<PAGE>
RULE NO. 424(b)(3)
REGISTRATION NO. 333-25001
PROSPECTUS
[LOGO OF TCI SATELLITE ENTERTAINMENT, INC.]
OFFER BY TCI SATELLITE ENTERTAINMENT, INC. TO EXCHANGE (I) $1,000 PRINCIPAL
AMOUNT OF 10 7/8% SENIOR SUBORDINATED NOTES DUE 2007 FOR EACH $1,000 PRINCIPAL
AMOUNT OF ITS OUTSTANDING 10 7/8% SENIOR SUBORDINATED NOTES DUE 2007, AND (II)
$1,000 PRINCIPAL AMOUNT AT MATURITY OF 12 1/4% SENIOR SUBORDINATED DISCOUNT
NOTES DUE 2007 FOR EACH $1,000 PRINCIPAL AMOUNT AT MATURITY OF ITS OUTSTANDING
12 1/4% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH 30,
1998, UNLESS EXTENDED.
TCI Satellite Entertainment, Inc., a Delaware corporation ("TSAT"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), (i) to exchange up to an aggregate principal amount
of $200,000,000 of its 10 7/8% Senior Subordinated Notes due February 15, 2007
(the "Senior Subordinated Exchange Notes") for an equal principal amount of
its outstanding 10 7/8% Senior Subordinated Notes due February 15, 2007 (the
"Senior Subordinated Notes"), in integral multiples of $1,000, and (ii) to
exchange up to an aggregate principal amount at maturity of $275,000,000 of
its 12 1/4% Senior Subordinated Discount Notes due February 15, 2007 (the
"Senior Subordinated Discount Exchange Notes," and, together with the Senior
Subordinated Exchange Notes, the "Exchange Notes") for an equal principal
amount at maturity of its outstanding 12 1/4% Senior Subordinated Discount
Notes due February 15, 2007 (the "Senior Subordinated Discount Notes," and,
together with the Senior Subordinated Notes, the "Notes"), in integral
multiples of $1,000. The Exchange Notes will be unsecured obligations of TSAT
and will rank junior to, and be subordinated in right of payment to, all
existing and future Senior Indebtedness (as defined) of TSAT. As of December
31, 1997, TSAT had approximately $79,949,000 of Senior Indebtedness
outstanding. The forms and terms of the Exchange Notes (including principal
amount, interest rate, maturity and redemption rights) are substantially
identical to those of the Notes for which they may be exchanged pursuant to
the Exchange Offer, except that (i) the offering and sale of the Exchange
Notes has been registered under the Securities Act of 1933, as amended (the
"Securities Act") and, therefore, the Exchange Notes shall not bear certain
legends restricting the transfer thereof, and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Notes under
Registration Rights Agreements of TSAT dated as of February 20, 1997 (the
"Registration Rights Agreements"). The Notes have been issued under Indentures
dated as of February 20, 1997 (each, an "Indenture," and, together, the
"Indentures"), between TSAT and The Bank of New York, as trustee (the
"Trustee"), which Indentures have been qualified under the Trust Indenture Act
of 1939 ("TIA"). Each tranche of the Exchange Notes will be issued as a
separate series of notes pursuant to the same Indenture governing the
corresponding tranche of Notes for which such tranche of Exchange Notes will
be exchanged. Holders of the Exchange Notes shall be entitled to substantially
identical benefits under the Indentures as are holders of the Notes (other
than such changes as are necessary to comply with any requirements of the
Securities and Exchange Commission ("SEC") to effect or maintain the
qualification of each Indenture under the TIA). See "Description of the
Exchange Notes." TSAT will receive no proceeds from the Exchange Offer;
however, pursuant to the Registration Rights Agreements, TSAT will bear
certain expenses of the Exchange Offer.
----------------
SEE "RISK FACTORS," COMMENCING ON PAGE 23, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE
OFFER.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is February 27, 1998.
<PAGE>
The Restructuring Transaction. The Notes are currently obligations of TSAT,
and the Exchange Notes, when issued, will initially be obligations of TSAT.
However, on February 6, 1998, TSAT and certain other parties entered into
definitive agreements with respect to a proposed business combination,
pursuant to which, among other things, (i) TSAT shall transfer and contribute
substantially all of its assets and liabilities to PRIMESTAR, Inc. ("New
PRIMESTAR"), a newly formed corporation and wholly owned subsidiary of TSAT,
and (ii) TSAT's existing partners in PRIMESTAR Partners, L.P. (the
"Partnership") shall concurrently transfer and contribute to New PRIMESTAR
their respective interests in the PRIMESTAR(R) digital satellite business
(collectively, the "Restructuring Transaction"). Accordingly, in connection
with the Restructuring Transaction, the obligations of TSAT under all Notes
and/or Exchange Notes outstanding at the consummation of the Restructuring
Transaction shall be assumed by New PRIMESTAR, which assumption shall be
evidenced by New PRIMESTAR's execution of supplemental indentures governing
such notes. As used herein, the term "Borrower" means (i) TSAT, at any time
prior to the consummation of the Restructuring Transaction and the effective
assumption by New PRIMESTAR of all obligations of TSAT under the Notes and the
Indentures (the "Assumption") and (ii) New PRIMESTAR, from and after the
consummation of the Restructuring Transaction and the effectiveness of the
Assumption.
The Indentures provide that TSAT shall not consolidate with or merge with or
into any other entity, and TSAT shall not sell, transfer or otherwise dispose
of all or substantially all of its properties and assets to any entity in a
single transaction or series of related transactions, unless certain
conditions set forth in the Indentures are satisfied, including the
requirement that the surviving entity in any such merger or the transferee
with respect to any such asset transfer (in either case, the "Surviving
Person") must expressly assume, by execution of supplemental indentures, the
obligations to make due and punctual payment of the principal of, premium, if
any, and interest on all the Notes (and/or the Exchange Notes, as applicable)
and to perform and observe every covenant of the Indentures and the
Registration Rights Agreements to be performed or observed on the part of
TSAT. Furthermore, the Indentures provide that upon the satisfaction of such
conditions, the Surviving Person shall succeed to, and be substituted for, and
may exercise every right and power of, TSAT and TSAT shall be discharged from
its obligations under the Indentures and the Notes. The terms of the proposed
Restructuring Transaction satisfy the conditions set forth in the Indentures,
and accordingly, upon consummation of the Restructuring Transaction and the
execution and delivery by New PRIMESTAR of supplemental indentures expressly
assuming all of TSAT's obligations under the Indentures, New PRIMESTAR shall
succeed to, and be substituted for, and may exercise every right and power of,
TSAT and TSAT shall be discharged from its obligations under the Indentures
and the Notes.
As a result of the Restructuring Transaction, New PRIMESTAR will own the
entire PRIMESTAR(R) digital satellite business and TSAT and its former
partners in that business (or their respective affiliates) will, in the
aggregate, own all the outstanding capital stock of New PRIMESTAR. The
Restructuring Transaction comprises the first step in TSAT's proposed two-step
plan (the "Roll-up Plan"). The Roll-up Plan provides that, subsequent to the
consummation of the Restructuring Transaction, TSAT shall merge with and into
New PRIMESTAR, with New PRIMESTAR as the surviving entity (the "TSAT Merger"),
pursuant to an Agreement and Plan of Merger (the "TSAT Merger Agreement")
dated as of February 6, 1998 between TSAT and New PRIMESTAR. Consummation of
the Restructuring Transaction and the TSAT Merger are subject to approval of
the stockholders of TSAT. TSAT has called a special meeting of its
stockholders, to be held on March 6, 1998, to consider and vote upon the
Restructuring Transaction and the TSAT Merger. In addition, the TSAT Merger is
subject to regulatory approval and other closing conditions set forth in the
TSAT Merger Agreement; accordingly, although, the Roll-up Plan envisions that
the TSAT Merger will be consummated after the Restructuring Transaction, there
can be no assurance that the TSAT Merger will be consummated, even if the
Restructuring Transaction is consummated.
This Prospectus includes or otherwise incorporates by reference certain
financial and other information, including historical and pro forma financial
information, relating to the proposed Roll-up Plan. Holders of the Notes are
urged to carefully review such historical and pro forma financial information,
along with all other financial and other information, contained in or
otherwise incorporated by reference into this Prospectus, prior to tendering
their Notes in the Exchange Offer.
ii
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The Exchange Offer. The Notes were originally offered and sold by TSAT (the
"Notes Offering") on February 20, 1997, in transactions not registered under
the Securities Act in reliance upon the exemption provided in Section 4(2) of
the Securities Act. The Notes were subsequently placed with qualified
institutional buyers, as defined in Rule 144A under the Securities Act, and
institutional "accredited investors," as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act, in reliance upon Rule 144A under the
Securities Act. Accordingly, the Notes may not be reoffered, resold or
otherwise transferred in the United States unless so registered or unless an
applicable exemption from the registration requirements of the Securities Act
is available. The Exchange Notes are being offered under the Exchange Offer in
order to satisfy certain obligations of TSAT under the Registration Rights
Agreements. See "The Exchange Offer."
TSAT will accept for exchange pursuant to the Exchange Offer any and all
validly tendered Notes on or prior to 5:00 p.m., New York City time, on March
30, 1998, unless extended (the "Expiration Date"). Tenders of Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date; otherwise such tenders are irrevocable. The Bank of New York
will act as exchange agent (in such capacity, the "Exchange Agent") in
connection with the Exchange Offer. The Exchange Offer is not conditioned upon
any minimum principal amount of Notes being tendered for exchange, but is
otherwise subject to certain customary conditions.
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties, TSAT believes that Exchange Notes issued
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by a holder who is not an affiliate of TSAT without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that the holder is acquiring the Exchange Notes in its ordinary
course of business and has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. Persons wishing to exchange Notes in the Exchange Offer
must represent to TSAT that such conditions have been met.
Broker-dealers who have acquired Notes directly from TSAT are not permitted
to exchange such Notes in the Exchange Offer.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Notes where such Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. TSAT has agreed that, for a period of 180 days after the date of
this Prospectus, it will use its commercially reasonably best efforts to make
this Prospectus, as so amended or supplemented, available to any broker-dealer
for use in connection with any such resale.
TSAT does not intend to list the Exchange Notes on any national securities
exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. As a result,
TSAT cannot determine whether an active public market will develop for the
Exchange Notes. TSAT has common stock listed on the Nasdaq National Market
tier of the Nasdaq Stock Market (the "Nasdaq National Market") under the
symbols "TSATA" and "TSATB." It is expected that, if the TSAT Merger is
consummated, shares of New PRIMESTAR Class A Common Stock and New PRIMESTAR
Class B Common Stock will be authorized for listing, subject to official
notice of issuance, on the Nasdaq National Market.
Any Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that any Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Notes could be adversely
affected. Following consummation of the Exchange Offer, the holders of Notes
will continue to be subject to the existing restrictions upon transfer thereof
and the Borrower will have no further obligation to such holders to provide
for the registration under the Securities Act of the Notes held by them. See
"The Exchange Offer--Consequences of Failure to Exchange."
iii
<PAGE>
TSAT expects that the Exchange Notes issued pursuant to the Exchange Offer
generally will be issued in the form of Global Exchange Notes (as defined
herein), which will be deposited with, or on behalf of, The Depository Trust
Company (the "Depository") and registered in its name or in the name of Cede &
Co., its nominee. Beneficial interests in the Global Exchange Notes
representing the Exchange Notes will be shown on, and transfers thereof will
be effected through, records maintained by the Depository and its
participants. Notwithstanding the foregoing, Notes held in certificated form
will be exchanged solely for Exchange Notes in certificated form. After the
initial issuance of the Global Exchange Notes, Exchange Notes in certificated
form will be issued in exchange for the Global Exchange Notes on the terms set
forth in the Indentures. See "Description of the Exchange Notes--Form,
Denomination and Book-Entry Procedures."
----------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE BORROWER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT
THERE HAS BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF TSAT SINCE THE DATE HEREOF.
UNTIL MAY 28, 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
FORWARD LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "PROSPECTUS
SUMMARY," "RISK FACTORS," and elsewhere, including those statements that are
incorporated herein by reference, 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 Borrower, 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, new product launches and development
plans; future financial performance, including availability, terms and
deployment of capital; the ability of vendors to deliver required equipment,
software and services; availability of qualified personnel; changes in, or the
failure or inability to comply with, government regulations, including,
without limitation, regulations of the Federal Communications Commission (the
"FCC"), and adverse outcomes from regulatory proceedings; changes in the
nature of key strategic relationships with partners and joint venturers;
competitor responses to the Borrower's products and services, and the overall
market acceptance of such products and services, including acceptance of the
pricing of such products and services; possible interference by satellites in
adjacent orbital positions with the satellite currently being used for the
Borrower's existing medium power satellite television business; and other
factors referenced in this Prospectus. See "Risk Factors."
These forward-looking statements (and such risks, uncertainties and other
factors) speak only as of the date of this Prospectus. The Borrower 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 Borrower's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
iv
<PAGE>
AVAILABLE INFORMATION
TSAT is subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith,
files reports and other information with the SEC. Such reports and other
information filed by TSAT can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained by mail at prescribed rates by writing to the
Public Reference Section of the SEC, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The SEC maintains a Web site on the
Internet that contains reports and other information regarding registrants
(including TSAT) that file electronically with the SEC. The address of the
SEC's Web site is http://www.sec.gov. In addition, materials filed by TSAT
should be available for inspection at the offices of the National Association
of Securities Dealers, Inc., Reports Section, 1735 K Street, N.W., Washington,
D.C. 20006.
TSAT has filed with the SEC a Registration Statement on Form S-4 (together
with all amendments, exhibits and schedules, referred to as the "Registration
Statement") under the Securities Act for the registration of the Exchange
Notes offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are contained in exhibits
and schedules to the Registration Statement as permitted by the rules and
regulations of the SEC. For further information with respect to TSAT or the
Exchange Notes offered hereby, reference is made to the Registration
Statement, including any amendments, schedules and exhibits filed as a part
thereof, which is available for public inspection as indicated above.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the SEC as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
So long as TSAT is subject to the periodic reporting requirements of the
Exchange Act, TSAT is required to furnish the information required to be filed
with the SEC to the Trustee and the holders of the Notes and the Exchange
Notes. TSAT has agreed (and, in connection with the consummation of the
Restructuring Transaction and the effectiveness of the Assumption, New
PRIMESTAR will agree) that, even if it is entitled under the Exchange Act not
to furnish such information to the SEC, it will nonetheless continue to
furnish information that would be required to be furnished by TSAT by Section
13 of the Exchange Act to the Trustee and the holders of the Notes and
Exchange Notes as if it were subject to such periodic reporting requirements.
In addition, the Borrower has agreed that, for so long as any of the Notes
remain outstanding, the Borrower will make available to any prospective
purchaser of the Notes or beneficial owner of the Notes in connection with any
sale thereof the information required by Rule 144A(d)(4) under the Securities
Act, until such time as the Borrower has either exchanged the Notes for the
Exchange Notes or until such time as the holders thereof have disposed of such
Notes pursuant to an effective registration statement filed by the Borrower.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
TSAT hereby incorporates in this Prospectus by reference: (i) TSAT's Annual
Report of Form 10-K for the year ended December 31, 1996, (ii) TSAT's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997, June 30,
1997 and September 30, 1997 and (iii) TSAT's Current Reports on Form 8-K dated
July 1, 1997 and February 11, 1998 (filed with the SEC on February 12, 1998).
All documents filed by TSAT with the SEC pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the offering made hereby shall be deemed to be incorporated
herein by reference and to be a part hereof from the respective dates of the
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed
v
<PAGE>
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN CERTAIN EXHIBITS TO
SUCH DOCUMENTS) ARE AVAILABLE FROM TSAT, WITHOUT CHARGE, UPON REQUEST
ADDRESSED TO TCI SATELLITE ENTERTAINMENT, INC., 8085 SOUTH CHESTER, SUITE 300,
ENGLEWOOD, COLORADO 80122, TELEPHONE NUMBER (303) 712-4600. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AT LEAST FIVE
BUSINESS DAYS PRIOR TO THE EXPIRATION DATE.
vi
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
110 Slot................................................................... 33
accredited investors....................................................... 5
Accreted Value............................................................. 75
Acquired Person............................................................ 75
Acquisition................................................................ 75
Additional Interest........................................................ 75
adjusted issue price....................................................... 98
affiliate.................................................................. 75
Affiliate Transaction...................................................... 69
Applicable Period.......................................................... 93
ASkyB...................................................................... 12
ASkyB Indemnification Agreement............................................ 35
ASkyB Transaction.......................................................... 12
ASkyB Transferors.......................................................... 13
Asset Sale................................................................. 76
Asset Transfers............................................................ 43
Asset Transfer Agreement................................................... 43
Assignment Application..................................................... 32
Assumption................................................................. ii
Bank Credit Facility....................................................... 76
Bankruptcy Code............................................................ 28
Basic Documents............................................................ 76
Book-Entry Transfer Facility............................................... 47
Borrower................................................................... ii
C-Band Dividend............................................................ 77
C-Band Dividends........................................................... 59
C-Band Entity.............................................................. 59
C-Band Investment.......................................................... 59
Capital Lease Obligation................................................... 77
CARP....................................................................... 33
Cash Equivalents........................................................... 77
Cash Interest Election..................................................... 53
Cash Interest Election Date................................................ 53
Certificated Notes......................................................... 91
Change of Control.......................................................... 77
Change of Control Date..................................................... 78
Churn...................................................................... 23
Closing Date............................................................... 96
Code....................................................................... 28
Comcast.................................................................... 3
Comcast DBS................................................................ 3
Comcast Satellite.......................................................... 4
Comcast SCI................................................................ 4
Consolidated Income Tax Expense............................................ 78
Consolidated Interest Expense.............................................. 78
Consolidated Net Income.................................................... 78
Consolidated Operating Cash Flow........................................... 79
Continental................................................................ 3
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cox....................................................................... 3
Cox Satellite............................................................. 14
Cox SI.................................................................... 3
Cumulative Operating Cash Flow............................................ 79
DBS....................................................................... 1
Debt to Operating Cash Flow Ratio......................................... 79
Default................................................................... 80
Depositor................................................................. 47
Depository................................................................ iv
Depository's Indirect Participants........................................ 91
Depository's Participants................................................. 91
Designated Senior Indebtedness............................................ 80
Designation............................................................... 64
Designation Amount........................................................ 64
Determination Date........................................................ 79
Digital Satellite Business................................................ 1
DirectSat................................................................. 34
DirecTv................................................................... 30
dishes.................................................................... 1
Disposition............................................................... 80
Disqualified Equity Interest.............................................. 80
Distribution.............................................................. 80
Distributors.............................................................. 3
Divestiture Requirement................................................... 33
EchoStar.................................................................. 35
Effectiveness Date........................................................ 95
Effectiveness Period...................................................... 95
eligible guarantor institution............................................ 47
Eligible Institution...................................................... 80
Equity Interest........................................................... 80
Events of Default......................................................... 70
Exchange Act.............................................................. v
Exchange Agent............................................................ iii
Exchange Notes............................................................ i
Exchange Offer............................................................ i
Exchange Securities....................................................... 86
Existing Indebtedness..................................................... 80
Expiration Date........................................................... iii
Fair Market Value......................................................... 81
FCC....................................................................... iv
FCC Permit................................................................ 2
Filing Date............................................................... 96
forward-looking statements................................................ iv
Fulfillment Agreement..................................................... 81
GAAP...................................................................... 81
GE........................................................................ 2
GE Americom............................................................... 3
GE-2...................................................................... 81
GE-2 Agreement............................................................ 81
GEAS...................................................................... 2
Global Notes.............................................................. 91
</TABLE>
viii
<PAGE>
<TABLE>
<S> <C>
Global Notes Holder......................................................... 91
Government Securities....................................................... 81
guarantee................................................................... 81
High Power Satellite Transmission Business.................................. 81
HSDs........................................................................ 1
Incur....................................................................... 82
Incurred.................................................................... 82
Incurring................................................................... 82
Indebtedness................................................................ 82
Indemnification Agreements.................................................. 82
Indenture................................................................... i
Indentures.................................................................. i
Independent Financial Advisor............................................... 82
Indirect Participants....................................................... 91
Initial Shelf Registration Statement........................................ 93
In-Orbit Insurance.......................................................... 83
Insolvency or Liquidation Proceeding........................................ 83
interest.................................................................... 83
Interest Rate Protection Obligations........................................ 83
International Bureau........................................................ 35
Investment.................................................................. 83
Investment Act.............................................................. 73
investment Company.......................................................... 73
Investment Grade............................................................ 83
IRDS........................................................................ 1
IRS......................................................................... 101
Issue Date.................................................................. 83
issue price................................................................. 28
Letter of Transmittal....................................................... i
Lien........................................................................ 83
Marketable Securities....................................................... 83
Maturity Date............................................................... 83
MCI......................................................................... 12
MDUs........................................................................ 2
Measurement Period.......................................................... 79
MediaOne.................................................................... 3
MediaOne Satellite.......................................................... 14
Merger...................................................................... 42
Mergers..................................................................... 42
Merger Agreement............................................................ 42
Merger Agreements........................................................... 42
Nasdaq National Market...................................................... iv
Net Cash Proceeds........................................................... 83
New PRIMESTAR............................................................... ii
New PRIMESTAR Bylaws........................................................ 42
New PRIMESTAR Charter....................................................... 36
New PRIMESTAR Class A Common Stock.......................................... 5
New PRIMESTAR Class B Common Stock.......................................... 5
New PRIMESTAR Class C Common Stock.......................................... 43
New PRIMESTAR Class D Common Stock.......................................... 12
New PRIMESTAR Convertible Preferred Stock................................... 12
New PRIMESTAR Convertible Subordinated Notes................................ 12
Newhouse.................................................................... 3
</TABLE>
ix
<PAGE>
<TABLE>
<S> <C>
News Corp.................................................................. 12
Notes...................................................................... i
Notes Offering............................................................. iii
Obligations................................................................ 84
Offer...................................................................... 84
Offer to Purchase.......................................................... 84
OID........................................................................ 28
Option Holder.............................................................. 40
Other Indebtedness......................................................... 66
Participants............................................................... 91
Partners................................................................... 3
Partnership................................................................ ii
Partnership Agreement...................................................... 85
Partnership Credit Agreement............................................... 85
Partnership Interests...................................................... 4
Payment Blockage Notice.................................................... 56
Payment Blockage Period.................................................... 56
Permitted Holder........................................................... 85
Permitted Indebtedness..................................................... 60
Permitted Investments...................................................... 62
Permitted Junior Securities................................................ 86
Permitted Liens............................................................ 86
Permitted Transferee....................................................... 87
person..................................................................... 87
Post-Petition Interest..................................................... 87
Preferred Equity Interest.................................................. 88
PRIMESTAR(R)............................................................... 43
PRIMESTAR Assets........................................................... 43
PRIMESTAR Credit Facility.................................................. 24
PRIMESTAR Liabilities...................................................... 1
principal.................................................................. 88
principal amount at maturity............................................... 88
Public Equity Offering..................................................... 88
Purchase Amount............................................................ 88
Purchase Date.............................................................. 88
Purchase Money Indebtedness................................................ 88
Purchase Price............................................................. 88
Qualified Equity Interest.................................................. 88
refinancing................................................................ 62
Registrable Securities..................................................... 96
Registration Rights........................................................ 44
Registration Rights Agreements............................................. ii
Related Acquisition........................................................ 62
Reorganization Agreement................................................... 88
Required Designation....................................................... 65
Required Filing Dates...................................................... 70
ResNet..................................................................... 88
ResNet Option.............................................................. 88
ResNet Subordinated Loan................................................... 88
Restricted C-Band Subsidiary............................................... 88
Restricted Investment...................................................... 89
Restricted Payments........................................................ 89
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Restricted Subsidiary..................................................... 89
Restructuring Agreement................................................... 4
Restructuring Transaction................................................. ii
Revocation................................................................ 65
Roll-up Plan.............................................................. ii
Satellite Construction Agreement.......................................... 2
Satellite Subsidiary...................................................... 89
SBCA...................................................................... 34
SEC....................................................................... i
Securities Act............................................................ i
Securities Amount......................................................... 67
Securities Portion of Unutilized Net Cash Proceeds........................ 67
Semi-Annual Accrual Date.................................................. 74
Senior Indebtedness....................................................... 89
Senior Subordinated Aggregate Principal Amount............................ 53
Senior Subordinated Discount Aggregate Principal Amount................... 53
Senior Subordinated Discount Exchange Notes............................... i
Senior Subordinated Discount Notes........................................ i
Senior Subordinated Exchange Notes........................................ i
Senior Subordinated Notes................................................. i
Series C Stockholders..................................................... 4
Share Purchase Agreement.................................................. 89
Shelf Notice.............................................................. 93
Shelf Registration Event.................................................. 93
Shelf Registration Statement.............................................. 94
SHVA...................................................................... 33
Significant Restricted Subsidiary......................................... 89
Specified Date............................................................ 75
STA Application........................................................... 34
Stated Maturity........................................................... 90
stated redemption price at maturity....................................... 28
Strategic Equity Investor................................................. 90
Subordinated Indebtedness................................................. 90
Subsequent Shelf Registration Statement................................... 94
Subsidiary................................................................ 90
Surviving Person.......................................................... ii
Tag-Along Agreement....................................................... 90
Tax Sharing Agreement..................................................... 90
TCI ...................................................................... 1
TCI SATCO................................................................. 1
TCIC...................................................................... 1
TCIC Credit Facility...................................................... 90
Tempo..................................................................... 1
Tempo Assets.............................................................. 40
Tempo DBS-1............................................................... 2
Tempo DBS-2............................................................... 2
Tempo Option Agreement.................................................... 2
Tempo Sale................................................................ 40
Tempo Sale Option......................................................... 40
Tempo Satellites.......................................................... 2
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TIA....................................................................... i
Time Warner............................................................... 3
TIN....................................................................... 101
Total Consolidated Indebtedness........................................... 90
Trade Name and Service Mark License Agreement............................. 91
Transfer Application...................................................... 32
Transition Services Agreement............................................. 91
Trustee................................................................... i
TSAT...................................................................... i
TSAT Asset Transfer....................................................... 42
TSAT Asset Transfer Agreement............................................. 4
TSAT Business............................................................. 4
TSAT Merger............................................................... ii
TSAT Merger Agreement..................................................... ii
TSAT Spin-off............................................................. 1
TSAT Tempo Agreement...................................................... 40
TWE....................................................................... 3
TWEAN..................................................................... 14
TWSSI..................................................................... 14
unmatured interest........................................................ 28
Unrestricted Subsidiary................................................... 91
Unutilized Net Cash Proceeds.............................................. 66
USSB...................................................................... 30
Voting Equity Interests................................................... 91
Weighted Average Life to Maturity......................................... 91
Wholly Owned Restricted Subsidiary........................................ 91
W.L....................................................................... 91
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TABLE OF CONTENTS
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FORWARD LOOKING STATEMENTS................................................ iv
AVAILABLE INFORMATION..................................................... v
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... v
INDEX OF DEFINED TERMS.................................................... vii
PROSPECTUS SUMMARY........................................................ 1
THE BORROWER............................................................ 1
TSAT.................................................................. 1
Other Restructuring Parties........................................... 2
The Roll-up Plan...................................................... 4
Risk Factors............................................................ 5
The Notes Offering...................................................... 6
The Notes............................................................. 6
Registration Rights Agreements........................................ 6
The Exchange Offer...................................................... 6
Securities Offered.................................................... 6
The Exchange Offer.................................................... 6
Expiration Date....................................................... 7
Conditions to the Exchange Offer...................................... 7
Procedures for Tendering Notes........................................ 8
Special Procedures for Beneficial Owners.............................. 8
Guaranteed Delivery Procedures........................................ 8
Withdrawal Rights..................................................... 8
Acceptance of Notes and Delivery of Exchange Notes Tendered........... 8
Federal Income Tax Consequences....................................... 8
Effect on Holders of Notes............................................ 9
Exchange Agent........................................................ 9
Summary of Terms of Exchange Notes...................................... 9
Securities Offered.................................................... 9
Issuer................................................................ 9
Maturity.............................................................. 9
Interest Payment Dates................................................ 9
Optional Redemption................................................... 10
Mandatory Sinking Fund................................................ 11
Form and Denomination................................................. 11
Change of Control..................................................... 11
Asset Sale Proceeds................................................... 11
Certain Covenants..................................................... 12
Ranking............................................................... 12
Security.............................................................. 12
Recent Transactions--The ASkyB Transaction.............................. 12
Summary Financial and Other Data--Historical............................ 14
Summary Financial and Other Data--Pro Forma............................. 17
CORPORATE ORGANIZATION.................................................... 20
Ownership and Organization Before the Roll-up Plan...................... 20
Ownership and Organization After the Restructuring Transaction.......... 21
Ownership and Organization After the TSAT Merger........................ 22
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RISK FACTORS............................................................. 23
History of Losses of TSAT and Other Restructuring Parties.............. 23
Lack of Operating History of New PRIMESTAR............................. 23
Substantial Leverage; Additional Indebtedness Likely................... 24
Subordination of the Exchange Notes.................................... 25
Ability to Service Debt; Restrictive Covenants; Refinancing Risks...... 26
Repurchase of the Exchange Notes upon a Change of Control.............. 27
Original Issue Discount Consequences of Senior Subordinated Discount
Notes and Senior Subordinated Discount Notes.......................... 27
Risk of Inability to Receive Postbankruptcy Interest................... 28
Risk of Satellite Failure.............................................. 28
Ability to Manage Growth; Subscriber Churn............................. 29
Uncertainties of Operations Following the Restructuring Transaction.... 30
Competitive Nature of Industry......................................... 30
Uncertainty Regarding High Power Strategies............................ 30
Risks of Adverse Government Regulations and Adjudications.............. 31
Potential Interference with Satellite Signal........................... 35
Potential Conflicts of Interest........................................ 35
Risks Associated with the ASkyB Transaction............................ 36
Dependence on Third Party Programmers.................................. 37
Risk of Signal Piracy.................................................. 38
Risk of Technological Changes.......................................... 38
Absence of Public Market for the Exchange Notes........................ 38
Exchange Offer Procedures.............................................. 39
THE BORROWER............................................................. 39
TSAT................................................................... 39
Other Restructuring Parties............................................ 41
The Roll-up Plan....................................................... 42
THE EXCHANGE OFFER....................................................... 44
Purpose and Effect of the Exchange Offer............................... 44
Terms of the Exchange Offer............................................ 44
Expiration Date; Extensions; Amendments................................ 45
Interest on Exchange Notes............................................. 46
Procedures for Tendering............................................... 46
Guaranteed Delivery Procedures......................................... 48
Withdrawals of Tenders................................................. 48
Conditions............................................................. 49
Exchange Agent......................................................... 49
Fees and Expenses...................................................... 50
Accounting Treatment................................................... 50
Resale of Exchange Notes............................................... 50
Consequences of Failure to Exchange.................................... 51
Other.................................................................. 51
DESCRIPTION OF THE EXCHANGE NOTES........................................ 52
General................................................................ 52
Ranking................................................................ 53
Maturity, Interest and Principal of the Senior Subordinated Notes...... 53
Maturity, Interest and Principal of the Senior Subordinated Discount
Notes................................................................. 53
Optional Redemption.................................................... 54
Selection and Notice of Redemption..................................... 55
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Subordination of the Notes............................................. 55
Offer to Purchase upon Change of Control............................... 57
Certain Covenants...................................................... 57
Events of Default...................................................... 70
No Personal Liability of Directors, Officers, Employees, Incorporator
and Stockholders...................................................... 72
Satisfaction and Discharge of Notes Indentures; Defeasance............. 72
Governing Law.......................................................... 73
Modification and Waiver................................................ 73
The Trustees........................................................... 74
Certain Definitions.................................................... 74
Book-Entry, Delivery and Form.......................................... 91
Certificated Notes..................................................... 92
Registration Rights.................................................... 93
RECENT TRANSACTIONS--THE ASKYB TRANSACTION............................... 96
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................ 97
Senior Subordinated Discount Notes..................................... 97
Senior Subordinated Notes.............................................. 100
Exchange of Notes for Exchange Notes Pursuant to the Exchange Offer.... 101
Backup Withholding and Information Reporting........................... 101
Other Tax Consequences................................................. 101
PLAN OF DISTRIBUTION..................................................... 101
VALIDITY OF EXCHANGE NOTES............................................... 102
EXPERTS.................................................................. 102
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, financial statements and pro forma financial information,
including the notes thereto, appearing elsewhere in this Prospectus or
incorporated by reference herein. Prior to December 4, 1996 (the "Spin-off
Date"), TSAT was a wholly owned subsidiary of Tele-Communications, Inc.
("TCI"). Unless the context otherwise requires, references in this Prospectus
to "TSAT" refer to (i) certain businesses of TCI Communications, Inc. ("TCIC"),
a subsidiary of TCI, constituting TCI's collective interests ("TCI SATCO") in
the Digital Satellite Business before the Spin-off Date and (ii) TSAT and its
consolidated subsidiaries on and after the Spin-off Date. As used herein,
"Digital Satellite Business" means the business of distributing multichannel
programming services directly to consumers in the United States via digital
medium power or high power satellite, including the rental and sale of customer
premises equipment relating thereto. Additionally, references in this
Prospectus to "TCI" and "TCIC" are to TCI and TCIC, respectively, and each of
their respective consolidated subsidiaries unless the context indicates
otherwise. References to TCI prior to August 4, 1994, refer to TCI's
predecessor. For definitions of certain capitalized terms used in this
Prospectus Summary and not otherwise defined, see "Index of Defined Terms."
Holders of Notes, before tendering their Notes in the Exchange Offer, should
carefully consider the matters described under the heading "Risk Factors."
THE BORROWER
TSAT
General. TSAT is a leading distributor of digital satellite-based television
services in the United States. TSAT markets and 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% interest in the Partnership, which owns and operates the
PRIMESTAR(R) service. As of September 30, 1997, TSAT was the largest
distributor of PRIMESTAR(R), with an installed base of approximately 769,000
subscribers, which represented approximately 42.7% of the Partnership's
estimated 1.8 million subscribers as of such date. As of September 30, 1997,
TSAT's subscribers comprised approximately 888,000 Authorized Units. As used
herein, the term "Authorized Units" refers to the number of active authorized
satellite receivers or integrated receiver/decoders ("IRDs"), more than one of
which may be installed in a subscribing household. PRIMESTAR(R) offers over 160
channels of digital video and audio programming throughout the continental
U.S., via medium power satellite, to home satellite dishes ("dishes" or "HSDs")
approximately 27 to 36 inches in diameter for most subscribers.
TSAT was incorporated in Delaware in November 1996. Prior to the Spin-off
Date, TSAT was a wholly-owned subsidiary of TCI, which, through various
subsidiaries, was engaged in the business of distributing PRIMESTAR(R) since
December 1990. TSAT was formed to own and operate TCI's interests in the
digital satellite business, in connection with the distribution (the "TSAT
Spin-off") by TCI to certain of its stockholders on the Spin-off Date of all
the issued and outstanding shares of TSAT Common Stock, to own and operate
certain businesses of TCI, constituting all of TCI's interests in the digital
satellite business. 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 TSAT Spin-off. TCI is one of the
two largest operators of cable systems in the U.S.
TSAT Series A Common Stock and TSAT Series B Common Stock trade on the Nasdaq
National Market under the symbols "TSATA" and "TSATB," respectively. The
mailing address and telephone number of TSAT's principal executive offices are
8085 South Chester, Suite 300, Englewood, Colorado 80112, (303) 712-4600.
Tempo. Tempo Satellite, Inc. ("Tempo"), a wholly-owned subsidiary of TSAT,
holds a construction permit issued by the FCC, authorizing construction of a
high power direct broadcast satellite ("DBS") system
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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 "FCC Permit"). The 119(degrees)
W.L. orbital position is one of three such orbital positions available for DBS
service to the U.S. which are "full CONUS," meaning that they have a view of
the entire continental U.S.
Tempo is also a party to a satellite construction agreement with Space
Systems/Loral, Inc. ("Loral"), dated as of February 22, 1990 (the "Satellite
Construction Agreement"), pursuant to which Tempo has arranged for the
construction of two high power direct broadcast satellites (together, the
"Tempo Satellites") and has an option to purchase up to three additional
satellites. Construction of the Tempo Satellites has been completed. One of the
Tempo Satellites ("Tempo DBS-1") was launched into TSAT's high power slot at
119(degrees) W.L. on March 8, 1997. The other Tempo Satellite ("Tempo DBS-2")
presently serves as a ground spare for Tempo DBS-1.
Tempo DBS-1 is currently undergoing extended in-orbit testing under the
Satellite Construction Agreement. Assuming that such in-orbit testing results
in acceptance of the satellite by Tempo under the Satellite Construction
Agreement, Tempo DBS-1 would be available for commercial operations in the
first quarter of 1998. At current levels of digital compression, Tempo believes
that Tempo DBS-1 would be able to deliver approximately 100 channels of digital
video and 20 channels of digital audio programming, as operated under the FCC
Permit. Tempo expects to use 18 inch dishes for the proposed high power
service, the same diameter currently used by other high power DBS providers, in
most areas. Tempo currently intends to operate Tempo DBS-1 as a platform to
provide high power digital video and audio programming services to residential
customers, as well as multiple dwelling units ("MDUs"), commercial customers
and resellers.
The availability and utility of Tempo DBS-1, including the power levels
provided by Tempo DBS-1, are subject to risks of satellite defect, loss or
reduced performance. Since the launch of Tempo DBS-1, Loral has notified Tempo
of at least five separate occurrences of power reductions on Tempo DBS-1. No
assurance can be given that further power reductions will not occur in the
future. TSAT does not currently know the extent of such power reductions, and
cannot confirm the precise causes thereof; however, such reductions could
eventually affect the proposed operation of Tempo DBS-1, either alone or
together with other events that may arise during the expected life of the
satellite. See "Risk Factors--Risks of Satellite Failure."
Pursuant to an option agreement dated February 8, 1990 between Tempo and the
Partnership (the "Tempo Option Agreement"), Tempo has agreed to sell or lease
to the Partnership 100% of the capacity of any DBS system constructed by Tempo
under the FCC Permit. The capital stock of Tempo is excluded from the assets
that TSAT will be transferring to New PRIMESTAR pursuant to the Restructuring
Transaction, and accordingly, upon consummation of the Restructuring
Transaction, Tempo shall remain a wholly owned subsidiary of TSAT. Tempo is not
a Restricted Subsidiary under the Indentures (as such term is defined therein).
If the TSAT Merger or the Tempo Sale (as defined herein) is consummated, then
New PRIMESTAR shall acquire the capital stock or the assets of Tempo and New
PRIMESTAR will operate Tempo's high power DBS system. Otherwise, TSAT expects
that such system will be utilized by the Partnership (which, after the
Restructuring Transaction, will be a wholly owned subsidiary of New PRIMESTAR)
pursuant to the Tempo Option Agreement. See "Risk Factors--Uncertainty
Regarding High Power Strategies"; "The Roll-up Plan."
OTHER RESTRUCTURING PARTIES
The Partnership. The Partnership owns and operates PRIMESTAR(R), which is the
oldest Ku-band satellite television service in the U.S. and has the second
largest subscriber base of any U.S. digital satellite television service. In
1990, direct or indirect subsidiaries of TCI and several other large cable
operators and GE Americom Services, Inc. ("GEAS"), an indirect subsidiary of
General Electric ("GE"), formed the Partnership to acquire, originate and/or
provide television programming services for delivery by satellite to
subscribers in the continental U.S. Initially, PRIMESTAR(R) was an analog
service limited to seven broadcast television superstations, TV Japan
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and three pay-per-view stations. In 1994, PRIMESTAR(R) was among the first
satellite television services to use digital transmission and compression
technology to offer laser-disc-quality image and compact-disc-quality sound.
The Partnership has consistently taken advantage of technological improvements
and additional available transponder capacity to improve the PRIMESTAR(R)
service, which today offers over 160 channels of digital video and audio
programming.
In addition to TSAT, the partners (the "Partners") in the Partnership include
(i) Cox Satellite, Inc. ("Cox SI"), a subsidiary of Cox Communications, Inc.
("Cox"), (ii) Comcast DBS, Inc. ("Comcast DBS"), a subsidiary of Comcast
Corporation ("Comcast"), (iii) Continental Satellite Company, Inc.
("Continental"), a subsidiary of US WEST, Inc., the parent of MediaOne of
Delaware, Inc. ("MediaOne"), (iv) New Vision Satellite, a partnership
controlled by Advance/Newhouse Parntership ("Newhouse"), which is a subsidiary
of Newhouse Broadcasting Corporation ("Newhouse Broadcasting"), (v) TW
Programming Co., a partnership controlled by Time Warner Entertainment Company,
L.P. ("TWE"), which is a subsidiary of Time Warner Inc. ("Time Warner"), and
(vi) GEAS, a subsidiary of GE, the parent of GE American Communications, Inc.
("GE Americom"). Each of TSAT (through its subsidiaries) and TW Programming Co.
holds a 20.86% Partnership Interest (as defined), each of Cox SI, Comcast DBS,
Continental and New Vision Satellite holds a 10.43% Partnership Interest, and
GEAS holds a 16.56% Partnership Interest. Time Warner has substantial
interests, through its subsidiaries and controlled partnerships, in video
programming and distribution, and is one of the two largest operators of cable
systems in the U.S. Cox, Comcast and MediaOne are also among the five largest
cable system operators.
The PRIMESTAR(R) programming service 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. The Partnership
secures its rights to transmit 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.
The Partnership currently plans to participate in the high power segment of
the digital satellite industry. In that connection, the Partnership has agreed
to purchase or lease from Tempo 100% of the capacity of any DBS system
constructed by Tempo under the FCC Permit. In addition, the Partnership has
entered into the ASkyB Agreement, which provides for the sale and transfer to
New PRIMESTAR of the MCI Satellites (as defined herein), certain authorizations
granted to MCI by the FCC to operate a DBS business at the 110(degrees) W.L.
orbital location using 28 transponder channels, and certain related contracts.
The ASkyB Agreement requires New PRIMESTAR to bear certain risks in connection
with the process of obtaining the regulatory approval related to such
transfers, including the divestiture of all rights of the Partnership and any
of the Partners under Tempo's FCC authorizations with respect to the 11
transponder channels at 119(degrees) W.L., if required as a condition to such
approval. Consummation of the ASkyB Transaction is contingent on, among other
things, receipt of all necessary government and regulatory approvals, and
accordingly, no assurance can be given that the ASkyB Transaction will be
consummated. See "Recent Transactions--The ASkyB Transaction."
The mailing address and telephone number of the Partnership's principal
executive offices are 3 Bala Plaza West, Suite 700, Bala Cynwyd, Pennsylvania
19004, (610) 617-5300.
Other PRIMESTAR(R) Distributors. PRIMESTAR(R) is distributed through TSAT and
the other distributors of PRIMESTAR(R) (the "Distributors"), each of which is
currently affiliated with one or more of the Partners. The Distributors market
the PRIMESTAR(R) service and contract with subscribers, in non-exclusive
territories assigned by the Partnership. The Distributors set their own retail
pricing and are responsible in their respective territories for authorization
of subscribers, installation, maintenance and retrieval of customer premises
equipment, and billing and collection of monthly and other fees, and the
Distributors bear all risks of loss relating
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thereto. The Partnership performs certain administrative functions for the
Distributors, including program acquisition, national marketing, transponder
leasing and certain technical functions, and passes along the costs relating
thereto to the Distributors.
New PRIMESTAR. New PRIMESTAR, a newly formed Delaware corporation, is
currently a wholly-owned subsidiary of TSAT that has not conducted any
significant activities other than those incident to its formation, the
execution of the agreements relating to the Restructuring Transaction to which
it is a party and financing activities relating to the Restructuring
Transaction. As a result of the Restructuring Transaction, PRIMESTAR will
acquire all the assets and liabilities of TSAT other than the capital stock of
Tempo and certain agreements, the interests in the Partnership ("Partnership
Interests") of the other Partners and the PRIMESTAR(R) subscribers and related
assets and liabilities of the other Distributors. It is expected that, measured
by the number of subscribers, New PRIMESTAR will be the second largest provider
of satellite television services in the United States. The mailing address and
the telephone number of New PRIMESTAR's principal executive offices are 8085
South Chester, Suite 300, Englewood Colorado 80122, (303) 712-4600.
ROLL-UP PLAN
Restructuring Transaction. On February 6, 1998, TSAT entered into (i) a
Merger and Contribution Agreement dated as of February 6, 1998 (together with
exhibits and schedules thereto, the "Restructuring Agreement"), among TSAT, New
PRIMESTAR, TWE, Newhouse, Comcast, Cox, MediaOne (together with TWE, Newhouse,
Comcast and Cox, collectively, hereinafter referred to as the "Series C
Stockholders") and GE Americom, and (ii) an Asset Transfer Agreement dated as
of February 6, 1998 (together with the exhibits and schedules thereto, the
"TSAT Asset Transfer Agreement"), between TSAT and New PRIMESTAR. In addition,
on February 6, 1998, TSAT entered into the TSAT Merger Agreement, between TSAT
and New PRIMESTAR, pursuant to which TSAT shall merge with and into New
PRIMESTAR, with New PRIMESTAR as the surviving corporation. The TSAT Merger
Agreement is subject to regulatory approval and other closing conditions set
forth in the TSAT Merger Agreement. The transactions contemplated under the
Restructuring Agreement and the TSAT Asset Transfer Agreement comprise the
Restructuring Transaction, which, if consummated, shall result in New
PRIMESTAR's owning the entire PRIMESTAR(R) digital satellite business. Upon
consummation of the Restructuring Transaction, TSAT and its former Partners (or
their respective affiliates) will, in the aggregate, own all the outstanding
capital stock of New PRIMESTAR.
Pursuant to the Restructuring Agreement and the TSAT Asset Transfer
Agreement, upon the terms and subject to the conditions set forth therein, TSAT
will contribute and transfer to New PRIMESTAR all of TSAT's assets and
liabilities (the "TSAT Business"), except (i) the capital stock of Tempo, a
wholly-owned subsidiary of TSAT that holds certain authorizations granted by
the FCC and other assets and liabilities relating to a proposed direct
broadcast system being constructed by Tempo, (ii) the consideration to be
received by TSAT in the Restructuring Transaction and (iii) the rights and
obligations of TSAT under certain agreements. Accordingly, upon consummation of
the Restructuring Transaction and the effectiveness of the Assumption, TSAT's
obligations under the Notes and the Exchange Notes shall be assumed by New
PRIMESTAR.
In addition, upon the terms and subject to the conditions set forth in the
Restructuring Agreement, each of Comcast DBS, Comcast Satellite Communications,
Inc. ("Comcast SCI" and, together with Comcast DBS, "Comcast Satellite"), Cox
SI and GEAS, respectively, will merge with and into New PRIMESTAR, in
accordance with the terms and subject to the conditions of its respective
Merger Agreement, and New PRIMESTAR will be the surviving corporation of each
such Merger. Pursuant to asset transfer agreements, each of TWE, Newhouse and
MediaOne (and its subsidiaries) will assign and transfer to New PRIMESTAR all
of such party's rights, title and interests in, to and under such party's
Partnership Interest and PRIMESTAR Assets, and New PRIMESTAR will assume all of
such party's PRIMESTAR Liabilities (as defined herein).
Under the terms of the Restructuring Agreement, TSAT will own approximately
36% of the outstanding shares of common equity of New PRIMESTAR at the closing
of the Restructuring Transaction, and TWE and
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Newhouse (collectively), Comcast, MediaOne, Cox and GE Americom will own
approximately 31%, 10%, 9%, 9% and 5%, respectively, of the outstanding shares
of common equity of New PRIMESTAR at closing, subject in each case to
adjustments based on closing subscriber counts.
The TSAT Merger. The Restructuring Transaction comprises the first step in
TSAT's proposed two-step Roll-up Plan. The second step of the Roll-up Plan
consists of the TSAT Merger, pursuant to which TSAT shall merge with and into
New PRIMESTAR, with New PRIMESTAR as the surviving corporation, in accordance
with the TSAT Merger Agreement. It is expected that the TSAT Merger shall be
consummated after the consummation of the Restructuring Transaction.
Consummation of the Restructuring Transaction and the TSAT Merger are subject
to approval of the stockholders of TSAT. TSAT has called a special meeting of
its stockholders, to be held on March 6, 1998, to consider and vote upon the
Restructuring Transaction and the TSAT Merger. In addition, TSAT Merger is
subject to regulatory approval and other closing conditions set forth in the
TSAT Merger Agreement; accordingly, although the Roll-up Plan envisions that
the TSAT Merger will be consummated upon consummation of the Restructuring
Transaction, there can be no assurance that the TSAT Merger will be
consummated, even if the Restructuring Transaction is consummated.
In connection with the TSAT Merger (i) each outstanding share of TSAT Series
A Common Stock will be converted into the right to receive one share of Class A
Common Stock of New PRIMESTAR, par value of $.01 per share ("New PRIMESTAR
Class A Common Stock") and (ii) each outstanding share of TSAT Series B Common
Stock will be converted into the right to receive one share of Class B Common
Stock of New PRIMESTAR, par value of $.01 per share ("New PRIMESTAR Class B
Common Stock"). Each share of New PRIMESTAR's common stock then held by TSAT
will be canceled. As a result of the TSAT Merger, stockholders of TSAT, at
closing, will own approximately 34% of the outstanding shares of New PRIMESTAR
Common Stock.
RISK FACTORS
In reviewing this Prospectus, holders of the Notes should carefully consider
the matters described under the heading "Risk Factors" beginning on page 23.
THE NOTES OFFERING
The Notes................. The Notes were sold by the Borrower on February 20,
1997, pursuant to the Notes Offering and were
subsequently resold to qualified institutional
buyers (as defined in Rule 144A under the
Securities Act) and institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act), pursuant to Rule
144A under the Securities Act. As of the date
hereof, there are $200,000,000 aggregate principal
amount of Senior Subordinated Notes and
$275,000,000 aggregate principal amount at maturity
of Senior Subordinated Discount Notes outstanding.
The aggregate net proceeds from the issuance of the
Notes (approximately $340 million after deducting
offering costs) were initially held in escrow and
were subsequently released to TSAT on March 17,
1997. TSAT used $244 million of such net proceeds
to repay amounts outstanding under the Bank Credit
Facility. Maximum commitments under the Bank Credit
Facility ($750 million at December 31, 1997) are
reduced quarterly commencing March 31, 2001 until
final maturity at June 30, 2005. Amounts
outstanding under the Bank Credit Facility accrue
interest at a variable rate of interest, which, at
December 31, 1997, was equal to 7.2%.
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The Senior Subordinated Notes were issued at par.
The Senior Subordinated Discount Notes were issued
at a discount to their aggregate principal amount
at maturity, with a yield to maturity calculated
from the issuance date of 12 1/4% (computed on a
semi-annual bond equivalent basis).
Registration Rights In connection with the Notes Offering, the Borrower
Agreements............... entered into the Registration Rights Agreements,
which grant the holders of the Notes certain
exchange and registration rights.
The Exchange Offer is intended to satisfy such
exchange and registration rights, which terminate
upon the consummation of the Exchange Offer. TSAT
shall not receive any proceeds from the Exchange
Offer, but pursuant to the Registration Rights
Agreement, TSAT shall bear certain expenses
relating to the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered........ $200,000,000 aggregate principal amount of 10 7/8%
Senior Subordinated Notes due February 15, 2007 and
$275,000,000 aggregate principal amount at maturity
of 12 1/4% Senior Subordinated Discount Notes due
February 15, 2007.
The Exchange Offer........ $1,000 principal amount of the Senior Subordinated
Exchange Notes in exchange for each $1,000
principal amount of Senior Subordinated Notes, and
$1,000 principal amount at maturity of the Senior
Subordinated Discount Exchange Notes in exchange
for each $1,000 principal amount at maturity of
Senior Subordinated Discount Notes. The Borrower
will issue the Exchange Notes to holders on or
promptly after the Expiration Date.
Based on an interpretation by the staff of the SEC
set forth in no-action letters issued to third
parties, the Borrower believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange
for Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other
than any such holder which is an "affiliate" of the
Borrower within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such
holder's business and that such holder does not
intend to participate and has no arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes.
Broker-dealers who have acquired Notes directly
from TSAT are not permitted to exchange such Notes
in the Exchange Offer.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering
6
<PAGE>
a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange
for Notes where such Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. The
Borrower has agreed that, for a period of 180 days
after the Expiration Date, the Borrower will make
this Prospectus available to any broker-dealer for
use in connection with any such resale.
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the SEC enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989), Morgan
Stanley & Co., Inc. (available June 5, 1991) or
similar no-action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with the resale
transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities Act
for which the holder is not indemnified by the
Borrower.
Expiration Date...........
5:00 p.m., New York City time, on March 30 1998,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
Conditions to the The Exchange Offer is subject to certain customary
Exchange Offer........... conditions, which may be waived by the Borrower.
See "The Exchange Offer--Conditions."
Procedures for Tendering
Notes.................... Each holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Notes and any other required documentation
to the Exchange Agent at the address set forth
herein. By executing the Letter of Transmittal,
each holder will represent to the Borrower that,
among other things, the holder or the person
receiving such Exchange Notes, whether or not such
person is the holder, is acquiring the Exchange
Notes in the ordinary course of business and that
neither the holder nor any such other person has
any arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. In lieu of physical delivery of the
certificates representing Notes, tendering holders
may transfer Notes pursuant to the procedure for
book-entry transfer as set forth under "The
Exchange Offer--Procedures for Tendering."
7
<PAGE>
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Notes are registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Notes, either make appropriate
arrangements to register ownership of the Notes in
such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Guaranteed Delivery
Procedures............... Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or
comply with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer--Withdrawal of Tenders."
Acceptance of Notes and
Delivery of Exchange The Borrower will accept for exchange any and all
Notes Tendered........... Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered on
or prior to five days following the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Federal Income Tax
Consequences............. The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
Effect on Holders of As a result of the making of the Exchange Offer,
Notes.................... the Borrower will have fulfilled certain of its
obligations under the Registration Rights
Agreements, and holders of Notes who do not tender
their Notes will not have any further registration
rights under the Registration Rights Agreements or
otherwise. Such holders will continue to hold the
untendered Notes and will be entitled to all the
rights and subject to all the limitations
applicable thereto under the Indentures, except to
the extent such rights or limitations, by their
terms, terminate or cease to be in effect as a
result of the Exchange Offer. All untendered Notes
will continue to be subject to certain restrictions
on transfer. Accordingly, if any Notes are tendered
and accepted in the Exchange Offer, the trading
market, if any, for the untendered Notes could be
adversely affected.
Exchange Agent............
The Bank of New York.
8
<PAGE>
SUMMARY OF TERMS OF EXCHANGE NOTES
The Exchange Notes are substantially identical with respect to their form and
the terms contained therein (including principal amounts, interest rate,
maturity and redemption rights) to the Notes for which they may be exchanged
pursuant to the Exchange Offer, except that (i) the offering and sale of the
Exchange Notes has been registered under the Securities Act and, therefore, the
Exchange Notes will not bear certain legends restricting the transfer thereof
and (ii) the holders of Exchange Notes will not be entitled to further
registration rights under the Registration Rights Agreements, which rights will
be satisfied when the Exchange Offer is consummated. Each tranche of the
Exchange Notes will be issued as a separate series of notes pursuant to the
same Indenture governing the corresponding tranche of Notes for which such
tranche of Exchange Notes will be exchanged, which Indenture will be qualified
under the TIA. Holders of the Exchange Notes will be entitled to substantially
identical benefits under the Indentures (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). See "Description of the
Exchange Notes."
Securities Offered........ $200,000,000 aggregate principal amount of 10 7/8%
Senior Subordinated Notes due February 15, 2007 and
$275,000,000 aggregate principal amount at maturity
of 12 1/4% Senior Subordinated Discount Notes due
February 15, 2007.
Issuer.................... TCI Satellite Entertainment, Inc.
Maturity
Senior Subordinated
Exchange Notes......... February 15, 2007
Senior Subordinated
Discount Exchange February 15, 2007
Notes..................
Interest Payment Dates
Senior Subordinated
Exchange Notes......... Cash interest on the Senior Subordinated Exchange
Notes will accrue from February 20, 1997 at a rate
of 10 7/8% per annum and will be payable semi-
annually in arrears on each February 15 and August
15, commencing August 15, 1998. See "Description of
the Exchange Notes--Maturity, Interest and
Principal of the Senior Subordinated Notes."
Senior Subordinated
Discount Exchange Cash interest will not accrue or be payable on the
Notes.................. Senior Subordinated Discount Exchange Notes prior
to February 15, 2002. Thereafter, cash interest on
the Senior Subordinated Discount Exchange Notes
will accrue at a rate of 12 1/4% per annum and will
be payable semi-annually in arrears on each
February 15 and August 15, commencing August 15,
2002; provided, however, that at any time prior to
February 15, 2002, the Borrower may make a Cash
Interest Election on any interest payment date to
commence the accrual of cash interest from and
after the Cash Interest Election Date, in which
case the outstanding principal amount at maturity
of each Senior Subordinated Discount Exchange Note
will on such interest payment date be reduced to
the Accreted
9
<PAGE>
Value of such Senior Subordinated Discount Exchange
Note 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 Senior Subordinated
Discount Exchange Note on each interest payment
date thereafter. See "Description of the Exchange
Notes--Maturity, Interest and Principal of the
Senior Subordinated Discount Notes."
Optional Redemption....... The Exchange Notes will be redeemable at the option
of the Borrower, in whole or in part, at any time
on or after February 15, 2002 at the redemption
prices set forth under "Description of the Exchange
Notes--Optional Redemption," plus accrued and
unpaid interest thereon, if any, to the date of
redemption. In addition, prior to February 15,
2000, the Borrower, other than in any circumstance
resulting in a Change of Control, may redeem the
Senior Subordinated Exchange Notes and the Senior
Subordinated Notes in an aggregate amount of up to
35% of the principal amount of Senior Subordinated
Notes originally issued at a redemption price equal
to 110.875% of the principal amount so redeemed,
plus accrued and unpaid interest thereon, if any,
to the redemption date and may redeem the Senior
Subordinated Discount Exchange Notes and the Senior
Subordinated Discount Notes in an aggregate amount
of up to 35% of the principal amount at maturity of
Senior Subordinated Discount Notes originally
issued at a redemption price equal to 112.250% of
the Accreted Value thereof on the redemption date
(or, if a Cash Interest Election has been made,
112.250% of the principal amount at maturity so
redeemed, plus accrued and unpaid interest thereon,
if any, to the date of redemption), in each case
with the net cash proceeds of (a) one or more
Public Equity Offerings of common equity of the
Borrower or (b) a sale or series of related sales
of Qualified Equity Interests of the Borrower to
Strategic Equity Investors, in any such case
resulting in gross cash proceeds to the Borrower of
at least $100.0 million in the aggregate; provided,
however, that (i) immediately after giving effect
to the redemption, the sum of the outstanding
principal amount of the Senior Subordinated Notes
plus the outstanding principal amount of the Senior
Subordinated Exchange Notes equals at least 65% of
the originally issued principal amount of Senior
Subordinated Notes and (ii) immediately after
giving effect to the redemption, the sum of the
outstanding principal amount at maturity of the
Senior Subordinated Discount Notes plus the
outstanding principal amount at maturity of the
Senior Subordinated Discount Exchange Notes equals
at least 65% of the originally issued principal
amount at maturity of Senior Subordinated Discount
Notes. See "Description of the Exchange Notes--
Optional Redemption."
Mandatory Sinking Fund.... None.
Form and Denomination..... The Exchange Notes will be fully registered as to
principal and interest in minimum denominations of
$1,000 and integral multiples thereof. The Exchange
Notes will be initially issued in the form of one
or more
10
<PAGE>
global notes and deposited with a custodian for and
registered in the name of the nominee of The
Depository Trust Company. The Exchange Notes will
not be issued in certificated, fully registered
form, except in the circumstances provided for in
the Indentures. See "Description of the Exchange
Notes--Form, Denomination and Book-Entry
Procedures."
Change of Control......... Following the occurrence of a Change of Control,
the Borrower will be required to make an offer to
purchase all outstanding Notes and Exchange Notes
of each tranche at a purchase price in cash equal
to (x) with respect to the Senior Subordinated
Exchange Notes and Senior Subordinated Notes, 101%
of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the
date of purchase and (y) with respect to the Senior
Subordinated Discount Exchange Notes and Senior
Subordinated Discount Notes, 101% of the Accreted
Value on the date of purchase (unless the date of
purchase 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 date of purchase). See
"Description of the Exchange Notes--Offer to
Purchase upon Change of Control."
Asset Sale Proceeds....... The Borrower will, under certain circumstances, be
required to make an offer to purchase Exchange
Notes and Notes with the net cash proceeds of
certain asset sales or other dispositions of assets
at a purchase price in cash equal to (x) with
respect to the Senior Subordinated Exchange Notes
and the Senior Subordinated Notes, 100% of the
aggregate principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of
purchase and (y) with respect to the Senior
Subordinated Discount Exchange Notes and the Senior
Subordinated Discount Notes, 100% of the Accreted
Value on the date of purchase (unless the date of
purchase 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 date of purchase). See
"Description of the Exchange Notes--Certain
Covenants--Disposition of Proceeds of Asset Sales."
Certain Covenants......... The Indentures contain certain covenants that,
among other things, limit the ability of the
Borrower and its Restricted Subsidiaries (as
defined) to incur additional Indebtedness (as
defined), create certain Liens (as defined), make
certain Restricted Payments (as defined), permit
dividend and other payment restrictions to apply to
such Restricted Subsidiaries, enter into certain
transactions with Affiliates (as defined) and
certain other related persons or consummate certain
merger, consolidation or similar transactions.
These covenants are subject to a number of
significant exceptions and qualifications. See
"Description of the Exchange Notes--Certain
Covenants."
11
<PAGE>
The Exchange Notes will rank junior to, and be
Ranking................... subordinated in right of payment to, all existing
and future Senior Indebtedness (as defined) of the
Borrower, pari passu in right of payment with all
senior subordinated Indebtedness of the Borrower
and senior in right of payment to all Subordinated
Indebtedness (as defined) of the Borrower. As of
December 31, 1997, the Borrower had approximately
$79,949,000 of Senior Indebtedness outstanding, of
which $48,000,000 represented borrowings under the
Bank Credit Facility. The Borrower will not be
permitted to incur any debt that is subordinated in
right of payment to any Senior Indebtedness of the
Borrower and senior in right of payment to the
Exchange Notes and Notes. See "Risk Factors--
Subordination of the Exchange Notes" and
"Description of the Exchange Notes--Subordination
of the Exchange Notes." All borrowings under the
Bank Credit Facility are guaranteed on a senior
basis by all direct and indirect subsidiaries of
the Borrower other than Tempo. The Exchange Notes
will not be entitled to the benefit of any
guarantees, except under the circumstances
described under "Description of the Exchange
Notes--Certain Covenants--Limitation on
Indebtedness."
Security.................. The Notes are not, and the Exchange Notes will not
be, entitled to any security.
RECENT TRANSACTIONS--THE ASKYB TRANSACTION.
In a separate proposed transaction (the "ASkyB Transaction"), pursuant to an
asset acquisition agreement, dated as of June 11, 1997 (together with the
exhibits and schedules thereto, and as amended from time to time, the "ASkyB
Agreement") among the Partnership, The News Corporation Limited ("News Corp."),
MCI Telecommunications Corporation, the principal domestic operating subsidiary
of MCI Communications Corporation ("MCI"), American Sky Broadcasting LLC, a
wholly-owned subsidiary of News Corp. ("ASkyB"), and for certain purposes only,
each of the partners of the Partnership (collectively, the "Partners"), New
PRIMESTAR will acquire from MCI, News Corp. and ASkyB, as applicable, two high
power communications satellites currently under construction (the "MCI
Satellites"), certain authorizations granted to MCI by the FCC to operate a DBS
business at the 110(degrees) W.L. orbital location using 28 transponder
channels, and certain related contracts. In consideration, ASkyB will receive
non-voting convertible securities of New PRIMESTAR, comprising, subject to
closing adjustments, approximately $600 million liquidation value of non-voting
convertible preferred stock, $.01 par value per share, of New PRIMESTAR (the
"New PRIMESTAR Convertible Preferred Stock") (convertible into approximately 52
million shares of non-voting Class D Common Stock, $.01 par value per share, of
New PRIMESTAR ("New PRIMESTAR Class D Common Stock"), subject to adjustment)
and approximately $516 million principal amount of convertible subordinated
notes of New PRIMESTAR ("New PRIMESTAR Convertible Subordinated Notes")
(convertible into approximately 45 million shares of New PRIMESTAR Class D
Common Stock).
The New PRIMESTAR Convertible Subordinated Notes will be due and payable, and
the New PRIMESTAR Convertible Preferred Stock will be mandatorily redeemable,
on the tenth anniversary of the date of issuance. The New PRIMESTAR Convertible
Preferred Stock will accrue cumulative dividends at the annual rate of 5% of
the liquidation value of such shares and the New PRIMESTAR Convertible
Subordinated Notes will have an interest rate of 5%. Dividends on the New
PRIMESTAR Convertible Preferred Stock and interest on the New PRIMESTAR
Convertible Subordinated Notes will be payable in cash or, at the option of New
PRIMESTAR, in shares of the non-voting New PRIMESTAR Class D Common Stock, for
a period of four years.
12
<PAGE>
Thereafter, all dividend and interest payments will be made solely in cash.
Shares of New PRIMESTAR Class D Common Stock issued to ASkyB or any of its
affiliates upon conversion of such New PRIMESTAR Convertible Preferred Stock
and New PRIMESTAR Convertible Subordinated Notes, or in payment of dividend or
interest obligations thereunder, will in turn automatically convert into shares
of New PRIMESTAR Class A Common Stock, on a one-to-one basis, upon transfer to
any person other than ASkyB, News Corp. or any of their respective affiliates.
Assuming such a transfer and conversion, and based on the number of shares of
New PRIMESTAR Common Stock (as defined below) expected to be issued in the
Restructuring Transaction (subject to adjustment as provided in the
Restructuring Agreement, the New PRIMESTAR Class D Common Stock into which the
New PRIMESTAR Convertible Subordinated Notes and the New PRIMESTAR Convertible
Preferred Stock are convertible, would be converted into New PRIMESTAR Class A
Common Stock representing approximately 33% of the number of shares of New
PRIMESTAR Common Stock and approximately 20% of the combined voting power of
the New PRIMESTAR Common Stock outstanding after giving effect to such a
transfer and conversion.
Consummation of the ASkyB Transaction is contingent on, among other things,
receipt of all necessary government and regulatory approvals, and accordingly,
no assurance can be given that the ASkyB Transaction will be consummated. In
addition, it is a condition precedent to the closing of the ASkyB Transaction
by New PRIMESTAR that the ASkyB Transaction be approved by the holders of New
PRIMESTAR voting common stock, including the former holders of TSAT Common
Stock if the TSAT Merger shall have been consummated, at an annual or special
meeting of New PRIMESTAR. The ASkyB Agreement provides that if the
Restructuring Transaction has not closed by March 8, 1998, and the closing
conditions set forth in the ASkyB Agreement have all been satisfied, then News
Corp., MCI and ASkyB (collectively, the "ASkyB Transferors") will have the
right to transfer to the Partnership the assets contemplated to be transferred
to New PRIMESTAR under the ASkyB Transaction, in exchange for such
consideration, having an aggregate fair market value equal to the aggregate
consideration that would have been received by the ASkyB Transferors pursuant
to the ASkyB Transaction had the Restructuring Transaction closed by such date,
as the Partnership and the ASkyB Transferors shall mutually agree.
13
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA--HISTORICAL
The following table presents summary financial data relating to (a) the
historical financial position as of September 30, 1997, of (i) TSAT, (ii) the
PRIMESTAR(R) distribution businesses of the other Distributors (Time Warner
Satellite Services Group, a combination of the DBS operations conducted by TWE
and the Time Warner Entertainment-Advance/Newhouse Partnership ("TWEAN"), a
joint venture between TWE and Newhouse ("TWSSI"), Cox Communications, Inc.--
Direct Broadcast Satellite Business ("Cox Satellite"), Comcast Satellite and
MediaOne, Inc.--Direct Broadcast Satellite Business ("MediaOne Satellite")) and
(iii) the Partnership, and (b) the historical results of operations of TSAT,
TWSSI, Cox Satellite, Comcast Satellite, MediaOne Satellite and the Partnership
for the nine months ended September 30, 1997 and the year ended December 31,
1996. The historical financial data for the year ended December 31, 1996 has
been derived from the respective audited financial statements of TSAT, TWSSI,
Cox Satellite, Comcast Satellite, MediaOne Satellite and the Partnership. The
historical data as of, and for the nine months ended, September 30, 1997 has
been derived from unaudited information. The following information should be
read in conjunction with the "SELECTED FINANCIAL DATA" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
which are set forth in the respective historical financial statements and notes
thereto of TSAT, TWSSI, Cox Satellite, Comcast Satellite, MediaOne Satellite
and the Partnership (which are incorporated herein by reference to TSAT's
Current Report on Form 8-K dated February 11, 1998), and is qualified in its
entirety by reference to the Primary and Supplemental Condensed Pro Forma
Combined Financial Statements and notes thereto of New PRIMESTAR, which are
incorporated by reference into this Prospectus, and such historical financial
statements and notes thereto of TSAT, TWSSI, Cox Satellite, Comcast Satellite,
MediaOne Satellite and the Partnership. Such historical financial statements
present historical financial information with respect to TSAT, the Partnership
and the PRIMESTAR Assets and Partnership Interests of each of TWE/Newhouse,
Comcast, Cox and MediaOne, which assets, together with the Partnership Interest
indirectly held by GE, will be consolidated into New PRIMESTAR pursuant to the
Restructuring Transaction.
14
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------------------------
COX COMCAST MEDIAONE
TSAT TWSSI SATELLITE SATELLITE SATELLITE PARTNERSHIP
--------- --------- --------- --------- --------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OPERATING DATA
Revenue(1).............. $ 406,072 $ 276,158 $ 78,773 $ 81,057 $ 77,955 $ 450,973
Operating, selling,
general
and administrative..... (351,405) (226,894) (70,732) (71,826) (65,591) (480,302)
Depreciation and
amortization........... (177,415) (48,724) (31,041) (21,248) (18,875) (2,856)
--------- --------- -------- -------- -------- ---------
Operating income
(loss)............... (122,748) 540 (23,000) (12,017) (6,511) (32,185)
Interest expense........ (33,965) (20,637) (8,034) (11,481) (4,591) (13,130)
Share of losses of the
Partnership............ (11,610) (11,424) (4,259) (4,352) (4,886) --
Other, net.............. 1,779 (1,097) (388) 232 (123) 1,453
--------- --------- -------- -------- -------- ---------
Loss before income
taxes................ (166,544) (32,618) (35,681) (27,618) (16,111) (43,862)
Income tax benefit...... -- -- 12,621 -- 6,047 --
--------- --------- -------- -------- -------- ---------
Net loss.............. $(166,544) $ (32,618) $(23,060) $(27,618) $(10,064) $ (43,862)
========= ========= ======== ======== ======== =========
OTHER DATA
Operating Cash Flow
(deficit)(2)........... $ 59,274 $ 49,264 $ 8,041 $ 9,231 $ 12,364 $ (29,329)
Capital expenditures.... $ 156,510 $ 100,348 $ 47,042 $ 57,916 $ 39,647 $ 19,309
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
COX COMCAST MEDIAONE
TSAT TWSSI SATELLITE SATELLITE SATELLITE PARTNERSHIP
--------- --------- --------- --------- --------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OPERATING DATA
Revenue(1).............. $ 417,461 $ 277,083 $ 68,291 $ 65,574 $ 68,879 $ 412,999
Operating, selling,
general
and administrative..... (410,390) (241,566) (66,146) (62,021) (60,107) (426,561)
Depreciation and
amortization........... (191,355) (45,449) (21,704) (17,956) (14,740) (3,261)
--------- --------- -------- -------- -------- ---------
Operating loss........ (184,284) (9,932) (19,559) (14,403) (5,968) (16,823)
Interest expense........ (2,023) (20,921) (6,898) (8,442) (11,914) (737)
Share of losses of the
Partnership............ (3,275) (5,314) (1,397) (1,647) (1,830) --
Other, net.............. 3,641 (1,054) (151) 126 (87) 1,858
--------- --------- -------- -------- -------- ---------
Loss before income
taxes................ (185,941) (37,221) (28,005) (24,366) (19,799) (15,702)
Income tax benefit...... 45,937 -- 9,791 -- 7,842 --
--------- --------- -------- -------- -------- ---------
Net loss.............. $(140,004) $ (37,221) $(18,214) $(24,366) $(11,957) $ (15,702)
========= ========= ======== ======== ======== =========
OTHER DATA
Operating Cash Flow
(deficit)(2)........... $ 6,625 $ 35,517 $ 2,145 $ 3,553 $ 8,772 $ (13,562)
Capital expenditures.... $ 401,406 $ 169,793 $ 70,522 $ 68,008 $ 73,602 $ 116,345
</TABLE>
(continued)
15
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------------------------------
COX COMCAST MEDIAONE
TSAT TWSSI SATELLITE SATELLITE SATELLITE PARTNERSHIP
---------- -------- --------- --------- --------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET
DATA
Cash, receivables and
prepaids............... $ 41,257 $ 17,715 $ 9,078 $ 6,824 $ 38,574 $160,013
Investment in, and
related advances
to the Partnership..... 19,952 28,494 10,214 9,122 31,984 --
Property and equipment,
net of accumulated
depreciation:
Satellites............ 463,133 -- -- -- -- 543,070
Other................. 636,225 447,898 114,823 107,929 154,398 17,073
---------- -------- -------- -------- -------- --------
1,099,358 447,898 114,823 107,929 154,398 560,143
Intangible assets....... -- -- -- -- 31,932 --
Other assets............ 28,479 93 8,572 25,145 349 96
---------- -------- -------- -------- -------- --------
Total assets........ $1,189,046 $494,200 $142,687 $149,020 $257,237 $720,252
========== ======== ======== ======== ======== ========
Payables, accruals and
other operating
liabilities............ $ 152,479 $ 74,313 $ 17,554 $ 41,891 $ 46,202 $ 81,540
Due to the Partnership.. 463,133 -- -- -- -- --
Debt.................... 365,760 513,104 199,348 174,436 209,882 555,000
Deferred income taxes... -- -- (1,956) -- 13,417 --
---------- -------- -------- -------- -------- --------
Total liabilities... 981,372 587,417 214,946 216,327 269,501 636,540
Equity (deficit)........ 207,674 (93,217) (72,259) (67,307) (12,264) 83,712
---------- -------- -------- -------- -------- --------
Total liabilities
and equity......... $1,189,046 $494,200 $142,687 $149,020 $257,237 $720,252
========== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) Revenue of TSAT, TWSSI, Cox Satellite, Comcast Satellite and MediaOne
Satellite is primarily comprised of installation and monthly service
revenue received from subscribers to the PRIMESTAR(R) service. The
Partnership derives its revenue by providing satellite capacity and
programming, national marketing and distribution services to the
Distributors.
(2) Operating Cash Flow (deficit), which represents operating income (loss)
before depreciation, amortization and stock compensation, is a commonly
used measure of value and borrowing capacity within the direct broadcast
satellite industry, and is not intended to be a measure of performance in
accordance with generally accepted accounting principles and should not be
relied on as such. Furthermore, Operating Cash Flow (deficit) may not be
comparable to similarly titled measures reported by other companies.
Operating Cash Flow (deficit) should be viewed in conjunction with cash
flows measured in accordance with generally accepted accounting principles.
For information concerning such cash flows, see "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity
and Capital Resources" of TSAT, TWSSI, Cox Satellite, Comcast Satellite,
MediaOne Satellite and the Partnership, and the statements of cash flows
included in the historical financial statements of TSAT, TWSSI, Cox
Satellite, Comcast Satellite, MediaOne Satellite and the Partnership, which
are incorporated by reference in this Prospectus.
16
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA--PRO FORMA
The following table presents summary financial data relating to TSAT's and
New PRIMESTAR's unaudited pro forma combined financial position as of September
30, 1997 and TSAT's and New PRIMESTAR's unaudited pro forma combined results of
operations for the nine months ended September 30, 1997 and the year ended
December 31, 1996. The unaudited pro forma summary operating data gives effect
to the indicated transactions as of January 1, 1996. The unaudited pro forma
balance sheet data gives effect to the indicated transactions as of September
30, 1997. The unaudited pro forma combined data does not purport to be
indicative of the results of operations or financial position that may be
obtained in the future or that actually would have been obtained had such
transactions occurred on such dates. The following information should be read
in conjunction with the "SELECTED FINANCIAL DATA" and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," which are set
forth in the respective historical financial statements and notes thereto of
TSAT, TWSSI, Cox Satellite, Comcast Satellite, MediaOne Satellite and the
Partnership (which are incorporated herein by reference to TSAT's Current
Report on Form 8-K dated February 11, 1998), and is qualified in its entirety
by reference to the Primary and Supplemental Condensed Pro Forma Combined
Financial Statements and notes thereto of New PRIMESTAR, which are incorporated
by reference into this Prospectus, and such historical financial statements and
notes thereto of TSAT, TWSSI, Cox Satellite, Comcast Satellite, MediaOne
Satellite and the Partnership. Such historical financial statements present
historical financial information with respect to TSAT, the Partnership and the
PRIMESTAR Assets and Partnership Interests of each of TWE, Newhouse, Comcast,
Cox and MediaOne, which assets, together with the Partnership Interest
indirectly held by GE, will be consolidated into New PRIMESTAR pursuant to the
Restructuring Transaction.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------------------------
ROLL-UP PLAN
------------------------------------------------ NEW PRIMESTAR
NEW PRIMESTAR PRO FORMA FOR
NEW PRIMESTAR PRO FORMA FOR RESTRUCTURING
TSAT PRO FORMA PRO FORMA FOR RESTRUCTURING TRANSACTION, TSAT
FOR RESTRUCTURING RESTRUCTURING TRANSACTION AND MERGER AND ASKYB
TRANSACTION(1) TRANSACTION(2) TSAT MERGER(3) TRANSACTION(3)
----------------- -------------- --------------- -----------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
SUMMARY OPERATING DATA
Revenue................. $ -- 920,015 920,015 920,015
Operating, selling,
general
and administrative..... -- (809,289) (809,289) (809,289)
Depreciation and
amortization........... -- (442,179) (442,179) (442,179)
--------- -------- -------- --------
Operating loss........ -- (331,453) (331,453) (331,453)
Interest expense........ -- (83,375) (83,375) (102,736)
Shares of losses of
New PRIMESTAR.......... (129,958) -- -- --
Other, net.............. -- 1,856 1,856 1,856
--------- -------- -------- --------
Loss before income
taxes................ (129,958) (412,972) (412,972) (432,333)
Income tax benefit...... -- 51,977 51,977 59,721
--------- -------- -------- --------
Net loss................ (129,958) (360,995) (360,995) (372,612)
Dividend requirement on
preferred stock........ -- -- -- (22,500)
--------- -------- -------- --------
Net loss attributable to
common stockholders.... $(129,958) (360,995) (360,995) (395,112)
========= ======== ======== ========
Pro forma net loss per
share.................. $ (1.95) (1.83) (2.00)
========= ======== ========
</TABLE>
(continued)
17
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
ROLL-UP PLAN
------------------------------------------------ NEW PRIMESTAR
NEW PRIMESTAR PRO FORMA FOR
NEW PRIMESTAR PRO FORMA FOR RESTRUCTURING
TSAT PRO FORMA PRO FORMA FOR RESTRUCTURING TRANSACTION, TSAT
FOR RESTRUCTURING RESTRUCTURING TRANSACTION AND MERGER AND ASKYB
TRANSACTION(1) TRANSACTION(2) TSAT MERGER(3) TRANSACTION(3)
----------------- -------------- --------------- -----------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
SUMMARY OPERATING DATA
Revenue................. $ -- 897,288 897,288 897,288
Operating, selling,
general and
administrative......... -- (847,885) (847,885) (847,885)
Depreciation and
amortization........... -- (520,212) (520,212) (520,212)
--------- -------- -------- --------
Operating loss........ -- (470,809) (470,809) (470,809)
Interest expense........ -- (51,134) (51,134) (76,949)
Share of losses of New
PRIMESTAR.............. (134,170) -- -- --
Other, net.............. -- 4,333 4,333 4,333
--------- -------- -------- --------
Loss before income
taxes................ (134,170) (517,610) (517,610) (543,425)
Income tax benefit...... -- 144,915 144,915 155,241
--------- -------- -------- --------
Net loss................ (134,170) (372,695) (372,695) (388,184)
Dividend requirement on
preferred stock........ -- -- -- (30,000)
--------- -------- -------- --------
Net loss attributable to
common stockholders.... $(134,170) (372,695) (372,695) (418,184)
========= ======== ======== ========
Pro forma net loss per
share.................. $ (2.02) (1.89) (2.12)
========= ======== ========
</TABLE>
(continued)
18
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------------------------
ROLL-UP PLAN
------------------------------------------------ NEW PRIMESTAR
NEW PRIMESTAR PRO FORMA FOR
NEW PRIMESTAR PRO FORMA FOR RESTRUCTURING
TSAT PRO FORMA PRO FORMA FOR RESTRUCTURING TRANSACTION, TSAT
FOR RESTRUCTURING RESTRUCTURING TRANSACTION AND MERGER AND ASKYB
TRANSACTION(1) TRANSACTION(2) TSAT MERGER(3) TRANSACTION(3)
----------------- -------------- --------------- -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
SUMMARY BALANCE SHEET
DATA
Cash, receivables and
prepaids............... $ -- 133,062 133,062 133,062
Investment in, and
related advances to the
Partnership............ -- -- -- --
Investment in New
PRIMESTAR.............. 432,086 -- -- --
Property and equipment,
net of accumulated
depreciation:
Satellites............ 463,133 543,070 543,070 975,770
Other................. -- 1,220,061 1,220,061 1,220,061
-------- --------- --------- ---------
463,133 1,763,131 1,763,131 2,195,831
Intangible assets....... -- 1,196,338 1,196,338 1,879,938
Other assets............ -- 29,760 29,760 29,760
-------- --------- --------- ---------
Total assets........ $895,219 3,122,291 3,122,291 4,238,591
======== ========= ========= =========
Payables, accruals and
other
operating liabilities.. $ -- 287,198 287,198 287,198
Due to the Partnership.. 463,133 -- -- --
Debt.................... -- 1,404,496 1,404,496 1,920,796
Deferred income taxes... -- 230,360 230,360 230,360
-------- --------- --------- ---------
Total liabilities... 463,133 1,922,054 1,922,054 2,438,354
Mandatorily redeemable
preferred stock........ -- -- -- 600,000
Equity.................. 432,086 1,200,237 1,200,237 1,200,237
-------- --------- --------- ---------
Total liabilities
and equity......... $895,219 3,122,291 3,122,291 4,238,591
======== ========= ========= =========
</TABLE>
- --------
(1) Represents the pro forma financial condition and results of operations of
TSAT after giving effect to the TSAT Asset Transfer and other elements of
the Restructuring Transaction on the dates indicated in the headnote to
this table. For additional information concerning the pro forma
adjustments, see the Primary Condensed Pro Forma Combined Financial
Statements of New PRIMESTAR, incorporated by reference herein.
(2) Represents a combination of the financial information of TSAT, TWSSI, Cox
Satellite, Comast Satellite, MediaOne, the Partnership, and the Partnership
Interest held by GE (after eliminating all significant inter-entity
transactions) as affected by the assumed consummation of the Restructuring
Transaction on the dates indicated in the headnote to this table. For
additional information concerning the pro forma adjustments, see the
Supplemental Condensed Pro Forma Combined Financial Statements of New
PRIMESTAR, incorporated by reference herein.
(3) Represents the pro forma financial condition and results of operations of
New PRIMESTAR after giving effect to the indicated transactions on the
dates indicated in the headnote to this table. For additional information
concerning the pro forma adjustments, see the Primary Condensed Pro Forma
Combined Financial Statements of New PRIMESTAR, incorporated by reference
herein.
19
<PAGE>
CORPORATE ORGANIZATION
The diagrams set forth below illustrate the ownership and organization of New
PRIMESTAR and TSAT both prior to the Roll-up Plan and following consummation of
the Restructuring Transaction, and the ownership and organization of New
PRIMESTAR following consummation of the TSAT Merger.
OWNERSHIP AND ORGANIZATION BEFORE THE ROLL-UP PLAN
[CHART DEPICTING OWNERSHIP AND ORGANIZATION BEFORE THE ROLL-UP PLAN]
20
<PAGE>
OWNERSHIP AND ORGANIZATION AFTER THE RESTRUCTURING TRANSACTION
[CHART DEPICTING OWNERSHIP AND ORGANIZATION AFTER THE RESTRUCTURING TRANSACTION]
21
<PAGE>
OWNERSHIP AND ORGANIZATION AFTER THE TSAT MERGER
[CHART DEPICTING OWNERSHIP AND ORGANIZATION AFTER THE TSAT MERGER]
22
<PAGE>
RISK FACTORS
Prospective holders of the Exchange Notes should pay careful attention to
the following factors in addition to considerations bearing on their
individual situations and the other information contained or incorporated by
reference herein. The following factors should be read in conjunction with,
and are qualified in their entirety by, the financial, business and other
information set forth in the financial statements and other documents
incorporated by reference in this Prospectus, including, among other things,
the information relating to the Roll-up Plan included in TSAT's Current Report
of Form 8-K dated February 11, 1998. See "Available Information" and
"Incorporation of Certain Documents By Reference" for information concerning
such documents incorporated by reference herein or to obtain copies of such
documents.
HISTORY OF LOSSES OF TSAT AND OTHER RESTRUCTURING PARTIES
TSAT has had a limited history as a separate operating entity. From 1990 to
1995, TCI's business of distributing PRIMESTAR(R) was operated by TCIC, the
subsidiary of TCI that owns and operates cable systems in the U.S., and during
this period of time, such business sustained significant operating losses.
TSAT has similarly sustained significant losses in recent periods. TSAT's
operating losses were $122,748,000, $81,266,000, $184,284,000, $60,702,000 and
$9,144,000 for the nine months ended September 30, 1997 and 1996, and the
years ended December 31, 1996, 1995 and 1994, respectively, and TSAT's net
losses in such periods were $166,544,000, $56,594,000, $140,004,000,
$47,507,000 and $13,688,000, respectively. Each of the other parties to the
Restructuring Transaction have also sustained losses in their PRIMESTAR(R)-
related businesses. On a pro forma basis, after giving effect to the
Restructuring Transaction, the TSAT Merger and the ASkyB Transaction, New
PRIMESTAR would have had operating losses of $331,453,000 and $470,809,000,
for the nine months ended September 30, 1997 and the year ended December 31,
1996, respectively, and net losses attributable to common stockholders in such
periods of $395,112,000 and $414,184,000, respectively. See the Primary and
Supplemental Condensed Pro Forma Combined Financial Statements and notes
thereto of New PRIMESTAR, incorporated by reference herein. Improvements in
results of operations of the Borrower are largely dependent upon its ability
to increase its customer base while maintaining its price structure, reducing
the rate at which subscribers terminate their PRIMESTAR(R) service ("churn")
and effectively managing its costs. No assurance can be given that any such
improvements will occur. In addition, TSAT incurs, and New PRIMESTAR will
incur, significant sales commission and installation costs when its customers
initially subscribe to the service. Management expects that the costs of
acquiring subscribers will continue to be significant so long as a rapid
growth rate is maintained. The high cost of obtaining new subscribers also
magnifies the negative effects of subscriber churn. See "--Ability to Manage
Growth; Subscriber Churn."
Upon consummation of the Restructuring Transaction, the TSAT Business will
be consolidated into New PRIMESTAR. New PRIMESTAR will be a significantly
larger entity than TSAT, and it is anticipated that New PRIMESTAR will
initially incur significantly greater losses than TSAT due primarily to
disproportionately higher levels of depreciation, amortization and interest
expense. In addition, New PRIMESTAR intends to develop a high power DBS
service, and New PRIMESTAR may determine to migrate some or all of the
existing PRIMESTAR(R) medium power customers to such high power service. Under
such circumstances, New PRIMESTAR would necessarily be operating under a
different cost structure than that of the TSAT Business.
LACK OF OPERATING HISTORY OF NEW PRIMESTAR
New PRIMESTAR has had no operating history as a combined operating entity.
Since 1990, the business of operating the PRIMESTAR(R) satellite television
service has been owned and operated by the Partnership, and the businesses of
distributing PRIMESTAR(R) in various territories have been separately operated
by the Distributors. Following the Restructuring Transaction, the management
of New PRIMESTAR will have to integrate such separate businesses and to
develop and implement new business plans, policies, strategies and procedures
to operate the PRIMESTAR(R) business on a consolidated basis. Certain of such
plans, policies, strategies and procedures may be different from, or
additional to, the plans, policies, strategies and procedures utilized by the
Partnership and the Distributors separately prior to consummation of the
Restructuring
23
<PAGE>
Transaction. Any material delay in developing and implementing such plans,
policies, strategies or procedures, or any other material difficulties that
may be experienced in connection with the integration of the PRIMESTAR(R)
businesses, could have a material adverse effect on the operations and results
of operations of New PRIMESTAR.
SUBSTANTIAL LEVERAGE; ADDITIONAL INDEBTEDNESS LIKELY
TSAT is highly leveraged and, following consummation of the Restructuring
Transaction, New PRIMESTAR will be highly leveraged. As of September 30, 1997,
TSAT had approximately $366 million of debt (approximately $476 of debt per
subscriber), and on a pro forma basis, after giving effect to the
Restructuring Transaction, the TSAT Merger and the ASkyB Transaction, New
PRIMESTAR would have had approximately $1.9 billion of debt (approximately
$1,056 of debt per subscriber), including (i) an aggregate of $921 million of
debt of TSAT and the Partnership that would have been assumed by New PRIMESTAR
if the Restructuring Transaction had occurred on September 30, 1997, (ii) an
aggregate of $136 million of debt that would have been incurred by New
PRIMESTAR to fund the estimated cash that would have been paid to certain of
the Partners if the Restructuring Transaction had occurred on September 30,
1997, (iii) an aggregate of $328 million of debt that would have been incurred
by New PRIMESTAR to repay the estimated debt that would have been assumed from
certain of the Partners if the Restructuring Transaction had occurred on
September 30, 1997, and (iv) $516 million estimated principal amount of the
New PRIMESTAR Convertible Subordinated Notes that would have been issued by
New PRIMESTAR if the ASkyB Transaction had occurred on September 30, 1997. See
the historical financial statements and notes thereto of TSAT and the Primary
and Supplemental Condensed Pro Forma Combined Financial Statements and notes
thereto of New PRIMESTAR, incorporated by reference into this Prospectus.
New PRIMESTAR will be a significantly larger entity than TSAT and will have
significant financial obligations. As described above, New PRIMESTAR will
incur or assume a significant amount of debt in connection with the
Restructuring Transaction (including the Notes and/or the Exchange Notes).
Upon consummation of the ASkyB Transaction, New PRIMESTAR will issue, subject
to closing adjustments, approximately $600 million liquidation value of New
PRIMESTAR Convertible Preferred Stock and $516 million aggregate principal
amount of New PRIMESTAR Convertible Subordinated Notes in connection with the
ASkyB Transaction. The New PRIMESTAR Convertible Subordinated Notes will be
due and payable, and the New PRIMESTAR Convertible Preferred Stock will be
mandatorily redeemable, on the tenth anniversary of the date of issuance. In
addition to the debt to be incurred and assumed in connection with the
Restructuring Transaction and the ASkyB Transaction, it is anticipated that
New PRIMESTAR will be required to seek significant additional debt financing
to fund the capital requirements of its business strategies, including the
proposed development of a high power DBS service and any possible migration of
some or all of the existing PRIMESTAR(R) medium power customers to such high
power service. No assurance can be given that New PRIMESTAR will be able to
obtain sufficient financial resources in order to satisfy short-term and long-
term liquidity requirements. The debt to be assumed by New PRIMESTAR in
connection with the Restructuring Transaction will include (i) the credit
facility (the "PRIMESTAR Credit Facility"), which was obtained by the
Partnership to finance advances to Tempo for payments due in respect of the
construction of the Tempo Satellites, and which is in turn supported by
letters of credit arranged for by affiliates of all but one of the Partners,
(ii) the Notes and/or the Exchange Notes and (iii) any amounts outstanding
under the Bank Credit Facility. In addition, New PRIMESTAR will be responsible
for payments due under (i) the GE-2 Agreement, which provides for the
Partnership's use of transponders on GE-2, (ii) certain specified contracts
and other obligations that will be assumed by New PRIMESTAR in connection with
the ASkyB Transaction, and (iii) various other commitments and contingent
liabilities associated with the businesses and assets that will comprise New
PRIMESTAR following consummation of the Restructuring Transaction and the
ASkyB Transaction. It is anticipated that New PRIMESTAR will also be required
to amend and/or refinance the Bank Credit Facility and the PRIMESTAR Credit
Facility to the extent they are not earlier refinanced by TSAT and/or the
Partnership. As of September 30, 1997, the Partnership's advances to Tempo to
finance construction of the Tempo Satellites aggregated $463,133,000, and the
Partnership's indebtedness under the PRIMESTAR Credit Facility aggregated
24
<PAGE>
$555,000,000, including amounts borrowed to pay interest charges. The maturity
date of the PRIMESTAR Credit Facility has been extended to September 30, 1998.
Long-term financing alternatives with respect to the Tempo Satellites are
currently being evaluated. No assurance can be given that any such long-term
financing will be available on acceptable terms.
The degree to which the Borrower is leveraged may adversely affect the
Borrower'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 Borrower and its stockholders. The Borrower's
ability to repay or refinance its debt will be dependent upon the Borrower's
ability to generate substantial cash flow from operations or to obtain
additional debt or equity financing. There can be no assurance that the
Borrower will be successful in generating sufficient cash flow from operations
or in a timely manner or in raising sufficient additional debt or equity
financing to enable it to repay or refinance its debt. In addition, the
failure of the Borrower to have adequate access to capital may adversely
affect the Borrower's ability, or choice, to launch proposed products and
services in the time frames discussed herein. Further, the failure to comply
with the covenants and other provisions of the Borrower's debt instruments
could result in events of default under such instruments. Such events of
default could permit acceleration of the debt under such instruments and, in
some cases, acceleration of debt under other instruments that contain cross-
default or cross-acceleration provisions. See "--Ability to Service Debt;
Restrictive Covenants; Refinancing Risks."
In the event that the Restructuring Transaction is not consummated, TSAT
believes that its cash and cash equivalents, together with borrowing
availability pursuant to the Bank Credit Facility and any funds generated by
TSAT's operating activities will be sufficient through December 31, 1998, to
fund TSAT's working capital, debt service and currently projected capital
expenditure requirements associated with its medium power satellite
distribution business. However, to the extent that the Restructuring
Transaction is not consummated and TSAT (i) funds all or any significant
portion of the cost of the Tempo Satellites, (ii) pursues a strategy with
respect to the high power segment of the digital satellite industry that
requires significant capital expenditures, (iii) completes any significant
acquisitions, (iv) enters into any other business activities that require
significant capital investments, (v) is unable (and/or the Partnership is
unable) to refinance the Tempo Satellites (to the extent not sold to a person
other than the Partnership) without a letter of credit and is unable to post
(or arrange for the posting of) such letter of credit, or is required to meet
other significant future liquidity requirements in addition to those described
above, TSAT anticipates that it would be required to obtain additional debt or
equity financing. No assurance can be given, however, that TSAT would be able
to obtain additional financing on terms acceptable to it, or at all.
SUBORDINATION OF THE EXCHANGE NOTES
The Exchange Notes will be junior and subordinated in right of payment to
all existing and future Senior Indebtedness of the Borrower, including
borrowings under the Bank Credit Facility. By reason of such subordination, in
the event of a bankruptcy, insolvency, liquidation or other reorganization of
the Borrower, the assets of the Borrower will be available to pay obligations
on the Exchange Notes only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on
all or any of the Exchange Notes then outstanding. The Borrower will not make
any payment with respect to the principal of, or interest on, the Exchange
Notes if (i) an event of default exists in the payment of principal or
interest with respect to any Senior Indebtedness or (ii) the holders of
Designated Senior Indebtedness (as defined) shall have issued a Payment
Blockage Notice (as defined). See "Description of the Exchange Notes--
Subordination of the Exchange Notes." In addition, under certain
circumstances, the payments of principal of, or interest on, the Exchange
Notes during the continuation of a default or an event of default under the
Bank Credit Facility will constitute an event of default under the Bank Credit
Facility.
As of December 31, 1997, total Senior Indebtedness was $79,949,000, of which
$48,000,000 represented borrowings under the Bank Credit Facility at December
31, 1997. All borrowings under the Bank Credit Facility are guaranteed on a
senior basis by the Borrower's restricted subsidiaries (currently all of
TSAT's subsidiaries except Tempo). Additional Senior Indebtedness may be
incurred by the Borrower and guaranteed by its subsidiaries on a senior basis
from time to time, subject to certain restrictions.
25
<PAGE>
The Exchange Notes will not be secured by any of the Borrower's assets.
Under the Bank Credit Facility, the obligations of the Borrower and all its
domestic subsidiaries (except Tempo) that are at least 80% owned, directly or
indirectly, by the Borrower, on a fully diluted basis, will be secured by
substantially all the assets of the Borrower and such subsidiaries. If the
Borrower becomes insolvent or is liquidated, or if payment under the Bank
Credit Facility is accelerated, the lenders under the Bank Credit Facility
would be entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to the terms of the Bank Credit Facility.
Accordingly, any claims of such lenders with respect to such assets will be
prior to any claim of the holders of the Exchange Notes with respect to such
assets. There can be no assurance that the Borrower's assets could be sold
quickly enough, or for sufficient amounts, to enable the Borrower to meet its
obligations (including its obligations with respect to the Exchange Notes and
any outstanding Notes). The Borrower anticipates that New PRIMESTAR will be
required to refinance and/or amend the Bank Credit Facility after consummation
of the Restructuring Transaction to the extent it is not earlier amended
and/or refinanced prior to such consummation, given that certain terms and
conditions thereof would be violated upon consummation of the Restructuring
Transaction. No assurance can be given that any such refinancing and/or
amendment will be completed on terms acceptable to the Borrower.
The Exchange Notes will not be guaranteed by any of the Borrower's
subsidiaries. All of the Borrower's subsidiaries other than Tempo have
unconditionally guaranteed the Bank Credit Facility and, accordingly, claims
of holders of Exchange Notes will be structurally subordinated to the claims
of such subsidiaries' creditors, including the lenders under the Bank Credit
Facility and trade creditors of such subsidiaries. See "Description of the
Exchange Notes--Certain Covenants."
ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS; REFINANCING RISKS
TSAT has incurred substantial indebtedness, all of which will be assumed by
New PRIMESTAR in connection with the Restructuring Transaction, and it is
expected that New PRIMESTAR will incur substantial indebtedness. See "--
Substantial Leverage; Additional Indebtedness Likely." The agreements pursuant
to which the Borrower's existing indebtedness was incurred contain, and any
additional financing agreements may contain, certain restrictive covenants.
The restrictions contained in the existing financing agreements affect, and in
some cases limit, among other things, the ability of the Borrower to incur
additional indebtedness, redeem or purchase subordinated indebtedness
(including the Exchange Notes and any outstanding Notes), create certain
liens, make certain restricted payments, permit dividend and other payment
restrictions to apply to certain subsidiaries, enter into certain transactions
with affiliates and certain other related persons or consummate certain
merger, consolidation or similar transactions. In addition to the restrictive
covenants described above, such financing agreements require the Borrower to
maintain certain financial ratios and to comply with other operating
performance tests or other covenants. The failure of the Borrower to maintain
such ratios or comply with such other tests or covenants would constitute
events of default under such agreements (allowing the creditors to accelerate
the maturity of the indebtedness thereunder and may limit the availability of
funds under such agreements to amounts less than the stated maximum committed
amounts thereunder), notwithstanding the ability of the Borrower to meet its
debt service obligations. Although these covenants are subject to a number of
significant exceptions and qualifications, these restrictions may inhibit the
Borrower ability to manage its business and to react to changing market
conditions.
The Borrower's ability to meet its debt service obligations will be
dependent upon the Borrower's future performance, which is subject to numerous
factors, many of which are beyond its control. See "--Risks of Satellite
Failure" and "--Uncertainty Regarding High Power Strategies." There can be no
assurance that the Borrower will generate sufficient cash flow from operating
activities to meet debt service, capital expenditure and working capital
requirements. It is anticipated that after consummation of the Restructuring
Transaction, New PRIMESTAR will be required to amend and/or refinance the Bank
Credit Facility and the PRIMESTAR Credit Facility to the extent they are not
earlier amended and/or refinanced by TSAT and/or the Partnership. The Borrower
expects that the Borrower's other outstanding indebtedness will need to be
refinanced at maturity. The Borrower's ability to refinance such indebtedness
will depend on, among other things, its financial condition at the time, the
restrictions in the instruments governing its indebtedness and other factors,
including market
26
<PAGE>
conditions, beyond the control of the Borrower. In addition, in the event the
Borrower does not generate sufficient cash flow from operating activities to
meet debt service requirements, the Borrower may need to seek additional debt
or equity financing. There can be no assurance that the Borrower will be
successful in generating sufficient cash flow from operating activities or in
a timely manner or in raising sufficient additional debt or equity financing
on terms that are acceptable to the Borrower, if at all, to enable it to repay
or refinance its debt. In the absence of such financing or refinancing, the
Borrower could be forced to dispose of assets in order to cover any shortfall
in the payments due on its indebtedness and such disposition may occur under
circumstances that might not be favorable to realizing the highest price for
such assets. In addition, the failure of the Borrower to have adequate access
to capital may adversely affect the Borrower's ability, or choice, to
commercially launch proposed products and services in the time frames planned
by the Borrower. See "--Substantial Leverage; Additional Indebtedness Likely"
and "--History of Losses of TSAT and Other Restructuring Parties."
DEFICIENCY OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges of TSAT was less than 1.00 for the
nine months ended September 30, 1997, and for the years ended December 31,
1996, 1995 and 1994. Thus, earnings available for fixed charges were
inadequate to cover fixed charges for such periods. The amounts of coverage
deficiencies were $166,544,000, $185,941,000, $69,365,000 and $20,560,000 for
the nine months ended September 30, 1997 and for the years ended December 31,
1996, 1995 and 1994, respectively. TSAT has agreed to reimburse TCI UA 1,
Inc., an indirect consolidated subsidiary of TCI Communications, Inc., for any
amounts drawn under an irrevocable transferrable letter of credit, which
supports the PRIMESTAR Credit Facility. Fixed Charges relating to such
agreement of $6,489,000, $8,475,000, $9,888,000 and $3,374,000 for the nine
months ended September 30, 1997, and the years ended December 31, 1996, 1995
and 1994, respectively, are included in fixed charges.
REPURCHASE OF THE EXCHANGE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Borrower will be obligated
to make an offer to purchase all Exchange Notes and any remaining Notes
outstanding at a purchase price in cash equal to (i) with respect to the
Senior Subordinated Notes and Senior Subordinated Exchange Notes, 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon,
if any, to the date of purchase and (ii) with respect to the Senior
Subordinated Discount Notes and the Senior Subordinated Discount Exchange
Notes, 101% of the Accreted Value on the date of purchase (unless the date of
purchase 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 date of purchase). See "Description of
the Exchange Notes--Offer to Purchase upon Change of Control." There can be no
assurance that the Borrower will have sufficient funds available at the time
of any Change of Control to pay for all of the Exchange Notes and the Notes
that might be tendered by holders of Exchange Notes and Notes seeking to
accept such offer to purchase. In addition, the Bank Credit Facility contains
a covenant prohibiting the Borrower from repurchasing any subordinated
indebtedness of the Borrower, including the Exchange Notes and the Notes, the
violation of which constitutes an event of default thereunder.
A "change of control" will constitute an event of default under the Bank
Credit Facility, permitting the lenders thereunder to accelerate the repayment
of indebtedness thereunder, in which case the subordination provisions of the
Exchange Notes and the Notes would require the payment in full of the Bank
Credit Facility and any other Senior Indebtedness before the Borrower could
distribute cash to purchase the Exchange Notes and the Notes. See "Description
of the Exchange Notes--Subordination of the Exchange Notes."
The pending Restructuring Transaction, if consummated as presently
contemplated, will not constitute a Change of Control.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES OF SENIOR SUBORDINATED DISCOUNT NOTES AND
SENIOR SUBORDINATED DISCOUNT NOTES
The Senior Subordinated Discount Notes were issued at a discount from their
principal amount at maturity. Upon exchange, holders of Senior Subordinated
Discount Notes shall receive Senior Subordinated Exchange
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Notes having an aggregate principal amount at maturity equal to the aggregate
principal amount at maturity of the Senior Subordinated Discount Notes
exchanged. Although cash interest is not expected to accrue on the Senior
Subordinated Discount Notes (or the Senior Subordinated Discount Exchange
Notes exchanged therefor) prior to February 15, 2002, and there are not
expected to be any periodic payments of interest on such Notes or such
Exchange Notes prior to August 15, 2002 (unless a Cash Interest Election shall
have been made), original issue discount (the difference between the "stated
redemption price at maturity" and the "issue price," as such terms are defined
in the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), and Treasury Regulations thereunder) ("OID") of the Senior
Subordinated Discount Exchange Notes and Senior Subordinated Discount Notes
will accrete from the issue date of such Exchange Notes and such Notes up to
February 15, 2002. Consequently, purchasers of Senior Subordinated Discount
Exchange Notes, along with the holders of Senior Subordinated Discount Notes
not tendered for Exchange Notes, generally will be required to include amounts
in gross income for United States federal income tax purposes in advance of
their receipt of the cash payments to which the income is attributable. Such
amounts in the aggregate will be equal to the difference between the "stated
redemption price at maturity" and the "issue price" (inclusive of stated
interest). See "Certain Federal Income Tax Considerations" for a more detailed
discussion of the federal income tax consequences of the purchase, ownership
and disposition of the Senior Subordinated Discount Exchange Notes.
In the event a bankruptcy case is commenced by or against the Borrower under
the United States Bankruptcy Code (the "Bankruptcy Code") after the issuance
of the Senior Subordinated Discount Exchange Notes, the claim of a holder of
Senior Subordinated Discount Exchange Notes and the claim of a holder of
Senior Subordinated Discount Notes may be limited to an amount equal to the
sum of (i) the initial offering price and (ii) that portion of the OID which
is not deemed to constitute "unmatured interest" for purposes of the
Bankruptcy Code. Any OID that was not amortized as of the date of any such
bankruptcy filing would constitute "unmatured interest." To the extent that
the Bankruptcy Code differs from the Code in determining the method of
amortization of OID, any such holder may realize taxable gain or loss on
payment of such holder's claim in bankruptcy.
RISK OF INABILITY TO RECEIVE POSTBANKRUPTCY INTEREST
Under the Bankruptcy Code, interest accruing after the date of the
commencement of bankruptcy proceedings on unsecured or undersecured debt does
not give rise to an allowable claim. Accordingly, in the event that the
Borrower becomes the subject of proceedings under the Bankruptcy Code, it is
expected that interest on the Exchange Notes and any remaining Notes
outstanding accruing after the date of commencement of bankruptcy proceedings
will not be allowable as a claim, and that no payment or distribution will be
made with respect to such postbankruptcy interest.
RISK OF SATELLITE FAILURE
Limited Life of Satellites. All satellites have limited useful lives, which
vary as a result of their construction, the durability of their components,
the capability of their solar arrays and batteries, the amount of
stationkeeping fuel remaining once in orbit, the launch vehicle used and the
accuracy of the launch. Since March 10, 1997, the PRIMESTAR(R) service has
been transmitted from GE-2, a medium power satellite that was launched into
the 85(degrees)W.L. orbital position on January 30, 1997, and was declared
commercially operational March 6, 1997. The minimum design life of GE-2 is 15
years. There can be no assurance, however, that such satellite will achieve
its minimum design life, and the contract with GE Americom does not guarantee
the minimum useful life of GE-2. The Borrower could be adversely affected if
GE-2 or any other satellite used in connection with its business failed prior
to its minimum design life.
The minimum design life of each of the Tempo Satellites is 12 years. There
can be no assurance, however, that either Tempo Satellite will achieve its
minimum design life, and the contract with Loral does not guarantee the
minimum useful life of the Tempo Satellites.
Risks of Satellite Defect, Loss or Reduced Performance. Satellites are
subject to significant risks, including: manufacturing defects affecting the
satellite or its components; launch failure resulting in damage to,
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or destruction of, the satellite or incorrect orbital placement; and damage in
orbit caused by asteroids, space debris or electrostatic storms. Such factors
may prevent or limit commercial operation or reduce the satellite's useful
life. Neither TSAT nor the Partnership is entitled to the benefit of any
insurance relating to the operation of GE-2.
Tempo DBS-1 was outfitted with an antenna suitable for operation at the
119(degrees) W.L. orbital location and was launched into geosynchronous orbit
on March 8, 1997, on an Atlas rocket from Cape Canaveral by International
Launch Services on behalf of Lockheed Martin Corporation. Tempo DBS-1 is
currently undergoing extended in-orbit testing under the Satellite
Construction Agreement. Since the launch of Tempo DBS-1, Loral has notified
Tempo of at least five separate occurrences of power reductions on Tempo DBS-
1. No assurance can be given that further power reductions will not occur in
the future. The Borrower does not currently know the extent of such power
reductions, and cannot confirm the precise causes thereof; however, such
reductions could eventually affect the proposed operation of Tempo DBS-1,
either alone or together with other events that may arise during the expected
life of the satellite. The Borrower believes that Tempo DBS-1 may not fully
comply with specifications, but has not yet determined the extent of any such
non-compliance. Tempo and Loral are currently engaged in discussions regarding
this matter, including the timing, extent and methodology of any further tests
to be conducted and the terms of any monetary settlement with respect to the
satellite to which Tempo may be entitled under the Satellite Construction
Agreement. A defect or damage affecting Tempo DBS-1 could cause a substantial
monetary loss to the Borrower.
The Borrower is entitled to the benefit of certain limited warranties and
insurance coverage relating to the Tempo Satellites pursuant to the Satellite
Construction Agreement with Loral. However, such warranties and insurance
coverage might not be sufficient to compensate it for all of its losses in the
event of a partial or total satellite failure or casualty, even if such
failure or casualty were a covered loss.
ABILITY TO MANAGE GROWTH; SUBSCRIBER CHURN
TSAT's business and the businesses of the Partnership and the other
Distributors have grown rapidly since 1994, when the Partnership completed its
adoption of digital technology. The Borrower believes that such rapid growth
has been a factor in the increases it has experienced in both subscriber churn
and bad-debt write-offs. The ability of the Borrower to continue its expansion
and increase its customer base while maintaining its price structure, reducing
its churn rate and managing costs will depend upon, among other things, the
Borrower's ability to manage its growth effectively. To manage growth
effectively, the Borrower must continue to develop its internal and external
sales force, installation capability, customer service team and information
systems, maintain its relationships with third party vendors and implement
efficient procedures to mitigate subscriber credit risk. The Borrower will
also need to continue to grow, train and manage its employee base, and its
management will be required to assume greater levels of responsibility. If the
Borrower is unable to manage its growth effectively, the Borrower's business
and results of operations could be materially adversely effected.
During the nine months ended September 30, 1997 and 1996, and the years
ended December 31, 1996, 1995 and 1994, (i) the Borrower'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 32.2%, 38.9%, 38.5%, 24.7% and 16.1%, respectively, and (ii) the
average subscriber life implied by such subscriber churn rate was 3.1 years,
2.6 years, 2.6 years, 4.1 years and 6.2 years, respectively. The Borrower's
experienced a higher rate of subscriber churn in 1996, as compared to the
first nine months of 1997 and prior periods. The Borrower believes that the
higher 1996 churn rate is primarily attributable to the fact that subscribers
were allowed to initiate service with no credit approval during the fourth
quarter of 1995 and the first six months of 1996. Although no assurance can be
given, the Borrower expects that churn rates for future periods will be lower
than the levels experienced in 1996. If the Borrower's churn rates were to
return to, or increase from, such 1996 levels, the Borrower believes that its
financial condition and results of operations would be adversely affected.
TSAT is currently unable to determine New PRIMESTAR'S annualized subscriber
churn rate on a pro forma basis for past periods. If, following the closing of
the Restructuring Transaction, New PRIMESTAR's
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churn rates exceed TSAT's churn rate for the nine months ended September 30,
1997, or fail to improve from such levels in subsequent periods, TSAT believes
that the financial condition and results of operations of New PRIMESTAR would
be adversely affected.
UNCERTAINTIES OF OPERATIONS FOLLOWING THE RESTRUCTURING TRANSACTION
The success of the Restructuring Transaction and the related transactions
will depend in part on the ability of New PRIMESTAR to integrate effectively
the businesses of TSAT and the Partnership and the PRIMESTAR(R) distribution
businesses of the other Distributors, each of which currently operates
separately. There can be no assurance that successful integration of such
businesses or that the benefits expected to result from such integration will
be realized. The process of integrating such businesses may also require a
disproportionate amount of time and attention of New PRIMESTAR's management
and financial and other resources of New PRIMESTAR. In addition, the
integration of the businesses of TSAT and the Partnership and the PRIMESTAR(R)
distribution businesses of the other Distributors may be made more difficult
initially by the necessity of coordinating geographically separated
organizations and integrating personnel with disparate business backgrounds
and corporate cultures. If New PRIMESTAR is not successful in integrating the
strategies and operations of such businesses or if such integrated operations
fail to achieve consumer acceptance, the combined business could be adversely
affected. Further, any delays or unexpected costs that arise in connection
with such integration could have a material adverse effect on the business,
results of operations or financial condition of New PRIMESTAR, as well as the
market value of New PRIMESTAR securities.
COMPETITIVE NATURE OF INDUSTRY
The business of providing video programming to consumers is highly
competitive. The Borrower faces competition from numerous other companies
offering video, audio and data products and services. The existing and
potential competitors of the Borrower comprise a broad range of companies
engaged in communications and entertainment, including other digital satellite
programming distributors, cable operators, wireless cable operators,
television networks and home video products companies, as well as companies
developing new technologies and other purveyors of news, information and
entertainment. The Borrower competes, among others, with companies offering
programming through various other satellite broadcasting systems, including
DirecTv, Inc. ("DirecTv"), a unit of Hughes Electronics Corp., which is a
division of the General Motors Corporation, United States Satellite
Broadcasting Corporation ("USSB") and EchoStar, which transmit from high power
satellites and generally use smaller dishes to receive their signals. There
can be no assurance that the Borrower will be able to compete successfully
against current and prospective providers of digital satellite programming
services, some of which will have access to greater resources and/or have
secured the rights to broadcast from a greater number of satellite transponder
frequencies.
Many of the Borrower's cable competitors have greater financial, marketing
and programming resources than the Borrower. Cable operators generally have
large installed customer bases, and many cable operators have significant
investments in, and access to, programming. According to industry sources,
cable television service is currently available to more than 95% of the
approximately 97 million U.S. television households, and approximately 67% of
total U.S. television households currently subscribe to cable. In order to
substantially increase its subscriber base, the Borrower will be required to
attract customers who currently subscribe to cable and to expand commercial
accounts, including hotels, motels, bars and restaurants as well as MDUs.
There can be no assurance that the Borrower will be able to substantially
increase its subscriber base or successfully attract customers in competition
with cable operators.
UNCERTAINTY REGARDING HIGH POWER STRATEGIES
TSAT currently intends to operate Tempo DBS-1 as a platform to provide high
power digital video and audio programming services to residential customers,
MDUs, commercial customers and resellers. If the TSAT Merger or the Tempo Sale
is consummated, such high power DBS services will be provided by New
PRIMESTAR. Otherwise, TSAT expects that such services will be provided through
the Partnership, which has exercised its option under the Tempo Option
Agreement to purchase or lease 100% of the capacity of Tempo
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DBS-1. Following consummation of the Restructuring Transaction, the
Partnership will be an indirect wholly owned subsidiary of New PRIMESTAR.
In addition to the possibility of satellite impairment or failure as
described above under the heading "--Risk of Satellite Failure--Risks of
Satellite Defect, Loss or Reduced Performance," there are numerous
uncertainties regarding the high power DBS business proposed to be operated by
the Borrower:
(i) The proposed high power DBS business is currently in the development
stage. Programming content, pricing and other important decisions have not
been finalized. There can be no assurance that desired programming content
will be available on favorable terms.
(ii) The FCC Permit authorizes the use of only 11 transponders on Tempo
DBS-1, as compared to the 32 transponders operated in the aggregate by
DirecTv and USSB on DirecTv's full CONUS DBS satellite and the 21
transponders operated by EchoStar on its full CONUS DBS satellite. Although
Tempo intends to utilize advanced digital compression technologies,
including statistical multiplexing, to provide up to 100 video and 20 audio
programming channels over such 11 transponders, there can be no assurance
that the relatively limited capacity of Tempo DBS-1 will not have an
adverse effect on the Borrower's proposed high power DBS business.
(iii) If the ASkyB Transaction is consummated, the Partnership or New
PRIMESTAR will use the 28 transponders currently authorized to MCI in the
110(degrees) W.L. orbital location to provide high power DBS services to
residential customers, commercial customers and MDUs. It can be expected
that consummation of the ASkyB Transaction will have a material impact on
the Borrower's strategy relating to the Tempo Satellites and FCC Permit,
although the full nature of such impact cannot presently be determined. The
ASkyB Transaction is subject to various regulatory approvals, and there can
be no assurance that such approvals will be obtained, or if obtained, that
such approvals will not be conditioned upon modifications to the high power
strategies of the Partnership and/or the Borrower, as currently proposed.
The ASkyB Agreement requires the Partnership to cause the divestiture of
all rights of the Partnership and any of the Partners under Tempo's FCC
Permit with respect to the 11 transponder channels at 119(degrees) W.L.,
including divestiture of the Partnership's right to purchase or lease 100%
of the capacity thereunder pursuant to the Tempo Option Agreement, if
required as a condition to regulatory approval of the ASkyB Transaction.
No assurance can be given as to the effect that the implementation of any
high power strategy will have on the Borrower's existing medium power customer
base.
No assurance can be given that the Borrower will not significantly change
the direction of its high power strategy or that any high power strategy will
be successful.
In light of the pendency of the Restructuring Transaction, the TSAT Merger,
the Tempo Sale and the ASkyB Transaction, the Borrower and the Partnership are
evaluating alternative future plans with respect to Tempo DBS-2, including its
use or disposition. Tempo DBS-2 presently serves as a ground spare for Tempo
DBS-1.
RISKS OF ADVERSE GOVERNMENT REGULATIONS AND ADJUDICATIONS
General. The construction and launch of DBS satellites and the operation of
DBS systems are subject to substantial regulation by the FCC. FCC rules are
subject to change in response to industry developments, new technology and
political considerations. The Borrower's business and business prospects could
be adversely affected by the adoption of new laws, policies, and regulations.
There can be no assurance that the Borrower will succeed in obtaining all
requisite regulatory approvals for its operations without the imposition of
restrictions on, or adverse consequences to, the Borrower. There also can be
no assurance that material adverse changes in regulations affecting the
digital satellite television industry or the Borrower will not occur in the
future. See "--Potential Interference with Satellite Signal."
FCC Permit. Tempo holds the FCC Permit, which authorizes construction of a
DBS system with 11 frequency channels at 119(degrees) W.L. that view the
entire continental U.S. and 11 frequency channels at 166(degrees) W.L.
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that view only the western half of the continental U.S. and Alaska and Hawaii.
The FCC's DBS construction permits are conditioned on the satisfaction of
ongoing construction and related obligations. Under the FCC Permit, the time
by which the Tempo Satellites must be operational expires in May 1998. The
Borrower believes that it has complied with the obligations for Tempo DBS-1 to
become operational by that date, but there can be no assurance that the FCC
would agree that such satellite is operational, and if an application for
extension of the FCC Permit were required, there can be no assurance that such
an extension would be granted by the FCC. See "--Risk of Satellite Failure."
At present, Tempo must continue to demonstrate that it is exercising due
diligence in progressing toward the completion of its DBS system at
166(degrees) W.L. and has in place the Satellite Construction Agreement with
Loral to fulfill this due diligence requirement. 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. If Tempo is unable to meet the terms of the
FCC Permit, it would be required 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
an extension would be granted.
Tempo also may be required to file an application for a license to operate
its satellites in orbit. Tempo expects that the FCC would approve any such
request but cannot assure the ultimate outcome. FCC licenses must be renewed
at the end of each license term. Generally, FCC licenses are renewed in the
ordinary course, absent misconduct by the licensee.
On July 18, 1997, TSAT and the Partnership filed an application with the FCC
for consent to the transfer of control of Tempo, as the holder of the FCC
Permit, to New PRIMESTAR (the "Transfer Application"). The Transfer
Application must be approved by the FCC before consummation of the TSAT Merger
or any Tempo Sale. Petitions to deny and comments were filed against the
Transfer Application. The comments and petitions urge the FCC to either deny
the Partnership and those Restructuring Parties affiliated with large cable
operators the opportunity to provide high power DBS service or to condition
any such provision. TSAT and the Partnership filed a joint opposition to these
petitions and comments. Before approving the Transfer Application, the FCC
must review the petitions filed and responsive pleadings and find that there
are no material issues of fact that should prevent approval of the TSAT Merger
or any Tempo Sale and that approval would serve the public interest. There can
be no assurance that the FCC's review of the Transfer Application and the
petitions will be favorable, or that the FCC will not impose conditions
unacceptable to TSAT, the Partnership, or the other Restructuring Parties in
connection with its review. Approval of the Transfer Application is a
prerequisite of the TSAT Merger (so long as TSAT controls Tempo) or any Tempo
Sale, but is not required to complete the Restructuring Transaction.
In addition, on August 15, 1997, the Partnership and MCI filed an
application with the FCC for consent to the assignment to New PRIMESTAR of the
high power DBS authorizations and certain other assets owned by MCI (the
"Assignment Application"). The Assignment Application must be approved by the
FCC before the consummation of the ASkyB Transaction. The FCC placed the
Assignment Application on Public Notice for comments. While MCI has a
contractual obligation to maintain its due diligence at the FCC with respect
to its DBS authorizations that are subject to the Assignment Application,
there can be no assurance that MCI will do so.
Numerous parties have filed comments and petitions to deny with regard to
the Assignment Application. The petitions and comments urge the FCC to either
deny the Assignment Application or to condition its approval. The issues
raised in these petitions and comments include the following: (1) opposition
to the Partnership or New PRIMESTAR holding the 110(degrees) W.L.
authorization; (2) opposition to the Partnership or New PRIMESTAR
simultaneously holding authorizations for both the 110(degrees) W.L. orbital
position (28 transponders) and the 119(degrees) W.L. orbital position (11
transponders), which together represent about 40% of the total transponder
capacity in the three orbital positions allocated to the U.S. for DBS service
that provide full CONUS visibility; (3) requests for extension of the FCC's
rules governing access to satellite delivered programming to News Corp. and
expansion of those rules to programming not delivered by satellite (such as
broadcast television stations), and
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(4) issues relating to the possible applicability of the foreign ownership
restrictions of Section 310(b) of the Communications Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the
"Communications Act"). There can be no assurance that the FCC's review of
these and other documents or the Assignment Application will be favorable, or
that the FCC will not impose conditions unacceptable to New PRIMESTAR, MCI,
ASkyB or News Corp. in connection with its review.
MCI's authorization from the FCC to construct, launch and operate satellites
in the DBS service at 110(degrees) W.L. providing 28 transponder channels of
service (the "110 Slot"), one of MCI's DBS authorizations at issue in the
Assignment Application, was purchased by MCI at an FCC auction in January
1996. The other DBS authorization is a waiver of Section 319(d) of the
Communications Act, granting MCI authority to construct a DBS satellite
without an FCC construction permit at its own risk. Before the auction of the
110 Slot, the FCC imposed a one-time auction rule which required the entity
who bought the 110 Slot to divest any voting interest of five percent or
greater held in DBS permittees or licensees that hold FCC authorizations for
the two other DBS slots that view the entire continental U.S. (the
"Divestiture Requirement"). These two slots include 101(degrees) W.L. and
119(degrees) W.L. While the Divestiture Requirement was promulgated as a one-
time rule, the FCC may decide to impose this rule as a condition to approving
the Assignment Application and to require New PRIMESTAR to divest its interest
in 119(degrees) W.L.
Should the FCC determine that foreign ownership restrictions apply to
subscription DBS service providers, then, as a condition to the consummation
of the ASkyB Transaction, New PRIMESTAR would have to seek a waiver of such
restrictions. There can be no assurance that the FCC would grant such a
waiver.
SHVA. The Satellite Home Viewer Act of 1994 ("SHVA") prohibits the
retransmission by a satellite carrier of a television broadcast signal of a
network television station to households that receive a Grade B intensity
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. In complying with the SHVA, 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 numerous
challenges to its network subscribers from certain network affiliates and in
some instances has discontinued network service to certain subscribers. The
networks and their affiliates have commenced infringement actions against
certain other satellite carriers for violation of the network service
restrictions. However, while the networks and affiliates have from time to
time threatened litigation, none of the networks or affiliates has yet
asserted any claim for damages under applicable law against the Partnership or
any of the other parties to the Roll-up Plan. Negotiations are continuing
among representatives of the Partnership, the National Association of
Broadcasters, certain network-affiliated television stations, and their
respective affiliate associations, regarding a proposed Settlement and
Compliance Agreement, which agreement is expected to provide for pre-screening
techniques for customers based on zip codes and maps to ensure compliance with
SHVA procedures, the timing for disconnecting any existing non-compliant
network subscribers, and provisions for mutual release for any past or future
liability. Although a final agreement with respect to such matters has not yet
been executed, the Partnership currently expects to enter into such an
agreement during the first quarter of 1998. However, if an agreement is not
reached, it is likely that litigation will be initiated against the
Partnership. The SHVA provides for remedies which can include actual damages,
injunctions, and statutory damages. Statutory damages per individual claim are
limited to $5.00 per subscriber, per month, and statutory damages for a
pattern or practice of violations are limited to $250,000 in a six month
period. At present, the Partnership is unable to determine the basis upon
which any damages might be calculated or what their amount might be.
Therefore, it is not possible to assess the impact, if any, of such unasserted
claims on the Partnership's results of operations or cash flow. Management is
also currently unable to determine the extent to which the restriction on the
delivery of network service to subscribers, as contemplated by the proposed
Settlement and Compliance Agreement, would have on the marketing of its
services generally.
Increase in Compulsory License Fees. A Copyright Arbitration Royalty Panel
("CARP"), convened pursuant to the terms of the SHVA, recommended to the
Librarian of Congress that the royalty fees paid by satellite carriers for the
distribution of superstations and network affiliates directly to homes should
be increased
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to a level commensurate with fair market value, which is far in excess of the
rate currently paid by cable operators. The Librarian of Congress accepted
CARP's recommendation to increase the royalty fees and determined that the new
fees should become effective as of January 1, 1998. The Satellite Broadcasting
and Communications Association ("SBCA"), representing the satellite carriers,
filed a petition with the Librarian of Congress requesting a stay of the
effectiveness of the decision, pending judicial review or congressional
action. The Librarian of Congress denied the petition, and as of January 1,
1998, the rate increase went into effect. The SBCA also filed a petition
seeking review of the rate increase with the U.S. Court of Appeals for the
District of Columbia. In addition, the satellite carriers have requested
Congress to override the rate adjustment by legislation. A bill has been
introduced in the Senate (S. 1422) which would delay an increase in the
royalty fees until January 1, 1999 and would require the FCC to report to
Congress within 180 days of enactment of the legislation on the effect of the
increase of the royalty fees on the satellite carriers' abilities to compete
in the market for delivery of multichannel video programming. A bill also has
been introduced in the House of Representatives (H.R. 2291) which is similar
to the Senate bill and requires a stay of the royalty increase until the FCC
reviews the effects on the market and reports to Congress; however, the stay
would be in effect no later than 210 days after enactment. No assurance can be
given that the satellite carriers will be able to obtain relief from the U.S.
Court of Appeals or Congress. Should the decision of the Librarian of Congress
stand, Tempo or New PRIMESTAR (and all other direct satellite service
providers) may be competitively disadvantaged vis-a-vis cable operators.
State Taxes. In addition to being subject to FCC regulation, operators of
DBS systems in the U.S. may be affected by imposition of state sales taxes on
satellite-delivered programming. According to the SBCA, several states,
including Maryland, Missouri, North Dakota, New York and Washington have
either adopted or proposed such taxes. Other states are in various stages of
considering proposals that would tax providers of satellite-delivered
programming and other communications providers. The provision of state imposed
sales taxes could have adverse consequences to the Borrower's business.
There can be no assurance that additional government regulations affecting
DBS permittees and licensees will not occur in the future.
Issues Affecting Competitors. On July 18, 1997, EchoStar and DirectSat
Corporation, a subsidiary of EchoStar ("DirectSat"), filed a consolidated
application for special temporary authority ("STA Application") to provide DBS
service over the 11 channels at 119(degrees) W.L. currently held by Tempo.
EchoStar and DirectSat hold the authorization to use the remaining 21 channels
at the 119(degrees) W.L. orbital location and currently are offering service
from that location as the DISH Network.
EchoStar temporarily used certain of Tempo's channels prior to Tempo's March
1997 satellite launch. However, in June 1996, the FCC denied both EchoStar's
and DirectSat's requests to extend the STA Application for use of the Tempo
channels. The FCC was concerned that when Tempo eventually launched its
satellite and commenced its own service, the resultant reduction in service by
EchoStar and DirectSat would confuse customers. While EchoStar and DirectSat
claimed that customers would not miss their proposed pay-per-view services to
be offered over Tempo's channels, the FCC disagreed and denied their requests.
In their STA Application, EchoStar and DirectSat argued that Tempo was
either wasting its allocated channels by not using them or warehousing the
channels for use by another party. Furthermore, EchoStar and DirectSat stated
that New PRIMESTAR, which is set to acquire Tempo or Tempo's assets pursuant
to the TSAT Merger or any Tempo Sale, indicated its willingness to return
Tempo's 11 channels at 119(degrees) W.L., if required, as a condition for FCC
approval of the Assignment Application. Tempo has filed a petition to deny the
STA Application, but the outcome of the proceeding cannot be guaranteed.
DirecTv recently filed an application with the FCC to expand its existing
satellite system, currently located at 101(degrees) W.L. In its June 5, 1997
application, DirecTv requested orbital slots located at 96.5(degrees) W.L. and
105.5(degrees) W.L. To implement this expansion, DirecTv must secure
additional frequencies in order to transmit and receive signals at these
additional orbital locations. Thus, in a related petition for rulemaking (also
filed June 5, 1997),
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DirecTv requested that the FCC reallocate certain frequencies for DBS use.
DirecTv also requested that the standard 9 spacing policy be abandoned in
favor of a 4.5 spacing policy. The public was invited to comment on DirecTv's
petition, and comments were filed by interested parties on July 31, 1997.
Commenters generally complained that interference with other satellite
transmissions might result from DirecTv's expansion plan. The FCC to date has
not issued a Notice of Proposed Rulemaking in this matter, which is a
prerequisite to the frequency reallocation requested by DirecTv. In addition,
even if the reallocation is eventually granted, there can be no guarantee that
DirecTv will be assigned the frequency authorizations and orbital locations it
has requested. These authorizations would be available to competing applicants
as well.
Should the FCC adopt a 4.5 spacing policy for DBS providers, it is possible
that the FCC would grant authorizations for satellites at locations adjacent
to Tempo's and the Partnership's satellites which may cause interference.
Moreover, if the FCC adopts a 4.5 spacing policy, it is possible that a
competitor would control more full CONUS DBS transmission capacity than New
PRIMESTAR and therefore, potentially would be able to offer more services than
New PRIMESTAR. In any event, it is uncertain whether DirecTv's requests will
be granted.
POTENTIAL INTERFERENCE WITH SATELLITE SIGNAL
The International Bureau of the FCC (the "International Bureau") has granted
EchoStar Satellite Corporation, a subsidiary of EchoStar Communications
Corporation (together with its consolidated subsidiaries, "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 medium power satellite currently used
to provide the PRIMESTAR(R) service. Contrary to previous FCC policy, which
would have permitted operation of a satellite at the 83(degrees) W.L. orbital
position at a power level of only 60-90 watts (subject to coordination
requirements), EchoStar has been 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 from GE-2 by subscribers to the PRIMESTAR(R) medium power
service.
GE Americom and the Partnership have each requested reconsideration of the
International Bureau's authorization for EchoStar to operate at 83(degrees)
W.L. These requests, which were opposed by EchoStar and others, are currently
pending at the International Bureau. 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. Accordingly,
the ultimate outcome of this matter cannot presently be predicted.
GE Americom and the Partnership have attempted to resolve potential
coordination problems directly with EchoStar. However, it is uncertain whether
any agreement in respect of such coordination between the Partnership and
EchoStar will be reached, or that even if such agreement is reached, that
coordination will resolve such interference.
POTENTIAL CONFLICTS OF INTEREST
Following consummation of the Restructuring Transaction, TSAT will own
approximately 36% of the shares of New PRIMESTAR Common Stock outstanding (and
approximately 37% of the total voting power of the shares of New PRIMESTAR
Common Stock outstanding), and TWE and Newhouse (collectively), Comcast,
MediaOne, Cox and GE Americom will own approximately 31%, 10%, 9%, 9% and 5%,
respectively, of the shares of New PRIMESTAR Common Stock outstanding and
approximately 32%, 10%, 10%, 9% and 2%, respectively, of the total voting
power of the shares of New PRIMESTAR Common Stock outstanding, in each case
subject to adjustments based on closing subscriber counts and other factors.
Following consummation of the TSAT Merger, John C. Malone, the Chairman of the
Board and a director of TCI (and also Chairman of the Board and a director of
TSAT) will own approximately 2.0% of the shares of New PRIMESTAR Common Stock
outstanding and approximately 8.8%, of the total voting power of the shares of
New PRIMESTAR Common Stock outstanding at the Closing of the Restructuring
Transaction.
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Affiliates of each of the Class C Stockholders and TCI and GE Americom,
individually and in joint ventures with each other and others, have
substantial other interests in the communications and entertainment
industries, some of which may compete with the business of, or provide
programming to, New PRIMESTAR. All of the Class C Stockholders and TCI,
through their respective subsidiaries and affiliates, own or have controlling
interests in cable systems throughout the United States, and because New
PRIMESTAR will be competing with such cable systems in the provision of multi-
channel video programming services, there is the potential for conflicts of
interest. The restated certificate of incorporation of New PRIMESTAR (the "New
PRIMESTAR Charter") provides for two independent directors, and Section 144 of
the DGCL, in general, provides that no related party transaction is void or
voidable solely for this reason, if: (i) the material facts as to the related
party transaction are disclosed or are known to the board of directors or the
committee which authorizes the transaction, and the board or committee in good
faith authorizes the transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than
a quorum; or (ii) the material facts as to the related party transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the related party transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by the
board of directors, a committee or the stockholders.
Pursuant to the Restructuring Agreement, at the Closing, New PRIMESTAR will
enter into a Transition Period Agency Agreement with each Class C Stockholder
(or their respective affiliates), pursuant to which each such party will be
designated as a servicing agent in assigned non-exclusive territories with
respect to New PRIMESTAR's medium power PRIMESTAR(R) subscribers, for a period
of up to six months following the Closing. In addition, each Class C
Stockholder and TCI (or their respective affiliates) will have the right to
enter into an HP Agency Agreement with New PRIMESTAR, pursuant to which such
party will act as a non-exclusive retail sales and servicing agent of any
stand-alone retail high power PRIMESTAR(R) programming service. Pursuant to
the Restructuring Agreement, each Class C Stockholder and TCI (or their
respective affiliates) will also have a right to enter into a Sales Agency
Agreement, pursuant to which such party will act as a non-exclusive retail
sales agent of (i) the PRIMESTAR(R) medium power programming service, or (ii)
at any time that such party is not a party to an HP Agency Agreement, any
stand-alone retail high power PRIMESTAR(R) programming service. Such
agreements could give rise to potential conflicts of interest since in those
territories served by cable television, New PRIMESTAR will be competing for
subscribers with the cable systems owned and operated by the Class C
Stockholders and TCI, and the respective ownership interests of the Class C
Stockholders and TCI in the applicable cable systems may be greater than their
respective ownership interests in New PRIMESTAR. In order to offset this
potential for conflicts of interest, the HP Agency Agreements and the Sales
Agency Agreements will contain performance standards designed to ensure that
New PRIMESTAR's customers receive appropriate service from the applicable
Class C Stockholder or TCI with respect to installation, maintenance and other
service functions. In the event a Class C Stockholder or TCI fails materially
to satisfy the service performance standards, such party may lose its right to
provide service, but will not lose its right to act as a sales agent or to
receive the fees associated with performance of its sales agent obligations.
RISKS ASSOCIATED WITH THE ASKYB TRANSACTION
Increased Financial Obligations. Consummation of the ASkyB Transaction will
impose additional financial obligations on New PRIMESTAR. The consideration to
be paid by New PRIMESTAR in connection with the ASkyB Transaction will
include, subject to closing adjustments, $600 million liquidation value of New
PRIMESTAR Convertible Preferred Stock and $516 million principal amount of New
PRIMESTAR Convertible Subordinated Notes. New PRIMESTAR will also assume
certain obligations under certain specified contracts and other arrangements
binding upon ASkyB, News Corp. and/or MCI, which will require New PRIMESTAR to
make payments, subject to the terms and conditions of such contracts and
arrangements. At September 30, 1997, the remaining commitments under such
obligations to be assumed aggregated approximately $187 million. Consummation
of the ASkyB Transaction will make New PRIMESTAR's future operations more
heavily dependent than they otherwise would be on the success of the proposed
high power DBS business, which is subject to numerous uncertainties. See "--
Uncertainty Regarding High Power Strategies." New PRIMESTAR
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will incur additional costs if it converts all or some of its existing medium
power customers to the high power satellite service expected to be provided
with the assets acquired through the ASkyB Transaction.
New PRIMESTAR's ability to meet the dividend payment and debt service
obligations it will incur as a result of the ASkyB Transaction, to fulfill the
contractual obligations it will assume and to fund the costs associated with
operating the proposed high power DBS business will depend upon New
PRIMESTAR's future performance, particularly the performance of the proposed
high power DBS business, which is subject to numerous factors, many of which
are beyond New PRIMESTAR's control. See "--Risks of Satellite Failure" and "--
Uncertainty Regarding High Power Strategies." There can be no assurance that
the high power DBS business will be successful or that New PRIMESTAR will
generate sufficient cash flow from operating activities to meet these
obligations. If New PRIMESTAR does not generate sufficient cash flow from
operating activities to meet these obligations New PRIMESTAR may need to seek
additional debt or equity financing, which may not be available on terms
acceptable to New PRIMESTAR. See "--Ability to Service Debt; Restrictive
Covenants; Refinancing Risks," "--Substantial Leverage; Additional
Indebtedness Likely" and "--History of Losses of TSAT and Other Restructuring
Parties."
Failure To Consummate the ASkyB Transaction. The ASkyB Transaction is
subject to regulatory and other conditions. If the ASkyB Transaction is not
consummated, then New PRIMESTAR may not be able to secure access to the
capacity of the 110(degrees) W.L. orbital slot on terms favorable to New
PRIMESTAR or on any terms. Although New PRIMESTAR intends in such event to
pursue the proposed high power DBS business using the transponder capacity of
Tempo DBS-1, failure of New PRIMESTAR to secure the availability of a full
CONUS DBS slot with greater capacity could have an adverse effect on its
proposed high power DBS business. See "--Uncertainty Regarding High Power
Strategies."
EchoStar-News Corp. Litigation. In May 1997, EchoStar filed suit against
News Corp. with respect to their previously announced and then aborted
business combination. EchoStar seeks specific performance and damages against
News Corp., including lost profits alleged by EchoStar to exceed $10 billion
over a ten-year period. In June 1997, News Corp. filed an answer and
counterclaims against EchoStar seeking unspecified damages. News Corp.'s
answer denies all material allegations in EchoStar's amended complaint and
asserts numerous defenses, including bad faith, misconduct and failure to
disclose material information on the part of EchoStar. The parties are now in
discovery. The case has been set for trial commencing June 15, 1998, but that
date may be postponed.
None of TSAT, the Partnership, New PRIMESTAR or any of the other parties to
the Roll-up Plan have been named as defendants in the EchoStar-News Corp.
litigation. However, EchoStar has from time to time threatened to name some or
all of such parties as defendants in such action. Moreover, if EchoStar is
awarded specific performance, News Corp. may be prevented from consummating
the ASkyB Transaction.
In connection with the ASkyB Transaction, News Corp., TSAT, the Partnership,
Time Warner, Comcast, Cox, MediaOne, Newhouse and GE Americom entered into the
ASkyB Indemnification Agreement, which agreement provides for News Corp. to
indemnify the PRIMESTAR Indemnitees (as defined therein) against, and hold
them harmless from, losses, liabilities, claims, damages, costs and expenses
relating to the foregoing claims by EchoStar and/or certain related matters.
DEPENDENCE ON THIRD PARTY PROGRAMMERS
The Borrower will be dependent on third parties to provide The Borrower with
programming. The Partnership's existing programming agreements, of which
approximately 8% expire in 1998, 43% expire in 1999, 24% expire in 2000 and
25% expire at various times between 2001 and 2008, contain various renewal and
cancellation provisions. There can be no assurance that any of these
agreements will be renewed or will not be canceled prior to expiration of
their original term. In the event that any such agreements are not renewed or
are canceled, there can be no assurance that New PRIMESTAR would be able to
obtain or develop substitute programming, or that such substitute programming
would be comparable in quality or cost to the Partnership's
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existing programming. The Partnership's competitors currently offer
substantially the same programming as the Partnership. The ability of New
PRIMESTAR to compete successfully will depend on New PRIMESTAR's ability to
continue to obtain desirable programming and attractively package it to its
customers at competitive prices.
RISK OF SIGNAL PIRACY
In common with all providers of subscription television programming, the
Borrower faces the risk that the PRIMESTAR(R) programming signal will be
obtained by unauthorized users. If signal piracy became widespread, the
Borrower's revenue and cash flow from operations could be adversely affected,
and New PRIMESTAR's ability to contract for video and audio services provided
by programmers could be adversely affected. Historically, signal piracy in the
C-band, cable television and European digital satellite industries has been
widely reported and, more recently, published reports indicate that the
DirecTv and USSB encryption systems have been compromised. While the Borrower
management believes that the encryption method utilized by the Partnership,
which was developed by an affiliate of General Instrument Corporation ("GI"),
has been effective in minimizing signal piracy, and there have been no
published reports of breaches in PRIMESTAR(R) security, there can be no
assurance that changes in technology will not render less effective the anti-
piracy efforts associated with PRIMESTAR(R).
RISK OF TECHNOLOGICAL CHANGES
Technology in the digital satellite television industry is subject to rapid
change, and new technologies are continuously being developed. Some
competitors of the Borrower may have or may obtain access to proprietary
technologies that are perceived by the satellite services industry or
customers as superior to, or more desirable than, the technology of the
Borrower and/or the technology used in the PRIMESTAR(R) system. There can be
no assurance that the Borrower could obtain access to any such technology or
that the lack of any such technology would not adversely affect the ability of
the Borrower to compete with such competitors.
In addition, in order to implement successfully its high power business
plan, the Borrower will need access to statistical multiplexing technology or
other advances in digital compression technology that are currently under
development or being tested by several third parties. Such technology would
enable the Borrower to increase the number of digital program signals that
could be transmitted simultaneously over a single satellite transponder, thus
effectively increasing the digital compression ratio. Although the Borrower
does not currently have any agreement with respect to the use of any such
technology, the Borrower believes that the Borrower would be able to obtain
the rights to use such technology. However, in the event that the Borrower
were unable to obtain such rights, its high power business plan could be
adversely affected.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes will have been registered under the Securities Act.
However, the Exchange Notes will constitute a new issue of securities with no
established trading market. If a trading market does not develop or is not
maintained, holders of the Exchange Notes may experience difficulty in
reselling the Exchange Notes or may be unable to sell them at all. If a market
for the Exchange Notes develops, any such market may be discontinued at any
time. Although the Initial Purchasers (Donaldson, Lufkin & Jenrette Securities
Corporation, Merrill Lynch, Pierce Fenner & Smith Incorporated, NationsBanc
Capital Markets, Inc. and Scotia Capital Markets (USA) Inc.) have advised the
Borrower that they currently intend to make a market in the Exchange Notes,
they are not obligated to do so and may discontinue such market making
activity at any time without notice. In addition, such market making activity
will be subject to the limits imposed by the Securities Act and the Exchange
Act and may be limited during the Exchange Offer and the pendency of any
Registration Statement with respect to resale of the Notes. Accordingly, there
can be no assurance as to the development or liquidity of any market for the
Exchange Notes. The liquidity of any market for the Exchange Notes will depend
upon the number of holders of such Exchange Notes, the interest of securities
dealers in making a market in the Exchange Notes and other factors. The
liquidity of, and trading markets for, the Exchange Notes may also be
negatively
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affected by general declines in the market for noninvestment grade debt
independent of the financial performance of, or prospects for, the Borrower.
The Borrower does not intend, and the Borrower does not anticipate that the
Borrower will, list the Exchange Notes on any national securities exchange or
to seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Notes currently may be sold
pursuant to the restrictions set forth in Rule 144A or Regulation S, or
pursuant to another available exemption under the Securities Act, without
registration under the Securities Act. See "--Restrictions on Transfer."
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Notes pursuant to the
Exchange Offer will be made only after the timely receipt by the Borrower of
such Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Notes desiring to
tender such Notes in exchange for Exchange Notes should allow sufficient time
to ensure timely delivery. The Borrower is under no duty to give notification
of defects or irregularities with respect to the tenders of Notes for
exchange. Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to
the existing restrictions upon transfer thereof and, upon consummation of the
Exchange Offer, the registration rights under the Registration Rights
Agreements generally will terminate. In addition, any holder of Notes who
tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. To the extent that Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Notes could be adversely affected. See "The Exchange
Offer."
THE BORROWER
TSAT
Generally. TSAT is a leading distributor of digital satellite-based
television services in the United States. TSAT markets and distributes
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%
interest in the Partnership, which owns and operates the PRIMESTAR(R) service.
As of September 30, 1997, TSAT was the largest distributor of PRIMESTAR(R),
with an installed base of approximately 769,000 subscribers, which represented
approximately 42.7% of the Partnership's estimated 1.8 million subscribers as
of such date. As of September 30, 1997, TSAT's subscribers comprised
approximately 888,000 Authorized Units. As used herein, the term "Authorized
Units" refers to the number of active authorized satellite receivers or IRDs,
more than one of which may be installed in a subscribing household.
PRIMESTAR(R) offers over 160 channels of digital video and audio programming
throughout the continental U.S., via medium power satellite, to home satellite
dishes approximately 27 to 36 inches in diameter for most subscribers.
TSAT was incorporated in Delaware in November 1996. Prior to the Spin-off
Date, TSAT was a wholly-owned subsidiary of TCI, which, through various
subsidiaries, was engaged in the business of distributing PRIMESTAR(R) since
December 1990. TSAT was formed to own and operate TCI's interests in the
digital satellite business, in connection with the TSAT Spin-off. 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 TSAT Spin-off. TCI is one of the two largest
operators of cable systems in the U.S.
TSAT Series A Common Stock and TSAT Series B Common Stock trade on the
Nasdaq National Market under the symbols "TSATA" and "TSATB," respectively.
The mailing address and telephone number of
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TSAT's principal executive offices are 8085 South Chester, Suite 300,
Englewood, Colorado 80112, (303) 712-4600.
Tempo. Tempo, a wholly-owned subsidiary of TSAT, 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 one of three such orbital positions
available for DBS service to the U.S. which are "full CONUS," meaning that
they have a view of the entire continental U.S.
Tempo is also a party to the Satellite Construction Agreement with Loral,
pursuant to which Tempo has arranged for the construction of the two Tempo
Satellites and has an option to purchase up to three additional satellites.
Construction of the Tempo Satellites has been completed. Tempo DBS-1 was
launched into TSAT's high power slot at 119(degrees) W.L. on March 8, 1997.
The other Tempo Satellite, Tempo DBS-2, presently serves as a ground spare for
Tempo DBS-1.
Tempo DBS-1 is currently undergoing extended in-orbit testing under the
Satellite Construction Agreement. Assuming that such in-orbit testing results
in acceptance of the satellite by Tempo under the Satellite Construction
Agreement, Tempo DBS-1 would be available for commercial operations in the
first quarter of 1998. At current levels of digital compression, Tempo
believes that Tempo DBS-1 would be able to deliver approximately 100 channels
of digital video and 20 channels of digital audio programming, as operated
under the FCC Permit. Tempo expects to use 18 inch dishes for the proposed
high power service, the same diameter currently used by other high power DBS
providers, in most areas. Tempo currently intends to operate Tempo DBS-1 as a
platform to provide high power digital video and audio programming services to
residential customers, as well as MDUs, commercial customers and resellers.
The availability and utility of Tempo DBS-1, including the power levels
provided by Tempo DBS-1, are subject to risks of satellite defect, loss or
reduced performance. Since the launch of Tempo DBS-1, Loral has notified Tempo
of at least five separate occurrences of power reductions on Tempo DBS-1. No
assurance can be given that further power reductions will not occur in the
future. TSAT does not currently know the extent of such power reductions, and
cannot confirm the precise causes thereof; however, such reductions could
eventually affect the proposed operation of Tempo DBS-1, either alone or
together with other events that may arise during the expected life of the
satellite. See "Risk Factors--Risks of Satellite Failure."
Pursuant to the Tempo Option Agreement, Tempo has agreed to sell or lease to
the Partnership 100% of the capacity of any DBS system constructed by Tempo
under the FCC Permit. In connection with the execution and delivery of the
Restructuring Agreement, TSAT and New PRIMESTAR entered into the TSAT Tempo
Agreement dated as of February 6, 1998 (the "TSAT Tempo Agreement"), pursuant
to which, among other things, TSAT granted to New PRIMESTAR (together with its
successors and assigns, the "Option Holder") the exclusive and irrevocable
option (the "Tempo Sale Option"), exercisable at any time during the term of
the TSAT Tempo Agreement, on the terms and subject to the conditions set forth
in the TSAT Tempo Agreement, upon receipt of FCC approval of the transfer of
control of Tempo to New PRIMESTAR (including approval of a transfer in
anticipation of a subsequent sale), to purchase from TSAT (at the Option
Holder's election) either (x) all the issued and outstanding shares of capital
stock of Tempo or (y) all the rights, title and interests of TSAT in, to and
under the Tempo Assets (as defined below), in either case for an aggregate
purchase price equal to $2.5 million plus, in the case of (y), the assumption
by the Option Holder of all obligations and liabilities of Tempo in respect of
the Tempo Assets, other than those incurred in violation of the TSAT Tempo
Agreement (either such transaction being referred to herein as the "Tempo
Sale"). If the Option Holder exercises the Tempo Sale Option and elects to
consummate the Tempo Sale via clause (y) above, then TSAT will liquidate Tempo
immediately prior to the closing of the Tempo Sale. The Option Holder, in its
sole discretion, is entitled to assign the TSAT Tempo Agreement and New
PRIMESTAR's rights, interests and obligations thereunder at any time. "Tempo
Assets" means (i) the FCC Permit, (ii) the Tempo Satellites, (iii) the
Satellite Construction Agreement, and (iv) all rights, claims and causes of
action under the Satellite Construction Agreement, all insurance claims in
respect of the Tempo Satellites, and Tempo's rights under the Tempo Option
Agreement. If the TSAT Merger
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or the Tempo Sale is consummated, New PRIMESTAR will operate Tempo's high
power DBS system. Otherwise, TSAT expects that such system will be utilized by
the Partnership pursuant to the Tempo Option Agreement. See "Risk Factors--
Uncertainty Regarding High Power Strategies."
OTHER RESTRUCTURING PARTIES
The Partnership. The Partnership owns and operates PRIMESTAR(R), which is
the oldest Ku-band satellite television service in the U.S. and has the second
largest subscriber base of any U.S. digital satellite television service. In
1990, direct or indirect subsidiaries of TCI and several other large cable
operators and GEAS, an indirect subsidiary of GE, formed the Partnership to
acquire, originate and/or provide television programming services for delivery
by satellite to subscribers in the continental U.S. Initially, PRIMESTAR(R)
was an analog service limited to seven broadcast television superstations, TV
Japan and three pay-per-view stations. In 1994, PRIMESTAR(R) was among the
first satellite television services to use digital transmission and
compression technology to offer laser-disc-quality image and compact-disc-
quality sound. The Partnership has consistently taken advantage of
technological improvements and additional available transponder capacity to
improve the PRIMESTAR(R) service, which today offers over 160 channels of
digital video and audio programming.
In addition to TSAT, the Partners include (i) Cox SI, a subsidiary of Cox,
(ii) Comcast DBS, a subsidiary of Comcast, (iii) Continental, a subsidiary of
US WEST, Inc., the parent of MediaOne, (iv) New Vision Satellite, a
partnership controlled by Newhouse, which is a subsidiary of Newhouse
Broadcasting, (v) TW Programming Co., a partnership controlled by TWE, which
is a subsidiary of Time Warner, and (vi) GEAS, a subsidiary of GE, the parent
of GE Americom. Each of TSAT (through its subsidiaries) and TW Programming Co.
holds a 20.86% Partnership Interest, each of Cox SI, Comcast DBS, Continental
and New Vision Satellite holds a 10.43% Partnership Interest, and GEAS holds a
16.56% Partnership Interest. Time Warner has substantial interests, through
its subsidiaries and controlled partnerships, in video programming and
distribution, and is one of the two largest operators of cable systems in the
U.S. Cox, Comcast and MediaOne are also among the five largest cable system
operators.
Pursuant to the Partnership Agreement, the business and affairs of the
Partnership are managed and controlled by the Partners Committee, which is
composed of representatives of each of the Partners and two independent
members. TSAT has two voting representatives on the Partners Committee, Time
Warner has two voting representatives, and Cox, Comcast, MediaOne, Newhouse
and GE each have one voting representative.
The PRIMESTAR(R) programming service 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. The Partnership
secures its rights to transmit 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.
The Partnership currently plans to participate in the high power segment of
the digital satellite industry. In that connection, the Partnership has agreed
to purchase or lease from Tempo 100% of the capacity of any DBS system
constructed by Tempo under the FCC Permit pursuant to the Tempo Option
Agreement. In addition, the Partnership has entered into the ASkyB Agreement,
which provides for the sale and transfer to New PRIMESTAR of the MCI
Satellites), certain authorizations granted to MCI by the FCC to operate a DBS
business at the 110(degrees) W.L. orbital location using 28 transponder
channels, and certain related contracts. The ASkyB Agreement requires New
PRIMESTAR to bear certain risks in connection with the process of obtaining
the regulatory approval related to such transfers, including the divestiture
of all rights of the Partnership and any of the Partners under Tempo's FCC
authorizations with respect to the 11 transponder channels at 119(degrees)
W.L., if required as a condition to such approval. Consummation of the ASkyB
Transaction is contingent on, among other things, receipt of all necessary
government and regulatory approvals, and accordingly, no assurance can be
given that the ASkyB Transaction will be consummated.
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The mailing address and telephone number of the Partnership's principal
executive offices are 3 Bala Plaza West, Suite 700, Bala Cynwyd, Pennsylvania
19004, (610) 617-5300.
Other PRIMESTAR(R) Distributors. PRIMESTAR(R) is distributed through TSAT
and the other Distributors, each of which is currently affiliated with one or
more of the Partners. The Distributors market the PRIMESTAR(R) service and
contract with subscribers, in non-exclusive territories assigned by the
Partnership. The Distributors set their own retail pricing and are responsible
in their respective territories for authorization of subscribers,
installation, maintenance and retrieval of customer premises equipment, and
billing and collection of monthly and other fees, and the Distributors bear
all risks of loss relating thereto. The Partnership performs certain
administrative functions for the Distributors, including program acquisition,
national marketing, transponder leasing and certain technical functions, and
passes along the costs relating thereto to the Distributors.
New PRIMESTAR. New PRIMESTAR, a newly formed Delaware corporation, is a
wholly-owned subsidiary of TSAT that has not conducted any significant
activities other than those incident to its formation, the execution of the
Restructuring Agreement, the TSAT Merger Agreement and Asset Transfer
Agreements, and related financing activities relating to the Restructuring
Transaction. As a result of the pending Restructuring Transaction and pursuant
to the Restructuring Agreement, the Merger Agreements and the Asset Transfer
Agreements, New PRIMESTAR will acquire the TSAT Business, the Partnership
Interests of the other Partners and the PRIMESTAR Assets of the other
Distributors. It is expected that, measured by the number of subscribers, New
PRIMESTAR will be the second largest provider of satellite television services
in the United States. The mailing address and the telephone number of New
PRIMESTAR's principal executive offices are 8085 South Chester, Suite 300,
Englewood Colorado 80122, (303) 712-4600.
THE ROLL-UP PLAN
Restructuring Transaction. On February 6, 1998, TSAT entered into (i) the
Restructuring Agreement, (ii) the TSAT Asset Transfer Agreement and (iii) the
TSAT Merger Agreement. The transactions contemplated under the Restructuring
Agreement and the TSAT Asset Transfer Agreement comprise the Restructuring
Transaction, which, if consummated, shall result in New PRIMESTAR's owning the
entire PRIMESTAR(R) digital satellite business. Upon consummation of the
Restructuring Transaction, TSAT and its former partners in that business (or
their respective affiliates) will, in the aggregate, own all the outstanding
capital stock of New PRIMESTAR.
The proposed Restructuring Transaction provides for, among other things, the
following transactions to occur on the closing date of the Restructuring
Transaction:
(x) the contribution and transfer by TSAT to New PRIMESTAR pursuant to
the TSAT Asset Transfer Agreement (the "TSAT Asset Transfer") of all of the
assets and liabilities of TSAT (including, among other things, the Notes
and the Exchange Notes), except (i) the capital stock of Tempo, (ii) the
consideration to be received by TSAT in the Restructuring Transaction and
(iii) the rights and obligations of TSAT under certain agreements with New
PRIMESTAR. Concurrently with the consummation of the TSAT Asset Transfer,
New PRIMESTAR will adopt the New PRIMESTAR Charter and bylaws ("New
PRIMESTAR Bylaws");
(y) the merger (each a "Merger" and, collectively, the "Mergers") of each
of (I) Comcast DBS, a subsidiary of Comcast whose sole asset is Comcast's
10.43% interest in the Partnership, (II) Comcast SCI, a subsidiary of
Comcast that holds Comcast's PRIMESTAR(R) distribution business, (III) Cox
SI, a subsidiary of Cox that holds Cox's 10.43% interest in the Partnership
and Cox's PRIMESTAR(R) distribution business, and (IV) GEAS, a subsidiary
of GE Americom that holds GE Americom's 16.56% interest in the Partnership,
with and into New PRIMESTAR, in each case in accordance with the terms of a
merger agreement with New PRIMESTAR dated as of February 6, 1998 (each, a
"Merger Agreement" and, collectively, the "Merger Agreements"); and
(z) the contribution and transfer to New PRIMESTAR by each of TWE,
Newhouse and MediaOne (or, in the case of MediaOne, certain subsidiaries of
MediaOne) of its respective Partnership Interest, and its PRIMESTAR(R)
subscribers and certain other related assets (collectively, and together
with all such assets
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to be acquired by New PRIMESTAR in the Restructuring Transaction, the
"PRIMESTAR Assets") and related liabilities (collectively the "PRIMESTAR
Liabilities"), in each case in accordance with the terms of an asset
transfer agreement with New PRIMESTAR dated as of February 6, 1998. The
TSAT Asset Transfer and the contribution and transfer of assets by each of
TWE, Newhouse and MediaOne are each sometimes referred to herein as an
"Asset Transfer" and collectively as the "Asset Transfers," and the TSAT
Asset Transfer Agreement and the asset transfer agreements between New
PRIMESTAR and each of TWE, Newhouse and MediaOne (and certain of its
subsidiaries) are each sometimes referred to herein as an "Asset Transfer
Agreement" and collectively as the "Asset Transfer Agreements." In
addition, references herein to "MediaOne" include the subsidiaries of
MediaOne that are parties to MediaOne's Asset Transfer Agreement with New
PRIMESTAR, unless the context otherwise requires.
In connection with the Mergers and the Asset Transfers, each of TSAT,
Comcast, Cox, MediaOne, Newhouse, TWE and GE Americom will, directly or
indirectly, receive from New PRIMESTAR (i) in the case of Cox and MediaOne, an
amount of cash, and in the case of TSAT, Newhouse, TWE, Comcast and GE
Americom, an assumption of indebtedness by New PRIMESTAR, (ii) shares of New
PRIMESTAR Class A Common Stock, (iii) in the case of TSAT only, shares of New
PRIMESTAR Class B Common Stock, and (iv) except in the case of TSAT and GE
Americom, shares of New PRIMESTAR Class C Common Stock, in each case in an
amount determined pursuant to the Restructuring Agreement.
Under the terms of the Restructuring Agreement, TSAT will own approximately
36% of the outstanding shares of common equity of New PRIMESTAR at the closing
of the Restructuring Transaction, and TWE and Newhouse (collectively),
Comcast, MediaOne, Cox and GE Americom will own approximately 31%, 10%, 9%, 9%
and 5%, respectively, of the outstanding shares of common equity of New
PRIMESTAR at closing, subject in each case to adjustments based on closing
subscriber counts.
TSAT Merger. The Restructuring Transaction comprises the first step in
TSAT's proposed two-step Roll-up Plan. The second step of the Roll-up Plan
consists of the TSAT Merger, pursuant to which TSAT shall merge with and into
New PRIMESTAR, with New PRIMESTAR as the surviving corporation, in accordance
with the TSAT Merger Agreement. It is expected that the TSAT Merger shall be
consummated after the consummation of the Restructuring Transaction.
Consummation of the Restructuring Transaction and the TSAT Merger are subject
to approval of the stockholders of TSAT. TSAT has called a special meeting of
its stockholders, to be held on March 6, 1998, to consider and vote upon the
Restructuring Transaction and the TSAT Merger. In addition, the TSAT Merger is
subject to regulatory approval and other closing conditions set forth in the
TSAT Merger Agreement; accordingly, although the Roll-up Plan envisions that
the TSAT Merger will be consummated upon the consummation of the Restructuring
Transaction, there can be no assurance that the TSAT Merger will be
consummated, even if the Restructuring Transaction is consummated.
In connection with the TSAT Merger (i) each outstanding share of TSAT Series
A Common Stock will be converted into the right to receive one share of New
PRIMESTAR Class A Common Stock and (ii) each outstanding share of TSAT Series
B Common Stock will be converted into the right to receive one share of New
PRIMESTAR Class B Common Stock. Each share of New PRIMESTAR's common stock
then held by TSAT will be canceled. As a result of the TSAT Merger,
stockholders of TSAT, at closing, will own approximately 34% of the
outstanding shares of New PRIMESTAR Common Stock.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Borrower on February 20, 1997, and were
subsequently placed with qualified institutional buyers in reliance on Rule
144A under the Securities Act. The aggregate net proceeds from the issuance of
the Notes (approximately $340 million after deducting offering costs) were
initially held in escrow and were subsequently released to TSAT on March 17,
1997. TSAT used $244 million of such net proceeds to repay amounts outstanding
under the Bank Credit Facility. Maximum commitments under the Bank Credit
Facility ($750 million at December 31, 1997) are reduced quarterly commencing
March 31, 2001 until final maturity at June 30, 2005. Amounts outstanding
under the Bank Credit Facility accrue interest at a variable rate of interest,
which, at December 31, 1997, was equal to 7.2%. In connection with the Notes
Offering, the Borrower entered into the Registration Rights Agreements, which
require, among other things, that promptly following the sale of the Notes,
the Borrower would (i) file with the SEC a registration statement under the
Securities Act with respect to corresponding new notes of the Borrower
identical in all material respects to the Notes, (ii) use its best efforts to
cause such registration statement to become effective under the Securities Act
and (iii) upon the effectiveness of such registration statement, offer to the
holders of the Notes the opportunity to exchange their Notes for a like
principal amount of Exchange Notes, which would be issued without a
restrictive legend and may be reoffered and resold by the holder without
restrictions or limitations under the Securities Act (other than in the case
of any such holder that is an "affiliate" of the Borrower within the meaning
of Rule 405 under the Securities Act). Copies of the Registration Rights
Agreements have been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
The Exchange Offer is for any and all Notes, and thus, the number of Notes
tendered and exchanged in the Exchange Offer will reduce the principal amount
of Notes outstanding. Following the consummation of the Exchange Offer,
holders of the Notes who did not tender their Notes will not have any further
registration rights under the Registration Rights Agreements, and such Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Notes could be adversely affected. The
Notes are currently eligible for sale pursuant to Rule 144A through the PORTAL
System of the National Association of Securities Dealers, Inc. In light of the
absence of resale restrictions on the Exchange Notes under the Securities Act,
the Borrower anticipates that most holders of Notes will elect to exchange
such Notes for Exchange Notes, and accordingly, the Borrower anticipates that
the liquidity of the market for any Notes remaining after the consummation of
the Exchange Offer may be substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Borrower will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time on
the Expiration Date. The Borrower will issue $1,000 principal amount of
Exchange Notes in exchange for $1,000 principal amount of outstanding Notes
accepted in the Exchange Offer. Holders may tender some or all of their Notes
pursuant to the Exchange Offer. However, Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer
thereof thereunder and (ii) the holders of the Exchange Notes will not be
entitled to certain rights under the Registration Rights Agreements (such
rights are hereafter referred to as "Registration Rights"). Holders of Notes
currently have Registration Rights under the Registration Rights Agreement,
but such Registration Rights will generally terminate upon consummation of the
Exchange Offer. The Exchange Notes will evidence the same debt as the Notes
and will be entitled to the benefits set forth in the Indentures, except such
benefits that, by their terms, terminate or cease to have any effectiveness as
a result of the Exchange Offer.
As of the date of this Prospectus, (i) $200,000,000 aggregate principal
amount of the Senior Subordinated Notes was outstanding, all of which was
registered in the name of Cede & Co., as nominee for the Depository,
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and (ii) $275,000,000 aggregate principal amount at maturity of the Senior
Subordinated Discount Notes was outstanding, all of which was registered in
the name of Cede & Co., as nominee for the Depository. The Borrower has fixed
the close of business on February 26, 1998 as the record date for the Exchange
Offer for purposes of determining the persons to whom this Prospectus and the
Letter of Transmittal will be mailed initially.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indentures in connection with the
Exchange Offer. The Borrower intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the SEC thereunder, including Rule 14e-1 thereunder.
The Borrower shall be deemed to have accepted validly tendered Notes when,
as and if the Borrower has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Borrower.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Borrower will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange
Offer. See "--Fees and Expenses." The Borrower will not receive any proceeds
from the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
March 30, 1998, unless the Borrower, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Borrower will notify the Exchange Agent of
any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time,
on the next business day after the previously scheduled expiration date.
The Borrower reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "--Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent and (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders. If the Exchange Offer is
amended in a manner determined by the Borrower to constitute a material
change, the Borrower will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and,
depending upon the significance of the amendment and the manner of disclosure
to the registered holders, the Borrower will extend the Exchange Offer for a
period of five to ten business days if the Exchange Offer would otherwise
expire during such five to ten business day period.
If the Borrower does not consummate the Exchange Offer, or, in lieu thereof,
the Borrower does not file and cause to become effective a resale shelf
registration for the Notes within the time periods set forth herein, special
interest will accrue and be payable on the Notes either temporarily or
permanently. See "Description of Exchange Notes--Registration Covenant;
Exchange Offer."
Without limiting the manner in which the Borrower may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Borrower shall have no obligation to publish,
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advertise or otherwise communicate any such public announcement, other than by
making a timely release to the Dow Jones News Service.
INTEREST ON EXCHANGE NOTES
Cash interest on the Senior Subordinated Exchange Notes will accrue at a
rate of 10 7/8% per annum, commencing February 20, 1997, the date of issuance
of the Notes, and will be payable semi-annually in arrears on each February 15
and August 15, commencing August 15, 1998. See "Description of the Exchange
Notes--Maturity, Interest and Principal of the Senior Subordinated Notes."
Accordingly, holders of Senior Subordinated Notes that are accepted for
exchange will not receive interest that is accrued but unpaid on such Notes at
the time of tender.
Cash interest will not accrue or be payable on the Senior Subordinated
Discount Exchange Notes prior to February 15, 2002. Thereafter, cash interest
on the Senior Subordinated Discount Exchange Notes will accrue at a rate of 12
1/4% per annum and will be payable semi-annually in arrears on each February
15 and August 15, commencing August 15, 2002; provided, however, that at any
time prior to February 15, 2002, the Borrower may make a Cash Interest
Election on any interest payment date to commence the accrual of cash interest
from and after the Cash Interest Election Date, in which case the outstanding
principal amount at maturity of each Senior Subordinated Discount Exchange
Note will on such interest payment date be reduced to the Accreted Value of
such Senior Subordinated Discount Exchange Note 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 Senior
Subordinated Discount Exchange Note on each interest payment date thereafter.
See "Description of the Exchange Notes--Maturity, Interest and Principal of
the Senior Subordinated Discount Notes."
The Senior Subordinated Notes were issued at par. The Senior Subordinated
Discount Notes were issued at a discount to their aggregate principal amount
at maturity, with a yield to maturity calculated from the issuance date of 12
1/4% (computed on a semi-annual bond equivalent basis). In the Exchange Offer,
properly tendering holders will receive Senior Subordinated Discount Exchange
Notes having an aggregate principal amount at maturity equal to the aggregate
principal amount at maturity of the Senior Subordinated Discount Notes so
tendered. Accordingly, holders of Senior Subordinated Discount Notes that are
accepted for exchange will not receive payment for any increase in Accreted
Value on such Notes at the time of tender.
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Notes, Letter of
Transmittal and other required documents must be received by the Exchange
Agent at the address set forth below under "Exchange Agent" prior to 5:00
p.m., New York City time, on the Expiration Date. Delivery of the Notes may be
made by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the
Borrower the representation set forth below in the second paragraph under the
heading "Resale of Exchange Notes."
The tender by a holder and the acceptance thereof by the Borrower will
constitute an agreement between such holder and the Borrower in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
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HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE
BORROWER. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Notes listed therein, such Notes must be endorsed or accompanied
by a properly completed bond power, signed by such registered holder as such
registered holder's name appears on such Notes with the signature thereon
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Borrower,
evidence satisfactory to the Borrower of their authority to so act must be
submitted with the Letter of Transmittal.
The Borrower understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect
to the Notes at the Depository (the "Book-Entry Transfer Facility") for the
purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of the Notes by
causing the Book- Entry Transfer Facility to transfer such Notes into the
Exchange Agent's account with respect to the Notes in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. Although delivery
of the Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will
be determined by the Borrower in its sole discretion, which determination will
be final and binding. The Borrower reserves the absolute right to reject any
and all Notes not properly tendered or any Notes the Borrower's acceptance of
which would, in the opinion of counsel for the Borrower, be unlawful. The
Borrower also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Notes. The Borrower's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Notes must
be cured within such time as the Borrower shall
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determine. Although the Borrower intends to notify holders of defects or
irregularities with respect to tenders of Notes, neither the Borrower, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the Exchange Agent to the tendering holders, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration
Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the certificates(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) and any other documents required by the Letter of Transmittal,
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) and all other documents required by the Letter of Transmittal,
are received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at
its address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by book-
entry transfer, the name and number of the account at the Book-Entry Transfer
Facility to be credited), (iii) be signed by the holder in the same manner as
the original signature on the Letter of Transmittal by which such Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Notes
register the transfer of such Notes into the name of the person withdrawing
the tender and (iv) specify the name in which any such Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Borrower, whose determination shall be final and
binding on all parties. Any Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Notes so withdrawn are validly
retendered. Any Notes which have been tendered but which are not accepted for
exchange will be returned to the holder
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thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Notes may be retendered by following one of the procedures described above
under "--Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Borrower shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Notes, if:
(a) any law, statute, rule, regulation or interpretation by the staff of
the SEC is proposed, adopted or enacted, which, in the sole judgment of the
Borrower, might materially impair the ability of the Borrower to proceed
with the Exchange Offer or materially impair the contemplated benefits of
the Exchange Offer to the Borrower; or
(b) any governmental approval has not been obtained, which approval the
Borrower shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Borrower determines in its reasonable judgment that any of the
conditions are not satisfied, the Borrower may (i) refuse to accept any Notes
and return all tendered Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such
Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Notes which have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Borrower will promptly disclose such waiver
by means of a prospectus supplement that will be distributed to the registered
holders, and, depending upon the significance of the waiver and the manner of
disclosure to the registered holders, the Borrower will extend the Exchange
Offer for a period of five to ten business days if the Exchange Offer would
otherwise expire during such five to ten business-day period.
EXCHANGE AGENT
The Bank of New York will act as Exchange Agent for the Exchange Offer.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent, addressed as
follows:
By Registered or Certified Mail:
The Bank of New York
101 Barclay Street, 7E
New York, New York 10286
Attention: Reorganization Section Nathalie Simon
By Hand or Overnight Delivery:
The Bank of New York
101 Barclay Street
Corporate Trust Services Window
Ground Level
Attention: Reorganization Section Nathalie Simon
New York, New York 10286
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<PAGE>
By Facsimile (Eligible Institutions Only):
(212) 815-6339
Confirm: (212) 815-5788
For Information Call: (212) 815-5788
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Borrower. The
principal solicitation is being made by mail; however, additional
solicitations may be made by telegraph, telephone or in person by officers and
regular employees of the Borrower and its affiliates.
The Borrower has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Borrower, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith
and pay other registration expenses, including fees and expenses of the
Trustee, filing fees, blue sky fees and printing and distribution expenses.
The Borrower will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued
in the name of, any person other than the registered holder of the Notes
tendered, or if tendered Notes are registered in the name of any person other
than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of the Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other person) will be payable by the tendering
holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Notes,
as reflected in the Borrower's accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties, the Borrower believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Notes may be offered for
resale, resold and otherwise transferred by any holder of such Exchange Notes
(other than any such holder which is an "affiliate" of the Borrower within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business and such holder does not intend to participate, and has no
arrangement or understanding with any person to participate, in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer with the intention to participate, or for the purpose of participating,
in a distribution of the Exchange Notes may not rely on the position of the
staff of the SEC enunciated in Exxon Capital Holdings Corporation (available
April 13, 1989) and Morgan Stanley & Co., Incorporated (available June 5,
1991), or similar no-action letters, but rather must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K of the Securities Act. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Notes, where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, may be a statutory underwriter and must acknowledge
that it will deliver a prospectus in connection with any resale of such
Exchange Notes.
Broker-dealers who have acquired Notes directly from TSAT are not permitted
to exchange such Notes in the Exchange Offer.
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<PAGE>
By tendering in the Exchange Offer, each holder will represent to the
Borrower that, among other things, (i) any Exchange Notes to be received by
the holder are being acquired in the ordinary course of its business, (ii) the
holder has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of Exchange Notes to
be received in the Exchange Offer, and (iii) if the holder is not a broker-
dealer, the holder is not engaged in, and does not intend to engage in, a
distribution (within the meaning of the Securities Act) of such Exchange
Securities. By tendering Notes pursuant to the Exchange Offer and executing
the Letter of Transmittal, a holder of Notes which is a broker-dealer
represents and agrees, consistent with certain interpretive letters issued by
the staff of the Division of Corporation Finance of the Securities and
Exchange Commission to third parties, that (a) such Notes held by the broker-
dealer are held only as a nominee or (b) such Notes were acquired by such
broker-dealer for its own account as a result of market-making activities or
other trading activities and it will deliver a copy of this prospectus in
connection with any resale of Exchange Securities (provided that, by so
acknowledging and by delivering a prospectus, such broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act). Further, by tendering in the Exchange Offer, each holder that
may be deemed an "affiliate" (as defined under Rule 405 of the Securities Act)
of the Borrower will represent to the Borrower that such holder understands
and acknowledges that the Exchange Notes may not be offered for resale, resold
or otherwise transferred by that holder without registration under the
Securities Act or an exemption therefrom.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of the Exchange Offer, the Borrower will have
fulfilled one of its obligations under the Registration Rights Agreements, and
holders of Notes who do not tender their Notes will not have any further
registration rights under the Registration Rights Agreements or otherwise.
Accordingly, any holder of Notes that does not exchange that holder's Notes
for Exchange Notes will continue to hold the untendered Notes and will be
entitled to all the rights and limitations applicable thereto under the
applicable Indenture, except to the extent such rights or limitations that, by
their terms, terminate or cease to have further effectiveness as a result of
the Exchange Offer.
The Notes that are not exchanged for Exchange Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may be resold
only (i) to the Borrower (upon redemption thereof or otherwise), (ii) pursuant
to an effective registration statement under the Securities Act, (iii) so long
as the Notes are eligible for resale pursuant to Rule 144A, to a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act
in a transaction meeting the requirements of Rule 144A, (iv) outside the
United States to a foreign person pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) to an institutional accredited investor that, prior to such
transfer, furnishes to the Bank of New York, as Trustee, a signed letter
containing certain representations and agreements relating to the restrictions
on transfer of the Notes evidenced thereby (the form of which letter can be
obtained from such Trustee) or (vi) pursuant to another available exemption
from the registration requirements of the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
Accordingly, if any Notes are tendered and accepted in the Exchange Offer,
the trading market for the untendered Notes could be adversely affected.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Notes are urged to
consult their financial and tax advisors in making their own decision on what
action to take.
The Borrower may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange
offers or otherwise. However, the Borrower has no present plans to acquire any
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any untendered Notes.
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<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
Each tranche of the Exchange Notes will be issued as a separate series of
notes pursuant to the same Indenture governing the corresponding tranche of
Notes for which each such tranche of Exchange Notes was exchanged. The form
and the terms of the Exchange Notes and the Notes will be substantially
identical to each other (including with respect to principal amount, interest
rate, maturity and redemption rights), except that (i) the offering and sale
of the Exchange Notes has been registered under the Securities Act and,
therefore, the Exchange Notes shall not bear certain legends restricting the
transfer thereof and (ii) the holders of Exchange Notes will not be entitled
to further registration rights under the Registration Rights Agreements, which
rights will be satisfied when the Exchange Offer is consummated. Under the
terms of the Indentures, the covenants and events of default will apply
equally to the Exchange Notes and the Notes, and the Exchange Notes and the
Notes will be treated as one class for all actions to be taken by the holders
thereof and for determining their respective rights under the Indentures,
including, without limitation, amendments, waivers and redemptions. For
purposes of this "Description of Exchange Notes" section all references herein
to "Notes" shall be deemed to refer collectively to Notes and Exchange Notes,
all references to "Senior Subordinated Notes" shall be deemed to refer
collectively to Senior Subordinated Notes and Senior Subordinated Exchange
Notes, and all references herein to "Senior Subordinated Discount Notes" shall
be deemed to refer collectively to Senior Subordinated Discount Notes and
Senior Subordinated Discount Exchange Notes, unless in any such case the
context otherwise requires. The terms of the Notes include those set forth in
the Indentures and those made a part of the Indentures by reference to the
TIA.
The following summary of certain provisions of the Indentures and the
Registration Rights Agreements does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the TIA, and to all of
the provisions of the Indentures and the Registration Rights Agreements,
including the definitions of certain terms therein and those terms made a part
of the Indentures by reference to the TIA, as in effect on the date of the
Indentures. The Notes are subject to all such terms, and holders of the Notes
are referred to the Indentures, a copy of which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part and is
available in the manner described under "Available Information." Certain
defined terms used primarily in this section are set forth below under "--
Certain Definitions." Unless otherwise indicated, references under this
caption to sections, "(S)" or articles are references to sections and articles
of the Indentures. References in this "Description of the Exchange Notes"
section to the "Borrower" mean only TCI Satellite Entertainment, Inc. or
PRIMESTAR, Inc., as the case may be, and not any of their respective
Subsidiaries.
Upon any exchange of Notes for Exchange Notes pursuant to the Exchange
Offer, the Notes so exchanged shall be canceled and shall no longer be deemed
outstanding for any purpose. In no event shall the aggregate principal amount
of all Senior Subordinated Notes and Senior Subordinated Exchange Notes
outstanding exceed $200,000,000, and in no event shall the aggregate principal
amount at maturity of all Senior Subordinated Discount Notes and Senior
Subordinated Discount Exchange Notes outstanding exceed $275,000,000.
If the Borrower does not consummate the Exchange Offer, or, in lieu thereof,
the Borrower does not file and cause to become effective a resale shelf
registration for the Notes within the time periods set forth herein,
additional interest will continue to accrue and be payable on the Notes either
temporarily or permanently. See "--Registration Rights; Exchange Offer."
Transfers of Notes may be made only by presentation of the Notes, duly
endorsed, to the Trustee for registration of transfer on the Security Register
maintained by the Trustee for such purposes. Unless and until a Note is duly
presented to the Trustee for registration of transfer, the Borrower and the
Trustee may treat the Person in whose name such Note is registered on the
Security Register as the sole owner thereof for all purposes under the
applicable Indenture, notwithstanding any notice to the contrary.
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000 the Borrower will
appoint The Bank of New York to serve as registrar and paying agent
52
<PAGE>
under the Indentures at its offices at 101 Barclay Street, New York, New York
10286. No service charge will be made for any registration of transfer or
exchange of the Notes, except for any tax or other governmental charge that
may be imposed in connection therewith.
RANKING
The Notes will rank junior to, and be subordinated in right of payment to,
all existing and future Senior Indebtedness of the Borrower, pari passu in
right of payment with all senior subordinated Indebtedness of the Borrower and
senior in right of payment to all Subordinated Indebtedness of the Borrower.
As of December 31, 1997, the Borrower had approximately $48,000,000 of Senior
Indebtedness outstanding, which consisted of borrowings outstanding under the
Bank Credit Facility. The Bank Credit Facility is guaranteed by all the direct
and indirect Subsidiaries of the Borrower, other than Tempo, and, therefore,
the Notes are structurally subordinated to all obligations under the Bank
Credit Facility. the Borrower will not be permitted to incur any debt that is
subordinated in right of payment to any Senior Indebtedness of the Borrower
and senior in right of payment to the Notes.
The Notes will not be entitled to any security and will not be entitled to
the benefit of any guarantees, except under the circumstances described under
"--Certain Covenants; Limitation on Indebtedness."
MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes will be limited to $200,000,000 aggregate
principal amount (the "Senior Subordinated Aggregate Principal Amount") and
will mature on February 15, 2007. Cash interest on the Senior Subordinated
Notes accrues at a rate of 10 7/8% per annum and is payable semi-annually in
arrears on each February 15 and August 15, to the holders of record at the
close of business on February 1 and August 1, respectively, immediately
preceding such interest payment date. Cash interest on the Senior Subordinated
Exchange Notes will be payable semi-annually in arrears commencing August 15,
1998 and each February 15 and August 15 thereafter until maturity, to the
holders of record at the close of business on February 1 and August 1,
respectively immediately preceding such interest payment date. Cash interest
will accrue from the most recent interest payment date to which interest has
been paid or, if no interest has been paid, from February 20, 1997. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR SUBORDINATED DISCOUNT NOTES
The Senior Subordinated Discount Notes will be limited to $275,000,000
aggregate principal amount at maturity (the "Senior Subordinated Discount
Aggregate Principal Amount") and will mature on February 15, 2007. The Senior
Subordinated Discount Notes were issued at a discount to their aggregate
principal amount at maturity and generated gross proceeds to the Borrower of
approximately $152,061,250. Based on the issue price thereof, the yield to
maturity of the Senior Subordinated Discount Notes and all Senior Subordinated
Discount Exchange Notes issued in exchange therefor is 12 1/4% (computed on a
semi-annual bond equivalent basis), calculated from February 20, 1997. See
"Certain Federal Income Tax Considerations."
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 each February 15 and August 15, commencing on August 15, 2002, to
the holders of record at the close of business on the February 1 and August 1,
respectively, immediately preceding such interest payment date; provided,
however, that at any time prior to February 15, 2002, the Borrower 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 Senior Subordinated
Discount Note will on such interest payment date be reduced to the Accreted
Value of such note 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 Senior Subordinated Discount Note on
each interest payment date thereafter. Cash interest will accrue from the most
recent interest payment date to which interest has been paid or, if no
interest has been paid, from February 15,
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<PAGE>
2002 or the Cash Interest Election Date, if earlier. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
Optional Redemption of Senior Subordinated Notes. The Senior Subordinated
Notes will be redeemable at the option of the Borrower, in whole or in part,
at any 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 12-
month period beginning on February 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002........................................ 105.438%
2003........................................ 103.625%
2004........................................ 101.813%
2005 and thereafter......................... 100.000%
</TABLE>
In addition, prior to February 15, 2000, the Borrower may, other than in any
circumstance resulting in a Change of Control, redeem up to 35% of the Senior
Subordinated Aggregate Principal Amount at a redemption price equal to
110.875% of the principal amount of the Senior Subordinated Notes 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 Borrower or (b) a sale or series of related sales of Qualified
Equity Interests of the Borrower to Strategic Equity Investors, in any such
case resulting in gross cash proceeds to the Borrower of at least $100.0
million in the aggregate; provided, however, that Senior Subordinated Notes in
an aggregate principal amount not less than the 65% of the Senior Subordinated
Aggregate Principal Amount would remain outstanding immediately after giving
effect to any such redemption (excluding any Senior Subordinated Notes owned
by the Borrower 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 Borrower to Strategic Equity
Investors resulting in gross cash proceeds to the Borrower, when aggregated
with all prior Public Equity Offerings and sales of Qualified Equity Interests
of the Borrower to Strategic Equity Investors, of at least $100.0 million.
Optional Redemption of Senior Subordinated Discount Notes. The Senior
Subordinated Discount Notes will be redeemable at the option of the Borrower,
in whole or in part, at any 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 12-month period beginning on February
15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002........................................ 106.125%
2003........................................ 104.083%
2004........................................ 102.042%
2005 and thereafter......................... 100.000%
</TABLE>
In addition, prior to February 15, 2000, the Borrower 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 the Senior Subordinated
Discount Notes at a redemption price equal to 112.250% of the Accreted Value
of the Senior Subordinated Discount Notes 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 Senior Subordinated Discount Notes 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 Borrower or (b) a sale or series of related sales of Qualified Equity
Interests of the Borrower to Strategic Equity Investors, in any such case
resulting in gross cash proceeds
54
<PAGE>
to the Borrower of at least $100.0 million in the aggregate; provided,
however, that at least 65% of the originally issued principal amount at
maturity of the Senior Subordinated Discount Notes would remain outstanding
immediately after giving effect to any such redemption (excluding any Senior
Subordinated Discount Notes owned by the Borrower 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
Borrower to Strategic Equity Investors resulting in gross cash proceeds to the
Borrower, when aggregated with all prior Public Equity Offerings and sales of
Qualified Equity Interests of the Borrower to Strategic Equity Investors, of
at least $100.0 million.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of either tranche of the Notes are to be
redeemed at any time pursuant to an optional redemption, selection of such
Notes for redemption will be made by the applicable Trustee in compliance with
the requirements of the principal national securities exchange, if any, on
which such Notes are listed or, if such Notes are not then listed on a
national securities exchange, on a pro rata basis, by lot or by such method as
the applicable Trustee shall deem fair and appropriate; provided, however,
that no Notes of a principal amount or principal amount at maturity, as the
case may be, of $1,000 or less shall be redeemed in part; provided, further,
however, that if a partial redemption is made with the proceeds of a Public
Equity Offering or sale or series of related sales of Qualified Equity
Interests of the Borrower to Strategic Equity Investors, selection of the
Notes of either tranche or portions thereof for redemption shall be made by
the applicable 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 Trust
Company), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days
before the redemption date to each holder of Notes of the tranche to be
redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the
portion of the principal amount or principal amount at maturity, as the case
may be, thereof to be redeemed. A new Note of the applicable tranche in a
principal amount or principal amount at maturity, as the case may be, equal to
the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Borrower has deposited with the applicable paying
agent for the Notes funds in satisfaction of the applicable redemption price
pursuant to the applicable Indenture.
SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, to the extent and in the manner provided
in each Indenture, to the prior payment in full in cash of all Senior
Indebtedness.
Upon any payment or distribution of assets or securities of the Borrower 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 the Borrower, 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 Notes or the applicable Trustee on behalf of such
holders shall be entitled to receive any payment by the Borrower of the
principal of, premium, if any, or interest on the Notes, or any payment by the
Borrower to acquire any of the Notes for cash, property or securities, or any
distribution by the Borrower with respect to the Notes 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, the Borrower
of the principal of, premium, if any, or interest on the Notes upon any such
dissolution or winding-up or total liquidation or reorganization, any payment
or distribution of assets or securities of the Borrower 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
Notes or the applicable Trustee on their behalf would be entitled, but for the
subordination provisions of the applicable Indenture, shall be made by the
Borrower 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
55
<PAGE>
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.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities) by or on behalf of the Borrower of principal of,
premium, if any, or interest on the Notes, whether pursuant to the terms of
the Notes, upon acceleration or otherwise, will be made if, at the time of
such payment, there exists an event of 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 event of 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 applicable 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) will be made by or on behalf of
the Borrower of principal of, premium, if any, or interest on the Notes,
except from those funds held in trust for the benefit of holders of any Notes
pursuant to the procedures set forth under "--Satisfaction and Discharge of
Indentures; Defeasance" below, to such holders, during a period (a "Payment
Blockage Period") commencing on the date of receipt of such notice by the
applicable Trustee and ending 179 days thereafter. Notwithstanding anything in
the subordination provisions of the Indentures or the Notes to the contrary,
(x) in no event will 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 Notes 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.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indentures described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of either tranche of the Notes.
See "--Events of Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Borrower, funds which would otherwise be payable to holders
of the Notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Borrower may
be unable to fully meet its obligations with respect to the Notes.
As of December 31, 1997, the Borrower had approximately $79,949,000 of
Senior Indebtedness outstanding, of which $48,000 represented borrowings under
the Bank Credit Facility. Subject to the restrictions set forth in the
Indentures, in the future, TSAT may issue additional Senior Indebtedness to
refinance existing Indebtedness or for other corporate purposes.
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<PAGE>
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control as defined in the Indentures
(the date of such occurrence being the "Change of Control Date"), the Borrower
shall notify the holders of the Notes of such occurrence in the manner
prescribed by the Indentures and shall, within 20 days after the Change of
Control Date, make an Offer to Purchase all Notes of each tranche then
outstanding at a purchase price in cash equal to (x) with respect to the
Senior Subordinated Notes, 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the Purchase Date and (y)
with respect to the Senior Subordinated Discount Notes, 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 Borrower'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 the Indentures
applicable to an Offer to Purchase made by the Borrower and purchases all
Notes validly tendered and not withdrawn under such Offer to Purchase.
If a Change of Control occurs which also constitutes an event of default
under the Bank Credit Facility, the lenders under the Bank Credit Facility
would be entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to the terms of the Bank Credit Facility.
Accordingly, any claims of such lenders with respect to the assets of the
Borrower will be prior to any claim of the holders of the Notes with respect
to such assets.
If an Offer to Purchase is made, there can be no assurance that the Borrower
will have available funds sufficient to pay for all of the Notes that might be
tendered by holders of Notes seeking to accept the Offer to Purchase. If the
Borrower fails to repurchase all of the Notes tendered for purchase upon the
occurrence of a Change of Control, such failure will constitute an Event of
Default under the applicable Indenture. See "--Events of Default" below.
If the Borrower makes an Offer to Purchase, the Borrower 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 Notes are listed, and any
violation of the provisions of the Indentures 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.
Except as described above with respect to a Change of Control, the
Indentures do not contain provisions that permit the holders of the Notes to
require that the Borrower repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
The Restructuring Transaction, as currently contemplated, would not
constitute a Change of Control.
CERTAIN COVENANTS
Limitation on Restricted Payments. Under the terms of the Indentures, the
Borrower 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 Borrower 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 Borrower or any Restricted Subsidiary
(other than any dividends, distributions and payments made to the Borrower
or any Restricted Subsidiary and dividends or distributions payable to any
Person solely in Qualified Equity Interests of the Borrower or in options,
warrants or other rights to purchase Qualified Equity Interests of the
Borrower);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Borrower or any Restricted Subsidiary (other than any such
Equity Interests owned by the Borrower or any Restricted Subsidiary);
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(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 Borrower, any Restricted Subsidiary or a Person that
becomes a Restricted Subsidiary, or is merged with or into or consolidated
with the Borrower or a Restricted Subsidiary (provided the Borrower 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
Borrower 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 "--Limitation on Indebtedness" below; 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 Borrower 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
Borrower is available, plus (2) the aggregate net cash proceeds
received by the Borrower either (x) as capital contributions to the
Borrower 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 Borrower 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 Borrower or any Restricted Subsidiary Incurred
after the Issue Date which has been converted into or exchanged for
Qualified Equity Interests of the Borrower, 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 "--Designation of Unrestricted Subsidiaries;
Designation of Tempo as a Restricted Subsidiary" below, the Borrower'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 Borrower which has been
designated as an Unrestricted Subsidiary after the Issue Date in
accordance with "--Designation of Unrestricted Subsidiaries;
Designation of Tempo as a Restricted Subsidiary" below. As presently
contemplated, the Restructuring Transaction, pursuant to which the
Borrower shall transfer substantially all of its assets to New
PRIMESTAR and New PRIMESTAR shall assume, among other liabilities, the
Exchange Notes (and any Notes outstanding), which assumption of such
notes shall be evidenced by the execution by New PRIMESTAR of
supplemental indentures governing the notes, would not constitute a
default under the Indentures with respect to the foregoing provisions.
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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
the Indentures; (ii) the purchase, redemption, retirement or other acquisition
of any Equity Interests of the Borrower 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 Borrower;
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 Borrower; 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 Notes; (iv)
Investments in the Partnership required pursuant to a vote of the partners of
the Partnership, 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 Borrower 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 Borrower; 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 Borrower or any Restricted Subsidiary, or
similar securities, held by officers or employees or former officers or
employees of the Borrower 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 the Partnership with the net
proceeds of any Indebtedness Incurred pursuant to clause (i) of the second
paragraph of "--Limitation on Indebtedness" below; (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 Borrower'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 Borrower after the Issue Date, the Borrower
shall have provided an Officers'
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Certificate to the Trustees that the Borrower 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 Borrower after the Issue Date, the
Borrower shall have provided an Officers' Certificate to the Trustees that the
Borrower 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 Borrower 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 Borrower from such C-Band Entity in the
same period (to the extent that such cash dividends have not otherwise been
expended by the Borrower) 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 Borrower from the Restricted C-Band Subsidiaries in the same period (to
the extent that such cash dividends have not otherwise been expended by the
Borrower); 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 Borrower 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 Borrower and the Restricted
Subsidiaries shall be deemed to refer to the High Power Satellite Transmission
Subsidiary and its Subsidiaries. The Borrower 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
Borrower 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 Borrower
and the Restricted Subsidiaries shall be deemed to refer to the Restricted C-
Band Subsidiary and its Subsidiaries. The Borrower 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 Borrower 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 second 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.
Limitation on Indebtedness. The Borrower 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 Borrower may Incur Indebtedness and the Borrower 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
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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 Borrower
(or any Restricted Subsidiary with respect to clauses (b), (d), (e), (g), (i),
(j), (l) and (m) 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 and the Senior
Subordinated Discount Notes and the Indentures;
(b) Existing Indebtedness;
(c) Indebtedness under the Bank 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 by any
increase in the aggregate commitments under the Bank Credit Facility agreed
to in connection with the occurrence of a Replacement Satellite Event (as
defined in the Bank Credit Facility as in effect on the Issue Date)
thereunder (provided that such increase shall not be effective for purposes
of this paragraph (a) until (x) the successful launch and commencement of
operations of a permanent substitute satellite to GE-2 pursuant to a
procedure of acceptance substantially similar to the procedure regarding
acceptance of GE-2 or (y) the successful implementation, as certified by
the Borrower to the Trustees, of a plan of continued operation of the
PRIMESTAR(R) business agreed to in writing by the Borrower and the
arranging agents under the Bank Credit Facility, plus (B) any amounts
outstanding under the Bank 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
Borrower or any Restricted Subsidiary and (y) Indebtedness of the Borrower
owed to and held by any Restricted Subsidiary which is unsecured and
subordinated in right of payment to the payment and performance of the
Borrower's obligations under any Senior Indebtedness, the Indentures and
the Notes (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 Borrower or any Restricted
Subsidiary referred to in this clause (d) to a Person (other than the
Borrower or any Restricted Subsidiary); (ii) any sale or other disposition
of Equity Interests of any Restricted Subsidiary which holds Indebtedness
of the Borrower 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 Borrower or any
other Restricted Subsidiary as an Unrestricted Subsidiary;
(e) guarantees by any Restricted Subsidiary of Senior Indebtedness of the
Borrower; provided, however, that if any such guarantee shall be Incurred
in respect of any Senior Indebtedness of the Borrower 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 Notes on a
senior subordinated basis as provided in the Indentures;
(f) Interest Rate Protection Obligations of the Borrower relating to
Indebtedness of the Borrower (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;
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(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 covenant or clause (a), (b), (i),
(j), (k), (l) or (m) of this paragraph of this covenant; 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 Notes may only be refinanced
with Indebtedness that is made pari passu with or subordinate in right of
payment to the Notes 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 Borrower; 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) also shall 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 Borrower or any Restricted
Subsidiary of partnership interests in the Partnership not owned by the
Borrower or any Restricted Subsidiary (including, without limitation, the
acquisition of a Person (other than the Borrower or any Restricted
Subsidiary) that owns partnership interests in the Partnership); provided,
however, that (i) after giving effect to such purchase the Borrower 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 Borrower 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 Borrower 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 Borrower or any Restricted Subsidiary of not less than 50% of the
economic and 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
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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 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 Borrower 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 any guarantee, letter of credit or other credit
support with respect to (x) any obligations of the Partnership under the
Partnership Credit Agreement (or any refinancing thereof) to the extent
such obligation was Incurred by the Partnership to finance any Tempo
Satellite or (y) any obligations of the Partnership 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
(n) in addition to the items referred to in clauses (a) through (m)
above, Indebtedness of the Borrower (including any Indebtedness under the
Bank Credit Facility that utilizes this subparagraph (n)) 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 Borrower after the Issue Date, the
Borrower shall have provided an Officers' Certificate to the Trustees that
the Borrower 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 Borrower 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 Borrower 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 Borrower 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 Borrower 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 Borrower or any
Restricted Subsidiary thereafter makes any Restricted Payment pursuant to
clause (x) or (xii) of the second paragraph of "--Limitation on Restricted
Payments" above 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.
Limitation on Senior Subordinated Indebtedness. The Borrower shall not,
directly or indirectly, Incur any Indebtedness that by its terms would
expressly rank senior in right of payment to the Notes and expressly rank
subordinated in right of payment to any Senior Indebtedness.
Limitations on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Borrower shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise
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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 Borrower 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 Borrower or any
other Restricted Subsidiary, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, the Borrower or any other Restricted
Subsidiary or (c) transfer any of its properties or assets to the Borrower or
any other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) the Bank Credit Facility, any Basic
Document or any other agreement of the Borrower 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 Bank
Credit Facility on the Issue Date; (ii) applicable law; (iii) any instrument
governing Indebtedness or Equity Interests of an Acquired Person acquired by
the Borrower 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 Borrower or any Restricted Subsidiary, or the properties
or assets of the Borrower 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 "--Disposition of Proceeds
of Asset Sales" below to the extent applicable thereto; (vii) refinancing
Indebtedness permitted under clause (h) of the second paragraph of "--
Limitation on Indebtedness" above; 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) the Notes Indentures; 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 Bank Credit Facility as in effect on the Issue
Date. Anything contained herein to the contrary notwithstanding, the Borrower
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 Borrower and the Restricted Subsidiaries under the Bank
Credit Facility.
Designation of Unrestricted Subsidiaries; Designation of Tempo as a
Restricted Subsidiary. (a) Tempo and its Subsidiaries are initially designated
by TSAT as Unrestricted Subsidiaries as of the Issue Date. The Borrower may
designate after the Issue Date any other Subsidiary of the Borrower as an
"Unrestricted Subsidiary" under the Indentures (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
Borrower could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Debt to Operating Cash Flow Ratio of the first
paragraph of "--Limitation on Indebtedness" above; and
(iii) The Borrower 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 "--
Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the Fair Market Value of the Borrower'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 Borrower shall be designated
an Unrestricted Subsidiary which (i) holds the partnership interest in (or any
debt or equity interest in) the Partnership or distributes, directly
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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 Borrower 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 Bank 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 "--Limitation on Restricted
Payments" above and "--Disposition of Proceeds of Asset Sales" below, and
except for any non-recourse guarantee given solely to support the pledge by
the Borrower or any Restricted Subsidiary of the Equity Interests of any
Unrestricted Subsidiary.
(b) The Borrower shall designate (the "Required Designation") Tempo (or any
other Unrestricted Subsidiary which owns any Tempo 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 "Consolidated Operating Cash Flow" and "Consolidated
Interest Expense" shall be used, but references to the Borrower and the
Restricted Subsidiaries in such definitions shall be deemed to refer to the
relevant Satellite Subsidiary and its Subsidiaries.
(c) The Borrower 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 the
Indentures; 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 Borrower, delivered to the Trustees certifying
compliance with the foregoing provisions.
Limitation on Liens. The Borrower 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 Notes 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.
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Disposition of Proceeds of Asset Sales. (a) the Borrower shall not, and
shall not cause or permit any Restricted Subsidiary to, directly or
indirectly, make any Asset Sale, unless (i) the Borrower 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 Borrower 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 Borrower or any Restricted Subsidiary at such time. The
amount of any (i) Indebtedness (other than any Subordinated Indebtedness) of
the Borrower or any Restricted Subsidiary that is actually assumed by the
transferee in such Asset Sale and from which the Borrower 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 Borrower or
the Restricted Subsidiaries and (ii) notes or other similar obligations
received by the Borrower 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 Borrower 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 Borrower or the Restricted Subsidiaries.
The Borrower 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 Borrower 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 "--Limitation
on Restricted Payments" above.
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 Borrower shall, within 20 days after such
375th day, make an Offer to Purchase all outstanding Notes of each tranche up
to a maximum principal amount (in the case of the Senior Subordinated Notes)
or Accreted Value (in the case of the Senior Subordinated Discount Notes)
(expressed as a multiple of $1,000) of Notes equal to the Securities Portion
of Unutilized Net Cash Proceeds, at a purchase price in cash equal to (x) with
respect to the Senior Subordinated Notes, 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase
Date, and (y) with respect to the Senior Subordinated Discount Notes, 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 Borrower which ranks pari
passu with either tranche of the Notes (including the other tranche of the
Notes) (the "Other Indebtedness") requires that an offer to repurchase such
Indebtedness be made upon the consummation of any Asset Sale, the Borrower 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 Notes of such tranche is not less than the Securities
Portion of Unutilized Net Cash Proceeds. With respect to any Unutilized Net
Cash Proceeds, the Borrower shall make the Offer to Purchase in respect
thereof at the same time under each Indenture and at the same time as the
analogous offer to purchase is made under any Other Indebtedness and the
Purchase Date in respect thereof shall be the same under each Indenture and
the same as the purchase date in respect thereof pursuant to any Other
Indebtedness.
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For purposes of this covenant, "Securities Portion of Unutilized Net Cash
Proceeds" means, with respect to either tranche of the Notes, 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 or Accreted Value of all Notes of such tranche 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 covenant,
among the Senior Subordinated Notes, to the extent the aggregate principal
face amount of Senior Subordinated Notes tendered pursuant to such Offer to
Purchase exceeds the Securities Portion of Unutilized Net Cash Proceeds to be
applied to the repurchase thereof, such Notes shall be purchased pro rata
based on the aggregate principal face amount of such Senior Subordinated Notes
tendered by each holder, and, as among the Senior Subordinated Discount Notes,
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 Senior
Subordinated Discount Notes tendered pursuant to such Offer to Purchase
exceeds the Securities Portion of Unutilized Net Cash Proceeds with respect
thereto, such Notes 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 Senior Subordinated Discount Notes tendered by each
holder.
In the event that the Borrower makes an Offer to Purchase the Notes, the
Borrower 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 the Indentures
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 Notes
owned by such holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note 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 Borrower or any
Subsidiary to the Partnership under the Tempo Letter Agreements, or the
Borrower 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 Tempo Satellites (whether or not the Subsidiary owning
such Tempo Satellite is a Restricted Subsidiary), or any transponder thereon
or capacity thereof, to the Partnership or any other Person shall be
considered an Asset Sale unless (i) if such sale or lease is to the
Partnership of both Tempo Satellites, any balance due by the Borrower or any
Subsidiary to the Partnership under the Tempo Letter Agreements shall be
permanently extinguished and if such sale or lease is to the Partnership of
only one Tempo Satellite, then 100% of the net proceeds thereof are applied to
the balance due by the Borrower or any Subsidiary to the Partnership 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 Borrower 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
Borrower or any Subsidiary to the Partnership under the Tempo Letter
Agreements. The Borrower 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 Borrower and its Subsidiaries with
the foregoing sentence.
(d) If the Borrower or any Restricted Subsidiary is engaged in the High
Power Satellite Transmission Business, the Borrower shall not and shall not
cause or permit any such High Power Satellite Transmission
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Subsidiary to sell, convey, transfer, lease, assign, or otherwise encumber (i)
any Tempo Satellite (or any contract rights related to the construction,
launch or insurance thereof), (ii) any orbital slot owned by the Borrower or
any Subsidiary, (iii) the Equity Interests of any Subsidiary which owns any
Tempo 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 Borrower 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 at
least until the stated maturity of the Notes and files such agreement with the
Trustee together with an Officers' Certificate certifying that such agreement
meets the foregoing criteria.
Amendments to Certain Agreements. The Borrower 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 Borrower or any of its Subsidiaries or the holders of the Notes
in any material respect as determined by the Board of Directors of the
Borrower. This covenant shall not be construed to prohibit the Borrower 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
Borrower shall determine that it is in the best interests of the Borrower to
do so.
Tempo Satellites; Maintenance of Insurance. (a) Prior to 180 days following
the successful launch of any Tempo Satellite (which, in the case of Tempo DBS-
1, occurred on March 8, 1997), the Borrower shall not terminate the Satellite
Construction Agreement or amend, modify or refrain from enforcing any
provision thereof in any manner adverse to the Borrower or any of its
Subsidiaries or the holders of the Notes in any material respect, as
determined by the Board of Directors of the Borrower, and shall not amend,
modify or refrain from enforcing any provision thereof regarding the rights of
the Borrower under the Satellite Construction Agreement (if any) with respect
to any failure of any Tempo Satellite that may occur during the 180 day period
immediately thereafter.
(b) If the Borrower 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 and available to be
launched and to provide (pursuant to a binding agreement, a copy of which has
been filed with the Trustees) sufficient capacity to the Borrower 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 Tempo Satellite by the Borrower or
any Subsidiary after completion of in-orbit testing by the builder thereof the
Borrower 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 the Tempo Satellite (or any permanent
replacement thereof) providing the servicing capacity with respect to such
High Power Satellite Transmission Business. The Borrower or such Restricted
Subsidiary shall be named as the insured under such In-Orbit Insurance
(provided that only a senior secured creditor of the Borrower or a Restricted
Subsidiary may also be designated as a named insured under such In-Orbit
Insurance).
(c) In the event that the Borrower 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
Tempo 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 Borrower shall apply such proceeds as required by the second and third
full paragraphs under subparagraph (a) of "--Disposition of Proceeds of Asset
Sales" above, except as provided by subparagraph (c) thereof.
Merger, Sale of Assets, etc. The Borrower shall not consolidate with or
merge with or into (whether or not the Borrower is the Surviving Person) any
other entity and the Borrower 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 Borrower's properties and assets
(determined on a consolidated basis for the Borrower
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and the Restricted Subsidiaries) to any entity in a single transaction or
series of related transactions, unless: (i) either (x) the Borrower shall be
the Surviving Person or (y) the Surviving Person (if other than the Borrower)
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 Notes and the performance and observance of every covenant of the
Indentures and the Registration Rights Agreements to be performed or observed
on the part of the Borrower; (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 Borrower
or any Restricted Subsidiary, directly or indirectly, of additional
Indebtedness (and treating any Indebtedness not previously an obligation of
the Borrower 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 Borrower 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 "--Limitation on Indebtedness" above; 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 Borrower or any Restricted
Subsidiary of any Person holding partnership interests in the Partnership if
(x) such merger or consolidation is effected for the purpose of acquiring the
partnership interests in the Partnership held by such Person (provided that
the amount of partnership interests in the Partnership 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 the Partnership to another Person who has been or
simultaneously therewith will be merged or consolidated with or into the
Borrower or any Restricted Subsidiary or the dilution of such Person's
partnership interests in the Partnership 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 Borrower 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 Borrower shall be deemed to be the transfer
of all or substantially all the properties and assets of the Borrower.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the second immediately preceding
paragraph in which the Borrower is not the Surviving Person and the Surviving
Person is to assume all the Obligations of the Borrower under the Notes, the
Notes Indentures and the Registration Rights Agreements pursuant to a
supplemental indenture, such Surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of, the Borrower and
the Borrower shall be discharged from its Obligations under the Notes
Indentures and the Notes.
Transactions with Affiliates. The Borrower 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 Borrower or
any officer, director or employee of the Borrower or any Restricted Subsidiary
(each an "Affiliate Transaction"), unless such Affiliate Transaction is on
terms which are no less favorable to the Borrower 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
Borrower 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 Borrower 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 Borrower or a Restricted
Subsidiary, including the High
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Power Satellite Transmission Business, then there shall be no need to comply
with this sentence. In the event that the Borrower obtains a written opinion
from an Independent Financial Advisor (and files the same with the Trustees)
stating that the terms of an Affiliate Transaction are fair, from a financial
point of view, to the Borrower 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 Borrower 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 Borrower 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 the Indentures, 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 Borrower to its stockholders of
Qualified Equity Interests; (v) any Restricted Payments made in compliance
with "--Limitation on Restricted Payments" above; (vi) loans and advances to
officers, directors and employees of the Borrower 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 "--Limitation on
Indebtedness" above; and (viii) the pledge of Equity Interests of Unrestricted
Subsidiaries to support the Indebtedness thereof.
Provision of Financial Information. Whether or not the Borrower is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Borrower 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 Borrower 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 Borrower 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
Borrower would have been required so to file such documents if the Borrower
were so subject. the Borrower 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 Note Register, without
cost to such holders, and (ii) file with the Trustees, copies of the annual
reports, quarterly reports and other documents which the Borrower 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 Borrower
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 Notes remain outstanding, the
Borrower 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 Notes, 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.
Payments for Consent. Neither the Borrower nor any of its Subsidiaries may,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of a Note for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indentures or the Notes unless such consideration is offered
to be paid or agreed to be paid to all holders of the Notes that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT
The occurrence of any of the following will be defined as an "Events of
Default" under each Indenture: (a) failure to pay principal of (or premium, if
any, on) any Note when due (whether or not prohibited by the
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provisions of the Indentures described under "--Subordination of the Notes"
above); (b) failure to pay any interest on any Note when due, continued for 30
days or more (whether or not prohibited by the provisions of the Indentures
described under "--Subordination of the Notes" above); (c) default in the
payment of principal of or interest on Notes required to be purchased pursuant
to any Offer to Purchase required by the Indentures when due and payable or
failure to pay on the Purchase Date the Purchase Price for any Note validly
tendered pursuant to any Offer to Purchase (whether or not prohibited by the
provisions of the Indentures described under "--Subordination of the Notes"
above); (d) failure to perform or comply with any of the provisions described
under "--Certain Covenants--Merger, Sale of Assets, etc." above; (e) failure
to perform any other covenant, warranty or agreement of the Borrower or the
Guarantors under the Indentures, or in the Notes continued for 30 days or more
after written notice to the Borrower by the applicable Trustee or holders of
at least 25% in aggregate principal face amount of the outstanding Senior
Subordinated Notes or holders of at least 25% of the aggregate principal
amount at maturity of the Senior Subordinated Discount Notes, as the case may
be, under the applicable Indenture; (f) default or defaults under the terms of
one or more instruments evidencing or securing Indebtedness of the Borrower or
any of its Significant Restricted Subsidiaries or, so long as the Borrower 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, the Partnership 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 failure by
the Borrower or any of its Significant Restricted Subsidiaries or, so long as
the Borrower 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, the Partnership 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;
(g) the rendering of a final judgment or judgments (not subject to appeal)
against the Borrower or any of its Significant Restricted Subsidiaries in an
amount of $15.0 million or more (net of any amounts covered by reputable and
creditworthy insurance companies) which remains undischarged or unstayed for a
period of 60 days after the date on which the right to appeal has expired; or
(h) certain events of bankruptcy, insolvency or reorganization affecting the
Borrower or any of its Significant Restricted Subsidiaries or, so long as the
Borrower 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, the Partnership. Subject to the
provisions of the Indentures relating to the duties of the Trustees, in case
an Event of Default shall occur and be continuing, each Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture to
which it is a party at the request or direction of any of the holders of Notes
issued thereunder, unless such holders shall have offered to such Trustee
reasonable indemnity. Subject to such provisions for the indemnification of
the applicable Trustee, the holders of a majority in aggregate principal face
amount of the outstanding Senior Subordinated Notes or the holders of a
majority in aggregate principal amount at maturity of the Senior Subordinated
Discount Notes, as the case may be, will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
applicable Trustee, as the case may be, or exercising any trust or power
conferred on such Trustee.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Borrower described in clause (h) of the preceding
paragraph) occurs and is continuing, the applicable Trustee or the holders of
at least 25% in aggregate principal face amount of the outstanding Senior
Subordinated Notes or the holders of at least 25% in aggregate principal
amount at maturity of the outstanding Senior Subordinated Discount Notes, as
the case may be, by notice in writing to the Borrower may declare the unpaid
principal of (and premium, if any) and accrued interest to the date of
acceleration on all the outstanding Senior Subordinated Notes and Senior
Subordinated Discount Notes, as the case may be, to be due and payable
immediately and, upon any such declaration, such principal amount (and
premium, if any) and accrued interest, notwithstanding anything contained in
the applicable Indenture or the Senior Subordinated Notes and Senior
Subordinated Discount Notes, as the case may be, to the contrary, but subject
to the provisions limiting payment described above under "--Subordination of
the Notes," will become immediately due and payable; provided, however, that
so long as the Bank Credit Facility shall be in full force and effect, if an
Event of Default shall have occurred and be continuing (other than an Event of
Default with respect to the Borrower described in clause (h) of the preceding
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paragraph), the Notes shall not become due and payable until the earlier to
occur of (x) five Business Days following delivery of written notice of such
acceleration of the Notes to the agent under the Bank Credit Facility and (y)
the acceleration (ipso facto or otherwise) of any Indebtedness under the Bank
Credit Facility. If an Event or Default specified in clause (h) of the
preceding paragraph with respect to the Borrower occurs under an Indenture,
the Notes outstanding thereunder will ipso facto become immediately due and
payable without any declaration or other act on the part of the Trustee
thereunder or any holder of such Notes.
Any such declaration with respect to the Notes may be annulled and past
Events of Default and Defaults (except, unless theretofore cured, an Event of
Default or a Default in payment of principal of (and premium, if any) or
interest on the Notes) may be waived by the holders of a majority of the
principal amount of the outstanding Senior Subordinated Notes or a majority of
the principal amount of maturity of the outstanding Senior Subordinated
Discount Notes, as the case may be, upon the conditions provided in the
applicable Indenture. For information as to waiver of defaults, see "--
Modification and Waiver" above.
Each Indenture provides that the Trustee thereunder shall, within 30 days
after the occurrence of any Default or Event of Default with respect to the
Notes outstanding thereunder, give the holders of such Notes thereof notice of
all uncured Defaults or Events of Default thereunder known to it; provided,
however, that, except in the case of an Event of Default in payment with
respect to such Notes or a Default or Event of Default in complying with "--
Certain Covenants--Merger, Sale of Assets, etc." above, the applicable Trustee
shall be protected in withholding such notice if and so long as a committee of
its trust officers in good faith determines that the withholding of such
notice is in the interest of the holders of the applicable Notes.
No holder of any Note will have any right to institute any proceeding with
respect to the relevant Indenture or for any remedy thereunder, unless such
holder shall have previously given to the applicable Trustee written notice of
a continuing Event of Default thereunder and unless the holders of at least
25% of the aggregate principal face amount of the outstanding Senior
Subordinated Notes or the holders of at least 25% of the aggregate principal
amount of maturity of the outstanding Senior Subordinated Discount Notes, as
the case may be, under such Indenture shall have made written request, and
offered reasonable indemnity, to the relevant Trustee to institute such
proceeding as Trustee, and such Trustee shall have not have received from the
holders of a majority in aggregate principal face amount of such outstanding
Senior Subordinated Notes or the holders of a majority in aggregate principal
amount at maturity of such outstanding Senior Subordinated Discount Notes, as
the case may be, a direction inconsistent with such request and shall have
failed to institute such proceeding within 60 days. However, such limitations
do not apply to a suit instituted by a holder of such a Note for enforcement
of payment of the principal of and premium, if any, or interest on such Note
on or after the respective due dates expressed in such Note.
The Borrower will be required to furnish to each Trustee annually a
statement as to the performance by it of certain of its obligations under the
applicable Indenture and as to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Borrower
or any of its Affiliates, as such, shall have any liability for any
obligations of the Borrower or any of its Affiliates under the Notes or the
Notes Indentures or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
SATISFACTION AND DISCHARGE OF NOTES INDENTURES; DEFEASANCE
The Borrower may terminate its substantive obligations in respect of either
tranche of the Notes by delivering all outstanding Notes of such tranche to
the applicable Trustee for cancellation and paying all sums payable by it on
account of principal of, premium, if any, and interest on all Notes of such
tranche or otherwise. In addition to the foregoing, the Borrower 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 clause (i) of
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"--Events of Default" above, 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)) under the
applicable Indenture and provided that no default under any Senior
Indebtedness would result therefrom, terminate its substantive obligations in
respect of the Notes issued under such Indenture (except for its obligations
to pay the principal of (and premium, if any, on) and the interest on such
Notes) by (i) depositing with the relevant Trustee, under the terms of an
irrevocable trust agreement, money or United States Government Obligations
sufficient (without reinvestment) to pay all remaining indebtedness on such
Notes; (ii) delivering to the relevant Trustee either an Opinion of Counsel or
a ruling directed to such Trustee from the Internal Revenue Service to the
effect that the holders of the relevant Notes 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 relevant Trustee an
Opinion of Counsel to the effect that the Borrower's exercise of its option
under this paragraph will not result in any of the Borrower, the relevant
Trustee or the relevant trust created by the Borrower'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
Act"); and (iv) complying with certain other requirements set forth in such
Indenture. In addition, the Borrower 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 clause (i) of "--Events
of Default" above, 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)) under the applicable
Indenture and provided that no default under any Senior Indebtedness would
result therefrom, terminate all of its substantive obligations in respect of
the Notes issued under such Notes Indenture (including its obligations to pay
the principal of (and premium, if any, on) and interest on such Notes) by (i)
depositing with the relevant Trustee, under the terms of an irrevocable trust
agreement, money or United States Government Obligations sufficient (without
reinvestment) to pay all remaining Indebtedness on such Notes; (ii) delivering
to the relevant Trustee either a ruling directed to such Trustee from the
Internal Revenue Service to the effect that the holders of such Notes 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 addressed
to the relevant Trustee based upon such a ruling or based on a change in the
applicable federal tax law since the date of such Indenture, to such effect;
(iii) delivering to the relevant Trustee an Opinion of Counsel to the effect
that the Borrower's exercise of its option under this paragraph will not
result in any of the Borrower, such Trustee or the relevant trust created by
the Borrower's deposit of funds pursuant to this provision becoming or being
deemed to be an "investment company" under the Investment Act; and (iv)
complying with certain other requirements set forth in such Indenture.
The Borrower may make an irrevocable deposit pursuant to this provision
pursuant to either Indenture only if at such time it is not prohibited from
doing so under the subordination provisions of such Indenture or certain
covenants in the Senior Indebtedness and the Borrower has delivered to the
applicable Trustee and any Paying Agent an Officers' Certificate to that
effect.
GOVERNING LAW
The Indentures and the Notes will be governed by the laws of the State of
New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of either Indenture may be made by the Borrower
and the Trustee thereunder with the consent of the holders of a majority in
aggregate principal face amount of the Senior Subordinated Notes outstanding
thereunder or of the holders of a majority in aggregate principal amount at
maturity of the Senior Subordinated Discount Notes outstanding thereunder, as
the case may be (including consents obtained in connection with a tender offer
or exchange offer for such Notes); provided, however, that no such
modification or amendment to the applicable Indenture may, without the consent
of the holder of each Note affected thereby, (a) change the maturity of the
principal of or any installment of interest on any such Note or alter the
optional redemption or repurchase provisions of any such Note or such
Indenture in a manner adverse to the holders of
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such Notes; (b) reduce the principal amount of (or the premium) of any such
Note (except pursuant to the Cash Election); (c) reduce the rate of or extend
the time for payment of interest on any such Note or make any change to the
definition of Accreted Value; (d) change the place or currency of payment of
principal of (or premium) or interest on any such Note; (e) modify any
provisions of such Indenture relating to the waiver of past defaults (other
than to add sections of such Indenture or such Notes subject thereto) or the
right of the holders of Notes outstanding thereunder to institute suit for the
enforcement of any payment on or with respect to any such Note in respect
thereof or the modification and amendment provisions of such Indenture and
such Notes (other than to add sections of such Indenture or such Notes which
may not be amended, supplemented or waived without the consent of each holder
herein affected); (f) reduce the percentage of the principal amount of
outstanding Notes necessary for amendment to or waiver of compliance with any
provision of the applicable Indenture or the Notes outstanding thereunder or
for waiver of any Default in respect thereof; (g) waive a default in the
payment of principal of, interest on, or redemption payment with respect to,
such Note (except a rescission of acceleration of the relevant Notes by the
holders thereof as provided in such Indenture and a waiver of the payment
default that resulted from such acceleration); (h) modify the ranking or
priority of any Note or modify the definition of Senior Indebtedness or
Guarantor Senior Indebtedness or amend or modify the subordination provisions
of the applicable Indenture in any manner adverse to the holders of the
applicable Notes; or (i) modify the provisions of any covenant (or the related
definitions) in the applicable Indenture requiring the Borrower to make an
Offer to Purchase in a manner materially adverse to the holders of Notes
thereunder affected thereby.
The holders of a majority in aggregate principal face amount of the
outstanding Senior Subordinated Notes and the holders of a majority in
aggregate principal amount at maturity of the outstanding Senior Subordinated
Discount Notes, on behalf of all holders of Notes of such tranche, may waive
compliance by the Borrower with certain restrictive provisions of the
applicable Indenture. Subject to certain rights of the relevant Trustee, as
provided in the applicable Indenture, the holders of a majority in aggregate
principal amount of the Senior Subordinated Notes and the holders of a
majority in aggregate principal amount at maturity of the Senior Subordinated
Discount Notes, on behalf of all holders of Notes of such tranche outstanding
thereunder, may waive any past default under such Indenture (including any
such waiver obtained in connection with a tender offer or exchange offer for
such Notes), except a default in the payment of principal, premium or interest
or a default arising from failure to purchase any Notes of such tranche
tendered pursuant to an Offer to Purchase pursuant thereto, or a default in
respect of a provision that under such Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding thereunder that is
affected.
THE TRUSTEES
Except during the continuance of a Default, each Trustee will perform only
such duties as are specifically set forth in the Indenture to which it is a
party. During the existence of a Default under an Indenture, the applicable
Trustee will exercise such rights and powers vested in it under such Indenture
and use the same degree of care and skill in their exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Indentures and provisions of the TIA incorporated by reference therein
contain limitations on the rights of the Trustees, should they become a
creditor of the Borrower or any other obligor upon the Notes, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claim as Note or otherwise. Each Trustee is
permitted to engage in other transactions with the Borrower or an Affiliate of
the Borrower; provided, however, that if it acquires any conflicting interest
(as defined in each Indenture or in the TIA), it must eliminate such conflict
or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indentures. Reference
is made to the Indentures for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
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"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 at maturity of Senior Subordinated Discount Notes:
(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
(b) 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 Borrower 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 Borrower or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Borrower or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated, merged with or into the Borrower or any Restricted
Subsidiary or (ii) any acquisition by the Borrower 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 each
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
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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
Borrower or any Subsidiary of the Borrower owns a partnership interest in the
Partnership, the Partnership shall be deemed an Affiliate of the Borrower;
(iii) so long as any of the Permitted Holders is an Affiliate of TCI and the
Borrower, TCI shall be deemed an Affiliate of the Borrower and its
Subsidiaries; and (iv) no individual, other than a director of the Borrower or
an officer of the Borrower with a policy making function, shall be deemed an
Affiliate of the Borrower or any of its Subsidiaries, solely by reason of such
individual's employment, position or responsibilities by or with respect to
the Borrower or any of its Subsidiaries.
"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 Borrower 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 Borrower or any Restricted Subsidiary; (iii) any
assets of the Borrower or any Restricted Subsidiary which constitute
substantially all of an operating unit or line of business of the Borrower or
any Restricted Subsidiary; or (iv) any other property or asset of the Borrower
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 Borrower or any Subsidiary (including,
without limitation, the refund of the full purchase price of any Tempo
Satellite which has not been delivered pursuant to the terms thereof) from a
Person other than the Borrower or its Subsidiaries. The term "Asset Sale"
shall not include (a) any transaction consummated in compliance with "--
Certain Covenants--Merger, Sale of Assets, etc." above and the creation of any
Lien not prohibited by "--Certain Covenants--Limitation on Liens" above;
provided, however, that any transaction consummated in compliance with "--
Certain Covenants--Merger, Sale of Assets, etc.," above involving a sale,
conveyance, assignment, transfer, lease or other disposal of less than all of
the properties or assets of the Borrower and the Restricted Subsidiaries shall
be deemed to be an Asset Sale with respect to the properties or assets of the
Borrower 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 Borrower
or any Restricted Subsidiary, as the case may be; (c) any transaction
consummated in compliance with "--Certain Covenants--Limitation on Restricted
Payments" above; and (d) sales of accounts receivable for cash at fair market
value. In addition, solely for purposes of "--Certain Covenants--Disposition
of Proceeds of Asset Sales" above, 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.
"Bank Credit Facility" means the Credit Agreement, dated as of December 31,
1996, between the Borrower, 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 Credit Agreement)) and note agreements and other
instruments and agreements executed in connection therewith.
"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.
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"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" has the meaning set forth under "--Maturity,
Interest and Principal of the Senior Subordinated Discount Notes" above.
"Cash Interest Election Date" has the meaning set forth under "--Maturity,
Interest and Principal of the Senior Subordinated Discount Notes" above.
"C-Band Dividend" has the meaning set forth under "--Certain Covenants--
Limitation on Restricted Payments" above.
"C-Band Entity" has the meaning set forth under "--Certain Covenants--
Limitation on Restricted Payments" above.
"C-Band Investment" has the meaning set forth under "--Certain Covenants--
Limitation on Restricted Payments" above.
"Change of Control" shall mean the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Borrower): (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 Borrower; (b) the Borrower
consolidates with, or merges with or into, another Person or the Borrower or
one of the Restricted Subsidiaries sells, assigns, conveys, transfers, leases
or otherwise disposes of all or substantially all of the assets of the
Borrower 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 Borrower, in any such event
pursuant to a transaction in which the outstanding Voting Equity Interests of
the Borrower is converted into or exchanged for cash, Notes or other property,
other than any such transaction where (i) the outstanding Voting Equity
Interests of the Borrower is converted into or exchanged for (1) Qualified
Equity Interests of the surviving or transferee corporation or (2) cash, notes
or other property in an amount which could be paid by the Borrower as a
Restricted Payment under the Indentures 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 Borrower "beneficially own" (as so determined)
a majority of the
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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 Borrower (together with any new directors whose election by
the Board of Directors of the Borrower 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; (d) the liquidation or dissolution of the Borrower. Anything contained
herein to the contrary notwithstanding, the issuance of voting Equity
Interests of the Borrower to Permitted Holders in connection with the
acquisition of all the partnership interests in the Partnership held by such
Permitted Holder (provided that the amount of partnership interests held by
such Permitted Holder on the date of such acquisition is not less than the
amount held by such Permitted Holder on the Issue Date otherwise than pursuant
to the transfer of partnership interests in the Partnership to another
Permitted Holder whose partnership interests have been or simultaneously
therewith will be acquired by the Borrower or any Restricted Subsidiary or the
dilution of such Permitted Holder's partnership interests in the Partnership
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 Borrower or a Restricted Subsidiary acquires all
rights of such Permitted Holder (and its Affiliates) to distribute the
PRIMESTAR(R) programming services, shall not constitute a Change of Control
for purposes of the Indentures or the Notes.
"Change of Control Date" has the meaning set forth under "--Offer to
Purchase upon Change of Control" above.
"Consolidated Income Tax Expense" means, with respect to the Borrower for
any period, the provision for federal, state, local and foreign income taxes
payable by the Borrower 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 Borrower for any
period, without duplication, the sum of (i) the interest expense of the
Borrower 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 Borrower 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 Borrower
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 Borrower 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 Borrower 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 Borrower 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 Borrower 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
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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 that 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 Borrower 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 Borrower
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 "--Certain Covenants--Limitation on
Restricted Payments" above with such Consolidated Operating Cash Flow and (2)
any dividends received for any C-Band Entity 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 "--Certain Covenants--
Limitation on Restricted Payments" above with such dividends or such
Consolidated Operating Cash Flow.
"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 Borrower 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.
"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 Borrower 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 Operating Cash Flow of any
Acquired Person to the extent
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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 Bank Credit Facility on such Determination
Date and all amounts that the Borrower or any Restricted Subsidiary could
borrow under the Bank Credit Facility on such Determination Date (assuming the
satisfaction of all conditions precedent under the Bank Credit Facility other
than conditions relating solely to incremental amounts being available under
the Bank 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 with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means (a) any Indebtedness outstanding
under the Bank 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 the
Indentures and a Board Resolution setting forth such designation by the
Borrower has been filed with the Trustees.
"Designation" has the meaning set forth in "--Certain Covenants--Designation
of Unrestricted Subsidiaries; Designation of Tempo as a Restricted Subsidiary"
above.
"Designation Amount" has the meaning set forth in "--Certain Covenants--
Designation of Unrestricted Subsidiaries; Designation of Tempo as a Restricted
Subsidiary" 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 Notes or the date on which no Notes 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 and Tele-Communications, Inc. Series B TCI
Group Common Stock on November 12, 1996 (other than certain subsidiaries of
TCI that waived such dividend) of all the issued and outstanding shares of the
Borrower's 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.
"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 Borrower 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).
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"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 Borrower acting in good faith, and shall be
evidenced by resolutions of the Board of Directors of the Borrower delivered
to the applicable Trustee.
"FCC Permit" means the construction permit held by Tempo and issued by the
FCC to build, launch and operate a DBS system.
"Fulfillment Agreement" means the agreement dated as of August 30, 1996
between TCIC and the Borrower, pursuant to which TCIC provides fulfillment
services to the Borrower with respect to certain customers of the PRIMESTAR(R)
medium power service, as amended and in effect from time to time.
"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 the Partnership, and its successors.
"GE-2 Agreement" means the Amended and Restated Memorandum of Agreement,
effective as of October 18, 1996, between the Partnership and GE Americom and,
upon the execution of the Service Agreement (as defined in the GE-2 Agreement)
between the Partnership and GE Americom contemplated therein, shall include
such Service Agreement, as amended and in effect from time to time.
"GE-2" means the GE Americom medium power satellite currently being used by
the Partnership.
"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.
"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 the Partnership 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, or acts as a
distributor for, the High Power Satellite Transmission Business.
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"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, 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 Borrower 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 the Partnership or any Unrestricted Subsidiary). For avoidance
of doubt, Indebtedness of the Borrower or any Restricted Subsidiary shall not
include Indebtedness of the Partnership (so long as the Partnership is not
insolvent) solely by virtue of the Borrower or such Restricted Subsidiary
being a general partner of the Partnership to the extent that there does not
exist any judgment or other adjudication of liability against the Borrower or
any Restricted Subsidiary that is a general partner of the Partnership or any
of its properties.
"Indemnification Agreements" means the indemnification agreements between
(i) the Borrower and TCI UA 1, dated as of December 4, 1996, which supports
the PRIMESTAR Credit Facility and (ii) the Borrower 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 Borrower's share of the Partnership's
obligations under the GE-2 Agreement, with respect to the Partnership's use of
transponders on GE-2, as amended and in effect from time to time.
"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 Borrower'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 Borrower and (ii) which, in the
judgment of the Board of Directors of the Borrower, is otherwise independent
and qualified to perform the task for which it is to be engaged.
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"In-Orbit Insurance" means, with respect to a Tempo Satellite (or any
replacement thereof), In-Orbit insurance providing coverage beginning not
earlier than 180 days after the launch of such Tempo Satellite (or any
replacement thereof) in an amount which is equal to or greater than the cost
of construction, launch and insurance of such Tempo 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 Tempo 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 Tempo 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.
"interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest on the Notes.
"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.
"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 Notes.
"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).
"Marketable Securities" means Government Securities maturing not later than
30 days after the date of acquisition.
"Maturity Date" means the date, which is set forth on the face of the Notes,
on which the Notes will mature.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or Cash
Equivalents received by the Borrower 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
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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 Borrower 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.
"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 Borrower by first-class mail, postage prepaid, to each holder at his
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such
Offer at the purchase price specified in such Offer (as determined pursuant to
the applicable 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 Notes to occur no later than five Business Days after the
Expiration Date. The Borrower shall notify the Trustee at least 15 Business
Days (or such shorter period as is acceptable to the Trustee) prior to the
mailing of the Offer of the Borrower's obligation to make an Offer to
Purchase, and the Offer shall be mailed by the Borrower or, at the Borrower's
request, by the Trustee in the name and at the expense of the Borrower. 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 Borrower and its Subsidiaries which the Borrower 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 the Indenture
(which requirements may be satisfied by delivery of such documents together
with the Offer), (ii) a description of material developments in the Borrower'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
Borrower to make the Offer to Purchase), (iii) if applicable, appropriate pro
forma financial information concerning the Offer to Purchase and the events
requiring the Borrower 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 Notes pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of the 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 Notes offered to be
purchased by the Borrower 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 the Indenture requiring the Offer to Purchase)
(the "Purchase Amount");
(4) (a) in the case of the Senior Subordinated Notes, the purchase price
to be paid by the Borrower for each $1,000 aggregate principal amount of
Notes accepted for payment (as specified pursuant to the Senior
Subordinated Notes Indenture) (the "Purchase Price" with respect to the
Senior Subordinated Notes) and (b) in the case of the Senior Subordinated
Discount Notes, the purchase price to be paid by the Borrower 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
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after such earlier date) of Notes accepted for payment (as specified
pursuant to the Senior Subordinated Discount Notes Indenture) (the
"Purchase Price" with respect to the Senior Subordinated Discount Notes);
(5) that the holder may tender all or any portion of the Notes registered
in the name of such holder and that any portion of a Note tendered must be
tendered in an integral multiple of $1,000 principal face amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not purchased
by the Borrower 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 Note 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 Note
pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if the Borrower or the
Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Borrower 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
Notes tendered if the Borrower (or its Paying Agent) receives, not later
than the close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of the Note the
holder tendered, the certificate number of the Note the holder tendered and
a statement that such holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes 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 Borrower shall purchase all such Notes and
(b) if Notes in an aggregate principal amount in excess of the Purchase
Amount are tendered and not withdrawn pursuant to the Offer to Purchase,
the Borrower shall purchase Notes 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 Notes in denominations of $1,000
principal amount at maturity or integral multiples thereof shall be
purchased); and
(12) that in the case of any holder whose Note is purchased only in part,
the Borrower shall execute and the Trustee shall authenticate and deliver
to the holder of such Note without service charge, a new Note or Notes, 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 Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer. References above to principal
amount shall mean and refer to principal amount at maturity with respect to
the Senior Subordinated Discount Notes, unless the context otherwise requires.
"Partnership Agreement" means the Limited Partnership Agreement of the
Partnership (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 bank credit facility obtained by
the Partnership to finance advances to Tempo for payments due in respect of
the Tempo Satellites under the Satellite Construction Agreement, and supported
by letters of credit arranged for by affiliates of the partners of the
Partnership (other than GEAS).
"Permitted Holder" means any of (i) the estate or the heirs of Bob Magness
(a shareholder of the Borrower), (ii) John C. Malone (a shareholder of the
Borrower, the Chairman of the Board of TCI, and a director of TCI and of the
Borrower), (iii) the Kearns-Tribune Corporation (a Utah corporation and a
shareholder of the Borrower), (iv) the Partnership (so long as all the then
other partners in the Partnership were partners in the Partnership on the
Issue Date), (v) Persons who were partners of the Partnership on the Issue
Date, (vi) TCI,
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(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 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 "--Certain Covenants--
Disposition of Proceeds of Asset Sales" above not to exceed 15% of the total
consideration for such Asset Sales; (f) transactions with officers, directors
and employees of the Borrower, 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
Borrower 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 Borrower; (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 "--Limitation on Indebtedness"
above; (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 Borrower or any Restricted Subsidiary holds partnership
interests in the Partnership, the provision of any guarantee, letter of credit
or other credit support with respect to (x) an obligation of the Partnership
incurred under the Partnership Credit Agreement (or any refinancing thereof)
to the extent such obligation was incurred by the Partnership to finance any
Tempo Satellite or (y) any obligation of the Partnership 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 Borrower's equity interest in the
Partnership, and the denominator of which is all partners' equity interest in
the Partnership except GE Americom Services, Inc., and (II) such obligation of
the Partnership incurred to finance such Tempo Satellite or such obligation of
the Partnership 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 Borrower or any
other Person that are (i) equity securities without special covenants or (ii)
subordinated in right of payment to all Senior Indebtedness that may at the
time be outstanding, to substantially the same extent as, or to a greater
extent than, the Notes 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 Notes on the date of the Indentures, (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
Notes 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 (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 Borrower 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 Borrower 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
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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
Notes; (e) Liens in favor of the Borrower or any Restricted Subsidiary so long
as held by the Borrower 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 Borrower 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 Borrower 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 Borrower 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 "--
Certain Covenants--Limitation on Indebtedness" above, 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 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, partnership, joint venture,
association, joint-stock Company, limited liability Company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"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.
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"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.
"principal" of a debt security means the principal of the security, which in
the case of the Senior Subordinated Discount Notes as of any given date, is
the Accreted Value of the Senior Subordinated Discount Notes as of such date,
plus, when appropriate, the premium, if any, on the security.
"principal amount at maturity" means, with respect to the Senior
Subordinated Discount Notes, $1,000 per $1,000 face amount of Senior
Subordinated Discount Notes; provided, however, that if the Borrower shall
have made a Cash Interest Election, the principal amount at maturity with
respect to each Senior Subordinated Discount Note shall be the Accreted Value
of such Senior Subordinated Discount Note as of the Cash Interest Election
Date.
"Public Equity Offering" means an underwritten public offering of Qualified
Equity Interests of the Borrower 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 Borrower 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 Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"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, 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 Borrower
and TCI with respect to and resulting from the Distribution, as amended and in
effect from time to time.
"Required Designation" has the meaning set forth in "--Certain Covenants--
Designation of Unrestricted Subsidiaries; Designation of Tempo as a Restricted
Subsidiary" above.
"ResNet" means ResNet Communications, Inc., a Delaware corporation, and its
successors.
"ResNet Option" means the Option Agreement between the Borrower 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 Borrower to ResNet, as amended and in effect
from time to time.
"Restricted C-Band Subsidiary" has the meaning set forth under "--Certain
Covenants--Limitation on Restricted Payments" above.
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"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Borrower that has not
been designated by the Board of Directors of the Borrower, by a resolution of
the Board of Directors of the Borrower delivered to the Trustee, as an
Unrestricted Subsidiary pursuant to "--Certain Covenants--Designation of
Unrestricted Subsidiaries; Designation of Tempo as a Restricted Subsidiary"
above; provided, however, that Tempo is designated as an Unrestricted
Subsidiary as of the Issue Date. Any such designation may be revoked by a
resolution of the Board of Directors of the Borrower delivered to the
Trustees, subject to the provisions of such covenant.
"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 Subsidiary" has the meaning set forth in "--Certain Covenants--
Designation of Restricted Subsidiaries; Designation of Tempo as a Restricted
Subsidiary" above.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means, at any date, (a) all Obligations of the
Borrower under the Bank Credit Facility; (b) all Interest Rate Protection
Obligations of the Borrower; (c) all Obligations of the Borrower under stand-
by letters of credit; and (d) all other Indebtedness of the Borrower 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 Borrower for money borrowed is Incurred
expressly provides that such Indebtedness for money borrowed is not senior or
superior in right of payment to the Notes, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Senior Indebtedness shall not include (a) any obligation of the
Borrower 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 among or between the Borrower and any Subsidiary
of the Borrower; (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 the
Indentures; provided, however, that such Indebtedness shall be deemed not to
have been Incurred in violation of the Indentures for purposes of this clause
(e) if (I) the holder(s) of such Indebtedness or their representative or the
Borrower shall have furnished to the Trustees an opinion of independent legal
counsel, unqualified in all material respects, addressed to the Trustees
(which legal counsel may, as to matters of fact, rely upon an Officers'
Certificate of the Borrower) to the effect that the Incurrence of such
Indebtedness does not violate the provisions of the Indentures or (II) in the
case of any Obligations under the Bank Credit Facility, the holder(s) of such
Obligations or their agent or representative shall have received a
representation from the Borrower to the effect that the Incurrence of such
Indebtedness does not violate the provisions of the Indentures; (f)
Indebtedness evidenced by the Notes; (g) Indebtedness of the Borrower that is
expressly subordinate or junior in right of payment to any other Indebtedness
of the Borrower; (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 Borrower.
"Share Purchase Agreement" means the share purchase agreement entered into
by TCI and the Borrower 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 Borrower
accounted for more than 5.0% of the consolidated revenues of the Borrower 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 Borrower and the Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Borrower 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
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Restricted Subsidiaries and as to which any event described in clause (f), (g)
or (h) of "--Events of Default" above has occurred, would constitute a
Significant Restricted Subsidiary under clause (a) of this definition.
"Stated Maturity", when used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest 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 Borrower which is
expressly subordinated in right of payment to the Notes.
"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. In connection with the Distribution, the Tax Sharing Agreement was
amended on December 3, 1996 to provide that the Borrower be treated as if it
had been a party to the Tax Sharing Agreement effective July 1, 1995, as
amended and in effect from time to time.
"TCI" means Tele-Communications, Inc., a Delaware corporation, and its
successors.
"TCIC Credit Facility" means the credit facility, dated as of December 4,
1996, that provided for the TCIC Revolving Loans and the Borrower's
obligations with respect to the TCIC Revolving Loans and the TSAT Note. As a
result of GE-2 Acceptance, availability under the TCIC Credit Facility has
been terminated.
"Tempo Letter Agreements" means the two letter agreements dated as of July
30, 1993 entered into by Tempo and the Partnership in connection with the
Tempo Option and certain related matters and any refinancings thereof, as
amended and in effect from time to time.
"Tempo 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.
"Tempo Option" means the Partnership's right and option, granted by Tempo
under the option agreement entered into by Tempo and the Partnership 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, as amended
and in effect from time to time.
"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 Borrower and the Restricted Subsidiaries outstanding
as of such date of determination.
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"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, 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 Borrower, pursuant to which TCI provides to the
Borrower certain services and other benefits, including certain administrative
and other services that were provided to the Borrower by TCI prior to the
Distribution, as amended and in effect from time to time.
"Unrestricted Subsidiary" means any Subsidiary of the Borrower designated as
such pursuant to "--Certain Covenants--Designation of Unrestricted
Subsidiaries; Designation of Tempo as a Restricted Subsidiary" above. Any such
designation may be revoked by a resolution of the Board of Directors of the
Borrower delivered to the Trustee, subject to the provisions of "--Certain
Covenants--Designation of Unrestricted Subsidiaries; Designation of Tempo as a
Restricted Subsidiary" above.
"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.
"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 Borrower.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Senior Subordinated Exchange
Notes and the Senior Subordinated Discount Exchange Notes to be issued
pursuant to the Exchange Offer initially will be issued in the form of one or
more senior subordinated global exchange notes and senior subordinated
discount global exchange notes, as the case may be (the "Global Notes"). The
Global Notes will be deposited on the Expiration Date of the Exchange Offer
with, or on behalf of, the Depository and registered in the name of Cede &
Co., as nominee of the Depository (such nominee being referred to herein the
"Global Notes Holder").
Notes that are issued as described below under "--Certificated Notes" will
be issued in the form of registered definitive certificates (the "Certificated
Notes"). Such Certificated Notes may, unless the applicable Global Note has
previously been exchanged for Certificated Notes, be exchanged for an interest
in the applicable Global Note representing the principal amount of Senior
Subordinated Exchange Notes or Senior Subordinated Discount Exchange Notes, as
the case may be, being transferred.
The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depository's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in the accounts of such
Participants. The Depository's Participants include securities brokers and
dealers, banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively,
the "Indirect Participants" or the "Depository's Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. Persons who are not Participants may beneficially own
securities held by or on behalf of the Depository only through the
Depository's Participants or the Depository's Indirect Participants.
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The Borrower expects that, pursuant to procedures established by the
Depository, ownership of the Senior Subordinated Notes or Senior Subordinated
Discount Notes, as the case may be, evidenced by the Global Notes, will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depository (with respect to the interests of the
Depository's Participants), the Depository's Participants and the Depository's
Indirect Participants. Prospective purchasers are advised that the laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer Senior
Subordinated Notes or Senior Subordinated Discount Notes, as the case may be,
evidenced by the Global Notes, will be limited to such extent.
So long as the Global Notes Holder is the registered owner of any Notes, the
Global Notes Holder will be considered the sole holder under the applicable
Indenture of any Senior Subordinated Notes or Senior Subordinated Discount
Notes, as the case may be, evidenced by the Global Notes. Beneficial owners of
Notes evidenced by the Global Notes will not be considered the owners or
holders thereof under the applicable Indenture for any purpose, including with
respect to the giving of any directions, instructions or approvals to the
applicable agent or trustee thereunder. As a result, the ability of a person
having a beneficial interest in Notes represented by any Global Note to pledge
such interest to persons or entities that do not participate in the
Depository's system or to otherwise take actions in respect of such interest
may be affected by the lack of a physical certificate evidencing such
interest. Neither the Borrower nor the Trustees will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of the Notes by the Depository, or for maintaining, supervising or
reviewing any records of the Depository relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Notes Holder on the applicable
record date will be payable by the applicable Trustee to or at the direction
of the Global Notes Holder in its capacity as the registered holder of such
Notes. Under the terms of the Notes Indentures, the Borrower and the Trustees
may treat the persons in whose names Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Borrower nor the Trustees have or will have any
responsibility or liability for the payment of such amounts to beneficial
owners of Notes. The Borrower believes, however, that it is currently the
policy of the Depository to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holders of beneficial interests in the relevant security as shown on the
records of the Depository. Payments by the Depository's Participants and the
Depository's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depository's Participants or the Depository's Indirect
Participants.
CERTIFICATED NOTES
Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the applicable Trustee, exchange such
beneficial interest for Senior Subordinated Notes or Senior Subordinated
Discount Notes, as the case may be, in the form of Certificated Notes. Upon
any such issuance, the applicable Trustee is required to register such
Certificated Notes in the name of, and cause the same to be delivered to, such
person or persons (or the nominee of any thereof). If: (i) the Borrower
notifies the applicable Trustee in writing that the Depository is no longer
willing or able to act as a depository and the Borrower is unable to locate a
qualified successor within 90 days; or (ii) an Event of Default has occurred
and is continuing and the Depository requests that Certificated Notes be
issued under the applicable Indenture, then, upon surrender by the Global
Notes Holder of the applicable Global Notes, Senior Subordinated Notes and
Senior Subordinated Discount Notes, as the case may be, in such form will be
issued to each person that the Global Notes Holder and the Depository identify
as being the beneficial owner of the related Senior Subordinated Notes or
Senior Subordinated Discount Notes, as the case may be.
Neither the Borrower nor the applicable Trustee will be liable for any delay
by the Global Notes Holder or the Depository in identifying the beneficial
owners of the Senior Subordinated Notes or Senior Subordinated Discount Notes,
as the case may be, and the Borrower and the applicable Trustee may
conclusively rely on, and will be protected in relying on, instructions from
the Global Notes Holder or the Depository for all purposes.
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REGISTRATION RIGHTS
Exchange Offer
(a) Pursuant to the Registration Rights Agreements executed in connection
with the Notes Offering, the Borrower has agreed to file with the SEC on or
before the Filing Date, an offer to exchange any and all of the Notes that
constitute Registrable Securities (as defined below) for a like aggregate
principal amount of senior subordinated debt securities of the Borrower which
are identical to the Notes, and which are entitled to the benefits of a trust
indenture which is identical to the applicable 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 which
has been qualified under the TIA (the "Exchange Securities"), 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 Notes are intended to constitute
Exchange Securities under the Registration Rights Agreement. The Borrower has
agreed to use its commercially reasonable best efforts to (i) cause such
registration statement to become effective and commence such exchange offer on
or prior to the Effectiveness Date, (ii) keep such 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) exchange Exchange Notes for all Notes
validly tendered and not withdrawn pursuant to such exchange offer on or prior
to the fifth day following the Expiration Date.
The Borrower has agreed to use its commercially reasonable best efforts to
keep such registration statement effective and to amend and supplement the
prospectus forming a part thereof 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 (or such shorter time
as such persons must comply with such requirements in order to resell the
Exchange Securities) (the "Applicable Period").
The Exchange Offer and the Registration Statement (of which this Prospectus
constitutes a part) filed in connection with the Exchange Offer are intended
to satisfy the Borrower's obligations under the Registration Rights
Agreements. If the Borrower does not consummate the Exchange Offer, or, in
lieu thereof, the Borrower does not file and cause to become effective a
resale shelf registration for the Notes within the time periods set forth
herein, special interest will accrue and be payable on the Notes either
temporarily or permanently.
(b) Although the Borrower has filed the Registration Statement in
satisfaction of its obligations under the Registration Rights Agreements, as
previously described, there can be no assurance that the Registration
Statement will become effective. If, (i) because of any change in law or in
currently prevailing interpretations of the Staff of the SEC, the Borrower
reasonably determines 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
not, for any reason, consummated on or prior to the 165th day after the Issue
Date, (iv) any holder of Private Exchange Securities (as defined in the
Registration Rights Agreement) 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 Borrower 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 the terms
of the Registration Rights Agreements.
Shelf Registration
If a Shelf Registration Event has occurred (and whether or not this
Registration Statement has become effective, or the Exchange Offer has been
consummated), then:
(a) Initial Shelf Registration Statement. The Borrower 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
Borrower shall file with the
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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 Borrower 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 Borrower
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 Borrower shall use its best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof, and in any
event the Borrower 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 Borrower 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 Borrower 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.
Additional Interest
The Borrower has agreed 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 Registration Statement or the Initial Shelf
Registration Statement has not been filed on or prior to the Filing Date
(unless, with respect to the Registration Statement, a Shelf Event
described in clause (i) of paragraph (b) of "--Exchange Offer" above 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 the Senior
Subordinated Notes or $1,000 of Accreted Value (as of the first day of each
such week) with respect to the Senior Subordinated Discount Notes for the
first 90 days immediately following such date, such Additional Interest
increasing by an additional $0.05 per week (or any part thereof) per $1,000
principal amount of the Senior Subordinated Notes or $1,000 of Accreted
Value (as of the first day of each such week) with respect to the Senior
Subordinated Discount Notes for each subsequent 90-day period;
(ii) if either the 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 Registration Statement,
a Shelf Event described in clause (i) of paragraph (b) of "--Exchange
Offer" above shall have occurred), Additional Interest shall accrue on the
Notes included or which should have been included in
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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 Senior Subordinated Notes or $1,000 of Accreted Value (as of the first
day of each such week) with respect to the Senior Subordinated Discount
Notes for the first 90 days immediately following the day after such date,
such Additional Interest increasing by an additional $0.05 per week (or any
part thereof) per $1,000 principal amount of the Senior Subordinated Notes
or $1,000 of Accreted Value (as of the first day of each such week) with
respect to the Senior Subordinated Discount Notes for each subsequent 90-
day period; and
(iii) if (A) The Borrower 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 Registration Statement ceases to be effective 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 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 Senior Subordinated
Notes or $1,000 of Accreted Value (as of the first day of each such week)
with respect to the Senior Subordinated Discount Notes for the first 90
days commencing on the (x) sixth day after the Expiration Date, in the case
of (A) above, or (y) the day the Registration Statement ceases to be
effective 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 increasing by an additional $0.05 per week (or any part thereof)
per $1,000 principal amount of the Senior Subordinated Notes or $1,000 of
Accreted Value (as of the first day of each such week) with respect to the
Senior Subordinated Discount 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 Senior Subordinated Notes or $1,000 of
Accreted Value (as of the first day of each such week) with respect to the
Senior Subordinated Discount Notes; provided, further, that (1) upon the
filing of the Registration Statement or a Shelf Registration Statement as
required hereunder (in the case of clause (i) of this paragraph), (2) upon
the effectiveness of the Registration Statement or the Shelf Registration
Statement as required hereunder (in the case of clause (ii) of this
paragraph) 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
paragraph), or upon the effectiveness of the Registration Statement which
had ceased to remain effective (in the case of (iii)(B) of this paragraph),
or upon the effectiveness of the Shelf Registration Statement which had
ceased to remain effective (in the case of (iii)(C) of paragraph),
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).
Although the Borrower initially filed a registration statement in connection
with the Exchange Offer with the SEC on April 11, 1997, in light of the
proposed Roll-up Plan and the consequent necessity of preparing and providing
to holders of the Notes certain pro forma financial information which gives
effect to the Roll-up Plan, the Borrower did not cause such registration
statement to be declared effective. As a result, effective July 5, 1997, the
Borrower began to incur Additional Interest on the Notes, in accordance with
the Registration Rights Agreements, as described above. During the 90-day
periods ended October 3, 1997 and January 3, 1998, the Borrower incurred
approximately $252,000 and $476,000, respectively, of Additional Interest, and
will continue to incur Additional Interest for each subsequent 90-day period,
in accordance with the Registration Rights Agreements, until the Registration
Statement of which this Prospectus is a part is declared effective by the SEC
and the Exchange Offer is consummated.
Definitions
As used in this section, the following terms shall have the following
meanings:
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 Registration Statement with the
SEC, then the Effectiveness Date in respect thereof shall be the 60th day
after such Filing Date.
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Closing Date: the closing date of the Notes Offering.
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
Registration Statement with the SEC, then the Filing Date in respect
thereof shall be the 45th day after such Shelf Registration Event.
Registrable Securities: The Notes upon original issuance thereof and at
all times subsequent thereto, each Exchange Security as to which clause (v)
of paragraph (b) of "--Exchange Offer" above 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 clause (v) of paragraph (b) of "--Exchange Offer" above is
applicable, the 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 under the Securities Act, (iii) such Note has been exchanged for an
Exchange Note pursuant to the Exchange Offer and clause (v) of paragraph
(b) of "--Exchange Offer" above is not applicable thereto, or (iv) such
Notes, Exchange Securities or Private Exchange Securities, as the case may
be, cease to be outstanding.
RECENT TRANSACTIONS--THE ASKYB TRANSACTION
In the proposed ASkyB Transaction, pursuant to the ASkyB Agreement among the
Partnership, News Corp., MCI, ASkyB, and for certain purposes only, each of
the Partners, New PRIMESTAR will acquire from MCI, News Corp. and ASkyB, as
applicable, two MCI Satellites, certain authorizations granted to MCI by the
FCC to operate a DBS business at the 110(degrees) W.L. orbital location using
28 transponder channels, and certain related contracts.
In consideration, ASkyB will receive non-voting convertible securities of
New PRIMESTAR, comprising, subject to closing adjustments, approximately $600
million liquidation value of New PRIMESTAR Convertible Preferred Stock
(convertible into approximately 52 million shares of non-voting New PRIMESTAR
Class D Common Stock, subject to adjustment) and approximately $516 million
principal amount of New PRIMESTAR Convertible Subordinated Notes (convertible
into approximately 45 million shares of New PRIMESTAR Class D Common Stock).
The New PRIMESTAR Convertible Subordinated Notes will be due and payable, and
the New PRIMESTAR Convertible Preferred Stock will be mandatorily redeemable,
on the tenth anniversary of the date of issuance. The New PRIMESTAR
Convertible Preferred Stock will accrue cumulative dividends at the annual
rate of 5% of the liquidation value of such shares and the New PRIMESTAR
Convertible Subordinated Notes will have an interest rate of 5%. Dividends on
the New PRIMESTAR Convertible Preferred Stock and interest on the New
PRIMESTAR Convertible Subordinated Notes will be payable in cash or, at the
option of New PRIMESTAR, in shares of the non-voting New PRIMESTAR Class D
Common Stock, for a period of four years. Thereafter, all dividend and
interest payments will be made solely in cash. Shares of New PRIMESTAR Class D
Common Stock issued to ASkyB or any of its affiliates upon conversion of such
New PRIMESTAR Convertible Preferred Stock and New PRIMESTAR Convertible
Subordinated Notes, or in payment of dividend or interest obligations
thereunder, will in turn automatically convert into shares of New PRIMESTAR
Class A Common Stock, on a one-to-one basis, upon transfer to any person other
than ASkyB, News Corp. or any of their respective affiliates. Assuming such a
transfer and conversion, and based on the number of shares of New PRIMESTAR
Common Stock expected to be issued in the Restructuring Transaction (subject
to adjustment as provided in the Restructuring Agreement, the New PRIMESTAR
Class D Common Stock into which the New PRIMESTAR Convertible Subordinated
Notes and the New PRIMESTAR Convertible Preferred Stock are convertible, would
be converted into New PRIMESTAR Class A Common Stock representing
approximately
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33% of the number of shares of New PRIMESTAR Common Stock and approximately
20% of the combined voting power of the New PRIMESTAR Common Stock outstanding
after giving effect to such a transfer and conversion.
Consummation of the ASkyB Transaction is contingent on, among other things,
receipt of all necessary government and regulatory approvals, and accordingly,
no assurance can be given that the ASkyB Transaction will be consummated. In
addition, it is a condition precedent to the closing of the ASkyB Transaction
by New PRIMESTAR that the ASkyB Transaction be approved by the holders of New
PRIMESTAR Voting Common Stock, including the former holders of TSAT Common
Stock if the TSAT Merger shall have been consummated, at an annual or special
meeting of New PRIMESTAR. The ASkyB Agreement provides that if the
Restructuring Transaction has not closed by March 8, 1998, and the closing
conditions set forth in the ASkyB Agreement have all been satisfied, then News
Corp., MCI and ASkyB (collectively, the "ASkyB Transferors") will have the
right to transfer to the Partnership the assets contemplated to be transferred
to New PRIMESTAR under the ASkyB Transaction, in exchange for such
consideration, having an aggregate fair market value equal to the aggregate
consideration that would have been received by the ASkyB Transferors pursuant
to the ASkyB Transaction had the Restructuring Transaction closed by such
date, as the Partnership and the ASkyB Transferors shall mutually agree.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the principal United States federal income
tax consequences of the ownership and disposition of the Notes and the
Exchange Notes. This summary is based on the Code, administrative
pronouncements, judicial decisions and existing and proposed Treasury
Regulations, changes to any of which subsequent to the date hereof may affect
the tax consequences described below. This summary addresses only initial
holders of the Notes who acquired such Notes at their "issue price," as
defined below, and initial holders of Notes who, upon tendering their Notes in
connection with the Exchange Offer, are issued Exchange Notes in exchange for
such Notes, and discusses only Notes and Exchange Notes held as capital assets
within the meaning of Section 1221 of the Code. It does not discuss all of the
tax consequences that may be relevant to a holder in light of such holder's
particular circumstances or to holders subject to special rules, such as
certain financial institutions, insurance companies, dealers in securities or
persons holding the Notes as part of a straddle or a hedging arrangement.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, HOLDERS OF NOTES SHOULD CONSULT THEIR TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE UNITED STATED FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS, AS WELL AS WITH REGARD TO ANY TAX CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION AND ANY RECENT OR
PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
SENIOR SUBORDINATED DISCOUNT NOTES
Original Issue Discount. The Senior Subordinated Discount Notes were issued
with OID equal to the difference between their "stated redemption price at
maturity" and their "issue price," as such terms are defined in the Code and
Treasury Regulations. The "issue price" of a Senior Subordinated Discount
Note, or a Senior Subordinated Exchange Note issued in exchange therefor
pursuant to the Exchange Offer, is the first price at which a substantial
amount of the Senior Subordinated Discount Notes was sold to the public. For
this purpose, the public does not include bond houses, brokers or similar
persons or organizations acting in the capacity of underwriters, placement
agents or wholesalers.
The "stated redemption price at maturity" of a Senior Subordinated Discount
Note, or of a Senior Subordinated Discount Exchange Note issued in exchange
therefor, is equal to the sum of all payments required
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under the Senior Subordinated Discount Note or Senior Subordinated Discount
Exchange Note, as the case may be, other than payments of "qualified stated
interest" within the meaning of the Treasury Regulations. To have "qualified
stated interest," an instrument must, among other requirements, pay interest
at least annually during the entire term of such instrument. Because neither
the Senior Subordinated Discount Notes nor the Senior Subordinated Discount
Exchange Notes will pay interest until September 1, 2002, none of the interest
on the Senior Subordinated Discount Notes or the Senior Subordinated Discount
Exchange Notes will be qualified stated interest. As a result, all payments
made under the Senior Subordinated Discount Notes and the Senior Subordinated
Discount Exchange Notes will be treated as part of the stated redemption price
at maturity, and interest paid on the Senior Subordinated Discount Notes and
the Senior Subordinated Discount Exchange Notes will not be taxable upon
receipt, but the OID rules described below will apply. The total OID on a
Senior Subordinated Discount Note or a Senior Subordinated Discount Exchange
Note, as the case may be, will be equal to the difference between the sum of
all payments required under such Senior Subordinated Discount Note or Senior
Subordinated Discount Exchange Note and the issue price of the Senior
Subordinated Discount Note owned by the holder (or, in the case of a Senior
Subordinated Discount Exchange Note, the issue price of the Senior
Subordinated Discount Note that was exchanged by such holder for a Senior
Subordinated Discount Exchange Note pursuant to the Exchange Offer).
A holder of Senior Subordinated Discount Notes and a holder of Senior
Subordinated Discount Exchange Notes each will be required to include OID in
income for U.S. federal income tax purposes as it accrues, whether or not such
holder uses the accrual method of accounting. OID will accrue in accordance
with a constant yield method based on a compounding of interest. Under this
method, holders of Senior Subordinated Discount Notes and holders of Senior
Subordinated Discount Exchange Notes will be required to include in income
increasingly greater amounts of OID in successive accrual periods. OID
allocable to any accrual period will equal the product of the "adjusted issue
price" of the Senior Subordinated Discount Notes or the Senior Subordinated
Discount Exchange Notes, as the case may be, as of the beginning of such
period, multiplied by the Senior Subordinated Discount Notes' or the Senior
Subordinated Discount Exchange Notes' respective yield to maturity. The
"adjusted issue price" of the Senior Subordinated Discount Notes, or the
Senior Subordinated Discount Exchange Notes issued in exchange for Senior
Subordinated Discount Notes, as of the beginning of any accrual period, will,
with respect to Senior Subordinated Discount Notes, equal the issue price of
the Senior Subordinated Discount Notes or, with respect to the Senior
Subordinated Discount Exchange Notes, equal the issue price of the Senior
Subordinated Discount Note that was exchanged pursuant to the Exchange Offer,
increased, in each case, by OID previously includible in income and decreased
by any payments under such Notes or Exchange Notes, as the case may be.
Because OID will accrue and be includible in income at least annually and no
payments will be made under the Senior Subordinated Discount Notes and the
Senior Subordinated Discount Exchange Notes until August 15, 2002, the
adjusted issue price of the Senior Subordinated Discount Notes and the Senior
Subordinated Discount Exchange Notes will increase until February 15, 2002.
OID includible in income will therefore increase during each accrual period
until February 15, 2002. Thereafter, OID includible in income for each six-
month accrual period will approximate the amount of cash interest due at the
end of such period.
The Borrower may make a Cash Interest Election at any time prior to February
15, 2002, in which case cash interest is payable on each interest payment date
thereafter. Under the OID rules, solely for purposes of determining the amount
of OID that is includible in income by a holder of a note, it is presumed that
the issuer will exercise an option to pay cash interest early if such exercise
will lower the yield-to-maturity of the note. The Borrower has determined that
the exercise of its option to pay interest early would not lower the yield-to-
maturity of the Senior Subordinated Discount Notes or the yield-to-maturity of
the Senior Subordinated Discount Exchange Notes. On these facts, the Borrower
would not be presumed to exercise its option to pay interest early. However,
if, contrary to such presumption, the Borrower exercises such option, then
solely for purposes of the accrual of OID, the yield to maturity of the Senior
Subordinated Discount Notes and the Senior Subordinated Discount Exchange
Notes will be redetermined by treating each of the Senior Subordinated
Discount Notes and the Senior Subordinated Discount Exchange Notes as reissued
on such date for an amount equal to the adjusted issue price on such date.
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Effect of Mandatory and Optional Redemption on OID. The Borrower may redeem
the Senior Subordinated Discount Notes and the Senior Subordinated Discount
Exchange Notes, in whole or in part, at any time on or after February 15,
2002, at redemption prices specified elsewhere herein, plus accrued and unpaid
interest thereon, if any, to the date of redemption. Treasury Regulations
contain rules for determining the "maturity date" and the stated redemption
price at maturity of an instrument that may be redeemed prior to its stated
maturity date at the option of the issuer. Under the OID rules, solely for
purposes of the accrual of OID, it is assumed that the issuer will exercise
any option to redeem a debt instrument if such exercise will lower the yield-
to-maturity of the debt instrument. The Borrower has determined that the
exercise of its right to redeem the Senior Subordinated Discount Notes and
Senior Subordinated Discount Exchange Notes prior to their stated maturity
under these rules would not lower the yield-to-maturity of the Senior
Subordinated Discount Notes and the Senior Subordinated Discount Exchange
Notes. On these facts, the Borrower would not be presumed to exercise its
right to redeem the Senior Subordinated Discount Notes and Senior Subordinated
Discount Exchange Notes prior to their stated maturity under these rules.
In addition, prior to February 15, 2000, the Borrower, other than in any
circumstance resulting in a Change of Control, may redeem an aggregate
principal amount of Senior Subordinated Discount Notes and Senior Subordinated
Discount Exchange Notes equal to up to 35% of the originally issued principal
amount at maturity of Senior Subordinated Discount Notes at a redemption price
equal to 112.25% of the Accreted Value thereof at the redemption date (or, if
a Cash Interest Election has been made, 112.25% of the principal amount at
maturity thereof, plus accrued and unpaid interest thereon, if any, to the
redemption date) with the net cash proceeds of (i) one or more Public Equity
Offerings of common equity of the Borrower or (ii) a sale or series of related
sales of Qualified Equity Interests of the Borrower to Strategic Equity
Investors, in any such case resulting in gross cash proceeds to the Borrower
of at least $100.0 million in the aggregate, provided, however, that at an
aggregate principal amount of Senior Subordinated Discount Notes and Senior
Subordinated Discount Exchange Notes equal to at least 65% of the originally
issued principal amount at maturity of Senior Subordinated Discount Notes
would remain outstanding immediately after giving effect to any such
redemption (excluding any Senior Subordinated Discount Notes and Senior
Subordinated Discount Exchange Notes owned by the Borrower or any of it
Affiliates). Such redemption rights and obligations will be treated by the
Borrower as not affecting the determination of the yield or maturity of the
Senior Subordinated Discount Notes or the Senior Subordinated Discount
Exchange Notes. The Treasury Regulations contain rules for determining the
"maturity date" and the stated redemption price at maturity of an instrument
that may be redeemed prior to its stated maturity date upon the occurrence of
one or more contingencies. Under such Treasury Regulations, if the timing and
amounts of the payments that comprise each payment schedule are known as of
the issue date, the "maturity date" and stated redemption price at maturity of
such an instrument are determined by assuming that payments will be made
according to the instrument's stated payment schedule, unless, based upon all
the facts and circumstances as of the issue date, it is more likely than not
that the instrument's stated payment schedule will not occur. The Borrower has
determined that the stated maturity date and stated payment schedule of the
Senior Subordinated Discount Notes is more likely than not to occur based on
the facts and circumstances known as of the issue date. On these facts, under
these regulations, the "maturity date" and stated redemption price at maturity
of the Senior Subordinated Discount Notes and the Senior Subordinated Discount
Exchange Notes would be determined on the basis of the stated maturity and
stated payment schedule.
If, notwithstanding the foregoing, it is presumed that the Borrower will
exercise its option to redeem, then the maturity date of the Senior
Subordinated Discount Notes and the Senior Subordinated Discount Exchange
Notes for the purpose of calculating yield to maturity would be the exercise
date of such call option and the stated redemption price at maturity for each
Senior Subordinated Discount Note and each Senior Subordinated Discount
Exchange Note would equal the amount payable upon such exercise. If
subsequently the call option is not exercised, then for purposes of the OID
rules, the issuer would be treated as having issued on the presumed exercise
date of the call option a new debt instrument in exchange for the existing
instrument. The new debt instrument deemed issued would have an issue price
equal to the call price. As a result, another OID computation would have to be
made with respect to the constructively issued new debt instrument.
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Sale, Exchange or Retirement. Upon the sale, exchange or retirement of a
Senior Subordinated Discount Note or of a Senior Subordinated Discount
Exchange Note, a holder will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement and
such holder's adjusted tax basis in such Senior Subordinated Discount Note or
Senior Subordinated Discount Exchange Note, as the case may be. A holder's
adjusted tax basis in a Senior Subordinated Discount Note or Senior
Subordinated Discount Exchange Note will equal the initial tax basis of the
Senior Subordinated Discount Note or Senior Subordinated Discount Exchange
Note, respectively, increased by the amounts of any OID previously included in
income by the holder with respect to such Senior Subordinated Discount Note or
Senior Subordinated Discount Exchange Note, and reduced by the amounts of any
payments on such Senior Subordinated Discount Note or Senior Subordinated
Discount Exchange Note, respectively, received by such holder.
Gain or loss realized on the sale, exchange or retirement of a Senior
Subordinated Discount Note or Senior Subordinated Discount Exchange Note will
be capital gain or loss if such Senior Subordinated Discount Note or Senior
Subordinated Discount Exchange Note, as the case may be, is held as a capital
asset, and will be long-term capital gain or loss if the Senior Subordinated
Discount Note or Senior Subordinated Discount Exchange Note has been held by
the holder for more than one year as of the date of the sale, exchange or
retirement. Under current law, the excess of net long-term capital gains over
net short-term capital losses is taxed at a lower rate than ordinary income
for certain noncorporate taxpayers. The distinction between capital gain or
loss and ordinary income or loss is also relevant for purposes of, among other
things, any limitation on the deductibility of capital losses.
SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes were not issued with (and thus do not bear)
OID, and consequently, any Senior Subordinated Exchange Notes issued in
exchange for Senior Subordinated Notes pursuant to the Exchange Offer will not
bear OID. For purposes of this discussion, it is assumed that all the initial
holders of Senior Subordinated Notes purchased their Senior Subordinated Notes
at a price equal to the stated principal amount.
Holders of Senior Subordinated Notes or Senior Subordinated Exchange Notes
will be required to include stated interest on the Senior Subordinated Notes
or Senior Subordinated Exchange Notes in gross income for federal income tax
purposes in accordance with the holder's method of accounting for tax
purposes.
Sale, Exchange or Retirement Upon the sale, exchange or retirement of a
Senior Subordinated Note or a Senior Subordinated Exchange Note, a holder will
recognize taxable gain or loss equal to the difference between the amount
received in the sale, exchange or retirement (except to the extent the
consideration received is attributable to stated interest not previously taken
into account, which consideration is treated as interest income) and such
holder's adjusted tax basis in the Senior Subordinated Note or Senior
Subordinated Exchange Note, as the case may be. Any gain or loss recognized on
the sale, exchange or retirement of a Senior Subordinated Note or Senior
Subordinated Exchange Note would be capital gain or loss if such Note or
Exchange Note is held as a capital asset and will be long-term capital gain or
loss if the Senior Subordinated Note or Senior Subordinated Exchange Note were
held by the holder for more than one year. For purposes of the foregoing
calculation of capital gain or loss, the applicable holding period for Senior
Subordinated Exchange Notes would begin on the date that such holder was
issued the Senior Subordinated Notes that were subsequently exchanged for such
Senior Subordinated Exchange Notes pursuant to the Exchange Offer.
In certain circumstances, notes issued in connection with the same
transaction or related transactions may be treated as a single note for
purposes of the OID rules. The Borrower has determined that a substantial
portion of each of the Senior Subordinated Notes and the Subordinated Senior
Discount Notes were issued to purchasers not related to the Borrower or to
other purchasers and who did not purchase both Senior Subordinated Notes and
Senior Subordinated Discount Notes in connection with the same transaction or
related transactions. Assuming this is the case, the aggregation rules would
not apply with respect to the Notes or the Exchange Notes.
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EXCHANGE OF NOTES FOR EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER
An exchange of the Notes for the Exchange Notes pursuant to the Exchange
Offer will not be treated as a taxable exchange for federal income tax
purposes because, other than the fact that the Exchange Notes will be
registered under the Securities Act, upon consummation of the Exchange Offer,
the terms of the Exchange Notes will be identical to the terms of the Notes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain noncorporate holders may be subject to backup withholding at a rate
of 31% on payments of principal and interest (including OID) and premium on,
and the proceeds of disposition of, a Note. Backup withholding will apply only
if the holder: (i) fails to furnish its Taxpayer Identification Number ("TIN")
which, for an individual, would be his or her Social Security number; (ii)
furnishes an incorrect TIN; (iii) is notified by the Internal Revenue Service
(the "IRS") that it has failed properly to report payments of interest and
dividends; or (iv) under certain circumstances, fails to certify, under
penalty of perjury, that it has furnished a correct TIN and has not been
notified by the IRS that it is subject to backup withholding for failure to
report interest and dividend payments. Holders of the Notes should consult
their tax advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption, if applicable.
The amount of any backup withholding from a payment to a holder of a Note
will be allowed as a credit against the holder's United States federal income
tax liability and may entitle the holder to a refund, provided that the
required information is furnished to the IRS.
OTHER TAX CONSEQUENCES
In addition to the federal income tax considerations described above,
holders of Notes should consider potential state, local, income, franchise,
personal property and other taxation in any state, locality or foreign
jurisdiction and the tax effect of ownership, sale, exchange, or retirement of
Notes or Exchange Notes, or their exchange of Notes for Exchange Notes
pursuant to the Exchange Offer, in any state, locality or foreign
jurisdiction. Prospective purchasers of Notes are advised to consult their own
tax advisors with respect to any state, local or foreign income, franchise,
personal property or other tax consequences arising out of their ownership of
Notes or Exchange Notes.
PLAN OF DISTRIBUTION
The Exchange Notes are being offered in exchange for Notes pursuant to the
Exchange Offer.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a Prospectus in
connection with any resale of such Exchange Notes. The Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Notes
where such Notes were acquired as a result of market-making activities or
other trading activities. The Borrower has agreed that, for a period of 180
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
Broker-dealers who have acquired Notes directly from TSAT are not permitted
to exchange such Notes in the Exchange Offer.
The Borrower will not receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such
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resale may be made directly to purchaser or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker- dealer that resells the Exchange Notes that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Expiration Date, the Borrower will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. the Borrower has agreed to pay certain
expenses incident to the Exchange Offer, other than commission or concessions
of any brokers or dealers, and will indemnify the holders of the Exchange
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
By acceptance of the Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Borrower of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Borrower agree to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Borrower has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended
or supplemental Prospectus to such broker-dealer.
VALIDITY OF EXCHANGE NOTES
The validity of the Exchange Notes will be passed upon for TSAT by Baker &
Botts, L.L.P., New York, N.Y.
EXPERTS
The balance sheets of TCI Satellite Entertainment, Inc. (as defined in note
1 of the financial statements referred to in this paragraph) as of December
31, 1996 and 1995, and the related statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996, which appear in TCI Satellite Entertainment, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1996, have been
incorporated by reference herein in reliance upon the report, dated March 25,
1997, of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The combined financial statements of Time Warner Satellite Services Group as
of December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, appearing in TCI Satellite Entertainment, Inc.'s
Current Report on Form 8-K dated February 11, 1998, have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon, which
is based in part on the report of Price Waterhouse LLP, independent
accountants, included therein and incorporated by reference herein. Such
combined financial statements are incorporated herein by reference in reliance
upon such reports given upon the authority of such firms as experts in
accounting and auditing.
The financial statements of Cox Communications, Inc. Direct Broadcast
Satellite Business as of December 31, 1995 and 1996, and for each of the three
years in the period ended December 31, 1996, which appear in TCI Satellite
Entertainment, Inc.'s Current Report on Form 8-K, dated February 11, 1998,
have been incorporated by
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reference herein in reliance upon the report, dated July 10, 1997, Deloitte &
Touche, LLP, independent auditors, which contains explanatory language stating
that other auditors audited the financial statements of PRIMESTAR Partners
L.P., an investment of Cox Communications, Inc. Direct Broadcast Satellite
Business, incorporated by reference herein and upon the authority of such firm
as experts in auditing and accounting.
The combined financial statements of Comcast Satellite Communications, Inc.
and Comcast DBS, Inc. as of December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996, which appear in TCI
Satellite Entertainment, Inc.'s Current Report on Form 8-K, dated February 11,
1998, have been incorporated by reference herein in reliance upon the report,
dated August 22, 1997, of Deloitte & Touche, LLP, independent auditors, which
contains explanatory language stating that other auditors audited the
financial statements of PRIMESTAR Partners L.P., an investment of Comcast DBS,
Inc., incorporated by reference herein and upon the authority of such firm as
experts in auditing and accounting.
The combined financial statements of MediaOne, Inc.--Direct Broadcast
Satellite Business as of December 31, 1996 and the related combined statements
of operations, changes in group equity (deficiency), and cash flows for the
period November 15, 1996 through December 31, 1996, and the combined financial
statements of the Direct Broadcast Satellite Business of Continental
Cablevision, Inc. as of December 31, 1995 and the related combined statements
of operations, changes in group equity (deficiency) and cash flows for the
twelve months ended December 31, 1994 and 1995, and the period January 1, 1996
through November 14, 1996, which appear in TCI Satellite Entertainment, Inc.'s
Current Report on Form 8-K, dated February 11, 1998, have been incorporated by
reference herein in reliance upon the report, dated August 8, 1997, of
Deloitte & Touche, LLP, independent auditors, which contains explanatory
language stating that other auditors audited the financial statements of
PRIMESTAR Partners L.P., an investment of MediaOne, Inc.--Direct Broadcast
Satellite Business, incorporated by reference herein and upon the authority of
such firm as experts in auditing and accounting.
The consolidated balance sheet of PRIMESTAR, Inc. as of September 30, 1997,
which appears in TCI Satellite Entertainment, Inc.'s Current Report on Form 8-
K, dated February 11, 1998, has been incorporated by reference herein in
reliance upon the report, dated February 6, 1998, of KPMG Peat Marwick, LLP,
independent certified public accountants, incorporated by reference herein and
upon the authority of such firm as experts in auditing and accounting.
The financial statements of PRIMESTAR Partners L.P. as of December 31, 1996
and 1995 and for each of the three years in the period ended December 31,
1996, which appear in TCI Satellite Entertainment, Inc.'s Current Report on
Form 8-K, dated February 11, 1998, have been incorporated by reference herein
in reliance upon the report (which contains an explanatory paragraph relating
to PRIMESTAR Partners L.P.'s ability to continue as a going concern as
described in note 2 to the financial statements) of Price Waterhouse LLP,
independent accountants, dated February 14, 1997, except as to Note 13, which
is as of March 9, 1997, incorporated by reference herein and upon the
authority of such firm as experts in auditing and accounting.
No person has been authorized in connection with the offering made hereby to
give any information or to make any representations other than those contained
in this Prospectus and, if given or made, such information or representation
must not be relied upon as having been authorized. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities other than the securities to which it relates or an offer to sell
or the solicitation of an offer to buy such securities in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any
date subsequent to the date hereof.
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[LOGO OF TCI SATELLITE ENTERTAINMENT, INC.]
10 7/8% SENIOR SUBORDINATED NOTES
DUE FEBRUARY 15, 2007
AND
12 1/4% SENIOR SUBORDINATED DISCOUNT NOTES
DUE FEBRUARY 15, 2007
