default by the Company in making any such payment. The Company at any time
may require a Paying Agent to distribute all assets held by it to the Trustee
and account for any assets disbursed and the Trustee may at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee and
to account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Company to the Paying Agent (if
other than the Company), the Paying Agent shall have no further liability for
such assets. If the Company, any Subsidiary or any of their respective
Affiliates acts as Paying Agent, it shall, on or before each due date of the
principal of or interest on the Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee of
its action or failure so to act.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee before each Interest Record Date and at such other times as the Trustee
may request in writing a list as of such date and in such form as the Trustee
may reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when Securities
are presented to the Registrar or a co-Registrar with a request to register the
transfer of such Securities or to exchange such Securities for an equal
principal amount of Securities of other authorized denominations of the same
series, the Registrar or co-Registrar shall register the transfer or make the
exchange as requested if its requirements for such transaction are met;
provided, however, that the Securities surrendered for transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Securities at the Registrar's or co-Registrar's
written request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other governmental charge
payable upon exchanges or transfers pursuant to Section 2.02, 2.10, 3.06, 4.05,
4.14, 4.19 or 10.05). The Registrar or co-Registrar shall not be required to
register the transfer or exchange of any Security (i) during a period beginning
at the opening of business 15 days before the mailing of a notice of redemption
of Securities and ending at the close of business on the day of such mailing and
(ii) selected for redemption in whole or in part pursuant to Article Three
hereof, except the unredeemed portion of any Security being redeemed in part.
Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee, and any Agent of the Company shall treat the
person in whose name the Security is registered as the owner thereof for all
purposes whether or not the Security shall be overdue, and neither the Company,
the
<PAGE>
-30-
Trustee, nor any such Agent shall be affected by notice to the contrary. Any
Holder of a Global Security shall, by acceptance of such Global Security, agree
that transfers of beneficial interests in such Global Security may be effected
only through a book-entry system maintained by the Depository (or its agent),
and that ownership of a beneficial interest in a Global Security shall be
required to be reflected in a book entry.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements for replacement of Securities are met.
Such Holder must provide an indemnity bond or other indemnity, sufficient in the
judgment of both the Company and the Trustee, to protect the Company, the
Trustee and any Agent from any loss which any of them may suffer if a Security
is replaced and evidence to their satisfaction of the apparent loss, destruction
or theft of such Security. The Company may charge such Holder for its
reasonable out-of-pocket expenses in replacing a Security, including reasonable
fees and expenses of counsel.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those cancelled by it, those delivered
to it for cancellation and those described in this Section 2.08 as not
outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date, Purchase Date or the Final Maturity Date the
Paying Agent holds money sufficient to pay all of the principal and interest due
on the Securities payable on that date, then on and after that date such
Securities cease to be outstanding and interest or Accreted Value, as the case
may be, on them ceases to accrue or accrete, as the case may be.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount at
maturity of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company, the Guarantors or any of their respective
Affiliates shall be disregarded, except that, for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities that a Trust Officer of the Trustee actually knows
are so owned shall be disregarded.
The Trustee may require an Officers' Certificate listing Securities
owned by the Company, the Guarantors or their respective Affiliates.
<PAGE>
-31-
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate upon receipt of a written order of the Company pursuant to Section
2.02 definitive Securities in exchange for temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel all Securities surrendered for transfer, exchange,
payment or cancellation and deliver to the Company such canceled Securities for
disposal. Subject to Section 2.07, the Company may not issue new Securities to
replace Securities that it has paid or delivered to the Trustee for
cancellation. If the Company or any Guarantor shall acquire any of the
Securities, such acquisition shall not operate as a redemption or satisfaction
of the Indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of principal or interest on the
Securities, it shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the rate per annum borne by the Securities, to the
extent lawful.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities will use a "CUSIP" number and
the Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed only
on the other identification numbers printed on the Securities. The Company
shall promptly notify the Trustee of any changes in CUSIP numbers.
SECTION 2.14. Deposit of Moneys.
Prior to 10:00 a.m. New York City time on each Interest Payment Date,
Redemption Date, Purchase Date and the Final Maturity Date, the Company shall
deposit with the Paying Agent in immediately available funds money sufficient to
make cash payments, if any, due on such Interest Payment Date, Redemption Date,
Purchase Date or Final Maturity Date, as the case may be, in a timely manner
which permits the Paying Agent to remit payment to the Holders on such Interest
Payment Date, Redemption Date, Purchase Date or Final Maturity Date, as the case
may be.
SECTION 2.15. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Exhibit C hereto.
---------
<PAGE>
-32-
Members of, or participants in, the Depository ("Participants") shall
------------
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under such
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and Participants, the operation of customary practices governing the exercise of
the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.16. In
addition, Physical Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in Global Securities if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Security and a successor Depository is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a request from the
Depository to issue Physical Securities.
(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and make available for delivery, to
each beneficial owner identified by the Depository in exchange for its
beneficial interest in the Global Securities, an equal aggregate principal face
amount of Physical Securities of authorized denominations.
(d) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) of this Section 2.15 shall, except as otherwise provided by Section 2.16,
bear the Private Placement Legend.
(e) The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Participants and Persons that may hold
interests through Participants, to take any action which a Holder is entitled to
take under this Indenture or the Securities.
SECTION 2.16. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Physical Securities. When Physical
Securities are presented to the Registrar or co-Registrar with a request:
(i) to register the transfer of the Physical Securities; or
(ii) to exchange such Physical Securities for an equal number of
Physical Securities of other authorized denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.16 for such transactions are met; provided, however, that the Physical
Securities presented or surrendered for registration of transfer or exchange:
<PAGE>
-33-
(I) shall be duly endorsed or accompanied by a written instrument
of transfer in form satisfactory to the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing;
and
(II) in the case of Physical Securities the offer and sale of which
have not been registered under the Securities Act, such Physical Securities
shall be accompanied, in the sole discretion of the Company, by the
following additional information and documents, as applicable:
(A) if such Physical Security is being delivered to the Registrar
or co-Registrar by a Holder for registration in the name of
such Holder, without transfer, a certification from such Holder
to that effect (substantially in the form of Exhibit D hereto);
---------
or
(B) if such Physical Security is being transferred to a Qualified
Institutional Buyer in accordance with Rule 144A, a
certification to that effect (substantially in the form of
Exhibit D hereto); or
---------
(C) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a certification
to that effect (substantially in the form of Exhibit D hereto)
---------
and a transferee certificate for Institutional Accredited
Investors substantially in the form of Exhibit E hereto; or
---------
(D) if such Physical Security is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a
---------
transferor certificate for Regulation S transfers substantially
in the form of Exhibit F hereto and an Opinion of Counsel
---------
reasonably satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(E) if such Physical Security is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification
to that effect (substantially in the form of Exhibit D hereto)
-------
and an Opinion of Counsel reasonably satisfactory to the
Company to the effect that such transfer is in compliance with
the Securities Act; or
(F) if such Physical Security is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially
in the form of Exhibit D hereto) and an Opinion of Counsel
---------
reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act.
(b) Restrictions on Transfer of a Physical Security for a
Beneficial Interest in a Global Security. A Physical Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Registrar
or co-Registrar of a Physical Security, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Registrar or
co-Registrar, together with:
(A) certification, substantially in the form of Exhibit D hereto,
---------
that such Physical Security is being transferred (I) to a
Qualified Institutional Buyer, (II) to an Accredited Investor
or (III) in an offshore transaction in reliance on Regulation
S; and
<PAGE>
-34-
(B) written instructions directing the Registrar or co-Registrar to
make, or to direct the Depository to make, an endorsement on
the applicable Global Security to reflect an increase in the
aggregate amount of the Securities represented by the Global
Security,
then the Registrar or co-Registrar shall cancel such Physical Security and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar or
co-Registrar, the principal face amount of Securities represented by the
applicable Global Security to be increased accordingly. If no Global Security
representing Securities held by Qualified Institutional Buyers, Institutional
Accredited Investors or Persons acquiring Securities in offshore transactions in
reliance on Regulation S, as the case may be, is then outstanding, the Company
shall issue and the Trustee shall, upon written instructions from the Company in
accordance with Section 2.02, authenticate such a Global Security in the
appropriate principal face amount.
(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor. Upon receipt by the Registrar or Co-Registrar of written
instructions, or such other instruction as is customary for the Depository, from
the Depository or its nominee, requesting the registration of transfer of an
interest in a QIB Global Security, an Accredited Investor Global Security or
Regulation S Global Security, as the case may be, to another type of Global
Security, together with the applicable Global Securities (or, if the applicable
type of Global Security required to represent the interest as requested to be
transferred is not then outstanding, only the Global Security representing the
interest being transferred), the Registrar or Co-Registrar shall cancel such
Global Securities (or Global Security) and the Company shall issue and the
Trustee shall, upon written instructions from the Company in accordance with
Section 2.02, authenticate new Global Securities of the types so cancelled (or
the type so cancelled and applicable type required to represent the interest as
requested to be transferred) reflecting the applicable increase and decrease of
the principal face amount of Securities represented by such types of Global
Securities, giving effect to such transfer. If the applicable type of Global
Security required to represent the interest as requested to be transferred is
not outstanding at the time of such request, the Company shall issue and the
Trustee shall, upon written instructions from the Company in accordance with
Section 2.02, authenticate a new Global Security of such type in principal face
amount equal to the principal face amount of the interest requested to be
transferred.
(d) Transfer of a Beneficial Interest in a Global Security for a
Physical Security.
(i) Any Person having a beneficial interest in a Global Security
may upon request exchange such beneficial interest for a Physical Security.
Upon receipt by the Registrar or co-Registrar of written instructions, or
such other form of instructions as is customary for the Depository, from
the Depository or its nominee on behalf of any Person having a beneficial
interest in a Global Security and upon receipt by the Trustee of a written
order or such other form of instructions as is customary for the Depository
or the Person designated by the Depository as having such a beneficial
interest containing registration instructions and, in the case of any such
transfer or exchange of a beneficial interest in Securities the offer and
sale of which have not been registered under the Securities Act, the
following additional information and documents:
(A) if such beneficial interest is being transferred to the Person
designated by the Depository as being the beneficial owner, a
certification from such Person to that effect (substantially in
the form of Exhibit D hereto); or
---------
<PAGE>
-35-
(B) if such beneficial interest is being transferred to a Qualified
Institutional Buyer in accordance with Rule l44A, a
certification to that effect (substantially in the form of
Exhibit D hereto); or
---------
(C) if such beneficial interest is being transferred to an
Institutional Accredited Investor, delivery of a certification
to that effect (substantially in the form of Exhibit D hereto)
---------
and a transferee certificate for Institutional Accredited
Investors substantially in the form of Exhibit E hereto; or
---------
(D) if such beneficial interest is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto) and a
---------
transferor certificate for Regulation S transfers substantially
in the form of Exhibit F hereto and an Opinion of Counsel
---------
reasonably satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(E) if such beneficial interest is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification
to that effect (substantially in the form of Exhibit D hereto)
---------
and an Opinion of Counsel reasonably satisfactory to the
Company to the effect that such transfer is in compliance with
the Securities Act; or
(F) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially
in the form of Exhibit D hereto) and an Opinion of Counsel
---------
reasonably satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act,
then the Registrar or co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository and
the Registrar or co-Registrar, the aggregate principal face amount of the
applicable Global Security to be reduced and, following such reduction, the
Company will execute and, upon receipt of an authentication order in the
form of an Officers' Certificate in accordance with Section 2.02, the
Trustee will authenticate and deliver to the transferee a Physical Security
in the appropriate principal face amount.
(ii) Securities issued in exchange for a beneficial interest in a
Global Security pursuant to this Section 2.16(d) shall be registered in
such names and in such authorized denominations as the Depository, pursuant
to instructions from its direct or indirect participants or otherwise,
shall instruct the Registrar or co-Registrar in writing. The Registrar or
co-Registrar shall deliver such Physical Securities to the Persons in
whose names such Physical Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar or co-Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the transfer, exchange or replacement of Securities
bearing the Private Placement Legend, the Registrar or co-Registrar shall
deliver only Securities that bear the Private Placement
<PAGE>
-36-
Legend unless, and the Trustee is hereby authorized to deliver Securities
without the Private Placement Legend if, (i) there is delivered to the Trustee
an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to
the effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act or (ii) such Security has been sold pursuant to an effective registration
statement under the Securities Act.
(g) General. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among Participants or
beneficial owners of interest in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by the terms
of, this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company wants to redeem Securities pursuant to paragraph 5 or 6
of the Securities at the applicable redemption price set forth thereon, it shall
notify the Trustee in writing of the Redemption Date and the principal amount at
maturity of Securities to be redeemed. The Company shall give such notice to the
Trustee at least 45 days before the Redemption Date (unless a shorter notice
shall be agreed to by the Trustee in writing), together with an Officers'
Certificate stating that such redemption will comply with the conditions
contained herein.
SECTION 3.02. Selection of Securities To Be Redeemed.
If less than all of the Securities are to be redeemed pursuant to
paragraph 5 of the Securities, the Trustee shall select the Securities to be
redeemed in compliance with the requirements of the national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
or in such other manner as the Trustee shall deem fair and appropriate.
Selection of the Securities to be redeemed pursuant to paragraph 6 of the
Securities shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to the procedures of the Depository)
based on the aggregate principal amount at maturity of Securities held by each
<PAGE>
-37-
Holder. The Trustee shall make the selection from the Securities then
outstanding, subject to redemption and not previously called for redemption.
The Trustee may select for redemption pursuant to paragraph 5 or 6 of
the Securities portions of the principal face amount of Securities that have
denominations equal to or larger than $1,000 principal face amount. Securities
and portions of them the Trustee so selects shall be in amounts of $1,000
principal face amount or integral multiples thereof. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail to each Holder
whose Securities are to be redeemed at such Holder's registered address;
provided, however, that notice of a redemption pursuant to paragraph 6 of the
Securities shall be mailed to each Holder whose Securities are to be redeemed no
later than 60 days following the consummation of the last Public Equity Offering
or sale of Qualified Equity Interests of the Company to Strategic Equity
Investors resulting in gross cash proceeds to the Company, when aggregated with
all prior Public Equity Offerings and sales of Qualified Equity Interests of the
Company to Strategic Equity Investors, of at least $100.0 million.
Each notice of redemption shall identify the Securities to be redeemed
(including the CUSIP number thereon) and shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) the name and address of the Paying Agent to which the
Securities are to be surrendered for redemption;
(4) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(5) that, unless the Company defaults in making the redemption
payment, Accreted Value or interest on Securities called for redemption
ceases to accrete or accrue, as the case may be, on and after the
Redemption Date and the only remaining right of the Holders is to receive
payment of the redemption price upon surrender to the Paying Agent; and
(6) if any Security is being redeemed in part, the portion of the
principal amount at maturity of such Security to be redeemed and that,
after the Redemption Date, upon surrender of such Security, a new Security
or Securities in principal amount at maturity equal to the unredeemed
portion thereof will be issued.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
<PAGE>
-38-
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the redemption
price. Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price, plus accrued interest thereon, if any, to the Redemption Date,
but interest installments whose maturity is on or prior to such Redemption Date
shall be payable to the Holders of record at the close of business on the
relevant Interest Record Date.
SECTION 3.05. Deposit of Redemption Price.
At least one Business Day before the Redemption Date, the Company
shall deposit with the Paying Agent (or if the Company is its own Paying Agent,
shall, on or before the Redemption Date, segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest, if any, on all
Securities to be redeemed on that date other than Securities or portions thereof
called for redemption on that date which have been delivered by the Company to
the Trustee for cancellation.
If any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid on the Redemption Date due to the failure of
the Company to deposit with the Paying Agent money sufficient to pay the
redemption price thereof, the principal and accrued and unpaid interest, if any,
thereon shall, until paid or duly provided for, bear interest as provided in
Sections 2.12 and 4.01 with respect to any payment default.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee
shall authenticate for the Holder a new Security equal in principal amount at
maturity to the unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the Securities
in the manner provided in the Securities and the Registration Rights Agreement.
An installment of principal or interest shall be considered paid on the date due
if the Trustee or Paying Agent (other than the Company, a Subsidiary or an
Affiliate of the Company) holds on that date money designated for and sufficient
to pay the installment in full and is not prohibited from paying such money to
the Holders of the Securities pursuant to the terms of this Indenture.
The Company shall pay cash interest on overdue principal at the same
rate per annum borne by the Securities. The Company shall pay cash interest on
overdue installments of interest at the same rate per annum borne by the
Securities, to the extent lawful, as provided in Section 2.12.
<PAGE>
-39-
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03. The Company shall
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13.02
hereof. The Company hereby initially designates the Trustee at its address set
forth in Section 13.02 hereof as its office or agency in The Borough of
Manhattan, The City of New York for such purposes.
SECTION 4.03. Transactions with Affiliates.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, conduct any business or enter into any
transaction (or series of related transactions) with or for the benefit of any
of their respective Affiliates or any beneficial holder of 10% or more of the
Equity Interests of the Company or any officer, director or employee of the
Company or any Restricted Subsidiary (each an "Affiliate Transaction"), unless
---------------------
such Affiliate Transaction is on terms which are no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than would be
available in a comparable transaction with an unaffiliated third party. If such
Affiliate Transaction (or series of related Affiliate Transactions) involves
aggregate payments or other consideration having a Fair Market Value in excess
of $15.0 million, the Company shall not, and shall not cause or permit any
Restricted Subsidiary to, enter into such Affiliate Transaction, unless a
majority of the disinterested members of the Board of Directors of the Company
shall have approved such Affiliate Transaction and determined that such
Affiliate Transaction complies with the foregoing provisions; provided, however,
that if such Affiliate Transaction is in the ordinary course of business
consistent with the past practice of any business of the Company or a Restricted
Subsidiary, including the High Power Satellite Transmission Business, then there
shall be no need to comply with this sentence. In the event that the Company
obtains a written opinion from an Independent Financial Advisor (and files the
same with the Trustee) stating that the terms of an Affiliate Transaction are
fair, from a financial point of view, to the Company or the Restricted
Subsidiary involved in such Affiliate Transaction, as the case may be, such
opinion will conclusively meet the requirements of the first sentence of this
paragraph and there shall be no need to comply with the second sentence of this
paragraph.
Notwithstanding the foregoing, the restrictions set forth in this
covenant shall not apply to (i) transactions with or among the Company and any
Restricted Subsidiary or between or among Restricted Subsidiaries; (ii)
customary directors' fees, indemnification and similar arrangements, consulting
fees, employee salaries, bonuses or employment agreements, compensation or
employee benefit arrangements and incentive arrangements with any officer,
director or employee of the Company entered into in the ordinary course of
business (including customary benefits thereunder) and payments under any
indemnification arrangements permitted by applicable law; (iii) the Basic
Documents, each as in effect on the Issue Date, including any amendment or
extension thereof that does not otherwise violate any other covenant set forth
in this Indenture, and any transactions undertaken pursuant to any other
contractual obligations in existence on the Issue Date (as in effect on the
Issue Date); (iv) the issue and sale by the Company to its stockholders of
Qualified Equity Interests; (v) any Restricted Payments made in compliance with
Section 4.06; (vi) loans and advances to officers, directors and employees of
the Company and the Restricted Subsidiaries for travel, entertainment, moving
and other relocation expenses, in each case made in the ordinary course of
business and consistent with past business practices; (vii) the Incurrence of
intercompany Indebtedness permitted pursuant to clause (d) of
<PAGE>
-40-
the second paragraph of Section 4.04 hereof; and (viii) the pledge of Equity
Interests of Unrestricted Subsidiaries to support the Indebtedness thereof.
SECTION 4.04. Limitation on Indebtedness.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness (including
Acquired Indebtedness) or issue any Disqualified Equity Interests except for
Permitted Indebtedness; provided, however, that the Company may Incur
Indebtedness and the Company may issue Disqualified Equity Interests if, at the
time of and immediately after giving pro forma effect to such Incurrence of
Indebtedness or issuance of Disqualified Equity Interests and the application of
the proceeds therefrom, the Debt to Operating Cash Flow Ratio would be less than
or equal to (i) 7.25 to 1.0 if the date of such Incurrence is on or before
December 31, 1999, (ii) 6.50 to 1.0 if the date of such Incurrence is after
December 31, 1999 and on or prior to December 31, 2001, and (iii) 5.75 to 1.0 if
the date of such Incurrence is after December 31, 2001.
The foregoing limitations will not apply to the Incurrence by the
Company (or any Restricted Subsidiary with respect to clauses (b), (d), (e),
(g), (i), (j), (l) and (n) below of this paragraph) of any of the following
(collectively, "Permitted Indebtedness"), each of which shall be given
----------------------
independent effect:
(a) Indebtedness under the Senior Subordinated Notes, the
Securities and the Indentures;
(b) Existing Indebtedness;
(c) Indebtedness under the Senior Credit Facility in an aggregate
principal amount at any one time outstanding not to exceed the sum of (A)
$750.0 million, which amount shall be reduced by (x) any permanent
reduction of commitments thereunder and (y) any other repayment accompanied
by a permanent reduction of commitments thereunder (other than in
connection with any refinancing thereof where the aggregate principal
amount outstanding and commitments thereunder immediately prior thereto are
not greater than such amounts immediately thereafter), and increased (but
not above $750.0 million in the aggregate) by any increase in the aggregate
commitments under the Senior Credit Facility agreed to in connection with
the occurrence of a Replacement Satellite Event (as defined in the Senior
Credit Facility as in effect on the Issue Date) thereunder (provided that
such increase shall not be effective for purposes of this paragraph (c)
until (x) the successful launch and commencement of operations of a
permanent substitute satellite to the GE-2 Satellite pursuant to a
procedure of acceptance substantially similar to the procedure regarding
acceptance of the GE-2 Satellite or (y) the successful implementation, as
certified by the Company to the Trustee, of a plan of continued operation
of the PRIMESTARO business agreed to in writing by the Company and the
arranging agents under the Senior Credit Facility; plus (B) any amounts
----
outstanding under the Senior Credit Facility that utilize subparagraph (o)
of this paragraph of this covenant;
(d) (x) Indebtedness of any Restricted Subsidiary owed to and
held by the Company or any Restricted Subsidiary and (y) Indebtedness of
the Company owed to and held by any Restricted Subsidiary which is
unsecured and subordinated in right of payment to the payment and
performance of the Company's obligations under any Senior Indebtedness,
this Indenture and the Securities (or pledged to secure any Senior
Indebtedness); provided, however, that an Incurrence of Indebtedness that
is not permitted by this clause (d) shall be deemed to have occurred upon
(i) any sale or other disposition of any Indebtedness of the Company or any
Restricted Subsidiary referred to in this clause (d) to a Person (other
than the Company or any Restricted Subsidiary), (ii) any sale or other
disposi
<PAGE>
-41-
tion of Equity Interests of any Restricted Subsidiary which holds
Indebtedness of the Company or another Restricted Subsidiary such that such
Restricted Subsidiary ceases to be a Restricted Subsidiary, or (iii) the
designation of a Restricted Subsidiary which holds Indebtedness of the
Company or any other Restricted Subsidiary as an Unrestricted Subsidiary;
(e) guarantees by any Restricted Subsidiary of Senior Indebtedness of
the Company; provided, however, that if any such guarantee shall be
Incurred in respect of any Senior Indebtedness of the Company which has
registration rights (including the requirement to effect an exchange offer
registered under the Securities Act) or which is registered under the
Securities Act, such Restricted Subsidiary shall guarantee the Securities
on a senior subordinated basis as provided in Section 4.20 hereof;
(f) Interest Rate Protection Obligations of the Company relating
to Indebtedness of the Company (which Indebtedness (i) bears interest at
fluctuating interest rates and (ii) is otherwise permitted to be Incurred
under this covenant); provided, however, that the notional principal amount
of such Interest Rate Protection Obligations does not exceed the principal
amount of the Indebtedness to which such Interest Rate Protection
Obligations relate;
(g) Purchase Money Indebtedness and Capitalized Lease Obligations
which do not exceed $35.0 million in the aggregate at any one time
outstanding;
(h) Indebtedness or Disqualified Equity Interests to the extent
representing a replacement, renewal, refinancing or extension
(collectively, a "refinancing") of outstanding Indebtedness or Disqualified
Equity Interests Incurred in compliance with the Debt to Operating Cash
Flow Ratio of the first paragraph of this Section 4.04 or clause (a), (b),
(i), (j), (k), (l) or (n) of this paragraph of this Section 4.04; provided,
however, that (i) any such refinancing shall not exceed the sum of the
principal amount (or, if such Indebtedness or Disqualified Equity Interests
provide for a lesser amount to be due and payable upon a declaration of
acceleration thereof at the time of such refinancing, an amount no greater
than such lesser amount) of the Indebtedness or Disqualified Equity
Interests being refinanced, plus the amount of accrued interest or
----
dividends thereon, plus the amount of any reasonably determined prepayment
----
premium necessary to accomplish such refinancing and such reasonable fees
and expenses incurred in connection therewith, (ii) Indebtedness
representing a refinancing of Indebtedness other than Senior Indebtedness
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced,
(iii) Indebtedness that is pari passu with the Securities may only be
refinanced with Indebtedness that is made pari passu with or subordinate in
right of payment to the Securities and Subordinated Indebtedness or
Disqualified Equity Interests may only be refinanced with Subordinated
Indebtedness or Disqualified Equity Interests, (iv) no Restricted
Subsidiary may Incur Indebtedness to refinance Indebtedness of the Company,
and (v) with respect to any refinancing of Indebtedness Incurred pursuant
to clauses (i), (j), (k) or (l) of this paragraph, such refinancing
pursuant to this clause (h) shall also be deemed to be Incurred pursuant to
clause (i), (j), (k) or (l), as the case may be, of this paragraph (for the
avoidance of doubt, the result of which is that a refinancing does not
create new debt Incurrence capacity under such clauses);
(i) Indebtedness (including Acquired Indebtedness) not to exceed
$180.0 million in aggregate principal amount at any time outstanding
Incurred in connection with the acquisition by the Company or any
Restricted Subsidiary of partnership interests in PRIMESTAR Partners not
owned by the Company or any Restricted Subsidiary (including, without
limitation, the acquisition of a Person
<PAGE>
-42-
(other than the Company or any Restricted Subsidiary) that owns partnership
interests in PRIMESTAR Partners); provided, however, that (i) after giving
effect to such purchase the Company or a Restricted Subsidiary owns such
partnership interests and all right and title with respect thereto
(including the income and profits therefrom); and (ii) any such
Indebtedness Incurred by any Restricted Subsidiary shall only be permitted
to be Incurred if it is Acquired Indebtedness and shall not be Incurred if
such Acquired Indebtedness was Incurred in connection with, in
contemplation of or with a view to such transaction;
(j) Indebtedness (including Acquired Indebtedness) Incurred in
connection with the acquisition of any Person distributing PRIMESTAR(R)
television programming or the acquisition of any subscribers of any
distributor of PRIMESTAR(R) television programming and the right to
distribute PRIMESTAR(R) television programming to such subscribers (and
related assets and rights); provided, however, that (i) the aggregate
amount of any such Indebtedness Incurred in connection with any such
acquisition shall not exceed $750.00 per subscriber acquired in such
acquisition; (ii) such acquisition is effected through the Company or any
Restricted Subsidiary or a Person that becomes a Restricted Subsidiary; and
(iii) any such Indebtedness Incurred by any Restricted Subsidiary shall
only be permitted to be Incurred if it is Acquired Indebtedness and shall
not be Incurred if such Acquired Indebtedness was Incurred in connection
with, in contemplation of or with a view to such transaction;
(k) Indebtedness to fund purchases of inventory of integrated
receiver decoders and other related subscriber equipment to be used in the
business of the Company and the Restricted Subsidiaries not to exceed in
the aggregate at any time outstanding the lesser of (x) 50% of the
aggregate cost of such decoders and equipment and (y) $50.0 million;
(l) Indebtedness (including Acquired Indebtedness) Incurred to
effect the acquisition of other satellite communications businesses (or
Persons engaged in such business) (a "Related Acquisition") or to make C-
-------------------
Band Investments (so long as such C-Band Investment results in the
ownership by the Company or any Restricted Subsidiary of not less than 50%
of the economic Equity Interests and 50% of the Voting Equity Interests in
the subject Person or is made to fund the acquisition of other satellite
communications businesses by such Person in whom the C-Band Investment is
being made (so long as such acquisition is effected by such Person or one
of its Subsidiaries)); provided, however, that (i) the aggregate amount of
any such Indebtedness Incurred to effect any such Related Acquisition shall
not exceed (x) $750.00 per subscriber acquired in such Related Acquisition
if such Related Acquisition is in the medium or high power segment of the
satellite communications industry or (y) $500.00 per subscriber acquired in
such Related Acquisition if such Related Acquisition is in the C-band
segment of the satellite communications industry; (ii) such Related
Acquisition is effected through the Company or any Restricted Subsidiary or
a Person that becomes a Restricted Subsidiary; (iii) the aggregate amount
of any such Indebtedness Incurred to effect any C-Band Investments shall
not exceed (x) if such C-Band Investment is the initial Investment in the
Person in whom the C-Band Investment is being made, $250.00 per subscriber
existing at the time thereof of such Person in whom such C-Band Investment
is being made and (y) $250.00 per subscriber acquired if such C-Band
Investment is made to fund the acquisition by the Person in whom such C-
Band Investment is being made of other satellite communications businesses;
and (iv) any such Indebtedness Incurred by any Restricted Subsidiary shall
only be permitted to be Incurred if it is Acquired Indebtedness and shall
not be Incurred if such Acquired Indebtedness was Incurred in connection
with, in contemplation of or with a view to such transaction;
<PAGE>
-43-
(m) Indebtedness under the TCIC Credit Facility pursuant to the
terms thereof as in effect on the date hereof Incurred on or after the
occurrence of the GE-2 Satellite Event in an aggregate amount outstanding
not to exceed (x) at any time prior to the payment of the Purchase Price
for all Securities tendered pursuant to an Offer to Purchase required
pursuant to Section 4.19, $50.0 million, and (y) at any time after the
payment of the Purchase Price for all Securities tendered pursuant to an
Offer to Purchase required pursuant to Section 4.19, $100.0 million;
provided, however, that no Indebtedness pursuant to the TCIC Credit
Facility may be Incurred by the Company unless the final maturity thereof
is after March 31, 2001 (not including any requirement to repay such
Indebtedness upon the successful launch and viable operation of the GE-3
Satellite);
(n) Indebtedness under any guarantee, letter of credit or other
credit support with respect to (x) any obligations of PRIMESTAR Partners
under the Partnership Credit Agreement (or any refinancing thereof) to the
extent such obligation was Incurred by PRIMESTAR Partners to finance any
Company Satellite or (y) any obligations of PRIMESTAR Partners under the
GE-2 Agreement, in each case, to the extent the provision thereof is a
Permitted Investment under clause (n) of the definition of "Permitted
Investments"; and
(o) in addition to the items referred to in clauses (a) through
(n) above, Indebtedness of the Company (including any Indebtedness under
the Senior Credit Facility that utilizes this subparagraph (o)) having an
aggregate principal amount not to exceed $50.0 million at any time
outstanding; provided, however, that so long as no Default or Event of
Default shall have occurred and be continuing, such amount shall be
increased to a maximum of $100.0 million if, as of the end of the most
recently completed fiscal quarter of the Company after the Issue Date, the
Company shall have provided an Officers' Certificate to the Trustee that
the Company and the Restricted Subsidiaries had as of such date in excess
of 1.2 million subscribers.
Indebtedness of any Person or any of its Subsidiaries existing at the
time such Person becomes a Restricted Subsidiary (or is merged into or
consolidated with the Company or any Restricted Subsidiary), whether or not such
Indebtedness was incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary (or being merged into or consolidated
with the Company or any Restricted Subsidiary), shall be deemed Incurred at the
time any such Person becomes a Restricted Subsidiary or merges into or
consolidates with the Company or any Restricted Subsidiary; provided, however,
that any Indebtedness of any Unrestricted Subsidiary existing at the time of its
designation as a Restricted Subsidiary pursuant to the Required Designation
shall not be deemed Incurred at such time for purposes of the covenant.
If the Company Incurs any Indebtedness pursuant to the Debt to
Operating Cash Flow Ratio of the first paragraph of this covenant and included
in the calculation thereof the Consolidated Operating Cash Flow of the High
Power Satellite Transmission Subsidiary, C-Band Dividends or the Consolidated
Operating Cash Flow of any Restricted C-Band Subsidiary, then such Indebtedness
will be deemed to not have been Incurred in compliance with this covenant
(unless otherwise incurrable at such time under any of subparagraphs (a) - (o)
of the second paragraph of this covenant) if the Company or any Restricted
Subsidiary thereafter makes any Restricted Payment pursuant to clause (x) or
(xii) of the second paragraph of Section 4.06 and such Indebtedness could not
have been Incurred at the time of its Incurrence if any such Investment were
made immediately prior to such Incurrence.
<PAGE>
-44-
SECTION 4.05. Disposition of Proceeds of Asset Sales.
(a) The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, make any Asset Sale, unless
(i) the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets sold or otherwise disposed of and (ii) at least 85% of such
consideration consists of (A) cash or Cash Equivalents, (B) properties and
capital assets to be used in the same lines of business being conducted by the
Company or any Restricted Subsidiary at such time, or (C) Equity Interests in
one or more Persons which thereby become Restricted Subsidiaries whose assets
consist primarily of properties and capital assets used in the same line of
business being conducted by the Company or any Restricted Subsidiary at such
time. The amount of any (i) Indebtedness (other than any Subordinated
Indebtedness) of the Company or any Restricted Subsidiary that is actually
assumed by the transferee in such Asset Sale and from which the Company and the
Restricted Subsidiaries are fully released shall be deemed to be cash for
purposes of determining the percentage of cash consideration received by the
Company or the Restricted Subsidiaries and (ii) notes or other similar
obligations received by the Company or the Restricted Subsidiaries from such
transferee that are immediately converted, sold or exchanged (or are converted,
sold or exchanged within thirty days of the related Asset Sale) by the Company
or the Restricted Subsidiaries into cash shall be deemed to be cash, in an
amount equal to the net cash proceeds realized upon such conversion, sale or
exchange for purposes of determining the percentage of cash consideration
received by the Company or the Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 375 days of receipt thereof
to repay Senior Indebtedness and permanently reduce any related commitment, (ii)
commit in writing to acquire, construct or improve properties and capital assets
to be used in the same line of business being conducted by the Company or any
Restricted Subsidiary at such time and so apply such Net Cash Proceeds within
375 days after the receipt thereof, or (iii) apply the Net Cash proceeds of any
Asset Sale within 375 days after receipt thereof to the making of any Investment
which is permitted to be made under Section 4.06.
To the extent all or part of the Net Cash Proceeds of any Asset Sale
are not applied within 375 days of such Asset Sale as described in clause (i),
(ii) or (iii) of the immediately preceding paragraph (such Net Cash Proceeds,
the "Unutilized Net Cash Proceeds"), the Company shall, within 20 days after
----------------------------
such 375th day, make an Offer to Purchase all outstanding Securities up to a
maximum (i) prior to the earlier of February 15, 2002 and the Cash Interest
Election Date, Accreted Value and (ii) on and after such earlier date, principal
amount at maturity (expressed as a multiple of $1,000) of Securities equal to
the Securities Portion of Unutilized Net Cash Proceeds. Such Offer to Purchase
shall be made at a purchase price in cash equal to 100% of the Accreted Value on
the Purchase Date, unless the Purchase Date is on or after the earlier to occur
of February 15, 2002 and the Cash Interest Election Date, in which case such
purchase price shall be equal to 100% of the principal amount at maturity
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date;
provided, however, that the Offer to Purchase may be deferred until there are
aggregate Unutilized Net Cash Proceeds equal to or in excess of $15.0 million,
at which time the entire amount of such Unutilized Net Cash Proceeds, and not
just the amount in excess of $15.0 million, shall be applied as required
pursuant to this paragraph.
In the event that any other Indebtedness of the Company which ranks
pari passu with the Securities (including the Senior Subordinated Notes) (the
"Other Indebtedness") requires that an offer to purchase to be made to
------------------
repurchase such Other Indebtedness upon the consummation of any Asset Sale, the
Company may apply the Unutilized Net Cash Proceeds otherwise required to be
applied to an Offer to Purchase to offer to purchase such Other Indebtedness and
to an Offer to Purchase so long as the amount of such Unutilized Net
<PAGE>
-45-
Cash Proceeds applied to repurchase the Securities is not less than the
Securities Portion of Unutilized Net Cash Proceeds. With respect to any
Unutilized Net Cash Proceeds, the Company shall make the Offer to Purchase in
respect thereof at the same time as the analogous offer to purchase is made
under the Senior Subordinated Note Indenture and pursuant to any Other
Indebtedness and the Purchase Date in respect thereof shall be the same as the
purchase date in respect thereof pursuant to the Senior Subordinated Note
Indenture and pursuant to any Other Indebtedness.
For purposes of this Section 4.05, "Securities Portion of Unutilized
--------------------------------
Net Cash Proceeds" means the amount of the Unutilized Net Cash Proceeds equal to
- -----------------
the product of (x) the Unutilized Net Cash Proceeds and (y) a fraction the
numerator of which is the Accreted Value of all Securities tendered pursuant to
the Offer to Purchase related to such Unutilized Net Cash Proceeds (the
"Securities Amount") and the denominator of which is the sum of the Securities
-----------------
Amount and the lesser of the aggregate principal face amount or accreted value
as of the relevant purchase date of all Other Indebtedness tendered pursuant to
a concurrent offer to purchase such Other Indebtedness made at the time of such
Offer to Purchase.
With respect to any Offer to Purchase effected pursuant to this
Section 4.05, as among the Securities, to the extent that the Accreted Value as
of the Purchase Date (or principal amount at maturity after February 15, 2002
or, if a Cash Interest Election shall have been made, the Cash Interest Election
Date) of the Securities tendered pursuant to such Offer to Purchase exceeds the
Securities Portion of Unutilized Net Cash Proceeds with respect thereto, such
Securities shall be purchased pro rata based on the Accreted Value as of the
Purchase Date (or principal amount at maturity after February 15, 2002 or, if a
Cash Interest Election shall have been made, the Cash Interest Election Date) of
such Securities tendered by each Holder.
To the extent the Securities Portion of Unutilized Net Cash Proceeds
exceed the aggregate amount of Securities tendered by the Holders of the
Securities pursuant to the Offer to Purchase, the Company may retain and utilize
any portion of the Securities Portion of Unutilized Net Cash Proceeds not
applied to repurchase the Securities for any purpose consistent with the other
terms of this Indenture.
In the event that the Company makes an Offer to Purchase the
Securities, the Company shall comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act, and any violation of the provisions of this
Indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed an Event of Default or an event that with the
passing of time or giving of notice, or both, would constitute an Event of
Default.
(b) Each Holder shall be entitled to tender all or any portion of
the Securities owned by such Holder pursuant to the Offer to Purchase, subject
to the requirement that any portion of a Security tendered must be tendered in
an integral multiple of $1,000 principal face amount and subject to any
proration among tendering Holders as described above.
(c) So long as there are any amounts owed or due by the Company
or any Subsidiary to PRIMESTAR Partners under the Tempo Letter Agreements, or
the Company or any Restricted Subsidiary is directly or indirectly obligated,
contingently or otherwise, for any obligations under the Partnership Credit
Agreement (pursuant to any letter of credit, guarantee or other credit support
or otherwise), for purposes of the foregoing covenant, the sale or lease of
either or both of the Company Satellites (whether or not the Subsidiary owning
such Company Satellite is a Restricted Subsidiary), or any transponder thereon
or capacity thereof, to PRIMESTAR Partners or any other Person shall be
considered an Asset Sale unless (i) if such sale or lease is to PRIMESTAR
Partners of both Company Satellites, any balance due by the Company or any
Sub-
<PAGE>
-46-
sidiary to PRIMESTAR Partners under the Tempo Letter Agreements shall be
permanently extinguished and if such sale or lease is to PRIMESTAR Partners of
only one Company Satellite, then 100% of the net proceeds thereof are applied to
the balance due by the Company or any Subsidiary to PRIMESTAR Partners under the
Tempo Letter Agreements and (ii) if such sale or lease is to any other Person,
100% of the net proceeds thereof are applied to the balance due under the
Partnership Credit Agreement to the extent that the Company or any Restricted
Subsidiary has any letter of credit, guarantee or other credit support
outstanding in respect thereof and thereafter to the balance due by the Company
or any Subsidiary to PRIMESTAR Partners under the Tempo Letter Agreements. The
Company shall not and shall not cause or permit any Subsidiary to enter into or
suffer to exist any agreement, instrument, encumbrance or restriction which
would, directly or indirectly, limit, prohibit or restrict the compliance by the
Company and its Subsidiaries with the foregoing sentence.
(d) If the Company or any Restricted Subsidiary is engaged in the
High Power Satellite Transmission Business, the Company shall not and shall not
cause or permit any such High Power Satellite Transmission Subsidiary to sell,
convey, transfer, lease, assign, or otherwise encumber (i) any Company Satellite
(or any contract rights related to the construction, launch or insurance
thereof), (ii) any orbital slot owned by the Company or any Subsidiary, (iii)
the Equity Interests of any Subsidiary which owns any Company Satellite or any
orbital slot or any right, license, authorization or permit with respect to any
such orbital slot owned by such Subsidiary, or any other interest in an orbital
slot which may be sold or otherwise disposed of in compliance with all
applicable law (including the Communications Act and the rules and regulations
promulgated thereunder) or (iv) the income or profits of any of the foregoing,
unless in any such case immediately after such a transaction the Company or such
- ------
High Power Satellite Transmission Subsidiary has in place a binding agreement
providing for dedicated satellite capacity sufficient to serve its High Power
Satellite Transmission Business in the ordinary course of such business at least
until the stated maturity of the Securities and files such agreement with the
Trustee together with an Officers' Certificate certifying that such agreement
meets the foregoing criteria.
SECTION 4.06. Limitation on Restricted Payments.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any
Equity Interests of the Company or any Restricted Subsidiary or make any
payment or distribution to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company or any Restricted
Subsidiary (other than any dividends, distributions and payments made to
the Company or any Restricted Subsidiary and dividends or distributions
payable to any Person solely in Qualified Equity Interests of the Company
or in options, warrants or other rights to purchase Qualified Equity
Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any Restricted Subsidiary (other
than any such Equity Interests owned by the Company or any Restricted
Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any Subordinated Indebtedness (other
than any Subordinated Indebtedness held by any Restricted Subsidiary); or
(iv) make any Investment (other than Permitted Investments) in
any Person (other than in the Company, any Restricted Subsidiary or a
Person that becomes a Restricted Subsidiary, or is
<PAGE>
-47-
merged with or into or consolidated with the Company or a Restricted
Subsidiary (provided the Company or a Restricted Subsidiary is the
survivor) as a result of or in connection with such Investment);
(such payments or any other actions (other than the exceptions thereto)
described in (i), (ii), (iii) and (iv) collectively, "Restricted Payments"),
-------------------
unless
(a) no Default or Event of Default shall have occurred and be
continuing at the time or after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment,
the Company would be able to Incur $1.00 of Indebtedness (other than
Permitted Indebtedness) under the Debt to Operating Cash Flow Ratio of the
first paragraph of Section 4.04; and
(c) immediately after giving effect to such Restricted Payment,
the aggregate amount of all Restricted Payments declared or made on or
after the Issue Date does not exceed an amount equal to the sum of (1) the
difference between (x) the Cumulative Operating Cash Flow determined at the
time of such Restricted Payment and (y) 150% of cumulative Consolidated
Interest Expense of the Company determined for the period commencing on the
Issue Date and ending on the last day of the most recent fiscal quarter
immediately preceding the date of such Restricted Payment for which
consolidated financial information of the Company is available, plus (2)
----
the aggregate net cash proceeds received by the Company either (x) as
capital contributions to the Company after the Issue Date or (y) from the
issue and sale (other than to a Restricted Subsidiary) of its Qualified
Equity Interests after the Issue Date (excluding the net proceeds from any
issuance and sale of Qualified Equity Interests financed, directly or
indirectly, using funds borrowed from the Company or any Restricted
Subsidiary until and to the extent such borrowing is repaid), plus (3) the
----
principal amount (or accrued or accreted amount, if less) of any
Indebtedness of the Company or any Restricted Subsidiary Incurred after the
Issue Date which has been converted into or exchanged for Qualified Equity
Interests of the Company, plus (4) in the case of the disposition or
----
repayment of any Investment constituting a Restricted Payment made after
the Issue Date, an amount (to the extent not included in the computation of
Cumulative Operating Cash Flow) equal to the lesser of: (i) the return of
capital with respect to such Investment and (ii) the amount of such
Investment which was treated as a Restricted Payment, in either case, less
the cost of the disposition of such Investment and net of taxes, plus (5)
----
so long as the Designation thereof was treated as a Restricted Payment made
after the Issue Date, with respect to any Unrestricted Subsidiary that has
been redesignated as a Restricted Subsidiary after the Issue Date in
accordance with Section 4.17, the Company's proportionate interest in an
amount equal to the excess of (x) the total assets of such Subsidiary,
valued on an aggregate basis at the lesser of book value and Fair Market
Value, over (y) the total liabilities of such Subsidiary, determined in
accordance with GAAP (and provided that such amount shall not in any case
exceed the Designation Amount with respect to such Restricted Subsidiary
upon its Designation), plus (6) (to the extent not included in the
----
computation of Cumulative Operating Cash Flow) the amount of cash dividends
or cash distributions (other than to pay taxes) received from any
Unrestricted Subsidiary since the Issue Date, minus (7) the greater of (i)
-----
$0 and (ii) the Designation Amount (measured as of the date of Designation)
with respect to any Subsidiary of the Company which has been designated as
an Unrestricted Subsidiary after the Issue Date in accordance with Section
4.17.
The foregoing provisions will not prevent (i) the payment of any
dividend or distribution on, or redemption of, Equity Interests within 60 days
after the date of declaration of such dividend or distribution or the giving of
formal notice of such redemption, if at the date of such declaration or giving
of formal notice such payment or redemption would comply with the provisions of
this Indenture; (ii) the purchase, redemp-
<PAGE>
-48-
tion, retirement or other acquisition of any Equity Interests of the Company in
exchange for, or out of the net cash proceeds of the substantially concurrent
issue and sale (other than to a Restricted Subsidiary) of, Qualified Equity
Interests of the Company; provided, however, that any such net cash proceeds and
the value of any Equity Interests issued in exchange for such retired Equity
Interests are excluded from clause (c)(2) of the preceding paragraph (and were
not included therein at any time); (iii) the purchase, redemption, retirement,
defeasance or other acquisition of Subordinated Indebtedness, or any other
payment thereon, made in exchange for, or out of the net cash proceeds of, a
substantially concurrent issue and sale (other than to a Restricted Subsidiary)
of (x) Qualified Equity Interests of the Company; provided, however, that any
such net cash proceeds and the value of any Equity Interests issued in exchange
for Subordinated Indebtedness are excluded from clauses (c)(2) and (c)(3) of the
preceding paragraph (and were not included therein at any time) or (y) other
Subordinated Indebtedness having no stated maturity for the payment of principal
thereof prior to the final stated maturity of the Securities; (iv) Investments
in PRIMESTAR Partners required pursuant to a vote of the partners of PRIMESTAR
Partners, not to exceed $60.0 million in the aggregate since the Issue Date; (v)
Investments made within three years of the Issue Date in Persons engaged in the
provision of C-band direct-to-home television programming services (any such
person, a "C-Band Entity"); provided, however, that (x) immediately after giving
-------------
effect to such Investment the Company or a Restricted Subsidiary owns not less
than 50.0% of the voting power of the outstanding Voting Equity Interests in
such C-Band Entity and not less than 50.0% of the outstanding economic Equity
Interests in such C-Band Entity and (y) the aggregate amount of such Investments
made since the Issue Date shall not exceed $90.0 million (any such Investment
made pursuant to this clause (v) a "C-Band Investment"); (vi) Investments in
-----------------
ResNet so long as ResNet is engaged in whole or in substantial part in the
business of providing entertainment, data, information and/or telecommunications
services to MDUs and other commercial markets, not to exceed $45.0 million in
the aggregate since the Issue Date; (vii) any Investment to the extent that the
consideration therefor consists of the net cash proceeds of the substantially
concurrent issue and sale (other than to a Restricted Subsidiary) of Qualified
Equity Interests of the Company; provided, however, that any such net cash
proceeds are excluded from clause (c)(2) of the preceding paragraph (and were
not included therein at any time); (viii) the purchase, redemption or other
acquisition, cancellation or retirement for value of Equity Interests, or
options, warrants, equity appreciation rights or other rights to purchase or
acquire Equity Interests, of the Company or any Restricted Subsidiary, or
similar securities, held by officers or employees or former officers or
employees of the Company or any Restricted Subsidiary (or their estates or
beneficiaries under their estates), upon death, disability, retirement or
termination of employment, not to exceed $3.0 million in any calendar year and
$15.0 million in the aggregate since the Issue Date; (ix) the acquisition of any
general or limited partnership interest in PRIMESTAR Partners with the net
proceeds of any Indebtedness Incurred pursuant to clause (i) of the second
paragraph of Section 4.04; (x) Investments in any Unrestricted Subsidiary that
holds any high power satellite or the governmental authorizations relating
thereto to be used solely to pay the operating and financing expenses of such
Unrestricted Subsidiary in an amount not to exceed the product of (x) the
Company's percentage equity interest in such Unrestricted Subsidiary, times (y)
such Unrestricted Subsidiary's share of satellite construction and financing
costs; provided, however, that the funds used for such Investments shall be
derived solely from Consolidated Operating Cash Flow since the Issue Date of the
High Power Satellite Transmission Subsidiary (so long as such Consolidated
Operating Cash Flow of the High Power Satellite Transmission Subsidiary shall
not have been otherwise expended); provided, however, that no such Investment
pursuant to this clause (x) shall be permitted to the extent that the
Consolidated Operating Cash Flow of the High Power Satellite Transmission
Subsidiary to be utilized to effect such Investment was included in the
calculation of the Cumulative Operating Cash Flow at any time prior to the
making of such Investment; (xi) Investments in any other Person engaged in the
satellite, telecommunications, entertainment, electronics or any related
industry, not to exceed $50.0 million in the aggregate outstanding at any time;
provided, however, that so long as no Default or Event of Default shall have
occurred and be continuing, such amount shall be increased to a maximum of (I)
$75.0 million in the aggregate outstanding at any time if, as of the end of the
most recently completed fiscal quarter of the Company after the Issue Date, the
<PAGE>
-49-
Company shall have provided an Officers' Certificate to the Trustee that the
Company and the Restricted Subsidiaries had as of such date in excess of 1.2
million subscribers or (II) $90.0 million in the aggregate outstanding at any
time if, as of the end of the most recently completed fiscal quarter of the
Company after the Issue Date, the Company shall have provided an Officers'
Certificate to the Trustee that the Company and the Restricted Subsidiaries had
as of such date in excess of 1.6 million subscribers; (xii) the payment of
dividends in any period (I) on preferred stock of the Company issued in
connection with any C-Band Investment in a C-Band Entity, but only up to the
amount of cash dividends ("C-Band Dividends") received by the Company from such
----------------
C-Band Entity in the same period (to the extent that such cash dividends have
not otherwise been expended by the Company) or (II) issued in connection with
any C-Band Investment which results in any C-Band Entity becoming a Restricted
Subsidiary (such Restricted Subsidiary, a "Restricted C-Band Subsidiary"), but
----------------------------
only up to the amount of Consolidated Operating Cash Flow received as cash
dividends by the Company from the Restricted C-Band Subsidiaries in the same
period (to the extent that such cash dividends have not otherwise been expended
by the Company); provided, however, that no such dividends pursuant to this
clause (xii) shall be permitted to the extent that C-Band Dividends or the
Consolidated Operating Cash Flow of any Restricted C-Band Subsidiary to be
utilized to effect any such dividends was included in the calculation of
Cumulative Operating Cash Flow at any time prior to the payment of such
dividends; or (xiii) the repurchase of Equity Interests of the Company in an
amount not to exceed $10.0 million in the aggregate since the Issue Date;
provided, however, that in the case of each of clauses (ii), (iii), (iv), (v),
(vi), (vii), (x), (xi), (xii) and (xiii) no Default or Event of Default shall
have occurred and be continuing or would arise therefrom. For purposes of this
paragraph, any Investment made in any Person that subsequently becomes a
Restricted Subsidiary shall be deemed not to be outstanding so long as such
Person is a Restricted Subsidiary.
For purposes of clause (x) of the preceding paragraph, in determining
Consolidated Operating Cash Flow of the High Power Satellite Transmission
Subsidiary, the definition of "Consolidated Operating Cash Flow" shall be used,
but references in such definition to the Company and the Restricted Subsidiaries
shall be deemed to refer to the High Power Satellite Transmission Subsidiary and
its Subsidiaries. The Company shall not calculate such Consolidated Operating
Cash Flow of the High Power Satellite Transmission Subsidiary in any manner, or
take any other action, that would result in such Consolidated Operating Cash
Flow being greater than what it would have been if the High Power Satellite
Transmission Subsidiary were an Affiliate of the Company that was not a
Restricted Subsidiary. For purposes of clause (xii) of the preceding paragraph,
in determining Consolidated Operating Cash Flow of any Restricted C-Band
Subsidiary, the definition of "Consolidated Operating Cash Flow" shall be used,
but references in such definition to the Company and the Restricted Subsidiaries
shall be deemed to refer to the Restricted C-Band Subsidiary and its
Subsidiaries. The Company shall not calculate such Consolidated Operating Cash
Flow of any Restricted C-Band Subsidiary in any manner, or take any other
action, that would result in such Consolidated Operating Cash Flow being greater
than what it would have been if such Restricted C-Band Subsidiary were an
Affiliate of the Company that was not a Restricted Subsidiary.
In determining the amount of Restricted Payments permissible under
this covenant, amounts expended pursuant to clauses (i), (viii), (x) and (xiii)
of the immediately preceding paragraph shall be included as Restricted Payments
and amounts expended pursuant to clauses (ii), (iii), (iv), (v), (vi), (vii),
(ix), (xi) and (xii) shall be excluded. The amount of any non-cash Restricted
Payment shall be deemed to be equal to the Fair Market Value thereof at the date
of the making of such Restricted Payment. If after the date of making any
Investment made in compliance with this covenant which is a guarantee, letter of
credit or other credit support any payments are made in respect of such
Investment, such payment shall not be deemed an additional Restricted Payment to
the extent the amount thereof, when added together with all other payments made
in respect of such Investment since the date such Investment was made, is not in
excess of the amount of the Investment.
<PAGE>
-50-
SECTION 4.07. Corporate Existence.
Subject to Article Five, the Company shall do or shall cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each
Restricted Subsidiary in accordance with the respective organizational documents
of each such Restricted Subsidiary and the rights (charter and statutory) and
material franchises of the Company and the Restricted Subsidiaries; provided,
however, that the Company shall not be required to preserve any such right or
franchise, or the corporate existence of any Restricted Subsidiary, if the Board
of Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and the
Restricted Subsidiaries, taken as a whole, and that the loss thereof is not, and
will not be, adverse in any material respect to the Holders; provided, further,
however, that a determination of the Board of Directors of the Company shall not
be required in the event of a merger of one or more Wholly Owned Restricted
Subsidiaries of the Company with or into another Wholly Owned Restricted
Subsidiary of the Company or another Person, if the surviving Person is a Wholly
Owned Restricted Subsidiary of the Company organized under the laws of the
United States or a State thereof or of the District of Columbia.
SECTION 4.08. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary and (2) all lawful claims for labor, materials and
supplies which, in each case, if unpaid, might by law become a material
liability, or Lien upon the property, of the Company or any Restricted
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate provision has been made.
SECTION 4.09. Notice of Defaults.
(a) In the event that any Indebtedness of the Company or any of
its Subsidiaries is declared due and payable before its maturity because of the
occurrence of any default (or any event which, with notice or lapse of time, or
both, would constitute such a default) under such Indebtedness, the Company
shall promptly give written notice to the Trustee of such declaration, the
status of such default or event and what action the Company is taking or
proposes to take with respect thereto.
(b) Upon becoming aware of any Default or Event of Default, the
Company shall promptly deliver an Officers' Certificate to the Trustee
specifying the Default or Event of Default.
SECTION 4.10. Maintenance of Properties and Insurance.
(a) The Company shall cause all material properties owned by or
leased to it or any Restricted Subsidiary and used or useful in the conduct of
its business or the business of any Restricted Subsidiary to be maintained and
kept in normal condition, repair and working order and supplied with all
necessary equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 4.10 shall prevent the Company or any
Restricted Subsidiary from discontinuing the use, operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
<PAGE>
-51-
disposal is, in the judgment of the Board of Directors or of the board of
directors of the Restricted Subsidiary concerned, or of an officer (or other
agent employed by the Company or of any Restricted Subsidiary) of the Company or
such Restricted Subsidiary having managerial responsibility for any such
property, desirable in the conduct of the business of the Company or any
Restricted Subsidiary, and if such discontinuance or disposal is not adverse in
any material respect to the Holders.
(b) The Company shall maintain, and shall cause the Restricted
Subsidiaries to maintain, insurance with responsible carriers against such risks
and in such amounts, and with such deductibles, retentions, self-insured amounts
and co-insurance provisions, as are customarily carried by similar businesses of
similar size, including property and casualty loss, and workers' compensation
insurance. Anything contained herein to the contrary notwithstanding, the
Company shall not be required to obtain business interruption insurance or any
satellite launch or in-orbit insurance, except as provided in Section 4.22
hereof.
SECTION 4.11. Compliance Certificate.
The Company shall deliver to the Trustee within 45 days after the end
of each of the first three fiscal quarters of the Company and within 90 days
after the close of each fiscal year a certificate signed by the principal
executive officer, principal financial officer or principal accounting officer
stating that a review of the activities of the Company has been made under the
supervision of the signing officers with a view to determining whether a Default
or Event of Default has occurred and whether or not the signers know of any
Default or Event of Default by the Company that occurred during such fiscal
quarter or fiscal year. If they do know of such a Default or Event of Default,
the certificate shall describe all such Defaults or Events of Default, their
status and the action the Company is taking or proposes to take with respect
thereto. The first certificate to be delivered by the Company pursuant to this
Section 4.11 shall be for the fiscal quarter ending March 31, 1997.
SECTION 4.12. Provision of Financial Information.
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, the Company shall file with
the SEC (if permitted by SEC practice and applicable law and regulations) the
annual reports, quarterly reports and other documents which the Company would
have been required to file with the SEC pursuant to such Section 13(a) or 15(d)
or any successor provision thereto if the Company were so subject, such
documents to be filed with the SEC on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required so to
---------------------
file such documents if the Company were so subject. The Company shall also in
any event (a) within 15 days of each Required Filing Date (whether or not
permitted or required to be filed with the SEC) (i) transmit (or cause to be
transmitted) by mail to all Holders, as their names and addresses appear in the
Security Register, without cost to such Holders, and (ii) file with the Trustee,
copies of the annual reports, quarterly reports and other documents which the
Company is required to file with the SEC pursuant to the preceding sentence, or,
if such filing is not so permitted, information and data of a similar nature,
and (b) if, notwithstanding the preceding sentence, filing such documents by the
Company with the SEC is not permitted by SEC practice or applicable law or
regulations, promptly upon written request supply copies of such documents to
any Holder. In addition, for so long as any Securities remain outstanding, the
Company will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of
Securities, if not obtainable from the SEC, information of the type that would
be filed with the SEC pursuant to the foregoing provisions, upon the request of
any such holder. The Company will also comply with (S)314(a) of the TIA.
<PAGE>
-52-
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of the Trustee of any information contained
therein or determinable from information contained therein, including the
Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.
The Company and each Guarantor covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive the
Company or such Guarantor from paying all or any portion of the principal of
and/or interest, if any, on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the cove-
nants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company and each Guarantor hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.14. Change of Control.
(a) Following the occurrence of a Change of Control (the date of
such occurrence being the "Change of Control Date"), the Company shall notify
----------------------
the Holders of the Securities of such occurrence in the manner prescribed by
this Indenture and shall, within 20 days after the Change of Control Date, make
an Offer to Purchase all Securities then outstanding at a purchase price in cash
equal to 101% of the Accreted Value on the Purchase Date, unless the Purchase
Date is on or after the earlier to occur of February 15, 2002 and the Cash
Interest Election Date, in which case such purchase price shall be equal to 101%
of the aggregate principal amount at maturity thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date. The Company's obligations may
be satisfied if a third party makes the Offer to Purchase in the manner, at the
times and otherwise in compliance with the requirements of this Indenture
applicable to an Offer to Purchase made by the Company and purchases all
Securities validly tendered and not withdrawn under such Offer to Purchase.
Each Holder shall be entitled to tender all or any portion of the Securities
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Security tendered must be tendered in an
integral multiple of $1,000 principal face amount.
(b) On or prior to the Purchase Date specified in the Offer to
Purchase, the Company shall (i) accept for payment all Securities or portions
thereof validly tendered pursuant to the Offer, (ii) deposit with the Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 2.04) money sufficient to pay the Purchase Price
of all Securities or portions thereof so accepted and (iii) deliver or cause to
be delivered to the Trustee for cancellation all Securities so accepted together
with an Officers' Certificate stating the Securities or portions thereof
accepted for payment by the Company. The Paying Agent (or the Company, if so
acting) shall promptly mail or deliver to Holders of Securities so accepted,
payment in an amount equal to the Purchase Price for such Securities, and the
Trustee shall promptly authenticate and mail or deliver to each Holder of
Securities a new Security or Securities equal in principal amount at maturity to
any unpurchased portion of the Security surrendered as requested by the Holder.
Any Security not accepted for payment shall be promptly mailed or delivered by
the Company to the Holder thereof. The Company shall publicly announce the
results of the Offer on or as soon as practicable after the Purchase Date.
<PAGE>
-53-
(c) If the Company makes an Offer to Purchase, the Company will
comply with all applicable tender offer laws and regulations, including, to the
extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any
other applicable Federal or state securities laws and regulations and any
applicable requirements of any securities exchange on which the Securities are
listed, and any violation of the provisions of this Indenture relating to such
Offer to Purchase occurring as a result of such compliance shall not be deemed a
Default or an Event of Default.
SECTION 4.15. Limitation on Senior Subordinated Indebtedness.
(a) The Company shall not, directly or indirectly, Incur any
Indebtedness that by its terms would expressly rank senior in right of payment
to the Securities and expressly rank subordinate in right of payment to any
Senior Indebtedness.
(b) The Company shall not permit any Guarantor to, and no
Guarantor shall, directly or indirectly, Incur any Indebtedness that by its
terms would expressly rank senior in right of payment to the Guaranty of such
Guarantor and expressly rank subordinate in right to any Guarantor Senior
Indebtedness of such Guarantor.
SECTION 4.16. Limitations on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions to
the Company or any other Restricted Subsidiary on its Equity Interests or with
respect to any other interest or participation in, or measured by, its profits,
or pay any Indebtedness owed to the Company or any other Restricted Subsidiary,
(b) make loans or advances to, or guarantee any Indebtedness or other
obligations of, the Company or any other Restricted Subsidiary, or (c) transfer
any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (i) the Senior Credit Facility, any Basic Document or any other
agreement of the Company or the Restricted Subsidiaries outstanding on the Issue
Date, in each case as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings thereof; provided, however,
that any such amendment, restatement, renewal, replacement or refinancing is no
more restrictive in the aggregate with respect to such encumbrances or
restrictions than those contained in the Senior Credit Facility on the Issue
Date; (ii) applicable law; (iii) any instrument governing Indebtedness or Equity
Interests of an Acquired Person acquired by the Company or any Restricted
Subsidiary as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred by such Acquired Person in connection with, as a
result of or in contemplation of such acquisition); provided, however, that such
encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary, or the properties or assets of the Company or any
Restricted Subsidiary, other than the Acquired Person; (iv) customary non-
assignment provisions in leases entered into in the ordinary course of business
and consistent with past practices; (v) Purchase Money Indebtedness for property
acquired in the ordinary course of business that only imposes encumbrances and
restrictions on the property so acquired; (vi) any agreement for the sale or
disposition of the Equity Interests or assets of any Restricted Subsidiary;
provided, however, that such encumbrances and restrictions described in this
clause (vi) are only applicable to such Restricted Subsidiary or assets, as
applicable, and any such sale or disposition is made in compliance with Section
4.05 to the extent applicable thereto; (vii) refinancing Indebtedness permitted
under clause (h) of the second paragraph of Section 4.04; provided, however,
that the encumbrances and restrictions contained in the agreements governing
such Indebtedness are no more restrictive in the aggregate than those contained
in the
<PAGE>
-54-
agreements governing the Indebtedness being refinanced immediately prior to such
refinancing; (viii) this Indenture or the Senior Subordinated Note Indenture; or
(ix) any such customary encumbrance or restriction existing under any other
security agreement, instrument or document hereafter in effect; provided,
however, that the terms and conditions of any such encumbrance or restriction
are not more restrictive than those contained in the Senior Credit Facility as
in effect on the Issue Date. Anything contained herein to the contrary
notwithstanding, the Company and its Subsidiaries shall in no event be
prohibited or restrained from granting, and causing to be effective, any lien or
security interest securing the obligations of the Company and the Restricted
Subsidiaries under the Senior Credit Facility.
SECTION 4.17. Designation of Unrestricted Subsidiaries; Designation of
Tempo as a Restricted Subsidiary.
(a) Tempo and its Subsidiaries are initially designated by the
Company as Unrestricted Subsidiaries as of the Issue Date. The Company may
designate after the Issue Date any other Subsidiary of the Company as an
"Unrestricted Subsidiary" under this Indenture (a "Designation") only if:
-----------
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation,
the Company could Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Debt to Operating Cash Flow Ratio of the
first paragraph of Section 4.04; and
(iii) the Company would be permitted to make an Investment (other
than a Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
Section 4.06 in an amount (the "Designation Amount") equal to the Fair
------------------
Market Value of the Company's proportionate interest in the net worth of
such Subsidiary on such date calculated in accordance with GAAP.
Notwithstanding the above, no Subsidiary of the Company shall be
designated an Unrestricted Subsidiary which (i) holds the partnership interest
in (or any debt or equity interest in) PRIMESTAR Partners or distributes,
directly or indirectly, PRIMESTAR(R) television programming service or has any
right, title or interest in the revenue or profits in, or holds any Lien in
respect of, such partnership interests or such distribution or (ii) conducts,
directly or indirectly, the High Power Satellite Transmission Business or the
business of distributing high power DBS services to subscribers (or, if the
proposed Cable Plus strategy is implemented, the business of distributing the
Cable Plus service to cable system operators), or has any interest in any such
business or the right to receive the income or profits therefrom.
Neither the Company nor any Restricted Subsidiary shall at any time
(x) provide credit support for, subject any of its property or assets (other
than the Equity Interests of any Unrestricted Subsidiary) to the satisfaction
of, or guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary, or (z) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary (other than
Tempo pursuant to the Senior Credit Facility), except, in the case of clause (x)
or (y), to the extent otherwise permitted under the terms of the Indentures,
including, without limitation, pursuant to Sections 4.05 and 4.06, and except
for any non-recourse guarantee given solely to support the pledge by the Company
or any Restricted Subsidiary of the Equity Interests of any Unrestricted
Subsidiary.
<PAGE>
-55-
(b) The Company shall designate (the "Required Designation")
--------------------
Tempo (or any other Unrestricted Subsidiary which owns any Company Satellite or
any right or interest therein or holds a Lien in respect thereof or the right to
receive income or profits therefrom (Tempo or any such Unrestricted Subsidiary,
the "Satellite Subsidiary")) as a Restricted Subsidiary and revoke its
--------------------
designation as an Unrestricted Subsidiary if as of the end of any complete
fiscal quarter of such Satellite Subsidiary after the Issue Date, the remainder
of (x) Consolidated Operating Cash Flow of such Satellite Subsidiary for the
immediately preceding complete fiscal quarter, minus (y) Consolidated Interest
-----
Expense of such Satellite Subsidiary for such immediately preceding complete
fiscal quarter, minus (z) any scheduled principal payments in respect of
-----
Indebtedness of such Satellite Subsidiary made during such immediately preceding
complete fiscal quarter is greater than $1.0 million. For purposes of
determining Consolidated Operating Cash Flow and Consolidated Interest Expense
of any Satellite Subsidiary pursuant to the immediately preceding sentence, the
definitions of "Consolidated Operating Cash Flow" and "Consolidated Interest
Expense" shall be used, but references to the Company and the Restricted
Subsidiaries in such definitions shall be deemed to refer to the relevant
Satellite Subsidiary and its Subsidiaries.
(c) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
----------
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of this
Indenture;
provided, however, that the foregoing shall not apply to the Required
Designation.
All Designations and Revocations must be evidenced by resolutions of
the Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
SECTION 4.18. Limitation on Liens.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, Incur any Liens of any kind against or
upon any of their respective properties or assets now owned or hereafter
acquired, or any proceeds therefrom or any income or profits therefrom, to
secure any Indebtedness unless contemporaneously therewith effective provision
is made to secure the Securities equally and ratably with such Indebtedness with
a Lien on the same properties and assets securing Indebtedness for so long as
such Indebtedness is secured by such Lien, except for (i) Liens securing any
Senior Indebtedness or any guarantee of Senior Indebtedness by any Restricted
Subsidiary and (ii) Permitted Liens.
SECTION 4.19. Deposit of Funds with Escrow Agent; Offer to Purchase upon a
GE-2 Satellite Event.
(a) On the Issue Date, the Company shall deposit with the Escrow
Agent the net proceeds of the offering of the Securities after deducting
offering expenses ($146,727,144.50). All Collateral shall be held in the Escrow
Account until permitted to be disbursed pursuant to the Escrow Agreement and
then shall be disbursed strictly in accordance with the terms thereof.
<PAGE>
-56-
(b) In order to secure the payment and performance of the
Company's obligation to repurchase the Securities tendered in connection with an
Offer to Purchase made upon a GE-2 Satellite Event, the Company hereby grants to
the Trustee, for the benefit of the Holders, a continuing security interest in
and to the Collateral, whether now owned or existing or hereafter acquired or
arising. The Trustee shall have no obligation to file any financing statement or
otherwise take any action to maintain or perfect any such security interest.
The Company covenants and agrees that such security interest shall be a first
priority security interest and that the Escrow Funds shall not be subject to any
other Lien. The Company will not seek to remove any Escrow Funds held in the
Escrow Account prior to the later of (i) the occurrence of the GE-2 Acceptance
or (ii) so long as the Company shall have purchased at the Purchase Price all
Securities tendered pursuant to the Offer to Purchase required upon a GE-2
Satellite Event, the day after the Purchase Date related to such Offer to
Purchase (or the day after acceptance and set-aside as described in the Section
4.19(g)), other than to fund any Offer to Purchase made pursuant to paragraph
(d) below of this Section 4.19.
(c) For purposes of this Section 4.19, "GE-2 Acceptance" means
---------------
the occurrence, by May 30, 1997, of each of the following: (i) PRIMESTAR
Partners shall have received notice from GE Americom pursuant to the GE-2
Agreement that the GE-2 Satellite (or an equivalent satellite) has been
successfully launched into geosynchronous orbit at 85 degrees W.L., including
certification from the builder of the GE-2 Satellite (or such equivalent) that
at least 15 transponders thereon are "commercially operational" (as defined in
the GE-2 Agreement as in effect on the Issue Date) for use at medium power in
the Ku-band, with an expected life of at least 8 1/2 years (a copy of which
notice shall be filed by the Company with the Trustee) and (ii) PRIMESTAR
Partners shall be entitled under the GE-2 Agreement (as in effect on the Issue
Date) to "nonpreemptible service" (as defined under the GE-2 Agreement as in
effect on the Issue Date) on at least 14 of such transponders. For purposes of
this Section 4.19, "GE-2 Satellite Event" means the failure of the GE-2
--------------------
Acceptance to occur by May 30, 1997.
(d) (i) In the event of the occurrence of a GE-2 Satellite
Event, the Company shall notify the Holders of the Securities, in the manner
prescribed by this Indenture, of such occurrence and shall make an Offer to
Purchase all outstanding Securities at a purchase price in cash equal to 100% of
the Accreted Value on the Purchase Date. The Expiration Date and Purchase Date
of such Offer to Purchase shall be no later than June 27, 1997. The Company
shall not extend the Expiration Date and Purchase Date of such Offer to Purchase
unless required by applicable tender offer laws or regulations. The Company
shall, to the extent that it is required to make, or as permitted by this
Section 4.19 makes, an Offer to Purchase described in the first sentence of this
paragraph (d), draw on May 30, 1997 TCIC Revolving Loans under the TCIC Credit
Facility in an amount sufficient to fund any shortfall (the "TCIC Loan Amount")
----------------
of the Escrow Funds in the Escrow Account to purchase all Securities tendered
pursuant to such Offer to Purchase.
(ii) If, at any time prior to May 30, 1997, the Company determines
that there is no reasonable likelihood that GE-2 Acceptance will occur by May
30, 1997, the Company shall have the right, but not the obligation, prior to May
30, 1997, to make an Offer to Purchase all outstanding Securities, at the same
price, and on the same terms, as the Offer to Purchase required by paragraph
(d)(i) above of this Section 4.19 provided that the Company makes a concurrent
Offer with respect to the Senior Subordinated Notes, and, in such event, on the
Purchase Date for such Offer to Purchase, the Trustee shall direct the Escrow
Agent to transfer the Escrow Funds and other Collateral to the Trustee (acting
as Paying Agent for the Company) to fund the purchase of Securities pursuant
thereto. If the Company makes such an Offer to Purchase, then, notwithstanding
anything to the contrary contained herein, the Company shall not be obligated to
make an Offer to Purchase upon the occurrence of a GE-2 Satellite Event,
provided that the Company purchases all Securities tendered pursuant to such
earlier Offer to Purchase on or before June 27, 1997.
<PAGE>
-57-
(e) If a GE-2 Satellite Event occurs, the Escrow Agent will
transfer the Escrow Funds and other Collateral to the Trustee (acting as Paying
Agent for the Company) in accordance with the Escrow Agreement to fund the
repurchase of Securities pursuant to an Offer to Purchase required by Section
4.19(d)(i). The Company shall direct the Trustee to, within five Business Days
of the receipt thereof, transfer all such Escrow Funds and other Collateral, and
the Company shall within such five Business Days transfer the TCIC Loan Amount,
into an irrevocable trust for the sole and exclusive benefit of the Holders of
Securities (which trust and the funds and other securities therein shall not be
subject to the subordination provisions of Article Eight hereof) with the
Company only entitled to any residual after all Securities that are tendered are
purchased at the Purchase Price.
(f) If, on or before May 30, 1997, the Company delivers to the
Trustee an Officers' Certificate certifying that the GE-2 Acceptance has
occurred, the Trustee shall authorize the Escrow Agent to release all Escrow
Funds and other Collateral in the Escrow Account to the Company.
(g) Pending release of the Escrow Funds as provided in the Escrow
Agreement, the Escrow Funds will be invested in Marketable Securities (as
defined in the Escrow Agreement) as specifically directed in writing by the
Company. Any interest or other profit resulting from such investment will be
deposited in the Escrow Account.
(h) Upon the purchase by the Company of all Securities tendered
pursuant to an Offer to Purchase made pursuant to Section 4.19(d), or the
setting aside after acceptance by the Company of all Securities tendered
pursuant to such Offer to Purchase by the Trustee, as applicable, of all Escrow
Funds and other Collateral in the Escrow Account necessary to purchase such
Securities and pay any related expenses pursuant to an irrevocable trust for the
sole and exclusive benefit of the Holders, any amounts remaining in the Escrow
Account and not so set aside shall promptly be released to the Company.
SECTION 4.20. Guaranty of Notes by Subsidiaries.
In the event that any Restricted Subsidiary (other than a Guarantor),
directly or indirectly, guarantees any Indebtedness of the Company pursuant to
Section 4.04(d), the Company shall cause such Restricted Subsidiary to
concurrently guarantee (a "Guaranty") the Company's Obligations under this
--------
Indenture and the Securities to the same extent that such Restricted Subsidiary
guaranteed the Company's Obligations under such other Indebtedness (including
waiver of subrogation, if any); provided, however, that the Guaranty shall be
subordinated in right of payment to all Guarantor Senior Indebtedness (which
shall include such guarantee of such other Indebtedness) pursuant to the
subordination provisions of Article Twelve; provided, further, however, that
each Subsidiary issuing a Guaranty will be automatically and unconditionally
released and discharged from its obligations under such Guaranty upon the
release or discharge of the guarantee of the Indebtedness that resulted in the
creation of such Guaranty, except a discharge or release by, or as a result of,
any payment under the guarantee of such Other Indebtedness by such Guarantor.
The Company shall cause each Restricted Subsidiary issuing a Guaranty to (i)
execute and deliver to the Trustee a supplemental indenture in form reasonably
satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall
become a party to this Indenture and thereby unconditionally guarantee all of
the Company's Obligations under the Securities and this Indenture on the terms
set forth in Article Eleven and Article Twelve hereof and (ii) deliver to the
Trustee an opinion of counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Subsidiary and constitutes
a legal, valid, binding and enforceable obligation of such Restricted Subsidiary
(which opinion may be subject to customary assumptions and qualifications).
Thereafter, such Restricted Subsidiary shall (unless released in accordance with
the terms of this Indenture) be a Guarantor for all purposes of this Indenture.
<PAGE>
-58-
SECTION 4.21. Amendments to Certain Agreements.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, amend, modify or waive, or refrain from enforcing, any provision
of the Basic Documents in any manner adverse to the Company or any of its
Subsidiaries or the Holders of the Securities in any material respect as
determined by the Board of Directors of the Company. This covenant shall not be
construed to prohibit the Company or any Restricted Subsidiary from terminating
any of the Basic Documents, if a majority of the disinterested members of the
Board of Directors of the Company shall determine that it is in the best
interests of the Company to do so.
SECTION 4.22. Company Satellites; Maintenance of Insurance.
(a) Prior to the later of (x) December 31, 1997, and (y) 180 days
following the successful launch of any Company Satellite launched on or before
December 31, 1997, the Company shall not terminate the Satellite Construction
Agreement or amend, modify or refrain from enforcing any provision thereof in
any manner adverse to the Company or any of its Subsidiaries or the holders of
the Securities in any material respect, as determined by the Board of Directors
of the Company, and shall not amend, modify or refrain from enforcing any
provision thereof regarding the rights of the Company under the Satellite
Construction Agreement (if any) with respect to any failure of any Company
Satellite that may occur in connection with the launch thereof or during the 180
day period immediately thereafter.
(b) If the Company or any Subsidiary is engaged in the High Power
Satellite Transmission Business, so long as a ground spare satellite of
comparable quality and capacity has not been completely constructed (other than
construction or installation of a suitable antenna) and available to be launched
and to provide (pursuant to a binding agreement, a copy of which has been filed
with the Trustee) sufficient capacity to the Company or the Subsidiary
conducting the High Power Satellite Transmission Business to conduct such
business on a competitive basis and service its subscribers, then within 30 days
after the acceptance of any Company Satellite by the Company or any Subsidiary
after completion of in-orbit testing by the builder thereof the Company shall,
or shall cause a Restricted Subsidiary to, obtain (to the extent commercially
available upon reasonable terms), and thereafter maintain, In-Orbit Insurance
with respect to such Company Satellite (or any permanent replacement thereof)
providing the servicing capacity with respect to such High Power Satellite
Transmission Business. The Company or such Restricted Subsidiary shall be named
as the insured under such In-Orbit Insurance (provided that only a senior
secured creditor of the Company or a Restricted Subsidiary may also be
designated as a named insured under such In-Orbit Insurance).
(c) In the event that the Company or any of its Subsidiaries
receives any damages or other amounts due under the Satellite Construction
Agreement (including, without limitation, the refund of the full purchase price
of any Company Satellite which has not been delivered pursuant to the terms
thereof) all such amounts shall be deemed to be Net Cash Proceeds from an Asset
Sale, and the Company shall apply such proceeds as required by the second and
third full paragraphs under subparagraph (a) of Section 4.05, except as provided
by subparagraph (c) thereof.
SECTION 4.23. Payments for Consent.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of a Security for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Securities unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Securities
<PAGE>
-59-
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
SECTION 4.24. Calculation of Original Issue Discount.
The Company shall file with the Trustee promptly at the end of each
calendar year (i) a written notice specifying the amount of original issue
discount (including daily rates and accrual periods) accrued on outstanding
Securities as of the end of such year and (ii) such other specific information
relating to such original issue discount as may then be relevant under the
Internal Revenue Code of 1986, as amended from time to time.
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Sale of Assets, etc.
(a) The Company shall not consolidate with or merge with or into
(whether or not the Company is the Surviving Person) any other entity and the
Company shall not and shall not cause or permit any Restricted Subsidiary to,
sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of the Company's properties and assets (determined on a
consolidated basis for the Company and the Restricted Subsidiaries) to any
entity in a single transaction or series of related transactions, unless: (i)
either (x) the Company shall be the Surviving Person or (y) the Surviving Person
(if other than the Company) shall be a corporation organized and validly
existing under the laws of the United States of America or any State thereof or
the District of Columbia, and shall, in any such case, expressly assume by a
supplemental indenture, the due and punctual payment of the principal of,
premium, if any, and interest on all the Securities and the performance and
observance of every covenant of this Indenture, the Escrow Agreement and the
Registration Rights Agreement to be performed or observed on the part of the
Company; (ii) immediately thereafter, no Default or Event of Default shall have
occurred and be continuing; and (iii) immediately after giving effect to any
such transaction involving the Incurrence by the Company or any Restricted
Subsidiary, directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of the Company or any Restricted
Subsidiary in connection with or as a result of such transaction as having been
Incurred at the time of such transaction), the Surviving Person could Incur, on
a pro forma basis after giving effect to such transaction as if it had occurred
at the beginning of the latest fiscal quarter for which consolidated financial
statements of the Company are available, at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the Debt to Operating
Cash Flow Ratio of the first paragraph of Section 4.04; provided, however, that
the condition set forth in this clause (iii) need not be satisfied in connection
with the merger or consolidation with or into the Company or any Restricted
Subsidiary of any Person holding partnership interests in PRIMESTAR Partners if
(x) such merger or consolidation is effected for the purpose of acquiring the
partnership interests in PRIMESTAR Partners held by such Person (provided that
the amount of partnership interests in PRIMESTAR Partners held by such Person on
the date of such merger or consolidation is not less than the amount held by
such Person on the Issue Date otherwise than pursuant to the transfer of
partnership interests in PRIMESTAR Partners to another Person who has been or
simultaneously therewith will be merged or consolidated with or into the Company
or any Restricted Subsidiary or the dilution of such Person's partnership
interests in PRIMESTAR Partners solely due to its failure to pay capital
contributions required by the Partnership Agreement) and (y) in connection with
such acquisition of such partnership interests the Company
<PAGE>
-60-
or a Restricted Subsidiary acquires all rights of such Person (and its
Affiliates) to distribute PRIMESTAR(R) programming services.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interest of which constitutes all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
(b) Subject to the requirements of subparagraph (a) of this
Section 5.01, in the event of a sale of all or substantially all the assets of
any Guarantor or all of the Equity Interests of any Guarantor, by way of merger,
consolidation or otherwise, then the Surviving Person of any such merger or
consolidation, or such Guarantor, if all of its Equity Interests are sold, shall
be released and relieved of any and all obligations under the Guaranty of such
Guarantor if (i) the Person or entity surviving such merger or consolidation or
acquiring the Equity Interests of such Guarantor is not a Restricted Subsidiary,
and (ii) the Net Cash Proceeds from such sale are used after such sale in a
manner that complies with the provisions of Section 4.05. Except as provided in
the preceding sentence, no Guarantor shall consolidate with or merge with or
into another Person, whether or not such Person is affiliated with such
Guarantor and whether or not such Guarantor is the Surviving Person, unless (i)
the Surviving Person (if other than such Guarantor) is a corporation organized
and validly existing under the laws of the United States, any State thereof or
the District of Columbia, (ii) the Surviving Person (if other than such
Guarantor) assumes all the obligations of such Guarantor under the Securities,
this Indenture and the Registration Rights Agreement pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, (iii) at the time of
and immediately after such Disposition, no Default or Event of Default shall
have occurred and be continuing, and (iv) immediately after giving effect to any
such transaction involving the Incurrence by the Company or any Guarantor,
directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of the Company or any Guarantor in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person could Incur, on a pro forma
basis after giving effect to such transaction as if it had occurred at the
beginning of the latest fiscal quarter for which consolidated financial
statements of the Company are available, at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the Debt to Operating
Cash Flow Ratio of the first paragraph of Section 4.04; provided, however, that
clause (iv) of this paragraph shall not be a condition to a merger or
consolidation of a Guarantor if such merger or consolidation only involves the
Company and/or one or more Wholly Owned Restricted Subsidiaries.
SECTION 5.02. Successor Corporation Substituted.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in Section 5.01(a) or (b), as the case may
be, in which the Company or any Guarantor is not the Surviving Person and the
Surviving Person is to assume all the Obligations of the Company or any such
Guarantor under the Securities and this Indenture, the Escrow Agreement and the
Registration Rights Agreement pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Guarantor, as the case may be, and
the Company or such Guarantor, as the case may be, shall be discharged from its
Obligations under this Indenture, the Securities, the Escrow Agreement or its
Guaranty, as the case may be.
<PAGE>
-61-
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following shall be an "Event of Default" for purposes of
this Indenture:
(1) failure to pay any interest on any Security when the same
becomes due and payable and the Default continues for a period of 30 days,
whether or not such payment is prohibited by Article Eight hereof;
(2) failure to pay the principal of any Security when the same
becomes due and payable at maturity, upon redemption, upon repurchase
pursuant to an Offer to Purchase or otherwise, or the Company fails to pay
on the Purchase Date the Purchase Price for any Security tendered pursuant
to an Offer to Purchase, in each case whether or not such payment is
prohibited by Article Eight hereof;
(3) failure to perform or comply with any of the provisions of
Section 5.01 hereof;
(4) failure to perform or comply with any of the provisions of
Section 4.19 hereof or of the Escrow Agreement;
(5) failure to perform any other covenant, warranty or agreement
under this Indenture or in the Securities, and the Default continues for
the period and after the notice specified in the last paragraph of this
Section 6.01;
(6) a default or defaults under the terms of one or more
instruments evidencing or securing Indebtedness of the Company or any
Significant Restricted Subsidiary or, so long as the Company or any
Significant Restricted Subsidiary is a general partner thereof or is
(directly or indirectly) obligated in any way (contingently or otherwise)
with respect to its Indebtedness, PRIMESTAR Partners having an outstanding
principal amount of $15.0 million or more individually or in the aggregate
that has resulted in the acceleration of the payment of such Indebtedness
or the Company or any Significant Restricted Subsidiary or, so long as the
Company or any Significant Restricted Subsidiary is a general partner
thereof or is (directly or indirectly) obligated in any way (contingently
or otherwise) with respect to its Indebtedness, PRIMESTAR Partners fails to
pay principal when due at the stated maturity of any such Indebtedness;
provided, however, that it shall not be an Event of Default if such
Indebtedness shall have been repaid in full or such acceleration shall have
been rescinded within 20 days;
(7) there shall have been any final judgment or judgments (not
subject to appeal) against the Company or any Significant Restricted
Subsidiary in an amount of $15.0 million or more (net of any amounts
covered by reputable and creditworthy insurance companies) which remain
undischarged or unstayed for a period of 60 days after the date on which
the right to appeal has expired;
(8) the Company or any Significant Restricted Subsidiary or, so
long as the Company or any Significant Restricted Subsidiary is a general
partner thereof or is (directly or indirectly) obli-
<PAGE>
-62-
gated in any way (contingently or otherwise) with respect to its
Indebtedness, PRIMESTAR Partners pursuant to or within the meaning of any
Bankruptcy Law:
(A) admits in writing its inability to pay its debts generally
as they become due,
(B) commences a voluntary case or proceeding,
(C) consents to the entry of an order for relief against it in
an involuntary case or proceeding,
(D) consents or acquiesces in the institution of a bankruptcy
or insolvency proceeding against it,
(E) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or
(F) makes a general assignment for the benefit of its
creditors, or any of them takes any action to authorize or effect any
of the foregoing;
(9) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Restricted Subsidiary or, so long as the Company or any Significant
Restricted Subsidiary is a general partner thereof or is (directly or
indirectly) obligated in any way (contingently or otherwise) with
respect to its Indebtedness, PRIMESTAR Partners in an involuntary case
or proceeding,
(B) appoints a Custodian of the Company or any Significant
Restricted Subsidiary or, so long as the Company or any Significant
Restricted Subsidiary is a general partner thereof or is (directly or
indirectly) obligated in any way (contingently or otherwise) with
respect to its Indebtedness, PRIMESTAR Partners or for all or
substantially all of its property, or
(C) orders the liquidation of the Company or any Significant
Restricted Subsidiary or, so long as the Company or any Significant
Restricted Subsidiary is a general partner thereof or is (directly or
indirectly) obligated in any way (contingently or otherwise) with
respect to its Indebtedness, PRIMESTAR Partners, and in each case the
order or decree remains unstayed and in effect for 60 days; provided,
however, that if the entry of such order or decree is appealed and
dismissed on appeal, then the Event of Default hereunder by reason of
the entry of such order or decree shall be deemed to have been cured;
(10) the Guaranty of any Guarantor which is a Significant
Restricted Subsidiary ceases to be in full force and effect (other than in
accordance with the terms of such Guaranty and this Indenture) or is
declared null and void and unenforceable or found to be invalid or any
Guarantor which is a Significant Restricted Subsidiary denies its liability
under its Guaranty (other than by reason of a release of such Guarantor
from its Guaranty in accordance with the terms of such Guaranty and this
Indenture);
<PAGE>
-63-
(11) the Escrow Funds become subject to any Lien other than the
Lien under the Escrow Agreement securing the Securities;
(12) the Company challenges the Lien on the Escrow Funds in favor
of the Holders prior to such time as the Escrow Funds are to be released to
the Company; or
(13) the Company shall have failed on the Issue Date to enter into
the Escrow Agreement or pursuant thereto fail to place the Initial Escrow
Amount (as defined in the Escrow Agreement) in the Escrow Account or the
Company shall repudiate, deny or disaffirm any of its material obligations
under the Escrow Agreement for any reason.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
--------------
Federal, state or foreign law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law.
A Default under clause (5) is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in principal amount
at maturity of the outstanding Securities notify the Company and the Trustee, of
the Default in writing and the Company does not cure the Default within 30 days
after receipt of the notice. The notice must specify the Default, demand that it
be remedied and state that the notice is a "Notice of Default." Such notice
shall be given by the Trustee if so requested by the Holders of at least 25% in
principal amount at maturity of the Securities then outstanding. When a Default
is cured, it ceases.
SECTION 6.02. Acceleration.
If an Event of Default with respect to the Securities (other than an
Event of Default specified in clause (8) or (9) of Section 6.01 with respect to
the Company) occurs and is continuing, the Trustee or the Holders of at least
25% in aggregate principal amount at maturity of the outstanding Securities by
notice in writing to the Company (and to the Trustee if given by the Holders)
may declare the Default Amount to be due and payable immediately and, upon any
such declaration, such Default Amount, notwithstanding anything contained in
this Indenture or the Securities to the contrary, shall become immediately due
and payable; provided, however, that so long as the Senior Credit Facility shall
be in full force, if an Event of Default shall have occurred and be continuing
(other than an Event of Default specified in clause (8) or (9) of Section 6.01
with respect to the Company), the Securities shall not become due and payable
until the earlier to occur of (x) five Business Days following delivery of a
written notice of such acceleration of the Securities to the agent under the
Senior Credit Facility and (y) the acceleration (ipso facto or otherwise) of any
Indebtedness under the Senior Credit Facility.
If an Event of Default specified in clause (8) or (9) of Section 6.01
with respect to the Company occurs, the Default Amount shall ipso facto become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
After a declaration of acceleration, but before a judgment or decree
of the money due in respect of the Securities has been obtained, the Holders of
not less than a majority in aggregate principal amount at maturity of the
Securities then outstanding by written notice to the Trustee may rescind an
acceleration and its consequences if all existing Events of Default (other than
the nonpayment of principal of and interest on the Securities which has become
due solely by virtue of such acceleration) have been cured or waived and if the
<PAGE>
-64-
rescission would not conflict with any judgment or decree. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture or the Escrow
Agreement.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Upon a declaration of acceleration of the Securities in accordance
with Section 6.02, the Trustee shall foreclose on all Collateral and take all
other actions permitted of a secured party under the UCC or otherwise.
SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09, 6.07 and 10.02, prior to the declaration of
acceleration of the Securities, the Holders of not less than a majority in
aggregate principal amount at maturity of the outstanding Securities by written
notice to the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default in the payment of principal of or interest on any
Security as specified in clauses (1) and (2) of Section 6.01 or a Default in
respect of any term or provision of this Indenture that may not be amended or
modified without the consent of each Holder affected as provided in Section
10.02. The Company shall deliver to the Trustee an Officers' Certificate stating
that the requisite percentage of Holders have consented to such waiver and
attaching copies of such consents. In case of any such waiver, the Company, the
Trustee and the Holders shall be restored to their former positions and rights
hereunder and under the Securities, respectively. This paragraph of this Section
6.04 shall be in lieu of (S)316(a)(1)(B) of the TIA and such (S)316(a)(1)(B) of
the TIA is hereby expressly excluded from this Indenture and the Securities, as
permitted by the TIA.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Securities, but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal amount
at maturity of the outstanding Securities may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture or the Escrow
Agreement, that the Trustee determines may be unduly prejudicial to the rights
of another Securityholder, or that may involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direction. In the
event the Trustee takes any action or follows any direction
<PAGE>
-65-
pursuant to this Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against any loss or expense caused by
taking such action or following such direction. This Section 6.05 shall be in
lieu of (S)316(a)(1)(A) of the TIA, and such (S)316(a)(1)(A) of the TIA is
hereby expressly excluded from this Indenture and the Securities, as permitted
by the TIA.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(i) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount at
maturity of the outstanding Securities make a written request to the
Trustee to pursue a remedy;
(iii) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(v) during such 60-day period the Holders of a majority in
principal amount at maturity of the outstanding Securities (excluding
Affiliates of the Company) do not give the Trustee a direction which, in
the opinion of the Trustee, is inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of or interest on a Security, on or
after the respective due dates expressed in the Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any other obligor on the Securities for the whole amount of principal and
accrued interest remaining unpaid, together with interest overdue on principal
and to the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the
Securities and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Securities), its
<PAGE>
-66-
creditors or its property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Securityholder to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article
Six or the Escrow Agreement, it shall pay out the money or property in the
following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 shall not apply to a suit by the Trustee, a suit by
a Holder or group of Holders of more than 10% in aggregate principal amount at
maturity of the outstanding Securities, or to any suit instituted by any Holder
for the enforcement or the payment of the principal or interest on any
Securities on or after the respective due dates expressed in the Security.
<PAGE>
-67-
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the performance of
such duties as are specifically set forth herein; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions conforming to
the requirements of this Indenture or the Escrow Agreement; however, in the
case of any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall
examine such certificates and opinions to determine whether or not they
conform to the requirements of this Indenture or the Escrow Agreement.
(c) The Trustee shall not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture or the Escrow Agreement shall
require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or to take
or omit to take any action under this Indenture or take any action at the
request or direction of Holders if it shall have reasonable grounds for
believing that repayment of such funds is not assured to it or it does not
receive from such Holders an indemnity satisfactory to it in its sole discretion
against such risk, liability, loss, fee or expense which might be incurred by it
in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
<PAGE>
-68-
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate and/or an Opinion of Counsel, which shall
conform to the provisions of Section 13.05. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through attorneys and agents of its
selection and shall not be responsible for the misconduct or negligence of
any agent or attorney (other than an agent who is an employee of the
Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be authorized
or within its rights or powers.
(e) The Trustee may consult with counsel and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection from liability in respect of any action taken,
omitted or suffered by it hereunder in good faith and in accordance with
the advice or opinion of such counsel.
(f) Any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and
any resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution.
(g) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture or the Escrow Agreement
at the request or direction of any of the Securityholders pursuant to this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction.
(h) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney.
(i) The Trustee shall not be deemed to have notice of any Event
of Default unless a Trust Officer of the Trustee has actual knowledge
thereof or unless the Trustee shall have received written notice thereof at
the Corporate Trust Office of the Trustee, and such notice references the
Securities and this Indenture.
<PAGE>
-69-
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee, subject to
Section 7.10 hereof. Any Agent may do the same with like rights. However, the
Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture, the Escrow Agreement or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company in this Indenture or any document issued in connection with the sale of
Securities or any statement in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and the
Trustee knows of such Defaults or Events of Default, the Trustee shall mail to
each Securityholder notice of the Default or Event of Default within 90 days
after the occurrence thereof. Except in the case of a Default or an Event of
Default in payment of principal of or interest on any Security or a Default or
Event of Default in complying with Section 4.19 or 5.01 hereof or any of the
provisions of the Escrow Agreement, the Trustee may withhold the notice if and
so long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interest of Securityholders. This Section 7.05
shall be in lieu of the proviso to (S)315(b) of the TIA and such proviso to
(S)315(b) of the TIA is hereby expressly excluded from this Indenture and the
Securities, as permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA (S)313(a), within 60 days after each May 15
beginning with the May 15 following the date of this Indenture, the Trustee
shall mail to each Securityholder a report dated as of such May 15 that complies
with TIA (S)313(a). The Trustee also shall comply with TIA (S)313(b), (c) and
(d).
A copy of each such report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange, if any, on
which the Securities are listed.
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time agree in
writing for its services. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances (including fees, disbursements and expenses of its agents and
counsel) incurred or made by it in addition to the compensation for its services
except any such disbursements, expenses and advances as may be attributable to
the Trustee's negligence or bad faith. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trus-
<PAGE>
-70-
tee's agents, accountants, experts and counsel and any taxes or other expenses
incurred by a trust created pursuant to Section 9.01 hereof.
The Company shall indemnify the Trustee for, and hold it harmless
against any and all loss, damage, claims, liability or expense, including taxes
(other than franchise taxes imposed on the Trustee and taxes based upon,
measured by or determined by the income of the Trustee), arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent that such loss, damage, claim,
liability or expense is due to its own negligence or bad faith. The Trustee
shall notify the Company promptly of any claim asserted against the Trustee for
which it may seek indemnity. However, the failure by the Trustee to so notify
the Company shall not relieve the Company of its obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the defense
(and may employ its own counsel) at the Company's expense; provided, however,
that the Company's reimbursement obligation with respect to counsel employed by
the Trustee will be limited to the reasonable fees and expenses of such counsel.
The Company need not pay for any settlement made without its written
consent, which consent shall not be unreasonably withheld. The Company need not
reimburse any expense or indemnify against any loss or liability incurred by the
Trustee as a result of the violation of this Indenture by the Trustee.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Securities against all money or property
held or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of or interest on particular Securities
or the Purchase Price or redemption price of any Securities to be purchased or
pursuant to an Offer to Purchase or redeemed.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(8) or (9) occurs, the expenses (including the
reasonable fees and expenses of its agents and counsel) and the compensation for
the services shall be preferred over the status of the Holders in a proceeding
under any Bankruptcy Law and are intended to constitute expenses of
administration under any Bankruptcy Law. The Company's obligations under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Company's obligations pursuant to
Article Nine and any rejection or termination under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount at maturity of the
outstanding Securities may remove the Trustee by so notifying the Trustee and
the Company in writing and may appoint a successor Trustee with the Company's
consent. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent under any
Bankruptcy Law;
(3) a custodian or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
<PAGE>
-71-
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount at maturity of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount at maturity of the outstanding
Securities may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible to
act as Trustee under TIA (S) 310(a)(1) and 310(a)(2). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. If the Trustee has or shall acquire
any "conflicting interest" within the meaning of TIA (S) 310(b), the Trustee and
the Company shall comply with the provisions of TIA (S) 310(b); provided,
however, that there shall be excluded from the operation of TIA (S) 310(b)(1)
any indenture or indentures under which other securities or certificates of
interest or participation in other securities of the Company are outstanding if
the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. If
at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 7.10, the Trustee shall resign immediately in the
manner and with the effect hereinbefore specified in this Article Seven.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
<PAGE>
-72-
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and the Trustee and each Holder of
the Securities by his acceptance thereof likewise covenant and agree, that all
Securities shall be issued subject to the provisions of this Article Eight; and
each person holding any Security, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees that all payments of the
principal of and interest on the Securities by the Company (other than any
payment made from Collateral held in the Escrow Account) shall, to the extent
and in the manner set forth in this Article Eight, be subordinated and junior in
right of payment to the prior payment in full in cash of all amounts payable
under Senior Indebtedness.
SECTION 8.02. No Payment on Securities in Certain Circumstances.
(a) No direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any distribution of
any Collateral held in the Escrow Account) by or on behalf of the Company of
principal of or interest on the Securities, whether pursuant to the terms of the
Securities, upon acceleration, pursuant to an Offer to Purchase or otherwise,
shall be made if, at the time of such payment, there exists a default in the
payment of all or any portion of the obligations on any Designated Senior
Indebtedness, whether at maturity, on account of mandatory redemption or
prepayment, acceleration or otherwise, and such default shall not have been
cured or waived or the benefits of this sentence waived by or on behalf of the
holders of such Designated Senior Indebtedness. In addition, during the
continuance of any non-payment event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be immediately
accelerated, and upon receipt by the Trustee of written notice (a "Payment
-------
Blockage Notice" ) from the holder or holders of such Designated Senior
- ---------------
Indebtedness or the trustee or agent acting on behalf of such Designated Senior
Indebtedness, then, unless and until such event of default has been cured or
waived or has ceased to exist or such Designated Senior Indebtedness has been
discharged or repaid in full in cash or the benefits of these provisions have
been waived by the holders of such Designated Senior Indebtedness, no direct or
indirect payment (excluding any payment or distribution of Permitted Junior
Securities and excluding any distribution of any Collateral held in the Escrow
Account) shall be made by or on behalf of the Company of principal of or
interest on the Securities, except from those funds held in trust for the
benefit of Holders of any Securities pursuant to the procedures set forth in
Article Nine hereof, to such Holders, during a period (a "Payment Blockage
----------------
Period") commencing on the date of receipt of such notice by the Trustee and
- ------
ending 179 days thereafter.
Notwithstanding anything herein or in the Securities to the contrary,
(x) in no event shall a Payment Blockage Period extend beyond 179 days from the
date the Payment Blockage Notice in respect thereof was given, (y) there shall
be a period of at least 181 consecutive days in each 360-day period when no
Payment Blockage Period is in effect and (z) not more than one Payment Blockage
Period may be commenced with respect to the Securities during any period of 360
consecutive days. No event of default that existed or was continuing on the date
of commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period (to the extent the
holder of Designated Senior Indebtedness, or trustee or agent, giving notice
commencing such Payment Blockage Period had knowledge of such existing or
continuing event of default) may be, or be made, the basis for the commencement
of any other Payment Blockage Period by the holder or holders of such Designated
Senior Indebtedness or the trustee
<PAGE>
-73-
or agent acting on behalf of such Designated Senior Indebtedness, whether or not
within a period of 360 consecutive days, unless such event of default has been
cured or waived for a period of not less than 90 consecutive days.
Notwithstanding anything herein to the contrary, any Collateral
received or otherwise obtained by any Holder or the Trustee upon exercise of its
rights in respect thereof upon the occurrence of any Event of Default shall not
be subject to this Section 8.02.
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 8.02(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Designated Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Designated Senior Indebtedness
may have been issued, as their respective interests may appear, but only to the
extent that, upon notice from the Trustee to the holders of Designated Senior
Indebtedness that such prohibited payment has been made, the holders of the
Designated Senior Indebtedness (or their representative or representatives or a
trustee) notify the Trustee in writing of the amounts then due and owing on the
Designated Senior Indebtedness, if any, and only the amounts specified in such
notice to the Trustee shall be paid to the holders of Designated Senior
Indebtedness.
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities and
excluding any distribution of any Collateral held in the Escrow Account), upon
any dissolution or winding-up or liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all Senior Indebtedness shall first be paid in full in cash
before the Holders of the Securities or the Trustee on behalf of such Holders
shall be entitled to receive any payment by the Company of the principal of or
interest on the Securities, or any payment by the Company to acquire any of the
Securities for cash, property or securities, or any distribution with respect to
the Securities of any cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities and excluding any distribution of
any Collateral held in the Escrow Account). Before any payment may be made by,
or on behalf of, the Company of the principal of or interest on the Securities
upon any such dissolution or winding-up or liquidation or reorganization, any
payment or distribution of assets or securities of the Company of any kind or
character, whether in cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities and excluding any distribution of
any Collateral held in the Escrow Account), to which the Holders of the
Securities or the Trustee on their behalf would be entitled, but for the
subordination provisions of this Indenture, shall be made by the Company or by
any receiver, trustee in bankruptcy, liquidation trustee, agent or other Person
making such payment or distribution, directly to the holders of the Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders) or their representatives or to the
trustee or trustees or agent or agents under any agreement or indenture pursuant
to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such Senior
Indebtedness in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities (excluding any payment or distribution of Permitted Junior
Securities
<PAGE>
-74-
and excluding any distribution of any Collateral held in the Escrow Account),
shall be received by the Trustee or any Holder of Securities at a time when such
payment or distribution is prohibited by Section 8.03(a) and before all
obligations in respect of Senior Indebtedness are paid in full in cash, or
payment provided for, such payment or distribution shall be received and held in
trust for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their respective
representatives, or to the trustee or trustees or agent or agents under any
indenture pursuant to which any of such Senior Indebtedness may have been
issued, as their respective interests may appear, for application to the payment
of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has
been paid in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
The consolidation of the Company with, or the merger of the Company
with or into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution, winding-
up, liquidation or reorganization for the purposes of this Section 8.03 if such
other corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated in Article Five.
(c) Notwithstanding anything herein to the contrary, any Collateral
received or otherwise obtained by any Holder or the Trustee upon exercise of its
rights in respect thereof upon the occurrence of any Event of Default shall not
be subject to this Section 8.03.
SECTION 8.04. Subrogation.
Upon the payment in full in cash of all Senior Indebtedness, or
provision for payment, the Holders of the Securities shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company made on such Senior
Indebtedness until the principal of and interest on the Securities shall be paid
in full in cash; and, for the purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities or the Trustee on their behalf
would be entitled except for the provisions of this Article Eight, and no
payment over pursuant to the provisions of this Article Eight to the holders of
Senior Indebtedness by Holders of the Securities or the Trustee on their behalf
shall, as between the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the Securities, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness. It is understood that
the provisions of this Article Eight are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities, on the one
hand, and the holders of the Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders of the Securities
would otherwise have been entitled but for the provisions of this Article Eight
shall have been applied, pursuant to the provisions of this Article Eight, to
the payment of all amounts payable under Senior Indebtedness, then and in such
case, the Holders of the Securities shall be entitled to receive from the
holders of such Senior Indebtedness any payments or distributions received by
such holders of Senior Indebtedness in excess of the amount required to make
payment in full, or provision for payment, of such Senior Indebtedness.
SECTION 8.05. Obligations of Company Unconditional.
Nothing contained in this Article Eight or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as among the Company and
the Holders of the Securities, the obligation of the
<PAGE>
-75-
Company, which is absolute and unconditional, to pay to the Holders of the
Securities the principal of and interest on the Securities as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the Holders of the Securities and
creditors of the Company other than the holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the Holder of any Security or the
Trustee on their behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Eight of the holders of the Senior Indebtedness in respect of
cash, property or securities of the Company (other than Collateral held in the
Escrow Account) received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article Eight shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Senior Indebtedness then due
and payable shall first be paid in full before the Holders of the Securities or
the Trustee are entitled to receive any direct or indirect payment from the
Company of principal of or interest on the Securities.
SECTION 8.06. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities pursuant to the provisions of this
Article Eight. The Trustee shall not be charged with knowledge of the existence
of any event of default with respect to any Senior Indebtedness or of any other
facts which would prohibit the making of any payment to or by the Trustee unless
and until the Trustee shall have received notice in writing at its Corporate
Trust Office to that effect signed by an Officer of the Company, or by a holder
of Senior Indebtedness or trustee or agent therefor; and prior to the receipt of
any such written notice, the Trustee shall, subject to Article Seven, be
entitled to assume that no such facts exist; provided that if the Trustee shall
not have received the notice provided for in this Section 8.06 at least two
Business Days prior to the date upon which by the terms of this Indenture any
moneys shall become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Security), then, regardless of
anything herein to the contrary, the Trustee shall have full power and authority
to receive any moneys from the Company and to apply the same to the purpose for
which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date. Nothing
contained in this Section 8.06 shall limit the right of the holders of Senior
Indebtedness to recover payments as contemplated by Section 8.03. The Trustee
shall be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Indebtedness (or a
trustee on behalf of, or other representative of, such holder) to establish that
such notice has been given by a holder of such Senior Indebtedness or a trustee
or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Eight, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Eight, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
<PAGE>
-76-
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets or securities referred to
in this Article Eight, the Trustee and the Holders of the Securities shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to the Trustee or to the Holders of the
Securities for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article Eight.
SECTION 8.08. Trustee's Relation to Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Eight with respect to any Senior Indebtedness which
may at any time be held by it in its individual or any other capacity to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee or any Paying Agent of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Eight, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness (except as provided in
Section 8.03(b)). The Trustee shall not be liable to any such holders if the
Trustee shall in good faith mistakenly pay over or distribute to Holders of
Securities or to the Company or to any other person cash, property or securities
to which any holders of Senior Indebtedness shall be entitled by virtue of this
Article Eight or otherwise.
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
The provisions of this Article Eight are intended to be for the benefit of, and
shall be enforceable directly by, the holders of Senior Indebtedness.
SECTION 8.10. Securityholders Authorize Trustee To Effectuate subordination
of Securities.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Eight, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon an assignment for the benefit of
creditors or otherwise) tending towards liquidation of the business and assets
of the Company, the filing of a claim for the unpaid balance of its or his
Securities in the form required in those proceedings.
<PAGE>
-77-
SECTION 8.11. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article shall not be
construed as preventing the occurrence of an Event of Default specified in
clause (1) or (2) of Section 6.01.
SECTION 8.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article shall apply to amounts due to the Trustee
pursuant to other sections in this Indenture.
SECTION 8.13. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 8.09, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article Eight or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Senior Indebtedness; and (d) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 8.14. Subordination Provisions Not Applicable to Collateral Held in
Trust for Securityholders and Collateral Held in the Escrow
Account; Payments May Be Paid Prior to Dissolution.
All money and United States Government Obligations deposited in trust
with the Trustee pursuant to and in accordance with Article Nine shall be for
the sole benefit of the Holders and shall not be subject to this Article Eight.
All Collateral deposited in the Escrow Account pursuant to and in accordance
with Section 4.19 and the Escrow Agreement shall be for the sole benefit of the
Holders and all payments or distributions therefrom to the Holders shall not be
subject to this Article Eight.
Nothing contained in this Article Eight or elsewhere in this Indenture
shall prevent (i) the Company, except under the conditions described in Section
8.02, from making payments of principal of and interest on the Securities, or
from depositing with the Trustee any moneys for such payments or from effecting
a termination of the Company's and the Guarantors' obligations under the
Securities and this Indenture as provided in Article Nine, or (ii) the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments of principal of on and interest on the Securities, to the
holders entitled thereto unless at least two Business Days prior to the date
upon which such payment becomes due and payable, the Trustee shall have received
the written notice provided for in Section 8.02(b) or in Section 8.06. The
Company shall give prompt written notice to the Trustee of any dissolution,
winding-up, liquidation or reorganization of the Company.
Nothing contained in this Article Eight or elsewhere in this Indenture
shall prevent the Escrow Agent from releasing the Collateral to the Trustee
(acting as Paying Agent) and the application by the Trustee of such amounts
released to it for the purpose of paying the Purchase Price pursuant to an Offer
to
<PAGE>
-78-
Purchase made pursuant to Section 4.19 nor shall any Holder receiving any
Collateral upon an Offer to Purchase made pursuant to Section 4.19 have any
obligation to turn any such Collateral over to the holders of Senior
Indebtedness.
SECTION 8.15. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of the Senior Indebtedness of
the acceleration.
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01. Termination of Company's Obligations.
Subject to the provisions of Article Eight, the Company may terminate
its and the Guarantors' substantive obligations in respect of the Securities by
delivering all outstanding Securities to the Trustee for cancellation and paying
all sums payable by it on account of principal of and interest on all Securities
or otherwise. In addition to the foregoing, subject to the provisions of Article
Eight with respect to the creation of the defeasance trust provided for in the
following clause (i), the Company may, provided that no Default or Event of
Default has occurred and is continuing or would arise therefrom (or, with
respect to a Default or Event of Default specified in Section 6.01(8) or (9),
occurs at any time on or prior to the 91st calendar day after the date of such
deposit (it being understood that this condition shall not be deemed satisfied
until after such 91st day)) and provided that no default under any Senior
Indebtedness would result therefrom, terminate its and the Guarantors'
substantive obligations in respect of the Securities (except for its obligations
to pay the principal of and interest on the Securities and the Guarantors'
Guaranty thereof) by (i) depositing with the Trustee, under the terms of an
irrevocable trust agreement, money or direct non-callable obligations of the
United States of America for the payment of which the full faith and credit of
the United States is pledged ("United States Government Obligations")
------------------------------------
sufficient (without reinvestment) to pay all remaining indebtedness on the
Securities, (ii) delivering to the Trustee either an Opinion of Counsel or a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders of the Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and termination of
obligations, (iii) delivering to the Trustee an Opinion of Counsel to the effect
that the Company's exercise of its option under this paragraph will not result
in any of the Company, the Trustee or the trust created by the Company's deposit
of funds pursuant to this provision becoming or being deemed to be an
"investment company" under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and (iv) delivering to the Trustee an Officers'
----------------------
Certificate and an Opinion of Counsel each stating compliance with all
conditions precedent provided for herein. In addition, subject to the provisions
of Article Eight with respect to the creation of the defeasance trust provided
for in the following clause (i), the Company may, provided that no Default or
Event of Default has occurred and is continuing or would arise therefrom (or,
with respect to a Default or Event of Default specified in Section 6.01(8) or
(9), occurs at any time on or prior to the 91st calendar day after the date of
such deposit (it being understood that this condition shall not be deemed
satisfied until after such 91st day)) and provided that no default under any
Senior Indebtedness would arise therefrom, terminate all of its and the
Guarantors' substantive obligations in respect of the Securities (including its
obligations to pay the principal of and interest on the Securities and the
Guarantors' guarantee thereof) by (i) depositing with the Trustee, under the
terms of an irrevocable trust agreement, money or United States Government
Obligations
<PAGE>
-79-
sufficient (without reinvestment) to pay all remaining indebtedness on the
Securities, (ii) delivering to the Trustee either a ruling directed to the
Trustee from the Internal Revenue Service to the effect that the Holders of the
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and termination of obligations or an
Opinion of Counsel based upon such a ruling addressed to the Trustee or a change
in the applicable Federal tax law since the date of this Indenture to such
effect, (iii) delivering to the Trustee an Opinion of Counsel to the effect that
the Company's exercise of its option under this paragraph will not result in any
of the Company, the Trustee or the trust created by the Company's deposit of
funds pursuant to this provision becoming or being deemed to be an "investment
company" under the Investment Company Act and (iv) delivering to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating compliance with all
conditions precedent provided for herein.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.12, 2.13 and 4.01 (but not
with respect to termination of substantive obligations pursuant to the third
sentence of the foregoing paragraph), 4.02, 7.07, 7.08, 9.03 and 9.04 shall
survive until the Securities are no longer outstanding. Thereafter the Company's
obligations in Sections 7.07, 9.03 and 9.04 shall survive.
After such delivery or irrevocable deposit and delivery of an
Officers' Certificate and Opinion of Counsel, the Trustee upon request shall
acknowledge in writing the discharge of the Company's and the Guarantors'
obligations under the Securities and this Indenture except for those surviving
obligations specified above.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the United States Government
Obligations deposited pursuant to this Section 9.01 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Securities.
SECTION 9.02. Application of Trust Money.
The Trustee shall hold in trust money or United States Government
Obligations deposited with it pursuant to Section 9.01, and shall apply the
deposited money and the money from United States Government Obligations in
accordance with this Indenture solely to the payment of principal of and
interest on the Securities.
SECTION 9.03. Repayment to Company.
Subject to Sections 7.07 and 9.01, the Trustee shall promptly pay to
the Company upon written request any excess money held by it at any time. The
Trustee shall pay to the Company upon written request any money held by it for
the payment of principal or interest that remains unclaimed for two years;
provided, however, that the Trustee before being required to make any payment
may at the expense of the Company cause to be published once in a newspaper of
general circulation in The City of New York or mail to each Holder entitled to
such money notice that such money remains unclaimed and that, after a date
specified therein which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining shall
be repaid to the Company. After payment to the Company, Securityholders entitled
to money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another person and all liability of
the Trustee or Paying Agent with respect to such money shall thereupon cease.
<PAGE>
-80-
SECTION 9,04. Reinstatement.
If the Trustee is unable to apply any money or United States
Government Obligations in accordance with Section 9.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and the Guarantors' obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 9.01 until such time as the Trustee is permitted to apply
all such money or United States Government Obligations in accordance with
Section 9.01; provided, however, that if the Company has made any payment of
interest on or principal of any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or United States
Government Obligations held by the Trustee.
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.
The Company and the Guarantors, when authorized by a resolution of
their respective Boards of Directors, and the Trustee may amend or supplement
this Indenture or the Securities without notice to or consent of any
Securityholder:
(i) to cure any ambiguity, defect or inconsistency; provided,
however, that such amendment or supplement does not adversely affect the
rights of any Holder;
(ii) to effect the assumption by a successor Person of all
obligations of the Company under the Securities, this Indenture, the
Registration Rights Agreement and the Escrow Agreement in connection with
any transaction complying with Article Five of this Indenture;
(iii) to provide for uncertificated Securities in addition to
or in place of certificated Securities;
(iv) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
(v) to make any change that would provide any additional
benefit or rights to the Holders;
(vi) to make any other change that does not adversely affect
the rights of any Holder under this Indenture;
(vii) to evidence the succession of another Person to any
Guarantor and the assumption by any such successor of the covenants of such
Guarantor herein and in the Guaranty;
(viii) to add to the covenants of the Company or the Guarantors
for the benefit of the Holders, or to surrender any right or power herein
conferred upon the Company or any Guarantor;
(ix) to secure the Securities pursuant to the requirements of
Section 4.18 or otherwise; or
<PAGE>
-81-
(x) to reflect the release of a Guarantor from its obligations
with respect to its Guarantee in accordance with the provisions of Section
11.03 and to add a Guarantor pursuant to the requirements of Section 4.20;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01.
SECTION 10.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Guarantors, when
authorized by a resolution of their respective Boards of Directors, and the
Trustee may amend or supplement this Indenture or the Securities with the
written consent of the Holders of at least a majority in principal amount at
maturity of the outstanding Securities. Subject to Section 6.07, the Holders of
a majority in principal amount at maturity of the outstanding Securities may
waive compliance by the Company or any Guarantor with any provision of this
Indenture or the Securities. However, without the consent of each Securityholder
affected, an amendment, supplement or waiver, including a waiver pursuant to
Section 6.04, may not:
(1) change the Stated Maturity of the principal of or any installment
of interest on any Security or alter the optional redemption or repurchase
provisions of any Security or this Indenture in a manner adverse to the
Holders of the Securities;
(2) reduce the principal amount or Accreted Value (or the premium) of
any Security (except pursuant to the Cash Interest Election);
(3) reduce the rate of or extend the time for payment of interest on
any Security or make any change to the definition of Accreted Value;
(4) change the place or currency of payment of the principal of or
interest on any Security;
(5) modify any provisions of Section 6.04 (other than to add sections
of this Indenture or the Securities subject thereto) or 6.07 or this
Section 10.02 (other than to add sections of this Indenture or the
Securities which may not be amended, supplemented or waived without the
consent of each Securityholder affected);
(6) reduce the percentage of the principal amount at maturity of
outstanding Securities necessary for amendment to or waiver of compliance
with any provision of this Indenture or the Securities or for waiver of any
Default;
(7) waive a default in the payment of the principal of or interest on
or redemption payment with respect to any Security (except a rescission of
acceleration of the Securities by the Holders as provided in Section 6.02
and a waiver of the payment default that resulted from such acceleration);
(8) modify the ranking or priority of the Securities or the
Guaranties is respect of any Guarantor, or modify the definition of Senior
Indebtedness or Guarantor Senior Indebtedness, or amend or modify any of
the provisions of Article Eight or Article Twelve in any manner adverse to
the Holders;
<PAGE>
-82-
(9) release any Guarantor from any of its obligations under its
Guaranty or this Indenture otherwise than in accordance with this
Indenture;
(10) modify the provisions relating to any Offer to Purchase required
pursuant to Section 4.05, 4.14 or 4.19 in a manner materially adverse to
the Holders; or
(11) modify the provisions of the Escrow Agreement or Section 4.19 in
any manner adverse to the Holders or release any of the Collateral from the
Lien securing the Securities (unless a GE-2 Notice shall have been received
or the Company has purchased at the Purchase Price all Securities tendered
pursuant to an Offer to Purchase made pursuant to Section 4.19) or permit
any other Indebtedness or other obligation to be secured by the Escrow
Funds.
An amendment under this Section 10.02 may not make any change under
Article Eight, Article Nine, Article Eleven or Article Twelve hereof that
adversely affects in any material respect the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any representative thereof authorized to give a consent) shall have consented to
such change.
It shall not be necessary for the consent of the Holders under this
Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 10.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 10.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 10.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of that
Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of such
Security by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount at maturity of Securities have consented (and
not theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders of Securities entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
<PAGE>
-83-
whether or not such persons continue to be Holders of such Securities after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (11) of Section 10.02. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
SECTION 10.05 Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
Failure to make the appropriate notation or issue a new Security shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 10.06. Trustee To Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully protected
in relying upon, an Opinion of Counsel stating that the execution of any
amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company and
the Guarantors, enforceable in accordance with its terms (subject to customary
exceptions). The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.
ARTICLE ELEVEN
GUARANTY
SECTION 11.01 Unconditional Guaranty.
Each Guarantor hereby unconditionally, jointly and severally,
guarantees to each Holder of a Security authenticated by the Trustee and to the
Trustee and its successors and assigns that: the principal of and interest on
the Securities will be promptly paid in full when due, subject to any applicable
grace period, whether at maturity, by acceleration or otherwise, and interest on
the overdue principal and interest on any overdue interest on the Securities and
all other obligations of the Company to the Holders or the Trustee hereunder or
under the Securities will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; subject, however, to the
limitations set forth in Section 11.04. Each Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or this Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the
Securities with respect to any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise con-
<PAGE>
-84-
stitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor
hereby waives diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any right to
require a proceeding first against the Company, protest, notice and all demands
whatsoever and covenants that the Guaranty will not be discharged except by
complete performance of the obligations contained in the Securities, this
Indenture, and this Guaranty. If any Holder or the Trustee is required by any
court or otherwise to return to the Company, any Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to the Company
or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee
or such Holder, this Guaranty, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor further agrees that, as
between each Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six for the purpose of this Guaranty,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Article Six, such
obligations (whether or not due and payable) shall forth become due and payable
by each Guarantor for the purpose of this Guaranty.
SECTION 11.02. Severability.
In case any provision of this Guaranty shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Release of a Guarantor.
If the Securities are defeased in accordance with the terms of this
Indenture, or if Section 5.01(b) is complied with, or if Section 4.20 provides
for any Person who becomes a Guarantor after the Issue Date to be released from
its Guaranty then each Guarantor (in the case of defeasance) or the applicable
Guarantor (in the case of compliance with Section 5.01(b) or Section 4.20, as
the case may be) shall be deemed released from all obligations under this
Article Eleven without any further action required on the part of the Trustee or
any Holder. The Trustee shall, at the sole cost and expense of the Company and
upon receipt at the reasonable request of the Trustee of an Opinion of Counsel
that the provisions of this Section 11.03 have been complied with, deliver an
appropriate instrument evidencing such release upon receipt of a request by the
Company accompanied by an Officers' Certificate certifying as to the compliance
with this Section 11.03. Any Guarantor not so released remains liable for the
full amount of principal of and interest on the Securities and the other
obligations of the Company hereunder as provided in this Article Eleven.
SECTION 11.04. Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirms that it is the intention of all such parties that the
guarantee by such Guarantor pursuant to its Guaranty not constitute a fraudulent
transfer or conveyance for purposes of title 11 of the United States Code, as
amended, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act or any similar U.S. Federal or state or other applicable law. To effectuate
the foregoing intention, the Holders and such Guarantor hereby irrevocably agree
that the obligations of such Guarantor under the Guaranty shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor and after giving effect to any collections
from or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guaranty or pursuant to Section
11.05, result in the obligations of such Guarantor under the Guaranty not
constituting such fraudulent transfer or conveyance.
<PAGE>
-85-
SECTION 11.05. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
-----------------
Guaranty, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount, based on the net assets of each Guarantor
(including the Funding Guarantor), determined in accordance with GAAP, subject
to Section 11.04, for all payments, damages and expenses incurred by that
Funding Guarantor in discharging the Company's obligations with respect to the
Securities or any other Guarantor's obligations with respect to the Guaranty.
SECTION 11.06. Subordination of Subrogation and Other Rights.
Each Guarantor hereby agrees that any claim against the Company that
arises from the payment, performance or enforcement of such Guarantor's
obligations under its Guaranty or this Indenture, including, without limitation,
any right of subrogation, shall be subject and subordinate to, and no payment
with respect to any such claim of such Guarantor shall be made before, the
payment in full in cash of all outstanding Securities in accordance with the
provisions provided therefor in this Indenture.
SECTION 11.07. Applicability of Article Eleven.
Anything contained in this Article Eleven to the contrary
notwithstanding, Article Eleven shall not apply unless and until a Person is
required to become a Guarantor pursuant to Section 4.20 hereof.
ARTICLE TWELVE
SUBORDINATION OF GUARANTY
SECTION 12.01. Guaranty Obligations Subordinated to Guarantor Senior
Indebtedness.
Each Guarantor covenants and agrees, and the Trustee and each Holder
of the Securities by his acceptance thereof likewise covenant and agree, that
the Guaranty shall be issued subject to the provisions of this Article Twelve;
and each person holding any Security, whether upon original issue or upon
transfer, assignment or exchange thereof, accepts and agrees that all payments
of the principal of and interest on the Securities pursuant to the Guaranty made
by or on behalf of any Guarantor shall, to the extent and in the manner set
forth in this Article Twelve, be subordinated and junior in right of payment to
the prior payment in full in cash of all amounts payable under Guarantor Senior
Indebtedness of such Guarantor.
SECTION 12.02 No Payment on Guaranties in Certain Circumstances.
(a) No direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities) by or on behalf of any Guarantor of
principal of or interest on the Securities pursuant to such Guarantor's
Guaranty, whether pursuant to the terms of the Securities, upon acceleration or
otherwise, shall be made if, at the time of such payment, there exists a default
in the payment of all or any portion of the obligations on any Designated
Guarantor Senior Indebtedness of such Guarantor, whether at maturity, on account
of mandatory redemption or prepayment, acceleration or otherwise, and such
default shall not have been cured or waived or the benefits of this sentence
waived by or on behalf of the holders of such Designated Guarantor
<PAGE>
-86-
Senior Indebtedness. In addition, during the continuance of any non-payment
event of default with respect to any Designated Guarantor Senior Indebtedness
pursuant to which the maturity thereof may be immediately accelerated, and upon
receipt by the Trustee of written notice (the "Guarantor Payment Blockage
--------------------------
Notice") from the holder or holders of such Designated Guarantor Senior
- ------
Indebtedness or the trustee or agent acting on behalf of such Designated
Guarantor Senior Indebtedness, then, unless and until such event of default has
been cured or waived or has ceased to exist or such Designated Guarantor Senior
Indebtedness has been discharged or paid in full in cash or the benefits of
these provisions have been waived by the holders of such Designated Guarantor
Senior Indebtedness, no direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities) shall be made by or on behalf of
such Guarantor of principal or interest on the Securities, except from those
funds held in trust for the benefit of the Holders of any Securities pursuant to
the procedures set forth in Article Nine hereof to such Holders, during a period
(a "Guarantor Blockage Period") commencing on the date of receipt of such notice
-------------------------
by the Trustee and ending 179 days thereafter.
Notwithstanding anything herein or in the Securities to the contrary,
(x) in no event shall a Guarantor Blockage Period extend beyond 179 days from
the date the Guarantor Payment Blockage Notice in respect thereof was given, (y)
there shall be a period of at least 181 consecutive days in each 360-day period
when no Guarantor Blockage Period is in effect and (z) not more than one
Guarantor Blockage Period may be commenced with respect to any Guarantor during
any period of 360 consecutive days. No event of default that existed or was
continuing on the date of commencement of any other Guarantor Blockage Period
with respect to the Designated Guarantor Senior Indebtedness initiating such
Guarantor Blockage Period (to the extent the holder of Designated Guarantor
Senior Indebtedness, or trustee or agent, giving notice commencing such
Guarantor Blockage Period had knowledge of such existing or continuing event of
default) may be, or be made, the basis for the commencement of any other
Guarantor Blockage Period by the holder or holders of such Designated Guarantor
Senior Indebtedness or the trustee or agent acting on behalf of such Designated
Guarantor Senior Indebtedness, whether or not within a period of 360 consecutive
days, unless such event of default has been cured or waived for a period of not
less than 90 consecutive days.
(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 12.02(a), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of such Designated Guarantor
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Designated Guarantor
Senior Indebtedness may have been issued, as their respective interests may
appear, but only to the extent that, upon notice from the Trustee to the holders
of such Designated Guarantor Senior Indebtedness that such prohibited payment
has been made, the holders of such Designated Guarantor Senior Indebtedness (or
their representative or representatives or a trustee) notify the Trustee in
writing of the amounts then due and owing on such Designated Guarantor Senior
Indebtedness, if any, and only the amounts specified in such notice to the
Trustee shall be paid to the holders of such Designated Guarantor Senior
Indebtedness.
SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities of
any Guarantor of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities), upon any
dissolution or winding-up or liquidation or reorganization of such Guarantor,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all Guarantor Senior Indebtedness of such Guarantor shall
first be paid in full before the Holders of the Securities or the Trustee on
behalf of such Holders shall be entitled to receive any payment by such
Guarantor of the principal of or interest on the Securities pursuant to such
Guarantor's Guaranty, or any payment to acquire any of the Securities
<PAGE>
-87-
for cash, property or securities, or any distribution with respect to the
Securities of any cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities). Before any payment may be made by,
or on behalf of, any Guarantor of the principal of or interest on the Securities
upon any such dissolution or winding-up or liquidation or reorganization, any
payment or distribution of assets or securities of such Guarantor of any kind or
character, whether in cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities), to which the Holders of the
Securities or the Trustee on their behalf would be entitled, but for the
subordination provisions of this Indenture, shall be made by such Guarantor or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, directly to the holders of the
Guarantor Senior Indebtedness of such Guarantor (pro rata to such holders on the
basis of the respective amounts of such Guarantor Senior Indebtedness held by
such holders) or their representatives or to the trustee or trustees or agent or
agents under any agreement or indenture pursuant to which any of such Guarantor
Senior Indebtedness may have been issued, as their respective interests may
appear, to the extent necessary to pay all such Guarantor Senior Indebtedness in
full in cash after giving effect to any prior or concurrent payment,
distribution or provision therefor to or for the holders of such Guarantor
Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of any Guarantor of any kind or character, whether in cash,
property or securities (excluding any payment or distribution of Permitted
Junior Securities), shall be received by the Trustee or any Holder of Securities
at a time when such payment or distribution is prohibited by Section 12.03(a)
and before all obligations in respect of the Guarantor Senior Indebtedness of
such Guarantor are paid in full in cash, or payment provided for, such payment
or distribution shall be received and held in trust for the benefit of, and
shall be paid over or delivered to, the holders of such Guarantor Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
such Guarantor Senior Indebtedness held by such holders) or their respective
representatives, or to the trustee or trustees or agent or agents under any
indenture pursuant to which any of such Guarantor Senior Indebtedness may have
been issued, as their respective interests may appear, for application to the
payment of such Guarantor Senior Indebtedness remaining unpaid until all such
Guarantor Senior Indebtedness has been paid in full in cash after giving effect
to any prior or concurrent payment, distribution or provision therefor to or for
the holders of such Guarantor Senior Indebtedness.
The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another corporation or the liquidation or dissolution of
any Guarantor following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 12.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
SECTION 12.04. Subrogation.
Upon the payment in full in cash of all Guarantor Senior Indebtedness
of a Guarantor, or provision for payment, the Holders of the Securities shall be
subrogated to the rights of the holders of such Guarantor Senior Indebtedness to
receive payments or distributions of cash, property or securities of such
Guarantor made on such Guarantor Senior Indebtedness until the principal of and
interest on the Securities shall be paid in full in cash; and, for the purposes
of such subrogation, no payments or distributions to the holders of such
Guarantor Senior Indebtedness of any cash, property or securities to which the
Holders of the Securities or the Trustee on their behalf would be entitled
except for the provisions of this Article Twelve, and no payment over pursuant
to the provisions of this Article Twelve to the holders of such Guarantor Senior
In-
<PAGE>
-88-
debtedness by Holders of the Securities or the Trustee on their behalf shall,
as between such Guarantor, its creditors other than holders of such Guarantor
Senior Indebtedness, and the Holders of the Securities, be deemed to be a
payment by such Guarantor to or on account of such Guarantor Senior
Indebtedness. It is understood that the provisions of this Article Twelve are
and are intended solely for the purpose of defining the relative rights of the
Holders of the Securities, on the one hand, and the holders of Guarantor Senior
Indebtedness of each Guarantor, on the other hand.
If any payment or distribution to which the Holders of the Securities
would otherwise have been entitled but for the provisions of this Article Twelve
shall have been applied, pursuant to the provisions of this Article Twelve, to
the payment of all amounts payable under Guarantor Senior Indebtedness, then and
in such case, the Holders of the Securities shall be entitled to receive from
the holders of such Guarantor Senior Indebtedness any payments or distributions
received by such holders of Guarantor Senior Indebtedness in excess of the
amount required to make payment in full, or provision for payment, of such
Guarantor Senior Indebtedness.
SECTION 12.05. Obligations of Guarantors Unconditional.
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Securities or the Guaranties is intended to or shall impair,
as among the Guarantors and the Holders of the Securities, the obligation of
each Guarantor, which is absolute and unconditional, to pay to the Holders of
the Securities the principal of and interest on the Securities as and when the
same shall become due and payable in accordance with the terms of the Guaranty
of such Guarantor, or is intended to or shall affect the relative rights of the
Holders of the Securities and creditors of any Guarantor other than the holders
of Guarantor Senior Indebtedness of such Guarantor, nor shall anything herein or
therein prevent the Holder of any Security or the Trustee on their behalf from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article Twelve of the
holders of Guarantor Senior Indebtedness in respect of cash, property or
securities of any Guarantor received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article Twelve shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Guarantor Senior Indebtedness
of any Guarantor then due and payable shall first be paid in full before the
Holders of the Securities or the Trustee are entitled to receive any direct or
indirect payment from such Guarantor of principal of or interest on the
Securities pursuant to such Guarantor's Guaranty.
SECTION 12.06. Notice to Trustee.
The Company and each Guarantor shall give prompt written notice to the
Trustee of any fact known to the Company or such Guarantor which would prohibit
the making of any payment to or by the Trustee in respect of the Securities
pursuant to the provisions of this Article Twelve. The Trustee shall not be
charged with knowledge of the existence of any event of default with respect to
any Guarantor Senior Indebtedness or of any other facts which would prohibit the
making of any payment to or by the Trustee unless and until the Trustee shall
have received notice in writing at its Corporate Trust Office to that effect
signed by an Officer of the Company or such Guarantor, or by a holder of
Guarantor Senior Indebtedness or trustee or agent therefor; and prior to the
receipt of any such written notice, the Trustee shall, subject to Article Seven,
be entitled to assume that no such facts exist; provided that if the Trustee
shall not have received the notice
<PAGE>
-89-
provided for in this Section 12.06 at least two Business Days prior to the date
upon which by the terms of this Indenture any moneys shall become payable for
any purpose (including, without limitation, the payment of the principal of or
interest on any Security), then, regardless of anything herein to the contrary,
the Trustee shall have full power and authority to receive any moneys from any
Guarantor and to apply the same to the purpose for which they were received, and
shall not be affected by any notice to the contrary which may be received by it
on or after such prior date. Nothing contained in this Section 12.06 shall limit
the right of the holders of Guarantor Senior Indebtedness to recover payments as
contemplated by Section 12.03. The Trustee shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself or itself to
be a holder of any Guarantor Senior Indebtedness (or a trustee on behalf of, or
other representative of, such holder) to establish that such notice has been
given by a holder of such Guarantor Senior Indebtedness or a trustee or
representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article Twelve, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article Twelve, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 12.07. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets or securities of a
Guarantor referred to in this Article Twelve, the Trustee and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which bankruptcy, dissolution, winding-up,
liquidation or reorganization proceedings are pending, or upon a certificate of
the receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of the Securities for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of Guarantor Senior Indebtedness
of such Guarantor and other indebtedness of such Guarantor, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article Twelve.
SECTION 12.08. Trustee's Relation to Guarantor Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Twelve with respect to any Guarantor Senior
Indebtedness which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Guarantor Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee or any
Paying Agent of any of its rights as such holder.
With respect to the holders of Guarantor Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Twelve, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior
Indebtedness (except as provided in Section 12.03(b)). The Trustee shall not be
liable to any such holders if the Trustee shall in good faith mistakenly pay
over or distribute to Holders of Securities or to the Company or to any other
person cash, property or securities to which any holders of Guarantor Senior
Indebtedness shall be entitled by virtue of this Article Twelve or otherwise.
<PAGE>
-90-
SECTION 12.09. Subordination Rights Not Impaired by Acts or Omissions of
the Guarantors or Holders of Guarantor Senior Indebtedness.
No right of any present or future holders of any Guarantor Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
any Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by any Guarantor with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article Twelve are intended to
be for the benefit of, and shall be enforceable directly by, the holders of
Guarantor Senior Indebtedness.
SECTION 12.10. Securityholders Authorize Trustee To Effectuate Subordination of
Guaranty.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Twelve, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, liquidation or
reorganization of any Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of such Guarantor, the filing of a claim for the unpaid
balance of its or his Securities in the form required in those proceedings.
SECTION 12.11. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Twelve shall not be
construed as preventing the occurrence of an Event of Default specified in
clauses (1) or (2) of Section 6.01.
SECTION 12.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article Twelve shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture.
SECTION 12.13. No Waiver of Guaranty Subordination Provisions.
Without in any way limiting the generality of Section 12.09, the
holders of Guarantor Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Twelve or the obligations hereunder of the Holders of the Securities to the
holders of Guarantor Senior Indebtedness, do any one or more of the following:
(a) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, Guarantor Senior Indebtedness or any instrument
evidencing the same or any agreement under which Guarantor Senior Indebtedness
is outstanding or secured; (b) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Guarantor Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Guarantor Senior Indebtedness; and (d) exercise or refrain from exercising any
rights against any Guarantor and any other Person.
<PAGE>
-91-
SECTION 12.14. Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Twelve or elsewhere in this
Indenture shall prevent (i) a Guarantor, except under the conditions described
in Section 12.02, from making payments of principal of and interest on the
Securities, or from depositing with the Trustee any moneys for such payments, or
(ii) the application by the Trustee of any moneys deposited with it for the
purpose of making such payments of principal of and interest on the Securities,
to the holders entitled thereto unless at least two Business Days prior to the
date upon which such payment becomes due and payable, the Trustee shall have
received the written notice provided for in Section 12.02(b) or in Section
12.06. A Guarantor shall give prompt written notice to the Trustee of any
dissolution, winding-up, liquidation or reorganization of such Guarantor.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are
required to be a part of this Indenture, and shall, to the extent applicable, be
governed by such provisions. If any provision of this Indenture modifies any TIA
provision that may be so modified, such TIA provision shall be deemed to apply
to this Indenture as so modified. If any provision of this Indenture excludes
any TIA provision that may be so excluded, such TIA provision shall be excluded
from this Indenture.
The provisions of TIA (S) 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included unless expressly
excluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
SECTION 13.02. Notices.
Any notice or communication shall be sufficiently given if in writing
and delivered in person, by facsimile and confirmed by overnight courier, or
mailed by first-class mail addressed as follows:
if to the Company or to the Guarantors:
TCI Satellite Entertainment, Inc.
8085 South Chester
Suite 300
Englewood, Colorado 80112
Attention: Chief Financial Officer
Facsimile: (303) 712-4973
Telephone: (303) 712-4600
with a copy to:
<PAGE>
-92-
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Attention: Marc A. Leaf
Facsimile: (212) 705-5125
Telephone: (212) 705-5097
if to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21West
New York, New York 10286
Attention: Corporate Trust Administration
Facsimile: (212) 815-5915
Telephone: (212) 815-5375
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed, first-class, postage prepaid, to a
Holder including any notice delivered in connection with TIA (S) 310(b), TIA (S)
313(c), TIA (S) 314(a) and TIA (S) 315(b), shall be mailed to him at his address
as set forth on the Security Register and shall be sufficiently given to him if
so mailed within the time prescribed. To the extent required by the TIA, any
notice or communication shall also be mailed to any Person described in TIA (S)
313(c).
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA (S) 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance satisfactory to
the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
<PAGE>
-93-
(2) an Opinion of Counsel in form and substance satisfactory to
the Trustee stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for its
functions.
SECTION 13.07. Governing Law.
The laws of the State of New York shall govern this Indenture, the
Securities and the Guaranty without regard to principles of conflicts of law.
SECTION 13.08. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
or any Guarantor shall not have any liability for any obligations of the Company
or any Guarantor under the Securities, the Guaranty or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability.
SECTION 13.09. Successors.
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of each Guarantor in this Indenture and
such Guarantor's Guaranty shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
<PAGE>
-94-
SECTION 13.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.11. Severability.
In case any provision in this Indenture, in the Securities or in the
Guaranty shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
SECTION 13.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 13.13. Legal Holidays.
If a payment date is a not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
ARTICLE FOURTEEN
COLLATERAL AND SECURITY
SECTION 14.01. Escrow Agreement.
The due and punctual payment of the principal of and interest on the
Securities when and as the same shall be due and payable on an Interest Payment
Date, at maturity or by acceleration, and interest on the overdue principal of
and interest (to the extent permitted by law), if any, on the Securities and
performance of all other obligations of the Company to the Holders of Securities
or the Trustee under this Indenture with respect to the Securities and the
Securities, according to the terms hereunder or thereunder, shall be secured as
provided in the Escrow Agreement which the Company, the Escrow Agent and the
Trustee have entered into simultaneously with the execution of this Indenture.
Upon the acceleration of the maturity of the Securities, the Trustee shall
foreclose upon the Collateral. Each Holder of Securities, by its acceptance
thereof, consents and agrees to the terms of the Escrow Agreement (including,
without limitation, the provisions providing for foreclosure and disbursement of
Collateral) as the same may be in effect or may be amended from time to time in
accordance with its terms and authorizes and directs the Escrow Agent and the
Trustee to enter into the Escrow Agreement and to perform its obligations and
exercise its rights thereunder in accordance therewith. The Company shall
deliver to the Trustee copies of the Escrow Agreement, and shall do or cause to
be done all such acts and things as may be necessary or proper, or as may be
required by the provisions of the Escrow Agreement, to assure and confirm to the
Trustee the security interest in the Collateral contemplated by the Escrow
Agreement or any part thereof, as from time to time constituted, so as to render
the same available for the security and benefit of this Indenture with respect
to, and of, the Securities, according to the intent and purposes expressed in
the Escrow Agreement. The Company shall take any and all
<PAGE>
-95-
actions reasonably required to cause the Escrow Agreement to create and maintain
(to the extent possible under applicable law), as security for the obligations
of the Company hereunder, a valid and enforceable perfected first priority Lien
in and on all the Collateral, in favor of the Trustee for the benefit of the
Holders of Securities, superior to and prior to the rights of all third Persons
and subject to no other Liens. The Trustee shall have no responsibility for
perfecting or maintaining the perfection of the Trustee's security interest in
the Collateral or for filing any instrument, document or notice in any public
office at any time or times.
SECTION 14.02. Recording and Opinions.
(a) The Company shall furnish to the Trustee simultaneously with
the execution and delivery of this Indenture an Opinion of Counsel either (i)
stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, financing
statements or other instruments necessary to make effective the Lien intended to
be created by the Escrow Agreement and reciting the details of such action, or
(ii) stating that in the opinion of such counsel no such action is necessary to
make such Lien effective.
(b) The Company shall furnish to the Escrow Agent and the Trustee
on February 20, 1998 (unless on such date the balance of Escrow Funds and other
Collateral shall be zero) and on each February 20 thereafter until the date upon
which the balance of Escrow Funds and other Collateral shall have been reduced
to zero, an Opinion of Counsel, dated as of such date, either (i) stating that
(A) in the opinion of such counsel, action has been taken with respect to the
recording, registering, filing, re-recording, re-registering and refiling of all
supplemental indentures, financing statements, continuation statements or other
instruments of further assurance as is necessary to maintain the Lien of the
Escrow Agreement and reciting the details of such action or referring to prior
Opinions of Counsel in which such details are given and (B) based on relevant
laws as in effect on the date of such Opinion of Counsel, all financing
statements and continuation statements have been executed and filed that are
necessary as of such date and during the succeeding 12 months fully to preserve
and protect, to the extent such protection and preservation are possible by
filing, the rights of the Holders of Securities and the Trustee hereunder and
under the Escrow Agreement with respect to the security interests in the
Collateral or (ii) stating that, in the opinion of such counsel, no such action
is necessary to maintain such Lien and assignment.
SECTION 14.03. Release of Collateral.
(a) Subject to subsections (b), (c) and (d) of this Section
14.03, Collateral may be released from the Lien and security interest created by
the Escrow Agreement only in accordance with the provisions of the Escrow
Agreement.
(b) Except to the extent that any Lien on proceeds of Collateral
is automatically released by operation of Section 9-306 of the Uniform
Commercial Code or other similar law, no Collateral shall be released from the
Lien and security interest created by the Escrow Agreement pursuant to the
provisions of the Escrow Agreement, other than to the Holders pursuant to the
terms thereof, unless there shall have been delivered to the Trustee the
certificate required by Section 14.03(d) and Section 14.04.
(c) At any time when an Event of Default shall have occurred and
be continuing and the maturity of the Securities shall have been accelerated
(whether by declaration or otherwise), no Collateral shall be released pursuant
to the provisions of the Escrow Agreement, and no release of Collateral in
contravention of this Section 14.03(c) shall be effective as against the Holders
of Securities, except for the disbursement of
<PAGE>
-96-
all Escrow Funds (as defined in the Escrow Agreement) and other Collateral to
the Trustee pursuant to Section 6(b) of the Escrow Agreement.
(d) The release of any Collateral from the Liens and security
interests created by this Indenture and the Escrow Agreement shall not be deemed
to impair the security under this Indenture in contravention of the provisions
hereof if and to the extent the Collateral is released pursuant to the terms
hereof or pursuant to the terms of the Escrow Agreement. To the extent
applicable, the Company shall cause TIA (S) 314(d) relating to the release of
property or securities from the Lien and security interest of the Escrow
Agreement to be complied with. Any certificate or opinion required by TIA
(S) 314(d) may be made by an Officer of the Company except in cases where TIA
(S) 314(d) requires that such certificate or opinion be made by an independent
Person, which Person shall be an independent engineer, appraiser or other expert
selected or approved by the Trustee in the exercise of reasonable care.
SECTION 14.04. Certificates of the Company.
The Company shall furnish to the Trustee, prior to any proposed
release of Collateral other than pursuant to the express terms of the Escrow
Agreement, (i) all documents required by TIA (S) 314(d) and (ii) an Opinion of
Counsel, which may be rendered by internal counsel to the Company, to the effect
that such accompanying documents constitute all documents required by TIA (S)
314(d). The Trustee may, to the extent permitted by Section 7.01 and Section
7.02, accept as conclusive evidence of compliance with the foregoing provisions
the appropriate statements contained in such documents and such Opinion of
Counsel.
SECTION 14.05. Authorization of Actions to Be Taken by the Trustee Under the
Escrow Agreement.
Subject to the provisions of Section 7.01 and Section 7.02, the
Trustee may, without the consent of the Holders of Securities, on behalf of the
Holders of Securities, take all actions it deems necessary or appropriate in
order to (a) enforce any of the terms of the Escrow Agreement and (b) collect
and receive any and all amounts payable in respect of the obligations of the
Company hereunder. The Trustee shall have power to institute and maintain such
suits and proceedings as it may deem expedient to prevent any impairment of the
Collateral by any acts that may be unlawful or in violation of the Escrow
Agreement or this Indenture, and such suits and proceedings as the Trustee may
deem expedient to preserve or protect its interests and the interests of the
Holders of Securities in the Collateral (including power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance with
any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest hereunder or be
prejudicial to the interests of the Holders of Securities or of the Trustee).
SECTION 14.06. Authorization of Receipt of Funds by the Trustee Under the
Escrow Agreement.
The Trustee is authorized to receive any funds for the benefit of the
Holders of Securities disbursed under the Escrow Agreement, and to make further
distributions of such funds to the Holders of Securities according to the
provisions of this Indenture.
SECTION 14.07. Termination of Security Interest.
Upon the earliest to occur of (i) the date upon which the balance of
Escrow Funds and other Collateral shall have been reduced to zero, (ii) the
payment in full of all obligations of the Company under this Indenture and the
Securities, (iii) legal defeasance pursuant to Section 9.01 and (iv) covenant
defeasance pur-
<PAGE>
-97-
suant to Section 9.01, the Trustee shall, at the written request of the Company,
release the Liens pursuant to this Indenture and the Escrow Agreement upon the
Company's compliance with the provisions of the TIA pertaining to release of
collateral.
[Signature Pages Follow]
<PAGE>
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By:____________________________________________
Name:
Title:
THE BANK OF NEW YORK,
AS TRUSTEE
By:____________________________________________
Name:
Title:
<PAGE>
EXHIBIT A
---------
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AN
"ACCREDITED INVESTOR")) OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A
U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE
IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE TRUSTEE AND THE ISSUER SUCH CERTIFICATES, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
A-1
<PAGE>
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, THIS
SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL
FACE AMOUNT OF THIS SECURITY, (1) THE ISSUE PRICE IS $552.95; (2) THE AMOUNT OF
ORIGINAL ISSUE DISCOUNT IS $1,059.55; (3) THE ISSUE DATE IS FEBRUARY 20, 1997;
AND (4) THE YIELD TO MATURITY (COMPOUNDED SEMI-ANNUALLY) IS 12 1/4%.
TCI SATELLITE ENTERTAINMENT, INC.
12 1/4% Senior Subordinated Discount Note
due February 15, 2007, Series A
CUSIP No.:
No. [ ] $[ ]
TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Company", which term includes any successor corporation), for value received
-------
promises to pay to [ ] or registered assigns, the principal sum of
[ ] Dollars (or, if the Cash Interest Election has been made, the Accreted
Value of this Security as of such date), on February 15, 2007.
Interest Payment Dates: February 15 and August 15, commencing on the
earlier of August 15, 2002 and the February 15 or August 15 immediately after
the Cash Interest Election Date (if any).
Interest Record Dates: February 1 and August 1
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
TCI SATELLITE ENTERTAINMENT, INC.
By:_______________________________________
Name:
Title:
Attest:_________________
Name:
Title:
A-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 12 1/4% Senior Subordinated Discount Notes due
2007, Series A, described in the within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK,
as Trustee
By:_________________________________________
Authorized Signatory
A-3
<PAGE>
(REVERSE OF SECURITY)
TCI SATELLITE ENTERTAINMENT, INC.
12 1/4% Senior Subordinated Discount Note
due February 15, 2007, Series A
1. Interest.
--------
TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security at
-------
the rate per annum shown above. Cash interest on the Securities will not accrue
prior to February 15, 2002. Cash Interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from February 15, 2002; provided, however, that at any time prior to
February 15, 2002, the Company may elect (the "Cash Interest Election") on any
----------------------
interest payment date (the date of such Cash Interest Election, the "Cash
----
Interest Election Date") to commence the accrual of cash interest from and after
- ----------------------
the Cash Interest Election Date, in which case the principal amount at maturity
of each Security will on such Interest Payment Date be reduced to the Accreted
Value of such Security as of such Interest Payment Date, and cash interest
(accruing at a rate of 12 1/4% per annum from the Cash Interest Election Date)
shall be payable with respect to such Security on each Interest Payment Date
thereafter. The Company will pay interest semi-annually in arrears on each
Interest Payment Date, commencing the earlier of August 15, 2002 and the
February 15 or August 15 immediately after the Cash Interest Election Date (if
any). Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal from time to time
on demand at the rate borne by the Securities and on overdue installments of
interest (without regard to any applicable grace periods) to the extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are cancelled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to
a Paying Agent to collect principal payments. The Company shall pay principal
and interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
-----------------
the Company may pay principal and interest by wire transfer of Federal funds
(provided that the Paying Agent shall have received wire instructions on or
prior to the relevant Interest Record Date), or interest by check payable in
such U.S. Legal Tender. The Company may deliver any such interest payment to
the Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
--------------------------
Initially, The Bank of New York (the "Trustee") will act as Paying
-------
Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar.
A-4
<PAGE>
4. Indenture and Guarantees.
------------------------
The Company issued the Securities under an Indenture, dated as of
February 20, 1997 (the "Indenture"), between the Company and the Trustee.
---------
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in
---
effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and holders of Securities
are referred to the Indenture and the TIA for a statement of them. The
Securities are general obligations of the Company limited in aggregate principal
face amount to $275,000,000. If any Restricted Subsidiary guarantees any Senior
Indebtedness of the Company which has registration rights (including the
requirement to effect an exchange offer registered under the Securities Act) or
which is registered under the Securities Act, payment on each Security shall be
guaranteed (each, a "Guaranty") on a senior subordinated basis, jointly and
--------
severally, by such Restricted Subsidiary (each, a "Guarantor") pursuant to
---------
Article Eleven and Article Twelve of the Indenture. In certain circumstances,
the Guaranties may be released.
5. Optional Redemption.
-------------------
The Securities will be redeemable at the option of the Company, in
whole or in part, at any time or from time to time, on or after February 15,
2002 at the redemption prices (expressed as a percentage of principal amount at
maturity) set forth below, plus accrued and unpaid interest thereon, if any, to
the redemption date if redeemed during the twelve-month period commencing on
February 15 of the years set forth below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 106.125%
2003 104.083%
2004 102.042%
2005 and thereafter 100.000%
</TABLE>
6. Optional Redemption upon Certain Equity Issuances.
-------------------------------------------------
At any time, or from time to time, prior to February 15, 2000, the
Company may, other than in any circumstance resulting in a Change of Control,
redeem up to 35% of the originally issued principal amount at maturity of
Securities at a redemption price equal to 112.250% of the Accreted Value of the
Securities so redeemed at the redemption date or, if a Cash Interest Election
has been made, 112.250% of the principal amount at maturity of the Securities so
redeemed, plus accrued and unpaid interest thereon, if any, to the redemption
date, with the net cash proceeds of (a) one or more Public Equity Offerings of
common equity of the Company or (b) a sale or series of related sales of
Qualified Equity Interests of the Company to Strategic Equity Investors, in any
such case resulting in gross cash proceeds to the Company of at least $100.0
million in the aggregate; provided, however, that at least 65% of the originally
issued principal amount at maturity of Securities remains outstanding
immediately after giving effect to any such redemption (excluding any Securities
owned by the Company or any of its Affiliates). Notice of any such redemption
must be given within 60 days after the date of the last Public Equity Offering
or sale of Qualified Equity Interests of the Company to Strategic Equity
Investors resulting in gross cash proceeds to the Company, when aggregated with
all prior Public Equity Offerings and sales of Qualified Equity Interests of the
Company to Strategic Equity Investors, of at least $100.0 million.
A-5
<PAGE>
7. Notice of Redemption.
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address; provided, however, that
notice of redemption pursuant to paragraph 6 of this Security will be mailed to
each Holder of Securities to be redeemed no later than 60 days following the
consummation of the last Public Equity Offering or sale of Qualified Equity
Interests of the Company to Strategic Equity Investors resulting in gross cash
proceeds to the Company, when aggregated with all prior Public Equity Offerings
and sales of Qualified Equity Interests of the Company to Strategic Equity
Investors, of at least $100.0 million. The Trustee may select for redemption
portions of the principal face amount of Securities that have denominations
equal to or larger than $1,000 principal face amount. Securities and portions
of them the Trustee so selects shall be in amounts of $1,000 principal face
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal face amount thereof to be redeemed. A new Security in a principal
amount at maturity equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Security. On and
after the Redemption Date, interest or Accreted Value will cease to accrue or
accrete, as the case may be, on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture.
8. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of their Accreted Value on the Purchase Date, unless the
Purchase Date is on or after the earlier to occur of February 15, 2002 and the
Cash Interest Election Date, in which case such purchase price shall be equal to
101% of the aggregate principal amount at maturity thereof, plus accrued and
unpaid interest thereon, if any, to the Purchase Date.
9. Limitation on Disposition of Assets.
-----------------------------------
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at a purchase price equal to 100% of their Accreted
Value on the Purchase Date, unless the Purchase Date is on or after the earlier
to occur of February 15, 2002 and the Cash Interest Election Date, in which case
such purchase price shall be equal to 100% of the aggregate principal amount at
maturity thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date.
10. Offer to Purchase upon a GE-2 Satellite Event.
---------------------------------------------
Upon the occurrence of a GE-2 Satellite Event, the Company is
obligated to make an offer to purchase all outstanding Securities at a purchase
price equal to 100% of their Accreted Value on the Purchase Date. In order to
secure the payment and performance of the Company's obligation to repurchase the
Securities tendered in connection with an Offer to Purchase made upon a GE-2
Satellite Event, the Company has granted to the Trustee, for the sole and
exclusive benefit of the Holders, a continuing first priority security interest
in and to the Collateral subject to and pursuant to the Escrow Agreement. Upon
a GE-2 Acceptance, all Escrow Funds and other Collateral shall be released to
the Company. The terms of the Securities include those stated in the Escrow
Agreement.
A-6
<PAGE>
11. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
12. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
13. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the Company
at its written request. After that, all liability of the Trustee and such
Paying Agent with respect to such funds shall cease.
14. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guaranties except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guaranties, in each case upon satisfaction of certain conditions specified in
the Indenture.
15. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture, the Escrow Agreement,
the Securities and the Guaranties may be amended or supplemented with the
written consent of the Holders of at least a majority in aggregate principal
amount at maturity of the Securities then outstanding, and any existing Default
or Event of Default or compliance with any provision may be waived with the
consent of the Holders of a majority in aggregate principal amount at maturity
of the Securities then outstanding. Without notice to or consent of any Holder,
the parties thereto may amend or supplement the Indenture, the Escrow Agreement,
the Securities and the Guaranties to, among other things, cure any ambiguity,
defect or inconsistency, provide for uncertificated Securities in addition to or
in place of certificated Securities or comply with any requirements of the
Commission in connection with the qualification of the Indenture under the TIA,
or make any other change that does not materially adversely affect the rights of
any Holder of a Security.
16. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets, to engage in transactions with affiliates or certain other related
persons or to engage in certain businesses. The limitations are subject to a
number of important qualifications and exceptions. The Company must quarterly
report to the Trustee on compliance with such limitations.
A-7
<PAGE>
17. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount at maturity of Securities
then outstanding may declare all the Securities to be due and payable
immediately in the manner and with the effect provided in the Indenture.
Holders of Securities may not enforce the Indenture, the Escrow Agreement, the
Securities or the Guaranties except as provided in the Indenture. The Trustee
is not obligated to enforce the Indenture, the Escrow Agreement, the Securities
or the Guaranties unless it has received indemnity satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount at maturity of the Securities then
outstanding to direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of Securities notice of certain continuing
Defaults or Events of Default if it determines that withholding notice is in
their interest.
18. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
19. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as such,
of the Company or any of its Affiliates shall have any liability for any
obligation of the Company under the Securities or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Security by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Securities.
20. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
21. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
A-8
<PAGE>
23. Governing Law.
-------------
The laws of the State of New York shall govern the Indenture, this
Security and any Guaranty thereof without regard to principles of conflicts of
laws.
A-9
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed: ___________________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05, Section 4.14 or Section 4.19 of the Indenture, check
the appropriate box:
Section 4.05 [ ]
Section 4.14 [ ]
Section 4.19 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05, Section 4.14 or Section 4.19 of the
Indenture, state the amount: $_____________
Dated:___________________ Your Signature:_________________________________
(Signed exactly as name appears
on the other side of this
Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
EXHIBIT B
---------
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, THIS
SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL
AMOUNT OF THIS SECURITY, (1) THE ISSUE PRICE IS $552.95; (2) THE AMOUNT OF
ORIGINAL ISSUE DISCOUNT IS $1,059.15; (3) THE ISSUE DATE IS FEBRUARY 20, 1997;
AND (4) THE YIELD TO MATURITY (COMPOUNDED SEMI-ANNUALLY) IS 12 1/4%.
(FORM OF SERIES B SECURITY)
TCI SATELLITE ENTERTAINMENT, INC.
12 1/4% Senior Subordinated Discount Note
due February 15, 2007, Series B
CUSIP No.:
No. [ ] $[ ]
TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Company", which term includes any successor corporation), for value received
- --------
promises to pay to [ ] or registered assigns, the principal sum
of [ ] Dollars (or, if the Cash Interest Election has been made, the
Accreted Value of this Security as of such date), on February 15, 2007.
Interest Payment Dates: February 15 and August 15, commencing on the
earlier of August 15, 2002 and the February 15 or August 15 immediately after
the Cash Interest Election Date (if any).
Interest Record Dates: February 1 and August 1
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
TCI SATELLITE ENTERTAINMENT, INC.
By:_________________________________________
Name:
Title:
Attest: ______________________
Name:
Title:
B-1
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 12 1/4% Senior Subordinated Discount Notes due
2007, Series B, described in the within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK,
as Trustee
By:__________________________________________
Authorized Signatory
B-2
<PAGE>
(REVERSE OF SECURITY)
TCI SATELLITE ENTERTAINMENT, INC.
12 1/4% Senior Subordinated Discount Note
due February 15, 2007, Series B
1. Interest.
--------
TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security at
-------
the rate per annum shown above. Cash interest on the Securities will not accrue
prior to February 15, 2002. Cash interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from February 15, 2002; provided, however, that at any time prior to
February 15, 2002, the Company may elect (the "Cash Interest Election") on any
----------------------
interest payment date (the date of such Cash Interest Election, the "Cash
----
Interest Election Date") to commence the accrual of cash interest from and after
- ----------------------
the Cash Interest Election Date, in which case the principal amount at maturity
of each Security will on such Interest Payment Date be reduced to the Accreted
Value of such Security as of such Interest Payment Date, and cash interest
(accruing at a rate of 12 1/4% per annum from the Cash Interest Election Date)
shall be payable with respect to such Security on each Interest Payment Date
thereafter. The Company will pay interest semi-annually in arrears on each
Interest Payment Date, commencing the earlier of August 15, 2002 and the
February 15 or August 15 immediately after the Cash Interest Election Date (if
any). Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal from time to time
on demand at the rate borne by the Securities and on overdue installments of
interest (without regard to any applicable grace periods) to the extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Interest Record Date immediately preceding the Interest Payment Date even
if the Securities are cancelled on registration of transfer or registration of
exchange after such Interest Record Date. Holders must surrender Securities to
a Paying Agent to collect principal payments. The Company shall pay principal
and interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
-----------------
the Company may pay principal and interest by wire transfer of Federal funds
(provided that the Paying Agent shall have received wire instructions on or
prior to the relevant Interest Record Date), or interest by check payable in
such U.S. Legal Tender. The Company may deliver any such interest payment to
the Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
--------------------------
Initially, The Bank of New York (the "Trustee") will act as Paying
-------
Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar.
B-3
<PAGE>
4. Indenture and Guarantees.
------------------------
The Company issued the Securities under an Indenture, dated as of
February 20, 1997 (the "Indenture"), between the Company and the Trustee.
---------
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-77bbbb) (the "TIA"), as in effect
---
on the date of the Indenture until such time as the Indenture is qualified under
the TIA, and thereafter as in effect on the date on which the Indenture is
qualified under the TIA. Notwithstanding anything to the contrary herein, the
Securities are subject to all such terms, and holders of Securities are referred
to the Indenture and the TIA for a statement of them. The Securities are
general obligations of the Company limited in aggregate principal face amount to
$275,000,000. If any Restricted Subsidiary guarantees any Senior Indebtedness
of the Company which has registration rights (including the requirement to
effect an exchange offer registered under the Securities Act) or which is
registered under the Securities Act, payment on each Security shall be
guaranteed (each, a "Guaranty") on a senior subordinated basis, jointly and
--------
severally, by such Restricted Subsidiary (each, a "Guarantor") pursuant to
---------
Article Eleven and Article Twelve of the Indenture. In certain circumstances,
the Guaranties may be released.
5. Optional Redemption.
-------------------
The Securities will be redeemable at the option of the Company, in
whole or in part, at any time or from time to time, on or after February 15,
2002 at the redemption prices (expressed as a percentage of principal amount at
maturity) set forth below, plus accrued and unpaid interest thereon, if any, to
the redemption date if redeemed during the twelve-month period commencing on
February 15 of the years set forth below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 106.125%
2003 104.083%
2004 102.042%
2005 and thereafter 100.000%
</TABLE>
6. Optional Redemption upon Certain Equity Issuances.
-------------------------------------------------
At any time, or from time to time, prior to February 15, 2000, the
Company may, other than in any circumstance resulting in a Change of Control,
redeem up to 35% of the originally issued principal amount at maturity of
Securities at a redemption price equal to 112.250% of the Accreted Value of the
Securities so redeemed at the redemption date or, if a Cash Interest Election
has been made, 112.250% of the principal amount at maturity of the Securities so
redeemed, plus accrued and unpaid interest thereon, if any, to the redemption
date, with the net cash proceeds of (a) one or more Public Equity Offerings of
common equity of the Company or (b) a sale or series of related sales of
Qualified Equity Interests of the Company to Strategic Equity Investors, in any
such case resulting in gross cash proceeds to the Company of at least $100.0
million in the aggregate; provided, however, that at least 65% of the originally
issued principal amount at maturity of Securities remains outstanding
immediately after giving effect to any such redemption (excluding any Securities
owned by the Company or any of its Affiliates). Notice of any such redemption
must be given within 60 days after the date of the last Public Equity Offering
or sale of Qualified Equity Interests of the Company to Strategic Equity
Investors resulting in gross cash proceeds to the Company, when aggregated with
all prior Public Equity Offerings and sales of Qualified Equity Interests of the
Company to Strategic Equity Investors, of at least $100.0 million.
B-4
<PAGE>
7. Notice of Redemption.
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address; provided, however, that
notice of redemption pursuant to paragraph 6 of this Security will be mailed to
each Holder of Securities to be redeemed no later than 60 days following the
consummation of the last Public Equity Offering or sale of Qualified Equity
Interests of the Company to Strategic Equity Investors resulting in gross cash
proceeds to the Company, when aggregated with all prior Public Equity Offerings
and sales of Qualified Equity Interests of the Company to Strategic Equity
Investors, of at least $100.0 million. The Trustee may select for redemption
portions of the principal face amount of Securities that have denominations
equal to or larger than $1,000 principal face amount. Securities and portions
of them the Trustee so selects shall be in amounts of $1,000 principal face
amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal face amount thereof to be redeemed. A new Security in a principal
amount at maturity equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Security. On and
after the Redemption Date, interest or Accreted Value will cease to accrue or
accrete, as the case may be, on Securities or portions thereof called for
redemption so long as the Company has deposited with the Paying Agent for the
Securities funds in satisfaction of the redemption price pursuant to the
Indenture.
8. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of their Accreted Value on the Purchase Date, unless the
Purchase Date is on or after the earlier to occur of February 15, 2002 and the
Cash Interest Election Date, in which case such purchase price shall be equal to
101% of the aggregate principal amount at maturity thereof, plus accrued and
unpaid interest thereon, if any, to the Purchase Date.
9. Limitation on Disposition of Assets.
-----------------------------------
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at a purchase price equal to 100% of their Accreted
Value on the Purchase Date, unless the Purchase Date is on or after the earlier
to occur of February 15, 2002 and the Cash Interest Election Date, in which case
such purchase price shall be equal to 100% of the aggregate principal amount at
maturity thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date.
10. Offer to Purchase upon a GE-2 Satellite Event.
---------------------------------------------
Upon the occurrence of a GE-2 Satellite Event, the Company is
obligated to make an offer to purchase all outstanding Securities at a purchase
price equal to 100% of their Accreted Value on the Purchase Date. In order to
secure the payment and performance of the Company's obligation to repurchase the
Securities tendered in connection with an Offer to Purchase made upon a GE-2
Satellite Event, the Company has granted to the Trustee, for the sole and
exclusive benefit of the Holders, a continuing first priority security interest
in and to the Collateral subject to and pursuant to the Escrow Agreement. Upon
a GE-2 Acceptance, all Escrow Funds and other Collateral shall be released to
the Company. The terms of the Securities include those stated in the Escrow
Agreement.
B-5
<PAGE>
11. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption, except the
unredeemed portion of any security being redeemed in part.
12. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
13. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the Company
at its written request. After that, all liability of the Trustee and such
Paying Agent with respect to such funds shall cease.
14. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guaranties except for
certain provisions thereof, and may be discharged from obligations to comply
with certain covenants contained in the Indenture, the Securities and the
Guaranties, in each case upon satisfaction of certain conditions specified in
the Indenture.
15. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture, the Escrow Agreement,
the Securities and the Guaranties may be amended or supplemented with the
written consent of the Holders of at least a majority in aggregate principal
amount at maturity of the Securities then outstanding, and any existing Default
or Event of Default or compliance with any provision may be waived with the
consent of the Holders of a majority in aggregate principal amount at maturity
of the Securities then outstanding. Without notice to or consent of any Holder,
the parties thereto may amend or supplement the Indenture, the Escrow Agreement,
the Securities and the Guaranties to, among other things, cure any ambiguity,
defect or inconsistency, provide for uncertificated Securities in addition to or
in place of certificated Securities or comply with any requirements of the
Commission in connection with the qualification of the Indenture under the TIA,
or make any other change that does not materially adversely affect the rights of
any Holder of a Security.
16. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
to the Company, to consolidate, merge or sell all or substantially all of its
assets, to engage in transactions with affiliates or certain other related
persons or to engage in certain businesses. The limitations are subject to a
number of important qualifications and exceptions. The Company must quarterly
report to the Trustee on compliance with such limitations.
B-6
<PAGE>
17. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount at maturity of Securities
then outstanding may declare all the Securities to be due and payable
immediately in the manner and with the effect provided in the Indenture.
Holders of Securities may not enforce the Indenture, the Escrow Agreement, the
Securities or the Guaranties except as provided in the Indenture. The Trustee
is not obligated to enforce the Indenture, the Escrow Agreement, the Securities
or the Guaranties unless it has received indemnity satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount at maturity of the Securities then
outstanding to direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of Securities notice of certain continuing
Defaults or Events of Default if it determines that withholding notice is in
their interest.
18. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
19. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as such,
of the Company or any of its Affiliates shall have any liability for any
obligation of the Company under the Securities or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Security by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Securities.
20. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
21. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
B-7
<PAGE>
23. Governing Law.
-------------
The laws of the State of New York shall govern the Indenture, this
Security and any Guaranty thereof without regard to principles of conflicts of
laws.
B-8
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:______________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05, Section 4.14 or Section 4.19 of the Indenture, check
the appropriate box:
Section 4.05 [ ]
Section 4.14 [ ]
Section 4.19 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05, Section 4.14 or Section 4.19 of the
Indenture, state the amount: $_____________
Dated:___________________ Your Signature:_______________________________
(Signed exactly as name appears
on the other side of this
Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
EXHIBIT C
---------
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
C-1
<PAGE>
EXHIBIT D
---------
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 12 1/4% Senior Subordinated Discount Notes due 2007, Series A
and 12 1/4% Senior Subordinated Discount Notes due 2007, Series B
(the "Securities"), of TCI Satellite Entertainment, Inc.
----------------------------------------------------------------
This Certificate relates to $_______ principal amount of at maturity
Securities held in the form of* ___ a beneficial interest in a Global Security
or* _______ Physical Securities by ______ (the "Transferor").
The Transferor:*
[_] has requested by written order that the Registrar deliver in exchange
for its beneficial interest in the Global Security held by the Depositary a
Physical Security or Physical Securities in definitive, registered form of
authorized denominations and an aggregate number equal to its beneficial
interest in such Global Security (or the portion thereof indicated above); or
[_] has requested that the Registrar by written order to exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such Security,
the Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Securities and the restrictions on
transfers thereof as provided in Section 2.07 of such Indenture, and that the
transfer of this Securities does not require registration under the Securities
Act of 1933, as amended (the "Act"), because*:
[_] Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.07 of the Indenture).
[_] Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
[_] Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Act).
[_] Such Security is being transferred in reliance on Regulation S under
the Act
[_] Such Security is being transferred in reliance on Rule 144 under the
Act.
[_] Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 or Regulation S under the Act to a person other than an
institutional "accredited investor."
______________________________
[INSERT NAME OF TRANSFEROR]
By: __________________________
[Authorized Signatory]
Date: _____________
*Check applicable box.
D-1
<PAGE>
EXHIBIT E
---------
Form of Certificate To Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
_______________, ____
The Bank of New York
101 Barclay Street, Floor 21West
New York, New York 10286
Attention: Corporate Trust Administration
Re: TCI Satellite Entertainment, Inc. (the "Company")
Indenture (the "Indenture") relating to
12 1/4% Senior Subordinated Discount Notes due 2007, Series A,
or 12 1/4% Senior Subordinated Discount Notes due 2007, Series B
----------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of 12 1/4% Senior
Subordinated Discount Notes due 2007, Series A, or 12 1/4% Senior Subordinated
Discount Notes due 2007, Series B (the "Securities"), of the Company, we confirm
that:
1. We have received such information as we deem necessary in order to
make our investment decision.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture
and the undersigned agrees to be bound by, and not to resell, pledge or
otherwise transfer the Securities except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act").
3. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not
be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are
acting as hereinafter stated, that if we should sell any Securities, we
will do so only (A) to the Company or any subsidiary thereof, (B) inside
the United States in accordance with Rule 144A under the Securities Act to
a "qualified institutional buyer" (as defined therein), (C) inside the
United States to an institutional "accredited investor" (as defined below)
that, prior to such transfer, furnishes (or has furnished on its behalf by
a U.S. broker-dealer) to the Trustee a signed letter substantially in the
form hereof, (D) outside the United States in accordance with Regulation S
under the Securities Act, (E) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), or (F)
pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing Securities from us
a notice advising such purchaser that resales of the Securities are
restricted as stated herein.
4. We understand that, on any proposed resale of Securities, we will
be required to furnish to the Trustee and the Company such certification,
legal opinions and other information as the
E-1
<PAGE>
Trustee and the Company may reasonably require to confirm that the proposed
sale complies with the foregoing restrictions. We further understand that
the Securities purchased by us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able
to bear the economic risk of our or their investment, as the case may be.
6. We are acquiring the Securities purchased by us for our account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By: __________________________
[Authorized Signatory]
E-2
<PAGE>
EXHIBIT F
---------
Form of Certificate To Be
Delivered in Connection
with Regulation S Transfers
_______________, ____
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Administration
Re: TCI Satellite Entertainment, Inc. (the "Company") 12 1/4%
Senior Subordinated Discount Notes due 2007, Series A, and 12 1/4%
Senior Subordinated Discount Notes due 2007, Series B (the "Securities")
------------------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By: _________________________
[Authorized Signatory]
F-1
<PAGE>
EXHIBIT 4.5
SENIOR SUBORDINATED NOTES
REGISTRATION RIGHTS AGREEMENT
AMONG
TCI SATELLITE ENTERTAINMENT, INC.
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
AND
SCOTIA CAPITAL MARKETS (USA) INC.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
---------
February 20, 1997, by and among TCI SATELLITE ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), and DONALDSON, LUFKIN & JENRETTE SECURITIES
-------
CORPORATION, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, NATIONSBANC
CAPITAL MARKETS, INC. and SCOTIA CAPITAL MARKETS (USA) INC. (together, the
"Initial Purchasers").
- -------------------
This Agreement is entered into in connection with the Purchase
Agreement, dated as of February 14, 1997, among the Company and the Initial
Purchasers (the "Purchase Agreement") relating to the sale by the Company to the
------------------
Initial Purchasers of $200,000,000 aggregate principal amount of its 10 7/8%
Senior Subordinated Notes due 2007 (the "Notes"). In order to induce the
-----
Initial Purchasers to enter into the Purchase Agreement, the Company has agreed
to provide the registration rights set forth in this Agreement for the equal
benefit of the Initial Purchasers and their respective direct and indirect
transferees. The execution and delivery of this Agreement is a condition to the
Initial Purchasers' obligation to purchase the Notes under the Purchase
Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4(a).
-------------------
Advice: See the last paragraph of Section 5.
------
Applicable Period: See Section 2(b).
-----------------
Closing Date: The Closing Date as defined in the Purchase Agreement.
------------
Company: See the introductory paragraph to this Agreement.
-------
Effectiveness Date: The 135th day after the Closing Date; provided,
------------------
however, that, with respect to the Initial Shelf Registration Statement, (i) if
the Filing Date in respect thereof is fewer than 60 days prior to the 135th day
after the Closing Date, then the Effectiveness Date in respect thereof shall be
the 60th day after such Filing Date and (ii) if the Filing Date is after the
filing of the Exchange Offer Registration Statement with the SEC, then the
Effectiveness Date in respect thereof shall be the 60th day after such Filing
Date.
Effectiveness Period: See Section 3.
--------------------
Event Date: See Section 4.
----------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the SEC promulgated thereunder.
<PAGE>
-2-
Exchange Offer: See Section 2(a).
--------------
Exchange Offer Registration Statement: See Section 2(a).
-------------------------------------
Exchange Securities: See Section 2(a).
-------------------
Expiration Date: See Section 2(a).
---------------
Filing Date: The 45th day after the Closing Date; provided, however,
-----------
that, with respect to the Initial Shelf Registration Statement, (i) if a Shelf
Registration Event shall have occurred fewer than 30 days prior to the 45th day
after the Closing Date, then the Filing Date in respect thereof shall be the
30th day after such Shelf Registration Event and (ii) if a Shelf Registration
Event shall have occurred after the filing of the Exchange Offer Registration
Statement with the SEC, then the Filing Date in respect thereof shall be the
45th day after such Shelf Registration Event.
Guarantors: See Section 10(d).
----------
Holder: Any record holder of Registrable Securities.
------
Indemnified Person: See the third paragraph of Section 7.
------------------
Indemnifying Person: See the third paragraph of Section 7.
-------------------
Indenture: The Indenture, dated as of February 20, 1997, between
---------
the Company and The Bank of New York, as trustee, pursuant to which the Notes
are being issued, as amended or supplemented from time to time in accordance
with the terms thereof.
Initial Purchasers: See the introductory paragraph to this
------------------
Agreement.
Initial Shelf Registration Statement: See Section 3(a).
------------------------------------
Inspectors: See Section 5(o).
----------
Issue Date: The date of original issuance of the Notes.
----------
NASD: See Section 5(t).
----
Notes: See the second introductory paragraph to this Agreement.
-----
Participant: See the first paragraph of Section 7.
-----------
Participating Broker-Dealer: See Section 2(b).
---------------------------
Person: An individual, corporation, limited or general partnership,
------
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
Private Exchange: See Section 2(b).
----------------
<PAGE>
-3-
Private Exchange Securities: See Section 2(b).
---------------------------
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph to this
------------------
Agreement.
Records: See Section 5(o).
-------
Registrable Securities: The Notes upon original issuance thereof and
----------------------
at all times subsequent thereto, each Exchange Security as to which Section
2(c)(v) hereof is applicable upon original issuance and at all times subsequent
thereto and, if issued, the Private Exchange Securities, until in the case of
any such Notes, Exchange Securities or Private Exchange Securities, as the case
may be, (i) a Registration Statement (other than, with respect to any Exchange
Security as to which Section 2(c)(v) hereof is applicable, the Exchange Offer
Registration Statement) covering such Notes, Exchange Securities or Private
Exchange Securities has been declared effective by the SEC and such Notes,
Exchange Securities or Private Exchange Securities, as the case may be, have
been disposed of in accordance with such effective Registration Statement, (ii)
such Notes, Exchange Securities or Private Exchange Securities, as the case may
be, are sold in compliance with Rule 144, (iii) such Note has been exchanged
for an Exchange Note pursuant to the Exchange Offer and Section 2(c)(v) is not
applicable thereto, or (iv) such Notes, Exchange Securities or Private Exchange
Securities, as the case may be, cease to be outstanding.
Registration Statement: Any registration statement of the Company,
----------------------
including, but not limited to, the Exchange Offer Registration Statement, that
covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such
---------
Rule may be amended from time to time, or any similar rule (other than Rule 144)
or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
---
<PAGE>
-4-
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c).
------------
Shelf Registration Statement: See Section 3(b).
----------------------------
Shelf Registration Event: See Section 2(c).
------------------------
Subsequent Shelf Registration Statement: See Section 3(b).
---------------------------------------
TIA: The Trust Indenture Act of 1939, as amended.
---
Trustee: The trustee under the Indenture and, if applicable, the
-------
trustee under any indenture governing the Exchange Securities and Private
Exchange Securities (if any).
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of the Company are sold to an underwriter for reoffering to the
public.
2. EXCHANGE OFFER
(a) The Company agrees to file with the SEC on or before the Filing
Date an offer to exchange (the "Exchange Offer") any and all of the Registrable
--------------
Securities for a like aggregate principal amount of senior subordinated debt
securities of the Company that are identical to the Notes (the "Exchange
--------
Securities") (and that are entitled to the benefits of a trust indenture that is
- ----------
identical to the Indenture (other than such changes as are necessary to comply
with any requirements of the SEC to effect or maintain the qualification of such
trust indenture under the TIA) and that has been qualified under the TIA),
except that the Exchange Securities shall have been registered pursuant to an
effective Registration Statement under the Securities Act and shall contain no
restrictive legend thereon. The Exchange Offer will be registered under the
Securities Act on the appropriate form (the "Exchange Offer Registration
---------------------------
Statement") and will comply with all applicable tender offer rules and
- ---------
regulations under the Exchange Act. The Company agrees to use its commercially
reasonable best efforts (i) to cause the Exchange Offer Registration Statement
to become effective and to commence the Exchange Offer on or prior to the
Effectiveness Date, (ii) to keep the Exchange Offer open for 20 business days
(or longer if required by applicable law) (the last day of such period, the
"Expiration Date") and (iii) to exchange Exchange Securities for all Notes
- ----------------
validly tendered and not withdrawn pursuant to the Exchange Offer on or prior to
the fifth day following the Expiration Date.
Each Holder who participates in the Exchange Offer will be deemed to
represent that any Exchange Securities received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement with any person to
participate in the distribution of the Exchange Securities in violation of the
provisions of the Securities Act, and that such Holder is not an affiliate of
the Company within the meaning of the Securities Act.
Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Securities that are Private
Exchange Securities, Exchange Securities to which Section 2(c)(v) is applicable
and Exchange Securities held by Participating Broker-Dealers, and the Company
shall have no further obligation to register Registrable Securities (other than
Private Exchange Securities and other than Exchange Securities as to which
Section
<PAGE>
-5-
2(c)(v) hereof applies) pursuant to Section 3 of this Agreement. No securities
other than the Exchange Securities shall be included in the Exchange Offer
Registration Statement.
(b) The Company shall include within the Prospectus contained in the
Exchange Offer Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchasers, which shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC (and
publicly disseminated) with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of Exchange Securities received by such broker-dealer in the
Exchange Offer (a "Participating Broker-Dealer"). Such "Plan of Distribution"
---------------------------
section shall also allow the use of the prospectus by all persons subject to the
prospectus delivery requirements of the Securities Act, including all
Participating Broker-Dealers, and include a statement describing the means by
which Participating Broker-Dealers may resell the Exchange Securities.
The Company shall use its commercially reasonable best efforts to keep
the Exchange Offer Registration Statement effective and to amend and supplement
the Prospectus contained therein in order to permit such Prospectus to be
lawfully delivered by all persons subject to the prospectus delivery
requirements of the Securities Act for at least 180 days following the first
bona fide offering of securities under such Registration Statement (or such
shorter time as such persons must comply with such requirements in order to
resell the Exchange Securities) (the "Applicable Period").
-----------------
If, prior to consummation of the Exchange Offer, any Initial Purchaser
holds any Notes acquired by it and having, or which are reasonably likely to be
determined to have, the status of an unsold allotment in the initial
distribution, the Company upon the request of such Initial Purchaser shall,
simultaneously with the delivery of the Exchange Securities in the Exchange
Offer, issue and deliver to such Initial Purchaser, in exchange (the "Private
-------
Exchange") for the Notes held by such Initial Purchaser, a like principal amount
- --------
of debt securities of the Company that are identical to the Exchange Securities
(the "Private Exchange Securities") (and which are issued pursuant to the same
---------------------------
indenture as the Exchange Securities) (except for the placement of a restrictive
legend on such Private Exchange Securities). The Private Exchange Securities
shall bear the same CUSIP number as the Exchange Securities. Interest on the
Exchange Securities and Private Exchange Securities will accrue from the last
interest payment date on which interest was paid on the Notes surrendered in
exchange therefor or, if no interest has been paid on the Notes, from the Issue
Date.
Any indenture under which the Exchange Securities or the Private
Exchange Securities will be issued shall provide that the holders of any of the
Exchange Securities and the Private Exchange Securities will vote and consent
together on all matters to which such holders are entitled to vote or consent as
one class and that none of the holders of the Exchange Securities and the
Private Exchange Securities will have the right to vote or consent as a separate
class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company reasonably determined in
good faith, after consultation with counsel, that it is not permitted to effect
the Exchange Offer, (ii) the Exchange Offer is not commenced on or prior to the
Effectiveness Date, (iii) the Exchange Offer is, for any reason, not
consummated on or prior to the 165th day after the Closing Date, (iv) any Holder
of Private Exchange Securities so requests, or (v) in the case of any Holder
that participates in the Exchange Offer, such Holder does not receive Exchange
Securities on the date of the exchange that may be sold without restriction
under state and federal securities laws (the occurrence of any such event, a
"Shelf Registration Event"), then, in the case of each of clauses (i) to and
- -------------------------
including (v) of this sentence, the Company shall promptly deliver to the
Holders and the Trustee notice thereof (the "Shelf Notice") and shall thereafter
------------
file an Initial Shelf Registration Statement pursuant to Section 3.
<PAGE>
-6-
3. SHELF REGISTRATION
If a Shelf Registration Event has occurred (and whether or not an
Exchange Offer Registration Statement has been filed with the SEC or has become
effective, or the Exchange Offer has been consummated), then:
(a) Initial Shelf Registration Statement. The Company shall promptly
prepare and file with the SEC a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 covering all of the Registrable
Securities (the "Initial Shelf Registration Statement"). The Company shall file
------------------------------------
with the SEC the Initial Shelf Registration Statement on or prior to the Filing
Date. The Initial Shelf Registration Statement shall be on Form S-1 or another
appropriate form if available, permitting registration of such Registrable
Securities for resale by such holders in the manner designated by them
(including, without limitation, in one or more underwritten offerings). The
Company shall not permit any securities other than the Registrable Securities to
be included in the Initial Shelf Registration Statement or any Subsequent Shelf
Registration Statement. The Company shall use its commercially reasonable best
efforts to cause the Initial Shelf Registration Statement to be declared
effective under the Securities Act on or prior to the Effectiveness Date, and to
keep the Initial Shelf Registration Statement continuously effective under the
Securities Act until the date which is 36 months from the Issue Date, or such
shorter period ending when (i) all Registrable Securities covered by the Initial
Shelf Registration Statement have been sold in the manner set forth and as
contemplated in the Initial Shelf Registration Statement or (ii) a Subsequent
Shelf Registration Statement covering all of the Registrable Securities has been
declared effective under the Securities Act (such 36 month or shorter period,
the "Effectiveness Period").
--------------------
(b) Subsequent Shelf Registration Statements. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement ceases to
be effective for any reason at any time during the Effectiveness Period (other
than because of the sale of all of the securities registered thereunder), the
Company shall use its commercially reasonable best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof, and in any event
the Company shall within 45 days of such cessation of effectiveness amend the
Shelf Registration Statement in a manner reasonably expected to obtain the
withdrawal of the order suspending the effectiveness thereof, or file an
additional "shelf" Registration Statement pursuant to Rule 415 covering all of
the Registrable Securities (a "Subsequent Shelf Registration Statement"). If a
---------------------------------------
Subsequent Shelf Registration Statement is filed, the Company shall use its
commercially reasonable best efforts to cause the Subsequent Shelf Registration
Statement to be declared effective as soon as reasonably practicable after such
filing and to keep such Registration Statement continuously effective until the
end of the Effectiveness Period. As used herein the term "Shelf Registration
------------------
Statement" means the Initial Shelf Registration Statement and any Subsequent
- ---------
Shelf Registration Statement.
(c) Supplements and Amendments. The Company shall promptly supplement
and amend the Shelf Registration Statement if required by the rules, regulations
or instructions applicable to the registration form used for such Shelf
Registration Statement, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Securities covered by such Registration Statement or by any
underwriter of such Registrable Securities.
(d) Hold-Back Agreements.
(i) Restrictions on Public Sale by Holders of Registrable
Securities. Each Holder of Registrable Securities whose Registrable
Securities are covered by a Shelf Registration Statement (which Registrable
Securities are not being sold in the underwritten offering described below)
agrees, if
<PAGE>
-7-
requested (pursuant to a timely written notice) by the Company or by the
managing underwriter or underwriters in an underwritten offering, not to
effect any public sale or distribution of any securities within the class
of securities covered by such Shelf Registration Statement or any similar
class of securities of the Company, including a sale pursuant to Rule 144
or Rule 144A (except as part of such underwritten offering), during the
period beginning 10 days prior to, and ending 60 days after, the closing
date of each underwritten offering made pursuant to each Shelf Registration
Statement, to the extent timely notified in writing by the Company or by
the managing underwriter or underwriters; provided, however, that each
holder of Registrable Securities shall be subject to the hold-back
restrictions of this Section 3(d)(i) only once during the term of this
Agreement.
The foregoing provisions shall not apply to any Holder of Registrable
Securities if such Holder is prevented by applicable statute or regulation
from entering into any such agreement; provided, however, that any such
Holder shall undertake, in its request to participate in any such
underwritten offering, not to effect any public sale or distribution of the
class of securities covered by such Shelf Registration Statement (except as
part of such underwritten offering) during such period unless it has
provided 45 days' prior written notice of such sale or distribution to the
Company or the managing underwriter or underwriters, as the case may be.
(ii) Restrictions on the Company and Others. The Company agrees (A)
not to effect any public or private sale or distribution (including,
without limitation, a sale pursuant to Regulation D under the Securities
Act) of any securities the same as or similar to those covered by a Shelf
Registration Statement or any securities convertible into or exchangeable
or exercisable for such securities, during the 10 days prior to, and during
the 60-day period beginning on, the commencement of an underwritten public
distribution of Registrable Securities, where the managing underwriter or
underwriters so requests pursuant to timely written notice; (B) to include
in any agreements entered into by the Company on or after the date of this
Agreement (other than any underwriting agreement relating to a public
offering registered under the Securities Act) pursuant to which the Company
issues or agrees to issue securities the same as or similar to the Notes a
provision substantially identical to Section 3(d)(i); and (C) not to grant
or agree to grant any "piggy-back registration" or other similar rights to
any holder of the Company's or any of its subsidiaries' securities issued
on or after the date of this Agreement with respect to any Registration
Statement.
(e) Limitations, Conditions and Qualifications to Obligations Under
Registration Covenants. The obligations of the Company set forth in this
Section 3 are subject to each of the following limitations, conditions and
qualifications:
(i) Subject to the next sentence of this paragraph, the Company shall
be entitled to postpone, for a reasonable period of time, the filing or
effectiveness of, or suspend the rights of any Holders to make sales
pursuant to, any Registration Statement otherwise required to be prepared,
filed and made and kept effective by it hereunder; provided, however, that
the duration of such postponement or suspension may not extend beyond the
earlier to occur of (A) the day after the cessation of the circumstances
described in the next sentence of this paragraph on which such postponement
or suspension is based or (B) 90 days after the date of the determination
of the Board of Directors referred to in the next sentence. Such
postponement or suspension may be effected only if the Board of Directors
of the Company determines reasonably and in good faith that the filing or
effectiveness of, or sales pursuant to, such Registration Statement would
materially impede, delay or interfere with any financing, offer or sale of
securities, acquisition, corporate reorganization or other significant
transaction involving the Company or any of its affiliates or require
disclosure of material information which the Company has a
<PAGE>
-8-
bona fide business purpose for preserving as confidential; provided,
however, that the Company shall be entitled to such postponement or
suspension only once during the term of this Agreement . If the Company
shall so postpone the filing of a Registration Statement it shall, as
promptly as possible, deliver a certificate signed by the chief executive
officer of the Company to the Holders as to such determination. The
exercise by the Company of its rights under this Section 3(e) shall not
relieve it of its obligation to pay Additional Interest pursuant to Section
4 if the Registration Statement is not filed by the applicable Filing Date
or declared effective by the applicable Effectiveness Date or postponed or
suspended beyond the period specified therein.
4. ADDITIONAL INTEREST
(a) The Company and the Initial Purchasers agree that the Holders of
Notes will suffer damages if the Company fails to fulfill its obligations under
Section 2 or Section 3 hereof (including by virtue of its exercise of its rights
under Section 3(d) hereof) and that it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, the Company agrees to pay,
as liquidated damages, additional interest on the Notes ("Additional Interest")
-------------------
under the circumstances and to the extent set forth below (each of which shall
be given independent effect):
(i) if either the Exchange Offer Registration Statement or the
Initial Shelf Registration Statement has not been filed on or prior to the
Filing Date (unless, with respect to the Exchange Offer Registration
Statement, a Shelf Event shall have occurred prior to the Filing Date),
Additional Interest shall accrue on the Notes over and above the stated
interest in an amount equal to $0.05 per week (or any part thereof), per
$1,000 principal amount of Notes for the first 90 days immediately
following such date, such Additional Interest rate increasing by an
additional $0.05 per week (or any part thereof) per $1,000 principal amount
of the Notes for each subsequent 90-day period;
(ii) if either the Exchange Offer Registration Statement or the
Initial Shelf Registration Statement is not declared effective by the SEC
on or prior to the Effectiveness Date (unless, with respect to the Exchange
Offer Registration Statement, a Shelf Event described in clause (i) of
Section 2(c) above shall have occurred), Additional Interest shall accrue
on the Notes included or which should have been included in such
Registration Statement over and above the stated interest in an amount
equal to $0.05 per week (or any part thereof) per $1,000 principal amount
of Notes for the first 90 days immediately following the day after such
date, such Additional Interest rate increasing by an additional $0.05 per
week (or any part thereof) per $1,000 principal amount (as of the first day
of each such week) of the Notes for each subsequent 90-day period; and
(iii) if (A) the Company has not exchanged Exchange Securities for
all Notes validly tendered and not withdrawn in accordance with the terms
of the Exchange Offer on or prior to the fifth day after the Expiration
Date, or (B) the Exchange Offer Registration Statement ceases to be
effective or the Prospectus which is a part thereof cannot be used as a
result of a postponement or a suspension pursuant to Section 3(e) lasting
for a period of more than 45 days at any time prior to the Expiration Date,
or (C) if applicable, any Shelf Registration Statement has been declared
effective and such Shelf Registration Statement ceases to be effective or
the Prospectus which is a part thereof cannot be used as a result of a
postponement or a suspension pursuant to Section 3(e) lasting for a period
of more than 45 days at any time during the Effectiveness Period, then
Additional Interest shall accrue on the Notes (over and above any interest
otherwise payable on the Notes) in an amount equal to $0.05 per week (or
any part thereof) per $1,000 principal amount of the Notes for the first 90
days commencing on (x) the sixth day after the Expiration Date, in the case
of (A) above, or (y) the day the Exchange Offer Registration
<PAGE>
-9-
Statement ceases to be effective or a postponement or suspension in the
case of (B) above, or (z) the day such Shelf Registration Statement ceases
to be effective in the case of (C) above, such Additional Interest rate
increasing by an additional $0.05 per week (or any part thereof) per $1,000
principal amount of the Notes at the beginning of each such subsequent 90-
day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate $0.50 per week per $1,000 principal amount of
the Notes; provided, further, that (1) upon the filing of the Exchange Offer
Registration Statement or a Shelf Registration Statement as required hereunder
(in the case of clause (i) of this Section 4(a)), (2) upon the effectiveness of
the Exchange Offer Registration Statement or the Shelf Registration Statement as
required hereunder (in the case of clause (ii) of this Section 4(a)) or (3) upon
the exchange of Exchange Securities for all Notes validly tendered and not
withdrawn (in the case of clause (iii)(A) of this Section 4(a)), or upon the
effectiveness of the Exchange Offer Registration Statement which had ceased to
remain effective or the end of the postponement or suspension period (in the
case of clause (iii)(B) of this Section 4(a)), or upon the effectiveness of the
Shelf Registration Statement which had ceased to remain effective (in the case
of clause (iii)(C) of this Section 4(a)), Additional Interest on the Notes as a
result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue (but any accrued amount shall be payable).
(b) The Company shall notify the Trustee within one business day
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). The Company shall
----------
pay the Additional Interest due on the Registrable Securities by depositing with
the Trustee, in trust, for the benefit of the Holders thereof, on or before the
applicable semi-annual interest payment date, immediately available funds in
sums sufficient to pay the Additional Interest then due to Holders of
Registrable Securities. Each obligation to pay Additional Interest shall be
deemed to accrue immediately following the occurrence of the applicable Event
Date. Any accrued Additional Interest amount shall be due and payable on each
interest payment date immediately after the applicable Event Date to the record
Holder of Registrable Securities entitled to receive the interest payment to be
made on such date as set forth in the Indenture. The parties hereto agree that
the Additional Interest provided for in this Section 4 constitutes a reasonable
estimate of the damages that may be incurred by Holders of Registrable
Securities by reason of the failure of a Shelf Registration Statement or
Exchange Offer Registration Statement to be filed or declared effective, or a
Shelf Registration Statement to remain effective, as the case may be, in
accordance with this Section 4.
5. REGISTRATION PROCEDURES
In connection with the registration of any Registrable Securities
pursuant to Sections 2 or 3 hereof, the Company shall use its commercially
reasonable best efforts to effect such registrations to permit the sale of such
Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall:
(a) prepare and file with the SEC on or before the Filing Date, a
Registration Statement or Registration Statements as prescribed by Section 2 or
3, and to use its commercially reasonable best efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein, provided that, if (1) such filing is pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Offer Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Company shall furnish to and afford the
Holders of the Registrable Securities and each such Participating Broker-Dealer,
as the case may be, covered by such Registration Statement, their counsel and
the managing underwriters, if any, a reasonable op-
<PAGE>
-10-
portunity to review copies of all such documents (including copies of any
documents to be incorporated by reference therein and all exhibits thereto)
proposed to be filed (at least five days prior to such filing); the Company
shall not file any Registration Statement or Prospectus or any amendments or
supplements thereto in respect of which the Holders must be afforded a
reasonable opportunity to review prior to the filing of such document, if the
Holders of a majority in aggregate principal amount of the Registrable
Securities covered by such Registration Statement, or such Participating Broker-
Dealer, as the case may be, their counsel, or the managing underwriters, if any,
shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Offer Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period, in the case of a
Shelf Registration Statement, or until the later of the Expiration Date and the
Applicable Period (if applicable), in the case of the Exchange Offer
Registration Statement; cause the related Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provisions then in force) under the Securities Act; and
comply with the provisions of the Securities Act, the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to it with respect
to the disposition of all securities covered by such Registration Statement as
so amended or in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus;
(c) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period notify the selling Holders of
Registrable Securities, or each such Participating Broker-Dealer, as the case
may be, their counsel and the managing underwriters, if any, promptly (but in
any event within five business days), and confirm such notice in writing, (i)
when a Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective (including in such notice a
written statement that any Holder may, upon request, obtain, without charge, one
conformed copy of such Registration Statement or post-effective amendment
including financial statements and schedules, documents incorporated or deemed
to be incorporated by reference and exhibits); (ii) of the issuance by the SEC
of any stop order suspending the effectiveness of a Registration Statement or of
any order preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose; (iii) if at any time when a
prospectus is required by the Securities Act to be delivered in connection with
sales of the Registrable Securities the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated by Section 5(n) below cease to be true and correct; (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or any
of the Registrable Securities or the Exchange Securities to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose; (v) of the
happening of any event or any information becoming known that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading provided, however, that such notification need not
specifically identify such event if notification of the occurrence thereof would
in the
<PAGE>
-11-
Company's reasonable judgment, involve the disclosure of confidential non-public
information; and (vi) of the Company's reasonable determination that a post-
effective amendments to the Registration Statement would be appropriate;
(d) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, use its commercially reasonable best
efforts to prevent the issuance of any order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of a
Prospectus or suspending the qualification (or exemption from qualification) of
any of the Registrable Securities or the Exchange Securities to be sold by any
Participating Broker-Dealer, for sale in any jurisdiction, and, if any such
order is issued, to use its commercially reasonable best efforts to obtain the
withdrawal of any such order at the earliest possible moment;
(e) if a Shelf Registration Statement is filed pursuant to Section 3
and if requested by the managing underwriters, if any, or the Holders of a
majority in aggregate principal amount of the Registrable Securities being sold
in connection with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, or such Holders or their respective counsel
reasonably request to be included therein; and (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
reasonably practicable after the Company has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment;
(f) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, furnish to each selling Holder of
Registrable Securities and to each such Participating Broker-Dealer who so
requests and upon request to their respective counsel and each managing
underwriter, if any, without charge, one conformed copy of the Registration
Statement or Statements and each post-effective amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits;
(g) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, deliver to each selling Holder of
Registrable Securities, or each such Participating Broker-Dealer, as the case
may be, their counsel, and the underwriters, if any, without charge, as many
copies of the Prospectus or Prospectuses (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request; and,
subject to the last paragraph of this Section 5, the Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling holders of Registrable Securities or each such Participating Broker-
Dealer, as the case may be, and the underwriters or agents, if any, and dealers
(if any), in connection with the offering and sale of the Registrable Securities
covered by or the sale by Participating Broker-Dealers of the Exchange
Securities pursuant to such Prospectus and any amendment or supplement thereto
provided such use complies with all applicable laws and regulations;
(h) prior to any public offering of Registrable Securities or any
delivery of a Prospectus contained in the Exchange Offer Registration Statement
by any Participating Broker-Dealer who seeks to sell
<PAGE>
-12-
Exchange Securities during the Applicable Period, use its commercially
reasonable best efforts to register or qualify, and to cooperate with the
selling Holders of Registrable Securities or each such Participating Broker-
Dealer, as the case may be, the underwriters, if any, and their respective
counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any selling Holder, Participating Broker-Dealer, or the
managing underwriters reasonably request in writing, provided that where
Exchange Securities held by Participating Broker-Dealers or Registrable
Securities are offered other than through an underwritten offering, the Company
shall cause its counsel to (i) perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this Section
5(h); (ii) use its commercially reasonable best efforts to keep each such
registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective; and (iii)
do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Securities held by
Participating Broker-Dealers or the Registrable Securities covered by the
applicable Registration Statement, provided further that the Company shall not
in any case be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject, (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction or (D) conform its capitalization or the
composition of its assets to the securities or blue sky laws of any such
jurisdiction;
(i) if a Shelf Registration Statement is filed pursuant to Section 3,
cooperate with the selling Holders of Registrable Securities and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which certificates
shall not bear any restrictive legends and shall be in a form eligible for
deposit with The Depository Trust Company; and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriter or underwriters, if any, or Holders may reasonably request;
(j) use its commercially reasonable best efforts to cause the
Registrable Securities covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriters, if any,
to consummate the disposition of such Registrable Securities, except as may be
required solely as a consequence of the nature of such selling Holder's
business, in which case the Company will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals;
(k) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) above, as promptly as practicable
prepare and (subject to Section 5(a) above) file with the SEC, solely at the
expense of the Company, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder or to the purchasers of the
Exchange Securities to whom such Prospectus will be delivered by a Participating
Broker-Dealer, any such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(l) use its commercially reasonable best efforts to cause the
Registrable Securities covered by a Registration Statement or the Exchange
Securities, as the case may be, to be rated with the appropriate
<PAGE>
-13-
rating agencies, if so requested by the Holders of a majority in aggregate
principal amount of Registrable Securities covered by such Registration
Statement or the Exchange Securities, as the case may be, or the managing
underwriters, if any;
(m) prior to the effective date of the first Registration Statement
relating to the Registrable Securities, (i) provide the Trustee with printed
certificates for the Registrable Securities in a form eligible for deposit with
The Depository Trust Company; and (ii) provide a CUSIP number for the
Registrable Securities;
(n) in connection with an underwritten offering of Registrable
Securities pursuant to a Shelf Registration Statement, enter into an
underwriting agreement as is customary in underwritten offerings, provided such
agreement is reasonably acceptable to the Company and provided that the
underwriters are reasonably acceptable to the Company, and take all such other
actions as are reasonably requested by the managing underwriters in order to
expedite or facilitate the registration or the disposition of such Registrable
Securities, and in such connection if reasonably requested, (i) make such
representations and warranties to the underwriters, with respect to the business
of the Company and its subsidiaries and the Registration Statement, Prospectus
and documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when reasonably requested;
(ii) use its commercially reasonable best efforts to obtain opinions of counsel
to the Company and updates thereof in form and substance reasonably satisfactory
to the managing underwriters, addressed to the underwriters covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by underwriters; (iii) use its
commercially reasonable best efforts to obtain "cold comfort" letters and
updates thereof in form and substance reasonably satisfactory to the managing
underwriters from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company or any of
its subsidiaries for which financial statements and financial data are, or are
required to be, included in the Registration Statement), addressed to each of
the underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as reasonably requested by
underwriters; and (iv) if an underwriting agreement is entered into, the same
shall contain indemnification provisions and procedures comparable to those set
forth in Section 7 hereof (or such other provisions and procedures reasonably
acceptable to the Company and the Holders of a majority in aggregate principal
amount of Registrable Securities covered by such Registration Statement and the
managing underwriters or agents) with respect to all parties to be indemnified
pursuant to said Section, all of which shall be done at each closing under such
underwriting agreement, or as and to the extent required thereunder;
(o) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, subject to the prior receipt by the
Company of undertakings to use commercially reasonable efforts to preserve the
confidentiality of any information disclosed by the Company pursuant hereto in
form and substance reasonably satisfactory to the Company, make available for
inspection by any selling Holder of such Registrable Securities being sold, or
each such Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Securities, if any, and any
attorney, accountant or other agent retained by any such selling holder or each
such Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
----------
reasonable business hours, all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries
(collectively, the "Records") as shall be necessary to enable them to exercise
-------
any applicable due diligence responsibilities, and cause the officers, directors
and employees of the Company and its subsidiaries to supply all
<PAGE>
-14-
information in each case requested by any such Inspector in connection with such
Registration Statement; however, records which the Company determines, in good
faith, to be confidential and any Records which the Company notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such Registration Statement; (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction; (iii) the information in such Records has been made generally
available to the public; or (iv) release thereof is necessary or advisable in
connection with any action, suit or proceeding involving any Holder or other
Inspector;
(p) provide for an indenture trustee for the Registrable Securities
or the Exchange Securities, as the case may be, and cause the Indenture or the
trust indenture provided for in Section 2(a), as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange Offer
or the first Registration Statement relating to the Registrable Securities; and
in connection therewith, cooperate with the trustee under any such indenture and
the holders of the Registrable Securities, to effect such changes to such
indenture as may be required for such Indenture to be so qualified in accordance
with the terms of the TIA; and execute, and use its commercially reasonable best
efforts to cause such trustee to execute, all documents as may be required to
effect such changes, and all other forms and documents required to be filed with
the SEC to enable such indenture to be so qualified in a timely manner;
(q) comply with all applicable rules and regulations of the SEC to
the extent and so long as they are applicable to the Exchange Offer Registration
Statement or the Shelf Registration Statement and make generally available to
their securityholders earning statements satisfying the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 45 days after the end of any
12-month period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment or
commercially reasonable best efforts underwritten offering; and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said 12-month periods;
(r) upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company in customary form, relating to the
Exchange Securities or the Private Exchange Securities, as the case may be,
addressed to the Trustee for the benefit of all Holders of Registrable
Securities participating in the Exchange Offer or the Private Exchange, as the
case may be, and which includes an opinion that (i) the Company has duly
authorized, executed and delivered the Exchange Securities and Private Exchange
Securities and the related indenture; and (ii) each of the Exchange Securities
or the Private Exchange Securities, as the case may be, and related indenture
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms (with customary
exceptions);
(s) if an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Securities by Holders to the Company (or to
such other Person as directed by the Company) in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be, mark, or
caused to be marked, on such Registrable Securities that such Registrable
Securities are being cancelled in exchange for the Exchange Securities or the
Private Exchange Securities, as the case may be; in no event shall such
Registrable Securities be marked as paid or otherwise satisfied;
(t) cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their
<PAGE>
-15-
respective counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD"); and
----
(u) use its commercially reasonable best efforts to take all other
steps necessary to effect the registration of the Registrable Securities covered
by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Securities or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Company such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
as the Company may, from time to time, reasonably request. The Company may
exclude from such registration the Registrable Securities of any seller or
Participating Broker-Dealer who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
Each Holder of Registrable Securities and each Participating Broker-
Dealer agrees by acquisition of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such
Holder will forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus or Exchange Securities to
be sold by such Participating Broker-Dealer, as the case may be, until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k), or until it is advised in writing (the "Advice")
------
by the Company that the use of the applicable Prospectus may be resumed, and has
received copies of any amendments or supplements thereto.
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer Registration Statement or a Shelf Registration
Statement is filed or becomes effective, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel) in such jurisdictions (x) where the holders of
Registrable Securities are located, in the case of the Exchange Securities, or
(y) as provided in Section 5(h), in the case of Registrable Securities to be
sold in a public offering or Exchange Securities to be sold by a Participating
Broker-Dealer during the Applicable Period)); (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
or Exchange Securities in a form eligible for deposit with The Depository Trust
Company and of printing prospectuses if the printing of prospectuses is
requested by the managing underwriters, if any, or, in respect of Registrable
Securities or Exchange Securities to be sold by any Participating Broker-Dealer
during the Applicable Period, by the Holders of a majority in aggregate
principal amount of the Registrable Securities included in any Registration
Statement or of such Exchange Securities, as the case may be); (iii) messenger,
telephone and delivery expenses incurred by the Company; (iv) fees and
disbursements of counsel for the Company and reasonable fees and disbursements
of special counsel for the sellers of Registrable Securities but only with
respect to such counsel's review of the Registration Statement and Prospectus,
including, without limitation, any portions of the Registration Statement and
Prospectus relating to the Holders, and all documentation related thereto,
including any underwriting agreement and all related documentation (subject to
the provisions of Section 6(b)); (v) fees and disbursements of all independent
certified public accountants referred to in Section 5(n)(iii) (including,
without limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance); (vi) the rea-
<PAGE>
-16-
sonable fees and expenses of any "qualified independent underwriter" or other
independent appraiser participating in an offering pursuant to Rule 2710 of the
Conduct Rules of the NASD; (vii) rating agency fees; (viii) Securities Act
liability insurance, if the Company desires such insurance; (ix) fees and
expenses of all other Persons retained by the Company; (x) internal expenses of
the Company (including, without limitation, all salaries and expenses of
officers and employees of the Company performing legal or accounting duties);
(xi) the expense of any annual audit of the Company; (xii) the fees and expenses
incurred by the Company in connection with the listing of the Registrable
Securities on any securities exchange; and (xiii) the expenses relating to
printing, word processing and distributing all Registration Statements,
underwriting agreements, securities sales agreements, indentures and any other
documents necessary in order to comply with this Agreement. Anything contained
herein to the contrary notwithstanding, the Company shall not have any
obligation whatsoever in respect of any underwriters' discounts or commissions,
brokerage commissions, dealers' selling concessions, transfer taxes or any other
selling expenses (other than those expressly enumerated in clauses (i) through
(xiii) above) incurred in connection with the underwriting, offering or sale of
Registrable Securities or Exchange Securities by or on behalf of any Person.
(b) In connection with any Shelf Registration Statement hereunder,
the Company shall reimburse the Holders of the Registrable Securities being
registered in such registration for the reasonable fees and disbursements of not
more than one counsel (in addition to appropriate local counsel) chosen by the
Holders of a majority in aggregate principal amount of the Registrable
Securities to be included in such Registration Statement and other reasonable
out-of-pocket expenses of the Holders of Registrable Securities incurred in
connection with the registration of the Registrable Securities.
7. INDEMNIFICATION
The Company agrees to indemnify and hold harmless each Holder of
Registrable Securities and each Participating Broker-Dealer selling Exchange
Securities during the Applicable Period, the officers and directors of each such
person, and each person, if any, who controls any such person within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
(each, a "Participant"), from and against any and all losses, claims, damages
-----------
and liabilities (including, without limitation, the reasonable legal fees and
other expenses actually incurred in connection with any suit, action or
proceeding or any claim asserted) caused by any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement (or
any amendment thereto) or Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
such Participant furnished to the Company in writing by such Participant (or, if
such Participant is not a Holder or a Participating Broker-Dealer, furnished in
writing by the Holder or Participating Broker-Dealer in respect of which such
person is a Participant relating to such Participant) expressly for use therein;
provided that (i) the foregoing indemnity with respect to any preliminary
prospectus shall not inure to the benefit of any Participant (or to the benefit
of any offer or director of, or of any person controlling, such Participant)
from whom the person asserting any such losses, claims, damages or liabilities
purchased Registrable Securities to the extent that such untrue statement or
omission or alleged untrue statement or omission made in such preliminary
prospectus is eliminated or remedied in the related Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) and a copy of the related Prospectus (as so amended or supplemented)
shall not have been furnished to such person at or prior to the sale of such
Registrable Securities or Exchange Securities, as the case may be, to such
person and (ii) the foregoing indemnity with respect to any Prospectus shall not
inure to the
<PAGE>
-17-
benefit of a Holder of Registrable Securities or Participating Broker-Dealer to
the extent that such Holder or Participating Broker-Dealer uses such Prospectus
five business days after such time as the Company shall have advised such Holder
or Participating Broker-Dealer in writing of the happening of any event which
makes any statement of a material fact made in such Prospectus untrue or which
requires the making of any additions to or changes in such Prospectus in order
that it will not contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they are made,
not misleading.
Each Participant will be required to agree, severally and not jointly,
to indemnify and hold harmless each of the Company, its directors, its officers
who sign the Registration Statement and each person who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
each Participant, but only with reference to information relating to such
Participant furnished to the Company in writing by such Participant expressly
for use in any Registration Statement or Prospectus, any amendment or supplement
thereto, or any preliminary prospectus. The liability of any Participant under
this paragraph shall in no event exceed the proceeds received by such
Participant from sales of Registrable Securities giving rise to such
obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
------------------
notify the person against whom such indemnity may be sought (the "Indemnifying
------------
Person") in writing, and the Indemnifying Person, upon request of the
- ------
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the
reasonable fees and expenses incurred by such counsel related to such
proceeding, provided, that the failure to so notify the Indemnifying Person
shall not relieve it of any obligation or liability which it may have hereunder
or otherwise (unless and only to the extent that such failure actually
prejudices the Indemnifying Person). In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel, but, other than in
circumstances involving a conflict among Indemnified Persons, the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have agreed
to the contrary; (ii) the Indemnifying Person has failed within a reasonable
time to retain counsel reasonably satisfactory to the Indemnified Person; or
(iii) the named parties in any such proceeding (including any impleaded parties)
include both the Indemnifying Person and the Indemnified Person and
representation of both parties by the same counsel would be inappropriate due to
an actual or potential conflict of interest. It is understood that, other than
in circumstances involving a conflict among Indemnified Persons, the
Indemnifying Person shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed as they are
incurred. Any such separate firm for the Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable
Securities sold by all such Participants and any such separate firm for the
Company, its directors, its officers and such control persons of the Company
shall be designated in writing by the Company. The Indemnifying Person shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for reasonable fees and expenses incurred by counsel as contemplated by
the third sentence of this paragraph, the Indemnifying Person agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 60 days after
receipt by such Indemnifying Person of the aforesaid request and (ii) such
<PAGE>
-18-
Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement; provided,
however, that the Indemnifying Person shall not be liable for any settlement
effected without its consent pursuant to this sentence if the Indemnifying Party
is contesting, in good faith, the request for reimbursement. No Indemnifying
Person shall, without the prior written consent of the Indemnified Person,
effect any settlement of any pending or threatened proceeding in respect of
which any Indemnified Person is or could have been a party, unless such
settlement includes an unconditional written release of such Indemnified Person
in form and substance satisfactory to the Indemnified Persons from all liability
on claims that are the subject matter of such proceeding.
If the indemnification provided for in the first and second paragraphs
of this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the initial
offering of the Notes or (ii) if the allocation provided by the foregoing clause
(i) is not permitted by applicable law, not only such relative benefits but also
the relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Participants on the other shall be deemed to be
in the same proportion as the total proceeds from the initial offering (net of
discounts and commissions but before deducting expenses) of the Notes received
by the Company bears to the total proceeds received by such Participant from the
sale of Registrable Securities. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, on the one hand,
or such Participant or such other Indemnified Person, as the case may be, on the
other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
The parties shall agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Securities
exceeds the amount of any damages that such Participant has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability which the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
<PAGE>
-19-
8. RULE 144 AND RULE 144A
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner and, if at any time
the Company is not required to file such reports, it will, upon the request of
any Holder of Registrable Securities, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under
the Securities Act. The Company further covenants that it will take such further
action as any Holder of Registrable Securities may reasonably request, to the
extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144 and Rule 144A under the Securities Act.
9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Securities covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the investment banker or
investment bankers and manager or managers that will manage the offering will be
selected by the Holders of a majority in aggregate principal amount of such
Registrable Securities included in such offering and reasonably acceptable to
the Company.
No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements (however the terms applicable to each Holder shall be identical in
all respects) and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements applicable to all Holders.
10. MISCELLANEOUS
(a) Remedies. In the event of a breach by the Company of any of its
obligations under this Agreement, each Holder of Registrable Securities, in
addition to being entitled to exercise all rights provided herein, in the
Indenture or, in the case of the Initial Purchasers, in the Purchase Agreement
or granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect of
such breach, it shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into and shall not, after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the Holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not entered into
and will not enter into any agreement with respect to any of its securities
which will grant to any Person "piggy-back" rights with respect to a
Registration Statement.
(c) Adjustments Affecting Registrable Securities. The Company shall
not, directly or indirectly, take any action with respect to the Registrable
Securities as a class that would adversely affect the ability of the Holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement.
<PAGE>
-20-
(d) Guarantors. So long as any Registrable Securities remain
outstanding, the Company shall cause each of its subsidiaries that becomes a
guarantor of the Notes under the Indenture to execute and deliver a counterpart
to this Agreement which subjects such subsidiary to the provisions of this
agreement as a guarantor (all such subsidiaries, the "Guarantors"). Each of the
----------
Guarantors agrees to join the Company in all of its undertakings hereunder to
effect the Exchange Offer for the Exchange Securities (which will be guaranteed
by each of the Guarantors with terms identical to such Guarantors' guaranty of
the Notes) and the filing of any Shelf Registration Statement required hereunder
(including, without limitation, the undertakings in Section 5 hereof).
(e) Amendments and Waivers. Except as provided in paragraph (d)
above, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of (A) the
Holders of not less than a majority in aggregate principal amount of the then
outstanding Registrable Securities and (B) in circumstances that would adversely
affect the Participating Broker-Dealers, the Participating Broker-Dealers
holding not less than a majority in aggregate principal amount of the Exchange
Securities held by all Participating Broker-Dealers; provided, however, that
Section 7 and this Section 10(d) may not be amended, modified or supplemented
without the prior written consent of each Holder and each Participating Broker-
Dealer (including any person who was a Holder or Participating Broker-Dealer of
Registrable Securities or Exchange Securities, as the case may be, disposed of
pursuant to any Registration Statement) affected by any such amendment,
modification or supplement. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and that does not directly
or indirectly affect, impair, limit or compromise the rights of other Holders of
Registrable Securities may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Securities being sold by such
Holders pursuant to such Registration Statement.
(f) Notices. All notices and other communications (including without
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, next-day air courier or telecopier:
(i) if to a Holder of Registrable Securities, at the most current
address given by the Trustee to the Company; and
(ii) if to the Company, at TCI Satellite Entertainment, Inc., 8085
South Chester #300, Englewood, CO 80112, Attention: Chief Financial
Officer.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the trustee under the
Indenture at the address specified in such Indenture.
(g) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Registrable Securities.
<PAGE>
-21-
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(k) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable best efforts to find and employ
an alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(l) Entire Agreement. This Agreement, together with the Purchase
Agreement, is intended by the parties as a final expression of their agreement,
and is intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.
(m) Securities Held by the Company or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its affiliates (as such term is defined in Rule 405 under the Securities Act)
shall not be deemed to be not outstanding for purposes of determining whether
such consent or approval was given by the Holders of such required percentage.
[Signature Pages Follow]
<PAGE>
S-1
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
--------------------------------------------
Name: Gary S. Howard
Title: President and Chief
Executive Officer
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, together on
behalf of the Initial Purchasers
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:____________________________________________
Name:
Title:
By: MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
By:____________________________________________
Name:
Title:
<PAGE>
S-1
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By:_______________________________________________
Name:
Title:
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, together on
behalf of the Initial Purchasers
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Andrea J. Hagan
-----------------------------------------------
Name: Andrea J. Hagan
Title: Senior Vice President
By: MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
By:____________________________________________
Name:
Title:
<PAGE>
S-1
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By:____________________________________________
Name:
Title:
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, together on
behalf of the Initial Purchasers
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:____________________________________________
Name:
Title:
By: MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
By: /s/ Eric Federmen
--------------------------------------------
Name: Eric Federmen
Title: Vice President
<PAGE>
EXHIBIT 4.6
SENIOR SUBORDINATED DISCOUNT NOTES
REGISTRATION RIGHTS AGREEMENT
AMONG
TCI SATELLITE ENTERTAINMENT, INC.
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
AND
SCOTIA CAPITAL MARKETS (USA) INC.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
---------
February 20, 1997, by and among TCI SATELLITE ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), and DONALDSON, LUFKIN & JENRETTE SECURITIES
-------
CORPORATION, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, NATIONSBANC
CAPITAL MARKETS, INC. and SCOTIA CAPITAL MARKETS (USA) INC. (together, the
"Initial Purchasers").
------------------
This Agreement is entered into in connection with the Purchase
Agreement, dated as of February 14, 1997, among the Company and the Initial
Purchasers (the "Purchase Agreement") relating to the sale by the Company to the
------------------
Initial Purchasers of $275,000,000 aggregate principal amount at maturity of its
12 1/4% Senior Subordinated Discount Notes due 2007 (the "Notes"). In order to
-----
induce the Initial Purchasers to enter into the Purchase Agreement, the Company
has agreed to provide the registration rights set forth in this Agreement for
the equal benefit of the Initial Purchasers and their respective direct and
indirect transferees. The execution and delivery of this Agreement is a
condition to the Initial Purchasers' obligation to purchase the Notes under the
Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4(a).
-------------------
Advice: See the last paragraph of Section 5.
------
Applicable Period: See Section 2(b).
-----------------
Closing Date: The Closing Date as defined in the Purchase Agreement.
------------
Company: See the introductory paragraph to this Agreement.
-------
Effectiveness Date: The 135th day after the Closing Date; provided,
------------------
however, that, with respect to the Initial Shelf Registration Statement, (i) if
the Filing Date in respect thereof is fewer than 60 days prior to the 135th day
after the Closing Date, then the Effectiveness Date in respect thereof shall be
the 60th day after such Filing Date and (ii) if the Filing Date is after the
filing of the Exchange Offer Registration Statement with the SEC, then the
Effectiveness Date in respect thereof shall be the 60th day after such Filing
Date.
Effectiveness Period: See Section 3.
--------------------
Event Date: See Section 4.
----------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the SEC promulgated thereunder.
<PAGE>
-2-
Exchange Offer: See Section 2(a).
--------------
Exchange Offer Registration Statement: See Section 2(a).
-------------------------------------
Exchange Securities: See Section 2(a).
-------------------
Expiration Date: See Section 2(a).
---------------
Filing Date: The 45th day after the Closing Date; provided, however,
-----------
that, with respect to the Initial Shelf Registration Statement, (i) if a Shelf
Registration Event shall have occurred fewer than 30 days prior to the 45th day
after the Closing Date, then the Filing Date in respect thereof shall be the
30th day after such Shelf Registration Event and (ii) if a Shelf Registration
Event shall have occurred after the filing of the Exchange Offer Registration
Statement with the SEC, then the Filing Date in respect thereof shall be the
45th day after such Shelf Registration Event.
Guarantors: See Section 10(d).
----------
Holder: Any record holder of Registrable Securities.
------
Indemnified Person: See the third paragraph of Section 7.
------------------
Indemnifying Person: See the third paragraph of Section 7.
-------------------
Indenture: The Indenture, dated as of February 20, 1997, between
---------
the Company and The Bank of New York, as trustee, pursuant to which the Notes
are being issued, as amended or supplemented from time to time in accordance
with the terms thereof.
Initial Purchasers: See the introductory paragraph to this
------------------
Agreement.
Initial Shelf Registration Statement: See Section 3(a).
------------------------------------
Inspectors: See Section 5(o).
----------
Issue Date: The date of original issuance of the Notes.
----------
NASD: See Section 5(t).
----
Notes: See the second introductory paragraph to this Agreement.
-----
Participant: See the first paragraph of Section 7.
-----------
Participating Broker-Dealer: See Section 2(b).
---------------------------
Person: An individual, corporation, limited or general partnership,
------
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
Private Exchange: See Section 2(b).
----------------
<PAGE>
-3-
Private Exchange Securities: See Section 2(b).
---------------------------
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph to this
------------------
Agreement.
Records: See Section 5(o).
-------
Registrable Securities: The Notes upon original issuance thereof and
----------------------
at all times subsequent thereto, each Exchange Security as to which Section
2(c)(v) hereof is applicable upon original issuance and at all times subsequent
thereto and, if issued, the Private Exchange Securities, until in the case of
any such Notes, Exchange Securities or Private Exchange Securities, as the case
may be, (i) a Registration Statement (other than, with respect to any Exchange
Security as to which Section 2(c)(v) hereof is applicable, the Exchange Offer
Registration Statement) covering such Notes, Exchange Securities or Private
Exchange Securities has been declared effective by the SEC and such Notes,
Exchange Securities or Private Exchange Securities, as the case may be, have
been disposed of in accordance with such effective Registration Statement, (ii)
such Notes, Exchange Securities or Private Exchange Securities, as the case may
be, are sold in compliance with Rule 144, (iii) such Note has been exchanged
for an Exchange Note pursuant to the Exchange Offer and Section 2(c)(v) is not
applicable thereto, or (iv) such Notes, Exchange Securities or Private Exchange
Securities, as the case may be, cease to be outstanding.
Registration Statement: Any registration statement of the Company,
----------------------
including, but not limited to, the Exchange Offer Registration Statement, that
covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such
---------
Rule may be amended from time to time, or any similar rule (other than Rule 144)
or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
---
<PAGE>
-4-
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c).
------------
Shelf Registration Statement: See Section 3(b).
----------------------------
Shelf Registration Event: See Section 2(c).
------------------------
Subsequent Shelf Registration Statement: See Section 3(b).
---------------------------------------
TIA: The Trust Indenture Act of 1939, as amended.
---
Trustee: The trustee under the Indenture and, if applicable, the
-------
trustee under any indenture governing the Exchange Securities and Private
Exchange Securities (if any).
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of the Company are sold to an underwriter for reoffering to the
public.
2. EXCHANGE OFFER
(a) The Company agrees to file with the SEC on or before the Filing
Date an offer to exchange (the "Exchange Offer") any and all of the Registrable
--------------
Securities for a like aggregate principal amount of senior subordinated debt
securities of the Company that are identical to the Notes (the "Exchange
--------
Securities") (and that are entitled to the benefits of a trust indenture that is
- ----------
identical to the Indenture (other than such changes as are necessary to comply
with any requirements of the SEC to effect or maintain the qualification of such
trust indenture under the TIA) and that has been qualified under the TIA),
except that the Exchange Securities shall have been registered pursuant to an
effective Registration Statement under the Securities Act and shall contain no
restrictive legend thereon. The Exchange Offer will be registered under the
Securities Act on the appropriate form (the "Exchange Offer Registration
---------------------------
Statement") and will comply with all applicable tender offer rules and
- ---------
regulations under the Exchange Act. The Company agrees to use its commercially
reasonable best efforts (i) to cause the Exchange Offer Registration Statement
to become effective and to commence the Exchange Offer on or prior to the
Effectiveness Date, (ii) to keep the Exchange Offer open for 20 business days
(or longer if required by applicable law) (the last day of such period, the
"Expiration Date") and (iii) to exchange Exchange Securities for all Notes
---------------
validly tendered and not withdrawn pursuant to the Exchange Offer on or prior to
the fifth day following the Expiration Date.
Each Holder who participates in the Exchange Offer will be deemed to
represent that any Exchange Securities received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement with any person to
participate in the distribution of the Exchange Securities in violation of the
provisions of the Securities Act, and that such Holder is not an affiliate of
the Company within the meaning of the Securities Act.
Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Securities that are Private
Exchange Securities, Exchange Securities to which Section 2(c)(v) is applicable
and Exchange Securities held by Participating Broker-Dealers, and the Company
shall have no further obligation to register Registrable Securities (other than
Private Exchange Securities and other than Exchange Securities as to which
Section
<PAGE>
-5-
2(c)(v) hereof applies) pursuant to Section 3 of this Agreement. No securities
other than the Exchange Securities shall be included in the Exchange Offer
Registration Statement.
(b) The Company shall include within the Prospectus contained in
the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which shall
contain a summary statement of the positions taken or policies made by the Staff
of the SEC (and publicly disseminated) with respect to the potential
"underwriter" status of any broker-dealer that is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of Exchange Securities received by
such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"). Such
---------------------------
"Plan of Distribution" section shall also allow the use of the prospectus by all
persons subject to the prospectus delivery requirements of the Securities Act,
including all Participating Broker-Dealers, and include a statement describing
the means by which Participating Broker-Dealers may resell the Exchange
Securities.
The Company shall use its commercially reasonable best efforts to keep
the Exchange Offer Registration Statement effective and to amend and supplement
the Prospectus contained therein in order to permit such Prospectus to be
lawfully delivered by all persons subject to the prospectus delivery
requirements of the Securities Act for at least 180 days following the first
bona fide offering of securities under such Registration Statement (or such
shorter time as such persons must comply with such requirements in order to
resell the Exchange Securities) (the "Applicable Period").
-----------------
If, prior to consummation of the Exchange Offer, any Initial Purchaser
holds any Notes acquired by it and having, or which are reasonably likely to be
determined to have, the status of an unsold allotment in the initial
distribution, the Company upon the request of such Initial Purchaser shall,
simultaneously with the delivery of the Exchange Securities in the Exchange
Offer, issue and deliver to such Initial Purchaser, in exchange (the "Private
-------
Exchange") for the Notes held by such Initial Purchaser, a like principal amount
- --------
of debt securities of the Company that are identical to the Exchange Securities
(the "Private Exchange Securities") (and which are issued pursuant to the same
---------------------------
indenture as the Exchange Securities) (except for the placement of a restrictive
legend on such Private Exchange Securities). The Private Exchange Securities
shall bear the same CUSIP number as the Exchange Securities. Interest on the
Exchange Securities and Private Exchange Securities will accrue from the last
interest payment date on which interest was paid on the Notes surrendered in
exchange therefor or, if no interest has been paid on the Notes, from the Issue
Date.
Any indenture under which the Exchange Securities or the Private
Exchange Securities will be issued shall provide that the holders of any of the
Exchange Securities and the Private Exchange Securities will vote and consent
together on all matters to which such holders are entitled to vote or consent as
one class and that none of the holders of the Exchange Securities and the
Private Exchange Securities will have the right to vote or consent as a separate
class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company reasonably determined in
good faith, after consultation with counsel, that it is not permitted to effect
the Exchange Offer, (ii) the Exchange Offer is not commenced on or prior to the
Effectiveness Date, (iii) the Exchange Offer is, for any reason, not
consummated on or prior to the 165th day after the Closing Date, (iv) any Holder
of Private Exchange Securities so requests, or (v) in the case of any Holder
that participates in the Exchange Offer, such Holder does not receive Exchange
Securities on the date of the exchange that may be sold without restriction
under state and federal securities laws (the occurrence of any such event, a
"Shelf Registration Event"), then, in the case of each of clauses (i) to and
------------------------
including (v) of this sentence, the Company shall promptly deliver to the
Holders and the Trustee notice thereof (the "Shelf Notice") and shall thereafter
------------
file an Initial Shelf Registration Statement pursuant to Section 3.
<PAGE>
-6-
3. SHELF REGISTRATION
If a Shelf Registration Event has occurred (and whether or not an
Exchange Offer Registration Statement has been filed with the SEC or has become
effective, or the Exchange Offer has been consummated), then:
(a) Initial Shelf Registration Statement. The Company shall
promptly prepare and file with the SEC a Registration Statement for an offering
to be made on a continuous basis pursuant to Rule 415 covering all of the
Registrable Securities (the "Initial Shelf Registration Statement"). The Company
------------------------------------
shall file with the SEC the Initial Shelf Registration Statement on or prior to
the Filing Date. The Initial Shelf Registration Statement shall be on Form S-1
or another appropriate form if available, permitting registration of such
Registrable Securities for resale by such holders in the manner designated by
them (including, without limitation, in one or more underwritten offerings). The
Company shall not permit any securities other than the Registrable Securities to
be included in the Initial Shelf Registration Statement or any Subsequent Shelf
Registration Statement. The Company shall use its commercially reasonable best
efforts to cause the Initial Shelf Registration Statement to be declared
effective under the Securities Act on or prior to the Effectiveness Date, and to
keep the Initial Shelf Registration Statement continuously effective under the
Securities Act until the date which is 36 months from the Issue Date, or such
shorter period ending when (i) all Registrable Securities covered by the Initial
Shelf Registration Statement have been sold in the manner set forth and as
contemplated in the Initial Shelf Registration Statement or (ii) a Subsequent
Shelf Registration Statement covering all of the Registrable Securities has been
declared effective under the Securities Act (such 36 month or shorter period,
the "Effectiveness Period").
--------------------
(b) Subsequent Shelf Registration Statements. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement ceases to
be effective for any reason at any time during the Effectiveness Period (other
than because of the sale of all of the securities registered thereunder), the
Company shall use its commercially reasonable best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof, and in any event
the Company shall within 45 days of such cessation of effectiveness amend the
Shelf Registration Statement in a manner reasonably expected to obtain the
withdrawal of the order suspending the effectiveness thereof, or file an
additional "shelf" Registration Statement pursuant to Rule 415 covering all of
the Registrable Securities (a "Subsequent Shelf Registration Statement"). If a
---------------------------------------
Subsequent Shelf Registration Statement is filed, the Company shall use its
commercially reasonable best efforts to cause the Subsequent Shelf Registration
Statement to be declared effective as soon as reasonably practicable after such
filing and to keep such Registration Statement continuously effective until the
end of the Effectiveness Period. As used herein the term "Shelf Registration
------------------
Statement" means the Initial Shelf Registration Statement and any Subsequent
- ---------
Shelf Registration Statement.
(c) Supplements and Amendments. The Company shall promptly
supplement and amend the Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration Statement, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal amount
of the Registrable Securities covered by such Registration Statement or by any
underwriter of such Registrable Securities.
(d) Hold-Back Agreements.
(i) Restrictions on Public Sale by Holders of Registrable
Securities. Each Holder of Registrable Securities whose Registrable
Securities are covered by a Shelf Registration Statement (which Registrable
Securities are not being sold in the underwritten offering described below)
agrees, if
<PAGE>
-7-
requested (pursuant to a timely written notice) by the Company or by the
managing underwriter or underwriters in an underwritten offering, not to
effect any public sale or distribution of any securities within the class
of securities covered by such Shelf Registration Statement or any similar
class of securities of the Company, including a sale pursuant to Rule 144
or Rule 144A (except as part of such underwritten offering), during the
period beginning 10 days prior to, and ending 60 days after, the closing
date of each underwritten offering made pursuant to each Shelf Registration
Statement, to the extent timely notified in writing by the Company or by
the managing underwriter or underwriters; provided, however, that each
holder of Registrable Securities shall be subject to the hold-back
restrictions of this Section 3(d)(i) only once during the term of this
Agreement.
The foregoing provisions shall not apply to any Holder of Registrable
Securities if such Holder is prevented by applicable statute or regulation
from entering into any such agreement; provided, however, that any such
Holder shall undertake, in its request to participate in any such
underwritten offering, not to effect any public sale or distribution of the
class of securities covered by such Shelf Registration Statement (except as
part of such underwritten offering) during such period unless it has
provided 45 days' prior written notice of such sale or distribution to the
Company or the managing underwriter or underwriters, as the case may be.
(ii) Restrictions on the Company and Others. The Company agrees (A)
not to effect any public or private sale or distribution (including,
without limitation, a sale pursuant to Regulation D under the Securities
Act) of any securities the same as or similar to those covered by a Shelf
Registration Statement or any securities convertible into or exchangeable
or exercisable for such securities, during the 10 days prior to, and during
the 60-day period beginning on, the commencement of an underwritten public
distribution of Registrable Securities, where the managing underwriter or
underwriters so requests pursuant to timely written notice; (B) to include
in any agreements entered into by the Company on or after the date of this
Agreement (other than any underwriting agreement relating to a public
offering registered under the Securities Act) pursuant to which the Company
issues or agrees to issue securities the same as or similar to the Notes a
provision substantially identical to Section 3(d)(i); and (C) not to grant
or agree to grant any "piggy-back registration" or other similar rights to
any holder of the Company's or any of its subsidiaries' securities issued
on or after the date of this Agreement with respect to any Registration
Statement.
(e) Limitations, Conditions and Qualifications to Obligations Under
Registration Covenants. The obligations of the Company set forth in this Section
3 are subject to each of the following limitations, conditions and
qualifications:
(i) Subject to the next sentence of this paragraph, the Company
shall be entitled to postpone, for a reasonable period of time, the filing
or effectiveness of, or suspend the rights of any Holders to make sales
pursuant to, any Registration Statement otherwise required to be prepared,
filed and made and kept effective by it hereunder; provided, however, that
the duration of such postponement or suspension may not extend beyond the
earlier to occur of (A) the day after the cessation of the circumstances
described in the next sentence of this paragraph on which such postponement
or suspension is based or (B) 90 days after the date of the determination
of the Board of Directors referred to in the next sentence. Such
postponement or suspension may be effected only if the Board of Directors
of the Company determines reasonably and in good faith that the filing or
effectiveness of, or sales pursuant to, such Registration Statement would
materially impede, delay or interfere with any financing, offer or sale of
securities, acquisition, corporate reorganization or other significant
transaction involving the Company or any of its affiliates or require
disclosure of material information which the Company has a
<PAGE>
-8-
bona fide business purpose for preserving as confidential; provided,
however, that the Company shall be entitled to such postponement or
suspension only once during the term of this Agreement. If the Company
shall so postpone the filing of a Registration Statement it shall, as
promptly as possible, deliver a certificate signed by the chief executive
officer of the Company to the Holders as to such determination. The
exercise by the Company of its rights under this Section 3(e) shall not
relieve it of its obligation to pay Additional Interest pursuant to Section
4 if the Registration Statement is not filed by the applicable Filing Date
or declared effective by the applicable Effectiveness Date or postponed or
suspended beyond the period specified therein.
4. ADDITIONAL INTEREST
(a) The Company and the Initial Purchasers agree that the Holders
of Notes will suffer damages if the Company fails to fulfill its obligations
under Section 2 or Section 3 hereof (including by virtue of its exercise of its
rights under Section 3(d) hereof) and that it would not be feasible to ascertain
the extent of such damages with precision. Accordingly, the Company agrees to
pay, as liquidated damages, additional interest on the Notes ("Additional
----------
Interest") under the circumstances and to the extent set forth below (each of
- --------
which shall be given independent effect):
(i) if either the Exchange Offer Registration Statement or the
Initial Shelf Registration Statement has not been filed on or prior to the
Filing Date (unless, with respect to the Exchange Offer Registration
Statement, a Shelf Event shall have occurred prior to the Filing Date),
Additional Interest shall accrue on the Notes over and above the stated
interest in an amount equal to $0.05 per week (or any part thereof), per
$1,000 of Accreted Value (as of the first day of each such week) of Notes
for the first 90 days immediately following such date, such Additional
Interest rate increasing by an additional $0.05 per week (or any part
thereof) per $1,000 of Accreted Value (as of the first day of each such
week) of the Notes for each subsequent 90-day period;
(ii) if either the Exchange Offer Registration Statement or the
Initial Shelf Registration Statement is not declared effective by the SEC
on or prior to the Effectiveness Date (unless, with respect to the Exchange
Offer Registration Statement, a Shelf Event described in clause (i) of
Section 2(c) above shall have occurred), Additional Interest shall accrue
on the Notes included or which should have been included in such
Registration Statement over and above the stated interest in an amount
equal to $0.05 per week (or any part thereof) per $1,000 of Accreted Value
(as of the first day of each such week) of Notes for the first 90 days
immediately following the day after such date, such Additional Interest
rate increasing by an additional $0.05 per week (or any part thereof) per
$1,000 of Accreted Value (as of the first day of each such week) of the
Notes for each subsequent 90-day period; and
(iii) if (A) the Company has not exchanged Exchange Securities for
all Notes validly tendered and not withdrawn in accordance with the terms
of the Exchange Offer on or prior to the fifth day after the Expiration
Date, or (B) the Exchange Offer Registration Statement ceases to be
effective or the Prospectus which is a part thereof cannot be used as a
result of a postponement or a suspension pursuant to Section 3(e) lasting
for a period of more than 45 days at any time prior to the Expiration Date,
or (C) if applicable, any Shelf Registration Statement has been declared
effective and such Shelf Registration Statement ceases to be effective or
the Prospectus which is a part thereof cannot be used as a result of a
postponement or a suspension pursuant to Section 3(e) lasting for a period
of more than 45 days at any time during the Effectiveness Period, then
Additional Interest shall accrue on the Notes (over and above any interest
otherwise payable on the Notes) in an amount equal to $0.05 per week (or
any part
<PAGE>
-9-
thereof) per $1,000 of Accreted Value (as of the first day of each
such week) of the Notes for the first 90 days commencing on (x) the sixth
day after the Expiration Date, in the case of (A) above, or (y) the day the
Exchange Offer Registration Statement ceases to be effective or a
postponement or suspension in the case of (B) above, or (z) the day such
Shelf Registration Statement ceases to be effective in the case of (C)
above, such Additional Interest rate increasing by an additional $0.05 per
week (or any part thereof) per $1,000 of Accreted Value (as of the first
day of each such week) of the Notes at the beginning of each such
subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate $0.50 per week per $1,000 of Accreted Value (as
of the first day of each such week) of the Notes; provided, further, that (1)
upon the filing of the Exchange Offer Registration Statement or a Shelf
Registration Statement as required hereunder (in the case of clause (i) of this
Section 4(a)), (2) upon the effectiveness of the Exchange Offer Registration
Statement or the Shelf Registration Statement as required hereunder (in the case
of clause (ii) of this Section 4(a)) or (3) upon the exchange of Exchange
Securities for all Notes validly tendered and not withdrawn (in the case of
clause (iii)(A) of this Section 4(a)), or upon the effectiveness of the Exchange
Offer Registration Statement which had ceased to remain effective or the end of
the postponement or suspension period (in the case of clause (iii)(B) of this
Section 4(a)), or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective (in the case of clause (iii)(C) of this
Section 4(a)), Additional Interest on the Notes as a result of such clause (or
the relevant subclause thereof), as the case may be, shall cease to accrue (but
any accrued amount shall be payable).
(b) The Company shall notify the Trustee within one business day
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). The Company shall
----------
pay the Additional Interest due on the Registrable Securities by depositing with
the Trustee, in trust, for the benefit of the Holders thereof, on or before the
applicable semi-annual interest payment date, immediately available funds in
sums sufficient to pay the Additional Interest then due to Holders of
Registrable Securities. Each obligation to pay Additional Interest shall be
deemed to accrue immediately following the occurrence of the applicable Event
Date. Any accrued Additional Interest amount shall be due and payable on each
interest payment date immediately after the applicable Event Date to the record
Holder of Registrable Securities entitled to receive the interest payment to be
made on such date as set forth in the Indenture. The parties hereto agree that
the Additional Interest provided for in this Section 4 constitutes a reasonable
estimate of the damages that may be incurred by Holders of Registrable
Securities by reason of the failure of a Shelf Registration Statement or
Exchange Offer Registration Statement to be filed or declared effective, or a
Shelf Registration Statement to remain effective, as the case may be, in
accordance with this Section 4.
5. REGISTRATION PROCEDURES
In connection with the registration of any Registrable Securities
pursuant to Sections 2 or 3 hereof, the Company shall use its commercially
reasonable best efforts to effect such registrations to permit the sale of such
Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall:
(a) prepare and file with the SEC on or before the Filing Date, a
Registration Statement or Registration Statements as prescribed by Section 2 or
3, and to use its commercially reasonable best efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein, provided that, if (1) such filing is pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Offer Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, before filing any Registra-
<PAGE>
-10-
tion Statement or Prospectus or any amendments or supplements thereto, the
Company shall furnish to and afford the Holders of the Registrable Securities
and each such Participating Broker-Dealer, as the case may be, covered by such
Registration Statement, their counsel and the managing underwriters, if any, a
reasonable opportunity to review copies of all such documents (including copies
of any documents to be incorporated by reference therein and all exhibits
thereto) proposed to be filed (at least five days prior to such filing); the
Company shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto in respect of which the Holders must be
afforded a reasonable opportunity to review prior to the filing of such
document, if the Holders of a majority in aggregate principal amount of the
Registrable Securities covered by such Registration Statement, or such
Participating Broker-Dealer, as the case may be, their counsel, or the managing
underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-
effective amendments to each Shelf Registration Statement or Exchange Offer
Registration Statement, as the case may be, as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period, in
the case of a Shelf Registration Statement, or until the later of the Expiration
Date and the Applicable Period (if applicable), in the case of the Exchange
Offer Registration Statement; cause the related Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 (or any similar provisions then in force) under the Securities Act;
and comply with the provisions of the Securities Act, the Exchange Act and the
rules and regulations of the SEC promulgated thereunder applicable to it with
respect to the disposition of all securities covered by such Registration
Statement as so amended or in such Prospectus as so supplemented and with
respect to the subsequent resale of any securities being sold by a Participating
Broker-Dealer covered by any such Prospectus;
(c) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period notify the selling Holders of
Registrable Securities, or each such Participating Broker-Dealer, as the case
may be, their counsel and the managing underwriters, if any, promptly (but in
any event within five business days), and confirm such notice in writing, (i)
when a Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective (including in such notice a
written statement that any Holder may, upon request, obtain, without charge, one
conformed copy of such Registration Statement or post-effective amendment
including financial statements and schedules, documents incorporated or deemed
to be incorporated by reference and exhibits); (ii) of the issuance by the SEC
of any stop order suspending the effectiveness of a Registration Statement or of
any order preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose; (iii) if at any time when a
prospectus is required by the Securities Act to be delivered in connection with
sales of the Registrable Securities the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated by Section 5(n) below cease to be true and correct; (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or any
of the Registrable Securities or the Exchange Securities to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose; (v) of the
happening of any event or any information becoming known that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a mate-
<PAGE>
-11-
rial fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading provided, however, that such
notification need not specifically identify such event if notification of the
occurrence thereof would in the Company's reasonable judgment, involve the
disclosure of confidential non-public information; and (vi) of the Company's
reasonable determination that a post-effective amendments to the Registration
Statement would be appropriate;
(d) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, use its commercially reasonable best
efforts to prevent the issuance of any order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of a
Prospectus or suspending the qualification (or exemption from qualification) of
any of the Registrable Securities or the Exchange Securities to be sold by any
Participating Broker-Dealer, for sale in any jurisdiction, and, if any such
order is issued, to use its commercially reasonable best efforts to obtain the
withdrawal of any such order at the earliest possible moment;
(e) if a Shelf Registration Statement is filed pursuant to Section
3 and if requested by the managing underwriters, if any, or the Holders of a
majority in aggregate principal amount of the Registrable Securities being sold
in connection with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, or such Holders or their respective counsel
reasonably request to be included therein; and (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
reasonably practicable after the Company has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment;
(f) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, furnish to each selling Holder of
Registrable Securities and to each such Participating Broker-Dealer who so
requests and upon request to their respective counsel and each managing
underwriter, if any, without charge, one conformed copy of the Registration
Statement or Statements and each post-effective amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits;
(g) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, deliver to each selling Holder of
Registrable Securities, or each such Participating Broker-Dealer, as the case
may be, their counsel, and the underwriters, if any, without charge, as many
copies of the Prospectus or Prospectuses (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request; and,
subject to the last paragraph of this Section 5, the Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling holders of Registrable Securities or each such Participating Broker-
Dealer, as the case may be, and the underwriters or agents, if any, and dealers
(if any), in connection with the offering and sale of the Registrable Securities
covered by or the sale by Participating Broker-Dealers of the Exchange
Securities pursuant to such Prospectus and any amendment or supplement thereto
provided such use complies with all applicable laws and regulations;
<PAGE>
-12-
(h) prior to any public offering of Registrable Securities or any
delivery of a Prospectus contained in the Exchange Offer Registration Statement
by any Participating Broker-Dealer who seeks to sell Exchange Securities during
the Applicable Period, use its commercially reasonable best efforts to register
or qualify, and to cooperate with the selling Holders of Registrable Securities
or each such Participating Broker-Dealer, as the case may be, the underwriters,
if any, and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any selling Holder,
Participating Broker-Dealer, or the managing underwriters reasonably request in
writing, provided that where Exchange Securities held by Participating Broker-
Dealers or Registrable Securities are offered other than through an underwritten
offering, the Company shall cause its counsel to (i) perform Blue Sky
investigations and file registrations and qualifications required to be filed
pursuant to this Section 5(h); (ii) use its commercially reasonable best efforts
to keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be kept
effective; and (iii) do any and all other acts or things necessary or advisable
to enable the disposition in such jurisdictions of the Exchange Securities held
by Participating Broker-Dealers or the Registrable Securities covered by the
applicable Registration Statement, provided further that the Company shall not
in any case be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject, (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction or (D) conform its capitalization or the
composition of its assets to the securities or blue sky laws of any such
jurisdiction;
(i) if a Shelf Registration Statement is filed pursuant to Section
3, cooperate with the selling Holders of Registrable Securities and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which certificates
shall not bear any restrictive legends and shall be in a form eligible for
deposit with The Depository Trust Company; and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriter or underwriters, if any, or Holders may reasonably request;
(j) use its commercially reasonable best efforts to cause the
Registrable Securities covered by the Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriters, if any,
to consummate the disposition of such Registrable Securities, except as may be
required solely as a consequence of the nature of such selling Holder's
business, in which case the Company will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals;
(k) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) above, as promptly as practicable
prepare and (subject to Section 5(a) above) file with the SEC, solely at the
expense of the Company, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder or to the purchasers of the
Exchange Securities to whom such Prospectus will be delivered by a Participating
Broker-Dealer, any such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
<PAGE>
-13-
(l) use its commercially reasonable best efforts to cause the
Registrable Securities covered by a Registration Statement or the Exchange
Securities, as the case may be, to be rated with the appropriate rating
agencies, if so requested by the Holders of a majority in aggregate principal
amount of Registrable Securities covered by such Registration Statement or the
Exchange Securities, as the case may be, or the managing underwriters, if any;
(m) prior to the effective date of the first Registration Statement
relating to the Registrable Securities, (i) provide the Trustee with printed
certificates for the Registrable Securities in a form eligible for deposit with
The Depository Trust Company; and (ii) provide a CUSIP number for the
Registrable Securities;
(n) in connection with an underwritten offering of Registrable
Securities pursuant to a Shelf Registration Statement, enter into an
underwriting agreement as is customary in underwritten offerings, provided such
agreement is reasonably acceptable to the Company and provided that the
underwriters are reasonably acceptable to the Company, and take all such other
actions as are reasonably requested by the managing underwriters in order to
expedite or facilitate the registration or the disposition of such Registrable
Securities, and in such connection if reasonably requested, (i) make such
representations and warranties to the underwriters, with respect to the business
of the Company and its subsidiaries and the Registration Statement, Prospectus
and documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when reasonably requested;
(ii) use its commercially reasonable best efforts to obtain opinions of counsel
to the Company and updates thereof in form and substance reasonably satisfactory
to the managing underwriters, addressed to the underwriters covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by underwriters; (iii) use its
commercially reasonable best efforts to obtain "cold comfort" letters and
updates thereof in form and substance reasonably satisfactory to the managing
underwriters from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company or any of
its subsidiaries for which financial statements and financial data are, or are
required to be, included in the Registration Statement), addressed to each of
the underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as reasonably requested by
underwriters; and (iv) if an underwriting agreement is entered into, the same
shall contain indemnification provisions and procedures comparable to those set
forth in Section 7 hereof (or such other provisions and procedures reasonably
acceptable to the Company and the Holders of a majority in aggregate principal
amount of Registrable Securities covered by such Registration Statement and the
managing underwriters or agents) with respect to all parties to be indemnified
pursuant to said Section, all of which shall be done at each closing under such
underwriting agreement, or as and to the extent required thereunder;
(o) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, subject to the prior receipt by the
Company of undertakings to use commercially reasonable efforts to preserve the
confidentiality of any information disclosed by the Company pursuant hereto in
form and substance reasonably satisfactory to the Company, make available for
inspection by any selling Holder of such Registrable Securities being sold, or
each such Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Securities, if any, and any
attorney, accountant or other agent retained by any such selling holder or each
such Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
----------
reasonable business hours, all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries
<PAGE>
-14-
(collectively, the "Records") as shall be necessary to enable them to exercise
-------
any applicable due diligence responsibilities, and cause the officers, directors
and employees of the Company and its subsidiaries to supply all information in
each case requested by any such Inspector in connection with such Registration
Statement; however, records which the Company determines, in good faith, to be
confidential and any Records which the Company notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
such Registration Statement; (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction;
(iii) the information in such Records has been made generally available to the
public; or (iv) release thereof is necessary or advisable in connection with any
action, suit or proceeding involving any Holder or other Inspector;
(p) provide for an indenture trustee for the Registrable Securities
or the Exchange Securities, as the case may be, and cause the Indenture or the
trust indenture provided for in Section 2(a), as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange Offer
or the first Registration Statement relating to the Registrable Securities; and
in connection therewith, cooperate with the trustee under any such indenture and
the holders of the Registrable Securities, to effect such changes to such
indenture as may be required for such Indenture to be so qualified in accordance
with the terms of the TIA; and execute, and use its commercially reasonable best
efforts to cause such trustee to execute, all documents as may be required to
effect such changes, and all other forms and documents required to be filed with
the SEC to enable such indenture to be so qualified in a timely manner;
(q) comply with all applicable rules and regulations of the SEC to
the extent and so long as they are applicable to the Exchange Offer Registration
Statement or the Shelf Registration Statement and make generally available to
their securityholders earning statements satisfying the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 45 days after the end of any
12-month period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment or
commercially reasonable best efforts underwritten offering; and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said 12-month periods;
(r) upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company in customary form, relating to the
Exchange Securities or the Private Exchange Securities, as the case may be,
addressed to the Trustee for the benefit of all Holders of Registrable
Securities participating in the Exchange Offer or the Private Exchange, as the
case may be, and which includes an opinion that (i) the Company has duly
authorized, executed and delivered the Exchange Securities and Private Exchange
Securities and the related indenture; and (ii) each of the Exchange Securities
or the Private Exchange Securities, as the case may be, and related indenture
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms (with customary
exceptions);
(s) if an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Securities by Holders to the
Company (or to such other Person as directed by the Company) in exchange for the
Exchange Securities or the Private Exchange Securities, as the case may be,
mark, or caused to be marked, on such Registrable Securities that such
Registrable Securities are being cancelled in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be; in no event
shall such Registrable Securities be marked as paid or otherwise satisfied;
<PAGE>
-15-
(t) cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD"); and
----
(u) use its commercially reasonable best efforts to take all other
steps necessary to effect the registration of the Registrable Securities covered
by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Securities or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Company such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
as the Company may, from time to time, reasonably request. The Company may
exclude from such registration the Registrable Securities of any seller or
Participating Broker-Dealer who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
Each Holder of Registrable Securities and each Participating Broker-
Dealer agrees by acquisition of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such
Holder will forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus or Exchange Securities to
be sold by such Participating Broker-Dealer, as the case may be, until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k), or until it is advised in writing (the "Advice")
------
by the Company that the use of the applicable Prospectus may be resumed, and has
received copies of any amendments or supplements thereto.
6. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer Registration Statement or a Shelf Registration
Statement is filed or becomes effective, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel) in such jurisdictions (x) where the holders of
Registrable Securities are located, in the case of the Exchange Securities, or
(y) as provided in Section 5(h), in the case of Registrable Securities to be
sold in a public offering or Exchange Securities to be sold by a Participating
Broker-Dealer during the Applicable Period)); (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
or Exchange Securities in a form eligible for deposit with The Depository Trust
Company and of printing prospectuses if the printing of prospectuses is
requested by the managing underwriters, if any, or, in respect of Registrable
Securities or Exchange Securities to be sold by any Participating Broker-Dealer
during the Applicable Period, by the Holders of a majority in aggregate
principal amount of the Registrable Securities included in any Registration
Statement or of such Exchange Securities, as the case may be); (iii) messenger,
telephone and delivery expenses incurred by the Company; (iv) fees and
disbursements of counsel for the Company and reasonable fees and disbursements
of special counsel for the sellers of Registrable Securities but only with
respect to such counsel's review of the Registration Statement and Prospectus,
including, without limitation, any portions of the Registration Statement and
Prospectus relating to the Holders, and all documentation related thereto,
including any underwriting agreement and all related documentation (subject to
the provisions of Section 6(b)); (v) fees and disbursements of all
<PAGE>
-16-
independent certified public accountants referred to in Section 5(n)(iii)
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance); (vi) the
reasonable fees and expenses of any "qualified independent underwriter" or other
independent appraiser participating in an offering pursuant to Rule 2710 of the
Conduct Rules of the NASD; (vii) rating agency fees; (viii) Securities Act
liability insurance, if the Company desires such insurance; (ix) fees and
expenses of all other Persons retained by the Company; (x) internal expenses of
the Company (including, without limitation, all salaries and expenses of
officers and employees of the Company performing legal or accounting duties);
(xi) the expense of any annual audit of the Company; (xii) the fees and expenses
incurred by the Company in connection with the listing of the Registrable
Securities on any securities exchange; and (xiii) the expenses relating to
printing, word processing and distributing all Registration Statements,
underwriting agreements, securities sales agreements, indentures and any other
documents necessary in order to comply with this Agreement. Anything contained
herein to the contrary notwithstanding, the Company shall not have any
obligation whatsoever in respect of any underwriters' discounts or commissions,
brokerage commissions, dealers' selling concessions, transfer taxes or any other
selling expenses (other than those expressly enumerated in clauses (i) through
(xiii) above) incurred in connection with the underwriting, offering or sale of
Registrable Securities or Exchange Securities by or on behalf of any Person.
(b) In connection with any Shelf Registration Statement hereunder,
the Company shall reimburse the Holders of the Registrable Securities being
registered in such registration for the reasonable fees and disbursements of not
more than one counsel (in addition to appropriate local counsel) chosen by the
Holders of a majority in aggregate principal amount of the Registrable
Securities to be included in such Registration Statement and other reasonable
out-of-pocket expenses of the Holders of Registrable Securities incurred in
connection with the registration of the Registrable Securities.
7. INDEMNIFICATION
The Company agrees to indemnify and hold harmless each Holder of
Registrable Securities and each Participating Broker-Dealer selling Exchange
Securities during the Applicable Period, the officers and directors of each such
person, and each person, if any, who controls any such person within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
(each, a "Participant"), from and against any and all losses, claims, damages
-----------
and liabilities (including, without limitation, the reasonable legal fees and
other expenses actually incurred in connection with any suit, action or
proceeding or any claim asserted) caused by any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement (or
any amendment thereto) or Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
such Participant furnished to the Company in writing by such Participant (or, if
such Participant is not a Holder or a Participating Broker-Dealer, furnished in
writing by the Holder or Participating Broker-Dealer in respect of which such
person is a Participant relating to such Participant) expressly for use therein;
provided that (i) the foregoing indemnity with respect to any preliminary
prospectus shall not inure to the benefit of any Participant (or to the benefit
of any offer or director of, or of any person controlling, such Participant)
from whom the person asserting any such losses, claims, damages or liabilities
purchased Registrable Securities to the extent that such untrue statement or
omission or alleged untrue statement or omission made in such preliminary
prospectus is eliminated or remedied in the related Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) and a copy of the related Prospectus (as so amended or supplemented)
shall not have been
<PAGE>
-17-
furnished to such person at or prior to the sale of such Registrable Securities
or Exchange Securities, as the case may be, to such person and (ii) the
foregoing indemnity with respect to any Prospectus shall not inure to the
benefit of a Holder of Registrable Securities or Participating Broker-Dealer to
the extent that such Holder or Participating Broker-Dealer uses such Prospectus
five business days after such time as the Company shall have advised such Holder
or Participating Broker-Dealer in writing of the happening of any event which
makes any statement of a material fact made in such Prospectus untrue or which
requires the making of any additions to or changes in such Prospectus in order
that it will not contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they are made,
not misleading.
Each Participant will be required to agree, severally and not jointly,
to indemnify and hold harmless each of the Company, its directors, its officers
who sign the Registration Statement and each person who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
each Participant, but only with reference to information relating to such
Participant furnished to the Company in writing by such Participant expressly
for use in any Registration Statement or Prospectus, any amendment or supplement
thereto, or any preliminary prospectus. The liability of any Participant under
this paragraph shall in no event exceed the proceeds received by such
Participant from sales of Registrable Securities giving rise to such
obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
------------------
notify the person against whom such indemnity may be sought (the "Indemnifying
------------
Person") in writing, and the Indemnifying Person, upon request of the
- ------
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the
reasonable fees and expenses incurred by such counsel related to such
proceeding, provided, that the failure to so notify the Indemnifying Person
shall not relieve it of any obligation or liability which it may have hereunder
or otherwise (unless and only to the extent that such failure actually
prejudices the Indemnifying Person). In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel, but, other than in
circumstances involving a conflict among Indemnified Persons, the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have agreed
to the contrary; (ii) the Indemnifying Person has failed within a reasonable
time to retain counsel reasonably satisfactory to the Indemnified Person; or
(iii) the named parties in any such proceeding (including any impleaded parties)
include both the Indemnifying Person and the Indemnified Person and
representation of both parties by the same counsel would be inappropriate due to
an actual or potential conflict of interest. It is understood that, other than
in circumstances involving a conflict among Indemnified Persons, the
Indemnifying Person shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed as they are
incurred. Any such separate firm for the Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable
Securities sold by all such Participants and any such separate firm for the
Company, its directors, its officers and such control persons of the Company
shall be designated in writing by the Company. The Indemnifying Person shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for reasonable fees and expenses incurred by counsel as contemplated by
the third sentence of this paragraph, the Indemnifying Person agrees that
<PAGE>
-18-
it shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 60 days after
receipt by such Indemnifying Person of the aforesaid request and (ii) such
Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement; provided,
however, that the Indemnifying Person shall not be liable for any settlement
effected without its consent pursuant to this sentence if the Indemnifying Party
is contesting, in good faith, the request for reimbursement. No Indemnifying
Person shall, without the prior written consent of the Indemnified Person,
effect any settlement of any pending or threatened proceeding in respect of
which any Indemnified Person is or could have been a party, unless such
settlement includes an unconditional written release of such Indemnified Person
in form and substance satisfactory to the Indemnified Persons from all liability
on claims that are the subject matter of such proceeding.
If the indemnification provided for in the first and second paragraphs
of this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the initial
offering of the Notes or (ii) if the allocation provided by the foregoing clause
(i) is not permitted by applicable law, not only such relative benefits but also
the relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Participants on the other shall be deemed to be
in the same proportion as the total proceeds from the initial offering (net of
discounts and commissions but before deducting expenses) of the Notes received
by the Company bears to the total proceeds received by such Participant from the
sale of Registrable Securities. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, on the one hand,
or such Participant or such other Indemnified Person, as the case may be, on the
other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
The parties shall agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Securities
exceeds the amount of any damages that such Participant has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
<PAGE>
-19-
The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability which the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
8. RULE 144 AND RULE 144A
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner and, if at any time
the Company is not required to file such reports, it will, upon the request of
any Holder of Registrable Securities, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under
the Securities Act. The Company further covenants that it will take such further
action as any Holder of Registrable Securities may reasonably request, to the
extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144 and Rule 144A under the Securities Act.
9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Securities covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the investment banker or
investment bankers and manager or managers that will manage the offering will be
selected by the Holders of a majority in aggregate principal amount of such
Registrable Securities included in such offering and reasonably acceptable to
the Company.
No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements (however the terms applicable to each Holder shall be identical in
all respects) and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements applicable to all Holders.
10. MISCELLANEOUS
(a) Remedies. In the event of a breach by the Company of any of
its obligations under this Agreement, each Holder of Registrable Securities, in
addition to being entitled to exercise all rights provided herein, in the
Indenture or, in the case of the Initial Purchasers, in the Purchase Agreement
or granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect of
such breach, it shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company has not, as of the
date hereof, entered into and shall not, after the date of this Agreement, enter
into any agreement with respect to any of its securities that is inconsistent
with the rights granted to the Holders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof. The Company has not
entered into and will not enter into any agreement with respect to any of its
securities which will grant to any Person "piggy-back" rights with respect to a
Registration Statement.
(c) Adjustments Affecting Registrable Securities. The Company
shall not, directly or indirectly, take any action with respect to the
Registrable Securities as a class that would adversely affect the abil-
<PAGE>
-20-
ity of the Holders of Registrable Securities to include such Registrable
Securities in a registration undertaken pursuant to this Agreement.
(d) Guarantors. So long as any Registrable Securities remain
outstanding, the Company shall cause each of its subsidiaries that becomes a
guarantor of the Notes under the Indenture to execute and deliver a counterpart
to this Agreement which subjects such subsidiary to the provisions of this
agreement as a guarantor (all such subsidiaries, the "Guarantors"). Each of the
----------
Guarantors agrees to join the Company in all of its undertakings hereunder to
effect the Exchange Offer for the Exchange Securities (which will be guaranteed
by each of the Guarantors with terms identical to such Guarantors' guaranty of
the Notes) and the filing of any Shelf Registration Statement required hereunder
(including, without limitation, the undertakings in Section 5 hereof).
(e) Amendments and Waivers. Except as provided in paragraph (d)
above, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of (A) the
Holders of not less than a majority in aggregate principal amount of the then
outstanding Registrable Securities and (B) in circumstances that would adversely
affect the Participating Broker-Dealers, the Participating Broker-Dealers
holding not less than a majority in aggregate principal amount of the Exchange
Securities held by all Participating Broker-Dealers; provided, however, that
Section 7 and this Section 10(d) may not be amended, modified or supplemented
without the prior written consent of each Holder and each Participating Broker-
Dealer (including any person who was a Holder or Participating Broker-Dealer of
Registrable Securities or Exchange Securities, as the case may be, disposed of
pursuant to any Registration Statement) affected by any such amendment,
modification or supplement. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and that does not directly
or indirectly affect, impair, limit or compromise the rights of other Holders of
Registrable Securities may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Securities being sold by such
Holders pursuant to such Registration Statement.
(f) Notices. All notices and other communications (including
without limitation any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
(i) if to a Holder of Registrable Securities, at the most current
address given by the Trustee to the Company; and
(ii) if to the Company, at TCI Satellite Entertainment, Inc., 8085
South Chester #300, Englewood, CO 80112, Attention: Chief Financial
Officer.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the trustee under the
Indenture at the address specified in such Indenture.
<PAGE>
-21-
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Registrable Securities.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(k) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable best efforts to find and employ
an alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(l) Entire Agreement. This Agreement, together with the Purchase
Agreement, is intended by the parties as a final expression of their agreement,
and is intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.
(m) Securities Held by the Company or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its affiliates (as such term is defined in Rule 405 under the Securities Act)
shall not be deemed to be not outstanding for purposes of determining whether
such consent or approval was given by the Holders of such required percentage.
[Signature Pages Follow]
<PAGE>
S-1
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
---------------------------------------------
Name: Gary S. Howard
Title: President and Chief
Executive Officer
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, together on
behalf of the Initial Purchasers
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:_____________________________________________
Name:
Title:
By: MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
By:_____________________________________________
Name:
Title:
<PAGE>
S-1
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By:_____________________________________________
Name:
Title:
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, together on
behalf of the Initial Purchasers
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Andrea J. Hagan
---------------------------------------------
Name: Andrea J. Hagan
Title: Senior Vice President
By: MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
By:_____________________________________________
Name:
Title:
<PAGE>
S-1
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By:_____________________________________________
Name:
Title:
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, together on
behalf of the Initial Purchasers
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:_____________________________________________
Name:
Title:
By: MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
By: /s/ Eric Federman
---------------------------------------------
Name: Eric Federman
Title: VP
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
-------------------------
Indemnification Agreement (this "Agreement"), dated as of
December 4, 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 Telecommunications, 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.
(l) Subordination. Each of TCI and the Company, for itself, its
-------------
successors and assigns, covenants and agrees that all payment obligations of the
Company to TCI hereunder are and shall be subordinated in right of payment to
the prior payment in full of all indebtedness of the Company, whether now
existing or hereafter arising, to any financial institution (a "Senior Lender")
to which the Company may from time to time be indebted for borrowed money,
including principal, accrued interest and any other amounts with respect thereto
(the "Senior Debt"). In that connection, TCI hereby agrees to execute and
deliver any and all agreements regarding the subordination of the Company's
payment obligations hereunder to the Senior Debt as may from time to time be
reasonably requested by the Senior Lender.
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: /s/ Stephen M. Brett
---------------------------
Name: Stephen M. Brett
Title: Vice President
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
---------------------------
Name: Gary S. Howard
Title: President
6
<PAGE>
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
-------------------------
Indemnification Agreement (this "Agreement"), dated as of
December 4, 1996, between TCI Satellite Entertainment, Inc., a Delaware
- ----------
corporation (the "Company") and TCI Communications Inc., a Delaware 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. The
Account Party, through indirect subsidiaries, TCI K-1, Inc. ("TCI K-1") and
United Artists K-1 Investments, Inc.("UA K-1"), has arranged for the issuance by
the Bank of New York (the "Issuing Bank") of an Irrevocable Transferable Letter
of Credit No. S-00035000, dated October 18, 1996, in the amount of $25,000,000
(the "Letter of Credit"). The beneficiary of the Letter of Credit is G.E.
American Communications, Inc. The Letter of Credit was issued pursuant to an
Addendum Regarding Letters of Credit dated as of October 18, 1996 (the
"Addendum") among PRIMESTAR Partners, L.P. ("PRIMESTAR"), G.E. American
Communications, Inc. and the other parties thereto and provides collateral
security for certain obligations of PRIMESTAR to the beneficiary. The Account
Party is obligated to reimburse the Issuing Bank for any drawings made under the
Letter of Credit pursuant to a reimbursement agreement and/or other
documentation between the Account Party and the Issuing Bank (collectively, the
"Reimbursement Agreement").
C. In connection with the Distribution, TCI K-1 and UA K-1 have
agreed to transfer to subsidiaries of the Company their 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 applicable provisions 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 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.
(l) Subordination. Each of TCI and the Company, for itself, its
-------------
successors and assigns, covenants and agrees that all payment obligations of the
Company to TCI hereunder are and shall be subordinated in right of payment to
the prior payment in full of all indebtedness of the Company, whether now
existing or hereafter arising, to any financial institution (a "Senior Lender")
to which the Company may from time to time be indebted for borrowed money,
including principal, accrued interest and any other amounts with respect thereto
(the "Senior Debt"). In that connection, TCI hereby agrees to execute and
deliver any and all agreements regarding the subordination of the Company's
payment obligations hereunder to the Senior Debt as may from time to time be
reasonably requested by the Senior Lender.
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 COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
----------------------------
Name: Stephen M. Brett
Title: Senior Vice President
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
----------------------------
Name: Gary S. Howard
Title: President
6
<PAGE>
Exhibit 10.4
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
--------------------------------------
OF
--
TCI SATELLITE ENTERTAINMENT, INC.
---------------------------------
<PAGE>
INDEX
-----
Page
----
ARTICLE I NAME AND PURPOSE OF PLAN AND TRUST................................1
ARTICLE II DEFINITIONS.......................................................2
ARTICLE III PARTICIPATION....................................................11
ARTICLE IV CONTRIBUTIONS....................................................13
ARTICLE V DETERMINATION AND VESTING OF PARTICIPANTS' ACCOUNTS..............22
ARTICLE VI RETIREMENT DATE--DESIGNATION OF BENEFICIARY......................27
ARTICLE VII DISTRIBUTION FROM TRUST FUND.....................................29
ARTICLE VIII FIDUCIARY OBLIGATIONS............................................37
ARTICLE IX PLAN ADMINISTRATOR AND PLAN COMMITTEE............................40
ARTICLE X POWERS AND DUTIES OF THE TRUSTEE.................................46
ARTICLE XI CONTINUANCE, TERMINATION, AND AMENDMENT OF PLAN AND TRUST........50
ARTICLE XII MISCELLANEOUS....................................................52
-54-
<PAGE>
I. ARTICLE
-- -------
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>
I. ARTICLE
DEFINITIONS
-----------
When used herein, the following words shall have the following
meanings, unless the context clearly indicates otherwise:
A. "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.
A. "Anniversary Date" means the first day of each Plan Year.
A. "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.
A. "Beneficiary" means the person who, under this Plan, becomes entitled
to receive a Participant's Account upon the Participant's death.
A. "Board of Directors" means the Board of Directors of the Company.
A. "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.
For vesting purposes, for which the elapsed time method of crediting service is
applicable, "one-year Break in Service" will mean a Period of Severance of at
least twelve consecutive months. For purposes of this definition, Hours of
Service and Periods of Service shall include service as an Employee in any
capacity.
A. "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.
A. "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-
---
<PAGE>
A. "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 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.
-3-
---
<PAGE>
A. "Effective Date" of this plan means January 1, 1997. For any
Associated Company which is not participating on the Effective Date, Effective
Date means that date designated by the Associated Company.
A. "Employee" 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 in the Employer's employ in any other capacity; [b]
independent contractors; [c] any individual whose services were obtained through
a temporary employment agency and who has not become an employee of the
employer, as indicated on the payroll records of the employer, regardless of the
period for which such services are performed by the employer; and [d] 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 [d],
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.
A. "Employer" means the Company and any Associated Company which has
adopted the Plan and Trust.
A. "Employment Commencement Date" means the date on which an Employee
first performs an Hour of Service for the Employer.
A. "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.
-4-
---
<PAGE>
A. "Highly Compensated Employee" means any Employee or former Employee
who, during the Plan Year or the preceding Plan Year was:
1. at any time a five percent owner;
1. received annual Compensation from the Employer in excess of $75,000,
as adjusted for increases in the cost of living;
1. 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 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
1. 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).
A. "Hour of Service" means:
1. 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
1. 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
1. 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:
-5-
---
<PAGE>
a) 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;
a) 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;
a) Hours shall not be credited for payments which reimburse an
Employee solely for medical or medically related expenses incurred by
the Employee; and
a) 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 sections 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:
(1) by reason of the pregnancy of the Employee;
(1) by reason of the birth of a child of the Employee;
(1) by reason of the placement of a child with the Employee in connection
with the adoption of such child by such Employee; or
-6-
---
<PAGE>
(1) 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. For vesting purposes, for which the elapsed time method of
crediting service is applicable, in the case of an Employee who is absent from
work for any of the reasons outlined in this paragraph, the twelve consecutive
month period beginning on the first date of such absence will be treated as a
Period of Service and the twelve consecutive month period beginning on the first
anniversary of the first date of such absence will be treated neither as a
Period of Service nor a Break in Service if the Employee has not returned to
work during such period.
A. "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:
1. 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;
1. 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;
1. five percent owner of the Employer; or
1. 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
-7-
---
<PAGE>
Code Section 416(i)(1). Any Beneficiary of a Key Employee shall be treated as a
Key Employee.
A. "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.
A. "Normal Retirement Age" means the date a Participant attains age 65.
A. "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.
A. "Period of Service," with respect to the elapsed time method of
crediting service, means the period beginning on the Employee's Employment
Commencement Date or Reemployment Commencement Date and ending on the date a
Break in Service begins. The Employee will receive credit for any Period of
Severance of less than twelve consecutive months. In addition, the Employee's
Period of Service will be determined in accordance with Treas. Reg. (S)
1.410(a)-7(c).
A. "Period of Severance," for purposes of crediting service under the
elapsed time method of crediting service, means a continuous period of time
during which the Employee is not employed by the Employer. A Period of
Severance begins on the date the Employee retires, quits, is discharged, or
dies, or, if earlier, the twelve month anniversary of the date on which the
Employee was first absent from service with the Employer for any other reason;
provided, however, that if an Employee is absent from work for any other reason
and retires, quits, is discharged, or dies within twelve months, the Period of
Severance begins on the day the Employee quits, retires, is discharged, or dies.
A. "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.
A. "Plan Administrator" means the person appointed by the Board of
Directors whose duties are provided in this Plan and Trust.
A. "Plan Committee" means the committee appointed by the Board of
Directors whose duties are provided in this Plan and Trust.
A. "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
-8-
---
<PAGE>
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.
1. "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 that class of common stock of the Company (or of any other such
corporation) having the greatest voting power, and that class of common stock
of the Company (or of any other such corporation) having the greatest dividend
rights.
A. "Quarterly Anniversary Date" means January 1, April 1, July 1, or
October 1 of each Plan Year.
B. "Reemployment Commencement Date" means, for all Plan purposes
(including vesting), the first date after a Break in Service on which an
Employee performs an Hour of Service for the Employer.
A. "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.
A. "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.
A. "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 Employee pension Plan) maintained or ever maintained
by the Employer in
-9-
---
<PAGE>
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.
A. "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.
A. "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.
B. "Trustee Responsibility" means any responsibility provided in the Plan
to manage or control the assets of this Plan.
A. "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.
A. "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. For vesting purposes, for
which the elapsed time method of crediting service is applicable, "Year of
Service" means a one-year Period of Service. For all other purposes, "Year of
Service" means any Plan Year in which the Employee completes 1,000 or more hours
of service. For purposes of this definition, Hours of Service and Periods 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. will count for purposes of
eligibility and vesting under this
-10-
----
<PAGE>
Plan only if the Employee commences employment with the Employer on or before
February 4, 1997.
A. The masculine gender shall include the feminine, and the singular
shall include the plural.
-11-
----
<PAGE>
I. ARTICLE
PARTICIPATION
-------------
A. 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.
A. 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:
1. His or her acceptance of participation in the Plan;
1. His or her consent to make contributions to the Trust Fund under
section 4.1;
1. His or her consent that contributions be withheld from the Employee's
Compensation; and
1. His or her consent to be bound by the terms and conditions of the Plan
and all its amendments.
-12-
----
<PAGE>
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.
A. 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.
-13-
----
<PAGE>
I. ARTICLE
CONTRIBUTIONS
-------------
A. 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.
A. 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.
-14-
----
<PAGE>
A. 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 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.
A. 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.
A. 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:
1. 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;
1. if initial qualification of the Plan is denied, within one year after
the date of denial of initial qualification of the Plan; or
1. 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.
-15-
----
<PAGE>
A. 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 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.
A. 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:
a) Any participant contributions (including elective deferrals) to the
extent that the return would reduce the excess amount, shall be returned to
the participant.
a) 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.
a) 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
-16-
----
<PAGE>
welfare benefit fund (as defined in Code Section 419(e)) maintained by the
Company are treated as annual additions to a defined contribution plan.
A. 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 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.
1. 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:
a) the product of 1.25 times the maximum benefit dollar limitation
in effect for the limitation year; or
a) the product of 1.4 times 100% of the Participant's average
Compensation for his high three consecutive calendar years.
1. 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:
-17-
----
<PAGE>
a) 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
a) the product of 1.4 times an amount equal to 25% of the
Participant's Compensation for the limitation year.
1. 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).
A. TOP HEAVY PLAN PROVISIONS: The provisions of this section shall have
-------------------------
effect for any Plan Years in which the Plan is top heavy.
1. 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.
1. 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.
-18-
----
<PAGE>
A. SALARY REDUCTION RULES:
----------------------
1. 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.
1. 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.
1. Nonforfeitability Of Elective Contributions: All salary
-------------------------------------------
reduction contributions made on behalf of Participants to this Plan shall
be vested immediately.
2. Distributions Restriction: Salary reductions shall be subject to the
-------------------------
restrictions on withdrawals under section 7.6.
1. 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.
1. 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:
a) 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"
-19-
----
<PAGE>
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.
a) 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 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.
a) 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.
a) 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.
a) 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
-20-
----
<PAGE>
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.
1. Definitions:
a) 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.
a) "Salary reductions" are those reductions in salary that
each Employee elects to defer.
A. NONDISCRIMINATION REQUIREMENTS FOR EMPLOYEE AND MATCHING EMPLOYER
-----------------------------------------------------------------
CONTRIBUTIONS:
- -------------
1. 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.
1. 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
-21-
----
<PAGE>
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.
1. 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.
1. 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 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.
1. 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
-22-
----
<PAGE>
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.
-23-
----
<PAGE>
I. ARTICLE
DETERMINATION AND VESTING OF PARTICIPANTS' ACCOUNTS
---------------------------------------------------
A. DETERMINATION OF PARTICIPANTS' ACCOUNTS:
---------------------------------------
1. 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.
1. 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.
1. 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
-24-
----
<PAGE>
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 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.
1. 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.
1. 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 Dat e.
1. 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:
-25-
----
<PAGE>
a) no Employer contributions may be made at any time when their
allocations would be precluded by Section 415 of the Code;
a) investment gains and losses and other income are not
allocated to the suspense Account; and
a) 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.
1. 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.
A. VESTING OF PARTICIPANTS' ACCOUNTS:
---------------------------------
1. 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.
1. 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:
-26-
----
<PAGE>
<TABLE>
<CAPTION>
Percentage of Account
Years of Service Which Is Vested
---------------- ---------------------
<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>
A. 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.
A. 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.
A. 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.
A. EFFECT OF CERTAIN DISTRIBUTIONS: The provisions of this section shall
-------------------------------
not apply to any Participant contributions (including salary reductions) or
rollover contributions.
1. 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
-27-
----
<PAGE>
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.
1. 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.
-28-
----
<PAGE>
I. ARTICLE
RETIREMENT DATE--DESIGNATION OF BENEFICIARY
-------------------------------------------
A. 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.
A. 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.
A. 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,
-29-
----
<PAGE>
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 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.
-30-
----
<PAGE>
I. ARTICLE
DISTRIBUTION FROM TRUST FUND
----------------------------
A. 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:
1. a Participant shall retain the right to receive distribution of his
Account as determined under section 5.1;
1. 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
1. 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.
A. DISTRIBUTION OF ACCOUNTS:
------------------------
1. 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.
1. 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.
1. Distribution Upon Total Disability: If a Participant's Account
----------------------------------
becomes distributable upon his termination of employment with the Employer
because of
-31-
----
<PAGE>
such Participant's Total 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.
1. 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.
1. 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.
A. 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
-32-
----
<PAGE>
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 Qualifying Employer Securities plus
any other amounts that he forfeited, if the Participant repays the distributed
amount pursuant to section 5.6.
A. ASSIGNMENT OF BENEFITS:
----------------------
1. 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.
1. 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:
a) 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;
a) 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;
a) clearly state the number of payments or period to which
the order applies;
a) identify each Plan to which the order applies;
-33-
----
<PAGE>
a) not require the Plan to provide any type or form of
benefits, or any option, not otherwise provided under the Plan;
a) not require the Plan to provide increased benefits
(determined on the basis of actuarial value); and
a) 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.
1. Definitions:
-----------
a) "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.
a) "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.
A. 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:
-34-
----
<PAGE>
1. Before Death: The entire Account of each Participant will be
------------
distributed to him not later than the required beginning date.
1. 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 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.
1. 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.
1. Designated Beneficiary: Designated Beneficiary means any individual
----------------------
designated as a Beneficiary by the Participant.
1. 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).
1. 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):
a) 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.
a) 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.
a) General Power Of Appointment Trust As Beneficiary: If
-------------------------------------------------
the Participant designates as his Beneficiary a trust over which his
spouse
-35-
----
<PAGE>
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.
a) 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.
-36-
----
<PAGE>
A. WITHDRAWALS:
-----------
[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
-37-
----
<PAGE>
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 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
-38-
----
<PAGE>
will be determined pursuant to Code Section 414(b) and the regulations
thereunder.
-39-
----
<PAGE>
A. 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, 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.
-40-
----
<PAGE>
[4] A "direct rollover" is a payment by the Plan to the eligible
retirement Plan specified by the distributee.
I. ARTICLE
FIDUCIARY OBLIGATIONS
---------------------
A. 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.
A. 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.
A. LIABILITY OF FIDUCIARIES:
------------------------
1. 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.
1. 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
-41-
----
<PAGE>
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.
2. 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].
1. 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.
1. 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.
A. 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.
A. 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
-42-
----
<PAGE>
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.
A. COMPENSATION AND EXPENSES OF FIDUCIARIES:
----------------------------------------
1. 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.
1. 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.
1. 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.
1. 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.
A. SERVICE BY FIDUCIARIES AND DISQUALIFIED PERSONS: Nothing in this plan
-----------------------------------------------
shall prohibit anyone from serving as a Fiduciary in addition to being
-43-
----
<PAGE>
an officer, Employee, agent, or other representative of a disqualified person as
defined in the Code.
A. 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.
II. ARTICLE
PLAN ADMINISTRATOR AND PLAN COMMITTEE
-------------------------------------
A. 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.
A. 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.
A. 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
-44-
----
<PAGE>
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.
A. 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.
A. DUTIES AND POWERS OF PLAN ADMINISTRATOR--REPORTING AND DISCLOSURE:
-----------------------------------------------------------------
1. 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:
a) summary plan description;
a) description of modifications and changes;
a) annual report;
a) terminal and supplementary reports;
a) registration statement; and
a) any other return, report, or document required by law.
-45-
----
<PAGE>
1. 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 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.
1. 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.
1. 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.
A. 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
-46-
----
<PAGE>
pursuant to this Plan. All notices, directions, information, and other
communications from the Plan Committee shall be in writing.
A. 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.
A. DUTIES AND POWERS OF PLAN COMMITTEE--CLAIMS PROCEDURE:
-----------------------------------------------------
1. 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.
1. 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:
a) the specific reason or reasons for the denial;
a) specific reference to pertinent Plan provisions on
which the denial is based ;
-47-
----
<PAGE>
a) 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
a) an explanation of the Plan's claim review procedure.
1. 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.
1. 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 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.
1. Legal Remedy: After exhaustion of the claims procedure as provided
------------
under this Plan, nothing shall prevent any person from pursuing any other
legal remedy.
A. 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
-48-
----
<PAGE>
communicate such information to the Trustee so that investment policy can be
coordinated appropriately with Plan needs.
A. 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:
1. the person is excepted from the bonding requirement by law, or
1. the Secretary of Labor exempts the Plan from the bonding requirements.
The bonds shall conform to the requirements of law.
A. 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:
1. shall be in writing;
1. 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
1. 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.
-49-
----
<PAGE>
A. 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.
-50-
----
<PAGE>
I. ARTICLE
POWERS AND DUTIES OF THE TRUSTEE
--------------------------------
A. INVESTMENT OF TRUST FUND:
------------------------
1. 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.
1. 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.
1. 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
-51-
----
<PAGE>
circumstances it is clearly prudent not to do so. The Trustee 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.
A. 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:
1. 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;
1. 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;
1. 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;
1. 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;
1. 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
-52-
----
<PAGE>
1. 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.
A. 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.
A. 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.
A. 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
-53-
----
<PAGE>
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.
A. 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.
-54-
----
<PAGE>
II. ARTICLE
CONTINUANCE, TERMINATION, AND AMENDMENT OF PLAN AND TRUST
---------------------------------------------------------
A. 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.
A. 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.
A. 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.
A. 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
-55-
----
<PAGE>
Plan to any other Plan if each Participant in the Plan (if the Plan then
terminated) would receive a benefit immediately after the merger, 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.
A. 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.
A. 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.
-56-
----
<PAGE>
II. ARTICLE
MISCELLANEOUS
-------------
A. 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.
A. 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.
A. 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.
A. 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.
A. 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.
A. 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.
-57-
----
<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.
TCI SATELLITE
ENTERTAINMENT, INC.
Plan Administrator
Date:
COLORADO NATIONAL BANK,
N.A.
By:
Date:
-58-
----
<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 11
ARTICLE IV CONTRIBUTIONS 13
ARTICLE V DETERMINATION AND VESTING OF PARTICIPANTS'
ACCOUNTS 22
ARTICLE VI RETIREMENT DATE--DESIGNATION OF BENEFICIARY 27
ARTICLE VII DISTRIBUTION FROM TRUST FUND 29
ARTICLE VIII FIDUCIARY OBLIGATIONS 37
ARTICLE IX PLAN ADMINISTRATOR AND PLAN COMMITTEE 40
ARTICLE X POWERS AND DUTIES OF THE TRUSTEE 46
ARTICLE XI CONTINUANCE, TERMINATION, AND AMENDMENT OF
PLAN
AND TRUST 50
ARTICLE XII MISCELLANEOUS 52
</TABLE>
-59-
----
<PAGE>
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
-------------------------
This AGREEMENT is made and entered into this 4th day of December,
---
1996, by and between Tele-Communications, Inc., a Delaware corporation (the
"Company"), and Gary S. Howard ("Indemnitee").
WHEREAS it is essential to the Company and its subsidiaries to retain
and attract as officers the most capable persons available;
WHEREAS Indemnitee is an officer of TCI Communications, Inc. ("TCIC")
and an officer and director of TCI Digital Satellite Entertainment, Inc.
("Digital") and TCI Satellite Entertainment, Inc. ("Satellite"), each of which
is a subsidiary of the Company;
WHEREAS both the Company and Indemnitee recognize the increased risk
of litigation and other claims routinely being asserted against directors of
public companies in today's environment, and the attendant costs of defending
even wholly frivolous claims;
WHEREAS it has become increasingly difficult to obtain insurance
against the risk of personal liability of directors on terms providing
reasonable protection at reasonable cost;
WHEREAS the Bylaws of the Company, TCIC, Digital and Satellite provide
certain indemnification rights to officers and directors of such corporations,
and the officers and directors of such corporations have been otherwise assured
indemnification, as provided by Delaware law;
WHEREAS in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's service to the
Company and its subsidiaries in an effective manner, the increasing difficulty
in obtaining and maintaining satisfactory insurance coverage, and Indemnitee's
reliance on assurances of indemnification, the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses (whether
partial or complete) to Indemnitee to the fullest extent permitted by law and as
set forth in this Agreement, and, to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors' and officers'
liability insurance policies; and
WHEREAS Indemnitee has agreed to serve as an officer and/or director
of the Company and/or one or more subsidiaries of the Company in reliance on the
protections and benefits afforded to him under and in accordance with this
Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and Indemnitee's agreement to serve as an
officer and/or director of the Company and/or one or more subsidiaries of the
Company, the parties hereto agree as follows:
1. Certain Definitions: As used in this Agreement, the following
-------------------
terms shall have the corresponding meanings:
(a) A "Change in Control" shall be deemed to have occurred if (i)
-----------------
any "person" (as such term is used in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), other than any
Specified Person (as defined below), is or becomes a "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 total voting
power represented by the Company's then outstanding Voting Securities,
without the prior approval of a majority of the Board of Directors of the
Company (the "Board"), or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the whole Board
and any new director whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a majority
thereof, or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation approved in advance of such stockholder vote by a
majority of the Board, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company (in one transaction or a series of transactions)
of all or substantially all the Company's assets. For purposes of this
definition, "Specified Person" means each of (1) the Chairman of the Board
of the Company as of the date of this Agreement, (2) the President of the
Company as of the date of this Agreement, (3) the spouse, siblings, lineal
descendants, estates and heirs of such Chairman of the Board or such
President, or any trust or other investment vehicle for the primary benefit
of such Chairman of the Board or such President and/or the spouse,
siblings, lineal descendants and/or heirs of any such person, (4) Kearns-
Tribune Corporation, a Delaware corporation or any successor thereto by
merger or consolidation and (5) the trustee under the qualified employee
stock purchase plan of the Company or any successor plan. The trustee
under the qualified employee stock purchase plan of the Company or any
successor plan shall be deemed to have beneficial ownership of all shares
of common stock of the Company held under the plan, whether or not
allocated to or vested in participants' accounts.
(b) "Claim" means any threatened, pending or completed action,
-----
suit or proceeding, whether instituted by or in the right of the Company or
by any other party, or any inquiry or investigation that Indemnitee in good
faith believes might lead to the institution of any such action, suit or
proceeding, whether civil (including without limitation intentional and
unintentional tort claims), criminal, administrative, investigative or
other.
2
<PAGE>
(c) "Expenses" means and includes attorneys' fees, disbursements
--------
and other charges and all other costs, expenses and obligations whatsoever
paid or incurred in connection with investigating, defending, being a
witness in, participating in (including on appeal), or preparing for any
Claim relating to or arising in whole or in part out of any Indemnifiable
Event.
(d) "Indemnifiable Event" means any event or occurrence related
-------------------
to or arising out of the fact that Indemnitee is or was an officer,
director, employee, agent or fiduciary of the Company or any subsidiary of
the Company, or is or was serving at the request of the Company as an
officer, director, employee, agent, fiduciary or trustee of any other
corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise, or any event or occurrence related to or arising out of
anything done or not done by Indemnitee in any such capacity.
(e) "Independent Legal Counsel" means an attorney or firm of
-------------------------
attorneys, selected in accordance with the provisions of Section 3, who
shall not have otherwise performed services for the Company or Indemnitee
within the last five years (other than with respect to matters concerning
the rights of Indemnitee under this Agreement, or of other indemnitees
under similar indemnification agreements or under the Company's Bylaws).
(f) "Reviewing Party" means an appropriate person or body
---------------
consisting of a member or members of the Company's Board of Directors or
any other independent and impartial person or body appointed by the
Company's Board of Directors who is not a party to the particular Claim for
which Indemnitee is seeking indemnification, or Independent Legal Counsel,
as determined pursuant to Section 2(b).
(g) "Voting Securities" means securities of the Company that vote
-----------------
generally in the election of directors.
2. Basic Indemnification Arrangement.
---------------------------------
(a) If Indemnitee was, is or becomes a party to or witness or other
participant in, or is threatened to be made a party to or witness or other
participant in, any Claim relating to or arising in whole or in part out of an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty days after written demand is presented to the Company, against any and
all Expenses, judgments, fines, penalties and amounts paid or payable in
settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid or payable in settlement) of such Claim. If so
requested by Indemnitee, the Company shall advance (within two business days
after such request) any and all Expenses to Indemnitee (an "Expense Advance").
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under Section 2(a) shall be subject to the condition that the Reviewing Party
shall not have
3
<PAGE>
determined, which determination shall, in all cases, be in a written opinion
specifying in reasonable detail the reasons therefor, that Indemnitee would not
be permitted to be indemnified under applicable law, and (ii) the obligation of
the Company to make an Expense Advance pursuant to Section 2(a) shall be subject
to the condition that, if, when and to the extent that the Reviewing Party
determines by rendering such written opinion that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
-------- -------
Indemnitee pursues legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, (A) any determination made by the Reviewing Party that Indemnitee would not
be permitted to be indemnified under applicable law shall not be binding, (B)
the obligations of the Company to indemnify Indemnitee and to make Expense
Advances pursuant to Section 2(a) shall continue in full force and effect, and
(C) Indemnitee shall not be required to reimburse the Company for any Expense
Advance, in each case until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has not been a Change in Control, the Reviewing Party shall
be selected by the Board of Directors, and if there has been a Change in
Control, the Reviewing Party shall be the Independent Legal Counsel referred to
in Section 3 hereof. If there has been no determination by the Reviewing Party
or if the Reviewing Party determines that Indemnitee substantively would not be
permitted to be indemnified in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation in any court in the State of
Delaware or the State of Colorado having subject matter jurisdiction thereof and
in which venue is proper seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect thereof,
including the legal or factual bases therefor, and the Company hereby consents
to service of process and agrees to appear in any such proceeding and hereby
waives any objection that venue in any court is not proper. Any determination
by the Reviewing Party otherwise shall be conclusive and binding on the Company
and Indemnitee.
3. Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company then with respect to all matters thereafter arising
concerning the rights of Indemnitee to indemnity payments and Expense Advances
under this Agreement or any other agreement or Company Bylaw now or hereafter in
effect relating to Claims arising in whole or in part out of Indemnifiable
Events, the Company shall seek and obtain legal advice with respect thereto from
Independent Legal Counsel selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld or delayed). Such
Independent Legal Counsel, among other things, shall be responsible for making
any determination to be made by the Reviewing Party pursuant to Section 2(b) and
shall render its written opinion to the Company and Indemnitee as to whether and
to what extent Indemnitee would be permitted to be indemnified under applicable
law. The Company agrees to pay the reasonable fees, disbursements and other
charges of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees,
disbursements and other charges), claims, liabilities and damages arising out of
or relating to this Agreement or its engagement pursuant hereto.
4. Indemnification for Additional Expenses. The Company shall
---------------------------------------
indemnify Indemnitee against (and, if requested by Indemnitee, shall advance to
Indemnitee within two
4
<PAGE>
business days after any such request) any and all Expenses incurred by
Indemnitee in connection with any action brought by Indemnitee for (i)
indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company Bylaw now or hereafter in effect
relating to Claims arising in whole or in part out of Indemnifiable Events or
(ii) recovery under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
5. Partial Indemnity. If Indemnitee is entitled under any provision
-----------------
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim,
but not, however, for the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
6. Burden of Proof. In connection with any determination by the
---------------
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
7. No Presumptions. For purposes of this Agreement:
---------------
(a) the termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard
of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law; and
(b) neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor, except as expressly provided in
Section 2(b) hereof, an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such
belief, shall be a defense to any claim by Indemnitee that he is entitled
to indemnification, or create a presumption that Indemnitee has not met any
particular standard of conduct or did not have any particular belief, in
any legal proceeding considering whether Indemnitee should be indemnified
under applicable law.
8. Nonexclusivity; Subsequent Change in Law. The rights of
----------------------------------------
Indemnitee hereunder shall be in addition to any other rights Indemnitee may
have from time to time under the Company's Bylaws or the General Corporation Law
of the State of Delaware or otherwise, and nothing contained in this Agreement
shall derogate or limit Indemnitee's rights to indemnification as provided under
the Company's Bylaws or applicable law. To the extent that a change in the
General Corporation Law of the State of Delaware (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under the Company's Bylaws
5
<PAGE>
and this Agreement, it is the intent of the parties hereto that Indemnitee shall
enjoy by this Agreement the greater benefits so afforded by such change.
9. Liability Insurance. To the extent the Company maintains an
-------------------
insurance policy or policies providing directors' and officers' liability
insurance that permits coverage of persons who are or were officers or directors
of TCIC, Digital and/or Satellite, Indemnitee shall be covered by such policy or
policies, in accordance with its or their terms, to the maximum extent of the
coverage available for any director or officer of TCIC, Digital and/or
Satellite.
10. Amendments; Waiver. No supplement, modification or amendment of
------------------
this Agreement shall be binding unless executed in writing by both the Company
and Indemnitee. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
11. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all rights of
recovery of Indemnitee relating thereto, and Indemnitee shall execute all papers
required and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the Company
effectively to bring suit to enforce such rights; provided however, that the
Company shall not enforce any of such rights in any manner or at any time as
would prevent or delay payment to Indemnitee of all amounts owing to him.
12. No Duplication of Payments. The Company shall not be liable
--------------------------
under this Agreement to make any payment in connection with any Claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, Bylaw or otherwise) of the amounts
otherwise indemnifiable hereunder.
13. Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or substantially all of the business or assets
of the Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in full force and effect in
perpetuity, unless and until terminated by written instrument signed by both the
Company and Indemnitee, regardless of whether Indemnitee continues to serve as
an officer, director, employee, agent or fiduciary of the Company or any of its
subsidiaries or as an officer, director, employee, agent, fiduciary or trustee
of any other enterprise at the Company's request.
14. Severability. The provisions of this Agreement shall be
------------
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) is held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable in any
respect, and the validity and enforceability of any such provision in every
other respect and of the remaining provisions hereof shall not be in any way
impaired and shall remain enforceable to the fullest extent permitted by law.
6
<PAGE>
15. Effective Date. This Agreement shall be effective as of the date
--------------
hereof and shall apply to any claim for indemnification by the Indemnitee on or
after such date, whether such claim for indemnification relates to or arises out
of, in whole or in part, events or circumstances occurring or existing before,
on, or after the date hereof.
16. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state, without giving effect to the
principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
-------------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
/s/ Gary S. Howard
-------------------------------------
Gary S. Howard
7
<PAGE>
Exhibit 10.6
------------
TCI SATELLITE ENTERTAINMENT, INC.
Option to Purchase Series A Common Stock
THIS AGREEMENT ("Agreement") is made as of the 4th day of December, 1996,
---
by and between TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), and Gary S. Howard ("Grantee").
Prior the date hereof the Company has been a subsidiary of Tele-
Communications, Inc., a Delaware corporation ("TCI"). The Company has adopted
the TCI Satellite Entertainment, Inc. 1996 Stock Incentive Plan (the "Plan"), a
copy of which is attached hereto as Exhibit A, for the benefit of eligible
employees of the Company and its Subsidiaries. The Plan is administered by the
Compensation Committee (the "Committee") of the Board of Directors of the
Company (the "Board"), and is an integral part of this Agreement.
Pursuant to the Plan, the Committee has determined that it is in the best
interests of the Company to grant Grantee the rights and option set forth herein
in order to provide Grantee with additional remuneration for services rendered
to the Company and its predecessors, to encourage Grantee to remain in the
employ of the Company, and to provide additional incentive to Grantee by
increasing Grantee's proprietary interest in the continued success and progress
of the Company.
Certain capitalized terms that are used herein are defined in paragraph 18
hereof. Capitalized terms that are used but not defined herein shall have the
meaning ascribed thereto in the Plan.
Accordingly, the Company and Grantee hereby agree as follows:
1. Grant of Option; Option Term. The Company hereby grants to Grantee the
right and option (the "Option"), on the terms and subject to the conditions set
forth herein, to purchase the Option Shares from the Company for a price per
Option Share equal to the Option Price. Subject to paragraph 2 hereof, the
Option shall be exercisable in whole at any time and in part from time to time
during the period commencing on the date hereof and expiring at 5:00 p.m.,
Denver, Colorado time ("Close of Business") on the tenth anniversary of the
Determination Date, or such earlier date as the Option may be terminated
pursuant to paragraph 6 or paragraph 9(b) hereof (the "Option Term").
2. Conditions of Exercise; Vesting. Except as otherwise provided in the last
sentence of this paragraph 2 or in paragraph 9(b), the Option shall not be
exercisable until the first anniversary of the Determination Date, and, from the
first anniversary of the Determination Date to the fifth anniversary of the
Determination Date, the Option shall be exercisable only to the extent the
Option Shares have become available for purchase in accordance with the
following schedule:
<PAGE>
Anniversary of Percentage of Option Shares
Determination Date Available for Purchase
------------------ ---------------------------
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
Notwithstanding the foregoing, all Option Shares shall become available for
purchase if during the Option Term (i) Grantee's employment with the Company and
its Subsidiaries shall terminate by reason of (x) termination by the Company or
any Subsidiary without Cause, (y) termination by Grantee for Good Reason or (z)
Disability, (ii) Grantee's employment shall terminate pursuant to provisions of
a written employment agreement, if any, between Grantee and the Company or any
Subsidiary which expressly permits Grantee to terminate such employment upon the
occurrence of specified events (other than the giving of notice and passage of
time) or (iii) Grantee dies while employed by the Company or a Subsidiary.
3. Manner of Exercise. The Option may be exercised only by delivering to the
Company all of the following and shall be considered exercised (as to the number
of shares specified in the notice referred to in clause (a) below) on the later
of (i) the first business day on which the Company has received all of the
following deliveries and (ii) the date of exercise designated in the written
notice referred to in clause (a) below (or if such date is not a business day,
the first business day thereafter):
(a) written notice, in such form as the Committee may reasonably require,
stating that Grantee is exercising the Option and setting forth the date of
such exercise, the number of Option Shares to be purchased, the aggregate
purchase price to be paid for such Option Shares in accordance with this
Agreement and the manner in which such payment is being made;
(b) payment of the Option Price for each Option Share to be purchased upon
such exercise, in cash or in such other form or combination of forms of
payment contemplated by paragraph 10 hereof, together with payment of, or
other provision acceptable to the Committee for, any and all withholding taxes
required to be withheld by the Company upon such exercise, in accordance with
paragraph 4 hereof; and
(c) any other documentation that the Committee may reasonably require
(including, without limitation, proof satisfactory to the Committee that the
Option is then exercisable for the number of Option Shares set forth in such
notice).
4. Withholding for Taxes. It shall be a condition precedent to any exercise of
the Option that Grantee make provision acceptable to the Company for the payment
or withholding of
2
<PAGE>
any and all federal, state and local taxes required to be withheld by the
Company to satisfy the tax liability associated with such exercise, as
determined by the Board.
5. Delivery by the Company. As soon as practicable after receipt of all the
items required by paragraph 3 hereof with respect to any exercise of the Option,
and subject to the withholding referred to in paragraph 4 hereof, the Company
shall deliver or cause to be delivered to Grantee certificates issued in
Grantee's name for the number of whole Option Shares purchased upon such
exercise. If delivery is by mail, delivery of Option Shares shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to Grantee, and
any cash payment (for fractional shares or otherwise) shall be deemed effected
when a Company check, payable to Grantee and in an amount equal to the amount of
the cash payment, shall have been deposited in the United States mail, addressed
to Grantee, in each case in accordance with Section 12.
6. Early Termination of Option. Unless otherwise determined by the Committee
in its sole discretion, the Option shall terminate, prior to the expiration of
the ten-year period provided for in paragraph 1 hereof, as follows:
(a) If Grantee's employment with the Company and its Subsidiaries
terminates other than (i) by Grantee with Good Reason, (ii) by reason of
Grantee's death or Disability, (iii) with the written consent of the Company
or the applicable Subsidiary, (iv) without such consent if such termination is
pursuant to provisions of a written employment agreement, if any, between
Grantee and the Company or the applicable Subsidiary which expressly permits
Grantee to terminate such employment upon the occurrence of specified events
(other than the giving of notice and passage of time), or (v) by the Company
with or without Cause, then the Option shall terminate at the Close of
Business on the first business day following the expiration of the 90-day
period beginning on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by the Company or one of its
Subsidiaries, or prior to the expiration of a relevant period of time during
which the Option remains exercisable as provided in this paragraph 6, the
Option shall terminate at the Close of Business on the first business day
following the expiration of the one-year period beginning on the date of
death;
(c) If Grantee's employment with the Company and its Subsidiaries
terminates by reason of Disability, then the Option shall terminate at the
Close of Business on the first business day following the expiration of the
one-year period beginning on the date of termination of Grantee's employment;
(d) If Grantee's employment with the Company and its Subsidiaries is
terminated by the Company or any Subsidiary for Cause, then the Option shall
terminate immediately upon such termination of Grantee's employment; and
3
<PAGE>
(e) If Grantee terminates his employment with the Company and its
Subsidiaries (i) with Good Reason, (ii) with the written consent of the
Company or the applicable Subsidiary or (iii) pursuant to provisions of a
written employment agreement, if any, between Grantee and the Company or
the applicable Subsidiary which expressly permits Grantee to terminate such
employment upon the occurrence of specified events (other than the giving
of notice and passage of time), or if the Company terminates Grantee's
employment with the Company and its Subsidiaries without Cause, then the
Option Term shall not terminate prior to the end of the ten-year period
provided for in paragraph 1 hereof, except as otherwise provided for in
paragraph 6(b) or 9(b).
In any event in which the Option remains exercisable for a period of time
following the date of termination of Grantee's employment as provided above, the
Option may be exercised during such period of time only to the extent it was
exercisable as provided in paragraph 2 or paragraph 9(b) on such date of
termination of Grantee's employment. A change of employment is not a
termination of employment within the meaning of this paragraph 6, provided that,
--------
after giving effect to such change, Grantee continues to be an employee of the
Company or any Subsidiary. Anything contained herein to the contrary
notwithstanding, the Option shall in any event terminate upon the expiration of
the ten-year period provided for in paragraph 1 hereof, if not theretofore
terminated.
7. Nontransferability of Option. During Grantee's lifetime, the Option is
not and shall not be transferable (voluntarily or involuntarily) other than
pursuant to a Domestic Relations Order and, except as otherwise required
pursuant to a Domestic Relations Order, is exercisable only by Grantee or
Grantee's court appointed legal representative. Grantee may designate a
beneficiary or beneficiaries to whom the Option shall pass upon Grantee's death
and may change such designation from time to time by filing a written
designation of beneficiary or beneficiaries with the Company on the form annexed
hereto as Exhibit B or such other form as may be prescribed by the Committee,
provided that no such designation shall be effective unless so filed prior to
the death of Grantee. If no such designation is made or if the designated
beneficiary does not survive Grantee's death, the Option shall pass by will or
the laws of descent and distribution. Following Grantee's death, the Option, if
otherwise exercisable, may be exercised by the person to whom the Option passes
according to the foregoing, and such person shall be deemed to be Grantee for
purposes of any applicable provisions of this Agreement.
8. No Shareholder Rights; No Guarantee of Employment. (a) Grantee shall
not be deemed for any purpose to be, or to have any of the rights of, a
stockholder of the Company with respect to any Option Shares unless and until
such Option Shares have been issued to Grantee by the Company. The existence of
this Agreement or the Option shall not affect in any way the right or power of
the Company or its stockholders to accomplish any corporate act, including,
without limitation, the acts referred to in Section 11.17 of the Plan.
(b) Nothing contained in this Agreement, and no action by the Company
or the Committee with respect hereto, shall confer or be construed to confer on
Grantee any right to continue in the employ of the Company or any Subsidiary or
interfere in any way with the right of
4
<PAGE>
the Company or any employing Subsidiary to terminate Grantee's employment at any
time, with or without Cause, except as otherwise expressly provided in any
written employment agreement between the Company or any Subsidiary and Grantee.
9. Adjustments. (a) The Option shall be subject to adjustment (including,
without limitation, as to the number of Option Shares and the Option Price per
share) in the sole discretion of the Committee and in such manner as the
Committee may deem equitable and appropriate in connection with the occurrence
of any of the events described in Section 4.2 of the Plan following the
Determination Date; provided, however, that adjustments shall be made to the
-------- -------
Option if, and in the same manner that, adjustments are being made in connection
with the occurrence of any such event to any other option granted under the
Plan. Adjustments to the Option Price shall be made on a per share basis so that
the aggregate remaining Option Price is unchanged.
(b) In the event of any Approved Transaction, Board Change or Control
Purchase, the Option shall become exercisable in full without regard to
paragraph 2; provided, however, that to the extent not theretofore exercised the
-------- -------
Option shall terminate upon the first to occur of the consummation of the
Approved Transaction or the expiration or early termination of the Option Term.
Notwithstanding the foregoing, the Committee may, in its discretion, determine
that the Option will not become exercisable on an accelerated basis 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 the Award
evidenced by this Agreement or to assume this Agreement and the Award evidenced
hereby and in order to make such new or assumed Award, as nearly as may be
practicable, equivalent to the Award evidenced by this Agreement as then in
effect (but before giving effect to any acceleration of the exercisability
hereof unless otherwise determined by the Committee), taking into account, to
the extent applicable, the kind and amount of securities, cash or other assets
into or for which the Company Series A Common Stock may be changed, converted or
exchanged in connection with the Approved Transaction.
(c) If the Distribution does not occur prior to the time that the Option
becomes exercisable, the Option Price and Option Shares shall be appropriately
adjusted so that the Option shall be exercisable, in the aggregate, for 1% of
the issued and outstanding common equity of the Company (after giving effect to
the transactions contemplated by the Reorganization Agreement other than the
Distribution), for an aggregate purchase price equal to 1% of TCI's Net
Investment as of the date the Option first becomes exercisable, but excluding
any portion of TCI's Net Investment that as of such date is represented by a
promissory note or other evidence of indebtedness from the Company (or any of
its subsidiaries) to TCI (or any subsidiary of TCI).
10. Manner of Payment. The method or methods of payment of the Option
Price for the shares of Company Series A Common Stock to be purchased upon
exercise of the Option and any amounts required by paragraph 4 shall consist of
(i) cash, (ii) check, (iii) promissory note in such form as shall be acceptable
to the Committee (except that this method of payment will not be
5
<PAGE>
available for amounts required by paragraph 4), (iv) whole shares of Company
Series A Common Stock and/or Company Series B Common Stock already owned by
Grantee, (v) the withholding of shares of Company Series A Common Stock issuable
upon 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, or (vii) any combination of the foregoing methods of payment, as
Grantee may elect and shall designate in the exercise notice provided for in
paragraph 3 hereof, subject, however, to any restrictions or limitations of
applicable law or of any agreement evidencing indebtedness of the Company for
borrowed money. Any shares of capital stock delivered or withheld in payment of
any amount due hereunder shall be valued for such purposes at the Fair Market
Value of such shares on the applicable date of exercise of the Option.
11. Restrictions Imposed by Law. Grantee acknowledges that neither the
Option nor any of the Option Shares has been registered under the Securities Act
of 1933 and that the Option Shares may not be transferred in the absence of such
registration or the availability of an exemption therefrom under such Act or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder. Neither the Company nor any other person shall have any obligation
to register any Option Shares, or any transfer of Option Shares, under the
Securities Act of 1933, the Securities Exchange Act of 1934 or any other state
or federal securities law. Certificates representing Option Shares purchased by
Grantee hereunder may bear such restrictive and other legends as counsel for the
Company shall require in order to insure compliance with any such law or any
rule or regulation promulgated thereunder. Without limiting the generality of
Section 11.9 of the Plan, Grantee agrees that Grantee will not exercise the
Option (and that the Company shall not be obligated to deliver any Option Shares
upon any exercise of the Option) if counsel for the Company determines that such
exercise or delivery would violate any applicable law or any rule or regulation
of any governmental authority, or any rule or regulation of, or agreement of the
Company with, any securities exchange or association upon which the Company
Series A Common Stock is listed or quoted. The Company shall in no event be
obligated to take any affirmative action in order to cause the exercise of the
Option or the resulting delivery of the shares of Company Series A Common Stock
to comply with any such law, rule, regulation or agreement.
12. Notice. Unless the Company notifies Grantee in writing of a change of
address, any notice or other communication to the Company with respect to this
Agreement shall be in writing and shall be delivered personally or sent by first
class mail, postage prepaid and addressed as follows
TCI Satellite Entertainment, Inc.
8085 South Chester, Suite 300
Englewood, Colorado 80112
Attention: General Counsel
6
<PAGE>
Any notice or other communication by the Company to Grantee with respect to this
Agreement shall be in writing and shall be delivered personally, or shall be
sent by first class mail, postage prepaid, to Grantee's address as listed in the
records of the Company on the Determination Date, unless the Company has
received written notification from Grantee of a change of address. Except as
otherwise provided in paragraph 5, all notices and other communications
hereunder, including without limitation any notice of exercise, shall be
effective when actually received.
13. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware.
14. Construction. References in this Agreement to "this Agreement" and the
words "herein," "hereof," "hereunder" and similar terms refer to this Agreement,
including all Exhibits, as a whole, unless the context otherwise requires. The
headings of the paragraphs of this Agreement have been included for convenience
of reference only, are not to be considered a part hereof and shall not modify
or restrict any of the terms or provisions hereof. This Agreement shall be
construed in accordance with the Plan and the administrative interpretations
adopted by the Committee thereunder. All decisions of the Committee upon
questions regarding the Plan or this Agreement shall be conclusive.
15. Duplicate Originals. The Company and Grantee may sign any number of
copies of this Agreement. Each signed copy shall be an original, but all of
them together represent the same agreement.
16. Entire Agreement. This Agreement is in satisfaction of and in lieu of
all prior discussions and agreements, oral or written, between or among TCI, the
Company and Grantee, or any of them, with respect to the subject matter hereof.
Each of the Company and Grantee hereby declares and represents that no promise
or agreement not herein expressed has been made and that this Agreement
(including the Plan, which is an integral part hereof) contains the entire
agreement between and among the parties hereto with respect to the Option and
supersedes and makes null and void any prior agreements between or among TCI,
the Company and Grantee, or any of them, regarding the Option.
17. Amendment. This Agreement may be amended, modified or supplemented by
the Company, without the consent of the Grantee, (i) to cure any ambiguity or to
correct or supplement any provision herein which may be defective or
inconsistent with any other provision herein or (ii) to make such other changes
as the Company, upon advice of counsel, determines are necessary or advisable
because of the adoption or promulgation of, or change in or of the
interpretation of, any law or governmental rule or regulation, including,
without limitation, any applicable federal or state securities laws. Except as
provided above, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
18. Definitions. As used in this Agreement, the following terms have the
corresponding meanings:
7
<PAGE>
"Aggregate Option Price" means an amount equal to one percent (1%) of TCI's
Net Investment as of the first to occur of the date of the Distribution and the
date on which the Option first becomes exercisable, but excluding any portion of
TCI's Net Investment that as of such date is represented by a promissory note or
other evidence of indebtedness from the Company (or any of its subsidiaries) to
TCI (or any subsidiary of TCI).
"Cause" has the meaning ascribed thereto in any employment agreement
between Grantee and the Company or any of its Subsidiaries, and in the absence
of any such employment agreement means 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
incapacity, or negligence in the performance of any of one's material duties or
responsibilities that continues after written notice from the Company, as
determined conclusively by the Committee.
"Company Series A Common Stock" means the Series A Common Stock, $1.00 par
value per share, of the Company.
"Company Series B Common Stock" means the Series B Common Stock, $1.00 par
value per share, of the Company.
"Determination Date" means February 1, 1996.
"Distribution" means the proposed distribution by TCI, in a transaction
intended to be a tax-free spin-off, of 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.
"Good Reason" means the occurrence of any of the following prior to any
termination of employment by Grantee:
(i) any reduction in Grantee's annual rate of salary;
(ii) a failure by the Company to continue in effect any employee benefit
plan in which Grantee was participating, or the taking of any action
by the Company that would adversely affect Grantee's participation
in, or materially reduce Grantee's benefits under, any such employee
benefit plan, unless such failure or such taking of any action
adversely affects the senior members of the corporate management of
the Company generally; or
(iii) the assignment to Grantee of duties and responsibilities that are
materially more oppressive or onerous than those attendant to
Grantee's position on the Determination Date.
"Option Price" means an amount per Option Share equal to the quotient of
(i) the Aggregate Option Price divided by (ii) the total number of Option Shares
on the date of the Distribution, immediately after giving effect thereto, as
such amount per Option Share may be
8
<PAGE>
adjusted from time to time after the Distribution pursuant to paragraph 9
hereof. Within five business days after the date of the Distribution, the
Committee shall give Grantee written notice of the Option Price as of the date
of the Distribution, which notice shall be conclusive absent manifest error.
"Option Shares" means an aggregate number of shares of Company Series A
Common Stock equal to one percent (1%) of the total number of shares of Company
Series A Common Stock and Company Series B Common Stock issued and outstanding
on the date of the Distribution, immediately after giving effect thereto.
Within five business days after the date of the Distribution, the Committee
shall give Grantee written notice of the aggregate number of the Option Shares
as of the date of the Distribution, which notice shall be conclusive absent
manifest error.
"Other Options" means the options to purchase shares of Company Series A
Common Stock granted pursuant to those other Option Agreements dated as of the
date hereof between the Company and the grantees named therein, respectively.
"Reorganization Agreement" means the Reorganization Agreement to be entered
into by TCI, TCIC, the Company and certain other subsidiaries of TCI in
connection with the Distribution to 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.
"TCIC" means TCI Communications, Inc., a Delaware corporation.
"TCI's Net Investment" means, as of any relevant date, the cumulative
amount invested by TCI and its predecessor (including their respective
subsidiaries other than the Company and its subsidiaries) in the Company, its
subsidiaries and the respective predecessors of the Company and its subsidiaries
prior to and including such date, less the aggregate amount of all dividends and
distributions made by the Company, its subsidiaries and the respective
predecessors of the Company and its subsidiaries to TCI and its predecessor
(including their respective subsidiaries other than the Company and its
subsidiaries) prior to and including such date.
19. Rules by Committee. The rights of Grantee and obligations of the
Company hereunder shall be subject to such reasonable rules and regulations as
the Committee may adopt from time to time hereafter.
9
<PAGE>
IN WITNESS WHEREOF, the Company and Grantee have caused this Agreement to
be duly executed and delivered as of the date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Kenneth G. Carroll
---------------------------------
Name: Kenneth G. Carroll
Title: Senior Vice President and
Chief Financial Officer
/s/ Gary S. Howard
---------------------------------
Gary S. Howard
10
<PAGE>
Exhibit B to Agreement
dated as of December __,1996
TCI SATELLITE ENTERTAINMENT, INC.
Option to Purchase Common Stock
Designation of Beneficiary
I, ___________________________________________ (the "Grantee"), hereby
declare that upon my death __________________________________________ (the
Name
"Beneficiary") of
_____________________________________________________________________________,
Street Address City State Zip Code
who is my _________________________________________________, shall be entitled
Relationship to Grantee
to the Option and all other rights accorded Grantee by the above-referenced
grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant to
the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to Grantee's will or the laws of
descent and distribution.
All prior designations of beneficiary under the Agreement are hereby
revoked. This Designation of Beneficiary may only be revoked in writing, signed
by Grantee, and filed with Tele-Communications, Inc. and TCI Satellite
Entertainment, Inc., prior to Grantee's death.
_____________________________ _________________________________________
Date Grantee
<PAGE>
Exhibit 10.7
------------
TCI SATELLITE ENTERTAINMENT, INC.
Option to Purchase Series A Common Stock
THIS AGREEMENT ("Agreement") is made as of the 4th day of December, 1996,
---
by and between TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), and Larry E. Romrell ("Grantee").
Prior to the date hereof the Company has been a subsidiary of Tele-
Communications, Inc., a Delaware corporation ("TCI"), and a member of the TCI
Group, as defined in TCI's annual report on Form 10-K for the fiscal year ended
December 31, 1995. In consideration for services performed by Grantee for the
benefit of TCI and its Subsidiaries and affiliates, including, without
limitation, services for the benefit of the Company and its predecessors, and to
encourage Grantee to remain in the employ of TCI and its Subsidiaries, the Board
of Directors of TCI (the "TCI Board"), with the approval of the Compensation
Committee of the TCI Board (the "TCI Committee"), and the Board of Directors of
the Company ("Company Board") have determined to grant Grantee the rights and
option herein, on the terms and subject to the conditions set forth herein.
Capitalized terms used herein and not otherwise defined are defined in paragraph
18 hereof.
Accordingly, the Company and Grantee hereby agree as follows:
1. Grant of Option; Option Term. The Company hereby grants to Grantee the
right and option (the "Option"), on the terms and subject to the conditions set
forth herein, to purchase the Option Shares from the Company for a price per
Option Share equal to the Option Price. Subject to paragraph 2 hereof, the
Option shall be exercisable in whole at any time and in part from time to time
during the period commencing on the date hereof and expiring at 5:00 p.m.,
Denver, Colorado time ("Close of Business") on the tenth anniversary of the
Determination Date, or such earlier date as the Option may be terminated
pursuant to paragraph 6 hereof (the "Option Term").
2. Conditions of Exercise; Vesting. Except as otherwise provided in the
second to last sentence of this paragraph 2, the Option shall not be exercisable
until the first anniversary of the Determination Date, and, from the first
anniversary of the Determination Date to the fifth anniversary of the
Determination Date, the Option shall be exercisable only to the extent the
Option Shares have become available for purchase in accordance with the
following schedule:
<PAGE>
<TABLE>
<CAPTION>
Anniversary of Percentage of Option Shares
Determination Date Available for Purchase
- ------------------ -----------------------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
Notwithstanding the foregoing, all Option Shares shall become available for
purchase if during the Option Term (i) Grantee's employment with TCI and its
Subsidiaries shall terminate by reason of (x) termination by TCI or any
Subsidiary without Cause, (y) termination by Grantee for Good Reason or (z)
Disability, (ii) Grantee's employment shall terminate pursuant to provisions of
a written employment agreement, if any, between Grantee and TCI or any
Subsidiary which expressly permits Grantee to terminate such employment upon the
occurrence of specified events (other than the giving of notice and passage of
time) or (iii) Grantee dies while employed by TCI or a Subsidiary. Grantee
shall give the Company prompt written notice of any termination of Grantee's
employment with TCI and its Subsidiaries, and shall provide the Company with
such other information regarding the circumstances of such termination of
employment as the Company shall reasonably request, and shall cooperate with the
Company in good faith in connection with any reasonable investigation by the
Company relating to such termination of employment.
3. Manner of Exercise. The Option may be exercised only by delivering to
the Company all of the following and shall be considered exercised (as to the
number of shares specified in the notice referred to in clause (a) below) on the
later of (i) the first business day on which the Company has received all of the
following deliveries and (ii) the date of exercise designated in the written
notice referred to in clause (a) below (or if such date is not a business day,
the first business day thereafter):
(a) written notice, in such form as the Company Board may reasonably
require, stating that Grantee is exercising the Option and setting forth
the date of such exercise, the number of Option Shares to be purchased, the
aggregate purchase price to be paid for such Option Shares in accordance
with this Agreement and the manner in which such payment is being made;
(b) payment of the Option Price for each Option Share to be purchased
upon such exercise, in cash or in such other form or combination of forms
of payment contemplated by paragraph 10 hereof, together with payment of,
or other provision acceptable to the Company Board for, any and all
withholding taxes required to be withheld by the Company (or by TCI, if
applicable) upon such exercise, in accordance with paragraph 4 hereof; and
2
<PAGE>
(c) any other documentation that the Company Board may reasonably
require (including, without limitation, proof satisfactory to the Company
Board that the Option is then exercisable for the number of Option Shares
set forth in such notice).
4. Withholding for Taxes. It shall be a condition precedent to any
exercise of the Option that Grantee make provision acceptable to the Company
Board for the payment or withholding of any and all federal, state and local
taxes required to be withheld by the Company (or by TCI, if applicable) to
satisfy the tax liability associated with such exercise, as determined by the
Company Board.
5. Delivery by the Company. As soon as practicable after receipt of all
the items required by paragraph 3 hereof with respect to any exercise of the
Option, and subject to the withholding referred to in paragraph 4 hereof, the
Company shall deliver or cause to be delivered to Grantee certificates issued in
Grantee's name for the number of whole Option Shares purchased upon such
exercise. If delivery is by mail, delivery of Option Shares shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to the Grantee,
and any cash payment (for fractional shares or otherwise) shall be deemed
effected when a Company check, payable to Grantee and in an amount equal to the
amount of the cash payment, shall have been deposited in the United States mail,
addressed to Grantee, in each case in accordance with Section 12.
6. Early Termination of Option. Unless otherwise determined by the TCI
Committee in its sole discretion, by written notice to Grantee and the Company,
the Option shall terminate, prior to the expiration of the ten-year period
provided for in paragraph 1 hereof, as follows:
(a) If Grantee's employment with TCI and its Subsidiaries terminates
other than (i) by Grantee with Good Reason, (ii) by reason of Grantee's
death or Disability, (iii) with the written consent of TCI or the
applicable Subsidiary, (iv) without such consent if such termination is
pursuant to provisions of a written employment agreement, if any, between
the Grantee and TCI or the applicable Subsidiary which expressly permits
the Grantee to terminate such employment upon the occurrence of specified
events (other than the giving of notice and passage of time), or (v) by TCI
with or without Cause, then the Option shall terminate at the Close of
Business on the first business day following the expiration of the 90-day
period beginning on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by TCI or one of its Subsidiaries,
or prior to the expiration of a relevant period of time during which the
Option remains exercisable as provided in this paragraph 6, the Option
shall terminate at the Close of Business on the first business day
following the expiration of the one-year period beginning on the date of
death;
(c) If Grantee's employment with TCI and its Subsidiaries terminates
by reason of Disability, then the Option shall terminate at the Close of
Business on the first business
3
<PAGE>
day following the expiration of the one-year period beginning on the date
of termination of Grantee's employment;
(d) If Grantee's employment with TCI and its Subsidiaries is
terminated by TCI or any Subsidiary for Cause, then the Option shall
terminate immediately upon such termination of Grantee's employment; and
(e) If Grantee terminates his employment with TCI and its Subsidiaries
(i) with Good Reason, (ii) with the written consent of TCI or the
applicable Subsidiary or (iii) pursuant to provisions of a written
employment agreement, if any, between Grantee and TCI or the applicable
Subsidiary which expressly permits the Grantee to terminate such employment
upon the occurrence of specified events (other than the giving of notice
and passage of time), or if TCI terminates Grantee's employment with TCI
and its Subsidiaries without Cause, then the Option Term shall not
terminate prior to the end of the ten-year period provided for in paragraph
1 hereof, except as otherwise provided in paragraph 6(b) above.
In any event in which the Option remains exercisable for a period of
time following the date of termination of Grantee's employment as provided
above, the Option may be exercised during such period of time only to the extent
it was exercisable as provided in paragraph 2 above on such date of termination
--------
of Grantee's employment. A change of employment is not a termination of
employment within the meaning of this paragraph 6, provided that, after giving
effect to such change, Grantee continues to be an employee of TCI or any
Subsidiary. Anything contained herein to the contrary notwithstanding, the
Option shall in any event terminate upon the expiration of the ten-year period
provided for in paragraph 1 hereof, if not theretofore terminated.
7. Nontransferability of Option. During Grantee's lifetime, the Option is
not and shall not be transferable (voluntarily or involuntarily) other than
pursuant to a Domestic Relations Order and, except as otherwise required
pursuant to a Domestic Relations Order, is exercisable only by Grantee or
Grantee's court appointed legal representative. Grantee may designate a
beneficiary or beneficiaries to whom the Option shall pass upon Grantee's death
and may change such designation from time to time by filing a written
designation of beneficiary or beneficiaries with the Company on the form annexed
hereto as Exhibit A or such other form as may be prescribed by the Company,
provided that no such designation shall be effective unless so filed prior to
the death of Grantee. If no such designation is made or if the designated
beneficiary does not survive Grantee's death, the Option shall pass by will or
the laws of descent and distribution. Following Grantee's death, the Option, if
otherwise exercisable, may be exercised by the person to whom the Option passes
according to the foregoing, and such person shall be deemed to be Grantee for
purposes of any applicable provisions of this Agreement.
8. No Shareholder Rights. Grantee shall not be deemed for any purpose to
be, or to have any of the rights of, a stockholder of the Company with respect
to any Option Shares unless and until such Option Shares have been issued to
Grantee by the Company. The existence of this
4
<PAGE>
Agreement or the Option shall not affect in any way the right or power of the
Company or its stockholders to accomplish any corporate act.
9. Adjustments. (a) The Option shall be subject to adjustment (including,
without limitation, as to the number of Option Shares and the Option Price per
share) in the sole discretion of the Company Board and in such manner as the
Company Board may deem equitable and appropriate in connection with the
occurrence of any of the events described in Section 4.2 of the TCI Satellite
Entertainment, Inc. 1996 Stock Incentive Plan (the "Plan") following the
Determination Date; provided, however, that adjustments shall be made to the
-------- -------
Option if, and in the same manner that, adjustments are being made in connection
with the occurrence of any such event to any stock option granted under the
Plan. Adjustments to the Option Price shall be made on a per share basis so that
the aggregate remaining Option Price is unchanged.
(b) If the Distribution does not occur prior to the time that the
Option first becomes exercisable, the Option Price and Option Shares shall be
appropriately adjusted so that the Option shall be exercisable, in the
aggregate, for 1% of the issued and outstanding common equity of the Company
(after giving effect to the transactions contemplated by the Reorganization
Agreement other than the Distribution), for an aggregate purchase price equal to
1% of TCI's Net Investment as of the date the Option first becomes exercisable,
but excluding any portion of TCI's Net Investment that as of such date is
represented by a promissory note or other evidence of indebtedness from the
Company (or any of its subsidiaries) to TCI (or any Subsidiary of TCI).
10. Manner of Payment. The method or methods of payment of the Option Price
for the shares of Company Series A Common Stock to be purchased upon exercise of
the Option and any amounts required by paragraph 4 shall consist of (i) cash,
(ii) check, (iii) promissory note in such form as shall be acceptable to the
Company Board (except that this method of payment will not be available for
amounts required by paragraph 4), (iv) whole shares of Company Series A Common
Stock and/or Company Series B Common Stock already owned by Grantee, (v) the
withholding of shares of Company Series A Common Stock issuable upon 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,
or (vii) any combination of the foregoing methods of payment, as Grantee may
elect and shall designate in the exercise notice provided for in paragraph 3
hereof, subject, however, to any restrictions or limitations of applicable law
or of any agreement evidencing indebtedness of the Company for borrowed money.
Any shares of capital stock delivered or withheld in payment of any amount due
hereunder shall be valued for such purposes at the Fair Market Value of such
shares on the applicable date of exercise of the Option.
11. Restrictions Imposed by Law. Grantee acknowledges that neither the
Option nor any of the Option Shares has been registered under the Securities Act
of 1933 and that the Option Shares may not be transferred in the absence of such
registration or the availability of an exemption therefrom under such Act or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder. Neither the Company nor any other person shall have any obligation
to
5
<PAGE>
register any Option Shares, or any transfer of Option Shares, under the
Securities Act of 1933, the Securities Exchange Act of 1934 or any other state
or federal securities law. Certificates representing Option Shares purchased by
Grantee hereunder may bear such restrictive and other legends as counsel for the
Company shall require in order to insure compliance with any such law or any
rule or regulation promulgated thereunder. Grantee agrees that Grantee will not
exercise the Option (and that the Company shall not be obligated to deliver any
Option Shares upon any exercise of the Option) if counsel for the Company
determines that such exercise or delivery would violate any applicable law or
any rule or regulation of any governmental authority, or any rule or regulation
of, or agreement of the Company with, any securities exchange or association
upon which the Company Series A Common Stock is listed or quoted. The Company
shall in no event be obligated to take any affirmative action in order to cause
the exercise of the Option or the resulting delivery of the shares of Company
Series A Common Stock to comply with any such law, rule, regulation or
agreement.
12. Notice. Unless the Company notifies Grantee in writing of a change of
address, any notice or other communication to the Company with respect to this
Agreement shall be in writing and shall be delivered personally or sent by first
class mail, postage prepaid and addressed as follows
TCI Satellite Entertainment, Inc.
8085 South Chester, Suite 300
Englewood, Colorado 80112
Attention: General Counsel
Any notice or other communication by the Company to Grantee with respect to this
Agreement shall be in writing and shall be delivered personally, or shall be
sent by first class mail, postage prepaid, to Grantee's address as listed in the
records of the Company on the Determination Date, unless the Company has
received written notification from Grantee of a change of address. Except as
otherwise provided in paragraph 5, all notices and other communications
hereunder, including without limitation any notice of exercise, shall be
effective when actually received.
13. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware.
14. Construction. References in this Agreement to "this Agreement" and the
words "herein," "hereof," "hereunder" and similar terms refer to this Agreement,
including all Exhibits, as a whole, unless the context otherwise requires. The
headings of the paragraphs of this Agreement have been included for convenience
of reference only, are not to be considered a part hereof and shall not modify
or restrict any of the terms or provisions hereof. All decisions of the TCI
Committee and the Company Board, as applicable, upon questions regarding this
Agreement shall be conclusive.
6
<PAGE>
15. Duplicate Originals. The Company and Grantee may sign any number of
copies of this Agreement. Each signed copy shall be an original, but all of
them together represent the same agreement.
16. Entire Agreement. This Agreement is in satisfaction of and in lieu of
all prior discussions and agreements, oral or written, between or among TCI, the
Company and Grantee, or any of them with respect to the subject matter hereof.
Each of the Company and Grantee hereby declares and represents that no promise
or agreement not herein expressed has been made and that this Agreement contains
the entire agreement between and among the parties hereto with respect to the
Option and supersedes and makes null and void any prior agreements between or
among TCI, the Company and Grantee, or any of them, regarding the Option.
17. Amendment. This Agreement may be amended, modified or supplemented by
the Company, without the consent of the Grantee, (i) to cure any ambiguity or to
correct or supplement any provision herein which may be defective or
inconsistent with any other provision herein or (ii) to make such other changes
as the Company, upon advice of counsel, determines are necessary or advisable
because of the adoption or promulgation of, or change in or of the
interpretation of, any law or governmental rule or regulation, including,
without limitation, any applicable federal or state securities laws. Except as
provided above, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
18. Definitions. As used in this Agreement, the following terms have the
corresponding meanings:
"Aggregate Option Price" means an amount equal to one percent (1%) of
TCI's Net Investment as of the first to occur of the date of the Distribution
and the date on which the Option first becomes exercisable, but excluding any
portion of TCI's Net Investment that as of such date is represented by a
promissory note or other evidence of indebtedness from the Company (or any of
its subsidiaries) to TCI (or any subsidiary of TCI).
"Cause" has the meaning ascribed thereto in any employment agreement
between Grantee and TCI or any of its Subsidiaries, and in the absence of any
such employment agreement means 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 incapacity, or negligence
in the performance of any of one's material duties or responsibilities that
continues after written notice from the Company, as determined conclusively by
the TCI Committee.
"Company Series A Common Stock" means the Series A Common Stock, $1.00
par value per share, of the Company.
"Company Series B Common Stock" means the Series B Common Stock, $1.00
par value per share, of the Company.
"Determination Date" means February 1, 1996.
7
<PAGE>
"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.
"Distribution" means the proposed distribution by TCI, in a transaction
intended to be a tax-free spin-off, of 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.
"Domestic Relations Order" means a domestic relations order as defined by
the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
"Fair Market Value" of a share of Company Series A Common Stock or Company
Series B Common 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 such series 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 such series is
listed on an exchange, on the principal exchange on which such series is listed.
If for any day the Fair Market Value of a share of any Company Series A Common
Stock or Company Series B Common Stock 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 Company Board on the basis of such quotations and other
considerations as the Company Board deems appropriate.
"Good Reason" means the occurrence of any of the following prior to any
termination of employment by Grantee:
(i) any reduction in Grantee's annual rate of salary;
(ii) a failure by TCI to continue in effect any employee benefit plan in
which Grantee was participating, or the taking of any action by TCI that would
adversely affect Grantee's participation in, or materially reduce Grantee's
benefits under, any such employee benefit plan, unless such failure or such
taking of any action adversely affects the senior members of the corporate
management of TCI generally; or
(iii) the assignment to Grantee of duties and responsibilities that are
materially more oppressive or onerous than those attendant to Grantee's
position on the Determination Date.
"NASDAQ" means the Nasdaq Stock Market.
8
<PAGE>
"Option Price" means an amount per Option Share equal to the quotient of
(i) the Aggregate Option Price divided by (ii) the total number of Option Shares
on the date of the Distribution, immediately after giving effect thereto, as
such amount per Option Share may be adjusted from time to time after the
Distribution pursuant to paragraph 9 hereof. Within five business days after
the date of the Distribution, the Company shall give Grantee written notice of
the Option Price as of the date of the Distribution, which notice shall be
conclusive absent manifest error.
"Option Shares" means an aggregate number of shares of Company Series A
Common Stock equal to one percent (1%) of the total number of shares of Company
Series A Common Stock and Company Series B Common Stock issued and outstanding
on the date of the Distribution, immediately after giving effect thereto.
Within five business days after the date of the Distribution, the Company shall
give Grantee written notice of the aggregate number of the Option Shares as of
the date of the Distribution, which notice shall be conclusive absent manifest
error.
"Other Options" means the options to purchase shares of Company Series A
Common Stock granted pursuant to those other Option Agreements dated as of the
date hereof between the Company and the grantees named therein, respectively.
"Reorganization Agreement" means the Reorganization Agreement to be entered
into by TCI, TCIC, the Company and certain other subsidiaries of TCI in
connection with the Distribution to 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.
"Subsidiary" of TCI means any present or future subsidiary (as defined in
Section 424(f) of the Code) of TCI or any business entity in which TCI owns,
directly or indirectly, 50% or more of the voting, capital or profits interests.
An entity shall be deemed a subsidiary of TCI for purposes of this definition
only for such periods as the requisite ownership or control relationship is
maintained.
"TCIC" means TCI Communications, Inc., a Delaware corporation.
"TCI's Net Investment" means, as of any relevant date, the cumulative
amount invested by TCI and its predecessor (including their respective
subsidiaries other than the Company and its subsidiaries) in the Company, its
subsidiaries and the respective predecessors of the Company and its subsidiaries
prior to and including such date, less the aggregate amount of all dividends and
distributions made by the Company, its subsidiaries and the respective
predecessors of the Company and its subsidiaries to TCI and its predecessor
(including their respective subsidiaries other than the Company and its
subsidiaries) prior to and including such date.
9
<PAGE>
IN WITNESS WHEREOF, the Company and Grantee have caused this Agreement to
be duly executed and delivered as of the date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
--------------------------------
Name: Gary S. Howard
Title: President
------------------------------------
Larry E. Romrell
10
<PAGE>
Exhibit A to Agreement
dated as of December __, 1996
TCI SATELLITE ENTERTAINMENT, INC.
Option to Purchase Common Stock
Designation of Beneficiary
I, ___________________________________________ (the "Grantee"), hereby
declare that upon my death __________________________________________ (the
Name
"Beneficiary") of
_____________________________________________________________________________,
Street Address City State Zip Code
who is my _________________________________________________, shall be entitled
Relationship to Grantee
to the Option and all other rights accorded Grantee by the above-referenced
grant agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant to
the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to Grantee's will or the laws of
descent and distribution.
All prior designations of beneficiary under the Agreement are hereby
revoked. This Designation of Beneficiary may only be revoked in writing, signed
by Grantee, and filed with Tele-Communications, Inc. and TCI Satellite
Entertainment, Inc., prior to Grantee's death.
- --------------------------------- -----------------------------------------
Date Grantee
<PAGE>
Exhibit 10.8
------------
TCI SATELLITE ENTERTAINMENT, INC.
Option to Purchase Series A Common Stock
THIS AGREEMENT ("Agreement") is made as of the 4th day of December 1996,
---
by and between TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), and Brendan R. Clouston ("Grantee").
Prior to the date hereof the Company has been a subsidiary of Tele-
Communications, Inc., a Delaware corporation ("TCI"), and a member of the TCI
Group, as defined in TCI's annual report on Form 10-K for the fiscal year ended
December 31, 1995. In consideration for services performed by Grantee for the
benefit of TCI and its Subsidiaries and affiliates, including, without
limitation, services for the benefit of the Company and its predecessors, and to
encourage Grantee to remain in the employ of TCI and its Subsidiaries, the Board
of Directors of TCI (the "TCI Board"), with the approval of the Compensation
Committee of the TCI Board (the "TCI Committee"), and the Board of Directors of
the Company ("Company Board") have determined to grant Grantee the rights and
option herein, on the terms and subject to the conditions set forth herein.
Capitalized terms used herein and not otherwise defined are defined in paragraph
18 hereof.
Accordingly, the Company and Grantee hereby agree as follows:
1. Grant of Option; Option Term. The Company hereby grants to Grantee the
right and option (the "Option"), on the terms and subject to the conditions set
forth herein, to purchase the Option Shares from the Company for a price per
Option Share equal to the Option Price. Subject to paragraph 2 hereof, the
Option shall be exercisable in whole at any time and in part from time to time
during the period commencing on the date hereof and expiring at 5:00 p.m.,
Denver, Colorado time ("Close of Business") on the tenth anniversary of the
Determination Date, or such earlier date as the Option may be terminated
pursuant to paragraph 6 hereof (the "Option Term").
2. Conditions of Exercise; Vesting. Except as otherwise provided in the
second to last sentence of this paragraph 2, the Option shall not be exercisable
until the first anniversary of the Determination Date, and, from the first
anniversary of the Determination Date to the fifth anniversary of the
Determination Date, the Option shall be exercisable only to the extent the
Option Shares have become available for purchase in accordance with the
following schedule:
<PAGE>
<TABLE>
<CAPTION>
Anniversary of Percentage of Option Shares
Determination Date Available for Purchase
------------------ ----------------------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
Notwithstanding the foregoing, all Option Shares shall become available for
purchase if during the Option Term (i) Grantee's employment with TCI and its
Subsidiaries shall terminate by reason of (x) termination by TCI or any
Subsidiary without Cause, (y) termination by Grantee for Good Reason or (z)
Disability, (ii) Grantee's employment shall terminate pursuant to provisions of
a written employment agreement, if any, between Grantee and TCI or any
Subsidiary which expressly permits Grantee to terminate such employment upon the
occurrence of specified events (other than the giving of notice and passage of
time) or (iii) Grantee dies while employed by TCI or a Subsidiary. Grantee
shall give the Company prompt written notice of any termination of Grantee's
employment with TCI and its Subsidiaries, and shall provide the Company with
such other information regarding the circumstances of such termination of
employment as the Company shall reasonably request, and shall cooperate with the
Company in good faith in connection with any reasonable investigation by the
Company relating to such termination of employment.
3. Manner of Exercise. The Option may be exercised only by delivering to
the Company all of the following and shall be considered exercised (as to the
number of shares specified in the notice referred to in clause (a) below) on the
later of (i) the first business day on which the Company has received all of the
following deliveries and (ii) the date of exercise designated in the written
notice referred to in clause (a) below (or if such date is not a business day,
the first business day thereafter):
(a) written notice, in such form as the Company Board may reasonably
require, stating that Grantee is exercising the Option and setting forth the
date of such exercise, the number of Option Shares to be purchased, the
aggregate purchase price to be paid for such Option Shares in accordance
with this Agreement and the manner in which such payment is being made;
(b) payment of the Option Price for each Option Share to be purchased
upon such exercise, in cash or in such other form or combination of forms of
payment contemplated by paragraph 10 hereof, together with payment of, or
other provision acceptable to the Company Board for, any and all withholding
taxes required to be withheld by the Company (or by TCI, if applicable) upon
such exercise, in accordance with paragraph 4 hereof; and
2
<PAGE>
(c) any other documentation that the Company Board may reasonably
require (including, without limitation, proof satisfactory to the Company
Board that the Option is then exercisable for the number of Option Shares
set forth in such notice).
4. Withholding for Taxes. It shall be a condition precedent to any
exercise of the Option that Grantee make provision acceptable to the Company
Board for the payment or withholding of any and all federal, state and local
taxes required to be withheld by the Company (or by TCI, if applicable) to
satisfy the tax liability associated with such exercise, as determined by the
Company Board.
5. Delivery by the Company. As soon as practicable after receipt of all
the items required by paragraph 3 hereof with respect to any exercise of the
Option, and subject to the withholding referred to in paragraph 4 hereof, the
Company shall deliver or cause to be delivered to Grantee certificates issued in
Grantee's name for the number of whole Option Shares purchased upon such
exercise. If delivery is by mail, delivery of Option Shares shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to the Grantee,
and any cash payment (for fractional shares or otherwise) shall be deemed
effected when a Company check, payable to Grantee and in an amount equal to the
amount of the cash payment, shall have been deposited in the United States mail,
addressed to Grantee, in each case in accordance with Section 12.
6. Early Termination of Option. Unless otherwise determined by the TCI
Committee in its sole discretion, by written notice to Grantee and the Company,
the Option shall terminate, prior to the expiration of the ten-year period
provided for in paragraph 1 hereof, as follows:
(a) If Grantee's employment with TCI and its Subsidiaries terminates
other than (i) by Grantee with Good Reason, (ii) by reason of Grantee's
death or Disability, (iii) with the written consent of TCI or the applicable
Subsidiary, (iv) without such consent if such termination is pursuant to
provisions of a written employment agreement, if any, between the Grantee
and TCI or the applicable Subsidiary which expressly permits the Grantee to
terminate such employment upon the occurrence of specified events (other
than the giving of notice and passage of time), or (v) by TCI with or
without Cause, then the Option shall terminate at the Close of Business on
the first business day following the expiration of the 90-day period
beginning on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by TCI or one of its Subsidiaries,
or prior to the expiration of a relevant period of time during which the
Option remains exercisable as provided in this paragraph 6, the Option shall
terminate at the Close of Business on the first business day following the
expiration of the one-year period beginning on the date of death;
(c) If Grantee's employment with TCI and its Subsidiaries terminates by
reason of Disability, then the Option shall terminate at the Close of
Business on the first business
3
<PAGE>
day following the expiration of the one-year period beginning on the date of
termination of Grantee's employment;
(d) If Grantee's employment with TCI and its Subsidiaries is terminated
by TCI or any Subsidiary for Cause, then the Option shall terminate
immediately upon such termination of Grantee's employment; and
(e) If Grantee terminates his employment with TCI and its Subsidiaries
(i) with Good Reason, (ii) with the written consent of TCI or the applicable
Subsidiary or (iii) pursuant to provisions of a written employment
agreement, if any, between Grantee and TCI or the applicable Subsidiary
which expressly permits the Grantee to terminate such employment upon the
occurrence of specified events (other than the giving of notice and passage
of time), or if TCI terminates Grantee's employment with TCI and its
Subsidiaries without Cause, then the Option Term shall not terminate prior
to the end of the ten-year period provided for in paragraph 1 hereof, except
as otherwise provided in paragraph 6(b) above.
In any event in which the Option remains exercisable for a period of
time following the date of termination of Grantee's employment as provided
above, the Option may be exercised during such period of time only to the extent
it was exercisable as provided in paragraph 2 above on such date of termination
of Grantee's employment. A change of employment is not a termination of
employment within the meaning of this paragraph 6, provided that, after giving
--------
effect to such change, Grantee continues to be an employee of TCI or any
Subsidiary. Anything contained herein to the contrary notwithstanding, the
Option shall in any event terminate upon the expiration of the ten-year period
provided for in paragraph 1 hereof, if not theretofore terminated.
7. Nontransferability of Option. During Grantee's lifetime, the Option is
not and shall not be transferable (voluntarily or involuntarily) other than
pursuant to a Domestic Relations Order and, except as otherwise required
pursuant to a Domestic Relations Order, is exercisable only by Grantee or
Grantee's court appointed legal representative. Grantee may designate a
beneficiary or beneficiaries to whom the Option shall pass upon Grantee's death
and may change such designation from time to time by filing a written
designation of beneficiary or beneficiaries with the Company on the form annexed
hereto as Exhibit A or such other form as may be prescribed by the Company,
provided that no such designation shall be effective unless so filed prior to
the death of Grantee. If no such designation is made or if the designated
beneficiary does not survive Grantee's death, the Option shall pass by will or
the laws of descent and distribution. Following Grantee's death, the Option, if
otherwise exercisable, may be exercised by the person to whom the Option passes
according to the foregoing, and such person shall be deemed to be Grantee for
purposes of any applicable provisions of this Agreement.
8. No Shareholder Rights. Grantee shall not be deemed for any purpose to
be, or to have any of the rights of, a stockholder of the Company with respect
to any Option Shares unless and until such Option Shares have been issued to
Grantee by the Company. The existence of this
4
<PAGE>
Agreement or the Option shall not affect in any way the right or power of the
Company or its stockholders to accomplish any corporate act.
9. Adjustments. (a) The Option shall be subject to adjustment (including,
without limitation, as to the number of Option Shares and the Option Price per
share) in the sole discretion of the Company Board and in such manner as the
Company Board may deem equitable and appropriate in connection with the
occurrence of any of the events described in Section 4.2 of the TCI Satellite
Entertainment, Inc. 1996 Stock Incentive Plan (the "Plan") following the
Determination Date; provided, however, that adjustments shall be made to the
-------- -------
Option if, and in the same manner that, adjustments are being made in connection
with the occurrence of any such event to any stock option granted under the
Plan. Adjustments to the Option Price shall be made on a per share basis so that
the aggregate remaining Option Price is unchanged.
(b) If the Distribution does not occur prior to the time that the Option
first becomes exercisable, the Option Price and Option Shares shall be
appropriately adjusted so that the Option shall be exercisable, in the
aggregate, for 1% of the issued and outstanding common equity of the Company
(after giving effect to the transactions contemplated by the Reorganization
Agreement other than the Distribution), for an aggregate purchase price equal to
1% of TCI's Net Investment as of the date the Option first becomes exercisable,
but excluding any portion of TCI's Net Investment that as of such date is
represented by a promissory note or other evidence of indebtedness from the
Company (or any of its subsidiaries) to TCI (or any Subsidiary of TCI).
10. Manner of Payment. The method or methods of payment of the Option Price
for the shares of Company Series A Common Stock to be purchased upon exercise of
the Option and any amounts required by paragraph 4 shall consist of (i) cash,
(ii) check, (iii) promissory note in such form as shall be acceptable to the
Company Board (except that this method of payment will not be available for
amounts required by paragraph 4), (iv) whole shares of Company Series A Common
Stock and/or Company Series B Common Stock already owned by Grantee, (v) the
withholding of shares of Company Series A Common Stock issuable upon 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,
or (vii) any combination of the foregoing methods of payment, as Grantee may
elect and shall designate in the exercise notice provided for in paragraph 3
hereof, subject, however, to any restrictions or limitations of applicable law
or of any agreement evidencing indebtedness of the Company for borrowed money.
Any shares of capital stock delivered or withheld in payment of any amount due
hereunder shall be valued for such purposes at the Fair Market Value of such
shares on the applicable date of exercise of the Option.
11. Restrictions Imposed by Law. Grantee acknowledges that neither the
Option nor any of the Option Shares has been registered under the Securities Act
of 1933 and that the Option Shares may not be transferred in the absence of such
registration or the availability of an exemption therefrom under such Act or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder. Neither the Company nor any other person shall have any obligation
to
5
<PAGE>
register any Option Shares, or any transfer of Option Shares, under the
Securities Act of 1933, the Securities Exchange Act of 1934 or any other state
or federal securities law. Certificates representing Option Shares purchased by
Grantee hereunder may bear such restrictive and other legends as counsel for the
Company shall require in order to insure compliance with any such law or any
rule or regulation promulgated thereunder. Grantee agrees that Grantee will not
exercise the Option (and that the Company shall not be obligated to deliver any
Option Shares upon any exercise of the Option) if counsel for the Company
determines that such exercise or delivery would violate any applicable law or
any rule or regulation of any governmental authority, or any rule or regulation
of, or agreement of the Company with, any securities exchange or association
upon which the Company Series A Common Stock is listed or quoted. The Company
shall in no event be obligated to take any affirmative action in order to cause
the exercise of the Option or the resulting delivery of the shares of Company
Series A Common Stock to comply with any such law, rule, regulation or
agreement.
12. Notice. Unless the Company notifies Grantee in writing of a change of
address, any notice or other communication to the Company with respect to this
Agreement shall be in writing and shall be delivered personally or sent by first
class mail, postage prepaid and addressed as follows
TCI Satellite Entertainment, Inc.
8085 South Chester, Suite 300
Englewood, Colorado 80112
Attention: General Counsel
Any notice or other communication by the Company to Grantee with respect to this
Agreement shall be in writing and shall be delivered personally, or shall be
sent by first class mail, postage prepaid, to Grantee's address as listed in the
records of the Company on the Determination Date, unless the Company has
received written notification from Grantee of a change of address. Except as
otherwise provided in paragraph 5, all notices and other communications
hereunder, including without limitation any notice of exercise, shall be
effective when actually received.
13. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware.
14. Construction. References in this Agreement to "this Agreement" and the
words "herein," "hereof," "hereunder" and similar terms refer to this Agreement,
including all Exhibits, as a whole, unless the context otherwise requires. The
headings of the paragraphs of this Agreement have been included for convenience
of reference only, are not to be considered a part hereof and shall not modify
or restrict any of the terms or provisions hereof. All decisions of the TCI
Committee and the Company Board, as applicable, upon questions regarding this
Agreement shall be conclusive.
6
<PAGE>
15. Duplicate Originals. The Company and Grantee may sign any number of
copies of this Agreement. Each signed copy shall be an original, but all of
them together represent the same agreement.
16. Entire Agreement. This Agreement is in satisfaction of and in lieu of
all prior discussions and agreements, oral or written, between or among TCI, the
Company and Grantee, or any of them with respect to the subject matter hereof.
Each of the Company and Grantee hereby declares and represents that no promise
or agreement not herein expressed has been made and that this Agreement contains
the entire agreement between and among the parties hereto with respect to the
Option and supersedes and makes null and void any prior agreements between or
among TCI, the Company and Grantee, or any of them, regarding the Option.
17. Amendment. This Agreement may be amended, modified or supplemented by
the Company, without the consent of the Grantee, (i) to cure any ambiguity or to
correct or supplement any provision herein which may be defective or
inconsistent with any other provision herein or (ii) to make such other changes
as the Company, upon advice of counsel, determines are necessary or advisable
because of the adoption or promulgation of, or change in or of the
interpretation of, any law or governmental rule or regulation, including,
without limitation, any applicable federal or state securities laws. Except as
provided above, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
18. Definitions. As used in this Agreement, the following terms have the
corresponding meanings:
"Aggregate Option Price" means an amount equal to one percent (1%) of
TCI's Net Investment as of the first to occur of the date of the Distribution
and the date on which the Option first becomes exercisable, but excluding any
portion of TCI's Net Investment that as of such date is represented by a
promissory note or other evidence of indebtedness from the Company (or any of
its subsidiaries) to TCI (or any subsidiary of TCI).
"Cause" has the meaning ascribed thereto in any employment agreement
between Grantee and TCI or any of its Subsidiaries, and in the absence of any
such employment agreement means 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 incapacity, or negligence
in the performance of any of one's material duties or responsibilities that
continues after written notice from the Company, as determined conclusively by
the TCI Committee.
"Company Series A Common Stock" means the Series A Common Stock, $1.00
par value per share, of the Company.
"Company Series B Common Stock" means the Series B Common Stock, $1.00
par value per share, of the Company.
"Determination Date" means February 1, 1996.
7
<PAGE>
"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.
"Distribution" means the proposed distribution by TCI, in a transaction
intended to be a tax-free spin-off, of 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.
"Domestic Relations Order" means a domestic relations order as defined
by the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
"Fair Market Value" of a share of Company Series A Common Stock or
Company Series B Common 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 such series 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 such
series is listed on an exchange, on the principal exchange on which such series
is listed. If for any day the Fair Market Value of a share of any Company Series
A Common Stock or Company Series B Common Stock 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 Company Board on the basis of such quotations and other
considerations as the Company Board deems appropriate.
"Good Reason" means the occurrence of any of the following prior to any
termination of employment by Grantee:
(i) any reduction in Grantee's annual rate of salary;
(ii) a failure by TCI to continue in effect any employee benefit plan in
which Grantee was participating, or the taking of any action by TCI that would
adversely affect Grantee's participation in, or materially reduce Grantee's
benefits under, any such employee benefit plan, unless such failure or such
taking of any action adversely affects the senior members of the corporate
management of TCI generally; or
(iii) the assignment to Grantee of duties and responsibilities that are
materially more oppressive or onerous than those attendant to Grantee's
position on the Determination Date.
"NASDAQ" means the Nasdaq Stock Market.
8
<PAGE>
"Option Price" means an amount per Option Share equal to the quotient of
(i) the Aggregate Option Price divided by (ii) the total number of Option Shares
on the date of the Distribution, immediately after giving effect thereto, as
such amount per Option Share may be adjusted from time to time after the
Distribution pursuant to paragraph 9 hereof. Within five business days after
the date of the Distribution, the Company shall give Grantee written notice of
the Option Price as of the date of the Distribution, which notice shall be
conclusive absent manifest error.
"Option Shares" means an aggregate number of shares of Company Series A
Common Stock equal to one percent (1%) of the total number of shares of Company
Series A Common Stock and Company Series B Common Stock issued and outstanding
on the date of the Distribution, immediately after giving effect thereto.
Within five business days after the date of the Distribution, the Company shall
give Grantee written notice of the aggregate number of the Option Shares as of
the date of the Distribution, which notice shall be conclusive absent manifest
error.
"Other Options" means the options to purchase shares of Company Series A
Common Stock granted pursuant to those other Option Agreements dated as of the
date hereof between the Company and the grantees named therein, respectively.
"Reorganization Agreement" means the Reorganization Agreement to be entered
into by TCI, TCIC, the Company and certain other subsidiaries of TCI in
connection with the Distribution to 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.
"Subsidiary" of TCI means any present or future subsidiary (as defined in
Section 424(f) of the Code) of TCI or any business entity in which TCI owns,
directly or indirectly, 50% or more of the voting, capital or profits interests.
An entity shall be deemed a subsidiary of TCI for purposes of this definition
only for such periods as the requisite ownership or control relationship is
maintained.
"TCIC" means TCI Communications, Inc., a Delaware corporation.
"TCI's Net Investment" means, as of any relevant date, the cumulative
amount invested by TCI and its predecessor (including their respective
subsidiaries other than the Company and its subsidiaries) in the Company, its
subsidiaries and the respective predecessors of the Company and its subsidiaries
prior to and including such date, less the aggregate amount of all dividends and
distributions made by the Company, its subsidiaries and the respective
predecessors of the Company and its subsidiaries to TCI and its predecessor
(including their respective subsidiaries other than the Company and its
subsidiaries) prior to and including such date.
9
<PAGE>
IN WITNESS WHEREOF, the Company and Grantee have caused this Agreement to
be duly executed and delivered as of the date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
--------------------------------
Name: Gary S. Howard
Title: President
/s/ Brendan B. Clouston
--------------------------------
(Grantee)
10
<PAGE>
Exhibit A to Agreement
dated as of December __, 1996
TCI SATELLITE ENTERTAINMENT, INC.
Option to Purchase Common Stock
Designation of Beneficiary
I, _____________________________________ (the "Grantee"), hereby declare
that upon my death ___________________________________ (the "Beneficiary") of
Name
_____________________________________________________________________________,
Street Address City State Zip Code
who is my __________________________________________, shall be entitled to the
Relationship to Grantee
Option and all other rights accorded Grantee by the above-referenced grant
agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant to
the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to Grantee's will or the laws of
descent and distribution.
All prior designations of beneficiary under the Agreement are hereby
revoked. This Designation of Beneficiary may only be revoked in writing, signed
by Grantee, and filed with Tele-Communications, Inc. and TCI Satellite
Entertainment, Inc., prior to Grantee's death.
_______________________________ _____________________________________
Date Grantee
<PAGE>
Exhibit 10.9
------------
TCI SATELLITE ENTERTAINMENT, INC.
Option to Purchase Series A Common Stock
THIS AGREEMENT ("Agreement") is made as of the 4th day of December,
---
1996, by and between TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation
(the "Company"), and David P. Beddow ("Grantee").
Prior to the date hereof the Company has been a subsidiary of Tele-
Communications, Inc., a Delaware corporation ("TCI"), and a member of the TCI
Group, as defined in TCI's annual report on Form 10-K for the fiscal year ended
December 31, 1995. In consideration for services performed by Grantee for the
benefit of TCI and its Subsidiaries and affiliates, including, without
limitation, services for the benefit of the Company and its predecessors, and to
encourage Grantee to remain in the employ of TCI and its Subsidiaries, the Board
of Directors of TCI (the "TCI Board"), with the approval of the Compensation
Committee of the TCI Board (the "TCI Committee"), and the Board of Directors of
the Company ("Company Board") have determined to grant Grantee the rights and
option herein, on the terms and subject to the conditions set forth herein.
Capitalized terms used herein and not otherwise defined are defined in paragraph
18 hereof.
Accordingly, the Company and Grantee hereby agree as follows:
1. Grant of Option; Option Term. The Company hereby grants to Grantee the
right and option (the "Option"), on the terms and subject to the conditions set
forth herein, to purchase the Option Shares from the Company for a price per
Option Share equal to the Option Price. Subject to paragraph 2 hereof, the
Option shall be exercisable in whole at any time and in part from time to time
during the period commencing on the date hereof and expiring at 5:00 p.m.,
Denver, Colorado time ("Close of Business") on the tenth anniversary of the
Determination Date, or such earlier date as the Option may be terminated
pursuant to paragraph 6 hereof (the "Option Term").
2. Conditions of Exercise; Vesting. Except as otherwise provided in the
second to last sentence of this paragraph 2, the Option shall not be exercisable
until the first anniversary of the Determination Date, and, from the first
anniversary of the Detrmination Date to the fifth anniversary of the
Determination Date, the Option shall be exercisable only to the extent the
Option Shares have become available for purchase in accordance with the
following schedule:
<PAGE>
Anniversary of Percentage of Option Shares
Determination Date Available for Purchase
------------------ -------------------------------
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
Notwithstanding the foregoing, all Option Shares shall become available for
purchase if during the Option Term (i) Grantee's employment with TCI and its
Subsidiaries shall terminate by reason of (x) termination by TCI or any
Subsidiary without Cause, (y) termination by Grantee for Good Reason or (z)
Disability, (ii) Grantee's employment shall terminate pursuant to provisions of
a written employment agreement, if any, between Grantee and TCI or any
Subsidiary which expressly permits Grantee to terminate such employment upon the
occurrence of specified events (other than the giving of notice and passage of
time) or (iii) Grantee dies while employed by TCI or a Subsidiary. Grantee
shall give the Company prompt written notice of any termination of Grantee's
employment with TCI and its Subsidiaries, and shall provide the Company with
such other information regarding the circumstances of such termination of
employment as the Company shall reasonably request, and shall cooperate with the
Company in good faith in connection with any reasonable investigation by the
Company relating to such termination of employment.
3. Manner of Exercise. The Option may be exercised only by delivering to
the Company all of the following and shall be considered exercised (as to the
number of shares specified in the notice referred to in clause (a) below) on the
later of (i) the first business day on which the Company has received all of the
following deliveries and (ii) the date of exercise designated in the written
notice referred to in clause (a) below (or if such date is not a business day,
the first business day thereafter):
(a) written notice, in such form as the Company Board may reasonably
require, stating that Grantee is exercising the Option and setting forth
the date of such exercise, the number of Option Shares to be purchased, the
aggregate purchase price to be paid for such Option Shares in accordance
with this Agreement and the manner in which such payment is being made;
(b) payment of the Option Price for each Option Share to be purchased
upon such exercise, in cash or in such other form or combination of forms
of payment contemplated by paragraph 10 hereof, together with payment of,
or other provision acceptable to the Company Board for, any and all
withholding taxes required to be withheld by the Company (or by TCI, if
applicable) upon such exercise, in accordance with paragraph 4 hereof; and
2
<PAGE>
(c) any other documentation that the Company Board may reasonably
require (including, without limitation, proof satisfactory to the Company
Board that the Option is then exercisable for the number of Option Shares
set forth in such notice).
4. Withholding for Taxes. It shall be a condition precedent to any
exercise of the Option that Grantee make provision acceptable to the Company
Board for the payment or withholding of any and all federal, state and local
taxes required to be withheld by the Company (or by TCI, if applicable) to
satisfy the tax liability associated with such exercise, as determined by the
Company Board.
5. Delivery by the Company. As soon as practicable after receipt of all
the items required by paragraph 3 hereof with respect to any exercise of the
Option, and subject to the withholding referred to in paragraph 4 hereof, the
Company shall deliver or cause to be delivered to Grantee certificates issued in
Grantee's name for the number of whole Option Shares purchased upon such
exercise. If delivery is by mail, delivery of Option Shares shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited the certificates in the United States mail, addressed to the Grantee,
and any cash payment (for fractional shares or otherwise) shall be deemed
effected when a Company check, payable to Grantee and in an amount equal to the
amount of the cash payment, shall have been deposited in the United States mail,
addressed to Grantee, in each case in accordance with Section 12.
6. Early Termination of Option. Unless otherwise determined by the TCI
Committee in its sole discretion, by written notice to Grantee and the Company,
the Option shall terminate, prior to the expiration of the ten-year period
provided for in paragraph 1 hereof, as follows:
(a) If Grantee's employment with TCI and its Subsidiaries terminates
other than (i) by Grantee with Good Reason, (ii) by reason of Grantee's
death or Disability, (iii) with the written consent of TCI or the
applicable Subsidiary, (iv) without such consent if such termination is
pursuant to provisions of a written employment agreement, if any, between
the Grantee and TCI or the applicable Subsidiary which expressly permits
the Grantee to terminate such employment upon the occurrence of specified
events (other than the giving of notice and passage of time), or (v) by TCI
with or without Cause, then the Option shall terminate at the Close of
Business on the first business day following the expiration of the 90-day
period beginning on the date of termination of Grantee's employment;
(b) If Grantee dies while employed by TCI or one of its Subsidiaries,
or prior to the expiration of a relevant period of time during which the
Option remains exercisable as provided in this paragraph 6, the Option
shall terminate at the Close of Business on the first business day
following the expiration of the one-year period beginning on the date of
death;
(c) If Grantee's employment with TCI and its Subsidiaries terminates
by reason of Disability, then the Option shall terminate at the Close of
Business on the first business
3
<PAGE>
day following the expiration of the one-year period beginning on the date
of termination of Grantee's employment;
(d) If Grantee's employment with TCI and its Subsidiaries is
terminated by TCI or any Subsidiary for Cause, then the Option shall
terminate immediately upon such termination of Grantee's employment; and
(e) If Grantee terminates his employment with TCI and its Subsidiaries
(i) with Good Reason, (ii) with the written consent of TCI or the
applicable Subsidiary or (iii) pursuant to provisions of a written
employment agreement, if any, between Grantee and TCI or the applicable
Subsidiary which expressly permits the Grantee to terminate such employment
upon the occurrence of specified events (other than the giving of notice
and passage of time), or if TCI terminates Grantee's employment with TCI
and its Subsidiaries without Cause, then the Option Term shall not
terminate prior to the end of the ten-year period provided for in paragraph
1 hereof, except as otherwise provided in paragraph 6(b) above.
In any event in which the Option remains exercisable for a period of
time following the date of termination of Grantee's employment as provided
above, the Option may be exercised during such period of time only to the extent
it was exercisable as provided in paragraph 2 above on such date of termination
of Grantee's employment. A change of employment is not a termination of
employment within the meaning of this paragraph 6, provided that, after giving
--------
effect to change, Grantee continues to be an employee of TCI or any
Subsidiary. Anything contained herein to the contrary notwithstanding, the
Option shall in any event terminate upon the expiration of the ten-year period
provided for in paragraph 1 hereof, if not theretofore terminated.
7. Nontransferability of Option. During Grantee's lifetime, the Option is
not and shall not be transferable (voluntarily or involuntarily) other than
pursuant to a Domestic Relations Order and, except as otherwise required
pursuant to a Domestic Relations Order, is exercisable only by Grantee or
Grantee's court appointed legal representative. Grantee may designate a
beneficiary or beneficiaries to whom the Option shall pass upon Grantee's death
and may change such designation from time to time by filing a written
designation of beneficiary or beneficiaries with the Company on the form annexed
hereto as Exhibit A or such other form as may be prescribed by the Company,
provided that no such designation shall be effective unless so filed prior to
the death of Grantee. If no such designation is made or if the designated
beneficiary does not survive Grantee's death, the Option shall pass by will or
the laws of descent and distribution. Following Grantee's death, the Option, if
otherwise exercisable, may be exercised by the person to whom the Option passes
according to the foregoing, and such person shall be deemed to be Grantee for
purposes of any applicable provisions of this Agreement.
8. No Shareholder Rights. Grantee shall not be deemed for any purpose to
be, or to have any of the rights of, a stockholder of the Company with respect
to any Option Shares unless and until such Option Shares have been issued to
Grantee by the Company. The existence of this
4
<PAGE>
Agreement or the Option shall not affect in any way the right or power of the
Company or its stockholders to accomplish any corporate act.
9. Adjustments. (a) The Option shall be subject to adjustment (including,
without limitation, as to the number of Option Shares and the Option Price per
share) in the sole discretion of the Company Board and in such manner as the
Company Board may deem equitable and appropriate in connection with the
occurrence of any of the events described in Section 4.2 of the TCI Satellite
Entertainment, Inc. 1996 Stock Incentive Plan (the "Plan") following the
Determination Date; provided, however, that adjustments shall be made to the
-------- -------
Option if, and in the same manner that, adjustments are being made in connection
with the occurrence of any such event to any stock option granted under the
Plan. Adjustments to the Option Price shall be made on a per share basis so that
the aggregate remaining Option Price is unchanged.
(b) If the Distribution does not occur prior to the time that the
Option first becomes exercisable, the Option Price and Option Shares shall be
appropriately adjusted so that the Option shall be exercisable, in the
aggregate, for 1/2% of the issued and outstanding common equity of the Company
(after giving effect to the transactions contemplated by the Reorganization
Agreement other than the Distribution), for an aggregate purchase price equal to
1/2% of TCI's Net Investment as of the date the Option first becomes
exercisable, but excluding any portion of TCI's Net Investment that as of such
date is represented by a promissory note or other evidence of indebtedness from
the Company (or any of its subsidiaries) to TCI (or any Subsidiary of TCI).
10. Manner of Payment. The method or methods of payment of the Option Price
for the shares of Company Series A Common Stock to be purchased upon exercise of
the Option and any amounts required by paragraph 4 shall consist of (i) cash,
(ii) check, (iii) promissory note in such form as shall be acceptable to the
Company Board (except that this method of payment will not be available for
amounts required by paragraph 4), (iv) whole shares of Company Series A Common
Stock and/or Company Series B Common Stock already owned by Grantee, (v) the
withholding of shares of Company Series A Common Stock issuable upon 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,
or (vii) any combination of the foregoing methods of payment, as Grantee may
elect and shall designate in the exercise notice provided for in paragraph 3
hereof, subject, however, to any restrictions or limitations of applicable law
or of any agreement evidencing indebtedness of the Company for borrowed money.
Any shares of capital stock delivered or withheld in payment of any amount due
hereunder shall be valued for such purposes at the Fair Market Value of such
shares on the applicable date of exercise of the Option.
11. Restrictions Imposed by Law. Grantee acknowledges that neither the
Option nor any of the Option Shares has been registered under the Securities Act
of 1933 and that the Option Shares may not be transferred in the absence of such
registration or the availability of an exemption therefrom under such Act or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder. Neither the Company nor any other person shall have any obligation
to
5
<PAGE>
register any Option Shares, or any transfer of Option Shares, under the
Securities Act of 1933, the Securities Exchange Act of 1934 or any other state
or federal securities law. Certificates representing Option Shares purchased by
Grantee hereunder may bear such restrictive and other legends as counsel for the
Company shall require in order to insure compliance with any such law or any
rule or regulation promulgated thereunder. Grantee agrees that Grantee will not
exercise the Option (and that the Company shall not be obligated to deliver any
Option Shares upon any exercise of the Option) if counsel for the Company
determines that such exercise or delivery would violate any applicable law or
any rule or regulation of any governmental authority, or any rule or regulation
of, or agreement of the Company with, any securities exchange or association
upon which the Company Series A Common Stock is listed or quoted. The Company
shall in no event be obligated to take any affirmative action in order to cause
the exercise of the Option or the resulting delivery of the shares of Company
Series A Common Stock to comply with any such law, rule, regulation or
agreement.
12. Notice. Unless the Company notifies Grantee in writing of a change of
address, any notice or other communication to the Company with respect to this
Agreement shall be in writing and shall be delivered personally or sent by first
class mail, postage prepaid and addressed as follows
TCI Satellite Entertainment, Inc.
8085 South Chester, Suite 300
Englewood, Colorado 80112
Attention: General Counsel
Any notice or other communication by the Company to Grantee with respect to this
Agreement shall be in writing and shall be delivered personally, or shall be
sent by first class mail, postage prepaid, to Grantee's address as listed in the
records of the Company on the Determination Date, unless the Company has
received written notification from Grantee of a change of address. Except as
otherwise provided in paragraph 5, all notices and other communications
hereunder, including without limitation any notice of exercise, shall be
effective when actually received.
13. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware.
14. Construction. References in this Agreement to "this Agreement" and the
words "herein," "hereof," "hereunder" and similar terms refer to this Agreement,
including all Exhibits, as a whole, unless the context otherwise requires. The
headings of the paragraphs of this Agreement have been included for convenience
of reference only, are not to be considered a part hereof and shall not modify
or restrict any of the terms or provisions hereof. All decisions of the TCI
Committee and the Company Board, as applicable, upon questions regarding this
Agreement shall be conclusive.
6
<PAGE>
15. Duplicate Originals. The Company and Grantee may sign any number of
copies of this Agreement. Each signed copy shall be an original, but all of them
together represent the same agreement.
16. Entire Agreement. This Agreement is in satisfaction of and in lieu of
all prior discussions and agreements, oral or written, between or among TCI, the
Company and Grantee, or any of them with respect to the subject matter hereof.
Each of the Company and Grantee hereby declares and represents that no promise
or agreement not herein expressed has been made and that this Agreement contains
the entire agreement between and among the parties hereto with respect to the
Option and supersedes and makes null and void any prior agreements between or
among TCI, the Company and Grantee, or any of them, regarding the Option.
17. Amendment. This Agreement may be amended, modified or supplemented by
the Company, without the consent of the Grantee, (i) to cure any ambiguity or to
correct or supplement any provision herein which may be defective or
inconsistent with any other provision herein or (ii) to make such other changes
as the Company, upon advice of counsel, determines are necessary or advisable
because of the adoption or promulgation of, or change in or of the
interpretation of, any law or governmental rule or regulation, including,
without limitation, any applicable federal or state securities laws. Except as
provided above, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
18. Definitions. As used in this Agreement, the following terms have the
corresponding meanings:
"Aggregate Option Price" means an amount equal to one-half percent
(1/2%) of TCI's Net Investment as of the first to occur of the date of the
Distribution and the date on which the Option first becomes exercisable, but
excluding any portion of TCI's Net Investment that as of such date is
represented by a promissory note or other evidence of indebtedness from the
Company (or any of its subsidiaries) to TCI (or any subsidiary of TCI).
"Cause" has the meaning ascribed thereto in any employment agreement
between Grantee and TCI or any of its Subsidiaries, and in the absence of any
such employment agreement means 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 incapacity, or negligence
in the performance of any of one's material duties or responsibilities that
continues after written notice from the Company, as determined conclusively by
the TCI Committee.
"Company Series A Common Stock" means the Series A Common Stock, $1.00
par value per share, of the Company.
"Company Series B Common Stock" means the Series B Common Stock, $1.00
par value per share, of the Company.
"Determination Date" means February 1, 1996.
7
<PAGE>
"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.
"Distribution" means the proposed distribution by TCI, in a transaction
intended to be a tax-free spin-off, of 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.
"Domestic Relations Order" means a domestic relations order as defined
by the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
"Fair Market Value" of a share of Company Series A Common Stock or
Company Series B Common 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 such series 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 such
series is listed on an exchange, on the principal exchange on which such series
is listed. If for any day the Fair Market Value of a share of any Company Series
A Common Stock or Company Series B Common Stock 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 Company Board on the basis of such quotations and other
considerations as the Company Board deems appropriate.
"Good Reason" means the occurrence of any of the following prior to any
termination of employment by Grantee:
(i) any reduction in Grantee's annual rate of salary;
(ii) a failure by TCI to continue in effect any employee benefit plan
in which Grantee was participating, or the taking of any action by TCI that
would adversely affect Grantee's participation in, or materially reduce
Grantee's benefits under, any such employee benefit plan, unless such
failure or such taking of any action adversely affects the senior members
of the corporate management of TCI generally; or
(iii) the assignment to Grantee of duties and responsibilities that are
materially more oppressive or onerous than those attendant to Grantee's
position on the Determination Date.
"NASDAQ" means the Nasdaq Stock Market.
8
<PAGE>
"Option Price" means an amount per Option Share equal to the quotient
of (i) the Aggregate Option Price divided by (ii) the total number of Option
Shares on the date of the Distribution, immediately after giving effect thereto,
as such amount per Option Share may be adjusted from time to time after the
Distribution pursuant to paragraph 9 hereof. Within five business days after the
date of the Distribution, the Company shall give Grantee written notice of the
Option Price as of the date of the Distribution, which notice shall be
conclusive absent manifest error.
"Option Shares" means an aggregate number of shares of Company Series A
Common Stock equal to one-half percent ( 1/2%) of the total number of shares of
Company Series A Common Stock and Company Series B Common Stock issued and
outstanding on the date of the Distribution, immediately after giving effect
thereto. Within five business days after the date of the Distribution, the
Company shall give Grantee written notice of the aggregate number of the Option
Shares as of the date of the Distribution, which notice shall be conclusive
absent manifest error.
"Other Options" means the options to purchase shares of Company Series
A Common Stock granted pursuant to those other Option Agreements dated as of the
date hereof between the Company and the grantees named therein, respectively.
"Reorganization Agreement" means the Reorganization Agreement to be
entered into by TCI, TCIC, the Company and certain other subsidiaries of TCI in
connection with the Distribution to 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.
"Subsidiary" of TCI means any present or future subsidiary (as defined
in Section 424(f) of the Code) of TCI or any business entity in which TCI owns,
directly or indirectly, 50% or more of the voting, capital or profits interests.
An entity shall be deemed a subsidiary of TCI for purposes of this definition
only for such periods as the requisite ownership or control relationship is
maintained.
"TCIC" means TCI Communications, Inc., a Delaware corporation.
"TCI's Net Investment" means, as of any relevant date, the cumulative
amount invested by TCI and its predecessor (including their respective
subsidiaries other than the Company and its subsidiaries) in the Company, its
subsidiaries and the respective predecessors of the Company and its subsidiaries
prior to and including such date, less the aggregate amount of all dividends and
distributions made by the Company, its subsidiaries and the respective
predecessors of the Company and its subsidiaries to TCI and its predecessor
(including their respective subsidiaries other than the Company and its
subsidiaries) prior to and including such date.
9
<PAGE>
IN WITNESS WHEREOF, the Company and Grantee have caused this Agreement
to be duly executed and delivered as of the date first written above.
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
--------------------------------
Name: Gary S. Howard
Title: President
---------------------------------------
David P. Beddow
10
<PAGE>
Exhibit A to Agreement
dated as of December __, 1996
TCI SATELLITE ENTERTAINMENT, INC.
Option to Purchase Common Stock
Designation of Beneficiary
I, ___________________________________________ (the "Grantee"), hereby
declare
that upon my death __________________________________________ (the
"Beneficiary") of Name
_____________________________________________________________________________,
Street Address City State Zip Code
who is my _________________________________________________, shall be entitled
Relationship to Grantee
to the
Option and all other rights accorded Grantee by the above-referenced grant
agreement (the "Agreement").
It is understood that this Designation of Beneficiary is made pursuant to
the Agreement and is subject to the conditions stated herein, including the
Beneficiary's survival of Grantee's death. If any such condition is not
satisfied, such rights shall devolve according to Grantee's will or the laws of
descent and distribution.
All prior designations of beneficiary under the Agreement are hereby
revoked. This Designation of Beneficiary may only be revoked in writing, signed
by Grantee, and filed with Tele-Communications, Inc. and TCI Satellite
Entertainment, Inc., prior to Grantee's death.
___________________________ ______________________________________________
Date Grantee
<PAGE>
[EXECUTION COPY]
EXHIBIT 10.28
U.S. $750,000,000
CREDIT AGREEMENT,
dated as of
December 31, 1996,
among
TCI SATELLITE ENTERTAINMENT, INC.,
as the Borrower,
THE BANK OF NOVA SCOTIA,
as the Administrative Agent,
NATIONSBANK OF TEXAS, N.A.,
as the Syndication Agent,
CREDIT LYONNAIS NEW YORK BRANCH,
as the Documentation Agent,
VARIOUS FINANCIAL INSTITUTIONS,
as the Lenders,
and
THE BANK OF NOVA SCOTIA,
CREDIT LYONNAIS NEW YORK BRANCH
and
NATIONSBANK OF TEXAS, N.A.,
as the Arranging Agents.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C>
1.1. Defined Terms................................................... 2
1.2. Use of Defined Terms............................................ 37
1.3. Cross-References................................................ 37
1.4. Accounting and Financial Determinations......................... 37
ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE
PROCEDURES, NOTES AND LETTERS OF CREDIT
2.1. Commitments..................................................... 38
2.1.1. Commitment of Each Lender....................................... 38
2.1.2. Letter of Credit Commitment..................................... 38
2.1.3. Commitment Amount Availability.................................. 39
2.1.4. Lenders Not Permitted or Required to Make Loans................. 39
2.1.5. Issuer Not Permitted or Required to Issue Letters
of Credit..................................................... 39
2.2. Reduction of the Commitment Amounts............................. 39
2.2.1. Optional........................................................ 39
2.2.2. Mandatory....................................................... 39
2.3. Borrowing Procedures............................................ 41
2.4. Continuation and Conversion Elections........................... 41
2.5. Funding......................................................... 42
2.6. Issuance Procedures............................................. 42
2.6.1. Other Lenders' Participation.................................... 42
2.6.2. Disbursements................................................... 43
2.6.3. Reimbursement................................................... 43
2.6.4. Deemed Disbursements............................................ 44
2.6.5. Nature of Reimbursement Obligations............................. 44
2.7. Notes........................................................... 45
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
3.1. Repayments and Prepayments...................................... 46
3.2. Interest Provisions............................................. 47
3.2.1. Rates........................................................... 47
3.2.2. Post-Maturity Rates............................................. 47
3.2.3. Payment Dates................................................... 48
3.3. Fees............................................................ 48
3.3.1. Commitment Fee.................................................. 48
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
3.3.2. Agency Fees..................................................... 49
3.3.3. Letter of Credit Fee............................................ 49
ARTICLE IV
CERTAIN CD RATE, LIBO RATE AND OTHER PROVISIONS
4.1. Fixed Rate Lending Unlawful..................................... 49
4.2. Deposits Unavailable............................................ 50
4.3. Increased Fixed Rate Loan Costs, etc............................ 50
4.4. Funding Losses.................................................. 50
4.5. Increased Capital Costs......................................... 51
4.6. Taxes........................................................... 52
4.7. Payments, Computations, etc..................................... 54
4.8. Sharing of Payments............................................. 55
4.9. Setoff.......................................................... 56
4.10. Lender's Duty to Mitigate....................................... 56
4.11. Replacement of Lenders.......................................... 57
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
5.1. Initial Credit Extension........................................ 58
5.1.1. Resolutions, etc................................................ 58
5.1.2. Delivery of Notes............................................... 58
5.1.3. Delivery of Certain Documents................................... 59
5.1.4. Payment of Outstanding Indebtedness, etc........................ 59
5.1.5. Borrower Pledge Agreement....................................... 59
5.1.6. Security Agreements............................................. 60
5.1.7. Patent Security Agreements, Copyright Security
Agreements and Trademark Security Agreements.................. 61
5.1.8. Concentration Account Agreement................................. 61
5.1.9. Other Loan Documents............................................ 61
5.1.10. Subsidiary Guaranties........................................... 61
5.1.11. Financial Information, etc...................................... 61
5.1.12. Closing Date Certificate........................................ 62
5.1.13. Compliance Certificate.......................................... 62
5.1.14. Solvency, etc................................................... 62
5.1.15. Insurance....................................................... 62
5.1.16. Opinions of Counsel............................................. 62
5.1.17. Closing Fees, Expenses, etc..................................... 62
5.2. All Credit Extensions........................................... 62
5.2.1. Compliance with Warranties, No Default, etc..................... 63
5.2.2. Credit Extension Request, etc................................... 63
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
5.2.3. Satisfactory Legal Form......................................... 63
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Organization, etc............................................... 64
6.2. Due Authorization, Non-Contravention, etc....................... 64
6.3. Government Approval, Regulation, etc............................ 65
6.4. Validity, etc................................................... 65
6.5. Financial Information........................................... 65
6.6. No Material Adverse Effect...................................... 66
6.7. Litigation, Labor Controversies, etc............................ 66
6.8. Compliance with Laws............................................ 66
6.9. Subsidiaries.................................................... 66
6.10. Ownership of Properties......................................... 66
6.11. Taxes........................................................... 66
6.12. Pension and Welfare Plans....................................... 67
6.13. Environmental Warranties........................................ 67
6.14. Intellectual Property........................................... 68
6.15. Regulations G, U and X.......................................... 69
6.16. Accuracy of Information......................................... 69
ARTICLE VII
COVENANTS
7.1. Affirmative Covenants........................................... 69
7.1.1. Financial Information, Reports, Notices, etc.................... 69
7.1.2. Compliance with Laws, etc....................................... 72
7.1.3. Maintenance of Properties....................................... 72
7.1.4. Insurance....................................................... 72
7.1.5. Books and Records............................................... 73
7.1.6. Environmental Covenant.......................................... 73
7.1.7. Future Subsidiaries............................................. 74
7.1.8. Additional Collateral........................................... 75
7.1.9. Rate Protection Agreements...................................... 75
7.1.10. Future Leased Property.......................................... 76
7.1.11. Use of Proceeds................................................. 76
7.1.12. TCIC Credit Agreement........................................... 76
7.2. Negative Covenants.............................................. 77
7.2.1. Business Activities............................................. 77
7.2.2. Indebtedness.................................................... 77
7.2.3. Liens........................................................... 78
7.2.4. Financial Condition and Operations.............................. 80
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
7.2.5. Investments..................................................... 82
7.2.6. Restricted Payments, etc........................................ 83
7.2.7. Capital Expenditures, etc....................................... 84
7.2.8. Subsidiaries.................................................... 84
7.2.9. Take or Pay Contracts........................................... 84
7.2.10. Consolidation, Merger, etc...................................... 84
7.2.11. Permitted Dispositions.......................................... 85
7.2.12. Modification of Certain Agreements.............................. 85
7.2.13. Transactions with Affiliates.................................... 85
7.2.14. Negative Pledges, Restrictive Agreements, etc................... 86
7.2.15. Sale and Leaseback.............................................. 86
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Listing of Events of Default.................................... 87
8.1.1. Non-Payment of Obligations...................................... 87
8.1.2. Breach of Warranty.............................................. 87
8.1.3. Non-Performance of Certain Covenants and
Obligations..................................................... 87
8.1.4. Non-Performance of Other Covenants and
Obligations..................................................... 87
8.1.5. Default on Other Indebtedness................................... 87
8.1.6. Judgments....................................................... 88
8.1.7. Pension Plans................................................... 88
8.1.8. Control of the Borrower......................................... 88
8.1.9. Bankruptcy, Insolvency, etc..................................... 88
8.1.10. Impairment of Security, etc..................................... 89
8.1.11. Material Adverse Change......................................... 89
8.1.12. Satellite Failure............................................... 90
8.2. Action if Bankruptcy............................................ 90
8.3. Action if Other Event of Default................................ 90
ARTICLE IX
THE AGENTS
9.1. Actions......................................................... 90
9.2. Funding Reliance, etc........................................... 91
9.3. Exculpation..................................................... 92
9.4. Successor....................................................... 92
9.5. Loans by Agents................................................. 93
9.6. Credit Decisions................................................ 93
9.7. Copies, etc..................................................... 93
</TABLE>
-iv-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE X
MISCELLANEOUS PROVISIONS
<S> <C>
10.1. Waivers, Amendments, etc........................................ 94
10.2. Notices......................................................... 95
10.3. Payment of Costs and Expenses................................... 95
10.4. Indemnification................................................. 66
10.5. Survival........................................................ 98
10.6. Severability.................................................... 98
10.7. Headings........................................................ 98
10.8. Execution in Counterparts, Effectiveness, etc................... 98
10.9. Governing Law; Entire Agreement................................. 98
10.10. Successors and Assigns.......................................... 99
10.11. Sale and Transfer of Loans and Notes;
Participations in Loans and Notes............................. 99
10.11.1. Assignments..................................................... 99
10.11.2. Participations.................................................. 101
10.12. Other Transactions.............................................. 102
10.13. Execution on Behalf of Corporation.............................. 102
10.14. Forum Selection and Consent to Jurisdiction..................... 102
10.15. Waiver of Jury Trial............................................ 103
</TABLE>
SCHEDULE I - Disclosure Schedule
EXHIBIT A - Form of Note
EXHIBIT B - Form of Borrowing Request
EXHIBIT C - Form of Issuance Request
EXHIBIT D - Form of Continuation/Conversion Notice
EXHIBIT E - Form of Lender Assignment Agreement
EXHIBIT F - Form of Borrower Pledge Agreement
EXHIBIT G-1 - Form of Borrower Security Agreement
EXHIBIT G-2 - Form of Subsidiary Security Agreement
EXHIBIT H - Form of Subsidiary Guaranty
EXHIBIT I - Form of Contract Assignment Agreement
EXHIBIT J - Form of Consent and Agreement
EXHIBIT K - Form of Borrower Closing Date Certificate
EXHIBIT L - Form of Compliance Certificate
EXHIBIT M - Form of Solvency Certificate
EXHIBIT N - Form of Exemption Certificate
EXHIBIT O - Form of Opinion of Counsel to Obligors
-v-
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of December 31, 1996, is among TCI
SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the "Borrower"), the
--------
various financial institutions as are or may become parties hereto
(collectively, the "Lenders"), NATIONSBANK OF TEXAS, N.A. ("NationsBank"), as
------- -----------
syndication agent for the Lenders (in such capacity, the "Syndication Agent"),
-----------------
CREDIT LYONNAIS NEW YORK BRANCH ("Credit Lyonnais"), as documentation agent for
---------------
the Lenders (in such capacity, the "Documentation Agent"), each of Credit
-------------------
Lyonnais, NationsBank and THE BANK OF NOVA SCOTIA ("Scotiabank") as arranging
----------
agents for the Lenders (in such capacity, the "Arranging Agents"), and
----------------
Scotiabank, as administrative agent for the Lenders and such Agents (in such
capacity, the "Administrative Agent"; together with the Arranging Agents, the
--------------------
Syndication Agent and the Documentation Agent, the "Agents" and each an
------
"Agent").
-----
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower and its various Restricted Subsidiaries (such
capitalized term, and other capitalized terms used herein, to have the meanings
provided in Section 1.1) are engaged in the business of providing satellite
-----------
broadcasting service to residential and commercial subscribers;
WHEREAS, the Borrower's Unrestricted Subsidiary, Tempo, is engaged in the
business of the construction and ownership of satellites for the direct
satellite broadcast market and the financing thereof;
WHEREAS, subject to the terms of this Agreement (including Article V), the
---------
Borrower desires to obtain from the Lenders
(a) a Commitment (to include availability for Letters of Credit)
pursuant to which Borrowings in a maximum aggregate principal amount
(together with all Letter of Credit Outstandings) not to exceed
$750,000,000 will be made to the Borrower from time to time prior to the
Commitment Termination Date; and
(b) a Letter of Credit sub-limit under the Commitment pursuant to
which each Issuer will issue Letters of Credit for the account of the
Borrower from time to time prior to the Commitment Termination Date in a
maximum aggregate Stated Amount at any one time outstanding not to exceed
$100,000,000 (provided that the aggregate outstanding principal amount of
--------
Loans and Letter of Credit Outstandings
<PAGE>
at any time shall not exceed the then existing Commitment Amount);
with all the proceeds of the Credit Extensions to be used for the purposes
specified in Section 7.1.11; and
--------------
WHEREAS, the Lenders are willing, on the terms and subject to the
conditions hereinafter set forth (including Article V), to extend such
---------
Commitment and make such Loans to the Borrower and issue (or participate in)
Letters of Credit for the account of the Borrower and its Restricted
Subsidiaries;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Defined Terms. The following capitalized terms (whether or not
-------------
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Administrative Agent" is defined in the preamble and includes each other
-------------------- --------
Person as shall have subsequently been appointed as the successor Administrative
Agent pursuant to Section 9.4.
-----------
"Affiliate" of any Person means any other Person which, directly or
---------
indirectly, controls, is controlled by or is under common control with such
Person (excluding with respect to the Borrower any (i) trustee under, or any
committee with responsibility for administering, any Plan, (ii) Lender and (iii)
Agent). A Person shall be deemed to be "controlled by" another Person if such
other Person possesses, directly or indirectly, power
(a) to vote 10% or more of the securities having ordinary voting
power for the election of directors or managing general partners; or
(b) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Agent" and "Agents" are defined in the preamble and include each other
----- ------ --------
Person as shall have subsequently been appointed as a successor Agent pursuant
to Section 9.4.
-----------
-2-
<PAGE>
"Agreement" means, on any date, this Credit Agreement as originally in
---------
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"Alternate Base Rate" means, on any date and with respect to all Base Rate
-------------------
Loans, a fluctuating rate of interest per annum equal to the higher of
(a) the Base Rate in effect on such day; and
(b) the Federal Funds Rate in effect on such day plus 1/2 of 1%.
Changes in the rate of interest on that portion of any Loans maintained as Base
Rate Loans will take effect simultaneously with each change in the Alternate
Base Rate. The Administrative Agent will give notice promptly to the Borrower
and the Lenders of changes in the Alternate Base Rate.
"Annualized Cash Flow" means, as of any date of determination, EBITDA for
--------------------
the Fiscal Quarter ending on or immediately prior to such date of determination
multiplied by four.
"Annualized Cash Flow to Pro Forma Debt Service Ratio" means the ratio of
----------------------------------------------------
(a) Annualized Cash Flow to (b) Pro Forma Debt Service.
--
"Annualized Cash Flow to Total Interest Expense Ratio" means, as of the
----------------------------------------------------
last day of any Fiscal Quarter, the ratio of (a) Annualized Cash Flow to (b)
--
Total Interest Expense for such Fiscal Quarter and the three immediately
preceding Fiscal Quarters.
"Annualized Revenue" means, as of any date of determination, Revenue for
------------------
the Fiscal Quarter ending on or immediately prior to such date of determination
multiplied by four.
"Annualized Revenue per Subscriber" means, as of any date of determination,
---------------------------------
the quotient of (a) Annualized Revenue determined in respect of such date of
determination divided by (b) the average number of Basic Subscribers during the
-------
Fiscal Quarter ending on or immediately prior to such date of determination.
"Annual Pro-Forma Interest Expense" means, as of any date of determination,
---------------------------------
Pro-Forma Interest Expense for the four complete Fiscal Quarters immediately
succeeding such date of determination.
-3-
<PAGE>
"Applicable Margin" means at all times during the applicable periods set
-----------------
forth below:
(a) the Applicable Margin from the Effective Date through (and
including) the Satellite Event Date shall be 1.50% for Base Rate Loans,
2.50% for LIBO Rate Loans and 2.75% for CD Rate Loans;
(b) thereafter with respect to the unpaid principal amount of each
Loan maintained as a Base Rate Loan, the applicable percentage set forth
below under (i) Column A if the Senior Debt to Annualized Cash Flow Ratio
is greater than or equal to 4.0:1, (ii) Column B if the Senior Debt to
Annualized Cash Flow Ratio is greater than or equal to 3.0:1 and less than
4.0:1, and (iii) Column C if the Senior Debt to Annualized Cash Flow Ratio
is less than 3.0:1:
<TABLE>
<CAPTION>
Total Debt
to Annualized Cash
Flow Ratio Column A Column B Column C
----------------------- --------- --------- ---------
<S> <C> <C> <C>
Greater than or equal
to 7.0:1 1.25% 1.125% 1.00%
Greater than or equal
to 6.5:1 and less
than 7.0:1 1.00% 0.750% 0.625%
Greater than or equal
to 6.0:1 and less
than 6.5:1 0.750% 0.625% 0.500%
Greater than or equal
to 5.5:1 and less
than 6.0:1 0.500% 0.375% 0.250%
Greater than or equal
to 5.0:1 and less
than 5.5:1 0.250% 0.125% 0.000%
Less than 5.0:1 0.00% 0.00% 0.000%;
</TABLE>
(c) thereafter with respect to the unpaid principal amount of each
Loan maintained as a LIBO Rate Loan, the applicable percentage set forth
below under (i) Column A if the Senior Debt to Annualized Cash Flow Ratio
is greater than or equal to 4.0:1, (ii) Column B if the Senior Debt to
Annualized Cash Flow Ratio is greater than or equal to 3.0:1 and less than
4.0:1, and (iii) Column C if the Senior Debt to Annualized Cash Flow Ratio
is less than 3.0:1:
-4-
<PAGE>
<TABLE>
<CAPTION>
Total Debt
to Annualized Cash
Flow Ratio Column A Column B Column C
----------------------- --------- --------- ---------
<S> <C> <C> <C>
Greater than or equal
to 7.0:1 2.250% 2.125% 2.000%
Greater than or equal
to 6.5:1 and less
than 7.0:1 2.000% 1.750% 1.625%
Greater than or equal
to 6.0:1 and less
than 6.5:1 1.750% 1.625% 1.500%
Greater than or equal
to 5.5:1 and less
than 6.0:1 1.500% 1.375% 1.250%
Greater than or equal
to 5.0:1 and less
than 5.5:1 1.250% 1.125% 1.000%
Greater than or equal
to 4.5:1 and less
than 5.0:1 0.875% 0.750% 0.625%
Less than 4.5:1 0.625% 0.500% 0.375%;
</TABLE>
(d) thereafter with respect to the unpaid principal amount of each
Loan maintained as a CD Rate Loan, the applicable percentage set forth
below under (i) Column A if the Senior Debt to Annualized Cash Flow Ratio
is greater than or equal to 4.0:1, (ii) Column B if the Senior Debt to
Annualized Cash Flow Ratio is greater than or equal to 3.0:1 and less than
4.0:1, and (iii) Column C if the Senior Debt to Annualized Cash Flow Ratio
is less than 3.0:1:
<TABLE>
<CAPTION>
Total Debt
to Annualized Cash
Flow Ratio Column A Column B Column C
----------------------- --------- --------- ---------
<S> <C> <C> <C>
Greater than or equal
to 7.0:1 2.375% 2.250% 2.125%
Greater than or equal
to 6.5:1 and less
than 7.0:1 2.125% 1.875% 1.750%
Greater than or equal
to 6.0:1 and less
than 6.5:1 1.875% 1.750% 1.625%
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Total Debt
to Annualized Cash
Flow Ratio Column A Column B Column C
----------------------- -------- -------- --------
<S> <C> <C> <C>
Greater than or equal
to 5.5:1 and less
than 6.0:1 1.625% 1.500% 1.375%
Greater than or equal
to 5.0:1 and less
than 5.5:1 1.375% 1.250% 1.125%
Greater than or equal
to 4.5:1 and less
than 5.0:1 1.000% 0.875% 0.750%
Less than 4.5:1 0.750% 0.625% 0.500%.
</TABLE>
The Total Debt to Annualized Cash Flow Ratio and the Senior Debt to
Annualized Cash Flow Ratio used to compute the Applicable Margin following the
Satellite Event Date shall be the Total Debt to Annualized Cash Flow Ratio and
the Senior Debt to Annualized Cash Flow Ratio set forth in the Compliance
Certificate most recently delivered by the Borrower to the Administrative Agent;
changes in the Applicable Margin resulting from a change in the Total Debt to
Annualized Cash Flow Ratio and the Senior Debt to Annualized Cash Flow Ratio
shall become effective upon delivery by the Borrower to the Administrative Agent
of a new Compliance Certificate pursuant to clause (c) of Section 7.1.1. If the
---------- -------------
Borrower shall fail to deliver a Compliance Certificate within 60 days after the
end of any Fiscal Quarter (or within 105 days, in the case of the last Fiscal
Quarter of the Fiscal Year) as required pursuant to clause (c) of Section 7.1.1,
---------- -------------
the Applicable Margin from and including the 61st (or 106th, as the case may be)
day after the end of such Fiscal Quarter to but not including the date the
Borrower delivers to the Administrative Agent a Compliance Certificate shall
conclusively equal the highest Applicable Margin set forth above for such type
of Loans.
"Arranging Agents" is defined in the preamble and includes each other
---------------- --------
Person as shall have subsequently been appointed as a successor Arranging Agent
pursuant to Section 9.4.
-----------
"Assessment Rate" means, for any Interest Period for CD Rate Loans, the net
---------------
annual assessment rate (rounded upwards, if necessary, to the next higher 1/100
of 1%) estimated by the Administrative Agent to be the then current annual
assessment payable by the Administrative Agent to the Federal Deposit Insurance
Corporation (or any successor) for insuring time deposits at offices of the
Administrative Agent in the United States.
-6-
<PAGE>
"Assignee Lender" is defined in Section 10.11.1.
--------------- ---------------
"Authorized Officer" means, relative to the Borrower and any other Obligor,
------------------
those of its officers or managing members (in the case of a limited liability
company) whose signatures and incumbency shall have been initially certified to
the Arranging Agents and the Lenders pursuant to Section 5.1.1 or thereafter
-------------
similarly certified by the Borrower or such other Obligor to the Administrative
Agent.
"Available Commitment Amount" means an amount equal to the Commitment
---------------------------
Amount less the Blocked Amount.
"Base Rate" means, at any time, the rate of interest then most recently
---------
established by Scotiabank in New York, New York as its base rate for Dollars
loaned in the United States. The Base Rate is not necessarily intended to be
the lowest rate of interest determined by Scotiabank in connection with
extensions of credit.
"Base Rate Loan" means a Loan bearing interest at a fluctuating rate
--------------
determined by reference to the Alternate Base Rate.
"Basic Subscriber" means (a) each dwelling unit, including a separate
----------------
apartment within an apartment building, in respect of which the Borrower and its
Restricted Subsidiaries are paid the full monthly price for their basic
satellite services in accordance with standard basic rates generally charged by
the Borrower and its Restricted Subsidiaries in respect of such satellite
system, none of which is more than 60 days delinquent in its payment of basic
service and (b) each Equivalent Subscriber.
"Blocked Amount" means (a) for the period commencing on the Effective Date
--------------
and ending on the Satellite Event Date $400,000,000, (b) for the period
commencing on the Satellite Event Date and ending on the date of the
Subordinated Debt Event $200,000,000 and (c) thereafter $0.
"Borrower" is defined in the preamble.
-------- --------
"Borrower Closing Date Certificate" means the closing date certificate
---------------------------------
executed and delivered by the Borrower pursuant to Section 5.1.12, substantially
--------------
in the form of Exhibit K hereto.
---------
"Borrower Pledge Agreement" means the pledge agreement executed and
-------------------------
delivered by the Borrower pursuant to Section 5.1.5, substantially in the form
-------------
of Exhibit F hereto, as amended, supplemented, amended and restated or otherwise
---------
modified from time to time.
-7-
<PAGE>
"Borrower Security Agreement" means the security agreement executed and
---------------------------
delivered by the Borrower pursuant to Section 5.1.6, substantially in the form
-------------
of Exhibit G-1 hereto, as amended, supplemented, amended and restated or
-----------
otherwise modified from time to time.
"Borrowing" means the Loans of the same type and, in the case of Fixed Rate
---------
Loans, having the same Interest Period made by all Lenders required to make such
Loans on the same Business Day and pursuant to the same Borrowing Request in
accordance with Section 2.1.
-----------
"Borrowing Request" means a Loan request and certificate duly executed by
-----------------
an Authorized Officer of the Borrower, substantially in the form of Exhibit B
---------
hereto.
"Business Day" means
------------
(a) any day which is neither a Saturday or Sunday nor a legal holiday
on which banks are authorized or required to be closed in New York, New
York; and
(b) relative to the making, continuing, prepaying or repaying of any
LIBO Rate Loans, any day which is a Business Day described in clause (a)
----------
above and which is also a day on which dealings in Dollars are carried on
in the interbank eurodollar market of the Administrative Agent's LIBOR
Office.
"Capital Expenditures" means, for any period, the aggregate amount of all
--------------------
expenditures of the Borrower and its Restricted Subsidiaries for fixed or
capital assets made during such period which, in accordance with GAAP, would be
classified as capital expenditures.
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's capital, whether now outstanding or
issued after the Effective Date.
"Capitalized Lease Liabilities" means all monetary obligations of the
-----------------------------
Borrower or any of its Restricted Subsidiaries under any leasing or similar
arrangement which, in accordance with GAAP, would be classified as capitalized
leases, and, for purposes of this Agreement and each other Loan Document, the
amount of such obligations shall be the capitalized amount thereof.
-8-
<PAGE>
"Cash Equivalent Investment" means, at any time:
--------------------------
(a) any direct obligation of (or guaranteed by) the United States
Government (or any agency or instrumentality thereof) maturing not more
than one year after such time;
(b) commercial paper, maturing not more than nine months from the
date of issue, which is issued by
(i) a corporation (other than an Affiliate of any Obligor)
organized under the laws of any state of the United States or of the
District of Columbia and rated A-1 by S&P or P-1 by Moody's, or
(ii) any Lender (or its holding company);
(c) any certificate of deposit or bankers acceptance, maturing not
more than one year after such time, which is issued by either
(i) any bank organized under the laws of the United States (or
any State thereof) and which has (x) a credit rating of Aa or better
from Moody's or a comparable rating from S&P and (y) a combined
capital and surplus greater than $500,000,000 (or the Dollar
equivalent thereof); or
(ii) any Lender; or
(d) any repurchase agreement entered into with any Lender or any
commercial banking institution of the stature referred to in clause (c)(i)
-------------
which
(i) is secured by a fully perfected security interest in any
obligation of the type described in clause (a), and
----------
(ii) has a market value at the time such repurchase agreement is
entered into of not less than 100% of the repurchase obligation of
such commercial banking institution thereunder.
"CD Rate" means, relative to any Interest Period for CD Rate Loans, the
-------
rate of interest determined by the Administrative Agent to be the arithmetic
average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the
prevailing rates per annum bid at 12:00 noon, New York City time (or as soon
thereafter as practicable), on the first day of such Interest Period by two or
more certificate of deposit dealers of recognized standing located in New York,
New York for the purchase at face value from the Administrative Agent of its
-9-
<PAGE>
certificates of deposit in an amount approximately equal to the CD Rate Loan
being made or maintained by the Administrative Agent to which such Interest
Period applies and having a maturity approximately equal to such Interest
Period.
"CD Rate Loan" means a Loan bearing interest, at all times during an
------------
Interest Period applicable to such Loan, at a fixed rate determined by reference
to the CD Rate (Reserve Adjusted).
"CD Rate (Reserve Adjusted)" means, relative to any Loan to be made,
--------------------------
continued or maintained as, or converted into, a CD Rate Loan for any Interest
Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of
1%) determined pursuant to the following formula:
CDR(RA) = CDR + AR
------------------
(1.00 - CDRR)
where:
CDR(RA) = CD Rate (Reserve Adjusted)
CDR = CD Rate
CDRR = CD Reserve Requirement
AR = Assessment Rate
The CD Rate (Reserve Adjusted) for any Interest Period for CD Rate Loans will be
determined by the Administrative Agent on the basis of the CD Reserve
Requirement and Assessment Rate in effect on, and the applicable rates furnished
to and received by the Administrative Agent on, the first day of such Interest
Period.
"CD Reserve Requirement" means, relative to any Interest Period for CD Rate
----------------------
Loans, a percentage (expressed as a decimal) equal to the maximum aggregate
reserve requirements (including all basic, supplemental, marginal and other
reserves and taking into account any transitional adjustments or other scheduled
changes in reserve requirements), specified under regulations issued from time
to time by the F.R.S. Board and then applicable to the class of banks of which
the Administrative Agent is a member, on deposits of the type used as a
reference in determining the CD Rate and having a maturity approximately equal
to such Interest Period.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
------
Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
-------
Liability Information System List.
-10-
<PAGE>
"Change in Control" means
-----------------
(a) any "person" or "group" (as such terms are used in Rule 13d-5
under the Exchange Act, and Sections 13(d) and 14(d) of the Exchange Act)
of persons (other than John Malone, the legal heirs of Bob Magness or John
Malone, Primestar (so long as all the then other partners in Primestar were
partners in Primestar on the Effective Date) and/or Persons which were the
partners of Primestar on the Effective Date becomes, directly or
indirectly, in a single transaction or in a related series of transactions
by way of merger, consolidation, or other business combination or
otherwise, the "beneficial owner" (as such term is used in Rule 13d-3 of
the Exchange Act) of 25% or more of the outstanding shares of Voting Stock
of the Borrower; or
(b) both John Malone and Gary Howard cease (i) to be directors of the
Borrower or (ii) to hold the same offices with the Borrower as such Person
held on the Effective Date and with at least substantially similar
responsibilities.
"Code" means the Internal Revenue Code of 1986, and the regulations
----
thereunder, in each case as amended, reformed or otherwise modified from time to
time.
"Collateral Subsidiary" is defined in clause (b) of Section 7.1.8.
--------------------- ---------- -------------
"Commitment" means, relative to any Lender, such Lender's obligation to
----------
make Loans pursuant to Section 2.1.1.
-------------
"Commitment Amount" means $750,000,000, as such amount may be reduced from
-----------------
time to time pursuant to Section 2.2 or Article IV.
----------- ----------
"Commitment Termination Date" means the earliest of
---------------------------
(a) January 31, 1997 (if the initial Credit Extension has not
occurred on or prior to such date);
(b) June 30, 2005;
(c) the date on which the Commitment Amount is terminated in full or
reduced to zero pursuant to Section 2.2; and
-----------
(d) the date on which any Commitment Termination Event occurs.
-11-
<PAGE>
Upon the occurrence of any event described in the preceding clause (c) or (d),
---------- ---
the Commitment shall terminate automatically and without any further action.
"Commitment Termination Event" means
----------------------------
(a) the occurrence of any Event of Default described in clauses (a)
-----------
through (d) of Section 8.1.9; or
--- -------------
(b) the occurrence and continuance of any other Event of Default and
either
(i) the declaration of all or any portion of the Loans to be due
and payable pursuant to Section 8.3, or
-----------
(ii) the giving of notice by the Administrative Agent, acting at
the direction of the Required Lenders, to the Borrower that the
Commitments have been terminated.
"Compliance Certificate" means a certificate duly completed and executed by
----------------------
an Authorized Officer of the Borrower, substantially in the form of Exhibit L
---------
hereto, as amended, supplemented, amended and restated or otherwise modified
from time to time, together with such changes thereto as the Administrative
Agent may from time to time reasonably request for the purpose of monitoring the
Borrower's compliance with the financial covenants contained herein.
"Concentration Account Agreement" means any concentration account agreement
-------------------------------
executed and delivered by a concentration account bank, in each case
substantially in the form of Exhibit E to a Security Agreement, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"Consent and Agreement" means, as the context may require, (i) the Consent
---------------------
and Agreement, dated as of December 31, 1996, between TCI and the Administrative
Agent or (ii) the Consent and Agreement, dated as of December 31, 1996, between
TCIC and the Administrative Agent, each substantially in the form of Exhibit J
---------
hereto, as amended, supplemented, amended and restated or otherwise modified
from time to time.
"Contingent Liability" means any agreement, undertaking or arrangement by
--------------------
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the Indebtedness of any
other Person (other than by endorsements of instruments in the course of
collection), or guarantees the payment of dividends
-12-
<PAGE>
or other distributions upon the shares of any other Person. The amount of any
Person's obligation under any Contingent Liability shall (subject to any
limitation set forth therein) be deemed to be the outstanding amount of the
debt, obligation or other liability guaranteed thereby.
"Continuation/Conversion Notice" means a notice of continuation or
------------------------------
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit D hereto.
---------
"Contract Assignment Agreement" means the contract assignment agreement
-----------------------------
executed and delivered by an Authorized Officer of the Borrower pursuant to
Section 5.1.9, substantially in the form of Exhibit I hereto, as amended,
- ------------- ---------
supplemented, amended and restated or otherwise modified from time to time.
"Contractual Obligation", as applied to any Person, means any provision of
----------------------
any Securities issued by that Person or any indenture, mortgage, deed of trust,
security agreement, pledge agreement, guaranty, contract, undertaking, agreement
or instrument to which that Person is a party or by which it or any of its
properties is bound, or to which it or any of its properties is subject.
"Controlled Group" means all members of a controlled group of corporations
----------------
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Borrower, are
treated as a single employer under Section 414(b) or 414(c) of the Code or
Section 4001 of ERISA.
"Copyright Security Agreement" means any copyright security agreement
----------------------------
executed and delivered by the Borrower or a Restricted Subsidiary, as the case
may be, in each case substantially in the form of Exhibit C to a Security
Agreement, as amended, supplemented, amended and restated or otherwise modified
from time to time.
"Covered Taxes" means any Taxes other than Taxes imposed with respect to
-------------
any Agent or any Lender by reason of a connection between such Agent or such
Lender and the relevant taxing jurisdiction, including a connection arising from
such Person being or having been a citizen or resident of such jurisdiction, or
having or having had a permanent establishment or fixed place of business or
being or having been engaged in business therein, but excluding a connection
arising solely from such Person having executed, delivered, performed its
obligations or received any payment under, or enforced, this Agreement or any
other Loan Document. Taxes shall be considered Covered Taxes if such Taxes are
imposed on (i) the Agent solely by reason of a connection
-13-
<PAGE>
between a Lender (but not the Agent) and the relevant taxing jurisdiction or
(ii) a Lender solely by reason of a connection between the Agent or any other
Lender (but not such Lender) and the relevant taxing jurisdiction.
"Credit Extension" means, as the context may require,
----------------
(a) the making of a Loan by a Lender; or
(b) the issuance of any Letter of Credit, or the extension of any
Stated Expiry Date of any existing Letter of Credit, by an Issuer.
The conversion or continuation of any Loan shall not constitute a new Credit
Extension.
"Credit Extension Request" means, as the context may require, any Borrowing
------------------------
Request or Issuance Request.
"Default" means any Event of Default or any condition, occurrence or event
-------
which, after notice or lapse of time or both, would constitute an Event of
Default.
"Disbursement" is defined in Section 2.6.2.
------------ -------------
"Disbursement Date" is defined in Section 2.6.2.
----------------- -------------
"Disclosure Schedule" means the Disclosure Schedule attached hereto as
-------------------
Schedule I, as it may be amended, supplemented, amended and restated or
- ----------
otherwise modified from time to time by the Borrower with the written consent of
the Administrative Agent and the Required Lenders.
"Documentation Agent" is defined in the preamble and includes each other
------------------- --------
Person as shall have subsequently been appointed as the successor Documentation
Agent pursuant to Section 9.4.
-----------
"Dollar" and the sign "$" mean lawful money of the United States.
------ -
"Domestic Office" means, relative to any Lender, the office of such Lender
---------------
designated as such Lender's "Domestic Office" below its signature hereto or in a
Lender Assignment Agreement, or such other office of a Lender (or any successor
or assign of such Lender) within the United States as may be designated from
time to time by notice from such Lender, as the case may be, to each other
Person party hereto.
-14-
<PAGE>
"EBITDA" means, for the Borrower and its Restricted Subsidiaries, for any
------
applicable period, the sum (without duplication) for such period of
(a) Net Income,
plus
- ----
(b) the amount deducted in determining Net Income representing
amortization (including amortization with respect to goodwill, deferred
financing costs, other non-cash interest income and expense and all other
intangible assets),
plus
- ----
(c) the amount deducted in determining Net Income of all federal,
state and local income taxes (whether paid in cash or deferred),
plus
- ----
(d) Total Interest Expense plus, without duplication, any non-cash
interest expense,
plus
- ----
(e) the amount deducted in determining Net Income representing
depreciation of assets,
plus
- ----
(f) the amount deducted in determining Net Income representing other
non-cash expenses,
plus
- ----
(g) for purposes of clauses (f) and (g) of Section 7.2.4 only, the
------------------- -------------
amount deducted in determining Net Income of net income of the High Power
Satellite Transmission Subsidiary.
"Effective Date" means the date this Agreement becomes effective pursuant
--------------
to Section 10.8.
------------
"Environmental Laws" means all applicable federal, state or local statutes,
------------------
laws, ordinances, codes, rules, regulations and guidelines (including consent
decrees and administrative orders) relating to public health and safety and
protection of the environment.
-15-
<PAGE>
"Equity Interests", with respect to any Person, means any Capital Stock
----------------
issued by such Person, regardless of class or designation, or any limited or
general partnership interest in such Person, regardless of designation, and all
warrants, options, purchase rights, conversion or exchange rights, voting
rights, calls or claims of any character with respect thereto.
"Equivalent Subscribers" means all subscribers deemed to make up bulk
----------------------
subscribers (such as hotels and apartment buildings) of bulk basic subscription
services offered in a satellite system, where the number of Equivalent
Subscribers with respect to a bulk subscriber in such satellite system is deemed
to consist of the number obtained by dividing the monthly revenues for such bulk
subscriber by the average monthly basic subscription price for individual
subscribers in such satellite system. "Equivalent Subscriber" means each
---------------------
subscriber deemed to make up a bulk subscriber.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and any successor statute thereto of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections thereto.
"Event of Default" is defined in Section 8.1.
---------------- -----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Exemption Certificate" is defined in clause (b)(ii) of Section 4.6.
--------------------- -------------- -----------
"Federal Funds Rate" means, for any period, a fluctuating rate of interest
------------------
per annum equal for each day during such period to
(a) 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 for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank of
New York; or
(b) if such rate is not so published for any day which is a Business
Day, the average of the quotations for such day on such transactions
received by the Administrative Agent from three federal funds brokers of
recognized standing selected by it.
"Fiscal Quarter" means a quarter ending on the last day of March, June,
--------------
September and December.
-16-
<PAGE>
"Fiscal Year" means any period of twelve consecutive calendar months ending
-----------
on December 31; references to a Fiscal Year with a number corresponding to any
calendar year (e.g., the "1997 Fiscal Year") refer to the Fiscal Year ending on
----
December 31 of such calendar year.
"Fixed Rate Loan" means any CD Rate Loan or any LIBO Rate Loan.
---------------
"F.R.S. Board" means the Board of Governors of the Federal Reserve System
------------
or any successor thereto.
"Fulfillment Agreement" means the Fulfillment Agreement, dated as of August
---------------------
30, 1996, between TCIC and the Borrower, pursuant to which TCIC provides
fulfillment services to the Borrower, as such agreement is amended,
supplemented, amended and restated or otherwise modified from time to time.
"GAAP" is defined in Section 1.4.
---- -----------
"GE-2 Satellite Event" means the launch and viable operation of the GE
--------------------
American Communications, Inc. GE-2 satellite certified by the builder of such
satellite that fifteen transponders thereon are in full operation and have an
expected life of at least 8-1/2 years.
"Governmental Approval" means any action, authorization, consent, approval,
---------------------
license, lease, ruling, permit, tariff, rate, certification, exemption, filing,
variance, claim, order, judgment, decree, publication, notices to, declarations
of or with or registration by or with any Regulatory Authority.
"Governmental Rule" means any statute, law, regulation, ordinance, rule,
-----------------
judgment, order, decree, permit, concession, grant, franchise, license,
agreement, directive, guideline, policy, requirement, or other governmental
authorization including any conditions thereof, restriction or any similar form
of published or otherwise known decision of or determination by, or any
interpretation or administration of any of the foregoing by, any Regulatory
Authority, whether now or hereafter in effect (including any Environmental Law).
"Hazardous Material" means
------------------
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource Conservation
and Recovery Act, as amended; or
(c) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance
-17-
<PAGE>
(including any petroleum product) within the meaning of any other
applicable federal, state or local law, regulation, ordinance or
requirement (including consent decrees and administrative orders) relating
to or imposing liability or standards of conduct concerning any hazardous,
toxic or dangerous waste, substance or material, all as amended.
"Hedging Obligations" means, with respect to any Person, all liabilities of
-------------------
such Person under currency exchange agreements, interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and all other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates.
"herein", "hereof", "hereto", "hereunder" and similar terms contained in
------ ------ ------ ---------
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document, as the case may be, as a whole and not to any particular Section,
paragraph or provision of this Agreement or such other Loan Document.
"High Power Satellite Transmission Business" means the business of the
------------------------------------------
acquisition, transmission and sale of programming in the direct broadcast
satellite business utilizing broadcast satellite service operating in the Ku-
band which may utilize all or part of satellites owned or leased by Primestar or
a Subsidiary and all other activities relating thereto or arising therefrom
other than the construction, sale or financing of broadcast satellites.
"High Power Satellite Transmission Subsidiary" means a direct, wholly-owned
--------------------------------------------
Restricted Subsidiary of the Borrower which engages in the High Power Satellite
Transmission Business.
"Impermissible Qualification" means, relative to the opinion or
---------------------------
certification of any independent public accountant as to any financial statement
of the Borrower, any qualification or exception to such opinion or certification
(a) which is of a "going concern" or similar nature due to
circumstances arising other than from the failure of the Satellite Event
Date to occur on or prior to May 30, 1997;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement; or
(c) which relates to the treatment or classification of any item in
such financial statement and which, as a condition to its removal, would
require an adjustment to such item the effect of which would be to cause
the Borrower
-18-
<PAGE>
to be in default of any of its obligations under Section 7.2.4.
-------------
"including" and "include" mean including without limiting the generality of
--------- -------
any description preceding such term, and, for purposes of this Agreement and
each other Loan Document, the parties hereto agree that the rule of ejusdem
generis shall not be applicable to limit a general statement, which is followed
by or referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"Indebtedness" of any Person means, without duplication:
------------
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
(c) all obligations of such Person as lessee under leases which have
been or should be, in accordance with GAAP, recorded as Capitalized Lease
Liabilities;
(d) net liabilities of such Person under all Hedging Obligations;
(e) whether or not so included as liabilities in accordance with
GAAP, all obligations of such Person to pay the deferred purchase price of
property or services, and indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; and
(f) all Contingent Liabilities of such Person in respect of any of
the foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall include
the recourse Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer.
"Indemnification Agreements" means (a) the indemnification agreement, dated
--------------------------
as of December 4, 1996, between the Borrower and TCIC and (b) the
indemnification agreement, dated as of December
-19-
<PAGE>
4, 1996, between the Borrower and TCI UA, Inc., as such agreements may be
amended from time to time.
"Indemnified Liabilities" is defined in Section 10.4.
----------------------- ------------
"Indemnified Parties" is defined in Section 10.4.
------------------- ------------
"Install Fees" means the amount charged and collected by or on behalf of
------------
the Borrower in connection with the installation of satellite dish and other
signal reception and decoding equipment leased or acquired by a Basic
Subscriber.
"Interest Period" means, relative to any Fixed Rate Loan, the period
---------------
beginning on (and including) the date on which such Fixed Rate Loan is made or
continued as, or converted into, a Fixed Rate Loan pursuant to Section 2.3 or
-----------
2.4 and shall end on (but exclude) the day which is, in the case of a CD Rate
- ---
Loan, 30, 60 or 90 (or if available to all relevant Lenders and at the
discretion of the Administrative Agent, 180) days thereafter, or which, in the
case of a LIBO Rate Loan, numerically corresponds to such date one, two, three
or six (or if available to all relevant Lenders and at the discretion of the
Administrative Agent, twelve) months thereafter (or, if such month has no
numerically corresponding day, on the last Business Day of such month), as the
Borrower may select in its relevant notice pursuant to Section 2.3 or 2.4;
----------- ---
provided, however, that
- -------- -------
(a) the Borrower shall not be permitted to select Interest Periods to
be in effect at any one time which have expiration dates occurring on more
than fifteen different dates;
(b) if such Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall end on the next following
Business Day (unless such next following Business Day is the first Business
Day of a calendar month, in which case such Interest Period shall end on
the Business Day next preceding such numerically corresponding day); and
(c) no Interest Period for any Loan (i) may be selected for any Loan
made prior to a date following the Effective Date agreed to in writing by
the Borrower and the Administrative Agent which would end after such date
and (ii) may end later than the Stated Maturity Date.
"Investment" means, relative to any Person,
----------
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel, petty cash and
-20-
<PAGE>
similar advances to officers and employees made in the ordinary course of
business);
(b) any Contingent Liability of such Person incurred in connection
with loans or advances described in clause (a); and
----------
(c) any ownership or similar interest held by such Person in any
other Person.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon and shall, if made by
the transfer or exchange of property other than cash, be deemed to have been
made in an original principal or capital amount equal to the fair market value
of such property at the time of such Investment.
"Issuance Request" means a Letter of Credit request and certificate duly
----------------
executed by an Authorized Officer of the Borrower, substantially in the form of
Exhibit C hereto.
- ---------
"Issuer" means Scotiabank in its capacity as issuer of the Letters of
------
Credit. Scotiabank may act or decline to act as an Issuer in its sole
discretion. At the request of Scotiabank, another Lender or an Affiliate of
Scotiabank may issue one or more Letters of Credit hereunder.
"Law Change" is defined in clause (b) of Section 4.6.
---------- ---------- -----------
"Lender Assignment Agreement" means a lender assignment agreement,
---------------------------
substantially in the form of Exhibit E hereto.
---------
"Lenders" is defined in the preamble and, in addition, shall include any
------- --------
commercial bank or other financial institution that becomes a Lender pursuant to
Section 10.11.1.
- ---------------
"Lender's Environmental Liability" means any and all losses, liabilities,
--------------------------------
obligations, penalties, claims, litigation, demands, defenses, costs, judgments,
suits, proceedings, damages (including consequential damages), disbursements or
expenses of any kind or nature whatsoever (including reasonable attorneys' fees
at trial and appellate levels and experts' fees and disbursements and expenses
incurred in investigating, defending against or prosecuting any litigation,
claim or proceeding) which may at any time be imposed upon, incurred by or
asserted or awarded against any Lender or any of such Lender's parent and
subsidiary corporations, and their Affiliates, shareholders, directors,
officers, employees, and agents in connection with or arising from:
-21-
<PAGE>
(a) any Hazardous Material on, in, under or affecting all or any
portion of any property of the Borrower or any of its Subsidiaries, the
groundwater thereunder, or any surrounding areas thereof to the extent
caused by Releases from the Borrower's or any of the Borrower's
Subsidiaries' or any of their respective predecessors' properties;
(b) any misrepresentation, inaccuracy or breach of any warranty,
contained or referred to in Section 6.13;
------------
(c) any violation or claim of violation by the Borrower or any of its
Subsidiaries of any Environmental Laws; or
(d) the imposition of any lien for damages caused by or the recovery
of any costs for the cleanup, release or threatened release of Hazardous
Material by the Borrower or any of its Subsidiaries, or in connection with
any property owned or formerly owned by the Borrower or any of its
Subsidiaries.
"Letter of Credit" is defined in Section 2.1.2.
---------------- -------------
"Letter of Credit Commitment" means, with respect to an Issuer, such
---------------------------
Issuer's obligation to issue Letters of Credit pursuant to Section 2.1.2 and,
-------------
with respect to each of the other Lenders, the obligations of each such Lender
to participate in such Letters of Credit pursuant to Section 2.6.1.
-------------
"Letter of Credit Commitment Amount" means, on any date, $100,000,000, as
----------------------------------
such amount may be permanently reduced from time to time pursuant to Section
-------
2.2.
- ---
"Letter of Credit Outstandings" means, on any date, an amount equal to the
-----------------------------
sum of
(a) the then aggregate amount which is undrawn and available under
all issued and outstanding Letters of Credit,
plus
- ----
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
"LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the
---------
rate of interest determined as follows:
(a) on the date two Business Days prior to the first day of such
Interest Period, the Administrative Agent shall obtain the offered
quotation(s) that appear on the Reuter's
-22-
<PAGE>
Screen for Dollar deposits for a period comparable to such Interest Period.
If at least two such offered quotations appear on the Reuter's Screen, the
LIBO Rate shall be the arithmetic average (rounded upwards, if necessary,
to the nearest 1/16th of 1%) of such offered quotations, as determined by
the Administrative Agent; or
(b) if the Reuter's Screen is not available or has been discontinued,
the LIBO Rate shall be the rate per annum which the Administrative Agent in
good faith determines to be the arithmetic average (rounded as aforesaid)
of the offered quotations for Dollar deposits in an amount comparable to
the Administrative Agent's share of the relevant amount in respect of which
the LIBO Rate is being determined for a period comparable to the relevant
LIBO Interest Period that leading banks in New York City selected by the
Administrative Agent are quoting at 11:00 a.m. on the date two Business
Days prior to the first day of such Interest Period in the New York
Interbank Market to major international banks.
"LIBO Rate Loan" means a Loan bearing interest, at all times during an
--------------
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to the LIBO Rate (Reserve Adjusted).
"LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made,
----------------------------
continued or maintained as, or converted into, a LIBO Rate Loan for any Interest
Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16th
of 1%) determined pursuant to the following formula:
LIBO Rate = LIBO Rate
-------------------------------
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate
Loans will be determined by the Administrative Agent on the basis of the LIBOR
Reserve Percentage in effect, and the applicable rates furnished to and received
by the Administrative Agent from Scotiabank two Business Days before, the first
day of such Interest Period.
"LIBOR Office" means, relative to any Lender, the office of such Lender
------------
designated as such Lender's "LIBOR Office" below its signature hereto or in a
Lender Assignment Agreement, or such other office of a Lender as designated from
time to time by notice from such Lender to the Borrower and the Administrative
Agent, whether or not outside the United States, which shall be making or
maintaining LIBO Rate Loans of such Lender hereunder.
-23-
<PAGE>
"LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO
------------------------
Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum
aggregate reserve requirements (including all basic, emergency, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements) specified under regulations
issued from time to time by the F.R.S. Board and then applicable to assets or
liabilities consisting of or including "Eurocurrency Liabilities", as currently
defined in Regulation D of the F.R.S. Board, and applicable to all Lenders,
having a term approximately equal or comparable to such Interest Period.
"Lien" means any security interest, mortgage, pledge, hypothecation,
----
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property, or other priority or preferential
arrangement of any kind or nature whatsoever, to secure payment of a debt or
performance of an obligation.
"Loan" is defined in Section 2.1.1.
---- -------------
"Loan Documents" collectively means this Agreement, the Notes, the Letters
--------------
of Credit, each Rate Protection Agreement relating to Hedging Obligations of the
Borrower or any of its Subsidiaries, each Borrowing Request, each Issuance
Request, the Borrower Pledge Agreement, the Borrower Security Agreement, the
Subsidiary Security Agreement, each Patent Security Agreement, each Trademark
Security Agreement, each Copyright Security Agreement, the Contract Assignment
Agreement, each Consent and Agreement, the Concentration Account Agreement, each
Subsidiary Guaranty, the Post-Closing Events Letter and each other agreement,
certificate, document or instrument delivered in connection with this Agreement
and such other agreements, whether or not specifically mentioned herein or
therein.
"LodgeNet" means LodgeNet Entertainment Corporation.
--------
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
financial condition, operations, assets, business or properties of (i) the
Borrower, (ii) the Borrower and its Subsidiaries, taken as a whole, or (iii) the
Borrower and its Restricted Subsidiaries, taken as a whole, (b) the rights and
remedies of the Administrative Agent or any Secured Party under any Loan
Document, (c) the ability of the Borrower or any other Obligor (and, in the case
of the TCIC Credit Agreement, TCIC) as to perform its Obligations under any Loan
Document or Transaction Document to which it is or becomes a party or (d) the
perfection or priority of the Secured Parties' Liens upon the collateral
described in any Loan Document.
"Moody's" means Moody's Investors Service, Inc.
-------
-24-
<PAGE>
"Net Disposition Proceeds" means, with respect to a Permitted Disposition
------------------------
of the assets of the Borrower or any of its Subsidiaries, the excess of
(a) the gross cash proceeds received by the Borrower or any of its
Subsidiaries from any Permitted Disposition and any cash payments received
in respect of promissory notes or other non-cash consideration delivered to
the Borrower or such Subsidiary in respect of any Permitted Disposition,
less
- ----
(b) the sum of
(i) all reasonable and customary fees and expenses with
respect to legal, investment banking, brokerage and accounting and
other professional fees, sales commissions and disbursements and all
other reasonable fees, expenses and charges, in each case actually
incurred in connection with such Permitted Disposition other than such
amounts which have been paid to Affiliates of the Borrower in
violation of Section 7.2.13,
--------------
(ii) all taxes and other governmental costs and expenses
actually paid or estimated by the Borrower (in good faith) to be
payable in cash in connection with such Permitted Disposition;
provided, however, that if, after the payment of all taxes with
-------- -------
respect to such Permitted Disposition, the amount of estimated taxes,
if any, exceeded the tax amount actually paid in cash in respect of
such Permitted Disposition, the Commitment Amount shall be
automatically reduced by the aggregate amount of such excess, pursuant
to clause (b) of Section 2.2.2,
---------- -------------
(iii) payments made by the Borrower or any of its Subsidiaries
to retire Indebtedness (other than the Loans) of the Borrower or any
of its Subsidiaries where payment of such Indebtedness is required in
connection with such Permitted Disposition, and
(iv) an amount of such proceeds (other than proceeds of the
disposition of an asset of Tempo or the Capital Stock of Tempo),
which, at the option of the Borrower and so long as no Default shall
have occurred and be continuing, the Borrower uses or causes the
applicable Subsidiary to use such proceeds to purchase substantially
similar assets useful in the business of the Borrower or such
Subsidiary (with such assets or
-25-
<PAGE>
interests collectively referred to as "Qualified Assets") within 365
----------------
days after the consummation (and with the proceeds) of such sale,
conveyance or disposition, and in the event the Borrower or such
Subsidiary elects to exercise its right to purchase Qualified Assets
with the Net Disposition Proceeds pursuant to this clause, the
Borrower shall deliver a certificate of an Authorized Officer to the
Administrative Agent within 30 days following the receipt of Net
Disposition Proceeds setting forth the amount of the Net Disposition
Proceeds which the Borrower or such Subsidiary expects to use to
purchase Qualified Assets during such 365-day period.
If and to the extent that the Borrower or such Subsidiary has elected to
reinvest Net Disposition Proceeds as permitted above, then on the date which is
365 days after the relevant sale, conveyance or disposition, the Borrower shall
deliver a certificate of an Authorized Officer to the Administrative Agent
certifying as to the amount and use of such Net Disposition Proceeds actually
used to purchase Qualified Assets. To the extent such Net Disposition Proceeds
are not so used to purchase Qualified Assets then the Commitment Amount shall be
automatically reduced by an amount equal to the aggregate amount of such
proceeds not so used to purchase Qualified Assets.
"Net Income" means, for any period, the difference of (a) the aggregate of
----------
all amounts (exclusive of all amounts in respect of any non-cash extraordinary
gains and any non-cash extraordinary losses) which, in accordance with GAAP,
would be included as net income on the consolidated financial statements of the
Borrower and its Restricted Subsidiaries for such period minus (b) the net
-----
income attributable to the High Power Satellite Transmission Business invested
in Tempo pursuant to clause (e) of Section 7.2.5 for such period.
---------- -------------
"Non-U.S. Lender" means any Lender that is not a U.S. Person.
---------------
"Note" means a promissory note of the Borrower payable to any Lender, in
----
the form of Exhibit A hereto (as such promissory note may be amended, endorsed
---------
or otherwise modified from time to time), evidencing the aggregate Indebtedness
of the Borrower to such Lender resulting from outstanding Loans, and also means
all other promissory notes accepted from time to time in substitution therefor
or renewal thereof.
"Obligations" means all obligations (monetary or otherwise, whether
-----------
absolute or contingent, matured or unmatured, direct or indirect, choate or
inchoate, sole, joint, several or joint and several, due or to become due,
heretofore or hereafter contracted
-26-
<PAGE>
or acquired) of the Borrower and each other Obligor arising under or in
connection with this Agreement, the Notes, the Letters of Credit and each other
Loan Document.
"Obligor" means, as the context may require, the Borrower, each Restricted
-------
Subsidiary and any other Person (other than a Secured Party) to the extent such
Person is obligated under this Agreement or any other Loan Document.
"Organic Document" means, relative to any Obligor, as applicable, its
----------------
certificate of incorporation, by-laws, certificate of partnership, partnership
agreement, certificate of formation, limited liability agreement and all
shareholder agreements, voting trusts and similar arrangements applicable to any
of such Obligor's partnership interests, limited liability company interests or
authorized shares of Capital Stock.
"Participant" is defined in Section 10.11.2.
----------- ---------------
"Patent Security Agreement" means any patent security agreement executed
-------------------------
and delivered by the Borrower or a Restricted Subsidiary, as the case may be, in
each case substantially in the form of Exhibit A to a Security Agreement, as
amended, supplemented, amended and restated or otherwise modified from time to
time.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
----
succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan", as such term is defined in Section
------------
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in Section 4001(a)(3) of ERISA), and to which the Borrower or
any corporation, trade or business that is, along with the Borrower, a member of
a Controlled Group, may have liability, including any liability by reason of
having been a substantial employer within the meaning of Section 4063 of ERISA
at any time during the preceding five years, or by reason of being deemed to be
a contributing sponsor under Section 4069 of ERISA.
"Percentage" means, relative to any Lender, the percentage set forth
----------
opposite its signature hereto or set forth in a Lender Assignment Agreement, as
such percentage may be adjusted from time to time pursuant to Lender Assignment
Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered
pursuant to Section 10.11.1.
---------------
"Permitted Disposition" means a sale, disposition or other conveyance of
---------------------
assets by the Borrower or any of its Subsidiaries in accordance with the terms
of clauses (a)(iv) and (v) of Section 7.2.11 or as otherwise agreed to by the
--------------- --- --------------
Required Lenders.
-27-
<PAGE>
"Permitted Refinancing" means, relative to any Indebtedness, any other
---------------------
Indebtedness which is incurred to repay and retire in full such refinanced
Indebtedness and all other monetary obligations in respect of such refinanced
Indebtedness; provided, however, that
-------- -------
(a) such refinancing Indebtedness shall not be incurred in an
original principal amount which exceeds the aggregate amount on the date of
such refinancing of the outstanding amount of such refinanced Indebtedness
plus the then aggregate amount of all such other monetary obligations in
respect thereof;
(b) the weighted average life of such refinancing Indebtedness shall
not be less than the weighted average life on the date of such refinancing
of such refinanced Indebtedness;
(c) the refinancing Indebtedness shall not impose on the Borrower or
any Restricted Subsidiary rates of interest, prepayment changes or other
fees or other amounts that are more than 2% per annum higher that the
highest respective amounts thereof payable in respect of such refinanced
Indebtedness;
(d) the refinancing Indebtedness shall not contain terms and
conditions that, taken as a whole, make the refinancing Indebtedness
materially more burdensome to the Borrower or Restricted Subsidiaries, or,
except in the case of the refinancing of Indebtedness permitted under
clause (d) of Section 7.2.2, materially more beneficial to the holders of
---------- -------------
the refinancing Indebtedness, than the terms in effect on the date of such
refinancing of the refinanced Indebtedness; and
(e) if such refinanced Indebtedness is Subordinated Debt or the TCIC
Credit Agreement, the refinancing Indebtedness shall not contain rights and
remedies that, taken as a whole, are materially more detrimental to the
Lenders or materially more beneficial to the holders of the refinancing
Indebtedness, than the terms in effect on the date of such refinancing of
the refinanced Indebtedness.
"Person" means any natural person, corporation, limited liability company,
------
partnership, joint venture, joint stock company, firm, association, trust or
unincorporated organization, government, governmental agency, court or any other
legal entity, whether acting in an individual, fiduciary or other capacity.
"Plan" means any Pension Plan or Welfare Plan.
----
-28-
<PAGE>
"Pledged Subsidiary" means, at any time, each Subsidiary in respect of
------------------
which the Administrative Agent has been granted, at such time, a security
interest in and to, or a pledge of, (i) any of the issued and outstanding shares
of Capital Stock of such Subsidiary, or (ii) any intercompany notes of such
Subsidiary owing to the Borrower or another Subsidiary of the Borrower.
"Post-Closing Events Letter" means that certain letter, dated as of the
--------------------------
date of the initial Credit Extension, executed and delivered by the Borrower and
the Administrative Agent, as the same may be amended or otherwise changed in
accordance with the terms thereof.
"Primestar" means PRIMESTAR Partners, L.P., a Delaware limited partnership.
---------
"Primestar Partnership Agreement" means the Limited Partnership Agreement
-------------------------------
of K Prime Partners, L.P., dated February 8, 1990, among the parties thereto, as
amended, as such agreement may be further amended, supplemented, amended and
restated or otherwise modified from time to time.
"Pro Forma Balance Sheet" is defined in clause (c) of Section 5.1.11.
----------------------- ---------- --------------
"Pro-Forma Debt Service" means, on any date of determination, in respect of
----------------------
the Borrower and its Restricted Subsidiaries, the sum of (a) all Annual Pro-
Forma Interest Expense, plus (b) scheduled principal payments including the
----
current maturities thereof, due on Total Debt for the four Fiscal Quarters
immediately succeeding such date of determination thereof plus (c) an amount
----
equal to the excess of the (i) sum of (x) the aggregate principal amount of all
Loans and (y) the Letters of Credit Outstanding on such date over (ii) the
Available Commitment Amount as such Available Commitment Amount is scheduled to
be reduced pursuant to clause (a) of Section 2.2 during the four Fiscal Quarters
---------- -----------
immediately succeeding such date of determination.
"Pro-Forma Interest Expense" means, for any period for which a
--------------------------
determination thereof is to be made, the sum of (a) the amount of all interest
which is payable in cash during such period on Total Debt of the Borrower and
its Restricted Subsidiaries on a consolidated basis which, without duplication,
is scheduled to be paid or will accrue during such period, including, without
limitation, in respect of the Loans and Subordinated Debt plus (b) all
----
commitment, line of credit, letter of credit, guarantee and similar fees (no
matter how designated) scheduled or required to be paid by the Borrower and its
Restricted Subsidiaries to any lender in exchange for such lender's commitment
to lend to the Borrower and its Restricted Subsidiaries, including, without
-29-
<PAGE>
limitation, the commitment fee in respect of the Loans and Letters of Credit,
which is scheduled or required to be paid by the Borrower and its Restricted
Subsidiaries during such period. For purposes of calculating Pro-Forma Interest
Expense (i) where any item of interest on any Total Debt varies or depends upon
a variable rate of interest, such rate shall be assumed to equal the rate in
effect on the date of calculation thereof and (ii) the principal amount
outstanding under any revolving or line of credit facility shall be assumed to
be the outstanding principal balance thereunder on the last day of the Fiscal
Quarter immediately preceding the period in respect of which the calculation of
Pro-Forma Interest Expense is being determined as adjusted for any scheduled
principal payments during such period.
"Qualified Assets" is defined in clause (b)(iv) of the definition of Net
---------------- --------------
Disposition Proceeds.
"Quarterly Payment Date" means the last day of March, June, September and
----------------------
December, or, if any such day is not a Business Day, the next succeeding
Business Day.
"Rate Protection Agreement" means, collectively, any interest rate swap,
-------------------------
cap, collar or similar agreement entered into by the Borrower pursuant to the
terms of this Agreement under which the counterparty to such agreement is (or at
the time such Rate Protection Agreement was entered into, was) a Lender or an
Affiliate of a Lender.
"Regulatory Authority" means any national, state or local government, any
--------------------
political subdivision or any governmental, quasi-governmental, judicial, public
or statutory instrumentality, authority, body or entity, other regulatory
bureau, authority, body or entity, foreign or domestic, including the Federal
Deposit Insurance Corporation, the Comptroller of the Currency, the F.R.S.
Board, any central bank or any comparable authority.
"Reimbursement Obligation" is defined in Section 2.6.3.
------------------------ -------------
"Release" means a "release", as such term is defined in CERCLA.
------- -------
"Replacement Satellite Event" means (a) the fulfillment of the conditions
---------------------------
to the GE-2 Satellite Event after March 1, 1997 and on or prior to May 30, 1997,
(b) the successful launch and commencement of operation of another permanent
substitute satellite to GE-2 due to the failure of the GE-2 Satellite Event to
occur on or prior to March 1, 1997 pursuant to a substantially similar procedure
of acceptance or (c) such other plan of continued operation of the Primestar
business as agreed to in writing by the Arranging Agents on or prior to May 30,
1997.
-30-
<PAGE>
"Required Lenders" means, at any time,
----------------
(a) prior to the date that no Lender has a Percentage in excess of
20%, Lenders having 100% of the Commitment Amount; and
(b) on and after such date, Lenders holding at least 51% of the
Commitment Amount.
"ResNet" means ResNet Communications, Inc., a Delaware corporation.
------
"ResNet Holdco" means TCI Satellite MDU, Inc.
-------------
"Resource Conservation and Recovery Act" means the Resource Conservation
--------------------------------------
and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended.
-- ---
"Restricted Junior Payment" means (a) any dividend or distribution, direct
-------------------------
or indirect, on account of any Equity Interests in the Borrower or any of its
Subsidiaries now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock or in any junior class of stock to the holders of
that class, provided that the issuance of such stock or junior class of stock is
not an incurrence of Indebtedness, (b) any redemption, retirement, sinking fund
or similar payment, purchase or other acquisition for value, direct or indirect,
of any Equity Interests in the Borrower or any of its Subsidiaries now or
hereafter outstanding, (c) any payment or prepayment of principal of, premium,
if any, or interest, fees or other charges on or with respect to, and any
redemption, purchase, retirement, defeasance, sinking fund or similar payment
and any claim for rescission with respect to, any Subordinated Debt of the
Borrower or any of its Subsidiaries or the TCIC Credit Agreement other than a
Permitted Refinancing or (d) any payment made to redeem, purchase, repurchase or
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire Equity Interests in the Borrower or any of its
Subsidiaries now or hereafter outstanding.
"Restricted Subsidiary" means each U.S. Subsidiary of the Borrower other
---------------------
than an Unrestricted Subsidiary of which the Borrower owns directly or
indirectly at least 80% of the outstanding Capital Stock.
"Reuter's Screen" shall mean the display designated at page "LIBO" on the
---------------
Reuter Monitor System or such other display on the Reuter Monitor System as may
replace such page displaying the London interbank offered rates as of 11:00
a.m., London time, on the day on which the relevant determination is made.
-31-
<PAGE>
"Revenue" means, for any period, the difference of (a) the consolidated
-------
revenues of the Borrower and its Restricted Subsidiaries for such period minus
-----
(b) the amount of Installation Fees for such period.
"S&P" means Standard & Poor's Rating Services.
---
"Satellite Event Date" means the date on which the Arranging Agents, in
--------------------
their sole discretion, are satisfied with the GE-2 Satellite Event or the
Replacement Satellite Event, as the case may be.
"Scotiabank" is defined in the preamble.
---------- --------
"SEC" means the Securities and Exchange Commission.
---
"Secured Parties" means, collectively, the Lenders, the Issuers, each
---------------
Agent, each counterparty to a Rate Protection Agreement that is (or at the time
such Rate Protection Agreement was entered into, was) a Lender or an Affiliate
thereof and (in each case), each of their respective successors, transferees and
assigns.
"Securities" means any limited, general or other partnership interest, or
----------
any stock, shares, voting trust certificates, bonds, debentures, notes or other
Equity Interests or evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or any certificates of interest, shares,
or participations in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire any of the
foregoing, but shall not include any evidence of the Obligations.
"Security Agreement" means, as the context may require, the Borrower
------------------
Security Agreement and/or a Subsidiary Security Agreement.
"Senior Debt" means, at any time, all outstanding Total Debt which is not
-----------
Subordinated Debt.
"Senior Debt to Annualized Cash Flow Ratio" means, as of any date of
-----------------------------------------
determination, the ratio of (a) Senior Debt to (b) Annualized Cash Flow.
--
"Solvency Certificate" means the certificate executed and delivered by the
--------------------
chief financial or accounting Authorized Officer of the Borrower pursuant to
Section 5.1.14, substantially in the form of Exhibit M hereto.
- -------------- ---------
-32-
<PAGE>
"Stated Amount" of each Letter of Credit means the total amount available
-------------
to be drawn under such Letter of Credit upon the issuance thereof.
"Stated Expiry Date" is defined in Section 2.6.
------------------ -----------
"Stated Maturity Date" means June 30, 2005.
--------------------
"Subject Debt" is defined in Section 8.1.5.
------------ -------------
"Subject Lender" is defined in Section 4.11.
-------------- ------------
"Subordinated Debt" means unsecured Indebtedness of the Borrower (other
-----------------
than the TCIC Credit Agreement) subordinated in right of payment to the
Obligations pursuant to documentation containing interest rates, maturities,
amortization schedules, covenants, defaults, remedies, subordination provisions
and other material terms in form and substance reasonably satisfactory to the
Required Lenders.
"Subordinated Debt Event" means the issuance by the Borrower of at least
-----------------------
$300,000,000 in principal amount of Subordinated Debt.
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership or other business entity of which more than 50% of the outstanding
Capital Stock (or other ownership interest) having ordinary voting power to
elect a majority of the board of directors, managers or other voting members of
the governing body of such entity (irrespective of whether at the time Capital
Stock (or other ownership interest) of any other class or classes of such entity
shall or might have voting power upon the occurrence of any contingency) is at
the time directly or indirectly owned by such Person, by such Person and one or
more other Subsidiaries of such Person, or by one or more other Subsidiaries of
such Person. Unless the context otherwise specifically requires, the term
"Subsidiary" shall be a reference to a Subsidiary of the Borrower.
"Subsidiary Guarantor" means each Restricted Subsidiary party to a
--------------------
Subsidiary Guaranty.
"Subsidiary Guaranty" means, as the context may require, the guaranty
-------------------
executed and delivered by each Subsidiary Guarantor pursuant to Section 5.1.10
--------------
or any guaranty executed and delivered by a Subsidiary pursuant to clause (a) of
----------
Section 7.1.7, in each case substantially in the form of Exhibit H hereto, as
- ------------- ---------
amended, supplemented, amended and restated or otherwise modified from time to
time.
-33-
<PAGE>
"Subsidiary Security Agreement" means the security agreement executed and
-----------------------------
delivered by a Restricted Subsidiary pursuant to Section 7.1.7 or 7.1.8,
------------- -----
substantially in the form of Exhibit G-2 hereto, as amended, supplemented,
-----------
amended and restated or otherwise modified from time to time.
"Syndication Agent" is defined in the preamble and includes each other
----------------- --------
Person as shall have subsequently been appointed as a successor Syndication
Agent pursuant to Section 9.4.
-----------
"Taxes" means any present or future income, excise, stamp or franchise
-----
taxes and other taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by (i) the United States or any taxing authority or political
subdivision thereof or (ii) any other jurisdiction as a result of a connection
between the Borrower and such taxing jurisdiction, and in each case any
interest, additions to tax, penalties or additional amounts payable with respect
thereto.
"Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of July
---------------------
1, 1995, as amended, among TCI, TCIC, certain other consolidated subsidiaries of
TCI and the Borrower, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"TCI" means Tele-Communications, Inc., a Delaware corporation.
---
"TCIC" means TCI Communications, Inc., a Delaware corporation.
----
"TCIC Credit Agreement" means the credit agreement, dated as of December 4,
---------------------
1996, between TCIC and the Borrower, as such credit agreement may be amended.
"TCI Term Loan" means the $250,000,000 principal amount term loan made to
-------------
the Borrower by TCI.
"Tempo" means Tempo Satellite, Inc., an Oklahoma corporation and a direct,
-----
wholly-owned Subsidiary of the Borrower.
"Total Debt" means, on any date of determination, an amount equal to the
----------
sum of (a) the outstanding principal amount of all Indebtedness as of such date
of the Borrower and its Restricted Subsidiaries of the type referred to in
clause (a) of the definition of "Indebtedness" (which, in the case of the Loans,
- ----------
shall be deemed to equal the amount of Loans outstanding on the last day of the
Fiscal Quarter ending on or immediately preceding the date of determination),
plus (b) the maximum aggregate amount of Indebtedness as of such date of the
- ----
type described in clause (b) of the definition of "Indebtedness" (which, in the
----------
-34-
<PAGE>
case of Letter of Credit Outstandings, shall be deemed to equal the amount of
Letter of Credit Outstandings on the last day of the Fiscal Quarter ending on or
immediately preceding the date of determination), plus (c) the aggregate amount
----
as of such date of the Indebtedness described in clause (c) of the definition of
----------
"Indebtedness", plus (d) (without duplication) the aggregate amount on such date
----
of the Contingent Liabilities in respect of any of the foregoing.
"Total Debt Per Subscriber" means, as of any date of determination, the
-------------------------
quotient of (a) Total Debt divided by (b) the number of Basic Subscribers as of
----------
the last day of the Fiscal Quarter ending on or immediately prior to such date
of determination.
"Total Debt to Annualized Cash Flow Ratio" means the ratio of (a) Total
----------------------------------------
Debt to (b) Annualized Cash Flow.
--
"Total Interest Expense" means, for any period, the sum of (a) the
----------------------
aggregate cash interest expense (net of cash interest income) of the Borrower
and its Restricted Subsidiaries (including, to the extent the Borrower or any of
its Restricted Subsidiaries have any Contingent Liability in respect of such
interest expense, (i) in respect of any pro forma calculations, the interest
--- -----
expense of Unrestricted Subsidiaries and (ii) in respect of any period which
does not include any pro forma calculation, the amount of such interest expense
--- -----
actually paid or payable by the Borrower or any Restricted Subsidiary) for such
period, as determined in accordance with GAAP, including the portion of any
payments made in respect of Capitalized Lease Liabilities allocable to interest
expense plus (b) all commitment, letter of credit, guarantee, line of credit or
----
similar fees (no matter how designated) paid or scheduled or required to be paid
by the Borrower and its Restricted Subsidiaries to any lender in exchange for
such lender's commitment to lend to the Borrower and its Restricted
Subsidiaries, including, without limitation, the commitment fee in respect of
the Loans and Letters of Credit.
"Trademark Security Agreement" means any trademark security agreement
----------------------------
executed and delivered by the Borrower or a Restricted Subsidiary, as the case
may be, in each case substantially in the form of Exhibit B to a Security
Agreement, as amended, supplemented, amended and restated or otherwise modified
from time to time.
"Transaction Documents" collectively means the Fulfillment Agreement, the
---------------------
Transition Services Agreement, the Tax Sharing Agreement, each Indemnification
Agreement and the TCIC Credit Agreement.
-35-
<PAGE>
"Transition Services Agreement" means the Transition Services Agreement,
-----------------------------
dated as of December 4, 1996, between the Borrower and TCI pursuant to which TCI
will provide to the Borrower certain services and other benefits, including
certain administrative and other services, as such agreement is amended,
supplemented, amended and restated or otherwise modified from time to time.
"type" means, relative to any Loan, the portion thereof, if any, being
----
maintained as a Base Rate Loan or a LIBO Rate Loan.
"U.C.C." means the Uniform Commercial Code as from time to time in effect
------
in the State of New York.
"United States" or "U.S." means the United States of America, its fifty
------------- ----
states and the District of Columbia.
"Unrestricted Subsidiary" means Tempo and any U.S. Subsidiary formed or
-----------------------
acquired after the Effective Date and designated by the Borrower as an
"Unrestricted Subsidiary" and accepted as such by the Required Lenders.
"U.S. Person" means any Person that is a "United States person" within the
-----------
meaning of Section 7701(a)(30) of the Code (or any applicable successor
provision).
"U.S. Subsidiary" means any Subsidiary that is incorporated or organized
---------------
under the laws of the United States or a state thereof.
"Voting Stock" means, with respect to any Person, Capital Stock of any
------------
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Welfare Plan" means a "welfare plan", as such term is defined in section
------------
3(1) of ERISA.
"wholly-owned" means, with respect to any direct or indirect Subsidiary,
------------
any Subsidiary all of the outstanding common stock (or similar equity interest)
of which (other than any director's qualifying shares or investments by foreign
nationals mandated by applicable laws) is owned directly or indirectly by the
Borrower.
SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the
--------------------
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in each other Loan Document, the
Disclosure Schedule, or any Borrowing Request, Issuance Request,
Continuation/Conversion Notice, Compliance Certificate, notice or other
-36-
<PAGE>
communications delivered from time to time in connection with this Agreement or
any other Loan Document.
SECTION 1.3. Cross-References. Unless otherwise specified, references in
----------------
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
SECTION 1.4. Accounting and Financial Determinations. Unless otherwise
---------------------------------------
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, and all accounting determinations and computations hereunder or
thereunder (including under Section 7.2.4) shall be made, in accordance with,
-------------
those generally accepted accounting principles ("GAAP") applied in the
----
preparation of the financial statements referred to in clause (a) of Section
---------- -------
5.1.11. Unless otherwise expressly provided, all financial covenants and
- ------
defined financial terms shall be computed on a consolidated basis for the
Borrower and its Restricted Subsidiaries, in each case without duplication. If
any preparation in the financial statements referred to in Section 7.1.1
-------------
hereafter occasioned by the promulgation of rules, regulations, pronouncements
and opinions by or required by the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants (or successors thereto or
agencies with similar functions) result in a change in any results, amounts,
calculations, ratios, standards or terms found in this Agreement or any Loan
Document from those which would be derived or be applicable absent such changes,
the Borrower may reflect such changes in the financial statements and
certificates required to be delivered pursuant to Section 7.1.1, but
-------------
calculations of financial covenants shall be made without giving effect to any
such changes. Upon the request of the Borrower or any Lender the parties hereto
agree to enter into negotiations in order to amend the financial covenants and
other terms of this Agreement if there occur any changes in GAAP that have a
material effect on the financial statements of the Borrower and its
Subsidiaries, so as to equitably reflect such changes with the desired result
that the criteria for evaluating the Borrower's and its Subsidiaries' financial
condition and such other terms shall be the same in all material respects after
such changes as if the changes had not been made.
-37-
<PAGE>
ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE
PROCEDURES, NOTES AND LETTERS OF CREDIT
SECTION 2.1. Commitments. On the terms and subject to the conditions of
-----------
this Agreement (including Sections 2.1.4, 2.1.5 and Article V),
-------------- ----- ---------
(a) each Lender severally agrees to make Loans pursuant to the
Commitments described in this Section 2.1; and
-----------
(b) the Issuer severally agrees that it will issue Letters of Credit
pursuant to Section 2.1.2, and each other Lender that has a Commitment
-------------
severally agrees that it will purchase participation interests in such
Letters of Credit pursuant to Section 2.6.1.
-------------
SECTION 2.1.1. Commitment of Each Lender. From time to time on any
-------------------------
Business Day occurring prior to the Commitment Termination Date, each Lender
will make loans (relative to such Lender, its "Loans") to the Borrower equal to
-----
such Lender's Percentage of the aggregate amount of each Borrowing requested by
the Borrower to be made on such day. The commitment of each such Lender
described in this Section 2.1.1 is herein referred to as its "Commitment". On
------------- ----------
the terms and subject to the conditions hereof, the Borrower may from time to
time borrow, prepay and reborrow Loans.
SECTION 2.1.2. Letter of Credit Commitment. From time to time on any
---------------------------
Business Day occurring prior to the Commitment Termination Date, the Issuer will
(a) issue one or more standby letters of credit (relative to such
Issuer, its "Letter of Credit") for the account of the Borrower in the
----------------
Stated Amount requested by the Borrower on such day; or
(b) extend the Stated Expiry Date of an existing Letter of Credit
previously issued hereunder to a date not later than the earlier of (x) the
Commitment Termination Date and (y) one year from the date of such
extension.
SECTION 2.1.3. Commitment Amount Availability. The aggregate amount of
------------------------------
Loans and Letter of Credit Obligations may not exceed at any time outstanding
the Available Commitment Amount.
SECTION 2.1.4. Lenders Not Permitted or Required to Make Loans. No Lender
-----------------------------------------------
shall be permitted or required to make any Loan
-38-
<PAGE>
if, after giving effect thereto, the aggregate outstanding principal amount of
all Loans
(a) of all Lenders, together with the aggregate amount of all Letter
of Credit Outstandings, would exceed the Available Commitment Amount; or
(b) of such Lender, together with such Lender's Percentage of the
aggregate amount of all Letter of Credit Outstandings, would exceed such
Lender's Percentage of the Available Commitment Amount.
SECTION 2.1.5. Issuer Not Permitted or Required to Issue Letters of
----------------------------------------------------
Credit. No Issuer shall be permitted or required to issue any Letter of Credit
- ------
if, after giving effect thereto, (a) the aggregate amount of all Letter of
Credit Outstandings would exceed the Letter of Credit Commitment Amount or (b)
the sum of the aggregate amount of all Letter of Credit Outstandings plus the
aggregate principal amount of all Loans then outstanding would exceed the
Available Commitment Amount.
SECTION 2.2. Reduction of the Commitment Amount. The Commitment Amount is
----------------------------------
subject to reduction from time to time pursuant to this Section 2.2.
-----------
SECTION 2.2.1. Optional. The Borrower may, from time to time on any
--------
Business Day occurring after the Effective Date, voluntarily reduce the amount
of the Commitment Amount or the Letter of Credit Commitment Amount on the
Business Day so specified by the Borrower; provided, however, that all such
-------- -------
reductions shall require at least three Business Days' prior notice to the
Administrative Agent and be permanent, and any partial reduction of any
Commitment Amount shall be in a minimum amount of $5,000,000 and in an integral
multiple of $1,000,000.
SECTION 2.2.2. Mandatory. (a) On each date set forth below, the
---------
Commitment Amount shall, without any further action, automatically and
permanently be reduced by the percentage of the Commitment Amount as in effect
on March 31, 2001 as set forth opposite such date:
<TABLE>
<CAPTION>
Percentage
Date Reduction
---- ---------
<S> <C>
03/31/01 2.5%
06/30/01 2.5%
09/30/01 2.5%
12/31/01 2.5%
03/31/02 5.0%
06/30/02 5.0%
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
Percentage
Date Reduction
---- ---------
<S> <C>
09/30/02 5.0%
12/31/02 5.0%
03/31/03 6.25%
06/30/03 6.25%
09/30/03 6.25%
12/31/03 6.25%
03/31/04 8.5%
06/30/04 8.5%
09/30/04 8.5%
12/31/04 8.5%
03/31/05 5.5%
06/30/05 5.5%;
</TABLE>
provided, however, that on the Commitment Termination Date, the Commitment
- -------- -------
Amount shall be zero. Voluntary reductions of the Commitment Amount made
pursuant to Section 2.2.1 shall be applied pro rata to diminish the amount of
------------- --- ----
scheduled reductions to the Commitment Amount thereafter becoming effective
pursuant to this Section.
(b) The Borrower shall, no later than five Business Days following the
receipt of any Net Disposition Proceeds, deliver to the Administrative Agent a
calculation of the amount of such Net Disposition Proceeds and the Commitment
Amount shall be automatically reduced by an amount equal to 100% of such Net
Disposition Proceeds.
(c) If the GE-2 Satellite Event has not occurred on or prior to March 1,
1997 and the Replacement Satellite Event has not occurred on or prior to May 30,
1997 then the Commitment Amount shall, without further action, be automatically
and permanently reduced by $400,000,000 on May 30, 1997. If the Satellite Event
Date has occurred, but the Subordinated Debt Event has not occurred on or prior
to December 31, 1998, the Commitment Amount will be reduced by $200,000,000 on
December 31, 1998.
(d) All reductions of the Commitment Amount made pursuant to this Section
-------
2.2.2 shall be applied pro rata to diminish the amount of scheduled reductions
- ----- --- ----
to the Commitment Amount.
SECTION 2.3. Borrowing Procedures. By delivering a Borrowing Request to
--------------------
the Administrative Agent on or before 12:00 noon, New York City time, on a
Business Day, the Borrower may from time to time irrevocably request, in the
case of Base Rate Loans, or on not less than three Business Days' notice in
-40-
<PAGE>
the case of Fixed Rate Loans, and in either case not more than five Business
Days' notice, that a Borrowing be made in a minimum amount of $1,000,000 and an
integral multiple of $500,000, or in the unused amount of the applicable
Commitment; provided, however, that all initial Loans shall be made as Base Rate
-------- -------
Loans. On the terms and subject to the conditions of this Agreement, each
Borrowing shall be comprised of the type of Loans, and shall be made on the
Business Day, specified in such Borrowing Request. On or before 11:00 a.m. (New
York City time) on such Business Day each Lender shall deposit with the
Administrative Agent same day funds in an amount equal to such Lender's
Percentage of the requested Borrowing. Such deposit will be made to an account
which the Administrative Agent shall specify from time to time by notice to the
Lenders. To the extent funds are received from the Lenders, the Administrative
Agent shall make such funds available to the Borrower by wire transfer to the
accounts the Borrower shall have specified in its Borrowing Request. No
Lender's obligation to make any Loan shall be affected by any other Lender's
failure to make any Loan.
SECTION 2.4. Continuation and Conversion Elections. By delivering a
-------------------------------------
Continuation/Conversion Notice to the Administrative Agent on or before 12:00
noon, New York City time, on a Business Day, the Borrower may from time to time
irrevocably elect, on not less than three Business Days' notice nor more than
five Business Days' notice, that all, or any portion in an aggregate minimum
amount of $1,000,000 and an integral multiple of $500,000, Loans be, in the case
of Base Rate Loans, converted into Fixed Rate Loans of either type or in the
case of Fixed Rate Loans of either type, be converted into a Base Rate Loan or a
Fixed Rate Loan of the other type or continued as a Fixed Rate Loan of such type
(in the absence of delivery of a Continuation/Conversion Notice with respect to
any Fixed Rate Loan at least three Business Days before the last day of the then
current Interest Period with respect thereto, such Fixed Rate Loan shall, on
such last day, automatically convert to a Base Rate Loan); provided, however,
-------- -------
that (i) each such conversion or continuation shall be pro rated among the
applicable outstanding Loans of all Lenders, and (ii) no portion of the
outstanding principal amount of any Loans may be continued as, or be converted
into, Fixed Rate Loans when any Default has occurred and is continuing.
SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its
-------
obligation to make, continue or convert LIBO Rate Loans hereunder by causing one
of its foreign branches or Affiliates (or an international banking facility
created by such Lender) to make or maintain such LIBO Rate Loan; provided,
--------
however, that such Fixed Rate Loan shall nonetheless be deemed to have been made
- -------
and to be held by such Lender, and the obligation of the Borrower to repay such
Fixed Rate Loan shall nevertheless be to such Lender for the account of such
foreign branch,
-41-
<PAGE>
Affiliate or international banking facility. In addition, the Borrower hereby
consents and agrees that, for purposes of any determination to be made for
purposes of Section 4.1, 4.2, 4.3 or 4.4, it shall be conclusively assumed that
----------- --- --- ---
each Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in
its LIBOR Office's interbank eurodollar market.
SECTION 2.6. Issuance Procedures. By delivering to the Administrative
-------------------
Agent an Issuance Request on or before 12:00 noon, New York City time, on a
Business Day, the Borrower may, from time to time irrevocably request, on not
less than three nor more than ten Business Days' notice, in the case of an
initial issuance of a Letter of Credit for the account of the Borrower, and not
less than three Business Days' prior notice, in the case of a request for the
extension of the Stated Expiry Date of a Letter of Credit, that the Issuer
issue, or extend the Stated Expiry Date of, as the case may be, an irrevocable
Letter of Credit in such form as may be requested by the Borrower and approved
by the Issuer, solely for the purposes described in Section 7.1.11. Each Letter
--------------
of Credit shall by its terms be stated to expire on a date (its "Stated Expiry
-------------
Date") no later than the earlier to occur of (i) the Commitment Termination Date
- ----
or (ii) one year from the date of its issuance. The Issuer will make available
to the beneficiary thereof the original of each Letter of Credit which it issues
hereunder. The Issuer shall give prompt written notice to the Administrative
Agent of the Stated Amount of any such Letter of Credit so issued.
SECTION 2.6.1. Other Lenders' Participation. Upon the issuance of each
----------------------------
Letter of Credit issued by an Issuer pursuant hereto, and without further
action, each Lender (other than the Issuer) that has a Commitment shall be
deemed to have irrevocably purchased, to the extent of its Percentage, a
participation interest in such Letter of Credit (including the Contingent
Liability and any Reimbursement Obligation with respect thereto), and such
Lender shall, to the extent of its Percentage, be responsible for reimbursing
promptly (and in any event within one Business Day) the Issuer for Reimbursement
Obligations which have not been reimbursed by the Borrower in accordance with
Section 2.6.3. In addition, such Lender shall, to the extent of its Percentage,
- -------------
be entitled to receive a ratable portion of the Letter of Credit fees payable
pursuant to Section 3.3.3 with respect to each Letter of Credit (other than the
-------------
issuance fees payable to the Issuer of such Letter of Credit pursuant to the
last sentence of Section 3.3.3) and of interest payable pursuant to Section 3.2
------------- -----------
with respect to any Reimbursement Obligation. To the extent that any Lender has
reimbursed any Issuer for a Disbursement as required by this Section, such
Lender shall be entitled to receive its ratable portion of any amounts
subsequently received (from the Borrower or otherwise) in respect of such
Disbursement.
-42-
<PAGE>
SECTION 2.6.2. Disbursements. The Issuer will notify the Borrower and the
-------------
Administrative Agent promptly of the presentment for payment of any Letter of
Credit issued by the Issuer, together with notice of the date (the "Disbursement
------------
Date") such payment shall be made (each such payment, a "Disbursement").
- ---- ------------
Subject to the terms and provisions of such Letter of Credit and this Agreement,
the Issuer shall make such payment to the beneficiary (or its designee) of such
Letter of Credit. Prior to 12:00 noon, New York City time, on the first
Business Day following the Disbursement Date, the Borrower will reimburse the
Administrative Agent, for the account of the Issuer, for all amounts which the
Issuer has disbursed under such Letter of Credit, together with interest thereon
at a rate per annum equal to the rate per annum then in effect for Base Rate
Loans (with the then Applicable Margin accruing on such amount) pursuant to
Section 3.2 for the period from the Disbursement Date through the date of such
- -----------
reimbursement. Without limiting in any way the foregoing and notwithstanding
anything to the contrary contained herein or in any separate application for any
Letter of Credit, the Borrower hereby acknowledges and agrees that it shall be
obligated to reimburse the Issuer upon each Disbursement of a Letter of Credit,
and it shall be deemed to be the obligor for purposes of each such Letter of
Credit issued hereunder.
SECTION 2.6.3. Reimbursement. The obligation (a "Reimbursement
------------- -------------
Obligation") of the Borrower under Section 2.6.2 to reimburse the Issuer with
- ---------- -------------
respect to each Disbursement (including interest thereon), and, upon the failure
of the Borrower to reimburse the Issuer, each Lender's obligation under Section
-------
2.6.1 to reimburse the Issuer, shall be absolute and unconditional under any and
- -----
all circumstances and irrespective of any setoff, counterclaim or defense to
payment which the Borrower or such Lender, as the case may be, may have or have
had against the Issuer or any such Lender, including any defense based upon the
failure of any Disbursement to conform to the terms of the applicable Letter of
Credit (if, in the Issuer's good faith opinion, such Disbursement is determined
to be appropriate) or any non-application or misapplication by the beneficiary
of the proceeds of such Letter of Credit; provided, however, that after paying
-------- -------
in full its Reimbursement Obligation hereunder, nothing herein shall adversely
affect the right of the Borrower or such Lender, as the case may be, to commence
any proceeding against the Issuer for any wrongful Disbursement made by the
Issuer under a Letter of Credit as a result of acts or omissions constituting
gross negligence or willful misconduct on the part of such Issuer.
SECTION 2.6.4. Deemed Disbursements. Upon the occurrence and during the
--------------------
continuation of any Default of the type described in Section 8.1.9 or, with
-------------
notice from the Administrative Agent,
-43-
<PAGE>
upon the occurrence and during the continuation of any other Event of Default,
(a) an amount equal to that portion of all Letter of Credit
Outstandings attributable to the then aggregate amount which is undrawn and
available under all Letters of Credit issued and outstanding hereunder
shall, without demand upon or notice to the Borrower, be deemed to have
been paid or disbursed by the Issuer under such Letters of Credit
(notwithstanding that such amount may not in fact have been so paid or
disbursed); and
(b) upon notification by the Administrative Agent to the Borrower of
its obligations under this Section, the Borrower shall be immediately
obligated to reimburse the Issuer for the amount deemed to have been so
paid or disbursed by such Issuer.
Any amounts so payable by the Borrower pursuant to this Section shall be
deposited in cash with the Administrative Agent and held as collateral security
for the Obligations in connection with the Letters of Credit issued by the
Issuers. At such time when the Defaults or Events of Default giving rise to the
deemed disbursements hereunder shall have been cured or waived, the
Administrative Agent shall return to the Borrower all amounts then on deposit
with the Administrative Agent pursuant to this Section which have not been
applied to the partial satisfaction of such Obligations.
SECTION 2.6.5. Nature of Reimbursement Obligations. The Borrower and, to
-----------------------------------
the extent set forth in Section 2.6.1, each Lender shall assume all risks of the
-------------
acts, omissions or misuse of any Letter of Credit by the beneficiary thereof.
The Issuer (except to the extent of its own gross negligence or wilful
misconduct) shall not be responsible for:
(a) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any Letter of Credit or any document submitted by any party in
connection with the application for and issuance of a Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged;
(b) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any instrument transferring or assigning or purporting to
transfer or assign a Letter of Credit or the rights or benefits thereunder
or the proceeds thereof in whole or in part, which may prove to be invalid
or ineffective for any reason;
-44-
<PAGE>
(c) failure of the beneficiary to comply fully with conditions
required in order to demand payment under a Letter of Credit;
(d) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise; or
(e) any loss or delay in the transmission or otherwise of any
document or draft required in order to make a Disbursement under a Letter
of Credit.
None of the foregoing shall affect, impair or prevent the vesting of any of the
rights or powers granted to the Issuer or any Lender. In furtherance and
extension and not in limitation or derogation of any of the foregoing, any
action taken or omitted to be taken by an Issuer in good faith (and not
constituting gross negligence or willful misconduct) shall be binding upon the
Borrower and each such Lender, and shall not put such Issuer under any resulting
liability to the Borrower or any such Lender, as the case may be.
SECTION 2.7. Notes. Each Lender's Loans under the Commitment shall be
-----
evidenced by a Note payable to the order of such Lender in a maximum principal
amount equal to such Lender's Percentage of the original Commitment Amount. The
Borrower hereby irrevocably authorizes each Lender to make (or cause to be made)
appropriate notations on the grid attached to such Lender's Note (or on any
continuation of such grid), which notations, if made, shall evidence, inter
-----
alia, the date of, the outstanding principal of, and the interest rate and
- ----
Interest Period applicable to the Loans evidenced thereby. Such notations shall
be conclusive and binding on the Borrower absent manifest error; provided,
--------
however, that the failure of any Lender to make any such notations shall not
- -------
limit or otherwise affect any Obligations of the Borrower or any other Obligor.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. Repayments and Prepayments. The Borrower shall repay in full
--------------------------
the unpaid principal amount of each Loan upon the Stated Maturity Date therefor.
Prior thereto, the Borrower
(a) may make a voluntary prepayment, in whole or in part, of the
outstanding principal amount of any Loans, provided, however, that
-------- -------
-45-
<PAGE>
(i) any such prepayment shall be made pro rata among Loans of
--- ----
the same type and, if applicable, having the same Interest Period of
all Lenders;
(ii) no such prepayment of any Fixed Rate Loan may be made on
any day other than the last day of the Interest Period for such Loan
unless the Borrower complies with Section 4.4 in respect thereof;
-----------
(iii) all such voluntary prepayments shall require, in the case
of LIBO Rate Loans, at least three Business Days' prior written notice
and, in the case of Base Rate Loans, at least one Business Day's prior
written notice, and in either case not more than five Business Days'
prior written notice to the Administrative Agent; and
(iv) all such voluntary partial prepayments shall be in an
aggregate minimum amount of $1,000,000 and integral multiples of
$500,000;
(b) shall, on each date when the sum of (i) the aggregate outstanding
principal amount of all Loans and (ii) the aggregate amount of all Letter
of Credit Outstandings exceeds the Available Commitment Amount, make a
mandatory prepayment of all the Loans and, if necessary, give cash
collateral to the Administrative Agent pursuant to an agreement
satisfactory to the Administrative Agent to collateralize Letter of Credit
Outstandings, in an aggregate amount equal to such excess;
(c) shall, on each date when any reduction in the Commitment Amount
shall become effective, including pursuant to Section 2.2, make a mandatory
-----------
prepayment of all Loans equal to the excess, if any, of the aggregate,
outstanding principal amount of all Loans and Letter of Credit Outstandings
over the Available Commitment Amount as so reduced; and
(d) shall, immediately upon any acceleration of the Stated Maturity
Date of any Loans pursuant to Section 8.2 or Section 8.3, repay all the
----------- -----------
Loans, unless, pursuant to Section 8.3, only a portion of all Loans is so
-----------
accelerated (in which case the portion so accelerated shall be so paid).
Each prepayment of any Loans made pursuant to this Section shall be without
premium or penalty, except as may be required by Section 4.4. No voluntary
-----------
prepayment of principal of any Loans shall cause a reduction in the Commitment
Amount. Each prepayment or repayment of the principal of the Loans shall be
applied, to the extent of such prepayment or repayment, first, to
-----
-46-
<PAGE>
the principal amount thereof being maintained as Base Rate Loans, and second, to
------
the principal amount thereof being maintained as LIBO Rate Loans.
SECTION 3.2. Interest Provisions. Interest on the outstanding principal
-------------------
amount of Loans shall accrue and be payable in accordance with this Section 3.2.
-----------
SECTION 3.2.1. Rates. Pursuant to an appropriately delivered Borrowing
-----
Request or Continuation/Conversion Notice, the Borrower may elect that Loans
comprising a Borrowing accrue interest at a rate per annum:
(a) on that portion maintained from time to time as a Base Rate Loan,
equal to the sum of the Alternate Base Rate from time to time in effect
plus the Applicable Margin;
(b) on that portion maintained as a CD Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the CD Rate
(Reserve Adjusted) for such Interest Period plus the Applicable Margin; and
(c) on that portion maintained as a LIBO Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the LIBO Rate
(Reserve Adjusted) for such Interest Period plus the Applicable Margin.
All Fixed Rate Loans shall bear interest from and including the first day
of the applicable Interest Period to (but not including) the last day of such
Interest Period at the interest rate determined as applicable to such Fixed Rate
Loan.
SECTION 3.2.2. Post-Maturity Rates. After the date any principal amount
-------------------
of any Loan or Reimbursement Obligation is due and payable (whether on the
Stated Maturity Date, upon acceleration or otherwise), or after any other
monetary Obligation of the Borrower shall have become due and payable, the
Borrower shall pay, but only to the extent permitted by law, interest (after as
well as before judgment) on such amounts at a rate per annum equal to the rate
(including any Applicable Margin) applicable to such Loan from time to time in
effect plus an additional margin of 2%.
----
SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall be
-------------
payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any payment or prepayment, in whole or in part, of
principal outstanding on such Loan on the principal amount so paid or
prepaid;
-47-
<PAGE>
(c) with respect to Base Rate Loans, on each Quarterly Payment Date
occurring after the Effective Date;
(d) with respect to Fixed Rate Loans, on the last Business Day of
each applicable Interest Period (and, if such Interest Period shall exceed
90 days or three months, as the case may be, on the 90th day or third-month
anniversary of such Interest Period, as the case may be);
(e) with respect to any Base Rate Loans converted into Fixed Rate
Loans on a day when interest would not otherwise have been payable pursuant
to clause (c), on the date of such conversion; and
----------
(f) on that portion of any Loans the Stated Maturity Date of which is
accelerated pursuant to Section 8.2 or Section 8.3, immediately upon such
----------- -----------
acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in this
----
Section 3.3. All such fees shall be non-refundable.
- -----------
SECTION 3.3.1. Commitment Fee. The Borrower agrees to pay to the
--------------
Administrative Agent for the account of each Lender, for the period (including
any portion thereof when any of its Commitments are suspended by reason of the
Borrower's inability to satisfy any condition of Article V) commencing on the
---------
Effective Date and continuing through the Commitment Termination Date, a
commitment fee in an amount equal to (i) 0.25% per annum of such Lender's
Percentage of the sum of the average daily portion of the Blocked Amount plus
----
(ii) 0.375% per annum of such Lender's Percentage of the sum of the average
daily unused portion of the Available Commitment Amount (net of Letter of Credit
Outstandings). All commitment fees payable pursuant to this Section shall be
calculated on a year comprised of 365 days and payable by the Borrower in
arrears on each Quarterly Payment Date, commencing with the first Quarterly
Payment Date following the Effective Date, and on the Commitment Termination
Date.
SECTION 3.3.2. Agency Fees. The Borrower agrees to pay to the Arranging
-----------
Agents and the Administrative Agent, for their own account, such fees in such
amounts and on such dates as agreed to in writing by the Borrower and the
applicable Agent.
-48-
<PAGE>
SECTION 3.3.3. Letter of Credit Fee. The Borrower agrees to pay to the
--------------------
Administrative Agent, for the pro rata account of the Issuer and each other
--- ----
Lender, a Letter of Credit fee in an amount equal to the then Applicable Margin
for Loans maintained as LIBO Rate Loans, multiplied by the Stated Amount of each
such Letter of Credit, such fees being payable on the date of issuance of each
Letter of Credit (for the period from the date of issuance to the earlier of the
expiration date of the applicable Letter of Credit and the immediately
succeeding Quarterly Payment Date) and thereafter quarterly in advance on each
Quarterly Payment Date. The Borrower further agrees to pay to the Issuer such
fees and other amounts in such amounts and at such times as may be agreed to by
the Borrower and such Issuer in writing.
ARTICLE IV
CERTAIN CD RATE, LIBO RATE AND OTHER PROVISIONS
SECTION 4.1. Fixed Rate Lending Unlawful. If any Lender shall determine
---------------------------
(which determination shall, upon notice thereof to the Borrower and the Lenders,
be conclusive and binding on the Borrower) that the introduction of or any
change in or in the interpretation of any law makes it unlawful, or any
Regulatory Authority asserts that it is unlawful, for such Lender to make,
continue or maintain any Loan as, or to convert any Loan into, a Fixed Rate
Loan, the obligations of such Lender to make, continue, maintain or convert any
such Fixed Rate Loan shall, upon such determination, forthwith be suspended
until such Lender shall notify the Administrative Agent that the circumstances
causing such suspension no longer exist, and all outstanding Fixed Rate Loans of
that type shall automatically convert into Base Rate Loans at the end of the
then current Interest Periods with respect thereto or sooner, if required by
such law or assertion.
SECTION 4.2. Deposits Unavailable. If the Administrative Agent shall have
--------------------
determined that
(a) Dollar deposits in the relevant amount and for the relevant
Interest Period are not available to the Administrative Agent in its
relevant market; or
(b) by reason of circumstances affecting the Administrative Agent's
relevant market, adequate means do not exist for ascertaining the interest
rate applicable hereunder to Fixed Rate Loans,
then, upon notice from the Administrative Agent to the Borrower and the Lenders,
the obligations of all Lenders under Section 2.3 and Section 2.4 to make or
----------- -----------
continue any Loans as, or to convert
-49-
<PAGE>
any Loans into, Fixed Rate Loans shall forthwith be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
SECTION 4.3. Increased Fixed Rate Loan Costs, etc. The Borrower agrees to
------------------------------------
reimburse each Lender for any increase in the cost to such Lender of, or any
reduction in the amount of any sum receivable by such Lender in respect of,
making, continuing or maintaining (or of its obligation to make, continue or
maintain) any Loans as, or of converting (or of its obligation to convert) any
Loans into, Fixed Rate Loans that arise in connection with (i) any change in, or
the introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in after the date hereof of, any law or regulation, directive, guideline,
decision or request (whether or not having the force of law) of any court or
Regulatory Authority except for such changes with respect to increased capital
costs and taxes which are governed by Sections 4.5 and 4.6, respectively, or
------------ ---
(ii) any changes in reserve requirements for "Eurocurrency Liabilities" as
defined in Regulation D of the F.R.S. Board which are not included in the
calculation of "LIBOR Reserve Percentage". Such Lender shall promptly notify
the Administrative Agent and the Borrower in writing of the occurrence of any
such event, such notice to state, in reasonable detail, the reasons therefor and
the additional amount required fully to compensate such Lender for such
increased cost or reduced amount. Such additional amounts shall be payable by
the Borrower directly to such Lender within five days of its receipt of such
notice, and such notice shall, in the absence of manifest error, be conclusive
and binding on the Borrower.
SECTION 4.4. Funding Losses. In the event any Lender shall incur any loss
--------------
or expense (including any loss (other than loss of profit) or expense incurred
by reason of the liquidation or reemployment of deposits or other funds acquired
by such Lender to make, continue or maintain any portion of the principal amount
of any Loan as, or to convert any portion of the principal amount of any Loan
into, a Fixed Rate Loan) as a result of
(a) any conversion or repayment or prepayment of the principal amount
of any Fixed Rate Loans on a date other than the scheduled last day of the
Interest Period applicable thereto, whether pursuant to Section 3.1 or
-----------
otherwise;
(b) any Loans not being made as Fixed Rate Loans in accordance with
the Borrowing Request therefor; or
-50-
<PAGE>
(c) any Loans not being continued as, or converted into, Fixed Rate
Loans in accordance with the Continuation/Conversion Notice therefor,
then, upon the written notice of such Lender to the Borrower (with a copy to the
Administrative Agent), the Borrower shall, within five days of its receipt
thereof, pay directly to such Lender such amount as will (in the reasonable
determination of such Lender) reimburse such Lender for such loss or expense;
provided, however, that such loss or expense shall not include loss of the
- -------- -------
Applicable Margin with respect to any Loan accruing after the date of such
payment. Such written notice (which shall include calculations in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Borrower.
SECTION 4.5. Increased Capital Costs. If any change in, or the
-----------------------
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court or Regulatory Authority,
affects or would affect the amount of capital required or expected to be
maintained by any Lender or any Person controlling such Lender, and such Lender
determines (in good faith but in its sole and absolute discretion) that the rate
of return on its or such controlling Person's capital as a consequence of the
Commitments or the Loans made, or the Letters of Credit participated in, by such
Lender is reduced to a level below that which such Lender or such controlling
Person could have achieved but for the occurrence of any such circumstance,
then, in any such case upon notice from time to time by such Lender to the
Borrower, the Borrower shall immediately pay directly to such Lender additional
amounts sufficient to compensate such Lender or such controlling Person for such
reduction in rate of return. A statement of such Lender as to any such
additional amount or amounts (including calculations thereof in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Borrower. In determining such amount, such Lender may use any method of
averaging and attribution that it (in its sole and absolute discretion) shall
deem applicable.
SECTION 4.6. Taxes. (a) All payments by the Borrower of principal of,
-----
and interest on, or other amounts in respect of, the Loans and all other amounts
payable hereunder (including fees) and the Notes shall be made free and clear of
and without deduction for any Taxes, except to the extent that any such
withholdings or deductions are required by applicable law, rule or regulations.
In that event, the Borrower will
(i) pay directly to the relevant authority the full amount of Taxes
required to be so withheld or deducted;
-51-
<PAGE>
(ii) promptly forward to the Administrative Agent an official receipt
or other documentation satisfactory to the Administrative Agent evidencing
such payment to such authority; and
(iii) if such Taxes are Covered Taxes, pay to the Administrative
Agent for the account of the Lenders such additional amount or amounts as
is necessary to ensure that the net amount actually received by each Lender
will equal the full amount such Lender would have received had no such
withholding or deduction been required.
In addition, if the Borrower, any Lender, or any Agent is required by law at any
time to pay any Covered Tax on, or calculated by reference to, any sum received
or receivable by or on behalf of any Lender or any Agent under this Agreement or
any Notes, then (i) with respect solely to any such requirement with respect to
a Lender or an Agent, any applicable Lender or Agent shall, as promptly as
practicable following such Person having notice of such requirement, give notice
to the Borrower of such requirement and (ii) the Borrower shall, promptly after
having received such notice, pay or procure the payment of such Covered Tax. If
the Borrower pays any such Covered Taxes as required by the immediately
preceding sentence, then the Borrower will promptly forward to the
Administrative Agent an official receipt or other documentation satisfactory to
the Administrative Agent evidencing such payment of Covered Taxes to the
relevant taxing authority. Without prejudice to the preceding provisions, if
any Agent or any Lender is required by law to make any payment on account of
Covered Taxes on or in relation to any sum received under this Agreement or any
Note, or any liability for Covered Taxes in respect of any such sum is imposed,
levied or assessed against any Lender or any Agent, the Borrower will indemnify
each such Lender and Agent for the full amount of Covered Taxes paid by such
Lender or Agent (as the case may be), whether or not such Covered Taxes were
correctly or legally asserted. Such indemnification shall be made within 30
days of the demand of the Lender or Agent therefor. In addition, if the
Borrower fails to remit to the Administrative Agent, for the account of the
respective Lenders, the required receipts or other required documentary evidence
of its payment of any Taxes, the Borrower shall indemnify the Lenders for any
incremental Taxes, interest or penalties that may become payable by any Lender
as a result of any such failure. For purposes of this Section 4.6, the transfer
-----------
by the Administrative Agent or any Lender to or for the account of any Lender of
any sum received from the Borrower on account of amounts required to be paid by
the Borrower hereunder in respect of Covered Taxes imposed with respect to the
recipient shall be deemed a payment by the Borrower of such amounts.
-52-
<PAGE>
(b) Each Lender that is an original signatory to this Agreement and each
Agent hereby severally (but not jointly) represent that, under applicable law
and treaties in effect as of the date of the initial Credit Extension, no United
States federal income taxes will be required to be withheld by the
Administrative Agent or the Borrower with respect to any payments to be made to
such Person in respect of this Agreement. Each Lender that is an original
signatory hereto (and each Person which becomes a Lender by assignment, transfer
or participation pursuant to Section 10.11 hereof) and each Agent (and each
-------------
Person that becomes an Agent by appointment pursuant to Section 9.4 hereof),
-----------
agrees severally (but not jointly) that, on or prior to the date of the initial
Credit Extension (or such assignment, transfer or appointment, as the case may
be) it will in each case deliver to the Borrower and the Administrative Agent
the following:
(i) in the case of a Person other than a Non-U.S. Lender, two copies
of a statement certifying that such Person is a U.S. Person, which
statement shall contain the address, if any, of such Person's office or
place of business in the United States, and shall be signed by an
authorized officer of such Person, together with two duly completed copies
of United States Internal Revenue Service Form W-9 (or applicable successor
form) (unless it establishes to the reasonable satisfaction of the Borrower
that it is otherwise eligible for an exemption from backup withholding tax
or other applicable withholding tax), or
(ii) in the case of a Non-U.S. Lender, either (A) two duly completed
copies of United States Internal Revenue Service Form 1001 or 4224 (or
applicable successor form) certifying in each case that such Person is
entitled to receive payments under this Agreement and the Notes payable to
it without deduction or withholding of any United States federal income
taxes and two duly completed copies of United States Internal Revenue
Service Form W-8 or Form W-9 (or applicable successor form) or (B) in the
case of an assignee Lender that is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and that does not comply with the
requirements of clause (i) hereof, then a statement in substantially the
form of Exhibit N hereto (an "Exemption Certificate") to the effect that
--------- ---------------------
such assignee Lender is eligible for a complete exemption from withholding
of United States withholding tax under Section 871(h) or Section 881(c) of
the Code and two duly completed and signed original copies of Internal
Revenue Service Form W-8.
Each Person who delivers to the Borrower and the Administrative Agent a Form W-
8, W-9, 1001 or 4224, or applicable successor form, pursuant to this clause,
further undertakes to deliver to
-53-
<PAGE>
the Borrower and the Administrative Agent two further copies of said Form W-8,
W-9, 1001, 4224, or applicable successor form, or other manner of certification,
as the case may be, on or before the date that any such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Borrower, and such extensions or
renewals thereof as may reasonably be requested by the Borrower, certifying that
such Person is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes, unless in
any such case any change in law, rule, regulation, treaty or directive, or in
the interpretation or application thereof (a "Law Change"), has occurred prior
----------
to the date on which any such delivery would otherwise be required, which Law
Change renders any such form inapplicable or which would prevent such Person
from duly completing and delivering any such form with respect to it.
(c) The agreements in this Section shall survive the termination of this
Agreement and the payment of the Notes and all other amounts payable hereunder.
(d) No Lender shall be given the benefit of the provisions of clause (a)
----------
above during such time that such Lender has failed to comply with clause (b)
----------
above.
SECTION 4.7. Payments, Computations, etc. Unless otherwise expressly
---------------------------
provided, all payments by the Borrower pursuant to this Agreement, the Notes,
each Letter of Credit or any other Loan Document shall be made by the Borrower
to the Administrative Agent for the pro rata account of the Lenders entitled to
--- ----
receive such payment. All such payments required to be made to the
Administrative Agent shall be made, without setoff, deduction or counterclaim,
not later than 12:00 noon, New York City time, on the date due, in same day or
immediately available funds, to such account as the Administrative Agent shall
specify from time to time by notice to the Borrower. The failure of the
Borrower to make any such payment by such time shall not constitute a Default
hereunder, provided that such payment is received by the Administrative Agent in
immediately available funds by 4:00 p.m. on such due date, but any such payment
made after 1:00 p.m. on such due date shall be deemed to have been made on the
next Business Day for the purpose of calculating interest on amounts outstanding
on the Obligations unless the Administrative Agent in fact was able to remit to
each Lender its pro-rata share of such payment by 4:00 p.m. on such due date.
Funds received after that time shall be deemed to have been received by the
Administrative Agent on the next succeeding Business Day. The Administrative
Agent shall promptly remit in same day funds to each Lender its share, if any,
of such payments received by the Administrative Agent for the account of such
Lender. All interest (including interest on LIBO Rate Loans) shall be computed
on the basis of
-54-
<PAGE>
the actual number of days (including the first day but excluding the last day)
occurring during the period for which such interest or fee is payable over a
year comprised of 360 days (or, in the case of interest on a Base Rate Loan
(calculated at other than the Federal Funds Rate) and fees, 365 days or, if
appropriate, 366 days). Whenever any payment to be made shall otherwise be due
on a day which is not a Business Day, such payment shall (except as otherwise
required by clause (c) of the definition of the term "Interest Period") be made
----------
on the next succeeding Business Day and such extension of time shall be included
in computing interest and fees, if any, in connection with such payment.
SECTION 4.8. Sharing of Payments. If any Lender shall obtain any payment
-------------------
or other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Loan or Reimbursement Obligation (other than
pursuant to the terms of Section 4.3, 4.4, 4.5 or 4.6) in excess of its pro rata
----------- --- --- --- --- ----
share of payments then or therewith obtained by all Lenders, such Lender shall
purchase from the other Lenders such participations in Credit Extensions made by
them as shall be necessary to cause such purchasing Lender to share the excess
payment or other recovery ratably with each of them; provided, however, that if
-------- -------
all or any portion of the excess payment or other recovery is thereafter
recovered from such purchasing Lender, the purchase shall be rescinded and each
Lender which has sold a participation to the purchasing Lender shall repay to
the purchasing Lender the purchase price to the ratable extent of such recovery
together with an amount equal to such selling Lender's ratable share (according
to the proportion of
(a) the amount of such selling Lender's required repayment to the
purchasing Lender
to
- --
(b) total amount so recovered from the purchasing Lender)
of any interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. The Borrower agrees that any Lender
so purchasing a participation from another Lender pursuant to this Section may,
to the fullest extent permitted by law, exercise all its rights of payment
(including pursuant to Section 4.9) with respect to such participation as fully
-----------
as if such Lender were the direct creditor of the Borrower in the amount of such
participation. If under any applicable bankruptcy, insolvency or other similar
law, any Lender receives a secured claim in lieu of a setoff to which this
Section applies, such Lender shall, to the extent practicable, exercise its
rights in respect of such secured claim in a manner
-55-
<PAGE>
consistent with the rights of the Lenders entitled under this Section to share
in the benefits of any recovery on such secured claim.
SECTION 4.9. Setoff. Each Lender shall, upon the occurrence and during
------
the continuance of any Default described in clauses (a) through (d) of Section
----------- --- -------
8.1.9 or, with the consent of the Required Lenders, upon the occurrence and
- -----
during the continuance of any other Event of Default, have the right to
appropriate and apply to the payment of the Obligations owing to it (whether or
not then due), and (as security for such Obligations) the Borrower hereby grants
to each Lender a continuing security interest in, any and all balances, credits,
deposits, accounts or moneys of the Borrower then or thereafter maintained with
such Lender; provided, however, that any such appropriation and application
-------- -------
shall be subject to the provisions of Section 4.8. Each Lender agrees promptly
-----------
to notify the Borrower and the Administrative Agent after any such setoff and
application made by such Lender; provided, however, that the failure to give
-------- -------
such notice shall not affect the validity of such setoff and application. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff under applicable law or otherwise)
which such Lender may have.
SECTION 4.10. Lender's Duty to Mitigate. Each Lender, as promptly as
-------------------------
practicable after it becomes aware of the occurrence of an event or the
existence of a condition that would cause it to be affected under Section 4.1,
-----------
4.2, 4.3, 4.5 or 4.6 or that would entitle such Lender to receive payments under
- --- --- --- ---
Section 4.3, will give notice thereof to the Borrower and the Administrative
- -----------
Agent and, to the extent not inconsistent with such Lender's internal policies,
such Lender shall use commercially reasonable efforts to make, fund or maintain
its affected LIBO Rate Loans through another lending office of such Lender if,
as a result thereof, the additional moneys which would otherwise be required to
be paid to such Lender pursuant to Section 4.2, 4.3, 4.5 or 4.6, as the case may
----------- --- --- ---
be, would be materially reduced, or the illegality or other adverse
circumstances which would otherwise require a conversion of such Loans pursuant
to Section 4.1 would cease to exist, and if, as determined by such Lender in its
-----------
reasonable discretion, the making, funding or maintaining of such Loans through
such other lending office would not otherwise adversely affect such Loans or
such Lender.
SECTION 4.11. Replacement of Lenders. Each Lender hereby severally agrees
----------------------
as set forth in this Section:
(a) If any Lender (a "Subject Lender") makes demand upon the Borrower
--------------
for (or if the Borrower is otherwise required to pay) amounts pursuant to
Section 4.2, 4.3, 4.5
----------- --- ---
-56-
<PAGE>
or 4.6, or gives notice pursuant to Section 4.1 requiring a conversion of
--- -----------
such Subject Lender's LIBO Rate Loans to Base Rate Loans, the Borrower may,
within 90 days of receipt by the Borrower of such demand or notice (or the
occurrence of such other event causing the Borrower to be required to pay
such compensation), as the case may be, give notice (a "Replacement
-----------
Notice") in writing to the Administrative Agent and such Subject Lender of
------
its intention to replace such Subject Lender with a financial institution
designated in such Replacement Notice. If the Administrative Agent shall,
in the exercise of its reasonable discretion and within 30 days of its
receipt of such Replacement Notice, notify the Borrower and such Subject
Lender in writing that the designated financial institution is satisfactory
to the Administrative Agent, then such Subject Lender shall, so long as no
Default shall have occurred and be continuing (and subject to the payment
of any amounts due pursuant to Section 4.4), assign, in accordance with
-----------
Section 10.11.1, all of its Commitments, Loans, Notes and other rights and
---------------
obligations under this Agreement and all other Loan Documents (including,
without limitation, Reimbursement Obligations) to such designated financial
institution; provided, however, that (i) such assignment shall be without
-------- -------
recourse, representation or warranty (other than that such Lender owns the
Commitments, Loans and Notes being assigned, free and clear of any Liens)
and shall be on terms and conditions reasonably satisfactory to such
Subject Lender and such designated financial institution and (ii) the
purchase price paid by such designated financial institution shall be in
the amount of such Subject Lender's Loans and its Percentage of outstanding
Reimbursement Obligations, together with all accrued and unpaid interest
and fees in respect thereof, plus all other amounts (other than the amounts
demanded and unreimbursed under Sections 4.2, 4.3, 4.5 and 4.6, which shall
------------ --- --- ---
be payable upon demand by the Borrower), owing to such Subject Lender
hereunder.
(b) Upon the effective date of an assignment described in clause (a),
----------
the Borrower shall issue a replacement Note or Notes, as the case may be,
to such designated financial institution or Replacement Lender, as
applicable, and such institution shall become a "Lender" for all purposes
under this Agreement and the other Loan Documents. In the case of clause
------
(a), the Administrative Agent agrees to use all commercially reasonable
---
efforts to assist the Borrower in locating a replacement financial
institution to replace any Subject Lender; provided, however, that the
-------- -------
Borrower agrees to pay all reasonable costs and expenses incurred by the
Administrative Agent in providing such assistance.
-57-
<PAGE>
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
SECTION 5.1. Initial Credit Extension. The obligations of the Lenders
------------------------
and, if applicable, the Issuer to fund or make, as the case may be, the initial
Credit Extension shall be subject to the prior or concurrent satisfaction of
each of the conditions precedent set forth in this Section 5.1.
-----------
SECTION 5.1.1. Resolutions, etc. The Arranging Agents shall have received
----------------
from the Borrower and each other Obligor, as applicable, (i) a copy of a good
standing certificate, dated a date reasonably close to the Effective Date, for
each such Person and (ii) a certificate, dated the date of the initial Credit
Extension and with counterparts for each Lender, duly executed and delivered by
such Person's Secretary or Assistant Secretary, as to
(a) resolutions of each such Person's Board of Directors or consent
of its managing member then in full force and effect authorizing, to the
extent relevant, the execution, delivery and performance of this Agreement,
the Notes, each other Loan Document to be executed by such Person and the
transactions contemplated hereby and thereby;
(b) the incumbency and signatures of those of its officers or
managing members authorized to act with respect to this Agreement, the
Notes and each other Loan Document to be executed by such Person; and
(c) the full force and validity of each Organic Document of such
Person and copies thereof,
upon which certificates each Lender may conclusively rely until it shall have
received a further certificate of the Secretary, Assistant Secretary or managing
member of any such Person canceling or amending the prior certificate of such
Person.
SECTION 5.1.2. Delivery of Notes. The Arranging Agents shall have
-----------------
received such Lender's Notes duly executed and delivered by an Authorized
Officer of the Borrower.
SECTION 5.1.3. Delivery of Certain Documents. The Arranging Agents shall
-----------------------------
have received a fully executed copy of each of the Transaction Documents. There
shall not have been any amendments, waivers or other modifications of, or other
forbearance to exercise any rights with respect to, any of the terms or
provisions of any Transaction Document and the exhibits and schedules thereto.
-58-
<PAGE>
SECTION 5.1.4. Payment of Outstanding Indebtedness, etc. All Indebtedness
----------------------------------------
identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the Disclosure
-------------
Schedule, together with all interest, all prepayment premiums and other amounts
due and payable with respect thereto, shall have been paid in full from the
proceeds of the initial Credit Extension and the commitments in respect of such
Indebtedness shall have been terminated, and all Liens securing payment of any
such Indebtedness shall have been released and the Arranging Agents shall have
received all Uniform Commercial Code Form UCC-3 termination statements or other
instruments as may be suitable or appropriate in connection therewith. The
Arranging Agents shall have received executed copies of "pay-off" letters with
respect thereto in form and substance satisfactory to the Arranging Agents.
SECTION 5.1.5. Borrower Pledge Agreement. The Arranging Agents shall have
-------------------------
received the Borrower Pledge Agreement, dated as of the date hereof, duly
executed and delivered by an Authorized Officer of the Borrower, together with
(a) certificates evidencing all of the issued and outstanding shares
of ResNet Holdco, which certificates shall be accompanied by undated stock
powers duly executed in blank, or, if any securities pledged pursuant to
the Borrower Pledge Agreement are uncertificated securities, confirmation
and evidence satisfactory to the Arranging Agents that the security
interest in such uncertificated securities has been transferred to and
perfected by the Administrative Agent for the benefit of the Secured
Parties in accordance with Section 8-313 and Section 8-321 of the U.C.C.,
and all laws otherwise applicable to the perfection of the pledge of such
shares; and
(b) all Pledged Notes (as defined in the Borrower Pledge Agreement),
if any, evidencing Indebtedness payable to the Borrower, duly endorsed to
the order of the Administrative Agent, together with Uniform Commercial
Code Financing Statements (or similar instruments) in respect of such
Pledged Notes executed by each payee of a Pledged Note to be filed in such
jurisdictions as the Arranging Agents may reasonably request.
The Arranging Agents and their counsel shall be satisfied that (a) the Lien
granted to the Administrative Agent, for the benefit of the Secured Parties, in
the collateral described above is a first priority (or local equivalent thereof)
security interest; and (b) no Lien exists on any of the collateral described
above other than the Lien created in favor of the Administrative Agent, for the
benefit of the Secured Parties, pursuant to the Borrower Pledge Agreement.
-59-
<PAGE>
SECTION 5.1.6. Security Agreements. The Arranging Agents shall have
-------------------
received executed counterparts of the Borrower Security Agreement, dated as of
the date hereof, duly executed by the Borrower, together with
(a) executed copies of Uniform Commercial Code financing statements
(Form UCC-1), naming the Borrower as the debtor and the Administrative
Agent as the secured party, or other similar instruments or documents, to
be filed under the Uniform Commercial Code of all jurisdictions as may be
necessary or, in the opinion of the Arranging Agents, desirable to perfect
the security interests of the Administrative Agent pursuant to such
Security Agreement;
(b) executed copies of proper Uniform Commercial Code Form UCC-3
termination statements, if any, necessary to release all Liens and other
rights of any Person
(i) in any collateral described in such Security Agreement
previously granted by any Person, and
(ii) securing any of the Indebtedness identified in Item
----
7.2.2(b) ("Indebtedness to be Paid") of the Disclosure Schedule,
--------
together with such other Uniform Commercial Code Form UCC-3 termination
statements as the Arranging Agents may request from the Borrower; and
(c) certified copies of Uniform Commercial Code Requests for
Information or Copies (Form UCC-11), or a similar search report certified
by a party acceptable to the Arranging Agents, dated a date reasonably near
to the date of the initial Credit Extension, listing all effective
financing statements which name the Borrower or any Restricted Subsidiary
(or any predecessor thereto), as the case may be (under its present name
and any previous names), as the debtor and which are filed in the
jurisdictions in which filings were made pursuant to clause (a) above,
----------
together with copies of such financing statements (none of which (other
than those described in clause (a), if such Form UCC-11 or search report,
----------
as the case may be, is current enough to list such financing statements
described in clause (a)) shall cover any collateral described in such
----------
Security Agreement).
SECTION 5.1.7. Patent Security Agreements, Copyright Security Agreements
---------------------------------------------------------
and Trademark Security Agreements. The Arranging Agents shall have received
- ---------------------------------
each Patent Security Agreement, Copyright Security Agreement and Trademark
Security Agreement, as applicable, each dated as of the date of the
-60-
<PAGE>
initial Credit Extension, duly executed and delivered by the Borrower.
SECTION 5.1.8. Concentration Account Agreement. The Arranging Agents
-------------------------------
shall have received the Concentration Account Agreement duly executed by the
concentration account bank, dated as of the date of the initial Credit
Extension, duly executed and delivered by such financial institution.
SECTION 5.1.9. Other Loan Documents. The Arranging Agents shall have
--------------------
received each of the Contract Assignment Agreement and each Consent and
Agreement, in each case dated the date of the initial Credit Extension and duly
executed and delivered by an Authorized Officer of the Borrower and such other
parties thereto.
SECTION 5.1.10. Subsidiary Guaranties. The Arranging Agents shall have
---------------------
received each Subsidiary Guaranty, each dated the date of the initial Credit
Extension, duly executed and delivered by an Authorized Officer of each
Subsidiary Guarantor.
SECTION 5.1.11. Financial Information, etc. The Arranging Agents shall
--------------------------
have received
(a) audited consolidated financial statements of the Borrower and its
Subsidiaries for the three-year period ending December 31, 1995;
(b) unaudited financial statements of the Borrower and its
Subsidiaries for the six- and nine-month periods ending June 30, 1996 and
September 30, 1996; and
(c) pro forma consolidated and consolidating balance sheets of the
--- -----
Borrower and its Subsidiaries, as of September 30, 1996 (the "Pro Forma
---------
Balance Sheet"), in each case, certified by the chief financial or
-------------
accounting Authorized Officer of the Borrower, giving effect to the
consummation of all the transactions contemplated by this Agreement and
reflecting the resulting capital structure (debt and equity) of the
Borrower, which shall be satisfactory to the Arranging Agents.
SECTION 5.1.12. Closing Date Certificate. The Arranging Agents shall have
------------------------
received the Borrower Closing Date Certificate, dated the date of the initial
Credit Extension, duly executed and delivered by an Authorized Officer of the
Borrower, in which certificate the Borrower shall agree and acknowledge that the
statements made therein shall be deemed to be true and correct representations
and warranties of the Borrower made as of such date and, at the time each such
certificate is delivered, such statements shall in fact be true and correct.
All documents and
-61-
<PAGE>
agreements required to be appended to the Borrower Closing Date Certificate
shall be in form and substance satisfactory to the Arranging Agents.
SECTION 5.1.13. Compliance Certificate. The Arranging Agents shall have
----------------------
received an initial Compliance Certificate on a pro forma basis as if the Credit
--- -----
Extension to be made on the date of the initial Credit Extension had occurred as
of September 30, 1996 and as to such items therein as the Arranging Agents
reasonably request, dated the date of the initial Credit Extension, duly
executed (and with all schedules thereto duly completed) and delivered by the
chief executive, financial or accounting Authorized Officer of the Borrower.
SECTION 5.1.14. Solvency, etc. The Arranging Agents shall have received
-------------
the Solvency Certificate, dated the date of the initial Credit Extension, duly
executed and delivered by the chief financial or accounting Authorized Officer
of the Borrower.
SECTION 5.1.15. Insurance. The Arranging Agents shall have received
---------
certified copies of the insurance policies (or binders or certificates of
insurance in respect thereof), from one or more insurance companies satisfactory
to the Arranging Agents, evidencing coverage required to be maintained pursuant
hereto and each Loan Document.
SECTION 5.1.16. Opinions of Counsel. The Arranging Agents shall have
-------------------
received opinions, dated the date of the initial Credit Extension and addressed
to the Agents and all Lenders, from Sherman & Howard L.L.C., special counsel to
the Obligors, in the form of Exhibit O hereto.
---------
SECTION 5.1.17. Closing Fees, Expenses, etc. The Agents shall have
---------------------------
received for their own accounts, or for the account of each Lender, as the case
may be, all fees, costs and expenses due and payable pursuant to Section 3.3, if
-----------
then invoiced.
SECTION 5.2. All Credit Extensions. The obligation of each Lender and
---------------------
each Issuer to make any Credit Extension (including the initial Credit
Extension) shall be subject to Sections 2.1.4 and 2.1.5 and the satisfaction of
-------------- -----
each of the conditions precedent set forth in this Section 5.2.
-----------
SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both before
-------------------------------------------
and after giving effect to any Credit Extension (but, if any Default of the
nature referred to in Section 8.1.5 shall have occurred with respect to any
-------------
other Indebtedness, without giving effect to the application, directly or
indirectly, of the proceeds thereof) the following statements shall be true and
correct:
-62-
<PAGE>
(a) the representations and warranties set forth in Article VI
----------
(excluding, however, those contained in Section 6.7) and in each other Loan
-----------
Document shall, in each case, be true and correct with the same effect as
if then made (unless stated to relate solely to an earlier date, in which
case such representations and warranties shall be true and correct in all
material respects as of such earlier date);
(b) except as disclosed by the Borrower to the Administrative Agent
and the Lenders pursuant to Section 6.7,
-----------
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding shall be pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries which could reasonably be expected to have a Material
Adverse Effect; and
(ii) no development shall have occurred in any labor
controversy, litigation, arbitration or governmental investigation or
proceeding disclosed pursuant to Section 6.7 which could reasonably be
-----------
expected to have a Material Adverse Effect; and
(c) no Default shall have then occurred and be continuing.
SECTION 5.2.2. Credit Extension Request, etc. The Administrative Agent
-----------------------------
shall have received a Borrowing Request if Loans are being requested, or an
Issuance Request if a Letter of Credit is being requested or extended. Each of
the delivery of a Borrowing Request or Issuance Request and the acceptance by
the Borrower of the proceeds of such Credit Extension shall constitute a
representation and warranty by the Borrower that on the date of such Credit
Extension (both immediately before and after giving effect to such Credit
Extension and the application of the proceeds thereof) the statements made in
Section 5.2.1 are true and correct in all material respects.
- -------------
SECTION 5.2.3. Satisfactory Legal Form. All documents executed or
-----------------------
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries or any other Obligors shall be reasonably satisfactory in form and
substance to the Arranging Agents and their counsel; the Arranging Agents and
their counsel shall have received all information, approvals, opinions,
documents or instruments as the Arranging Agents or their counsel may reasonably
request.
-63-
<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders, each Issuer and each Agent to enter into
this Agreement and to make Credit Extensions hereunder, the Borrower represents
and warrants unto each Agent, each Issuer and each Lender as set forth in this
Article VI.
- ----------
SECTION 6.1. Organization, etc. The Borrower and each of its Subsidiaries
-----------------
is a corporation validly organized and existing and in good standing under the
laws of the state or jurisdiction of its incorporation, is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
where the nature of its business requires such qualification, and has full power
and authority and holds all requisite governmental licenses, permits and other
approvals to enter into and perform its Obligations under this Agreement, the
Notes and each other Loan Document and Transaction Document to which it is a
party and to own and hold under lease its property and to conduct its business
substantially as currently conducted by it.
SECTION 6.2. Due Authorization, Non-Contravention, etc. The execution,
-----------------------------------------
delivery and performance by the Borrower of this Agreement, the Notes and each
other Loan Document and Transaction Document executed or to be executed by it
and the execution, delivery and performance by each other Obligor of each Loan
Document and Transaction Document executed or to be executed by it are in each
case within each such Person's corporate powers, have been duly authorized by
all necessary corporate action, and do not
(a) contravene any such Person's Organic Documents;
(b) contravene any Contractual Obligation binding on or affecting any
such Person;
(c) contravene any Governmental Approval or Governmental Rule binding
on or affecting any such Person; or
(d) result in, or require the creation or imposition of, any Lien on
any of such Person's properties (except as expressly permitted by this
Agreement).
SECTION 6.3. Government Approval, Regulation, etc. Except as disclosed in
------------------------------------
Item 6.3 ("Approvals") of the Disclosure Schedule, no authorization or approval
- --------
or other action by, and no notice to or filing with, any Regulatory Authority or
other Person (other than those that have been, or on the Effective Date will be,
duly obtained or made and which are, or on the Effective
-64-
<PAGE>
Date will be, in full force and effect) is required for the due execution,
delivery or performance by the Borrower of this Agreement or the Notes or by the
Borrower or any other Obligor of any other Loan Document or Transaction Document
to which it is a party. Neither the Borrower nor any of its Subsidiaries is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
SECTION 6.4. Validity, etc. This Agreement constitutes, and the Notes and
-------------
each other Loan Document and Transaction Document, executed by the Borrower
will, on the due execution and delivery thereof, constitute, the legal, valid
and binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms; and each other Loan Document and
Transaction Document executed pursuant hereto by each other Obligor will, on the
due execution and delivery thereof by such Obligor, constitute the legal, valid
and binding obligation of such Obligor enforceable against such Obligor in
accordance with its terms (except, in any case above, as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally and by principles of equity).
SECTION 6.5. Financial Information. The financial statements of the
---------------------
Borrower and its Subsidiaries furnished to the Arranging Agents and each Lender
pursuant to Section 5.1.11 have been prepared in accordance with GAAP
--------------
consistently applied, and present fairly the consolidated financial position of
the corporations covered thereby as at the dates thereof and the results of
their operations for the periods then ended. All balance sheets, all statements
of operations, shareholders' equity and cash flows and all other financial
information of each of the Borrower and its Subsidiaries furnished pursuant to
Section 7.1.1 have been and will for periods following the Effective Date be
- -------------
prepared in accordance with GAAP consistently applied, and do or will present
fairly the consolidated financial position of the corporations covered thereby
as at the dates thereof and the results of their operations for the periods then
ended, except that quarterly financial statements need not include footnote
disclosure and may be subject to ordinary year-end adjustment.
SECTION 6.6. No Material Adverse Effect. There has been no Material
--------------------------
Adverse Effect since December 31, 1995 or June 30, 1996.
SECTION 6.7. Litigation, Labor Controversies, etc. Except as disclosed in
------------------------------------
Item 6.7 ("Litigation") of the Disclosure
- --------
-65-
<PAGE>
Schedule, there is no pending or, to the knowledge of the Borrower, threatened
litigation, action, proceeding, or labor controversy affecting the Borrower or
any of its Subsidiaries, or any of their respective properties, businesses,
assets or revenues, which (a) could have a Material Adverse Effect or (b) could
adversely affect the legality, validity or enforceability of this Agreement, the
Notes or any other Loan Document or Transaction Document.
SECTION 6.8. Compliance with Laws. The Borrower and its Subsidiaries have
--------------------
complied in all material respects with all applicable Governmental Approvals and
Governmental Rules of any Regulatory Authority having jurisdiction over the
conduct of its businesses or the ownership of its properties.
SECTION 6.9. Subsidiaries. The Borrower has no Subsidiaries, except those
------------
Subsidiaries
(a) which are identified in Item 6.9 ("Existing Subsidiaries") of the
--------
Disclosure Schedule; or
(b) which are permitted to have been organized or acquired in
accordance with Section 7.2.5 or 7.2.10.
------------- ------
SECTION 6.10. Ownership of Properties. Except as permitted pursuant to
-----------------------
Section 6.14 or Section 7.2.3, the Borrower and each of its Subsidiaries owns
- ------------ -------------
(a) in the case of owned real property, good and marketable fee title to, and
(b) in the case of owned personal property, good and valid title to, or, in the
case of leased real or personal property, valid and enforceable leasehold
interests (as the case may be) in, all of its properties and assets, real and
personal, tangible and intangible, of any nature whatsoever, free and clear in
each case of all Liens or claims, except for Liens permitted pursuant to Section
-------
7.2.3.
- -----
SECTION 6.11. Taxes. The Borrower and each of its Subsidiaries has filed
-----
all tax returns and reports required by law to have been filed by it and has
paid all taxes and governmental charges thereby shown to be due and owing,
except any such taxes or charges which are being diligently contested in good
faith by appropriate proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on its books.
SECTION 6.12. Pension and Welfare Plans. During the twelve-consecutive-
-------------------------
month period prior to the date of the execution and delivery of this Agreement
and prior to the date of any Credit Extension hereunder, no steps have been
taken to terminate any Pension Plan (other than a standard termination under
Section 4041(b) of ERISA), and no contribution failure has occurred with respect
to any Pension Plan sufficient to give rise
-66-
<PAGE>
to a Lien under Section 302(f) of ERISA. No condition exists or event or
transaction has occurred with respect to any Pension Plan which might result in
the incurrence by the Borrower or any member of the Controlled Group of any
material liability, fine or penalty.
SECTION 6.13. Environmental Warranties. Except as set forth in Item 6.13
------------------------ ---------
("Environmental Matters") of the Disclosure Schedule:
(a) all facilities and property (including underlying groundwater)
owned or leased by the Borrower or any of its Subsidiaries have been, and
continue to be, owned or leased by the Borrower and its Subsidiaries in
material compliance with all Environmental Laws;
(b) there are no pending or threatened and, to the best of the
Borrower's knowledge, there have been no past
(i) claims, complaints, notices or requests for information
received by the Borrower or any of its Subsidiaries with respect to
any alleged violation of any Environmental Law, or
(ii) complaints, notices or inquiries to the Borrower or any of
its Subsidiaries regarding potential liability under any Environmental
Law;
(c) there have been no Releases of Hazardous Materials at, on or
under any property now or previously owned or leased by the Borrower or any
of its Subsidiaries that, singly or in the aggregate, have, or could
reasonably be expected to have, a Material Adverse Effect;
(d) the Borrower and its Subsidiaries have been issued and are in
material compliance with all permits, certificates, approvals, licenses and
other authorizations relating to environmental matters and necessary or
desirable for their businesses;
(e) no property now or previously owned or leased by the Borrower or
any of its Subsidiaries is listed or proposed for listing on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state
list of sites requiring investigation or clean-up;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or
previously owned or leased by the Borrower or any of its Subsidiaries that,
singly or in the
-67-
<PAGE>
aggregate, have, or could reasonably be expected to have, a Material
Adverse Effect;
(g) neither the Borrower nor any Subsidiary of the Borrower has
directly transported or directly arranged for the transportation of any
Hazardous Material to any location which is listed or proposed for listing
on the National Priorities List pursuant to CERCLA, on the CERCLIS or on
any similar state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to material
claims against the Borrower or such Subsidiary thereof for any remedial
work, damage to natural resources or personal injury, including claims
under CERCLA;
(h) there are no polychlorinated biphenyls or friable asbestos present
at any property now or previously owned or leased by the Borrower or any
Subsidiary of the Borrower that, singly or in the aggregate, have, or could
reasonably be expected to have, a Material Adverse Effect; and
(i) no conditions exist at, on or under any property now or previously
owned or leased by the Borrower which, with the passage of time, or the
giving of notice or both, would give rise to liability under any
Environmental Law.
SECTION 6.14. Intellectual Property. Each of the Borrower and its
---------------------
Subsidiaries owns and possesses or licenses (as the case may be) all such
patents, patent rights, trademarks, trademark rights, trade names, trade name
rights, service marks, service mark rights and copyrights necessary for the
conduct of the businesses of the Borrower and its Subsidiaries as now conducted
without, individually or in the aggregate, any infringement upon rights of other
Persons, in each case except as could not reasonably be expected to result in a
Material Adverse Effect, and there is no individual patent, patent right,
trademark, trademark right, trade name, trade name right, service mark, service
mark right or copyright the loss of which could reasonably be expected to have a
Material Adverse Effect, except as may be disclosed in Item 6.14 ("Intellectual
---------
Property") of the Disclosure Schedule.
SECTION 6.15. Regulations G, U and X. Neither the Borrower nor any of its
----------------------
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock, and no proceeds of any Credit Extensions
will be used to purchase or carry margin stock or otherwise for a purpose which
violates, or would be inconsistent with, F.R.S. Board Regulation G, U or X.
Terms for which meanings are provided in F.R.S. Board Regulation G, U or X or
any regulations substituted therefor, as from time to time in effect, are used
in this Section with such meanings.
-68-
<PAGE>
SECTION 6.16. Accuracy of Information. None of the factual information
-----------------------
heretofore or contemporaneously furnished by or on behalf of the Borrower in
writing to any Agent, any Issuer or any Lender for purposes of or in connection
with this Agreement or any transaction contemplated hereby (true and complete
copies of which were furnished to each Arranging Agent, the Issuer and each
Lender in connection with its execution and delivery hereof), contains any
untrue statement of a material fact on the date as of which such information is
dated or certified, and none of the other factual information hereafter
furnished in connection with this Agreement or any other Loan Document or any
Transaction Document by the Borrower or any other Obligor to any Agent, any
Issuer or any Lender will contain any untrue statement of a material fact on the
date as of which such information is dated or certified and, as of the date of
the execution and delivery of this Agreement by each Arranging Agent and each
Lender, the information delivered prior to the date of execution and delivery of
this Agreement (unless such information specifically relates to a prior date)
does not, and the factual information hereafter furnished shall not on the date
as of which such information is dated or certified, omit to state any material
fact necessary to make any information not misleading.
SECTION 6.17. Primestar Partnership Agreement. Neither the Borrower
-------------------------------
nor any Subsidiary is in default of its obligations under the Primestar
Partnership Agreement and no fact, circumstance or event has occurred or is
reasonably likely to occur that would give rise to a termination of the
Primestar Partnership Agreement or to cause the Borrower or any of its
Subsidiaries to divest its interest in Primestar.
ARTICLE VII
COVENANTS
SECTION 7.1. Affirmative Covenants. The Borrower agrees with each Agent,
---------------------
each Issuer and each Lender that, until all Commitments have terminated and all
Obligations have been paid and performed in full, the Borrower will perform or
cause to be performed the obligations set forth in this Section 7.1.
-----------
SECTION 7.1.1. Financial Information, Reports, Notices, etc. The Borrower
--------------------------------------------
will furnish, or will cause to be furnished, to each Lender, each Issuer and
each Agent copies of the following financial statements, reports, notices and
information:
(a) as soon as available and in any event within 45 days (and 60
days, in the case of the Borrower and its Restricted Subsidiaries) after
the end of each of the first three Fiscal Quarters of each Fiscal Year of
the Borrower, a
-69-
<PAGE>
consolidated balance sheet of the Borrower and its Restricted Subsidiaries
and a consolidated balance sheet of the Borrower and its Subsidiaries, in
each case as of the end of such Fiscal Quarter and consolidated statements
of earnings and cash flows of the Borrower and its Restricted Subsidiaries
and consolidated statements of earnings and cash flows of the Borrower and
its Subsidiaries, in each case for the period commencing at the end of the
previous Fiscal Year and ending with the end of such Fiscal Quarter and a
profit and loss statement for such Fiscal Quarter, certified as complete
and correct by the chief financial Authorized Officer of the Borrower;
(b) as soon as available and in any event within 90 days (and 105
days, in the case of the Borrower and its Restricted Subsidiaries) after
the end of each Fiscal Year of the Borrower, a copy of the annual audited
financial statements for such Fiscal Year for the Borrower and its
consolidated Subsidiaries, including therein a consolidated balance sheet
of the Borrower and its Restricted Subsidiaries as of the end of such
Fiscal Year and consolidated statements of earnings and cash flow of the
Borrower and its Restricted Subsidiaries for such Fiscal Year, in each case
as audited (without any Impermissible Qualification) by KPMG Peat Marwick
or independent public accountants of national standing acceptable to the
Arranging Agents;
(c) as soon as available and in any event within 60 days after the
end of each of the first three Fiscal Quarters of each Fiscal Year of the
Borrower and within 105 days after the end of the Fiscal Year of the
Borrower, a Compliance Certificate, executed by the chief executive,
financial or accounting Authorized Officer of the Borrower, showing (in
reasonable detail and with appropriate calculations and computations in all
respects reasonably satisfactory to the Arranging Agents) compliance with
the financial covenants set forth in Article VII;
-----------
(d) as soon as possible and in any event within three Business Days
after the Borrower or any of its Subsidiaries obtains knowledge of the
occurrence of a Default, a statement of the chief executive, financial or
accounting Authorized Officer of the Borrower setting forth details of such
Default and the action which the Borrower has taken and proposes to take
with respect thereto;
(e) as soon as possible and in any event within three Business Days
after the Borrower or any of its Subsidiaries obtains knowledge of (x) the
occurrence of any material adverse development with respect to any
litigation, action,
-70-
<PAGE>
proceeding or labor controversy of the type and materiality described in
Item 6.7 ("Litigation") of the Disclosure Schedule, or (y) the commencement
--------
of any litigation, action, proceeding or labor controversy of the type and
materiality described in Item 6.7 ("Litigation") of the Disclosure
--------
Schedule, notice thereof and, to the extent the Arranging Agents reasonably
request, copies of all documentation relating thereto;
(f) promptly after the sending or filing thereof, copies of all
reports and registration statements which the Borrower or any of its
Subsidiaries files with the SEC or any national securities exchange;
(g) immediately upon becoming aware of (i) the institution of any
steps by the Borrower or any other Person to terminate any Pension Plan
(other than a standard termination under Section 4041(b) of ERISA), (ii)
the failure to make a required contribution to any Pension Plan if such
failure is sufficient to give rise to a Lien under Section 302(f) of ERISA,
(iii) the taking of any action with respect to a Pension Plan which would
result in the requirement that the Borrower furnish a bond or other
security to the PBGC or such Pension Plan, or (iv) the occurrence of any
event with respect to any Pension Plan which could reasonably be expected
to result in the incurrence by the Borrower of any material liability, fine
or penalty, notice thereof and copies of all documentation relating
thereto;
(h) promptly when available and in any event within 15 Business Days
after the last day of each Fiscal Year of the Borrower (commencing after
the Effective Date), a budget for the then current Fiscal Year of the
Borrower, which budget shall contain on a quarterly basis a projected
statement of earnings and sources and uses of funds of the Borrower and its
Restricted Subsidiaries, prepared in reasonable detail by the chief
accounting, financial or executive Authorized Officer of the Borrower; and
(i) such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any of its Subsidiaries as any
Lender or any Issuer through the Administrative Agent may from time to time
reasonably request (including information and reports from the chief
accounting, financial or executive Authorized Officer of the Borrower, in
such detail as any Arranging Agent or any Lender or Issuer through the
Administrative Agent may reasonably request, with respect to the terms of
and information provided pursuant to the Compliance Certificate).
-71-
<PAGE>
SECTION 7.1.2. Compliance with Laws, etc. The Borrower will, and will
-------------------------
cause each of its Subsidiaries to, comply in all material respects with all
applicable Governmental Rules and Governmental Approvals of all Regulatory
Authorities, such compliance to include:
(a) the maintenance and preservation of the Borrower's and its
Subsidiaries' corporate existence; and
(b) the payment, before the same become delinquent, of all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent being diligently contested in good faith by
appropriate proceedings and for which adequate reserves, if any, in
accordance with GAAP shall have been set aside on its books.
SECTION 7.1.3. Maintenance of Properties. The Borrower will, and will
-------------------------
cause each of its Subsidiaries to, maintain, preserve, protect and keep its
properties in good repair, working order and condition (ordinary wear and tear
excepted), and make necessary and proper repairs, renewals and replacements so
that its business carried on in connection therewith may be properly conducted
at all times unless the Borrower determines in good faith that the continued
maintenance of any of its properties is no longer economically desirable.
SECTION 7.1.4. Insurance. The Borrower shall maintain, and shall cause
---------
each of its Subsidiaries to maintain:
(a) physical damage insurance on all real and personal property on an
all-risk basis (including, loss in transit, flood and earthquake insurance)
and public liability insurance against claims for personal injury, death or
property damage suffered by others upon, in or about any premises occupied
by it or occurring as a result of its ownership, maintenance or operation
of any airplanes, automobiles, trucks or other vehicles or other facilities
(including any machinery used therein or thereupon) or as the result of the
use of products manufactured, constructed or sold by it or services
rendered by it in an amount as is usually carried by Persons of comparable
size engaged in the same or a similar business and similarly situated;
(b) such other types of insurance with respect to its business as is
usually carried by Persons of comparable size engaged in the same or a
similar business and similarly situated; and
(c) all worker's compensation or similar insurance as may be required
under the laws of any state or jurisdiction in which it may be engaged in
business.
-72-
<PAGE>
All insurance shall be provided (i) by insurers authorized by Lloyds of London
to underwrite such risks, (ii) by insurers having an A.M. Best policyholders
rating of not less than A-(except with respect to insurers providing insurance
of the type described in clause (c), in which case such insurers shall have an
----------
A.M. Best policyholders rating of not less than B+) or (iii) by such other
insurers as the Arranging Agents may approve in writing; provided, that if the
--------
rating of any of such insurers is downgraded, the Borrower and each of its
Subsidiaries, as the case may be, shall only be required to obtain replacement
insurance with an insurer satisfying the requirements of this clause at the
stated expiration of the insurance policy maintained with the insurer whose
rating was so downgraded.
SECTION 7.1.5. Books and Records. The Borrower will, and will cause each
-----------------
of its Subsidiaries to, keep books and records which accurately reflect all of
its business affairs and transactions and permit the Agent and each Lender or
any of their respective representatives, at reasonable times and intervals, to
visit all of its offices, to discuss its financial matters with its officers and
independent public accountant (and the Borrower hereby authorizes such
independent public accountant to discuss the Borrower's financial matters with
each Lender or its representatives whether or not any representative of the
Borrower is present) and to examine (and, at the expense of the Borrower,
photocopy extracts from) any of its books or other corporate records. The
Borrower shall pay any fees of such independent public accountant incurred in
connection with any Agent's or any Lender's exercise of its rights pursuant to
this Section.
SECTION 7.1.6. Environmental Covenant. The Borrower will, and will cause
----------------------
each of its Subsidiaries to,
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance
therewith, and handle all Hazardous Materials in material compliance with
all applicable Environmental Laws;
(b) promptly notify the Administrative Agent and provide copies upon
receipt of all written claims, complaints, notices or inquiries relating to
the condition of its facilities and properties in respect of, or as to
compliance with, Environmental Laws, and shall promptly resolve any non-
compliance with Environmental Laws and keep its property free of any Lien
imposed by any Environmental Law; and
-73-
<PAGE>
(c) provide such information and certifications which the Arranging
Agents may reasonably request from time to time to evidence compliance with
this Section 7.1.6.
-------------
SECTION 7.1.7. Future Subsidiaries. Upon any Person becoming, after the
-------------------
Effective Date, a Restricted Subsidiary of the Borrower, or upon the Borrower
directly or indirectly acquiring additional Capital Stock of any existing
Restricted Subsidiary having voting rights or contingent voting rights, the
Borrower shall notify the Administrative Agent of such acquisition, and, unless
otherwise agreed to among the Borrower, the Administrative Agent and the
Required Lenders,
(a) such Person shall execute and deliver to the Administrative Agent
(i) a Subsidiary Guaranty and (ii) if such Person is a Collateral
Subsidiary, the Subsidiary Security Agreement, in each case in a manner
satisfactory to the Administrative Agent; and
(b) the Borrower shall, pursuant to the Borrower Pledge agreement,
pledge to the Administrative Agent for its benefit and that of the Secured
Parties (i) all of the outstanding shares of Capital Stock of such Person,
along with undated stock powers for such certificates, executed in blank
(or, if any such shares of Capital Stock are uncertificated, confirmation
and evidence satisfactory to the Administrative Agent that the security
interest in such uncertificated securities has been transferred to and
perfected by the Administrative Agent, for the benefit of the Secured
Parties, in accordance with Section 8-313 and Section 8-321 of the U.C.C.
or any other similar or local or foreign law which may be applicable), and
(ii) all intercompany notes, if any, evidencing Indebtedness in favor of
the Borrower made by such Person (which shall, unless the Administrative
Agent shall otherwise agree, be in form satisfactory to the Administrative
Agent);
together, in each case, with such opinions of legal counsel for the Borrower
(which shall be from counsel reasonably satisfactory to the Administrative
Agent) relating thereto, which legal opinions shall be in form and substance
reasonably satisfactory to the Administrative Agent.
SECTION 7.1.8. Additional Collateral. (a) The Borrower shall, and shall
---------------------
cause each of its Collateral Subsidiaries to, cause the Administrative Agent, on
behalf of the Secured Parties, to have at all times a first priority perfected
security interest (subject only to Liens and encumbrances permitted under
Section 7.2.3) in all of the property (real and personal) owned from time to
- -------------
time by the Borrower or such Collateral Subsidiary to the extent the same
constitutes or would constitute "Collateral"
-74-
<PAGE>
under the Borrower Security Agreement, the Subsidiary Security Agreement or the
Borrower Pledge Agreement. Without limiting the generality of the foregoing,
the Borrower shall, and shall cause each of its Collateral Subsidiaries to,
execute, deliver and/or file (as applicable) or cause to be executed, delivered
and/or filed (as applicable), the pledge agreement(s), the security
agreement(s), Uniform Commercial Code (Form UCC-1) financing statements, Uniform
Commercial Code (Form UCC-3) termination statements, and other documentation
necessary to grant and perfect such security interest, in each case in form and
substance satisfactory to the Administrative Agent together, in each case, with
such opinions of legal counsel for the Borrower (which shall be from counsel
reasonably satisfactory to the Administrative Agent) relating thereto, which
legal opinions shall be in form and substance reasonably satisfactory to the
Administrative Agent.
(b) The Borrower shall (i) cause each Restricted Subsidiary which has
assets (exclusive of assets owned by such Restricted Subsidiary on the Effective
Date) and/or in which the Borrower or any Subsidiary has made Investments
aggregating for all such assets and Investments (without duplication) $5,000,000
or more (valued at the greater of book and fair market value) to promptly (x)
execute a Subsidiary Security Agreement and (y) comply with the requirements of
clause (a) above, and (ii) cause Restricted Subsidiaries to promptly (x) execute
- ----------
a Subsidiary Security Agreement and (y) comply with the requirements of clause
------
(a) above so that the aggregate amount of all assets (exclusive of assets owned
- ---
by such Restricted Subsidiary on the Effective Date) owned by Restricted
Subsidiaries and/or in which the Borrower or any Subsidiary has made Investments
aggregating for all such assets and Investments (without duplication) not
subject to the Subsidiary Security Agreement does not exceed $10,000,000 (valued
at the greater of book and fair market value) in the aggregate at any time (each
Restricted Subsidiary described in the foregoing clauses (i) and (ii) being a
----------- ----
"Collateral Subsidiary").
- ----------------------
SECTION 7.1.9. Rate Protection Agreements. If at any time the one month
--------------------------
LIBO Rate shall be greater than or equal to 6.50% for a period of five
consecutive Business Days as determined by the Administrative Agent, the
Borrower shall, within 30 days of the end of such period, enter into interest
rate protection agreements in form and substance satisfactory to the Arranging
Agents for a minimum period of three years and in a notional principal amount
equal to at least the excess of (i) an amount equal to 50% of the aggregate
outstanding Total Debt over (ii) the aggregate principal amount of Indebtedness
which bears interest at a fixed rate for a period of at least three years from
the end of such period, and such rate protection agreements to be in all
respects satisfactory to the Arranging Agents.
-75-
<PAGE>
SECTION 7.1.10. Future Leased Property. The Borrower shall, and shall
----------------------
cause each of its Restricted Subsidiaries to, use its (and their) best efforts
to deliver to the Administrative Agent an estoppel letter in a form satisfactory
to the Administrative Agent executed by the lessor of any real property in the
U.S. that is leased by the Borrower or such Restricted Subsidiary for a term in
excess of one year, to the extent the value of any personal property to be held
at such leased property exceeds (or it is anticipated that the value of such
personal property will, during the term of such leasehold term, exceed)
$7,500,000.
SECTION 7.1.11. Use of Proceeds. The Borrower shall apply the proceeds of
---------------
the Credit Extensions solely
(a) for Capital Expenditures of the Borrower and the Restricted
Subsidiaries;
(b) for working capital and general corporate purposes of the
Borrower and the Restricted Subsidiaries;
(c) to pay the transaction costs and expenses incurred in connection
with the initial Credit Extension;
(d) to repay the Indebtedness identified in Item 7.2.2(b)
-------------
("Indebtedness to be Paid") of the Disclosure Schedule in an amount not to
exceed $255,000,000; and
(e) in the case of Letters of Credit, for issuing standby Letters of
Credit for the account of the Borrower to support obligations of the
Borrower and its Restricted Subsidiaries or to replace obligations under
the Indemnification Agreements which have been cancelled or otherwise
terminated.
SECTION 7.1.12. TCIC Credit Agreement. On or prior to January 15, 1997,
---------------------
the Borrower shall enter into an amendment with TCIC to the TCIC Credit
Agreement in form and substance satisfactory to the Arranging Agents providing
that, inter alia, (i) the Borrower may borrow under such facility without
----- ----
restrictions or conditions precedent (other than (x) the GE-E Satellite Event
has not occurred and (y) the then Available Amount has been fully utilized) in
an amount up to $100,000,000 in principal amount, (ii) there shall be no
affirmative or negative covenants contained therein, (iii) there shall be no
events of default other than, prior to the payment in full of the Obligations,
the bankruptcy of the Borrower, (iv) the payment of the Indebtedness thereunder
shall be fully subordinated to the prior payment in full of the Obligations, (v)
if an Event of Default has occurred and is continuing, the Administrative Agent
may make drawings thereunder on the Borrower's behalf to be
-76-
<PAGE>
applied to the payment of the Obligations and (vi) payment of the obligations
thereunder shall be permitted only upon a Permitted Refinancing or the payment
of interest upon meeting certain financial tests to be specified by the
Arranging Agents. Prior to the satisfaction of the condition precedent set
forth in the immediately preceding sentence, the Borrower will not incur or
suffer to exist any Indebtedness under the TCIC Credit Agreement.
SECTION 7.2. Negative Covenants. The Borrower agrees with the Agents,
------------------
each Issuer and each Lender that, until all Commitments have terminated and all
Obligations have been paid and performed in full, the Borrower will, and will
cause its Subsidiaries to, perform the obligations set forth in this Section
-------
7.2.
- ---
SECTION 7.2.1. Business Activities. The Borrower will not, and will not
-------------------
permit any of its Restricted Subsidiaries to, engage in any business activity,
except those described in the first recital and such activities as are
----- -------
reasonably incidental or substantially similar thereto. The Borrower will not
permit any Unrestricted Subsidiary to engage in any business other than the
business of the ownership, construction and financing of satellites to be owned
by or to be part of a sale-leaseback transaction with Tempo for the direct
broadcast satellite business and related activities incidental thereto. The
Borrower shall not and shall not permit any Subsidiary to engage in the High
Power Satellite Transmission Business except (i) with the prior written consent
of the Required Lenders and (ii) only through a High Power Satellite
Transmission Subsidiary.
SECTION 7.2.2. Indebtedness. The Borrower will not, and will not permit
------------
any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist
or otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:
(a) Indebtedness in respect of the Credit Extensions and other
Obligations (including Hedging Obligations in respect of such Credit
Extensions);
(b) (i) until the date of the initial Credit Extension, Indebtedness
identified in Item 7.2.2(b)(i) ("Indebtedness to be Paid") of the
----------------
Disclosure Schedule and (ii) Indebtedness identified in Item 7.2.2(b)(ii)
-----------------
("Ongoing Indebtedness") of the Disclosure Schedule;
(c) [Intentionally Omitted];
(d) Indebtedness of the Borrower in respect of (i) Capitalized Lease
Liabilities, (ii) Indebtedness the proceeds of which are used to acquire an
asset by the
-77-
<PAGE>
Borrower (or used to acquire such an asset within 60 days of the incurrence
thereof) and (iii) unsecured Indebtedness; provided, that the aggregate
--------
amount of all Indebtedness outstanding pursuant to this clause (d) at the
----------
time any of the same is created, assumed or incurred (together with the
principal amount of all other Indebtedness permitted under this clause (d))
----------
shall not at any time exceed $50,000,000 at such time after giving effect
thereto and any Permitted Refinancings thereof;
(e) Indebtedness of any Restricted Subsidiary owing to the Borrower
or any other Restricted Subsidiary or the Borrower to any Restricted
Subsidiary, which Indebtedness
(i) which if evidenced by one or more promissory notes are duly
delivered in pledge pursuant to the Borrower Pledge Agreement to the
Administrative Agent; and
(ii) shall not be forgiven or otherwise discharged for any
consideration other than payment in full or in part (provided that
--------
only the amount repaid in part shall be discharged) in cash; and
(f) (i) Subordinated Debt of the Borrower, (ii) the unsecured
Indebtedness of the Borrower under the TCIC Credit Agreement and (iii) any
Permitted Refinancing thereof;
provided, however, that no Indebtedness otherwise permitted by clause (d) or (f)
- -------- ------- ---------- ---
shall be permitted to be incurred if a Default has occurred and is continuing or
would result therefrom.
SECTION 7.2.3. Liens. The Borrower will not, and will not permit any of
-----
its Restricted Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon any of its property, revenues or assets, whether now owned or
hereafter acquired, except:
(a) Liens securing payment of the Obligations, granted pursuant to
any Loan Document;
(b) until the date of the initial Credit Extension, Liens securing
payment of Indebtedness of the type permitted and described in clause (b)
----------
of Section 7.2.2;
-------------
(c) Liens securing Capitalized Lease Liability Indebtedness and
purchase money Indebtedness of the type permitted and described in clause
------
(d) of Section 7.2.2 (and securing only the assets that are financed with
--- -------------
the proceeds of such Indebtedness);
-78-
<PAGE>
(d) Liens existing as of the Effective Date and disclosed in Item
----
7.2.3(d) ("Ongoing Liens") of the Disclosure Schedule;
--------
(e) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being diligently contested in good faith by appropriate proceedings and for
which adequate reserves, if any, in accordance with GAAP shall have been
set aside on its books;
(f) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being diligently contested in good faith by appropriate proceedings and
for which adequate reserves, if any, in accordance with GAAP shall have
been set aside on its books;
(g) Liens incurred or deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment insurance
or other forms of governmental insurance or benefits, or to secure
performance of tenders, statutory and regulatory obligations, bids, leases
and contracts or other similar obligations (other than for borrowed money)
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds or performance or return-of-money bonds;
(h) judgment Liens in existence less than 45 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is covered in full (subject to a customary deductible) by
insurance maintained with responsible insurance companies or which do not
otherwise result in an Event of Default under Section 8.1.6; and
-------------
(i) easements, rights-of-way, municipal and zoning ordinances or
similar restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect
with the ordinary conduct of the business of the Borrower or its
Subsidiaries or the value or utility of the property to which such Lien is
attached.
SECTION 7.2.4. Financial Condition and Operations. The Borrower will not
----------------------------------
permit to occur any of the events set forth below.
(a) Basic Subscribers. The Borrower will not permit the aggregate
-----------------
number of Basic Subscribers as at the date set
-79-
<PAGE>
forth below to be less than the number set forth opposite such date:
<TABLE>
<CAPTION>
Basic
Date Subscribers
---- -----------
<S> <C>
12/31/96 629,000
03/31/97 680,000
06/30/97 750,000
09/30/97 830,000
12/31/97 900,000
03/31/98 950,000
</TABLE>
(b) Annualized Revenue per Subscriber. The Borrower will not permit
---------------------------------
Annualized Revenue per Subscriber as at the last day of any period set
forth below to be less than the amount set forth opposite such period;
<TABLE>
<CAPTION>
Annualized Revenue
Period per Subscriber
------ ------------------
<S> <C>
Effective Date to (and
including) 12/31/96 $425
01/01/97 to (and
including) 03/31/97 $550
04/01/97 to (and
including) 06/30/97 $550
07/01/97 to (and
including) 09/30/97 $550
10/01/97 to (and
including) 12/31/97 $550
01/01/98 to (and
including) 03/31/98 $550
</TABLE>
(c) Total Debt per Subscriber. The Borrower will not permit Total
-------------------------
Debt per Subscriber at any time prior to March 31, 1998 to be greater than
$625.
(d) Senior Debt to Annualized Cash Flow Ratio. The Borrower will not
-----------------------------------------
permit the Senior Debt to Annualized Cash Flow Ratio at any time during any
period set forth below to be greater than the ratio set forth opposite such
period:
-80-
<PAGE>
<TABLE>
<CAPTION>
Senior Debt
to Annualized Cash
Period Flow Ratio
------ --------------------
<S> <C>
04/01/98 to (and
including) 06/30/98 4.50:1
07/01/98 to (and
including) 09/30/98 4.50:1
10/01/98 to (and
including) 12/31/98 4.25:1
01/01/99 to (and
including) 06/30/99 4.00:1
07/01/99 and thereafter 4.00:1
</TABLE>
(e) Total Debt to Annualized Cash Flow Ratio. The Borrower will not
----------------------------------------
permit the Total Debt to Annualized Cash Flow Ratio at any time during any
period set forth below to be greater than the ratio set forth opposite such
period:
<TABLE>
<CAPTION>
Total Debt
to Annualized Cash
Period Flow Ratio
------ --------------------
<S> <C>
04/01/98 to (and
including) 06/30/98 7.25:1
07/01/98 to (and
including) 09/30/98 6.75:1
10/01/98 to (and
including) 12/31/98 6.25:1
01/01/99 to (and
including) 06/30/99 5.75:1
07/01/99 and thereafter 5.50:1
</TABLE>
(f) Annualized Cash Flow to Total Interest Expense Ratio. The
----------------------------------------------------
Borrower will not permit the Annualized Cash Flow to Total Interest Expense
Ratio at any time during any period set forth below to be less than the
ratio set forth opposite such period:
<TABLE>
<CAPTION>
Annaulized Cash Flow
to Total Interest
Period Expense Ratio
------ --------------------
<S> <C>
</TABLE>
-81-
<PAGE>
<TABLE>
<S> <C>
Three month period ending 1.50:1
12/31/97
01/01/98 to (and 1.75:1
including) 12/31/98
01/01/99 and thereafter 2.00:1
</TABLE>
(g) Annualized Cash Flow to Pro Forma Debt Service Ratio. The
----------------------------------------------------
Borrower will not permit the Annualized Cash Flow to Pro Forma Debt Service
Ratio at any time to be less than 1.10:1 for any period ending on or after
12/31/97.
SECTION 7.2.5. Investments. The Borrower will not, and will not permit
-----------
any of its Restricted Subsidiaries to, make, incur, assume or suffer to exist
any Investment in any other Person, except:
(a) Investments existing on the Effective Date and identified in Item
----
7.2.5(a) ("Ongoing Investments") of the Disclosure Schedule;
--------
(b) Cash Equivalent Investments;
(c) without duplication, Investments by the Borrower to the extent
permitted as Indebtedness pursuant to Section 7.2.2;
-------------
(d) Investments constituting (i) accounts receivable arising, (ii)
trade debt granted, or (iii) deposits made in connection with the purchase
price of goods or services, in each case in the ordinary course of
business;
(e) Investments in Tempo to be used solely to pay the operating and
financing expenses of Tempo in an amount not to exceed Tempo's pro rata
share of satellite construction and financing costs; provided, however,
-------- -------
that the funds used for such Investments shall be derived solely from
EBITDA of the High Power Satellite Transmission Subsidiary;
(f) Investments by the Borrower not to exceed $100,000,000 in the
aggregate in Tempo and ResNet and in businesses of the type permitted by
the first sentence of Section 7.2.1; provided, however, that Investments
----- -------- ------------- -------- -------
(i) in Tempo (other than Investments permitted by clause (e) above) shall
----------
not exceed $30,000,000 over the term of this Agreement net of any dividends
paid in cash by Tempo to the Borrower; (ii) in ResNet shall not exceed (x)
$45,000,000 over the term of this Agreement and (y) $20,000,000 in any
Fiscal Year; (iii) constituting capital calls by Primestar shall
-82-
<PAGE>
not exceed $50,000,000 over the term of this Agreement; and (iv)
constituting investments in businesses permitted by Section 7.2.1 shall not
-------------
exceed $25,000,000 over the term of this Agreement;
(g) Investments in Persons which are Restricted Subsidiaries so long
as, before and after giving effect to such Investment no Default has
occurred and is continuing or is caused thereby;
provided, however, that
- -------- -------
(h) any Investment which when made complies with the requirements of
clause (a), (b) or (c) of the definition of the term "Cash Equivalent
---------- --- ---
Investment" may continue to be held notwithstanding that such Investment if
made thereafter would not comply with such requirements;
(i) no Investment otherwise permitted by clause (c), (d), (e), (f) or
---------- --- --- ---
(g) shall be permitted to be made if any Default has occurred and is
---
continuing or would result therefrom; and
(j) the aggregate amount of Investments otherwise permitted by clause
------
(f) may not exceed $10,000,000 on or prior to the occurrence of the
---
Satellite Event Date and the Replacement Satellite Event.
SECTION 7.2.6. Restricted Payments, etc. The Borrower shall not and shall
------------------------
not permit any Subsidiary to make any Restricted Junior Payment, except that:
(a) dividends or distributions to the Borrower in respect of its
Equity Interests in any of its Subsidiaries;
(b) so long as no Default has occurred and is continuing (or would
result therefrom) payments by the Borrower of interest accrued on the
Subordinated Debt when due; and
(c) Unrestricted Subsidiaries may refinance in whole or in part from
time to time any of its Indebtedness so long as any such refinancing is not
recourse in any manner to the Borrower or any other Subsidiary and does not
require the imposition (contingently or otherwise) of any Lien on the
assets of the Borrower or any Restricted Subsidiary.
SECTION 7.2.7. Capital Expenditures, etc. In any Fiscal Year immediately
-------------------------
following a Fiscal Year in which the Total Debt to Annualized Cash Flow Ratio is
greater than 5.50:1, the Borrower will not, and will not permit any of its
Restricted
-83-
<PAGE>
Subsidiaries to, make or commit to make Capital Expenditures in such Fiscal
Year, except Capital Expenditures which do not aggregate in excess of
$425,000,000 in such Fiscal Year; provided, however, that (i) to the extent
-------- -------
Capital Expenditures are made in any Fiscal Year in an amount less than the
maximum amount permitted for such Fiscal Year, the Capital Expenditures which
the Borrower or its Restricted Subsidiaries may make or commit to make in the
next following Fiscal Year shall be increased by 50% of the amount of the
permitted Capital Expenditures not so made in the immediately preceding Fiscal
Year (the "Carry-Forward Amount"), but no further carry forward of such Carry-
--------------------
Forward Amount to any other succeeding Fiscal Year shall be permitted, and (ii)
no portion of any Carry-Forward Amount shall be used in any Fiscal Year until
the entire amount of the Capital Expenditures permitted to be made or committed
to be made in such Fiscal Year shall have been used.
SECTION 7.2.8. Subsidiaries. The Borrower will not have any Subsidiaries
------------
other than Restricted Subsidiaries and Unrestricted Subsidiaries. The Borrower
will not permit any Subsidiary to issue any Capital Stock (whether for value or
otherwise) to any Person other than the Borrower.
SECTION 7.2.9. Take or Pay Contracts. The Borrower will not, and will not
---------------------
permit any of its Restricted Subsidiaries to, enter into or be a party to any
arrangement for the purchase of materials, supplies, other property or services
if such arrangement by its express terms requires that payment be made by the
Borrower or such Restricted Subsidiary regardless of whether such materials,
supplies, other property or services are in fact or can be required to be
delivered or furnished to it.
SECTION 7.2.10. Consolidation, Merger, etc. The Borrower will not, and
--------------------------
will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate
with, or merge into or with, any other corporation, or purchase or otherwise
acquire all or substantially all of the assets of any Person (or of any division
thereof) except that any Restricted Subsidiary may liquidate or dissolve
voluntarily into, and may merge with and into, the Borrower or (subject to
clauses (a) and (b)), any other Collateral Subsidiary; provided, however, that,
- ----------- --- -------- -------
subject to Section 7.1.8,
-------------
(a) in no event shall any Pledged Subsidiary merge with and into
(i) any Subsidiary other than another Pledged Subsidiary unless
(A) the Required Lenders shall have given their prior written consent
thereto, or (B) after giving effect thereto, the Administrative Agent
shall have a perfected pledge of, and security interest in
-84-
<PAGE>
and to, all of the issued and outstanding shares of Capital Stock of
the surviving Person in form and substance satisfactory to the
Administrative Agent and its counsel, pursuant to such documentation
and opinions as shall be necessary and appropriate in the opinion of
the Administrative Agent and its counsel to create, perfect or
maintain the collateral position of the Administrative Agent and the
Lenders therein as contemplated by this Agreement; or
(ii) any other Pledged Subsidiary if, after giving effect to
such merger, the Administrative Agent has less than that percentage of
the issued and outstanding shares of the surviving Person pledged to
it than it had pledged to it immediately prior to such merger; and
(b) in the case of the merger of any Subsidiary into the Borrower,
the Borrower shall be the surviving corporation and continue to be
incorporated under the laws of a State of the United States.
SECTION 7.2.11. Permitted Dispositions. The Borrower will not, and will
----------------------
not permit any of its Subsidiaries to, (a) sell, transfer, lease, contribute or
otherwise convey (including by way of merger), or grant options, warrants or
other rights with respect to, any of the Borrower's or such Subsidiaries' assets
(including accounts receivable or Capital Stock of Subsidiaries) to any Person
unless such sale, transfer, lease, contribution or conveyance of such assets is
(i) in the ordinary course of its business (and does not constitute a sale,
transfer, lease, contribution or other conveyance of all or a substantial part
of the Borrower's or such Subsidiary's assets) or is of obsolete or worn out
property, (ii) permitted by Section 7.2.10, (iii) subject to Section 7.1.8,
-------------- -------------
between Restricted Subsidiaries or from a Subsidiary to the Borrower, (iv) of
other assets of the Borrower having a value (determined based on the higher of
book and fair market value) not to exceed $15,000,000 for the term of this
Agreement or (v) assets of Tempo so long as the Net Disposition Proceeds thereof
are paid as a dividend to the Borrower, or (b) sell, transfer, lease, contribute
or otherwise dispose of any Investment in Primestar.
SECTION 7.2.12. Modification of Certain Agreements. The Borrower will
----------------------------------
not, and will not permit any of its Subsidiaries to, consent to any amendment,
supplement, amendment and restatement, waiver or other modification of any of,
or enter into any forbearance from exercising any rights with respect to, the
terms or provisions contained in, or applicable to, (i) any Transaction Document
or the Primestar Partnership Agreement, if the effect of such amendment,
supplement, amendment and
-85-
<PAGE>
restatement, waiver or modification or forbearance might individually or in the
aggregate have a Material Adverse Effect, or (ii) any indenture, note, debenture
or other agreement evidencing or relating to Subordinated Debt.
SECTION 7.2.13. Transactions with Affiliates. The Borrower will not, and
----------------------------
will not permit any of its Restricted Subsidiaries to, enter into, or cause,
suffer or permit to exist any arrangement or contract with any of its other
Affiliates or any Unrestricted Subsidiary unless such arrangement or contract is
on fair and reasonable terms and is an arrangement or contract of the kind which
would be entered into by a prudent Person in the position of the Borrower or
such Subsidiary with a Person which is not one of its Affiliates.
SECTION 7.2.14. Negative Pledges, Restrictive Agreements, etc. The
---------------------------------------------
Borrower will not, and will not permit any of its Restricted Subsidiaries to,
enter into any agreement (excluding this Agreement and any other Loan Document
or any document pursuant to which any Indebtedness permitted by clause (d) of
----------
Section 7.2.2 is permitted but solely with respect to any asset acquired solely
- -------------
with the proceeds of such Indebtedness and no other asset of the Borrower or any
Subsidiary) prohibiting
(a) the creation or assumption of any Lien upon its properties,
revenues or assets, whether now owned or hereafter acquired, to the extent
that any such negative pledge would prohibit the creation or first priority
perfection of any Liens of the type described in clause (a) of Section
---------- -------
7.2.3 (other than in the case of Capitalized Leases to the extent of Liens
-----
solely in the assets subject to such Capitalized Lease);
(b) the ability of the Borrower or any other Obligor to amend or
otherwise modify this Agreement or any other Loan Document; or
(c) the ability of any Restricted Subsidiary to make any payments,
directly or indirectly, to the Borrower by way of dividends, advances,
repayments of loans or advances, reimbursements of management and other
intercompany charges, expenses and accruals or other returns on
investments, or any other agreement or arrangement which restricts the
ability of any such Subsidiary to make any payment, directly or indirectly,
to the Borrower.
SECTION 7.2.15. Sale and Leaseback. The Borrower will not, and will not
------------------
permit any of its Restricted Subsidiaries to, enter into any agreement or
arrangement with any other Person providing for the leasing by the Borrower or
any of its Restricted Subsidiaries of real or personal property which has been
or is to
-86-
<PAGE>
be sold or transferred by the Borrower or any of its Restricted Subsidiaries to
such other Person or to any other Person to whom funds have been or are to be
advanced by such Person on the security of such property or rental obligations
of the Borrower or any of its Restricted Subsidiaries.
SECTION 7.2.16. Tempo Indebtedness. The Borrower shall not permit Tempo
------------------
to incur, suffer to exist or otherwise become obligated on or liable with
respect to Indebtedness other than (i) an amount of Indebtedness equal to its
allocable share of the cost of construction and financing of a satellite
determined in accordance with the terms of the Primestar Partnership Agreement
and (ii) Indebtedness which has been guaranteed on a basis and pursuant to
documentation in form and substance satisfactory to the Arranging Agents by a
Primestar partner (other than another Subsidiary of the Borrower).
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Listing of Events of Default. Each of the following events
----------------------------
or occurrences described in this Section 8.1 shall constitute an "Event of
----------- --------
Default".
- -------
SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall default in
--------------------------
the payment or prepayment when due of
(a) any Reimbursement Obligation or any deposit of cash for
collateral purposes pursuant to Section 2.6.2 or Section 2.6.4, as the case
------------- -------------
may be;
(b) any principal of any Loan other than in respect of a voluntary
prepayment thereof; or
(c) any interest on any Loan or any fee described in Article III or
-----------
of any other Obligation and such default shall continue unremedied for a
period of five days.
SECTION 8.1.2. Breach of Warranty. Any representation or warranty of the
------------------
Borrower or any other Obligor made or deemed to be made hereunder or in any
other Loan Document executed by it or any other writing or certificate furnished
by or on behalf of the Borrower or any other Obligor to any Agent, any Issuer or
any Lender for the purposes of or in connection with this Agreement or any such
other Loan Document (including any certificates delivered pursuant to Article
-------
V), is or shall be incorrect when made or deemed to have been made in any
material respect.
-87-
<PAGE>
SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations. The
----------------------------------------------------
Borrower shall default in the due performance and observance of any of its
obligations under Section 7.1.11, 7.1.12 or Section 7.2 or the Post-Closing
-------------- ------ -----------
Events Letter.
SECTION 8.1.4. Non-Performance of Other Covenants and Obligations. The
--------------------------------------------------
Borrower or any other Obligor shall default in the due performance and
observance of any other agreement contained herein or in any other Loan Document
executed by it, and such default shall continue unremedied for a period of 30
days after notice thereof shall have been given to the Borrower by the
Administrative Agent or any Lender.
SECTION 8.1.5. Default on Other Indebtedness. A default shall occur in
-----------------------------
the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness (other than Indebtedness
described in Section 8.1.1) or any other item which, in accordance with GAAP,
-------------
would be included as a liability on the liability side of the balance sheet of
such Person as of the date at which Indebtedness is to be determined
(collectively the "Subject Debt") of the Borrower or any of its Subsidiaries or
------------
Primestar having a principal amount, individually or in the aggregate, in excess
of $15,000,000, or a default shall occur in the performance or observance of any
obligation or condition with respect to such Indebtedness (subject to any
applicable grace period) if the effect of such default is to accelerate the
maturity of any such Subject Debt or such default shall permit the holder or
holders of such Subject Debt, or any trustee or agent for such holders, to cause
or declare such Subject Debt to become due and payable or to require such
Subject Debt to be prepaid, redeemed, purchased or defeased, or to cause an
offer to purchase or defease such Subject Debt to be required to be made, prior
to its expressed maturity.
SECTION 8.1.6. Judgments. Any judgment or order for the payment of money
---------
in excess of $15,000,000 (exclusive of any amounts fully covered by insurance
(less any applicable deductible) or indemnification and as to which the insurer
or the indemnifying party, as the case may be, has acknowledged its
responsibility to cover such judgment or order) shall be rendered against the
Borrower or any of its Subsidiaries and such judgment shall not have been
vacated or discharged or stayed or bonded pending appeal within 45 days after
the entry thereof.
SECTION 8.1.7. Pension Plans. Any of the following events shall occur
-------------
with respect to any Pension Plan
(a) the institution of any steps by the Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a
result of such
-88-
<PAGE>
termination, the Borrower or any such member could be required to make a
contribution to such Pension Plan, or could reasonably expect to incur a
liability or obligation to such Pension Plan, in excess of $1,000,000; or
(b) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under section 302(f) of ERISA.
SECTION 8.1.8. Control of the Borrower. Any Change in Control shall
-----------------------
occur.
SECTION 8.1.9. Bankruptcy, Insolvency, etc. The Borrower, any of its
---------------------------
Subsidiaries or Primestar shall
(a) become insolvent or generally fail to pay, or admit in writing
its inability or unwillingness generally to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for any substantial part
of the property of any thereof, or make a general assignment for the
benefit of creditors;
(c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for a substantial part of the property of
any thereof, and such trustee, receiver, sequestrator or other custodian
shall not be discharged within 60 days, provided that the Borrower, each
such Subsidiary hereby expressly authorizes the Administrative Agent and
each Lender to appear in any court conducting any relevant proceeding
during such 60-day period to preserve, protect and defend their rights
under this Agreement and the other Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect thereof, and, if any such case or proceeding is not
commenced by the Borrower or any such Subsidiary, such case or proceeding
shall be consented to or acquiesced in by the Borrower or such Subsidiary,
as the case may be, or shall result in the entry of an order for relief or
shall remain for 60 days undismissed, provided that the Borrower and each
Subsidiary hereby expressly authorizes the Administrative Agent and each
Lender to appear in any court conducting any such case or proceeding during
such 60-day period to
-89-
<PAGE>
preserve, protect and defend their rights under the Loan Documents; or
(e) take any corporate action authorizing, or in furtherance of, any
of the foregoing.
SECTION 8.1.10. Impairment of Security, etc. Any Loan Document, or any
---------------------------
Lien granted thereunder, shall (except in accordance with its terms), in whole
or in part, terminate, cease to be effective or cease to be the legally valid,
binding and enforceable obligation of any Obligor party thereto; the Borrower,
any other Obligor or any other party shall, directly or indirectly, contest in
any manner such effectiveness, validity, binding nature or enforceability; or,
except as permitted under any Loan Document, any Lien securing any Obligation
shall, in whole or in part, cease to be a perfected first priority Lien.
SECTION 8.1.11. Material Adverse Change. There has been a material
-----------------------
adverse change in the consolidated financial condition, results of operations,
assets, business or properties of the Borrower and its Subsidiaries, taken as a
whole, or the Borrower and its Restricted Subsidiaries, taken as a whole.
SECTION 8.1.12. Satellite Failure. The Satellite Event Date has not
-----------------
occurred on or prior to June 30, 1997.
SECTION 8.2. Action if Bankruptcy. If any Event of Default described in
--------------------
clauses (a) through (d) of Section 8.1.9 shall occur, the Commitments (if not
- ----------- --- -------------
theretofore terminated) shall automatically terminate and the outstanding
principal amount of all outstanding Loans and all other Obligations (including
Reimbursement Obligations) shall automatically be and become immediately due and
payable, without notice or demand and the Borrower shall automatically and
immediately be obligated to deposit with the Administrative Agent cash
collateral in an amount equal to all Letter of Credit Outstandings.
SECTION 8.3. Action if Other Event of Default. If any Event of Default
--------------------------------
(other than any Event of Default described in clauses (a) through (d) of Section
----------- --- -------
8.1.9) shall occur for any reason, whether voluntary or involuntary, and be
- -----
continuing, the Administrative Agent, upon the direction of the Required
Lenders, shall by notice to the Borrower declare all or any portion of the
outstanding principal amount of the Loans and other Obligations (including
Reimbursement Obligations) to be due and payable and/or the Commitments (if not
theretofore terminated) to be terminated, whereupon the full unpaid amount of
such Loans and other Obligations which shall be so declared due and payable
shall be and become immediately due and payable, without further notice, demand
or presentment, and/or, as the case may be, the Commitments shall terminate and
the Borrower shall automatically
-90-
<PAGE>
and immediately be obligated to deposit with the Administrative Agent cash
collateral in an amount equal to all Letter of Credit Outstandings.
ARTICLE IX
THE AGENTS
SECTION 9.1. Actions. Each Lender hereby appoints Scotiabank as its
-------
Administrative Agent, NationsBank as its Syndication Agent, Credit Lyonnais as
its Documentation Agent and each of Scotiabank, NationsBank and Credit Lyonnais
as an Arranging Agent, in each case under and for purposes of this Agreement,
the Notes and each other Loan Document. Each Lender authorizes each Agent to
act on behalf of such Lender under this Agreement, the Notes and each other Loan
Document and, in the absence of other written instructions from the Required
Lenders received from time to time by such Agent (with respect to which each
Agent agrees that it will comply, except as otherwise provided in this Section
or as otherwise advised by counsel in order to avoid contravention of applicable
law), to exercise such powers hereunder and thereunder as are specifically
delegated to or required of such Agent by the terms hereof and thereof, together
with such powers as may be reasonably incidental thereto. Each Lender hereby
indemnifies (which indemnity shall survive any termination of this Agreement)
each Agent, pro rata according to such Lender's Percentage, from and against any
--- ----
and all liabilities, obligations, losses, damages, claims, costs or expenses of
any kind or nature whatsoever which may at any time be imposed on, incurred by,
or asserted against, such Agent in any way relating to or arising out of this
Agreement, the Notes and any other Loan Document, including reasonable
attorneys' fees, and as to which such Agent is not reimbursed by the Borrower;
provided, however, that no Lender shall be liable for the payment of any portion
- -------- -------
of such liabilities, obligations, losses, damages, claims, costs or expenses
which are determined by a court of competent jurisdiction in a final proceeding
to have resulted solely from such Agent's gross negligence or wilful misconduct.
No Agent shall be required to take any action hereunder, under the Notes or
under any other Loan Document, or to prosecute or defend any suit in respect of
this Agreement, the Notes or any other Loan Document, unless it is indemnified
hereunder to its satisfaction. If any indemnity in favor of any Agent shall be
or become, in such Agent's determination, inadequate, such Agent may call for
additional indemnification from the Lenders and cease to do the acts indemnified
against hereunder until such additional indemnity is given.
SECTION 9.2. Funding Reliance, etc. Unless the Administrative Agent shall
---------------------
have been notified by telephone,
-91-
<PAGE>
confirmed in writing, by any Lender by 5:00 p.m., New York City time, on the
Business Day prior to a Borrowing that such Lender will not make available the
amount which would constitute its Percentage of such Borrowing on the date
specified therefor, the Administrative Agent may assume that such Lender has
made such amount available to the Administrative Agent and, in reliance upon
such assumption, make available to the Borrower a corresponding amount. If and
to the extent that such Lender shall not have made such amount available to the
Administrative Agent, such Lender and the Borrower severally agree to repay the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date the Administrative Agent made such
amount available to the Borrower to the date such amount is repaid to the
Administrative Agent, at the interest rate applicable at the time to Loans
comprising such Borrowing (in the case of the Borrower) and (in the case of a
Lender), at the Federal Funds Rate (for the first two Business Days after which
such amount has not been repaid, and thereafter at the interest rate applicable
to Loans comprising such Borrowing.
SECTION 9.3. Exculpation. None of the Agents nor any of their respective
-----------
directors, officers, employees or agents shall be liable to any Lender for any
action taken or omitted to be taken by it under this Agreement or any other Loan
Document, or in connection herewith or therewith, except for its own wilful
misconduct or gross negligence, nor responsible for any recitals or warranties
herein or therein, nor for the effectiveness, enforceability, validity or due
execution of this Agreement or any other Loan Document, nor for the creation,
perfection or priority of any Liens purported to be created by any of the Loan
Documents, or the validity, genuineness, enforceability, existence, value or
sufficiency of any collateral security, nor to make any inquiry respecting the
performance by any Obligor of its obligations hereunder or under any other Loan
Document. Any such inquiry which may be made by an Agent shall not obligate it
to make any further inquiry or to take any action. Each Agent shall be entitled
to rely upon advice of counsel concerning legal matters and upon any notice,
consent, certificate, statement or writing which such Agent believes to be
genuine and to have been presented by a proper Person.
SECTION 9.4. Successor. Any Agent may resign as such at any time upon at
---------
least 30 days' prior notice to the Borrower and all Lenders. If an Agent at any
time shall resign, the Required Lenders may appoint another Lender as a
successor Agent which, with the prior written consent of the Borrower, not to be
unreasonably withheld or delayed, shall thereupon become such an Agent
hereunder. If no such successor Agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment, within 30 days after
the retiring Agent's giving
-92-
<PAGE>
notice of resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent, which shall be one of the Lenders or a commercial
banking institution organized under the laws of the U.S. (or any State thereof)
or a U.S. branch or agency of a commercial banking institution, and having (x) a
combined capital and surplus of at least $500,000,000 and (y) a credit rating of
A or better by Moody's or a comparable rating by S&P; provided, however, that
-------- -------
if, after expending all reasonable commercial efforts, such retiring Agent is
unable to find a commercial banking institution which is willing to accept such
appointment and which meets the qualifications set forth in clause (y) above,
----------
such retiring Agent, shall be permitted to appoint as its successor from all
available commercial banking institutions willing to accept such appointment
such institution having the highest credit rating of all such available and
willing institutions. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall be entitled to receive from the
retiring Agent such documents of transfer and assignment as such successor Agent
may reasonably request, and shall thereupon succeed to and become vested with
all rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Agent's resignation hereunder as the Agent, the
provisions of
(a) this Article IX shall inure to its benefit as to any actions
----------
taken or omitted to be taken by it while it was the Agent under this
Agreement; and
(b) Section 10.3 and Section 10.4 shall continue to inure to its
------------ ------------
benefit.
SECTION 9.5. Loans by Agents. Each Agent shall have the same rights and
---------------
powers with respect to (x) the Credit Extensions made by it or any of its
Affiliates, and (y) the Notes held by it or any of its Affiliates as any other
Lender and may exercise the same as if it were not an Agent. Each Agent and its
Affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with the Borrower or any Subsidiary or Affiliate of the
Borrower as if such Agent were not an Agent hereunder.
SECTION 9.6. Credit Decisions. Each Lender acknowledges that it has,
----------------
independently of the Agents and each other Lender, and based on such Lender's
review of the financial information of the Borrower, this Agreement, the other
Loan Documents (the terms and provisions of which being satisfactory to such
Lender) and such other documents, information and investigations as such Lender
has deemed appropriate, made its own credit decision to extend its Commitments.
Each Lender also acknowledges that it will, independently of the Agents and each
other Lender, and
-93-
<PAGE>
based on such other documents, information and investigations as it shall deem
appropriate at any time, continue to make its own credit decisions as to
exercising or not exercising from time to time any rights and privileges
available to it under this Agreement or any other Loan Document.
SECTION 9.7. Copies, etc. The Administrative Agent shall give prompt
-----------
notice to each Lender of each notice or request required or permitted to be
given to the Administrative Agent by the Borrower pursuant to the terms of this
Agreement (unless concurrently delivered to the Lenders by the Borrower). The
Administrative Agent will distribute to each Lender each document or instrument
received for its account and copies of all other communications received by the
Administrative Agent from the Borrower for distribution to the Lenders by the
Administrative Agent in accordance with the terms of this Agreement or any other
Loan Document.
SECTION 9.8. The Agents. Notwithstanding anything else to the contrary
----------
contained in this Agreement or any other Loan Document, none of the
Documentation Agent, the Syndication Agent or the Arranging Agents, in such
capacity, shall have any rights, duties or responsibilities under this Agreement
or any other Loan Document, or any fiduciary relationship with any Secured
Party, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise exist
against any of such Agent in such capacity.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Waivers, Amendments, etc. The provisions of this Agreement
------------------------
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Borrower and the Required Lenders; provided, however, that no such
-------- -------
amendment, modification or waiver shall:
(a) extend any Commitment Termination Date or the date of any
mandatory Commitment reduction under clause (a) of Section 2.2.2 or modify
---------- -------------
this Section 10.1 without the consent of all Lenders;
------------
(b) increase the aggregate amount of any Lender's Percentage of any
Commitment Amount, increase the aggregate amount of any Loans required to
be made by a Lender pursuant to its Commitments or reduce any fees
described in Article III payable to any Lender without the consent of such
-----------
Lender;
-94-
<PAGE>
(c) extend the Stated Maturity Date for any Lender's Loan or the due
date of any interest thereon, or reduce the principal amount of or rate of
interest on any Lender's Loan, without the consent of such Lender (it being
understood and agreed, however, that any vote to rescind any acceleration
made pursuant to Section 8.2 and Section 8.3 of amounts owing with respect
----------- -----------
to the Loans and other Obligations shall only require the vote of the
Required Lenders);
(d) change the definition of "Required Lenders" or any requirement
hereunder that any particular action be taken by all Lenders without the
consent of all Lenders or change the definition of "Blocked Amount";
(e) increase the Stated Amount of any Letter of Credit unless
consented to by each Issuer;
(f) except as permitted by the Borrower Security Agreement, Borrower
Pledge Agreement, Subsidiary Security Agreement or Subsidiary Guarantee,
release (i) any of the guarantees of any Restricted Subsidiary or (ii) all
or substantially all of the collateral or Pledged Shares as such term is
defined in the Borrower Pledge Agreement), in either case without the
consent of all Lenders as expressly provided herein or therein; or
(g) affect adversely the interests, rights or obligations of the
Administrative Agent qua the Administrative Agent, the Syndication Agent
---
qua the Syndication Agent, the Documentation Agent qua the Documentation
--- ---
Agent, any Arranging Agent qua Arranging Agent or any Issuer qua Issuer,
--- ---
unless consented to by such Agent or such Issuer, as the case may be.
No failure or delay on the part of any Agent, any Issuer or any Lender in
exercising any power or right under this Agreement or any other Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power or right preclude any other or further exercise thereof or the
exercise of any other power or right. No notice to or demand on the Borrower in
any case shall entitle it to any notice or demand in similar or other
circumstances. No waiver or approval by any Agent, any Issuer or any Lender
under this Agreement or any other Loan Document shall, except as may be
otherwise stated in such waiver or approval, be applicable to subsequent
transactions. No waiver or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 10.2. Notices. All notices and other communications provided to
-------
any party hereto under this Agreement
-95-
<PAGE>
or any other Loan Document shall be in writing or by facsimile and addressed,
delivered or transmitted to such party at its address or facsimile number set
forth below its signature hereto or set forth in the Lender Assignment Agreement
or at such other address or facsimile number as may be designated by such party
in a notice to the other parties. Any notice, if mailed and properly addressed
with postage prepaid or if properly addressed and sent by pre-paid courier
service, shall be deemed given when received; any notice, if transmitted by
facsimile, shall be deemed given when the confirmation of transmission thereof
is received by the transmitter.
SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay
-----------------------------
on demand all expenses of the Administrative Agent (including the fees and out-
of-pocket expenses of counsel to the Administrative Agent and of local counsel,
if any, who may be retained by counsel to the Administrative Agent) in
connection with
(a) the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and
exhibits, and any amendments, waivers, consents, supplements or other
modifications to this Agreement or any other Loan Document as may from time
to time hereafter be required, whether or not the transactions contemplated
hereby are consummated; and
(b) the filing, recording, refiling or rerecording of any Loan
Document and/or any Uniform Commercial Code financing statements relating
thereto and all amendments, supplements, amendments and restatements and
other modifications to any thereof and any and all other documents or
instruments of further assurance required to be filed or recorded or
refiled or rerecorded by the terms hereof or the terms of any Loan
Document; and
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
The Borrower further agrees to pay, and to save each Agent, each Issuer and the
Lenders harmless from all liability for, any stamp or other taxes which may be
payable in connection with the execution or delivery of this Agreement, the
Credit Extensions hereunder, or the issuance of the Notes, Letters of Credit or
any other Loan Documents. The Borrower also agrees to reimburse each Agent,
each Issuer and each Lender upon demand for all reasonable out-of-pocket
expenses (including reasonable attorneys' fees and legal expenses of counsel to
each Agent, each Issuer and the Lenders) incurred by each Agent, each Issuer or
such Lenders in connection with (x) the negotiation of any restructuring or
-96-
<PAGE>
"work-out" with the Borrower, whether or not consummated, of any Obligations and
(y) the enforcement of any Obligations.
SECTION 10.4. Indemnification. In consideration of the execution and
---------------
delivery of this Agreement by each Lender and the extension of the Commitments,
the Borrower hereby indemnifies, exonerates and holds each Agent, each Issuer
and each Lender and each of their respective officers, directors, employees and
agents (collectively, the "Indemnified Parties") free and harmless from and
-------------------
against any and all actions, causes of action, suits, losses, costs, liabilities
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, whether incurred in connection with actions between or among the
parties hereto or the parties hereto and third parties (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) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Credit Extension,
including all Indemnified Liabilities arising in connection with the
transactions contemplated hereby;
(b) the entering into and performance of this Agreement and any other
Loan Document by any of the Indemnified Parties (including any action
brought by or on behalf of the Borrower as the result of any determination
by the Required Lenders pursuant to Article V not to fund any Credit
---------
Extension);
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower or any of its
Subsidiaries of all or any portion of the stock or assets of any Person,
whether or not any Agent, any Issuer or any Lender is party thereto;
(d) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the Release by the Borrower or any of its
Subsidiaries of any Hazardous Material;
(e) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by the Borrower or any Subsidiary thereof of any
Hazardous Material (including any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under any
-97-
<PAGE>
Environmental Law), regardless of whether caused by, or within the control
of, the Borrower or such Subsidiary; or
(f) each Agent's and each Lender's Environmental Liability (the
indemnification herein shall survive repayment of the Notes and any
transfer of the property of the Borrower or any of its Subsidiaries by
foreclosure or by a deed in lieu of foreclosure for any Agent's or Lender's
Environmental Liability, regardless of whether caused by, or within the
control of, the Borrower or such Subsidiary);
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or wilful misconduct. The Borrower and its successors and assigns
hereby waive, release and agree not to make any claim or bring any cost recovery
action against, any Agent, any Issuer or any Lender under CERCLA or any state
equivalent, or any similar law now existing or hereafter enacted. It is
expressly understood and agreed that to the extent that any of such Persons is
strictly liable under any Environmental Laws, the Borrower's obligation to such
Person under this indemnity shall likewise be without regard to fault on the
part of the Borrower with respect to the violation or condition which results in
liability of such Person. If and to the extent that the foregoing undertaking
may be unenforceable for any reason, the Borrower hereby agrees to make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
SECTION 10.5. Survival. The obligations of the Borrower under Sections
-------- --------
4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under
- --- --- --- --- ---- ----
Section 9.1, shall in each case survive any assignment from one Lender to
- -----------
another (in the case of Sections 10.3 and 10.4) and any termination of this
------------- ----
Agreement, the payment in full of all the Obligations and the termination of all
the Commitments. The representations and warranties made by the Borrower and
each other Obligor in this Agreement and in each other Loan Document shall
survive the execution and delivery of this Agreement and each such other Loan
Document.
SECTION 10.6. Severability. Any provision of this Agreement or any other
------------
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
-98-
<PAGE>
SECTION 10.7. Headings. The various headings of this Agreement and of
--------
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This
---------------------------------------------
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be an original and all of which shall constitute together but one
and the same agreement. This Agreement shall become effective when counterparts
hereof executed on behalf of the Borrower, each Agent and each Lender (or notice
thereof satisfactory to the Arranging Agents) shall have been received by the
Arranging Agents and notice thereof shall have been given by the Administrative
Agent to the Borrower and each Lender.
SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES
-------------------------------
AND EACH OTHER LOAN DOCUMENT (INCLUDING WITHOUT LIMITATION PROVISIONS WITH
RESPECT TO INTEREST, LOAN CHARGES AND COMMITMENT FEES) SHALL EACH BE DEEMED TO
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF A SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. This Agreement, the Notes and
the other Loan Documents constitute the entire understanding among the parties
hereto with respect to the subject matter hereof and thereof and supersede any
prior agreements, written or oral, with respect thereto.
SECTION 10.10. Successors and Assigns. This Agreement shall be binding
----------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:
-------- -------
(a) the Borrower may not assign or transfer its rights or obligations
hereunder without the prior written consent of the Administrative Agent and
all Lenders; and
(b) the rights of sale, assignment and transfer of the Lenders are
subject to Section 10.11.
-------------
SECTION 10.11. Sale and Transfer of Loans and Notes; Participations in
-------------------------------------------------------
Loans and Notes. Each Lender may assign, or sell participations in, its Loans,
- ---------------
Letters of Credit and Commitments to one or more other Persons in accordance
with this Section 10.11.
-------------
-99-
<PAGE>
SECTION 10.11.1. Assignments. Upon prior notice to the Borrower and the
-----------
Administrative Agent, any Lender,
(a) with the consent of the Borrower and the Administrative Agent
(which consents shall not be unreasonably delayed or withheld) may at any
time assign and delegate to one or more commercial banks or other financial
institutions, and
(b) with notice to the Borrower and the Administrative Agent, but
without the consent of the Borrower or the Administrative Agent, may assign
and delegate to any of its Affiliates or to any other Lender
(each Person described in either of the foregoing clauses as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "Assignee Lender"), all or any fraction of such Lender's total Loans,
---------------
Letter of Credit Outstandings and Commitments in a minimum aggregate amount of
$10,000,000 (or, if less, the entire remaining amount of such Lender's Loans,
Letter of Credit Outstandings and Commitment); provided, however, that the
-------- -------
assigning Lender must assign a pro-rata portion of each of its Commitment, Loans
and interest in Letter of Credit Outstandings. The Borrower and each other
Obligor and the Administrative Agent shall be entitled to continue to deal
solely and directly with such Lender in connection with the interests so
assigned and delegated to an Assignee Lender until
(c) notice of such assignment and delegation, together with (i)
payment instructions, (ii) the Internal Revenue Service Forms or other
statements contemplated or required to be delivered pursuant to Section
-------
4.6, if applicable, and (iii) addresses and related information with
respect to such Assignee Lender, shall have been delivered to the Borrower
and the Administrative Agent by such Lender and such Assignee Lender;
(d) such Assignee Lender shall have executed and delivered to the
Borrower and the Administrative Agent a Lender Assignment Agreement,
accepted by the Administrative Agent; and
(e) the processing fees described below shall have been paid.
From and after the date that the Administrative Agent accepts such Lender
Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed
automatically to have become a party hereto and to the extent that rights and
obligations hereunder have been assigned and delegated to such Assignee Lender
in
-100-
<PAGE>
connection with such Lender Assignment Agreement, shall have the rights and
obligations of a Lender hereunder and under the other Loan Documents, and (y)
the assignor Lender, to the extent that rights and obligations hereunder have
been assigned and delegated by it in connection with such Lender Assignment
Agreement, shall be released from its obligations hereunder and under the other
Loan Documents. Within five Business Days after its receipt of notice that the
Administrative Agent has received and accepted an executed Lender Assignment
Agreement, but subject to clause (a) or (d) above, the Borrower shall execute
---------- ---
and deliver to the Administrative Agent (for delivery to the relevant Assignee
Lender) a new Note evidencing such Assignee Lender's assigned Loans and
Commitments and, if the assignor Lender has retained Loans and Commitments
hereunder, a replacement Note in the principal amount of the Loans and
Commitments retained by the assignor Lender hereunder (such Note to be in
exchange for, but not in payment of, the Note then held by such assignor
Lender). Each such Note shall be dated the date of the predecessor Note.
Accrued interest on that part of each predecessor Note evidenced by a new Note,
and accrued fees, shall be paid as provided in the Lender Assignment Agreement.
Accrued interest on that part of each predecessor Note evidenced by a
replacement Note shall be paid to the assignor Lender. Accrued interest and
accrued fees shall be paid at the same time or times provided in the predecessor
Note and in this Agreement. Such assignor Lender or such Assignee Lender must
also pay a processing fee in the amount of $3,500 to the Administrative Agent
upon delivery of any Lender Assignment Agreement. Any attempted assignment and
delegation not made in accordance with this Section 10.11.1 shall be null and
---------------
void. Notwithstanding anything to the contrary set forth above, any Lender may
(without requesting the consent of the Borrower or the Administrative Agent)
pledge its Loans to a Federal Reserve Bank in support of borrowings made by such
Lender from such Federal Reserve Bank.
SECTION 10.11.2. Participations. Upon prior written notice to the
--------------
Borrower and the Administrative Agent, any Lender may at any time sell to one or
more commercial banks or other Persons (each of such commercial banks and other
Persons being herein called a "Participant") participating interests in any of
-----------
the Loans, Commitments, or other interests of such Lender hereunder; provided,
--------
however, that
- -------
(a) no participation contemplated in this Section 10.11 shall relieve
-------------
such Lender from its Commitments or its other obligations hereunder or
under any other Loan Document;
(b) such Lender shall remain solely responsible for the performance
of its Commitments and such other obligations;
-101-
<PAGE>
(c) the Borrower and each other Obligor and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement and each of
the other Loan Documents;
(d) no Participant, unless such Participant is an Affiliate of such
Lender or is itself a Lender, shall be entitled to require such Lender to
take or refrain from taking any action hereunder or under any other Loan
Document, except that such Lender may agree with any Participant that such
Lender will not, without such Participant's consent, take any actions of
the type described in clause (a), (b), (f) or, to the extent requiring the
---------- --- ---
consent of each Lender, clause (c) of Section 10.1; and
---------- ------------
(e) the Borrower shall not be required to pay any amount under this
Agreement that is greater than the amount which it would have been required
to pay had no participating interest been sold.
The Borrower acknowledges and agrees that each Participant, for purposes of
Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 7.1.1, 10.3 and 10.4, shall be considered
- ------------ --- --- --- --- --- ----- ---- ----
a Lender. Each Participant shall only be indemnified for increased costs
pursuant to Section 4.3, 4.5 or 4.6 if and to the extent that the Lender which
----------- --- ---
sold such participating interest to such Participant concurrently is entitled to
make, and does make, a claim on the Borrower for such increased costs. Any
Lender that sells a participating interest in any Loan, Commitment or other
interest to a Participant under this Section 10.11.2 shall indemnify and hold
---------------
harmless the Borrower and the Administrative Agent from and against any taxes,
penalties, interest or other costs or losses (including, without limitation,
reasonable attorneys' fees and expenses) incurred or payable by the Borrower or
the Administrative Agent as a result of the failure of the Borrower or the
Administrative Agent to comply with its obligations to deduct or withhold any
Taxes from any payments made pursuant to this Agreement to such Lender or the
Administrative Agent, as the case may be, which Taxes would not have been
incurred or payable if such Participant had been a Non-U.S. Lender that was
entitled to deliver to the Borrower, the Administrative Agent or such Lender,
and did in fact so deliver, a duly completed and valid Form 1001 or 4224 (or
applicable successor form) entitling such Participant to receive payments under
this Agreement without deduction or withholding of any United States federal
taxes.
SECTION 10.12. Other Transactions. Nothing contained herein shall
------------------
preclude any Agent, any Issuer or any other Lender from engaging in any
transaction, in addition to those
-102-
<PAGE>
contemplated by this Agreement or any other Loan Document, with the Borrower or
any of its Affiliates in which the Borrower or such Affiliate is not restricted
hereby from engaging with any other Person.
SECTION 10.13. Execution on Behalf of Corporation. Any signature by any
----------------------------------
Authorized Officer on this Agreement, any Loan Document and any other instrument
and certificate executed or to be executed pursuant to or in connection with
this Agreement or such other Loan Documents is provided only in such Authorized
Officer's capacity as a corporate officer, and not in any way in such Authorized
Officer's personal capacity.
SECTION 10.14. Forum Selection and Consent to Jurisdiction. ANY
-------------------------------------------
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ARRANGING
AGENTS, THE LENDERS, ANY ISSUER OR THE BORROWER IN CONNECTION HEREWITH OR
THEREWITH SHALL, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BE BROUGHT AND
MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER,
-------- -------
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY
BE BROUGHT, AT THE ARRANGING AGENTS' OPTION, IN THE COURTS OF ANY JURISDICTION
WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE
AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION, SUBJECT TO THE BORROWER'S RIGHT TO CONTEST SUCH
JUDGMENT BY MOTION OR APPEAL ON ANY GROUNDS NOT EXPRESSLY WAIVED IN THIS SECTION
-------
10.14. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS
- -----
TO THE BORROWER IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE
ADDRESS, AND THE BORROWER HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS
AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF. AS AN ALTERNATIVE METHOD OF
SERVICE, THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF NEW YORK AT THE ADDRESS FOR NOTICES SPECIFIED IN SECTION 10.2. THE
------------
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE
LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO
ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
-103-
<PAGE>
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED
BY LAW SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
SECTION 10.15. Waiver of Jury Trial. THE AGENTS, THE LENDERS, EACH ISSUER
--------------------
AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE TO THE
FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
THE AGENTS, THE LENDERS, EACH ISSUER OR THE BORROWER IN CONNECTION HEREWITH OR
THEREWITH. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH
OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE AGENTS, THE LENDERS AND EACH ISSUER ENTERING INTO
THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
-104-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
TCI SATELLITE ENTERTAINMENT, INC.
By:/s/ Kenneth G. Carroll
--------------------------------
Title: Sup and CFO
Address: 8085 S. Chester Street
Suite 300
Englewood, Colorado 80112
Facsimile No.: (303) 712-4973
Attention: Chief Financial Officer
with a copy similarly addressed:
Attention: Legal Department
THE BANK OF NOVA SCOTIA,
as an Arranging Agent and
as the Administrative Agent
By:/s/ Margot C. Bright
-----------------------------------
Title: Authorized Signature
Address: One Liberty Plaza
New York, New York 10006
Facsimile No.: (212) 225-5090
Attention: Margot C. Bright
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH,
as an Arranging Agent and
as the Documentation Agent
By:/s/ James E. Morris
----------------------------------
Title: Vice President
Address: 1301 Avenue of the Americas
New York, NY 10019
Facsimile No.: (212) 261-3288
Attention: James E. Morris
NATIONSBANK OF TEXAS, N.A.,
as an Arranging Agent and
as the Syndication Agent
By:__________________________________
Title:
Address: 901 Main Street, 64th Floor
Dallas, TX 75202
Facsimile No.: (214) 508-9390
Attention: Doug Stuart
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
as an Arranging Agent and
as the Documentation Agent
By:______________________________
Title: Vice President
Address: 1301 Avenue of the Americas
New York, NY 10019
Facsimile No.: (212) 261-3288
Attention: James E. Morris
NATIONSBANK OF TEXAS, N.A.,
as an Arranging Agent and
as the Syndication Agent
BY:/s/ Doug Stuart
--------------------------------
Title: Sup
Address: 901 Main Street, 64th Floor
Dallas, TX 75202
Facsimile No.: (214) 508-9390
Attention: Doug Stuart
<PAGE>
Lenders:
- -------
Commitment: THE BANK OF NOVA SCOTIA, as a
Lender
33.33%
By:/s/ Margot C. Bright
-----------------------------
Name: Margot C Bright
Domestic Office:
---------------
One Liberty Plaza
New York, NY 10006
Facsimile No.: (212) 225-5090
Attention: Margot C. Bright
LIBOR Office:
------------
One Liberty Plaza
New York, NY 10006
Facsimile No.: (212) 225-5090
Attention: Margot C. Bright
CREDIT LYONNAIS NEW YORK BRANCH,
as a Lender
33.33%
By:/s/ James E. Morris
-----------------------------
Name: JAMES E. MORRIS
Title: VICE PRESIDENT
Domestic Office:
---------------
1301 Avenue of the Americas
New York, NY 10019
Facsimile No.: (212) 261-3288
Attention: James E. Morris
LIBOR Office:
------------
1301 Avenue of the Americas
New York, NY 10019
Facsimile No.: (212) 261-3288
Attention: James E. Morris
<PAGE>
NATIONSBANK OF TEXAS, N.A., as a
Lender
33.33%
By:/S/ Doug Staurt
---------------------------
Name: Doug Staurt
Title: Sup
Domestic Office:
---------------
901 Main Street, 64th Floor
Dallas, TX 75202
Facsimile No.: (214) 508-9390
Attention: Doug Stuart
LIBOR Office:
------------
901 Main Street, 14th Floor
Dallas, TX 75202
Facsimile No.: (214) 508-2020
Attention: Geri Evans
<PAGE>
SCHEDULE 1
DISCLOSURE SCHEDULE TO CREDIT AGREEMENT
ITEM 6.3 Approvals
- -------------------
Approvals of PrimeStar Partners, L.P. for the pledge of shares of TCISE
Partner 1, Inc.
ITEM 6.7 Litigation
- --------------------
None
ITEM 6.9 Existing Subsidiaries
- -------------------------------
TCISE Partner 1, Inc. Restricted
TCISE Partner 2, Inc. Restricted
TCI Satellite MDU, Inc. Restricted
Tempo Satellite, Inc. Unrestricted
ITEM 6.13 Environmental Matters
- --------------------------------
None
ITEM 6.14 Intellectual Property
- --------------------------------
None
ITEM 7.2.2(b)(i) Indebtedness to be Paid
- -----------------------------------------
CREDITOR OUTSTANDING PRINCIPAL AMOUNT
-------- ----------------------------
TCI Communications Inc. $251,948,180.56
<PAGE>
SCHEDULE 1
Disclosure Schedule to Credit Agreement
ITEM 7.2.2(b)(ii) Ongoing Indebtedness
- ---------------------------------------
CREDITOR OUTSTANDING PRINCIPAL AMOUNT
-------- ----------------------------
CSG Systems, Inc. $ 1,222,509
TCI Communications Inc. $ - (1)
(1) The Borrower is required to enter into an amendment to the TCI
Credit Agreement by January 15, 1997 to establish a $100 million
Subordinated Debt facility which the Borrower will utilize upon the
unsuccessful launch of the GE-2 satellite and the full utilization of
the banks $350 million commitments.
ITEM 7.2.3(d) Ongoing Liens
- ----------------------------
None
ITEM 7.2.5(a) Ongoing Investments
- ----------------------------------
<TABLE>
Description Type Ownership % Amount
----------- ---- ----------- ------
<S> <C> <C> <C>
PrimeStar Partners, L.P. Partnership 20.86% $60,000,000
Interest
ResNet Communications, Inc. Common 4.99% $ 5,396,000
Stock
Dreyfus Government Cash Money N/A $ 3,000,000 (1)
Management Market
</TABLE>
Investments in Subsidiaries
---------------------------
TCISE Partner 1, Inc.
TCISE Partner 2, Inc.
TCI Satellite MOU, Inc.
Tempo Satellite, Inc.
(1) Estimated balance as of December 31, 1996
<PAGE>
[EXECUTION COPY]
EXHIBIT 10.29
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT, dated as of February 19,
1997 (this "Amendatory Agreement"), is among TCI SATELLITE ENTERTAINMENT, INC.,
--------------------
a Delaware corporation (the "Borrower"), certain financial institutions
--------
signatories hereto (the "Lenders") and THE BANK OF NOVA SCOTIA ("Scotiabank") as
------- ----------
administrative agent (the "Administrative Agent") for the Lenders.
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Lenders, Nationsbank of Texas, N.A.
("NationsBank"), as Syndication Agent, Credit Lyonnais New York Branch ("Credit
----------- ------
Lyonnais"), as Documentation Agent (Credit Lyonnais, NationsBank and Scotiabank
- --------
are, collectively, the Arranging Agents), and the Administrative Agent (and
together with the Arranging Agents, the Syndication Agent and the Documentation
Agent, the Agents) are parties to a Credit Agreement, dated as of December 31,
1996 (as amended or otherwise modified prior to the date hereof, the "Existing
--------
Credit Agreement"); and
- ----------------
WHEREAS, the parties hereto have agreed, subject to the conditions and
terms hereinafter set forth, to amend the Existing Credit Agreement in certain
respects as herein provided (the Existing Credit Agreement, as so amended by
this Amendatory Agreement, being referred to as the "Credit Agreement");
----------------
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereto agree as follows:
PART I
DEFINITIONS
SUBPART 1.1 Certain Definitions. The following terms (whether or not
-------------------
underscored) when used in this Amendatory Agreement shall have the following
meanings (such meanings to be equally applicable to the singular and plural form
thereof):
"Administrative Agent" is defined in the preamble.
-------------------- --------
"Amendatory Agreement" is defined in the preamble.
-------------------- --------
<PAGE>
"Borrower" is defined in the preamble.
-------- --------
"Arranging Agents" is defined in the first recital.
---------------- ----- -------
"Credit Agreement" is defined in the second recital.
---------------- ------ -------
"Credit Lyonnais" is defined in the first recital.
--------------- ----- -------
"Existing Credit Agreement" is defined in the first recital.
------------------------- ----- -------
"First Amendment Effective Date" is defined in Subpart 3.1.
------------------------------ -----------
"Lenders" is defined in the preamble.
------- --------
"NationsBank" is defined in the first recital.
----------- ----- -------
"Scotiabank" is defined in the preamble.
---------- --------
SUBPART 1.2 Other Definitions. Terms for which meanings are provided in the
-----------------
Existing Credit Agreement are, unless otherwise defined herein or the context
otherwise requires, used in this Amendatory Agreement with such meanings.
PART II
AMENDMENTS TO THE
EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the First Amendment
Effective Date, the Existing Credit Agreement is hereby amended in accordance
with this Part II; except as so amended, the Existing Credit Agreement shall
-------
continue in full force and effect.
SUBPART 2.1 Amendments to Article I. Article I of the Existing Credit
-----------------------
Agreement is hereby amended in accordance with Subparts 2.1.1 through 2.1.5.
SUBPART 2.1.1. Section 1.1 of the Existing Credit Agreement is hereby
amended by inserting the following definitions in such Section in the
appropriate alphabetical sequence:
"Borrower Satellite" means either of the two high power direct broadcast
------------------
satellites which Tempo has agreed to purchase from Loral pursuant to the
Satellite Construction Agreement.
"First Amendment" means the First Amendment, dated as of February 14, 1997,
---------------
to this Agreement among the Borrower, the Lenders party thereto and the
Agents.
-2-
<PAGE>
"First Amendment Effective Date" means the First Amendment Effective Date as
------------------------------
defined in Subpart 3.1 of the First Amendment.
"GE-2 Agreement" means the Amended and Restated Memorandum of Agreement,
--------------
effective as of October 18, 1996, between Primestar and GE American
Communications, Inc. and, upon the execution of the Service Agreement (as
defined in the GE-2 Agreement) between Primestar and GE American Communications,
Inc. contemplated therein, shall include such Service Agreement.
"Loral" means Space Systems/Loral, Inc., a New York corporation.
-----
"Partnership Agreement" means the Limited Partnership Agreement of Primestar
---------------------
(then known as K Prime Partners, L.P.), dated as of February 8, 1990, as
amended.
"Partnership Credit Agreement" means the bank credit facility obtained by
----------------------------
Primestar to finance advances to Tempo for payments due in respect of the
Borrower Satellite under the Satellite Construction Agreement, and supported by
letters of credit arranged for by Affiliates of the partners of Primestar.
"Permitted Holder" shall have the meaning set forth in the Senior
----------------
Subordinated Notes Indenture and the Senior Subordinated Discount Notes
Indenture.
"Primestar Holdco" means TSAT Partners Holding, Inc., a Delaware corporation
----------------
to be formed in connection with the Primestar Holdco Guaranty.
"Reorganization Agreement" means the agreement entered into on December 4,
------------------------
1996 by TCI, TCIC and a number of other TCI subsidiaries, including the Borrower
and its Subsidiaries.
"Satellite Construction Agreement" means the fixed price satellite
--------------------------------
construction agreement between Loral and Tempo dated as of February 22, 1990.
"Senior Management" means the chief executive officer, chief financial
-----------------
officer, chief operating officer, treasurer, controller and corporate counsel of
the Borrower, or any of them, as in effect from time to time.
"Senior Subordinated Discount Notes" means the $275,000,000 aggregate
----------------------------------
principal amount at maturity of 12 1/4% senior subordinated discount notes due
2007 of the
-3-
<PAGE>
Borrower issued under the Senior Subordinated Discount Notes
Indenture.
"Senior Subordinated Discount Notes Indenture" means the
--------------------------------------------
Indenture dated as of February 20,1997, by and between The Bank of New
York, as trustee, and the Borrower as Issuer.
"Senior Subordinated Notes" means the $200,000,000 original
-------------------------
principal amount of 10 7/8% senior subordinated notes due 2007 of the
Borrower issued under the Senior Subordinated Notes Indenture.
"Senior Subordinated Notes Indenture" means the Indenture dated
-----------------------------------
as of February 20,1997, by and between The Bank of New York, as trustee,
and the Borrower as Issuer.
"Share Purchase Agreement" means the share purchase agreement
------------------------
entered into by TCI and the Borrower on December 4, 1996.
"Tag-Along Agreement" means the agreement dated as of February
-------------------
8, 1990, originally entered into by and among TCIC, TCI Development
Corporation and the other signatories thereto.
"Tempo Letter Agreements" means the two letter agreements dated
-----------------------
as of July 1993 entered into by Tempo and Primestar in connection with the
Tempo Option and certain related matters and any refinancings thereof.
"Tempo Option" means Primestar's right and option, granted by
------------
Tempo under the option agreement entered into by Tempo and Primestar in
February 1991 to purchase or lease 100% of the capacity of a DBS system to
be built, launched, and operated by Tempo.
"Trade Name and Service Mark License Agreement" means the trade
---------------------------------------------
name and service mark license agreement between the Borrower and TCI dated
December 4, 1996.
SUBPART 2.1.2. Section 1.1 of the Existing Credit Agreement is further
amended by amending the definition of "Affiliate" by adding the following
sentence to the end thereof:
"Primestar and TCI shall be deemed to be Affiliates of the Borrower."
SUBPART 2.1.3 Section 1.1 of the Existing Credit Agreement is further
amended by amending the definition of "Change in Control" by (a) replacing the
"." at the end of clause (b)
-4-
<PAGE>
thereof with "; or" and adding the following new clause (c) to
the end thereof to read as follows:
"(c) during any consecutive two-year period calculated in accordance with
GAAP, individuals who at the beginning of such period constituted the board
of directors of the Borrower (together with any new directors whose
election by such board of directors or whose nomination for election by the
stockholders of the Borrower was approved by a vote of at least a majority
of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason (other than by action of the
Permitted Holders) to constitute a majority of the board of directors of
the Borrower then in office."
SUBPART 2.1.4. Section 1.1 of the Existing Credit Agreement is further
amended by amending the definitions of "GE-2 Satellite Event", "High Power
Satellite Transmission Business", "Net Disposition Proceeds", "Subordinated
Debt", "TCIC Credit Agreement", "Total Debt Per Subscriber" and "Unrestricted
Subsidiary" in their entirety to read as follows:
"GE-2 Satellite Event" shall mean the occurrence of the
--------------------
following two events: (i) Primestar shall have received notice from GE
American Communications, Inc. pursuant to the GE-2 Agreement that the
GE-2 satellite has been successfully launched into geosynchronous orbit
at 85 degrees W.L., including certification from the builder of the GE-2
satellite (or such equivalent) that at least 15 transponders thereon are
"commercially operational" (as defined in the GE-2 Agreement) for use at
medium power in the Ku-band, with an expected life of at least 8 1/2
years and (ii) Primestar shall be entitled under the GE-2 Agreement to
"nonpreemptible service" (as defined in the GE-2 Agreement) on at least
14 of such transponders.
"High Power Satellite Transmission Business" means the business
------------------------------------------
of the acquisition, transmission and sale of programming in the high
power direct broadcast satellite business utilizing broadcast service
operating in the Ku-band (including any provision of such services to
cable operators or other media providers) which may utilize all or part
of satellites owned or leased by Primestar or a Subsidiary and all other
activities relating thereto or arising therefrom other than the
construction, sale or financing of broadcast satellites.
"Net Disposition Proceeds" means, with respect to a Permitted
------------------------
Disposition or any other disposition of the assets of the Borrower or
any of its Subsidiaries, the excess of
-5-
<PAGE>
(a) the gross cash proceeds received by the Borrower or any of
its Subsidiaries from any Permitted Disposition (including the receipt
of (i) proceeds paid on account of the loss of or damage to any
property or asset and awards of compensation for any asset taken by
condemnation, eminent domain or similar proceedings and (ii) damages
or other amounts due under the Satellite Construction Agreement
(including the refund of the full purchase price of any Borrower
Satellite which has not been delivered pursuant to the terms thereof))
and any cash payments received in respect of promissory notes or other
non-cash consideration delivered to the Borrower or such Subsidiary in
respect of any Permitted Disposition or other disposition,
less
----
(b) the sum of
(i) all reasonable and customary fees and expenses with
respect to legal, investment banking, brokerage and accounting
and other professional fees, sales commissions and disbursements
and all other reasonable fees, expenses and charges, in each
case actually incurred in connection with such Permitted
Disposition other than such amounts which have been paid to
Affiliates of the Borrower in violation of Section 7.2.13,
--------------
(ii) all taxes and other governmental costs and expenses
actually paid or estimated by the Borrower (in good faith) to be
payable in cash in connection with such Permitted Disposition;
provided, however, that if, after the payment of all taxes with
-------- -------
respect to such Permitted Disposition, the amount of estimated
taxes, if any, exceeded the tax amount actually paid in cash in
respect of such Permitted Disposition, the Commitment Amount
shall be automatically reduced by the aggregate amount of such
excess, pursuant to clause (b) of Section 2.2.2,
---------- -------------
(iii) payments made by the Borrower or any of its
Subsidiaries to retire Indebtedness secured by a Lien on the
assets subject to such disposition (other than the Loans) of the
Borrower or any of its Subsidiaries where payment of such
Indebtedness is required in connection with such Permitted
Disposition, and
-6-
<PAGE>
(iv) an amount of such proceeds (other than proceeds of
the disposition of an asset of Tempo or the Capital Stock of
Tempo), which, at the option of the Borrower and so long as no
Default shall have occurred and be continuing, the Borrower uses
or causes the applicable Subsidiary to use such proceeds to
purchase substantially similar assets useful in the business of
the Borrower or such Subsidiary (with such assets or interests
collectively referred to as "Qualified Assets") within 345 days
----------------
after the consummation (and with the proceeds) of such sale,
conveyance or disposition, and in the event the Borrower or such
Subsidiary elects to exercise its right to purchase Qualified
Assets with the Net Disposition Proceeds pursuant to this clause,
the Borrower shall deliver a certificate of an Authorized Officer
to the Administrative Agent within 30 days following the receipt
of Net Disposition Proceeds setting forth the amount of the Net
Disposition Proceeds which the Borrower or such Subsidiary
expects to use to purchase Qualified Assets during such 345-day
period.
If and to the extent that the Borrower or such Subsidiary has elected to
reinvest Net Disposition Proceeds as permitted above, then on the date
which is 345 days after the relevant sale, conveyance or disposition, the
Borrower shall deliver a certificate of an Authorized Officer to the
Administrative Agent certifying as to the amount and use of such Net
Disposition Proceeds actually used to purchase Qualified Assets. To the
extent such Net Disposition Proceeds are not so used to purchase Qualified
Assets then the Commitment Amount shall be automatically reduced by an
amount equal to the aggregate amount of such proceeds not so used to
purchase Qualified Assets.
"Subordinated Debt" means (i) the Senior Subordinated Notes and
-----------------
the Senior Subordinated Discount Notes and (ii) other unsecured
Indebtedness of the Borrower (other than the TCIC Credit Agreement)
subordinated in right of payment to the Obligations pursuant to
documentation containing interest rates, maturities, amortization
schedules, covenants, defaults, remedies, subordination provisions and
other material terms in form and substance reasonably satisfactory to the
Required Lenders.
"TCIC Credit Agreement" means the amended and restated credit
---------------------
agreement, dated as of February 19, 1997, between TCIC and the borrower,
as such credit agreement may be amended.
-7-
<PAGE>
"Total Debt Per Subscriber" means, as of any date of
-------------------------
determination, the quotient of (a) the difference between (i) Total Debt
less the sum of (x) Indebtedness under the Indemnification Agreements to
the extent, but only to the extent, that the Borrower or any Subsidiary
does not have an immediate obligation to reimburse TCIC or any of its
Affiliates thereunder and (y) if there are no Credit Extensions (other than
$60,000,000 of Stated Amount of Letter of Credit Outstandings), the amount
of cash and cash equivalents shown on a balance sheet of the Borrower and
its Restricted Subsidiaries to the extent such cash or cash equivalents is
not subject to a Lien (other than pursuant to the Escrow Agreements
relating to the Senior Subordinated Notes and the Senior Subordinated
Discount Notes, the Loan Documents or any agreement in respect of
Subordinated Debt approved by the Arranging Agents) and is not otherwise
subject to any restriction as to use divided by (b) the number of Basic
----------
Subscribers as of the last day of the Fiscal Quarter ending on or
immediately prior to such date of determination.
"Unrestricted Subsidiary" means (a) Tempo so long as it is not
-----------------------
required to be designated as a "restricted subsidiary" or other similar
term pursuant to any agreement evidencing or relating to Subordinated Debt
and (b) any U.S. Subsidiary formed or acquired after the Effective Date and
designated by the Borrower as an "Unrestricted Subsidiary" and accepted as
such by the Required Lenders.
SUBPART 2.1.5. Section 1.1 of the Existing Credit Agreement is further
amended by amending the definition of "Transaction Documents" by adding the
following at the end thereof:
", the Reorganization Agreement, the Trade Name and Service Mark License
Agreement, the Share Purchase Agreement, the Partnership Agreement, the
Partnership Credit Agreement, the Tempo Option, the Tag-Along Agreement and
the Tempo Letter Agreements."
SUBPART 2.2 Amendments to Article II. Article II of the Existing Credit
------------------------
Agreement is hereby amended in accordance with Subpart 2.2.1.
-------------
SUBPART 2.2.1. Section 2.2 of the Existing Credit Agreement is amended by
changing the words "on or prior to" to the word "by" in each of three places
they appear in clause (c) thereof.
SUBPART 2.3 Amendments to Article VII. Article VII of the Existing Credit
-------------------------
Agreement is hereby amended in accordance with Subparts 2.3.1 through 2.3.5.
-------------- -----
-8-
<PAGE>
SUBPART 2.3.1. Section 7.1.12 of the Existing Credit Agreement is
deleted in its entirety.
SUBPART 2.3.2. Section 7.2.2 of the Existing Credit Agreement is amended
by adding the following proviso and sentence to the end thereof to read as
follows:
"; provided, further, however, that no Indebtedness permitted under
-------- ------- -------
clauses (b) through (f) of this Section 7.2.2 shall be (i) permitted if
----------- --- -------------
such Indebtedness is incurred in reliance upon a general exception for
permitted Indebtedness under any agreement pertaining to Subordinated
Debt unless all other available exceptions for Indebtedness of such type
under such an agreement have been fully utilized by the Borrower or its
Subsidiary, as applicable or (ii) designated as "Designated Senior
Indebtedness" (as defined in any document evidencing or pursuant to
which Subordinated Debt is issued) without the prior written consent of
the Required Lenders.
Notwithstanding the foregoing, the Borrower may exchange the
Series A Senior Subordinated Notes and the Series A Senior Subordinated
Discount Notes for the Series B Senior Subordinated Notes and the Series
B Senior Subordinated Discount Notes."
SUBPART 2.3.3. Section 7.2.5(f) of the Existing Credit Agreement is
amended by amending clause (iii) thereof to read as follows:
"(iii) constituting capital calls required pursuant to a vote of the
partners of Primestar shall not exceed $50,000,000 over the term of this
Agreement."
SUBPART 2.3.4. Section 7.2.6 of the Existing Credit Agreement is amended
by amending clause (b) thereof to read as follows:
"(b) (i) payments by the Borrower in respect of the purchase of
Senior Subordinated Notes and Senior Subordinated Discount Notes
pursuant to an Offer to Purchase (as defined in the Senior Subordinated
Notes Indenture and the Senior Subordinated Discount Notes Indenture)
made pursuant to Section 4.19 of each of the Senior Subordinated Notes
Indenture and the Senior Subordinated Discount Notes Indenture from the
proceeds of the offering of such Subordinated Debt and borrowings under
the TCIC Credit Agreement, (ii) payments by the Borrower in respect of
principal and interest on loans outstanding under the TCIC Credit
Agreement so long as (x) such payments are made after the Replacement
Satellite Event (without giving effect to
-9-
<PAGE>
clause (c) thereof), (y) such payments cannot exceed an amount equal to the
----------
then available and unutilized Revolving Loan Commitment Amount and (z) no
Default has occurred and is continuing or would result therefrom and (iii)
so long as no (x) Event of Default or (y) Default of which Senior
Management was aware or should have been aware has occurred and is
continuing (or would result therefrom), payments by the Borrower of
interest accrued on the Subordinated Debt when due and; and".
SUBPART 2.3.5. A new Section 7.2.17 is added to the Existing Credit
Agreement to read as follows:
"SECTION 7.2.17. Restrictions on Primestar Holdco and Its
----------------------------------------
Subsidiaries. The Borrower shall not permit Primestar Holdco nor any of
------------
Primestar Holdco's Subsidiaries to (i) engage in any business activity
other than, in the case of Primestar Holdco, in connection with the
continuing ownership of the issued and outstanding shares of Capital Stock
of TCISE Partner 1 and TCISE Partner 2, and in the case of Primestar
Holdco's Subsidiaries, in connection with the continuing ownership of
partnership interests in Primestar; (ii) create, incur, assume, suffer to
exist or otherwise become liable in respect of any Indebtedness other than
in respect of the Obligations; (iii) create, incur, assume or enter into
any agreement which by its terms creates, incurs or assumes any Lien upon
any of its assets, whether now owned or hereafter acquired; (iv) make,
incur, assume or suffer to exist any Investment in any other Person other
than, in the case of Primestar Holdco, in connection with the continuing
ownership of the issued and outstanding shares of Capital Stock of TCISE
Partner 1 and TCISE Partner 2, and in the case of Primestar Holdco's
Subsidiaries, in connection with the continuing ownership of partnership
interests in Primestar; (v) make or commit to make any Capital Expenditure
or enter into any arrangement which would give rise to any Capitalized
Lease Liability; (vi) enter into any arrangement which involves the leasing
by such Person from any lessor of any real or personal property (or any
interest therein) other than the lease of office space incidental to its
ordinary course of business; (vii) wind-up, liquidate or dissolve,
consolidate or amalgamate with, or merge into or with any other corporation
or purchase or otherwise acquire all or any part of the assets of any
Person (or division thereof); or (viii) sell, transfer, lease or otherwise
dispose of, or grant to any Person options, warrants or other rights with
respect to any of its assets, unless otherwise permitted by the Credit
Agreement and except as set forth in the Partnership Agreement."
-10-
<PAGE>
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART 3.1. First Amendment Effective Date. This Amendatory Agreement
------------------------------
shall become effective on the date first set forth above (the "First Amendment
---------------
Effective Date") when each of the conditions set forth in this Subpart 3.1 shall
- -------------- -----------
have been satisfied.
SUBPART 3.1.1. Execution of Counterparts. The Arranging Agents shall
-------------------------
have received counterparts of this Amendatory Agreement, duly executed on behalf
of the Borrower and the Required Lenders.
SUBPART 3.1.2. Post-Closing Events Letter. The Arranging Agents and the
--------------------------
Borrower shall have executed the amended and restated Post-Closing Events
Letter.
SUBPART 3.1.3. TCIC Credit Agreement. The Arranging Agents shall have
---------------------
received counterparts of the TCIC Credit Agreement executed and delivered by the
Borrower and TCIC.
SUBPART 3.1.4. Legal Details, etc. All documents executed or submitted
------------------
pursuant hereto shall be satisfactory in form and substance to the Arranging
Agents and its counsel. The Arranging Agents and its counsel shall have received
all information and such counterpart originals or such certified or other copies
of such materials, as the Arranging Agents or its counsel may reasonably
request, and all legal matters incident to the transactions contemplated by this
Amendatory Agreement shall be satisfactory to the Arranging Agents and its
counsel.
PART IV
MISCELLANEOUS
SUBPART 4.1. Cross-References. References in this Amendatory Agreement
----------------
to any Part or Subpart are, unless otherwise specified or otherwise required by
the context, to such Part or Subpart of this Amendatory Agreement.
SUBPART 4.2. Loan Document Pursuant to Existing Credit Agreement. This
---------------------------------------------------
Amendatory Agreement is a Loan Document executed pursuant to the Existing Credit
Agreement and shall be construed, administered and applied in accordance with
all of the terms and provisions of the Existing Credit Agreement.
-11-
<PAGE>
SUBPART 4.3 Successors and Assigns. This Amendatory Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
SUBPART 4.4 Counterparts. This Amendatory Agreement may be executed by
------------
the parties hereto in several counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which shall constitute
together but one and the same agreement.
SUBPART 4.5 Representations, No Default, etc. As of the date of
---------------------------------
effectiveness of this Amendatory Agreement, the Borrower hereby represents and
warrants to the Agents and the Lenders that
(a) the representations and warranties set forth in Article VI
of the Existing Credit Agreement (excluding, however, those contained in
Section 6.7 thereof) and in each other Loan Document, in each case, are
true and correct (unless stated to relate solely to an earlier date, in
which case such representations and warranties were true and correct as
of such earlier date);
(b) except as disclosed by the Borrower to the Agents and the
Lenders pursuant to Section 6.7 of the Existing Credit Agreement,
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding is pending or, to the knowledge
of the Borrower, threatened against the Borrower or any of its
Subsidiaries which could reasonably be expected to have a Material
Adverse Effect; and
(ii) no development has occurred in any labor controversy,
litigation, arbitration or governmental investigation or proceeding
disclosed pursuant to Section 6.7 of the Existing Credit Agreement which
could reasonably be expected to have a Material Adverse Effect; and
(c) no Default has occurred and is continuing (other than
compliance with Section 7.1.12 of the Credit Agreement).
SUBPART 4.6. Limited Waiver, etc. No amendment, waiver or approval by
--------------------
the Agents or any Lender under this Amendatory Agreement shall, except as may be
otherwise stated in this Amendatory Agreement, be applicable to subsequent
transactions. No amendment, waiver or approval hereunder shall require any
similar or dissimilar amendment, waiver or approval to be granted after the date
hereof, and except as expressly modified by this
-12-
<PAGE>
Amendatory Agreement, the provisions of the Existing Credit Agreement shall
remain in full force and effect, without amendment or other modification.
SUBPART 4.7 Governing Law. THIS AMENDATORY AGREEMENT SHALL BE GOVERNED
-------------
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendatory Agreement to
be executed by their respective authorized officers as of the day and year first
above written.
TCI SATELLITE ENTERTAINMENT, INC.
By ______________________________
Title:
THE BANK OF NOVA SCOTIA,
in its capacity as an Agent
and a Lender
By ______________________________
Title:
CREDIT LYONNAIS NEW YORK BRANCH,
in its capacity as an Agent
and a Lender
By _____________________________
Title:
NATIONSBANK OF TEXAS, N.A.
in its capacity as an Agent
and a Lender
By _____________________________
Title:
-14-
<PAGE>
EXHIBIT 10.30
TRADE NAME AND SERVICE MARK LICENSE AGREEMENT
Trade Name and Service Mark License Agreement (this "Agreement")
dated as of December 4, 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>
(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>
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>
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>
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>
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: /s/ Stephen M. Brett
-------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
-------------------------------
Name: Gary S. Howard
Title: President
-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 10.31
TRANSITION SERVICES AGREEMENT
Transition Services Agreement (this "Agreement"), dated as of
December 4, 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 provide to the Company certain
services and other benefits, including 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. 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;
(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;
<PAGE>
(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) technology support and consulting services; 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.
Section 2. Supply Commitments.
- --------- ------------------
(a) Certain Definitions. As used in this Agreement, the capitalized
terms listed below have the following meanings (with the singular including the
plural and vice versa):
"Equipment": Home satellite dishes, satellite receivers and other
---------
equipment and materials that are available for purchase by TCI and its O&O
Subsidiaries on terms that include volume discounts and would not restrict TCI
or the applicable O&O Subsidiary from complying with Section 2(b).
"O&O Program Services": Each Programming Service that is wholly
--------------------
owned by TCI or one or more of its O&O Subsidiaries.
"O&O Subsidiaries": Those of TCI's subsidiaries in which TCI
----------------
owns, directly or indirectly, all of the equity.
"Programming Service": Programming (including, without
-------------------
limitation, entertainment, informational, educational and home shopping
programming) that is received (whether by a distributor or a customer) via
satellite.
"Satellite Business": The business of operating direct-to-
------------------
customer satellite delivery systems.
"Supply Commitments": The Equipment Commitment made by TCI to the
------------------
Company in Section 2(b) and the Programming Commitment made by TCI to the
Company in Section 2(c).
"Territory": The United States and Canada.
---------
(b) Equipment Purchase Commitment. TCI shall, and shall cause its O&O
Subsidiaries to, make available to the Company in the manner provided below the
benefit
-2-
<PAGE>
of the volume discounts, if any, that are available to TCI and its O&O
Subsidiaries in purchasing Equipment (the foregoing being referred to herein as,
TCI's "Equipment Commitment"). The Company shall give TCI notice from time to
time, as much in advance as is practicable, of its intention to purchase
Equipment and, promptly after receipt of such notice but in any event not more
than 10 days thereafter, TCI shall give notice to the Company stating the price
and the terms on which TCI, or the applicable O&O Subsidiary, can make such
Equipment available to the Company (the "Terms Notice"). If the Company
determines to purchase the requested Equipment on the terms specified in the
Terms Notice, it shall deliver a purchase order for such Equipment to TCI and,
upon receipt thereof, (i) TCI shall use commercially reasonable efforts to cause
its supplier to sell such Equipment directly to the Company at the price and on
the terms specified in the Terms Notice or (ii) at TCI's sole election, TCI
shall, or shall cause the applicable O&O Subsidiary to, purchase such Equipment
and resell it to the Company at the price and on the terms specified in the
Terms Notice. If TCI elects the option set forth in clause (ii) of the preceding
sentence, it shall take all action necessary to assure that all warranties and
other rights available to the original purchaser of such Equipment are assigned
and extend to, or otherwise enforce such warranties and rights on behalf of, the
Company. TCI shall in no event have, or be required to incur, any liability to
any of its suppliers for any Equipment ordered by the Company unless (and then
only to the extent that) it has elected the option set forth in clause (ii) of
the second preceding sentence.
(c) Programming Supply Commitment. With respect to each O&O Program
-----------------------------
Service, TCI shall, or shall cause the applicable O&O Subsidiary to, offer to
provide such Programming Service to the Company for distribution to the
subscribers of its Satellite Business ("Satellite Subscribers") in the Territory
on most-favored-customer terms and conditions ("MFN") (the foregoing being
referred to herein as, TCI's "Programming Commitment"). The Company's
distribution to its Satellite Subscribers of each O&O Program Service offered to
and accepted by it shall be subject to a term-by-term MFN against all other
distributors distributing such O&O Program Service by means of the same
technology to a number of subscribers that is equal to or less than the number
of Satellite Subscribers of such O&O Program Service (a "Comparable
Distributor") (i.e., a size-based MFN), on the material terms, provisions,
covenants and consideration given to or accepted from any of such distributors,
taken as a whole. After giving effect to the foregoing, it is the intent of the
parties that the Company's rates for the O&O Program Services in its Satellite
Business shall not be higher than the lowest rate(s) given to any Comparable
Distributor in the same distribution technology. The availability of any such
rate(s) may be subject to conditions that are logically linked to such lower
rate(s), and which conditions provide a direct, immediate or foreseeable,
economic and quantifiable benefit to TCI or the applicable O&O Subsidiary (e.g.
packaging and other pricing features, channel placement discounts, multiple
service carriage incentives, tiering rate(s) or volume discounts).
Notwithstanding the foregoing, any such condition must relate exclusively to the
O&O Program Service for which such lower rate(s) is offered. If a more favorable
term is given to or accepted from any Comparable Distributor of an O&O Program
Service, then TCI shall promptly notify the Company of such more favorable
-3-
<PAGE>
term and shall, or shall cause the applicable O&O Subsidiary to, offer the
Company such more favorable term for the same amount of time that such more
favorable term is or was available to such distributor for such O&O Program
Service. The Company shall accept or reject such more favorable term within
thirty (30) days of receipt of notice from TCI, and if the Company does not
accept or reject such more favorable term within such thirty (30)-day period,
then the Company shall be deemed to have rejected such more favorable term.
Without limiting the foregoing, TCI shall, or shall cause the applicable O&O
Subsidiary to, offer the Company as part of all present and future affiliation
agreements entered into by TCI or any of its affiliated companies with respect
to any O&O Program Service, the MFN set forth in this Section 2(c) for
distribution of such O&O Program Service in the Satellite Business. TCI and the
Company acknowledge that the Company now purchases and for the foreseeable
future will purchase its programming requirements from PRIMESTAR Partners, L.P.
("PRIMESTAR"). Accordingly, in order to effectuate the intent of the foregoing
provisions of this Section 2(c), TCI will use its good faith efforts to
negotiate an arrangement with PRIMESTAR whereby the benefits of the foregoing
provisions of this Section 2(c) are passed through PRIMESTAR to the Company;
provided, however, that no such arrangement shall expand the obligations of TCI
hereunder, whether to include any other partner of PRIMESTAR or otherwise.
(d) Termination of Commitments. TCI's obligations under this Section
--------------------------
2, including its Supply Commitments, shall terminate immediately and without any
requirement of notice if any of the events described in clauses (ii) and (iii)
of the first sentence of Section 4(b) shall occur with respect to the Company.
If the Company delivers an executed purchase order for Equipment to TCI pursuant
to Section 2(a) and fails to purchase the same in accordance with the terms and
conditions specified in the Terms Notice, then TCI may terminate the Equipment
Commitment and its obligations under Section 2(b) by giving notice to such
effect to the Company within 30 days thereafter. Further, if the Company fails
to make payments required for any O&O Program Services provided to it pursuant
to Section 2(c) as and when due and such failure continues beyond the expiration
of any applicable grace period, then TCI may terminate the Programming
Commitment and its obligations under Section 2(c) by giving notice to such
effect to the Company within 30 days thereafter.
Section 3. Compensation for Services and Supply Commitments. As compensation
- --------- ------------------------------------------------
for Services rendered to the Company pursuant to this Agreement and for the
Supply Commitments, the Company (i) shall reimburse TCI for all direct, out-of-
pocket expenses to third parties actually 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) shall pay to TCI
$1.50 per Subscriber per month (the "Subscriber Fee"), up to a maximum of
$3,000,000 per month, commencing with the month of January 1997. TCI shall keep
true, complete and accurate books of account containing such particulars as may
be necessary for the purpose of calculating the above expenses. Reimbursement
amounts pursuant to clause (i) of the first sentence of this Section 3 shall be
billed quarterly by TCI and shall be due and
-4-
<PAGE>
payable in full within 30 days after receipt of invoice. Amounts payable
pursuant to clause (ii) of the first sentence of this Section 3 shall be payable
monthly in arrears on the last day of each calendar month based on the number of
Subscribers as of the end of the immediately preceding calendar month. For
purposes hereof, a "Subscriber" is a single family household, residential
dwelling unit in a multiple dwelling unit (e.g. an apartment, condominium, etc.)
or commercial establishment (e.g. a bar, hotel, etc.) (in each case, counted as
one subscriber regardless of the number of IRDs (as such term is commonly
understood in the satellite industry)), that pays the Company or a subsidiary
thereof the monthly price for its satellite service and has paid at least one
month's charges in full, but excluding any such household, dwelling unit or
commercial establishment whose account with the Company remains unpaid for more
than 30 days from the original date of billing therefor. The Company shall keep
true, complete and accurate books of account containing such particulars as may
be necessary for the determination of the number of its Subscribers.
Section 4. Term.
- --------- ----
(a) Term. This Agreement shall become effective on the date of the
----
Distribution and shall continue until the close of business on December 31, 1999
(the "Initial Term") and shall be renewed automatically for successive one-year
periods thereafter (each a "Renewal Term"), unless earlier terminated in
accordance with Section 4(b).
(b) Termination. Except as otherwise expressly provided herein, this
-----------
Agreement and the rights and obligations of the parties hereunder shall remain
in effect until terminated as provided below or, with respect to the parties'
rights and obligations under Sections 2(b) and 2(c), as provided in Section
2(d):
(i) Either party may terminate this Agreement effective as of
the end of the Initial Term or the then current Renewal Term, as
applicable, by giving not less than 180 days prior written notice to
the other party.
(ii) TCI may terminate this Agreement 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.
(iii) Either party may terminate this Agreement 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
-5-
<PAGE>
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 4(b), the term "beneficial ownership" shall be
defined and construed in accordance with Rule 13d-3 of the Securities Exchange
Act of 1934, as amended (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 4(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.
(c) Effect of Termination. 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 (i) to reimburse TCI for services
provided hereunder through the termination date and to pay the Subscriber Fee
for the month in which the termination date occurs (provided that if the
termination occurs prior to the last calendar day of a month, such fee shall be
prorated based on the number of days elapsed in such month prior to and
including the termination date), in each case as provided in Section 3 hereof,
and (ii) to pay for any Equipment or Programming Service supplied pursuant
hereto. The provisions of Section 5 of this Agreement shall survive
indefinitely, notwithstanding any termination hereof.
Section 5. 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,
creditors 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, the Supply Commitments 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 with respect to the Services 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. With
-6-
<PAGE>
regard to the Supply Commitments, the remedies, if any, available with respect
to any Equipment or Programming Service supplied shall be as provided in the
applicable purchase order or supply contract. In the event of any willful
failure to perform the applicable Supply Commitment, the Company shall not be
obligated to make any further payments of the Subscriber Fee until the Supply
Commitments are honored and shall be entitled to reimbursement of the Subscriber
Fee paid with respect to any period in which TCI has failed or refused to honor
its Supply Commitments. 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, Equipment or Programming Services provided by TCI hereunder, other
than any liability of TCI to the Company as contemplated by the foregoing
provisions of this Section 5.
Section 6. 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 with respect 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 delivery if delivered personally to 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 (answer back received);
(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:
If to TCI:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
Facsimile: (303) 488-3245
-7-
<PAGE>
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. No waiver of any term or
condition hereof shall be effective unless in a writing signed by the party
entitled to give such waiver.
(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, 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 or the
------------
application thereof to any person or circumstance shall be held to be invalid or
unenforceable, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those to which it was held to
be invalid or unenforceable, shall not be affected thereby, provided that the
parties shall negotiate in good faith with respect to an equitable modification
of the provision or application thereof held to be invalid.
-8-
<PAGE>
(j) Confidentiality. All information obtained by TCI or the Company
---------------
concerning the other pursuant to this Agreement shall, except as required in the
performance hereof or by law, be maintained in confidence by TCI, the Company
and their respective employees.
-9-
<PAGE>
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:
/s/ Stephen M. Brett
----------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
----------------------------------
Name: Gary S. Howard
Title: President
-10-
<PAGE>
EXHIBIT 10.35
SECOND AMENDMENT TO
TAX SHARING AGREEMENT
This Second Amendment to the Tax Sharing Agreement dated as of December 3,
1996, by and among Tele-Communications, Inc., a Delaware corporation ("TCI"),
Liberty Media Corporation, a Delaware corporation ("Liberty"), Tele-
Communications International, Inc. ("International"), TCI Technology Ventures,
Inc. ("Technology"), TCI Communications, Inc. ("TCIC"), TCI Cable Investments,
Inc. ("TCICI"), TCI Starz, Inc. ("Starz") and TCI CT Holdings, Inc. ("CT").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties have entered into a Tax Sharing Agreement (the
"Agreement") effective July 1, 1995, as amended by the First Amendment to Tax
Sharing Agreement, dated as of October 1995; and
WHEREAS, the parties now wish to amend the Agreement to provide for the
treatment of indirect subsidiaries of TCI that become direct, first-tier
subsidiaries of TCI;
NOW, THEREFORE, the parties hereby agree as follows:
1. Section A of the Agreement is amended by adding thereto the following
new definitions:
"CT" means TCI CT Holdings, Inc.
--
"First-Tier Subsidiary" means any subsidiary of TCI that would qualify
---------------------
as a member of the TCI Group based solely on the stock of such subsidiary
owned directly by TCI.
"Membership Date" means, for any member of the TCI Group, the date
---------------
that such entity became, and since which has continuously remained, a
member of the TCI Group.
"Starz" means TCI Starz, Inc.
-----
2. The definition of "Subgroup Parent" is amended to read as follows:
"Subgroup Parent" means each of Liberty, International, Technology,
---------------
TCIC, TCICI, Starz, CT and any other First-Tier Subsidiary formed or
acquired after the date hereof.
<PAGE>
3. Section H.6. of the Agreement is amended by adding thereto the
following at the end thereof:
"If to a member of the Subgroup of any other Subgroup Parent, to such
Subgroup Parent at its address as shown in the books and records of TCI."
4. The Agreement is amended by adding thereto a new Section I, as
follows:
"I. Promotion of Subsidiaries.
-------------------------
1. Raised Subsidiaries. Anything contained herein to the contrary
-------------------
notwithstanding, if any Subgroup Member (a "Raised Subsidiary") becomes a
First-Tier Subsidiary (as a result of any spin-off, dividend, distribution,
liquidation, merger, transfer or other transaction, or any series of any
such transactions, whether or not related), other than in connection with
any transaction or series of related transactions in which such Subgroup
Member subsequently ceases to be a First-Tier Subsidiary but remains a
member of the TCI Group, then from and after the time (the "Promotion
Time") that such Raised Subsidiary so becomes a First-Tier Subsidiary:
a. such Raised Subsidiary shall be deemed to have been a
Subgroup Parent (and such Raised Subsidiary and its Subsidiaries at
the Promotion Time shall be deemed not to have been Subsidiaries of
any other Subgroup), for all purposes of this Agreement, from the
later of (i) the Effective Date, and (ii) the Membership Date with
respect to such Raised Subsidiary (and for purposes of Section C.4. of
this Agreement, from the later of (i) January 1, 1995, and (ii) such
Membership Date);
b. TCI shall establish and maintain an Intercompany Account
between it and such Raised Subsidiary, which shall be credited with
any Tax Benefits and charged with any Tax Liabilities attributable to
the Subgroup of such Raised Subsidiary or any Subgroup Member thereof,
as provided in Section B.1. of this Agreement, determined on a
retroactive basis from the Effective Date; and
c. the Intercompany Account of each Subgroup of which the Raised
Subsidiary or any of its Subsidiaries at the Promotion Time was a
member, at any time prior to the Promotion Time, shall be
appropriately adjusted to reflect the effect of clause a. of this
Section I.1. on a retroactive basis from the Effective Date.
2. General Rule. Except as otherwise expressly provided in Section
------------
I.1. of this Agreement, the provisions of this Agreement shall apply to any
Raised Subsidiary with the same effect as to any other Subgroup Parent.
2
<PAGE>
3. Execution. For the avoidance of doubt, each Raised Subsidiary
---------
shall automatically become a party to this Agreement, effective as of the
Promotion Time relating thereto, and shall execute and deliver a
counterpart of this Agreement to evidence the same, as soon as practicable
following such Promotion Time."
5. Except as otherwise expressly provided herein, the Agreement shall
continue in full force and effect without modification.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective as
of the Effective Date (as defined in the Agreement).
TELE-COMMUNICATIONS, INC. TCI TECHNOLOGY VENTURES, INC.
By /s/ Stephen M. Brett By /s/ David Boileau
-------------------------- ------------------------------
LIBERTY MEDIA CORPORATION TCI STARZ, INC.
By /s/ Robert R. Bennett By /s/ Stephen M. Brett
-------------------------- ------------------------------
TELE-COMMUNICATIONS INTERNATIONAL, INC. TCI CT HOLDINGS, INC.
By /s/ Graham Hollis By /s/ Stephen M. Brett
-------------------------- ------------------------------
TCI COMMUNICATIONS, INC.
By /s/ Barney Schotters
---------------------------
TCI CABLE INVESTMENTS, INC.
By /s/ Barney Schotters
---------------------------
4
<PAGE>
EXHIBIT 10.36
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of February 19,
1997 and is between TCI COMMUNICATIONS, INC., a Delaware corporation ("TCIC"),
----
and TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation ("Satellite
---------
Company").
- -------
RECITALS:
- --------
A. On December 4, 1996, Satellite Company and TCIC executed a Credit
Agreement, dated as of December 4, 1996 (the "TCIC Credit Agreement"). TCIC and
---------------------
Satellite Company entered into the TCIC Credit Agreement for the purpose of
providing to Satellite Company a $250,000,000 term loan and a $500,000,000
revolving loan facility.
B. On December 31, 1996, Satellite Company entered into a Credit
Agreement (as amended by a First Amendment to Bank Credit Agreement, dated
February 19, 1997, and as thereafter amended or modified from time to time, the
"Bank Credit Agreement") among The Bank of Nova Scotia, as Administrative Agent,
---------------------
Nationsbank of Texas, N.A., as the Syndication Agent, Credit Lyonnais New York
Branch as the Documentation Agent, the financial institutions named as lenders
therein, and The Bank of Nova Scotia, Credit Lyonnais New York Branch and
Nationsbank of Texas, as the Arranging Agents. Proceeds from the initial
borrowing under the Bank Credit Agreement were used to permanently retire the
$250,000,000 term loan under the TCIC Credit Agreement.
C. Section 7.1.12 of the Bank Credit Agreement requires Satellite
Company to enter into an amendment to the TCIC Credit Agreement to provide for,
among other things, limitations on the availability of the Revolving Loans (as
defined in Article I hereof).
D. Satellite Company proposes to issue in a private transaction
$475,000,000 aggregate principal amount at maturity of senior subordinated notes
due 2007 (of which approximately $275,000,000 aggregate principal face amount
will be discount notes, resulting in approximately $150,000,000 gross proceeds
to Satellite Company), which notes Satellite Company is required to offer to
make an offer to repurchase in full if the GE-2 satellite (as defined in the
Indentures (as defined in Article I hereof)) does not meet certain operating
criteria. In such event, the escrowed net proceeds of the offering and sale of
such notes would be insufficient to pay the full purchase price, and TCIC
desires to agree to make loans to Satellite Company to fund such deficiency in
an amount not to exceed the Note Offering Expenses (as defined in Article I
hereof). The Purchase Agreement dated February 14,
<PAGE>
1997 between Satellite Company and the Initial Purchasers (as defined in the
Indentures) requires that Satellite Company and TCIC enter into an amendment to
the TCIC Credit Agreement to, among other things, provide for the making of
loans under this Amended and Restated Credit Agreement for the aforementioned
purpose.
E. In order to satisfy the requirements of section 7.1.12 of the
Bank Credit Agreement and the requirements of such Purchase Agreement and to
provide for loans to fund such deficiency, the parties are entering into the
following amendment and restatement of the TCIC Credit Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agree-
ments set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
"Administrative Agent" shall have the meaning given to such term in
--------------------
the Bank Credit Agreement.
"Bank Credit Agreement" shall have the meaning set forth in the
---------------------
recitals.
"Bank Obligations" shall mean the "Obligations" as defined in the Bank
----------------
Credit Agreement.
"Business Day" shall mean any day (other than a Saturday, Sunday or
------------
legal holiday in the State of Colorado or the State of New York) on which banks
are open for business in New York, New York and Denver, Colorado.
"Commitment Fee" shall have the meaning set forth in Section 2.05.
--------------
"Default" shall mean an event that with the giving of notice or the
-------
passage of time (or both) would constitute an Event of Default.
"Escrow Account" shall have the meaning given to such term in each
--------------
Indenture.
-2-
<PAGE>
"Escrow Agreement" shall have the meaning given to such term in each
----------------
Indenture.
"Event of Default or "Events of Default" shall have the meanings set
---------------- -----------------
forth in Article VI.
"GE-2 Satellite Event" shall have the meaning given to such term in
--------------------
the Bank Credit Agreement as such agreement is in effect on the date hereof.
"Indebtedness" shall mean, with respect to any Person, without
------------
duplication: (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, notes, debentures or similar
instruments, (iii) all obligations of such Person upon which interest charges
are customarily paid, (iv) all obligations of such Person issued or assumed as
the deferred purchase price of property or services (other than accounts payable
to suppliers incurred in the ordinary course of business), and (v) all
obligations of such Person in respect of letters of credit and bankers
acceptances. The term "Indebtedness" shall not include the obligation of any
Person guaranteeing the Indebtedness of any other Person.
"Indentures" shall mean (i) the indenture to be dated as of February
----------
20, 1997 between Satellite Company and The Bank of New York, as indenture
trustee, with respect to the issuance of the Senior Subordinated Notes and (ii)
the indenture to be dated as of February 20, 1997 between Satellite Company and
The Bank of New York, as indenture trustee, with respect to the issuance of the
Senior Sub Discount Notes and "Indenture" means either of them.
---------
"LC Commitment Fee" shall mean the fee payable by Satellite Company to
-----------------
TCIC for extending the maturity of the PRIMESTAR Letter of Credit beyond June
30, 1997 to December 31, 1997.
"Maturity Date" shall mean September 30, 2001.
-------------
"Maximum Rate" shall have the meaning set forth in Section 2.02(d).
------------
"Note or Notes" shall mean the promissory note or notes executed
-------------
pursuant to the Revolving Loans by Satellite Company as maker in favor of TCIC
and in substantially the form of Exhibit A hereto.
---------
"Note Offering Expenses" shall mean the sum of (a) the aggregate fees
----------------------
and expenses incurred by Satellite Company (or for which Satellite Company has
agreed to reim-
-3-
<PAGE>
burse others) in connection with the offering and sale of the Senior Sub
Discount Notes and the Senior Subordinated Notes, including among other things,
underwriter discounts and commissions (in an amount not less than that shown on
the cover page of the Offering Memorandum), auditor fees and expenses, legal
fees and expenses, trustee fees and expenses and the fees and expenses
associated with the proposed escrow of the proceeds of the sale of the Senior
Subordinated Notes and the Senior Sub Discount Notes and (b) the difference
between the sum of interest accrued on the Senior Subordinated Notes and the
accrual of original issue discount on the Senior Sub Discount Notes during the
period such proceeds are escrowed pursuant to Section 4.19 of the Indentures
and the aggregate interest received by Satellite Company in respect of the
investment of such proceeds in the escrow account required by Section 4.19 of
the Indentures. In no event shall Note Offering Expenses be less than
$14,000,000.
"Offering Memorandum" means the Offering Memorandum dated February 14,
-------------------
1997 distributed by Satellite Company to potential investors with respect to the
Senior Sub Discount Notes and the Senior Subordinated Notes.
"Offer to Purchase" shall have the meaning given to such term in the
-----------------
Indentures.
"Person" shall mean any natural person, corporation, limited liability
------
company, partnership, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Prepayment Notice" shall have the meaning set forth in Section
-----------------
2.03(b).
"PRIMESTAR Letter of Credit" shall mean the letter of credit issued
--------------------------
pursuant to an Amended and Restated Reimbursement Agreement among TCI UA I,
Inc., Chemical Bank, as Administrative Agent and Bank, and The Toronto Dominion
Bank, as Departing Bank dated as of March 1, 1995.
"Revolving Loan Commitment" shall mean a total of $100,000,000
-------------------------
principal amount, as such amount may be adjusted from time to time pursuant to
Section 2.04.
"Revolving Loan Commitment Termination Date" shall mean the date on
------------------------------------------
which the Commitment of TCIC to make Revolving Loans under this Agreement shall
terminate in accordance with Section 2.04.
-4-
<PAGE>
"Revolving Loans" shall have the meaning set forth in Section 2.01.
---------------
"Satellite Company" shall have the meaning set forth in the recitals.
-----------------
"Satellite Event Date" shall have the meaning given to such term in
--------------------
the Bank Credit Agreement as of the date hereof; provided, however, that clause
-------- -------
(c) of the definition of Replacement Satellite Event (as defined in the Bank
Credit Agreement) used therein shall be deemed to not be a part thereof.
"Senior Sub Discount Notes" shall mean the $275,000,000 principal
-------------------------
amount at maturity of 12 1/4% Senior Subordinated Discount Notes due February
15, 2007 issued by Satellite Company.
"Senior Subordinated Notes" shall mean the $200,000,000 principal
-------------------------
amount of 10 7/8% Senior Subordinated Notes due February 15, 2007 issued by
Satellite Company.
"Significant Restricted Subsidiary" shall have the meaning given to
---------------------------------
such term in the Indentures as in effect from time to time.
"Specified Use" shall mean the use of a borrowing hereunder to pay the
-------------
excess of (i) the purchase price for all Senior Sub Discount Notes and Senior
Subordinated Notes tendered pursuant to an Offer to Purchase made pursuant to
Section 4.19 of the Indentures over (ii) the sum of the aggregate amount in each
Escrow Account under each Escrow Agreement at the time of such purchase of such
notes.
"Standby Commitment Fee" shall have the meaning set forth in Section
----------------------
2.05.
"Subsidiary" shall mean (with respect to any Person) any corporation,
----------
limited liability company, partnership or joint venture, whether now existing or
hereafter organized or acquired in which: (i) (in the case of a corporation)
securities having a majority of the voting power in the election of directors
(excluding for these purposes securities that entitle the holder to vote only
upon the occurrence of a contingency) are at the time owned, directly or
indirectly, by such Person and/or one or more of its Subsidiaries, or (ii) (in
the case of a limited liability company, partnership or joint venture): (y) the
managing general partner is such Person or one or more of its Subsidiaries, or
(z) a majority of the ownership interests are owned, directly or indirectly, by
such Person or one or more of its Subsidiaries.
"TCIC" shall have the meaning set forth in the recitals.
----
-5-
<PAGE>
"TCIC Credit Agreement" shall have the meaning set forth in the
----------------------
recitals.
"Unused Portion of the Revolving Loan Commitment" shall mean, as of
-----------------------------------------------
any date, the Revolving Loan Commitment as of such date less the aggregate
unpaid principal amount of all Revolving Loans outstanding as of such date.
ARTICLE II.
THE REVOLVING LOANS
SECTION 2.01. Revolving Loans.
---------------
(a) Upon the terms and subject to the conditions set forth in this
Agreement, TCIC agrees to originate the revolving loans on a revolving credit
basis to Satellite Company (the "Revolving Loans"), from time to time, from the
---------------
date of this Agreement until the Revolving Loan Commitment Termination Date, at
such time and in such amounts as Satellite Company shall request, in an
aggregate principal amount at any time outstanding not in excess of the
Revolving Loan Commitment. Upon the terms and subject to the conditions set
forth in this Agreement, Satellite Company (or the Administrative Agent if an
Event of Default under the Bank Credit Agreement has occurred and is continuing)
may borrow, repay and reborrow funds from TCIC. Anything contained herein to
the contrary notwithstanding, if Satellite Company issues and sells Senior
Subordinated Notes and/or Senior Sub Discount Notes resulting in aggregate
gross proceeds of at least $350,000,000, then the Revolving Loans will not be
available hereunder unless, prior to the Revolving Loan Commitment Termination
Date, Satellite Company makes an Offer to Purchase pursuant to Section 4.19 of
the Indentures all of the Senior Subordinated Notes and all of the Senior Sub
Discount Notes, as provided in the Indentures, and, in such event, the
Revolving Loans shall only be available in an aggregate principal amount up to
$50,000,000 until Satellite Company shall have purchased all the notes tendered
pursuant to such Offer to Purchase.
(b) In order to effect a borrowing under the Revolving Loan
Commitment, Satellite Company (or the Administrative Agent if an Event of
Default under the Bank Credit Agreement has occurred and is continuing) shall
give TCIC irrevocable written notice not less than three Business Days before a
requested borrowing. Such notice shall in each case be signed by an authorized
officer and shall refer to this Agreement and specify: (i) the amount of the
requested borrowing under this Agreement, (ii) the date (which shall be a
Business Day) on which Satellite Company is to receive the proceeds of such
borrowing, (iii) whether the proceeds of the bor-
-6-
<PAGE>
rowing will be used for the Specified Use and the amount of the borrowing for
such Specified Use, and (iv) that all conditions to such borrowing set forth in
Article IV of this Agreement have been satisfied. Satellite Company shall be
deemed to be making, as of the date of the delivery of the borrowing notice, the
representations and warranties contained in Article III of this Agreement by
the act of delivering such borrowing notice to TCIC.
(c) The Revolving Loans made by TCIC shall be evidenced by the Notes
(which shall be substantially in the form of Exhibit A hereto) duly executed on
---------
behalf of Satellite Company. TCIC shall endorse on the schedule attached to
the Notes, or otherwise record in its internal records, an appropriate notation
evidencing the date and amount of each Revolving Loan, each payment and
prepayment of the principal amount of any Revolving Loan and other information
provided for on such schedule; provided, however, that the failure of TCIC to
-------- -------
make such a notation or any error in such notation shall not affect the
obligation of Satellite Company to repay the Revolving Loans in accordance with
the terms of this Agreement and the Notes.
SECTION 2.02. Interest on the Revolving Loans.
-------------------------------
(a) Subject to Section 2.02(d) below, the principal amount of each
Revolving Loan shall bear interest at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 360 days) equal to 10%.
Accrued interest shall compound semi-annually until paid.
(b) Interest on each Revolving Loan shall be due and payable on the
date the principal amount of such Revolving Loan is prepaid, upon acceleration
of such Revolving Loan, or upon the Maturity Date.
(c) If Satellite Company shall default in the payment of the
principal of, or interest on any Revolving Loan, or on any other amount
becoming due hereunder, by scheduled maturity or acceleration, Satellite Company
shall, on demand from time to time from TCIC, pay interest, to the extent
permitted by law, on such defaulted amount up to the date of actual payment
(after as well as before judgment) at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 360 days) equal to the interest
rate then in effect pursuant to Section 2.02(a) above plus 2%.
(d) All agreements between Satellite Company and TCIC are expressly
limited so that in no contingency or event whatsoever shall the interest paid or
agreed to be paid to TCIC for the use, forbearance, or detention of the
indebtedness evidenced by the Notes exceed
-7-
<PAGE>
the maximum rate permissible under applicable law (the "Maximum Rate"). If from
------------
any circumstance TCIC should ever receive an amount which would represent
interest in excess of the Maximum Rate, such amount as would be excessive
interest shall be applied to the reduction of the principal amount owing under
the Notes and not to the payment of interest. In determining whether the
interest paid or payable, under any contingency, exceeds such Maximum Rate,
Satellite Company and TCIC shall to the maximum extent permitted by applicable
law: (i) characterize any non-principal payment as an expense, fee, or premium
rather than as interest; (ii) exclude voluntary prepayments and the effects
thereof; (iii) amortize, prorate, al locate, and spread the total amount of
interest throughout the full term of the Notes so that the actual rate of such
interest does not exceed such Maximum Rate; or (iv) allocate interest between
portions of the debt evidenced hereby so that no portion of such debt shall bear
interest at a rate greater than such Maximum Rate. For purposes of the Notes,
the term "applicable laws" shall mean that law in effect from time to time and
applicable to the credit transaction between Satellite Company and TCIC which
lawfully permits the charging and collection of the highest permissible, lawful,
non-usurious rate of interest on such transaction and the Notes, including laws
of the State of Colorado and, to the extent controlling, laws of the United
States of America.
SECTION 2.03. Payment; Maturity; Prepayment.
-----------------------------
(a) Unless accelerated hereunder, the principal amount of each
Revolving Loan, together with all interest accrued thereon, shall be due and
payable on the Maturity Date.
(b) Satellite Company shall have the right, at any time and from time
to time, to prepay any Revolving Loan, in whole or in part, without premium or
penalty, upon giving written notice (a "Prepayment Notice") to TCIC at least
-----------------
three Business Days prior to such prepayment. Each Prepayment Notice shall
specify the principal amount of each Revolving Loan (or portion thereof) to be
prepaid and the date of prepayment and shall commit Satellite Company to prepay
such borrowing on the date specified therein. All prepayments shall be ac-
companied by accrued interest on the principal amount being prepaid to the date
of prepayment. Notwithstanding the foregoing, Satellite Company may not prepay
the Revolving Loans made for the Specified Use unless and until the prior
written consent of the requisite lenders under the Bank Credit Agreement has
been obtained.
(c) Satellite Company shall be required to prepay all amounts due
under the Revolving Loans and this Agreement on the Satellite Event Date.
Notwithstanding the preceding sentence, Satellite Company shall be required to
prepay the Revolving Loans on the
-8-
<PAGE>
Satellite Event Date: (i) only if no Default under the Bank Credit Agreement
has occurred, is continuing, or would result from such payment, (ii) only if no
Event of Default or Default under the Bank Credit Agreement of which Senior
Management (as defined in the Bank Credit Agreement) was aware or should have
been aware has occurred and is continuing (or would result therefrom) and (iii)
only to the extent that there is an unused Available Commitment Amount under the
Bank Credit Agreement. If an Event of Default exists on the Satellite Event Date
but is later cured or waived, Satellite Company shall prepay all amounts due
under the Revolving Loans as soon as no Event of Default under the Bank Credit
Agreement exists and shall prepay to the extent of any unused Available
Commitment Amount. Satellite Company's obligation to prepay under the
conditions of this section 2.03(c) shall continue after the Satellite Event Date
until full prepayment of the Revolving Loans.
SECTION 2.04. Reduction and Termination of Revolving Loan Com-
-----------------------------------------------
mitment.
- -------
(a) Upon at least three Business Days prior irrevocable written
notice to TCIC, Satellite Company may at any time in whole or, from time to
time, in part permanently reduce the amount of the Revolving Loan Commitment but
only if the GE-2 Acceptance (as defined in the Indentures) has occurred and been
certified to the trustees under the Indentures in accordance therewith or
Satellite Company has purchased and paid for all Senior Sub Discount Notes and
Senior Subordinated Notes tendered pursuant to an Offer to Purchase made in ac-
cordance with Section 4.19 of the Indentures; provided, however, that Satellite
-------- -------
Company shall obtain the written consent of the Administrative Agent prior to
any reduction of the Revolving Loan Commitment prior to the Satellite Event
Date.
(b) The Revolving Loan Commitment shall terminate on the earliest to
occur of: (i) the Maturity Date, (ii) the Satellite Event Date (but only if the
GE-2 Acceptance (as defined in the Indentures) has occurred and been certified
to the trustees under the Indentures in accordance therewith or Satellite
Company has purchased and paid for all Senior Sub Discount Notes and Senior
Subordinated Notes tendered pursuant to an Offer to Purchase made in accordance
with Section 4.19 of the Indentures), or (iii) an Event of Default.
-9-
<PAGE>
SECTION 2.05. Facility Fees. As additional compensation to TCIC in
-------------
connection with this Agreement and the Revolving Loans, Satellite Company shall
pay to TCIC: (i) a standby commitment fee of .125% per annum (the "Standby
-------
Commitment Fee") on the average daily Unused Portion of the Revolving Loan
- --------------
Commitment, for the period commencing on the date of this Agreement through and
including the date of the GE-2 Satellite Event and (ii) a commitment fee (the
"Commitment Fee") equal to .375% per annum on the average daily Unused Portion
- ---------------
of the Revolving Loan Commitment, for the period commencing on the date of the
determination by the Administrative Agent that the GE-2 Satellite Event has not
occurred through and including the Revolving Loan Commitment Termination Date.
The Standby Commitment Fee and the Commitment Fee shall be computed on the basis
of a 360-day year for actual days elapsed and shall be payable annually, in
arrears, on each anniversary of the date of this Agreement, and on the Revolving
Loan Commitment Termination Date.
SECTION 2.06. No Security. The Revolving Loans made by TCIC under
-----------
this Agreement, and all fees owing by Satellite Company under this Agreement and
the Notes, shall be unsecured.
SECTION 2.07. Subordination; Revolving Loans Not Senior Indebted-
--------------------------------------------------
ness. The Revolving Loans shall be subordinated to the Bank Obligations as
- ----
provided in Article VII hereof. TCIC and Satellite Company expressly
acknowledge, covenant and agree for the benefit of the holders of the Senior
Sub-Discount Notes and the Senior Subordinated Notes that the Revolving Loans
and all other obligations of Satellite Company hereunder are not Senior
Indebtedness as defined in the Indentures.
SECTION 2.08. LC Commitment Fee. Upon the extension of the expi-
-----------------
ration of the PRIMESTAR Letter of Credit past June 30, 1997, as provided in
section 5.02 hereof, Satellite Company shall pay to TCIC an LC Commitment Fee
equal to .5% of the principal amount of the PRIMESTAR Letter of Credit.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Mutual Representations and Warranties. As an induce-
-------------------------------------
ment to enter into this Agreement, each party represents to and agrees with the
other that:
-10-
<PAGE>
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power to own, lease and operate its properties, to carry on its business as
presently conducted and to carry out the transactions contemplated by this
Agreement.
(b) it has duly and validly taken all corporate action necessary to
authorize the execution, delivery and performance of this Agreement (and, with
respect to Satellite Company, the Notes).
(c) this Agreement (and, with respect to Satellite Company, the
Notes) has been duly executed and delivered by it and constitutes its legal,
valid and binding obligation enforceable in accordance with its terms.
(d) none of the execution and delivery of this Agreement (and, with
respect to Satellite Company, the Notes) or the compliance with any of the
provisions of this Agreement (and, with respect to Satellite Company, the Notes)
will (i) conflict with or result in a breach of any provision of its corporate
charter or by-laws, (ii) breach, violate or result in a default under any of the
terms of any agreement or other instrument or obligation (including, without
limitation, those in respect of Indebtedness) to which it or any of its
Subsidiaries is a party or by which it or any of its Subsidiaries' properties or
assets may be bound, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to it or any of its Subsidiaries or
affecting any of its Subsidiaries' properties or assets.
ARTICLE IV.
CONDITIONS OF LENDING
SECTION 4.01. Conditions Precedent. The obligation of TCIC to make a
--------------------
Revolving Loan hereunder on any date shall be subject to the fulfillment of the
following conditions precedent:
(a) TCIC shall have received a notice of such borrowing as required
by Section 2.01(b).
(b) The representations and warranties of Satellite Company set forth
in Article III shall be true and correct with the same effect as though made on
and as of such date.
-11-
<PAGE>
(c) Satellite Company shall be in compliance with all of the terms
and conditions of this Agreement (including the Notes), and at the time of, and
immediately after such borrowing no Default or Event of Default shall have
occurred and be continuing.
(d) Other than for purposes of making Revolving Loans for the
Specified Use, the GE-2 Satellite Event shall not have occurred.
(e) Solely for purposes of making Revolving Loans for the Specified
Use, the GE-2 Acceptance (as defined in the Indentures) shall not have occurred
as certified to the trustees under the Indentures in accordance therewith.
(f) The Available Amount (as defined in the Bank Credit Agreement)
shall have been fully utilized if the proceeds of the drawing will be used by
Satellite Company for purposes other than the Specified Use. If the proceeds of
the drawing will be used by Satellite Company for the Specified Use, then the
Available Amount need not have been fully utilized prior to making such drawing,
however, Revolving Loans may not be made for the Specified Use in excess of the
Note Offering Expenses.
ARTICLE V.
COVENANTS
SECTION 5.01. Incorporation of Indenture Covenants. Satellite Com-
------------------------------------
pany covenants and agrees with TCIC that, after such time as Revolving Loans are
first made hereunder and thereafter so long as this Agreement shall remain in
effect, or the principal of, or interest on any Revolving Loan or any other
amount payable hereunder shall be unpaid, Satellite Company will remain in
compliance with all of the affirmative and negative covenants set forth in
Article Four of the Indentures (as amended or modified and in effect from time
to time) and such covenants (except for Section 4.01, Section 4.02, Section
4.14, Section 4.19, Section 4.20 and Section 4.23 and except for any obligation
to make any Offer to Purchase under the Indentures) shall be deemed to be
incorporated herein by reference, mutatis mutandis (as amended or modified and
------- --------
in effect from time to time), as though such covenants were made in favor of
TCIC, references therein to obligations made under the Indentures referring to
obligations hereunder, and references therein to the noteholders or trustees
made under the Indentures referring to TCIC. In addition, such covenants (as
amended or modified and in effect from time to time) shall continue to be
incorporated by reference until the Revolving Loan Termination Date
notwithstanding any prior payment of the Senior Subordinated Notes and/or
Senior Sub-Discount Notes.
-12-
<PAGE>
SECTION 5.02. Extension of PRIMESTAR Letter of Credit. TCIC agrees
---------------------------------------
to enter into (or to cause TCI UA I, Inc. to enter into) an amendment to the
Reimbursement Agreement relating to the PRIMESTAR Letter of Credit for the
purpose of extending the expiration date of the PRIMESTAR Letter of Credit to
June 30, 1997, and, if requested by Satellite Company, to further extend such
expiration date to December 31, 1997, unless, with the exercise of diligent best
efforts, TCIC is unable to procure such extension.
ARTICLE VI.
DEFAULTS
If and so long as any one or more of the following events ("Events of
---------
Default") shall occur and be continuing, TCIC may by written notice to Satellite
- -------
Company, the Administrative Agent and the trustees under the Indentures
terminate the Revolving Loan Commitment and/or declare the entire unpaid
balance of the principal of, and interest on any outstanding Revolving Loans to
be forthwith due and payable, and thereupon the same and any unpaid Standby
Commitment Fees or Commitment Fees and all other liabilities of Satellite
Company accrued hereunder shall immediately become due and payable without
further action, except that in the case of the occurrence of an Event of Default
described in Section 6.05, the Revolving Loan Commitment shall automatically
terminate and the unpaid balance of the principal of, and interest on all of the
outstanding Revolving Loans and any unpaid Standby Commitment Fees or
Commitment Fees and all other liabilities of Satellite Company accrued hereun-
der shall automatically become due and payable without any requirement of
notice. Except for the notice provided for in the immediately preceding
sentence, Satellite Company hereby expressly waives any presentment, demand,
protest, notice of protest or other notice of any kind.
SECTION 6.01. Failure to Pay.
--------------
(a) Failure by Satellite Company to make any payment of principal or
interest on the Revolving Loans when due, whether at maturity or at a date fixed
for prepayment or otherwise; provided, however, that no event of default shall
-------- -------
be deemed to occur upon a failure by Satellite Company to make an optional
prepayment under section 2.03(b); or
(b) Failure by Satellite Company to pay the Standby Commitment or the
Commitment Fee in full within thirty (30) days after the date such payment is
due.
-13-
<PAGE>
SECTION 6.02. Breach of Covenants. Failure by Satellite Company to
-------------------
perform or observe any of the agreements or covenants of Satellite Company set
forth in this Agreement (including, without limitation, any agreements or
covenants set forth in the Indentures and incorporated herein by reference) and
such default shall continue for 30 days or more after written notice to
Satellite Company, the trustees under the Indentures and the Administrative
Agent shall have been given by TCIC specifying such default and demanding that
it be remedied and stating that it is a "notice of default" hereunder.
SECTION 6.03. Breach of Debt Instrument. A default by Satellite
-------------------------
Company or any of its Significant Restricted Subsidiaries in the payment of,
principal of, or interest on any Indebtedness in excess of $15,000,000, or the
failure to observe or perform any other agreement or condition relating to any
such Indebtedness, or the occurrence or failure to occur of any other event or
condition, so that, as a result of such default, failure to observe or perform,
occurrence or failure to occur, such Indebtedness is accelerated or declared due
and payable prior to the date on which such Indebtedness would otherwise become
due and payable, which Indebtedness shall not have been repaid or such
acceleration rescinded within 20 days of such event, unless prior to the
exercise by TCIC of any of its remedies hereunder (including acceleration of the
maturity of the Revolving Loans): (i) such default, failure to observe or
perform, occurrence or failure to occur has been cured in full or
unconditionally waived with the result that the payment of such Indebtedness may
not thereafter be accelerated on the basis thereof, or (ii) such declaration of
acceleration has been rescinded or annulled on terms reasonably satisfactory to
TCIC, or (iii) Satellite Company or such Significant Restricted Subsidiary, as
the case may be, shall have contested such declaration of acceleration in good
faith and by appropriate proceedings and have obtained and thereafter maintained
the stay of such acceleration and all consequences thereof that would have a
material adverse effect on Satellite Company and its Significant Restricted
Subsidiaries (considered as a whole) or the rights of TCIC hereunder.
SECTION 6.04. Breach of Representation. Any representation or war-
------------------------
ranty made by Satellite Company to TCIC in this Agreement, or in connection with
the making of any Revolving Loan, or in any certificate or other document
furnished by Satellite Company at any time under or in connection with this
Agreement, shall prove to have been false in any material respect when made.
SECTION 6.05. Bankruptcy, Etc. Satellite Company shall make an as-
---------------
signment for the benefit of creditors, file a petition in bankruptcy, be
adjudicated insolvent or bankrupt, suffer an order for relief under any federal
bankruptcy law, petition or apply to any tribunal for the appointment of a
custodian, receiver or any trustee for it or a substantial part
-14-
<PAGE>
of its assets, or shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect; or if
there shall have been filed any such petition or application, or any such
proceeding shall have been commenced against it, which remains undismissed for
a period of sixty (60) days or more; or Satellite Company, by any act or
omission, shall indicate its consent to, approval of, or acquiescence in any
such petition, application or proceeding or the appointment of a custodian,
receiver or any trustee for it or any substantial part of any of its properties,
or shall suffer any custodianship, receivership or trusteeship to continue
undischarged for a period of sixty (60) days or more.
SECTION 6.06. Judgments, Etc. Any judgment (not subject to appeal)
--------------
against Satellite Company or any of its Significant Restricted Subsidiaries for
any amount in excess of $15,000,000 (net of amounts covered by insurance)shall
remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a
period of sixty (60) days or more after the date to appeal has expired.
ARTICLE VII.
SUBORDINATION
SECTION 7.01. Revolving Loans Subordinated to Bank Obligations.
------------------------------------------------
Satellite Company covenants and agrees, and each holder of the Notes by its
acceptance thereof likewise agrees, that the payment of the principal of and
interest on any Revolving Loan is subordinated, to the extent and in the manner
provided in Article Eight of the Indentures as in effect on the date of the
first issuance of notes under the Indentures, to the prior payment in full of
all Bank Obligations and agrees that the terms of subordination set forth in
Article Eight of the Indentures shall be incorporated by reference herein,
mutatis mutandis.
- ------- --------
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.01. Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of
-15-
<PAGE>
such which may be hereafter declared invalid, void or unenforceable. In the
event that any such term, provision, covenant or restriction is so held to be
invalid, void or unenforceable, the parties hereto shall use their best efforts
to find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision or restriction.
SECTION 8.02. Assignment. This Agreement shall not be assignable, in
----------
whole or in part, directly or indirectly, by operation of law or otherwise, by
Satellite Company without the prior written consent of TCIC, and any attempt by
Satellite Company to assign any rights or obligations arising under this
Agreement without such consent shall be void. TCIC may assign the Notes in
whole or in part; provided, however, TCIC may not assign the Notes in whole or
in part to an unaffiliated third-party of Tele-Communications, Inc. or TCIC
without the prior written consent of the Administrative Agent which consent
shall not be unreasonably withheld. TCIC may assign this Agreement with the
prior written consent of Satellite Company and the Administrative Agent, which
consents shall not be unreasonably with held. The provisions of this Agreement
shall be binding upon, inure to the benefit of, and be enforceable by TCIC and
Satellite Company and their respective successors (subject, as to Satellite
Company, to the first sentence above) and permitted assigns.
SECTION 8.03. Further Assurances. Subject to the provisions hereof,
------------------
each of TCIC and Satellite Company shall make, execute, acknowledge and deliver
such other instruments and documents, and take all such other actions as may be
reasonably required in order to effectuate the purposes of this Agreement and to
consummate the transactions contemplated hereby. Subject to the provisions
hereof, each of TCIC and Satellite Company shall, in connection with entering
into this Agreement, performing its obligations hereunder and taking any and all
actions relating thereto, comply with all applicable laws, regulations, orders
and decrees, obtain all required consents and approvals and make all required
filings with any governmental agency, other regulatory or administrative agency,
commission or similar authority and promptly provide the other with all such
information as the other may reasonably request in order to be able to comply
with the provisions of this sentence.
SECTION 8.04. Parties in Interest. Unless otherwise expressly
-------------------
provided with respect to the subordination of the Notes and except as provided
in Section 8.05, nothing in this Agreement expressed or implied is intended or
shall be construed to confer any right or benefit upon any person, firm or
corporation other than TCIC and Satellite Company and their respective
successors (subject, as to Satellite Company, to the first sentence of Section
8.02) and permitted assigns.
-16-
<PAGE>
SECTION 8.05. Waivers, Etc. No failure or delay on the part of
------------
TCIC in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement nor
consent to any departure by TCIC therefrom shall in any event be effective
unless the same shall be in writing, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Notwithstanding anything herein to the contrary, no amendment, modification or
waiver of any term or provision (including defined terms used therein) shall be
made to Section 2.01, 2.04, 2.07, 4.01, 5.02, Article VI, the definitions of
"GE-2 Satellite Event," "Note Offering Expenses," "Specified Use" or "PRIMESTAR
Letter of Credit," "Significant Restricted Subsidiary" or this Section 8.05
shall be made without the prior written consent of the trustees under the
Indentures acting with the requisite consent of the noteholders thereunder,
unless the GE-2 Acceptance (as defined in the Indentures) shall have occurred
(as certified to the trustees under the Indentures) or Satellite Company shall
have purchased and paid for all Senior Sub Discount Notes and Senior Sub-
ordinated Notes tendered pursuant to an Offer to Purchase made pursuant to
Section 4.19 of the Indentures.
SECTION 8.06. Setoff. All payments to be made by Satellite
------
Company under this Agreement shall be made without setoff, counterclaim or
withholding, all of which are expressly waived.
SECTION 8.07. Confidentiality. Subject to any contrary
---------------
requirement of law and the right of each party to enforce its rights hereunder
in any legal action, each party shall keep strictly confidential and shall cause
its employees and agents to keep strictly confidential, any information which
it or any of its agents or employees may acquire pursuant to, or in the course
of performing its obligations under, any provision of this Agreement; provided,
--------
however, that such obligation to maintain confidentiality shall not apply to
- -------
information which (x) at the time of disclosure was in the public domain not as
a result of acts by the receiving party or (y) was in the possession of the
receiving party at the time of disclosure.
SECTION 8.08. Entire Agreement. This Agreement (including the
----------------
Exhibit appended hereto) and the Notes contain the entire understanding of the
parties with respect to the transactions contemplated hereby.
-17-
<PAGE>
SECTION 8.09. Headings. Descriptive headings are for convenience
--------
only and shall not control or affect the meaning or construction of any
provision of this Agreement.
SECTION 8.10. Counterparts. For the convenience of the parties,
------------
any number of counterparts of this Agreement may be executed by the parties
hereto, and each such executed counterpart shall be, and shall be deemed to be,
an original instrument.
SECTION 8.11. Notices. All notices and other communications
-------
provided for herein or made hereunder shall be in writing and shall be hand
delivered, telecopied or mailed to the intended recipient at the telephone
number or address specified below:
Satellite Company: TCI Satellite Entertainment, Inc.
8085 S. Chester Street, Suite 300 Englewood,
Colorado 80112
Attn: Chief Financial Officer
Facsimile: (303) 712-4973
With a copy similarly addressed: Attention: Legal Department
TCIC: TCI Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attn: Treasurer
Facsimile: (303) 488-3200
With a copy similarly addressed: Attention: Legal Department
-18-
<PAGE>
Administrative The Bank of Nova Scotia
Agent: One Liberty Plaza
New York, New York 10006
Attention: Margot C. Bright
Facsimile: (212) 225-5090
With a copy similarly addressed:
Trustees: The Bank of New York
101 Barclay Street
Floor 21W
New York, New York 10286
Attention: Trust Administration
Facsimile: (212) 815-5195
or to such other telephone number or address as shall be designated by such
party in a notice to the other party. All notices and other communications
hereunder shall be deemed delivered and received: (i) in the case of a
telecopy, when transmitted by telecopier, answer back received, (ii) in the
case of personal delivery, when delivered, and (iii) in the case of a mailing,
three Business Days after deposited in the mails (registered or certified mail,
return receipt requested, postage prepaid), in each case given or addressed as
aforesaid. Telephonic notice may be given, provided it is promptly confirmed by
the sender by telecopy as aforesaid. Copies of all notices delivered hereunder
also shall be sent to the Administrative Agent and the trustees for the
Indentures at the addresses set forth above prior to (i) with respect to the
Administrative Agent, the Satellite Event Date, and (ii) with respect to the
trustees, the first to occur of (A) the date on which the GE-2 Acceptance (as
defined in the Indentures) has occurred, or (B) the date that the Satellite
Company shall have purchased and paid for the Senior Sub-Discount Notes and
Senior Subordinated Notes tendered pursuant to an Offer to Purchase made
pursuant to Section 4.19 of the Indentures.
SECTION 8.12. Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Colorado
applicable to contracts made and to be performed therein.
[Signature Page Follows]
-19-
<PAGE>
-20-
<PAGE>
IN WITNESS WHEREOF, TCIC and Satellite Company have caused this
Amended and Restated Credit Agreement to be duly executed by their respective
officers, each of whom is duly authorized, all as of the day and year first
above written.
TCI COMMUNICATIONS, INC.
By:______________________________
Title:
TCI SATELLITE ENTERTAINMENT, INC.
By:______________________________
Title:
<PAGE>
EXHIBIT A
FORM OF REVOLVING LOAN NOTE
---------------------------
$100,000,000 Englewood, Colorado
February 19, 1997
FOR VALUE RECEIVED, effective as of the date first above written, the
undersigned, TCI SATELLITE ENTERTAINMENT, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of TCI COMMUNICATIONS, INC., a
Delaware corporation, or assigns ("Lender"), the lesser of the principal sum of
ONE HUNDRED MILLION DOLLARS ($100,000,000) and the aggregate unpaid principal
amount of the outstanding Revolving Loans to the Borrower from the Lender
pursuant to the Amended and Restated Credit Agreement, dated as of February 19,
1997, by and between the Borrower and the Lender (as the same may be amended or
otherwise modified from time to time, the "Agreement"), in lawful money of the
United States of America, in immediately available funds, and to pay interest
from the date first above specified on the principal amount hereof from time to
time outstanding, in like funds, at said office, at a rate or rates per annum
and payable on the dates determined pursuant to the Agreement.
The Borrower promises to pay interest, on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from the due
date at a rate or rates determined as set forth in the Agreement.
The Borrower hereby waives diligence, presentment, demand, protest and
notice (except for the notice required by section 6.01 of the Agreement) of any
kind whatsoever. The nonexercise by the holder of any of its rights hereunder
in any particular instance shall not constitute a waiver thereof in that or any
subsequent instance.
All borrowings evidenced by this Note and all payments and prepayments
of the principal hereof and interest hereon and the respective dates thereof
shall be endorsed by the holder hereof on the schedule attached hereto and made
a part hereof, or otherwise recorded by such holder in its internal records;
provided, however, that the failure of the
- ------- -------
-1-
<PAGE>
holder hereof to make such a notation or any error in such a notation shall not
affect the obligations of the Borrower under this Note.
In the event of any action at law or suit in equity with respect to
this Note, the Borrower, in addition to all other sums which it may be required
to pay hereunder, will pay a reasonable sum for attorneys' fees incurred by the
holder hereof in connection with such action or suit and all other costs of
collection.
This Note is one of the Notes referred to in the Agreement and is
entitled to the benefits, and is subject to the terms, set forth therein, which,
among other things, contains provisions for the acceleration of the maturity
hereof upon the happening of certain events, for optional and mandatory
prepayment of the principal hereof prior to the maturity hereof and for the
amendment or waiver of certain provisions of the Agreement, all upon the terms
and conditions therein specified. This Note is subordinated to the Bank
Obligations as provided in Article VII of the Agreement. This Note shall be
construed in accordance with and governed by the laws of the State of Colorado
and any applicable laws of the United States of America.
TCI SATELLITE ENTERTAINMENT, INC.
By:________________________________
Title:_____________________________
-2-
<PAGE>
SCHEDULE
LOANS AND PAYMENTS
Payments
-------------------
Unpaid Name of
Principal Person
Amount and Balance Making
Date Type of Loan Principal Interest of Note Notation
- ------ ------------ --------- -------- --------- --------
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
-3-
<PAGE>
Payments
-------------------
Unpaid Name of
Principal Person
Amount and Balance Making
Date Type of Loan Principal Interest of Note Notation
- ------ ------------ --------- -------- --------- --------
______________________________________________________________
______________________________________________________________
<PAGE>
EXHIBIT 10.37
SHARE PURCHASE AGREEMENT
Share Purchase Agreement (this "Agreement"), dated as of December 4,
1996, by and between Tele-Communications, Inc., a Delaware corporation ("TCI"),
and TCI Satellite Entertainment, Inc., a Delaware corporation ("TCISE").
RECITALS
A. TCI owns all the issued and outstanding capital stock of TCISE
("TCISE Stock"). TCI intends to distribute (the "Distribution") the TCISE 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 (together, the "TCI
Group Stock"). As a result of the Distribution, TCISE will cease to be a
subsidiary of TCI, and TCI and TCISE will be separate public companies.
B. In connection with the Distribution, TCI has granted to certain of
its employees and directors options ("TCI Options") to purchase shares of Series
A Common Stock, par value $1.00 per share, of TCISE ("TCISE Series A Stock") and
TCISE has granted to certain of its employees and directors options ("TCISE
Options") to purchase shares of Tele-Communications, Inc. Series A TCI Group
Common Stock, par value $1.00 per share, of TCI ("TCI Series A Stock"). The TCI
Options are sole and separate obligations of TCI and the TCISE Options are
sole and separate obligations of TCISE.
C. This Agreement sets forth the terms and conditions on which,
from time to time, (i) TCI shall have the right to purchase from TCISE and
TCISE shall have the obligation to sell to TCI shares of TCISE Series A Stock in
such amounts as may be required from time to time to satisfy TCI's obligations
following the Distribution under the TCI Options
<PAGE>
and (ii) TCISE shall have the right to purchase from TCI and TCI shall have the
obligation to sell to TCISE shares of TCI Series A Stock in such amounts as
required to satisfy TCISE's obligations under the TCISE 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 as
follows:
Section 1 Call Rights.
Immediately upon notice to TCI or TCISE (a "Purchaser"), as
applicable, by a securityholder of such Purchaser that such securityholder is
exercising a TCI Option or TCISE Option, as applicable (an "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 Exercise Notice, to require the other party hereto (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 Series A Stock or TCI
Series A Stock, as applicable, that are issuable upon such exercise, as
indicated in such Exercise Notice.
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 Series A Stock or TCISE Series A 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 the Exercise Notice to which such
Call Notice relates.
(b) Purchase Price. The "Purchase Price" of a share of TCI Series A
--------------
Stock or TCISE Series A 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
<PAGE>
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 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 purchased by it
---------
hereunder to be issued in either the Purchaser's name or in the name of its
designee. If the Purchaser requests any shares to be issued in the name of the
Purchaser's designee, such designee shall be the securityholder named in the
Exercise Notice(s) to which the Call Notice relating to such shares relates.
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 (x) as required by the exercise of TCI Options or
TCISE Options, as applicable; or (y) as otherwise mutually agreed upon by TCI
and TCISE.
(b) Issuers. Each Issuer represents and warrants that:
-------
(i) all the shares of TCI Series A Stock or TCISE Series A
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 the shares of TCI Series A Stock or TCISE Series A
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 of the
Securities and Exchange Commission under the Securities Act.
<PAGE>
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 permitted 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:
(i) If to TCI:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111-3000
Facsimile: (303) 488-3245
Attention: General Counsel
(ii) If to TCISE:
TCI Satellite Entertainment, Inc.
8085 South Chester #300
Englewood, CO 80112
Facsimile: (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.
<PAGE>
(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement
----------------------------------------------
(i) constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, between TCI and TCISE with respect to the
subject matter of this Agreement, and (ii) is not intended to confer any rights
or remedies upon any person other than the parties hereto and their successors
and permitted assigns.
Dated: December 4, 1996
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
-------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
-------------------------------
Name: Gary S. Howard
Title: President
<PAGE>
EXHIBIT 10.38
-------------
OPTION AGREEMENT
Option Agreement (this "Agreement"), dated as of December 4, 1996, by
and between Tele-Communications, Inc., a Delaware corporation ("TCI"), and TCI
Satellite Entertainment, Inc., a Delaware corporation ("TCISE").
RECITALS
A. TCI owns all the issued and outstanding capital stock of TCISE
("TCISE Stock"). TCI intends to distribute (the "Distribution") the TCISE Stock
to the holders of its Tele-Communications, Inc. Series A TCI Group Common Stock
("TCI Series A Stock") and Tele-Communications Inc. Series B TCI Group Common
Stock. As a result of the Distribution, TCISE will cease to be a subsidiary of
TCI, and TCI and TCISE will be separate public companies.
B. As a result of the Distribution, the conversion rights of the TCI
Series D Convertible Preferred Stock ("TCI Preferred Stock") will be adjusted so
that holders of TCI Preferred Stock will receive on conversion, in addition to
shares of TCI Series A Stock, the same number of shares of Series A Common
Stock, par value $1.00 per share, of TCISE ("TCISE Series A Stock") that they
would have received had they converted their TCI Preferred Stock to TCI Series A
Stock (and Tele-Communications, Inc. Series A Liberty Media Group Common Stock)
prior to the Distribution.
D. As a result of the Distribution, either (x) the conversion rate
for the Convertible Notes due December 12, 2021 of TCI UA, Inc. ("Convertible
Notes") will be adjusted so that the conversion price will be reduced (and the
number of shares of TCI Series A Stock issuable upon conversion increased) or
(y) the conversion rights of the Convertible Notes will be adjusted so that
holders of Convertible Notes will be entitled to receive on conversion shares of
TCISE Series A Stock in addition to shares of TCI Series A Stock.
E. This Agreement sets forth the terms and conditions on which, from
time to time, TCI shall have the right to purchase from TCISE and TCISE shall
have the obligation to sell to TCI up to 4,761,599 shares of TCISE Series A
Stock in such amounts as may be required from time to time to satisfy TCI's
obligations following the Distribution under the TCI Preferred Stock and the
Convertible Notes.
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 as
follows:
<PAGE>
Section 1 Option Grant.
TCISE hereby grants to TCI an option to purchase, from time to time,
in accordance with the terms and conditions set forth herein, up to 4,761,599
shares of TCISE Series A Stock at a purchase price of $1.00 per share, in such
amounts as may be required to satisfy TCI's obligations following the
Distribution under the TCI Preferred Stock and the Convertible Notes. Such
option may be exercised by TCI, in whole or in part, at any time, and from time
to time.
Section 2 Call Rights.
Immediately upon notice to TCI by a securityholder of TCI that such
securityholder is exercising a conversion privilege of the TCI Preferred Stock
or the Convertible Notes (an "Exercise Notice"), TCI shall have the right,
exercisable upon written notice (a "Call Notice") thereof, given at any time
within ten business days after receipt of such Exercise Notice, to require TCISE
to sell to TCI, at a purchase price of $1.00 per share, that number of shares of
TCISE Series A Stock, as are issuable upon such exercise, as indicated in such
Exercise Notice.
Section 3 Call Notices.
(a) Notice. A Call Notice shall state the number of shares of TCISE
------
Series A Stock to be purchased pursuant to Section 2 above, the date upon which
the sale of such shares shall take place (which shall be at least three and not
more than five business days after the date of such Call Notice) and the name or
names of the persons to whom such shares are to be issued. TCI shall attach to
each Call Notice a copy of the Exercise Notice to which such Call Notice
relates.
(b) Designees. TCI may require the shares purchased by it hereunder
---------
to be issued in either TCI's name or in the name of its designee. If TCI
requests any shares to be issued in the name of TCI's designee, such designee
shall be the securityholder named in the Exercise Notice(s) to which the Call
Notice relating to such shares relates.
Section 4 Representations and Warranties.
(a) TCI. TCI 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 conversion of any shares of TCI Preferred Stock or of
any Convertible Notes.
(b) TCISE. TCISE represents and warrants that:
-----
(i) all the shares of TCISE Series A Stock sold pursuant to this
Agreement shall be duly and validly authorized by TCISE and, upon
the issuance and delivery of such shares against payment therefor by
TCI, such shares will be duly and validly issued and fully paid and
non-assessable; and
<PAGE>
(ii) all the shares of TCISE Series A Stock 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 of the Securities and Exchange Commission under the
Securities Act.
Section 5 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 5(a),
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted 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:
(i) If to TCI:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111-3000
Facsimile: (303) 488-3245
Attention: General Counsel
<PAGE>
(ii) If to TCISE:
TCI Satellite Entertainment, Inc.
8085 South Chester #300
Englewood, CO 80112
Facsimile: (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.
(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement
----------------------------------------------
(i) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between TCI and TCISE with respect to the
subject matter of this Agreement, and (ii) is not intended to confer any rights
or remedies upon any person other than the parties hereto and their successors
and permitted assigns.
Dated: Dece,ber 4, 1996
TELE-COMMUNICATIONS, INC.
By:/s/ Stephen M. Brett
-------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
TCI SATELLITE ENTERTAINMENT, INC.
By:/s/ Gary S. Howard
-------------------------------
Name: /s/ Gary S. Howard
Title: President
<PAGE>
EXHIBIT 21.
LIST OF SUBSIDIARIES OF THE COMPANY
1. TCISE Partner 1, Inc.
2. TCISE Partner 2, Inc.
3. Tempo Satellite, Inc.
4. TCI Satellite MDU, Inc.
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors and Stockholders
TCI Satellite Entertainment, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 333-18165 and 333-18167) on Form S-8 of TCI Satellite Entertainment, Inc.
(as defined in note 1 to the financial statements) of our reports dated March
25, 1997, relating to the consolidated balance sheets of TCI Satellite
Entertainment, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related combined statements of operations, equity, and cash flows for each of
the years in the three-year period ended December 31, 1996, which reports appear
in the December 31, 1996 annual report on Form 10-K of TCI Satellite
Entertainment, Inc.
KPMG Peat Marwick LLP
Denver, Colorado
March 25, 1997
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements (Nos. 333-18165 and 333-18167) on Form S-8 of TCI Satellite
Entertainment, Inc. of our report dated February 14, 1997, except as to Note 13,
which is as of March 9, 1997, relating to the financial statements of Primestar
Partners L.P., which report appears in the December 31, 1996 Annual Report on
Form 10-K of TCI Satellite Entertainment, Inc.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
March 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,560
<SECURITIES> 0
<RECEIVABLES> 24,731
<ALLOWANCES> 4,666
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,256,819
<DEPRECIATION> 149,165
<TOTAL-ASSETS> 1,107,654
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 66,413
<OTHER-SE> 305,945
<TOTAL-LIABILITY-AND-EQUITY> 1,180,273
<SALES> 0
<TOTAL-REVENUES> 417,461
<CGS> 0
<TOTAL-COSTS> 217,270
<OTHER-EXPENSES> 191,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (185,941)
<INCOME-TAX> 45,937
<INCOME-CONTINUING> (140,004)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140,004)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
