<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 0-21317
TCI SATELLITE ENTERTAINMENT, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1299995
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8085 South Chester, Suite 300
Englewood, Colorado 80112
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 712-4600
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days [X] Yes [ ] No
The number of shares outstanding of TCI Satellite Entertainment, Inc.'s
common stock as of April 30, 1999, was:
Series A common stock - 59,354,966 shares, and
Series B common stock - 8,465,324 shares.
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
amounts in thousands
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 752 --
Investment in Phoenixstar, Inc.(formerly PRIMESTAR, Inc.)
("Phoenixstar") (notes 3 and 7) -- --
Satellites, at cost (note 8) 239,118 463,133
--------- --------
$ 239,870 463,133
========= ========
Liabilities and Stockholders' Deficit
- -------------------------------------
Due to Phoenixstar (note 8) $ 332,818 469,498
--------- --------
Stockholders' Deficit:
Preferred stock, $.01 par value;
authorized 5,000,000 shares; none issued -- --
Series A common stock, $1 par value;
authorized 85,000,000 shares; issued
59,354,966 in 1999 and 59,280,466 in 1998 59,355 59,280
Series B common stock, $1 par value;
authorized 10,000,000 shares; issued
8,465,324 in 1999 and 1998 8,465 8,465
Additional paid-in capital 825,382 825,276
Accumulated deficit (986,150) (899,386)
--------- --------
Total stockholders' deficit (92,948) (6,365)
--------- --------
$ 239,870 463,133
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-1
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1999 1998
--------- ----------
amounts in thousands,
except per share amounts
<S> <C> <C>
Revenue $ -- 168,500
Operating costs and expenses:
Charges from PRIMESTAR Partners L.P. (note 9) -- 82,235
Operating 2,777 9,847
Selling, general and administrative 43 55,341
Stock compensation (note 9) 181 4,869
Depreciation -- 65,105
-------- --------
3,001 217,397
-------- --------
Operating loss (3,001) (48,897)
Other income (expense):
Loss on sale of satellite (note 2) (83,765) --
Interest expense -- (14,177)
Share of losses of PRIMESTAR Partners L.P. -- (5,822)
Other, net 2 (621)
-------- --------
(86,763) (20,620)
-------- --------
Loss before income taxes (86,764) (69,517)
Income tax benefit (note 10) -- --
-------- --------
Net loss $(86,764) (69,517)
======== ========
Basic and diluted loss per common share (note 5) $ (1.28) (1.03)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Deficit
Three months ended March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Common stock Additional Total
---------------------- paid-in Accumulated stockholders'
Series A Series B capital deficit deficit
---------- ---------- ------------ ------------- ------------
amounts in thousands
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ 59,280 8,465 825,276 (899,386) (6,365)
Net loss -- -- -- (86,764) (86,764)
Recognition of stock compensation
related to stock options and
restricted stock awards (note 9) -- -- 181 --
Issuance of Series A Common Stock
related to restricted stock awards 75 -- (75) -- --
---------- ---------- --------- --------- --------
Balance at March 31, 1999 $ 59,355 8,465 825,382 (986,150) (92,948)
========== ========== ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1999 1998
--------- ----------
amounts in thousands
(see note 6)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (86,764) (69,517)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Loss on sale of satellite 83,765 --
Depreciation -- 65,105
Share of losses of PRIMESTAR Partners L.P. -- 5,822
Accretion of debt discount -- 4,682
Stock compensation 181 4,869
Other non-cash charges -- 7,956
Changes in operating assets and liabilities:
Change in receivables -- 10,845
Change in other assets -- (736)
Change in accruals and payables -- (10,209)
Change in subscriber advance payments -- (3,114)
--------- ----------
Net cash provided (used ) by operating
activities (2,818) 15,703
--------- ----------
Cash flows from investing activities:
Proceeds from sale of satellite 750 --
Capital expended for property and equipment -- (73,966)
Additional investments in and advances to
PRIMESTAR Partners L.P. -- (75)
--------- ----------
Net cash provided (used) by investing
activities 750 (74,041)
--------- ----------
Cash flows from financing activities:
Borrowings of debt -- 113,000
Repayments of debt -- (61,735)
Increase in due to Phoenixstar 2,820 --
Proceeds from issuance of common stock -- 989
--------- ----------
Net cash provided by financing activities 2,820 52,254
--------- ----------
Net increase (decrease) in cash and cash
equivalents 752 (6,084)
Cash and cash equivalents:
Beginning of period -- 6,084
--------- ----------
End of period $ 752 --
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
I-4
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited)
(1) Basis of Presentation
---------------------
The accompanying consolidated financial statements include the accounts of
TCI Satellite Entertainment, Inc. and those of all majority-owned
subsidiaries ("TSAT" or the "Company"). All significant inter-company
transactions have been eliminated.
As a result of the TSAT Asset Transfer described in note 3, TSAT is
currently a holding company, with no substantial assets or liabilities
other than (i) 100% of the outstanding capital stock of Tempo Satellite,
Inc. ("Tempo"), (ii) its ownership interest in Phoenixstar, and (iii) its
rights and obligations under certain agreements with Phoenixstar and
others.
In addition, the Company has no operations subsequent to the TSAT Asset
Transfer other than (i) expenses associated with the operation and
maintenance of the Tempo Satellites, as defined below and (ii) general and
administrative expenses incurred to maintain the Company's status as a
publicly traded company.
Tempo holds a permit (the "FCC Permit") issued by the Federal
Communications Commission ("FCC") authorizing the construction of a direct
broadcast satellite ("DBS") system in the 119 degrees West Longitude
("W.L.") orbital position. Tempo is also a party to a construction
agreement (the "Satellite Construction Agreement") with Space
Systems/Loral, Inc. ("Loral"), pursuant to which Tempo arranged for the
construction of two high power communications satellites (the "Tempo
Satellites"), one of which is currently in orbit at 119 degrees W.L.
("Tempo DBS-1") and one of which was sold on March 10, 1999 ("Tempo DBS-
2").
The accompanying interim consolidated financial statements of TSAT are
unaudited. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) have been made which are necessary to present
fairly the financial position of TSAT as of March 31, 1999 and the results
of its operations for the periods ended March 31, 1999 and 1998. The
results of operations for any interim period are not necessarily indicative
of the results for the entire year. These financial statements should be
read in conjunction with the financial statements and related notes thereto
included in TSAT's December 31, 1998 Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
Certain amounts have been reclassified for comparability with the 1999
presentation.
(continued)
I-5
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Hughes Transactions
-------------------
On January 22, 1999, the Company announced that the Company and Phoenixstar
had reached an agreement with Hughes Electronics Corporation ("Hughes"), a
subsidiary of General Motors Corporation, to sell (i) the Tempo Satellites,
(ii) the FCC Permit and (iii) Phoenixstar's rights relating to Tempo's DBS
system to Hughes, for aggregate consideration valued at $500 million (the
"Hughes High Power Transaction"). Pursuant to the agreement, Hughes has
agreed to assume $465 million of TSAT's liability to PRIMESTAR Partners,
pay TSAT $2.5 million in cash and pay Phoenixstar and PRIMESTAR Partners
$32.5 million in cash. In addition, Phoenixstar and PRIMESTAR Partners
have agreed to forgive certain amounts due from TSAT in excess of the $465
million to be assumed by Hughes. Due to the fact that regulatory approval
is required to transfer Tempo DBS-1 and the FCC Permit to Hughes, the
Hughes High Power Transaction will be completed in two steps.
Effective March 10, 1999, the first closing of the Hughes High Power
Transaction (the "First Closing") was consummated whereby Hughes acquired
Tempo DBS-2 and Phoenixstar's option to acquire Tempo DBS-2 (the "Tempo
DBS-2 Option") for aggregate consideration of $150 million. Such
consideration was comprised of the following: (i) $9,750,000 paid to
Phoenixstar and PRIMESTAR Partners for the Tempo DBS-2 Option and the
termination of PRIMESTAR Partners' rights with respect to the capacity of
Tempo's high power DBS assets, (ii) $750,000 paid to TSAT to exercise the
Tempo DBS-2 Option and (iii) the assumption by Hughes of $139,500,000 due
to PRIMESTAR Partners from TSAT in exchange for Tempo DBS-2, which had a
carrying value of $224 million at the time of closing.
The sale of the remaining assets contemplated by the Hughes High Power
Agreement (the "Second Closing") is subject to the receipt of appropriate
regulatory approvals and other customary closing conditions and is expected
to be consummated in mid-1999. Tempo has been notified that Tempo DBS-1
experienced power reductions which occurred on March 29, 1999 and April 2,
1999. Although the Company does not believe the extent of such power
reductions is significant, a definitive assessment of the impact on Tempo
DBS-1 is not yet complete. Upon completion of the sale of the Company's
high power assets, which had a carrying value of $239 million at March 31,
1999, the Company will receive additional consideration of $327 million in
the form of cash and debt assumption.
In a separate transaction completed on April 28, 1999 (the "Hughes Medium
Power Transaction"), Phoenixstar sold to Hughes Phoenixstar's medium-power
DBS business and assets for $1.1 billion in cash and 4.871 million shares
of General Motors Class H common stock ("GMH Stock") valued at
approximately $258 million on the date of closing. Phoenixstar is
responsible for the payment of certain obligations not assumed by Hughes,
satisfaction of its funded indebtedness and the payment of costs, currently
estimated to range from $270 million to $340 million, associated with the
termination of certain vendor and service contracts and lease agreements
not assumed by Hughes. Affiliates of stockholders of Phoenixstar, other
than the Company, and an affiliate of Tele-Communications, Inc. ("TCI")
have committed to make funds available to Phoenixstar, up to an aggregate
of $1,013 million to fund such payments.
(continued)
I-6
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with their approval of the Hughes Medium Power Transaction,
the stockholders of Phoenixstar approved the payment to TSAT of
consideration in the form of 1.407 million shares of GMH Stock (the
"Phoenixstar Payment"), subject to the terms and considerations set forth
in an agreement (the "Phoenixstar Payment Agreement") dated as of January
22, 1999. In consideration of the Phoenixstar Payment, the Company agreed
to approve the Hughes Medium Power Transaction and Hughes High Power
Transaction as a stockholder of Phoenixstar, to modify certain agreements
to facilitate the Hughes High Power Transaction, and to issue Phoenixstar a
share appreciation right (the "TSAT GMH SAR") with respect to the shares of
GMH Stock received as the Phoenixstar Payment, granting Phoenixstar the
right to any market price appreciation in such GMH Stock during the one-
year period following the date of issuance, over an agreed strike price of
$47.00. On the Hughes Closing Date, the Company received 1.407 million
shares of GMH Stock from Phoenixstar in satisfaction of the Phoenixstar
Payment.
The TSAT GMH SAR is secured by a first priority pledge and security
interest in the underlying shares of GMH Stock, and both the TSAT GMH SAR
and such pledge and security interest have been pledged by Phoenixstar for
the benefit of certain holders of share appreciation rights issued by
Phoenixstar with respect to shares of GMH Stock (the "Phoenixstar GMH
SARs"). The shares of GMH Stock issued to TSAT pursuant to the Phoenixstar
Payment Agreement are subject to certain restrictions on transfer during
the first year after the closing of the Hughes Medium Power Transaction,
and TSAT will be entitled (together with Phoenixstar) to certain
registration rights with respect to such shares following the expiration of
such one-year period. Pursuant to the Phoenixstar Payment Agreement, TSAT
has also agreed to forego any liquidating distribution or other payment
that may be made in respect of the outstanding shares of Phoenixstar upon
any dissolution and winding-up of Phoenixstar, or otherwise in respect of
Phoenixstar's existing equity.
(3) The Restructuring
-----------------
Effective April 1, 1998 (the "Closing Date") and pursuant to (i) a Merger
and Contribution Agreement dated as of February 6, 1998, (the
"Restructuring Agreement"), among TSAT, Phoenixstar, prior to the
Restructuring a wholly-owned subsidiary of TSAT, Time Warner Entertainment
Company, L.P. ("TWE"), Advance/Newhouse Partnership ("Newhouse"), Comcast
Corporation ("Comcast"), Cox Communications, Inc. ("Cox"), MediaOne of
Delaware, Inc., ("MediaOne"), and GE American Communications, Inc., and
(ii) an Asset Transfer Agreement dated as of February 6, 1998, (the "TSAT
Asset Transfer Agreement") between TSAT and Phoenixstar, a business
combination (the "Restructuring") was consummated. In connection with the
Restructuring, TSAT contributed and transferred to Phoenixstar (the "TSAT
Asset Transfer") all of TSAT's assets and liabilities except (i) the
capital stock of Tempo, (ii) the consideration to be received by TSAT in
the Restructuring and (iii) the rights and obligations of TSAT under
certain agreements with Phoenixstar and others. In addition, the business
of PRIMESTAR Partners L.P. ("PRIMESTAR Partners") and the business of
distributing the PRIMESTAR(R) programming service ("PRIMESTAR(R)") of each
of TWE, Newhouse, Comcast, Cox and affiliates of MediaOne were consolidated
into Phoenixstar.
(continued)
I-7
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the TSAT Asset Transfer, Phoenixstar assumed all of
TSAT's indebtedness on such date, and TSAT received from Phoenixstar 66.3
million shares of Class A Common Stock of Phoenixstar ("Phoenixstar Class A
Common Stock") and 8.5 million shares of Class B Common Stock of
Phoenixstar ("Phoenixstar Class B Common Stock" and together with the
Phoenixstar Class A Common Stock, "Phoenixstar Common Stock"), in
accordance with the Restructuring Agreement and the TSAT Asset Transfer
Agreement. As a result, TSAT owns approximately 37% of the outstanding
shares of common equity of Phoenixstar, representing approximately 38% of
the combined voting power of such common equity. As a result of the
dilution of TSAT's investment in Phoenixstar from 100% to approximately
37%, TSAT recognized an increase in its investment in Phoenixstar and an
increase in additional paid-in capital of $299,046,000, net of income
taxes. Such increase represents the difference between TSAT's historical
investment basis in Phoenixstar and TSAT's proportionate share of
Phoenixstar's equity subsequent to the Restructuring.
(4) Comprehensive Loss
------------------
The Company's total comprehensive loss for all periods presented herein did
not differ from those amounts reported as net loss in the consolidated
statements of operations.
(5) Loss Per Common Share
---------------------
The basic and diluted loss per common share is based on the weighted
average number of shares outstanding during the period (67,783,000 and
67,633,000 shares for the three months ended March 31, 1999 and 1998,
respectively). Excluded from the computation of diluted loss per common
share for the three months ended March 31, 1999 and 1998 are options and
convertible securities to acquire 8,515,000 and 8,855,000 shares of Series
A Common Stock, respectively, because inclusion of such options would be
anti-dilutive.
(6) Supplemental Disclosures to Combined Statements of Cash Flows
-------------------------------------------------------------
Cash paid for interest was $0 and $13,844,000 during the three months ended
March 31, 1999 and 1998, respectively. Cash paid for income taxes was not
significant during either of such periods.
Significant non-cash investing and financing activities for the three
months ended March 31, 1999 are as follows (amounts in thousands):
Assumption of amounts due to Phoenixstar
in exchange for Tempo DBS-2 $139,500
========
(7) Investment in Phoenixstar
-------------------------
Prior to the Hughes Medium Power Transaction, Phoenixstar owned and
operated the PRIMESTAR(R) direct to home satellite service throughout the
continental United States. TSAT's basis in Phoenixstar had been reduced to
zero as of December 31, 1998.
(continued)
I-8
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Satellites
----------
Tempo DBS System
TSAT, through Tempo, holds the FCC Permit issued by the FCC authorizing
construction of a high-power DBS system consisting of up to two satellites
delivering DBS service in 11 frequencies at the 119 degrees W.L. orbital
position.
Tempo is also a party to the Satellite Construction Agreement with Loral,
pursuant to which Tempo has arranged for the construction of the Tempo
Satellites at a fixed contract price of $487,159,500, and has an option to
purchase up to three additional satellites.
Tempo DBS-1 was launched into geosynchronous orbit on March 8, 1997. During
1997, Loral notified TSAT of nine separate occurrences of power reductions
on Tempo DBS-1. In addition, Loral notified TSAT of two additional power
reductions that occurred on March 29, 1999 and April 2, 1999. 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. As
a result of such power reductions, in-orbit testing has been extended and
Tempo DBS-1 has not yet been accepted. Pursuant to the Satellite
Construction Agreement, Loral bears the risk of loss of Tempo DBS-1 until
Tempo accepts delivery of Tempo DBS-1. TSAT currently 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 negotiations 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. Certain launch
defects or damages affecting Tempo DBS-1 could cause a substantial monetary
loss to TSAT.
Under the FCC Permit, the time by which the Tempo Satellites must be
operational was due to expire in May 1998. On April 3, 1998, Tempo filed a
request with the FCC for an extension of that deadline pending FCC review
of TSAT's request for consent to the transfer of control of Tempo to
Phoenixstar (the "Transfer Application") should the FCC determine that an
extension is necessary for Tempo to maintain its FCC authorizations at
119 degrees W.L. and 166 degrees W.L.
On April 30, 1998, the FCC determined that Tempo's satellite at 119 W.L.
was not operational. It did find, however, that an extension of time was
warranted for that orbital location and granted an extension to Tempo for
119 W.L. Such extension was granted until six months after the FCC
determination on the Transfer Application, with the condition that Tempo
not enter into a lease agreement with Phoenixstar or any similar lease
arrangement prior to the FCC's decision on the Transfer Application. In
addition, Tempo voluntarily surrendered its permit for 166 W.L.
(continued)
I-9
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On November 25, 1998, Tempo and Phoenixstar requested expedited action by
the FCC on the Transfer Application. Several parties filed responses to
that request, objecting to the proposed transfer. Phoenixstar and Tempo
filed a joint reply to those objections. On January 27, 1999, Tempo filed
a joint application with DIRECTV Enterprises, Inc. seeking FCC approval to
assign Tempo's DBS authorization to DIRECTV ("DIRECTV Application"). In
addition, Tempo and Phoenixstar jointly filed a letter seeking to maintain
the status quo with respect to the Transfer Application until the FCC
decides the DIRECTV Application. Therefore, Tempo and Phoenixstar
requested that the Transfer Application be held in abeyance and, subject to
and contemporaneously with approval of the DIRECTV Application, that the
FCC dismiss the Transfer Application.
Upon delivery of Tempo DBS-1, Phoenixstar, on behalf of Tempo, is obligated
to make a $10 million incentive payment to Loral. Phoenixstar is eligible
to receive a pro rata warranty payback of each such incentive payment to
the extent that transponder failures occur during the twelve-year period
following delivery. Satellite incentive payments and any related warranty
paybacks are treated as adjustments of the cost of the applicable Tempo
Satellite.
Tempo Option
In February 1997, PRIMESTAR Partners exercised its option (the "Tempo
Capacity Option"), to purchase or lease 100% of the capacity of the DBS
system to be built, launched and operated by Tempo pursuant to the FCC
Permit. The purchase price (or aggregate lease payments) are to be
sufficient to cover the costs of constructing, launching and operating such
DBS system. In connection with the Tempo Capacity Option and certain
related matters, Tempo and PRIMESTAR Partners entered into two letter
agreements (the "Tempo Letter Agreements"), which provided for, among other
things, the funding by PRIMESTAR Partners of milestone and other payments
due under the Satellite Construction Agreement, and certain related costs,
through advances by PRIMESTAR Partners to Tempo. The aggregate funding
provided to Tempo by PRIMESTAR Partners is reflected in due to Phoenixstar,
Inc. in the accompanying consolidated balance sheets.
In connection with the Hughes High Power Transaction, Hughes has agreed to
assume, and to satisfy and discharge $465 million of Tempo's obligation to
PRIMESTAR Partners, and PRIMESTAR Partners has agreed to forgive the
remaining balance. In addition, PRIMESTAR Partners has agreed to terminate
its rights under the Tempo Capacity Option.
(continued)
I-10
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Transactions with Related Parties
---------------------------------
Prior to the Restructuring, PRIMESTAR Partners provided programming
services to the Company and other authorized distributors in exchange for a
fee based upon the number of subscribers receiving programming services.
In addition, PRIMESTAR Partners arranged for satellite capacity and uplink
services, and provided national marketing and administrative support
services in exchange for a separate authorization fee.
Prior to the Restructuring, certain key employees of TSAT held stock
options in tandem with stock appreciation rights with respect to certain
common stock of TCI. Estimates of the compensation related to the options
and/or stock appreciation rights granted to employees of TSAT have been
recorded in the accompanying consolidated financial statements.
Compensation expense recognized by TSAT related to such options aggregated
$3,814,000 during the three months ended March 31, 1998.
(10) Income Taxes
------------
TSAT recognized no income tax benefit during either of the three month
periods ended March 31, 1999 and 1998. TSAT is only able to realize income
tax benefits for financial reporting purposes to the extent that such
benefits offset TSAT's income tax liabilities or TSAT generates taxable
income. For financial reporting purposes, all of TSAT's income tax
liabilities had been fully offset by income tax benefits at March 31, 1999
and December 31, 1998. Additionally, during the foreseeable future, TSAT
believes that it will incur net losses for income tax purposes, and
accordingly, will not be in a position to realize income tax benefits on a
current basis.
I-11
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
- ---------------------------------------------------------------
Results of Operations
---------------------
General
- -------
The following discussion and analysis provides information concerning the
financial condition and results of operations of TSAT and should be read in
conjunction with (i) the accompanying financial statements of TSAT, and (ii) the
financial statements, and related notes thereto, of TSAT, and Management's
------------
Discussion and Analysis of Financial Condition and Results of Operations
- ------------------------------------------------------------------------
included in TSAT's Annual Report on Form 10-K for the year ended December 31,
1998.
Certain statements in this Quarterly Report on Form 10-Q 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 TSAT, 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; uncertainties inherent in proposed business strategies and
development plans, including uncertainties regarding possible regulatory issues
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"); uncertainties regarding the Hughes High Power Transaction; 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 the inability
to comply with, government regulations, including, without limitation,
regulations of the FCC, and adverse outcomes from regulatory proceedings;
changes in the nature of key strategic relationships with partners and joint
venturers; reliance on software programs used by the Company or its suppliers
containing problems related to the Year 2000; and other factors referenced in
this Report. These forward-looking statements speak only as of the date of this
Report. TSAT expressly disclaims any obligation or undertaking to disseminate
any updates or revisions to any forward-looking statement contained herein to
reflect any change in TSAT's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
Hughes Transactions
-------------------
On January 22, 1999, the Company announced that the Company and Phoenixstar
had reached an agreement with Hughes to sell (i) the Tempo Satellites, (ii) the
FCC Permit and (iii) Phoenixstar's rights relating to Tempo's DBS system to
Hughes, for aggregate consideration valued at $500 million. Pursuant to the
agreement, Hughes has agreed to assume $465 million of TSAT's liability to
PRIMESTAR Partners, pay TSAT $2.5 million in cash and pay Phoenixstar and
PRIMESTAR Partners $32.5 million in cash. In addition, Phoenixstar and
PRIMESTAR Partners have agreed to forgive certain amounts due from the Company
in excess of the $465 million to be assumed by Hughes.
I-12
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
General, continued
- ------------------
Effective March 10, 1999, the first closing of the Hughes High Power
Transaction was consummated whereby Hughes acquired Tempo DBS-2 and the Tempo
DBS-2 Option for aggregate consideration of $150 million. Such consideration
was comprised of the following: (i) $9,750,000 paid to Phoenixstar and PRIMESTAR
Partners for the Tempo DBS-2 Option and the termination of PRIMESTAR Partners
rights under the Tempo Capacity Option, (ii) $750,000 paid to TSAT to exercise
the Tempo DBS-2 Option and (iii) the assumption by Hughes of $139,500,000 due to
PRIMESTAR Partners from TSAT in exchange for Tempo DBS-2, which had a carrying
value of $224 million at closing.
The sale of the remaining assets contemplated by the Hughes High Power
Agreement is subject to the receipt of appropriate regulatory approvals and
other customary closing conditions and is expected to be consummated in mid-
1999. Tempo has been notified that Tempo DBS-1 experienced power reductions
which occurred on March 29, 1999 and April 2, 1999. Although the Company does
not believe the extent of such power reductions is significant, a definitive
assessment of the impact on Tempo DBS-1 is not yet complete. Upon completion of
the sale of the Company's high power assets, which had a carrying value of $239
million at March 31, 1999, the Company will receive additional consideration of
$327 million in the form of cash and debt assumption.
In a separate transaction completed on April 28, 1999, Phoenixstar sold to
Hughes Phoenixstar's medium-power DBS business and assets for $1.1 billion in
cash and 4.871 million shares of GMH Stock valued at approximately $258 million,
on the date of closing. Phoenixstar is responsible for the payment of certain
obligations not assumed by Hughes, satisfaction of its funded indebtedness and
the payment of costs, currently estimated to range from $270 million to $340
million, associated with the termination of certain vendor and service contracts
and lease agreements not assumed by Hughes. Affiliates of stockholders of
Phoenixstar, other than the Company, and affiliates of TCI have committed to
make funds available to Phoenixstar, up to an aggregate of $1,013 million to
fund such payments.
In connection with their approval of the Hughes Medium Power Transaction, the
stockholders of Phoenixstar approved the payment to TSAT of consideration in the
form of 1.407 million shares of GMH Stock, subject to the terms and
considerations set forth in the Phoenixstar Payment Agreement. In consideration
of the Phoenixstar Payment, the Company agreed to approve the Hughes Medium
Power Transaction and Hughes High Power Transaction as a stockholder of
Phoenixstar, to modify certain agreements to facilitate the Hughes High Power
Transaction, and to issue to Phoenixstar the TSAT GMH SAR granting Phoenixstar
the right to any appreciation in such GMH Stock during the one-year period
following the date of issuance, over an agreed strike price of $47.00. On the
Hughes Closing Date, the Company received 1.407 million shares of GMH Stock from
Phoenixstar in satisfaction of the Phoenixstar Payment.
I-13
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
General, continued
- ------------------
The TSAT GMH SAR is secured by a first priority pledge and security interest
in the underlying shares of GMH Stock, and both the TSAT GMH SAR and such pledge
and security interest have been pledged by Phoenixstar for the benefit of
certain holders of share appreciation rights issued by Phoenixstar with respect
to shares of GMH Stock. The shares of GMH Stock issued to TSAT pursuant to the
Phoenixstar Payment Agreement are subject to certain restrictions on transfer
during the first year after the closing of the Hughes Medium Power Transaction,
and TSAT will be entitled (together with Phoenixstar) to certain registration
rights with respect to such shares following the expiration of such one-year
period. Pursuant to the Phoenixstar Payment Agreement, TSAT has also agreed to
forego any liquidating distribution or other payment that may be made in respect
of the outstanding shares of Phoenixstar upon any dissolution and winding-up of
Phoenixstar, or otherwise in respect of Phoenixstar's existing equity.
If the Hughes High Power Transaction is consummated, the Company will cease
to be engaged in the direct-to-home satellite television business except through
its ownership of GMH stock. The Company is currently reviewing potential
business opportunities to take advantage of the Company's industry expertise and
relationships and significant tax loss carryforward. There can be no assurances,
however, that the Company will be able to fund the implementation of any such
potential business opportunity on terms favorable to the Company, or on any
terms, or that any such potential business opportunity will be successfully
implemented.
Restructuring Transaction
-------------------------
Effective April 1, 1998 and pursuant to the Restructuring Agreement and the
TSAT Asset Transfer Agreement, the Restructuring was consummated. In connection
with the Restructuring, TSAT contributed and transferred to Phoenixstar all of
TSAT's assets and liabilities except (i) the capital stock of Tempo, (ii) the
consideration received by TSAT in the Restructuring and (iii) the rights and
obligations under certain agreements with Phoenixstar and others. In addition,
the business of PRIMESTAR Partners and the business of distributing the
PRIMESTAR(R) programming service of each of TWE, Newhouse, Comcast, Cox and
affiliates of MediaOne were consolidated into Phoenixstar.
In connection with the TSAT Asset Transfer, Phoenixstar assumed all of TSAT's
indebtedness and TSAT received from Phoenixstar such number of shares of
Phoenixstar Class A Common Stock and Phoenixstar Class B Common Stock,
respectively, as equaled the number of shares of Series A Common Stock and
Series B Common Stock, respectively, issued and outstanding or deemed to be
issued and outstanding on the closing date. As of March 31, 1999, TSAT owns
approximately 37% of the outstanding shares of common equity of Phoenixstar
representing approximately 38% of the combined voting power of such common
equity.
I-14
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Material Changes in Results of Operations
- -----------------------------------------
As a result of the consummation of the Restructuring, TSAT's operations
consist of (i) expenses incurred to maintain TSAT as a public company, including
accounting and legal fees ($43,000 during the three months ended March 31,
1999), (ii) expenses associated with the operation and maintenance of the Tempo
Satellites ($2,777,000 during the three months ended March 31, 1999) and (iii)
TSAT's share of PRIMESTAR's earnings or losses (zero during the three months
ended March 31, 1999).
TSAT recognized no income tax benefit during either of the three month
periods ended March 31, 1999 and 1998. TSAT is only able to realize income tax
benefits for financial reporting purposes to the extent that such benefits
offset TSAT's income tax liabilities or TSAT generates taxable income. For
financial reporting purposes, all of TSAT's income tax liabilities had been
fully offset by income tax benefits at March 31, 1999 and December 31, 1998.
Additionally, TSAT believes that it will incur net losses for income tax
purposes during the foreseeable future, and accordingly, will not be in a
position to realize income tax benefits on a current basis.
Material Changes in Financial Position
- --------------------------------------
Upon completion of the Hughes High Power Transaction, of which there can be
no assurance, TSAT's remaining assets would be the GMH Stock and cash.
TSAT is currently considering its course of action with respect to the
receipt of the Phoenixstar Payment. Options available to the Company include,
but are not limited to, distribution of the Phoenixstar Payment to the Company's
shareholders (subject to a one-year holding period), investment of the
Phoenixstar Payment in a yet undetermined operating business, or retention of
the Phoenixstar Payment for future use.
As a holding company, TSAT's ability to satisfy any liabilities or
obligations is dependent solely upon the cash flows of Tempo and Phoenixstar and
the distribution or the payment of such cash flows to TSAT in the form of
dividends, loans or other advances. The payment of dividends or the making of
loans or advances to TSAT by Tempo and Phoenixstar may be subject to statutory,
regulatory or contractual restriction, will be contingent upon the earnings of
those subsidiaries and affiliates, and will be subject to various business
considerations. Moreover, TSAT does not control Phoenixstar, and Phoenixstar
has no obligation, contingent or otherwise, to make any funds available to TSAT,
whether by dividends, loans or other payments.
TSAT will continue to be subject to the risks associated with operating as
a holding company including possible regulation under the Investment Company
Act. TSAT does not currently intend to be an investment company within the
meaning of the Investment Company Act.
I-15
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Material Changes in Financial Position, continued
- -------------------------------------------------
The Company is in the process of identifying and addressing issues
surrounding the Year 2000 ("Y2K") and their impact on the Company's operations.
The issue surrounding the Year 2000 is whether the Company's operations and
financial systems or the systems used by companies with whom the Company
conducts business will properly recognize and process date sensitive information
before and after January 1, 2000. Pursuant to the TSAT Merger Agreement,
Phoenixstar provides the Company with accounting services and the use of any and
all related information systems. Therefore, TSAT is coordinating its Y2K
assessment with Phoenixstar. The following discussion of Phoenixstar's Y2K
project is based on information currently available to the Company.
Prior to the Hughes Closing Date, Phoenixstar completed an initial
assessment which identified areas of risk associated with the Year 2000. The
Year 2000 Program Office was established to oversee Phoenixstar's Year 2000
project. Detailed inventories were gathered and cost estimates were finalized.
For each functional area of the project, detailed work plans were developed and
put into place. Separate test environments completed construction and testing
in the first quarter of 1999.
In connection with the Hughes Medium Power Transaction, Hughes acquired
substantially all of Phoenixstar's systems. Phoenixstar has analyzed and
continues to analyze its remaining internal IT and non-IT systems. Phoenixstar
believes that such systems are currently capable of functioning without
substantial Y2K compliance problems.
Through March 1999, Phoenixstar has spent approximately $1,375,000 for Y2K
issues, $1,125,000 of which was spent in 1999, and does not currently expect to
spend any additional amounts for Y2K related issues.
The Company does not currently believe that any of the foregoing will have
a material adverse effect on its financial condition or its results of
operations. However, the process of evaluating Phoenixstar's products and third
party products and systems is ongoing. Although not expected, failures of
critical suppliers and/or systems could have a material adverse effect on the
Company's financial condition or results of operations. As widely publicized,
Y2K compliance has many issues and aspects, not all of which the Company is able
to accurately forecast or predict. There is no way to assure that Y2K will not
have adverse effects on the Company, some of which could be material.
I-16
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
10.1 - Share Appreciation Rights Agreement, dated as of April 28,
1999.
10.2 - Pledge and Security Agreement, dated as of April 28, 1999.
27 - Financial Data Schedule
(b) Reports on Form 8-K filed during quarter ended March 31, 1999:
Date of Report Items Reported Financial Statements Filed
-------------- -------------- --------------------------
February 1, 1999 Items 5 and 7 None
March 25, 1999 Items 2 and 7 Pro forma financial
information related to
the disposition of the
Company's ground-spare
satellite.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TCI SATELLITE ENTERTAINMENT, INC.
Date: May 14, 1999 By: /s/ Gary S. Howard
-------------------------------------
Gary S. Howard
Chief Executive Officer
Date: May 14, 1999 By: /s/ Kenneth G. Carroll
-------------------------------------
Kenneth G. Carroll
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 14, 1999 By: /s/ Scott D. Macdonald
-------------------------------------
Scott D. Macdonald
Vice President and Controller
(Chief Accounting Officer)
II-2
<PAGE>
Exhibit Index
10.1 - Share Appreciation Rights Agreement, dated as of April 28, 1999.
10.2 - Pledge and Security Agreement, dated as of April 28, 1999.
27 - Financial Data Schedule
<PAGE>
EXHIBIT 10.1
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDEDUserFinancial Printing GroupTHE SECURITIES REPRESENTED BY THIS INSTRUMENT
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT. IN ADDITION, THE TRANSFERABILITY OF THESE SECURITIES IS RESTRICTED AS
SET FORTH BELOW.
TCI SATELLITE ENTERTAINMENT, INC.
April 28, 1999
Share Appreciation Rights with Respect to Shares of
---------------------------------------------------
Class H Common Stock of General Motors Corporation
--------------------------------------------------
_________________
Void After May 10, 2000
_________________
The undersigned TCI SATELLITE ENTERTAINMENT, INC. (the "Issuer"),
HEREBY GRANTS to PRIMESTAR, Inc. ("Primestar"), its successors and permitted
assigns (collectively, the "Holder"), the number of share appreciation rights
(the "Share Appreciation Rights" or "SARs") set forth on the signature page of
this agreement (this "Agreement"). Each SAR represents the right of the Holder
to receive from the Issuer, on the terms and conditions set forth herein, the
Per Share Settlement Amount (as defined herein), if any, with respect to one
share of Class H Common Stock, $0.10 par value per share (the "GMH Stock"), of
General Motors Corporation (as each such share of GMH Stock is adjusted from
time to time as provided in Section 2 of this Agreement, a "Covered Share").
The Share Appreciation Rights are being issued pursuant to an Agreement dated as
of January 22, 1999 (the "TSAT Agreement") among the Issuer, Primestar and
certain stockholders of Primestar. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed thereto in Section 16 of this
Agreement.
SECTION 1. Exercise of SARs. (a) The SARs represented by this
----------------
Agreement shall automatically be exercised for the benefit of the Holder on May
5, 2000 (the "Determination Date").
<PAGE>
(b) On the Determination Date, the Holder shall be entitled to receive
from the Issuer a payment in cash in respect of each SAR owned by the Holder on
the Determination Date equal to (x) the Fair Market Value of a Covered Share on
the Determination Date plus (y) the Distribution Amount (if any) per Covered
----
Share, minus (z) the Strike Price per Covered Share (such amount so calculated,
-----
the "Per Share Settlement Amount"). The gross payment to be made to the Holder
shall be equal to the product of the Per Share Settlement Amount multiplied by
the total number of SARs owned by the Holder (the "Aggregate Settlement
Amount"); provided, however, that if the Aggregate Settlement Amount on the
-------- -------
Determination Date is equal to or less than zero, then no payment shall be
required to be made by the Issuer hereunder. The SARs shall be exercisable
solely for cash as provided herein, and do not represent a right to purchase or
receive any shares of GMH Stock or any other property. Payment of the Aggregate
Settlement Amount shall be made by wire transfer in immediately available funds
on the third business day following the Determination Date (the "Settlement
Date"). The Aggregate Settlement Amount shall be fixed on the Determination
Date. If the Issuer shall fail to pay any part of the Aggregate Settlement
Amount hereunder (if any) on the Settlement Date, the unpaid portion of such
Aggregate Settlement Amount shall accrue interest from the Settlement Date until
the date paid, at the rate of 12% per annum, payable monthly.
SECTION 2. Adjustment of Strike Price and Covered Shares. Upon the
---------------------------------------------
occurrence of any Dilution Event, the Strike Price per Covered Share and the
Covered Shares subject to each SAR in effect immediately prior to such event
shall be adjusted as follows:
a. In the case of a Dilution Event of a type described in clauses (i),
(ii), (iii) or (iv) of the definition thereof, the Covered Shares
shall be adjusted to equal the number of shares of Covered Stock (or,
in the case of a reclassification of the type described in clause (iv)
of such definition, the number of shares of such other class or series
of common stock of the Covered Share Issuer) which a holder of the
Covered Shares immediately prior to such event would have owned or
been entitled to receive in respect thereof immediately following such
event.
b. In the case of a Dilution Event of the type described in clause (v) of
such definition, the Covered Shares shall be adjusted to equal the
number of shares of Covered Stock equal to the number of such shares
constituting the Covered Shares immediately prior to such Dilution
Event, times a fraction, the numerator of which shall be (1) the
-----
number of shares of Covered Stock outstanding on the record date for
such event, plus (2) the number of additional shares of Covered Stock
offered for subscription or purchase pursuant to such rights or
warrants, and the denominator of which shall be (x) the number of
shares of Covered Stock outstanding on the record date for such event,
plus (y) the number of additional shares of Covered Stock which the
aggregate offering price of the total number of shares of Covered
Stock offered pursuant to such rights or warrants would purchase at
the Fair Market Value of the Covered Stock on the business day next
following the record date for such issuance; provided, however, that
-------- -------
if any such rights or warrants shall expire without exercise on or
before the Determination Date, then an appropriate adjustment shall be
made to reverse the
2
<PAGE>
adjustment provided for by this clause (b) to the extent of such
expired unexercised rights or warrants.
c. In the case of any Dilution Event, the Strike Price per Covered Share
shall be adjusted by multiplying the Strike Price in effect
immediately prior to such event by a fraction, the numerator of which
shall be the number of shares of Covered Stock constituting the
Covered Shares immediately prior to such event, and the denominator of
which shall be the number of shares of Covered Stock constituting the
Covered Shares immediately following such event.
d. Any shares of Covered Stock issuable in payment of a dividend shall be
deemed to have been issued immediately prior to the close of business
on the record date for such dividend for purposes of calculating the
number of outstanding shares of Covered Stock under this paragraph 2.
e. All calculations under this Section shall be made to the nearest $.001
or to the nearest one-tenth of a share, as the case may be.
SECTION 3. Reorganization Events. (a) In the event, at any time
---------------------
during the period from the date hereof through the trading day immediately
preceding the Determination Date (such period, the "Adjustment Period"), of (i)
any capital reorganization of the Covered Share Issuer, (ii) any
reclassification of the capital stock of the Covered Share Issuer (other than a
change in par value or from par value to no par value or from no par value to
par value or as a result of a stock dividend or subdivision, split-up or
combination of shares), (iii) any consolidation or merger of the Covered Share
Issuer with or into another person (other than a consolidation or merger in
which the Covered Share Issuer is the continuing corporation and which does not
result in any change in the common stock of the Covered Share Issuer), (iv) any
statutory exchange in which the Covered Shares are mandatorily exchanged for
securities of another issuer, (v) any sale, transfer, assignment or other
disposition of 80% or more of the business of Hughes Electronics Corporation
("Hughes") (based on the fair market value of the assets, both tangible and
intangible, of Hughes as of the time that any such proposed sale, transfer,
assignment or other disposition is approved by the board of directors of the
Covered Share Issuer), or (vi) any complete liquidation of the Covered Share
Issuer (any such event, a "Reorganization Event"), then after the consummation
of such Reorganization Event, all references herein to the Covered Shares shall
mean and refer to the kind and number of shares of stock or other securities or
property of the Covered Share Issuer (or of the person or entity resulting from
such Reorganization Event) to which the Holder would have otherwise been
entitled if the Holder had held the Covered Shares as in effect hereunder
immediately prior to such Reorganization Event; provided, however, that in the
-------- -------
case of any Reorganization Event that provides for alternate forms of
consideration, after the consummation of such Reorganization Event, all
references herein to the Covered Shares shall mean and refer to the kind and
number of shares of stock or other securities or property of the Covered Share
Issuer (or of the person or entity resulting from such Reorganization Event)
into or for which the shares of Covered Stock pledged under the Pledge and
Security Agreement immediately prior to such Reorganization Event are converted,
exchanged or redeemed in such Reorganization Event. The provisions of this
Section 3 shall similarly apply to successive reorganizations,
reclassifications, consolidations and mergers and sales and other dispositions.
3
<PAGE>
(b) Anything contained herein to the contrary notwithstanding, if
upon the consummation of any Reorganization Event, the Covered Shares shall
consist solely of cash and/or property other than Reported Securities, then
within 30 days after the closing of such Reorganization Event and the receipt by
the Issuer (or by the Collateral Agent under the Pledge and Security Agreement)
of such cash and/or property other than Reported Securities, the Issuer shall
provide the Holder with the written notice required by Section 4 of this
Agreement, which notice shall include the Fair Market Value per Covered Share,
as determined in accordance with this Agreement, and the date of such notice
shall constitute the Determination Date for all purposes hereof.
SECTION 4. Notice of Certain Transactions. In the event of (a) any
------------------------------
adjustment in the Strike Price after the date hereof, (b) the consummation of
any Reorganization Event, or (c) receipt by the Issuer of any Dividend, the
Issuer shall give written notice thereof to the Holder, including in any such
notice pursuant to clause (b) of this Section 4 (to the best knowledge of the
Issuer) the number, kind or class of shares or other securities or property
which shall constitute the Covered Shares after the occurrence of such action.
The Holder acknowledges that any such notice shall be based on publicly
available information provided by or on behalf of the Covered Share Issuer and
that the Holder is responsible for confirming the information and calculations
set forth therein. The Issuer shall not have any liability whatsoever for any
error or omission in such notice, except for any such error or omission
resulting solely from the bad faith or gross negligence of the Issuer.
SECTION 5. Certain Other Rights of Holder. The Holder shall be
------------------------------
entitled to the rights of the Secured Party under the Pledge and Security
Agreement, in accordance with the terms thereof.
SECTION 6. Transfer and Securities Law Provisions.
--------------------------------------
(a) The issuance of the SARs has not been registered under the
Securities Act, or under the securities or "blue sky" laws of any state, in
reliance upon exemptions from the registration provisions thereof. Holder
represents that it is acquiring the SARs for investment for its own account, and
not with the view to, or for resale in connection with, any distribution
thereof, nor with any present intention of distributing the same.
(b) The SARs shall not be transferable, except to the Collateral
Agent under and otherwise in accordance with the terms of, the Primestar Pledge
and Security Agreement.
SECTION 7. Lost, Stolen, Mutilated or Destroyed SAR. If this
----------------------------------------
Agreement is lost, stolen, mutilated or destroyed, the Issuer may, on such terms
as to indemnity or otherwise as it may in its discretion impose (which shall, in
the case of a mutilated Agreement, include the surrender thereof), provide the
Holder with a duplicate counterpart of this Agreement with respect to the SARs
represented thereby. Any such new SAR Agreement shall constitute a separate
contractual obligation of the Issuer in accordance with its terms, whether or
not the allegedly lost, stolen, mutilated or destroyed SAR Agreement shall be at
any time enforceable by anyone.
4
<PAGE>
SECTION 8. No Stockholder Rights. Neither this Agreement nor the
---------------------
SARs represented hereby shall entitle the Holder to any voting rights or other
rights as a holder of Covered Shares or a stockholder of the Issuer.
SECTION 9. Withholding for Taxes. It shall be a condition precedent
---------------------
to any exercise of the SARs represented hereby that the Holder make provision
acceptable to the Issuer for the payment or withholding of any and all Federal,
state and local taxes required to be withheld by the Issuer to satisfy any tax
liability of the Holder associated with such exercise, as determined in good
faith by the Board of Directors of the Issuer on the advice of counsel.
SECTION 10. Notices. All notices, requests, demands, claims, and
-------
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) upon
telephonic confirmation of facsimile, (ii) when sent by overnight delivery or
(iii) when mailed by registered or certified mail, return receipt requested,
postage prepaid, to the intended recipient at the address or telecopier number
for such recipient (i) if such recipient is the Issuer, set forth below:
TCI Satellite Entertainment, Inc.
8085 South Chester, Suite 300
Englewood, Colorado 80112
Telephone: (303) 712-4600
Telecopy: (303) 712-4977
Attention: Chief Financial Officer
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Telephone: (212) 705-5000
Telecopy: (212) 705-5125
Attention: Elizabeth M. Markowski, Esq.
and (ii) if such recipient is the Holder, as set forth on the signature pages
hereto, with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Telephone: (212) 705-5000
Telecopy: (212) 705-5125
Attention: Marc A. Leaf, Esq.
5
<PAGE>
Notices, requests, demands, claims and other communications may be sent using
any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other party notice in the manner herein set forth, but no such notice
shall be deemed given until actually received.
SECTION 11. Governing Law. This Agreement and the SARs represented
-------------
hereby shall be construed in accordance with and governed by the internal laws
of the State of New York without giving effect to any conflicts of laws
principles. Each party hereto hereby irrevocably submits to the jurisdiction of
any New York State court sitting in the Borough of Manhattan or any federal
court sitting in the Borough of Manhattan in respect of any suit, action or
proceeding arising out of or relating to this Agreement and the transactions
pursuant hereto and in connection herewith, and irrevocably agrees that all
claims in respect of any such suit, action or proceeding shall be heard and
determined in such court. Each party irrevocably waives any objection which it
may now or hereafter have to the laying of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
SECTION 12. Construction. References in this Agreement to "this
------------
Agreement" and the words "herein," "hereof," "hereunder" and similar terms
refer to this Agreement, including all Schedules as a whole, unless the context
otherwise requires. The headings of the paragraphs of this Agreement have been
included for convenience of reference only, are not to be considered a part
hereof and shall not modify or restrict any of the terms or provisions hereof.
SECTION 13. Duplicate Originals. The Issuer and Holder may sign any
-------------------
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement.
SECTION 14. Entire Agreement. This Agreement, together with the TSAT
----------------
Agreement and the Pledge and Security Agreement, contains the entire agreement
between the parties hereto with respect to the SARs and supersedes any prior or
contemporaneous agreements and understandings, other than the Primestar Pledge
and Security Agreement, between the Issuer and the Holder or any other person
regarding the SARs.
SECTION 15. Amendment. This Agreement may be reasonably amended,
---------
modified or supplemented by the Issuer, without the consent of the Holder to
cure any ambiguity or to correct or supplement any provision herein which may be
defective. Except as provided above, this Agreement may be amended, modified or
supplemented only by written agreement of the parties hereto or their permitted
assigns and transferees.
SECTION 16. Definitions. As used in this Agreement, the following
-----------
terms shall have the corresponding meanings:
6
<PAGE>
"Adjustment Period" is defined in Section 3.
"Aggregate Settlement Amount" is defined in Section 1.
"Agreement" is defined in the initial paragraph of this Agreement.
"Appraiser" means an investment banking firm of national reputation
that is not affiliated with Hughes, the Issuer or the Holder and has been
selected to act as the "Appraiser" within the meaning of those certain share
appreciation rights, being originally issued on the date hereof by Primestar
with respect to 4,871,448 shares of GMH Stock pursuant to a Lock-up Agreement
dated April 20, 1999, between Primestar and the Holders signatory thereto.
"Closing Price" of a share of any class or series of capital stock on
any day means the last sale price (or, if no last sale is reported, the average
of the high bid and low asked prices) for a share of such class or series of
capital stock on such day (or, if such day is not a trading day, on the
immediately preceding trading day) as quoted on the principal United States
national stock exchange on which such shares are listed, or if such class or
series of capital stock is not listed on a United States national stock
exchange, as reported on NASDAQ or, if not reported on NASDAQ, as quoted by the
National Quotation Bureau Incorporated. If for any trading day the Closing
Price of a share of such class or series of capital stock is not determinable by
any of the foregoing means, then the Closing Price for such day shall be
determined in good faith by the issuer's Board of Directors on the basis of such
quotations and other considerations as such Board may deem appropriate.
"Covered Share Issuer" shall mean General Motors Corporation or such
other entity as shall be the issuer of the Covered Shares.
"Covered Shares" shall mean the number of shares of GMH Stock subject
to each SAR (which initially shall be one), as the same shall be adjusted from
time to time in accordance with this Agreement.
"Covered Stock" means the GMH Stock or such other class or series of
stock of the Covered Share Issuer represented by the Covered Shares.
"Determination Date" is defined in Section 1, subject to adjustment as
provided in Section 3.
"Dilution Event" means the occurrence of any of the following actions
by the Covered Share Issuer:
(i) the payment of a stock dividend or distribution on the Covered
Stock, payable in additional shares of Covered Stock;
(ii) any stock split or other subdivision of the Covered Stock;
7
<PAGE>
(iii) any reverse stock split or combination of the Covered
Stock into a smaller number of shares of such stock;
(iv) the issuance by reclassification of the Covered Stock of shares
of any other class or series of common stock of the Covered Share Issuer (other
than any stock split, reverse stock split or other transaction of the type
described in clause (ii) or (iii) of this definition, and other than a
reclassification that would constitute a Reorganization Event); or
(v) the issuance of any rights or warrants to all holders of the
Covered Stock, entitling them to subscribe for or purchase shares of Covered
Stock (other than any dividend reinvestment or odd lot plan) at a price per
share less than the Fair Market Value of such shares on the business day next
following the record date for such issuance.
"Distribution Amount" means, for each Covered Share, the amount of all
Dividends paid in respect of such Covered Share, the record date for which shall
occur on or after the date hereof and prior to the fifth business day preceding
the Determination Date. To the extent that any such Dividend is paid in
securities or other property, other than cash, the amount of such Dividend shall
be determined as follows:
(i) for any Reported Securities received in any Dividend, such amount
shall be the Fair Market Value of such Reported Securities on the
Determination Date; and
(ii) for any property received in any Dividend other than cash or
Reported Securities, such amount shall be the Fair Market Value of such
property on the date such property is received.
For purposes of calculating the Distribution Amount, any cash, Reported
Securities or other property receivable in a Dividend shall be deemed to have
been received immediately prior to the close of business on the record date for
such Dividend or, if there is no record date for such Dividend, immediately
prior to the close of business on the effective date of such Dividend.
"Dividend" means any dividend or distribution payable on all the
outstanding Covered Stock, other than any dividend or distribution that would
constitute a Dilution Event or Reorganization Event.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute or statutes thereto, and the rules
and regulations promulgated by the Securities and Exchange Commission
thereunder. References to any specific section of the Exchange Act or rule
thereunder shall include any successor section or rule.
"Fair Market Value" means, as of any date, (i) in the case of any
Reported Security, the average of the Closing Prices of such Reported Security
for each of the five trading days immediately preceding such date, and (ii) in
the case of any other property, the fair market value of
8
<PAGE>
such property on such date, as determined by the Appraiser, taking into account
all circumstances deemed relevant by the Appraiser.
"GMH Stock" is defined in the initial paragraph of this Agreement.
"Holder" is defined in the initial paragraph of this Agreement.
"Hughes" is defined in Section 3.
"Issuer" is defined in the initial paragraph of this Agreement.
"NASDAQ" means The Nasdaq Stock Market, Inc.
"Per Share Settlement Amount" is defined in Section 1.
"Pledge and Security Agreement" means the Pledge and Security
Agreement, dated as of the date hereof, between the Issuer and the Collateral
Agent, for the benefit of Primestar as the Holder of the SARs.
"Primestar Pledge and Security Agreement" means the Pledge and
Security Agreement, dated as of the date hereof, between Primestar and the
Collateral Agent named therein, for the ratable benefit of the holders of
certain share appreciation rights issued by Primestar on the date hereof with
respect to 4,871,448 shares of GMH Stock pursuant to a Lock-up Agreement dated
April 20, 1999, between Primestar and the Holders signatory thereto and
represented by agreements substantially in the form of this Agreement.
"Reorganization Event" is defined in Section 3.
"Reported Securities" means any securities that (A) are (i) listed on
a United States national securities exchange, (ii) reported on a United States
national securities system subject to last sale reporting, or (iii) traded in
the over-the-counter market and reported on the National Quotation Bureau or
similar organization and (B) are either (x) perpetual equity securities or (y)
non-perpetual equity or debt securities with a stated maturity after the
Determination Date.
"SARs" means Share Appreciation Rights.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor statute or statutes thereto, and the rules and
regulations promulgated by the Securities and Exchange Commission thereunder.
Reference to any specific section of the Securities Act or rule thereunder shall
include any successor section or rule.
"Settlement Date" is defined in Section 1.
"Share Appreciation Rights" is defined in the initial paragraph of
this Agreement.
9
<PAGE>
"Strike Price" means, initially, $47 per Covered Share, as such amount
may be adjusted from time to time in accordance with the terms of this
Agreement.
"TSAT Agreement" is defined in the initial paragraph of this
Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this signature page
intending to be bound by the foregoing Share Appreciation Rights Agreement as of
the date first above written.
TCI SATELLITE ENTERTAINMENT, INC.
--------------------------------------------------
By:
Name:
ATTEST:
- -----------------------
Secretary
Number of Share Appreciation Rights:
1,407,307
----------------------
11
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this signature page
intending to be bound by the foregoing Share Appreciation Rights Agreement as of
the date first above written.
PRIMESTAR, INC.
By:_____________________________________
Name:
Title:
Address: 8085 South Chester, Suite 300
Englewood, Colorado 80112
Attention: Chief Financial Officer
Telecopy No.: (303) 712-4977
Telephone No.: (303) 712-4600
Taxpayer Identification No.: 84-1441684
Number of Share Appreciation Rights:
1,407,307
-------------------
12
<PAGE>
EXHIBIT 10.2
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") is made on and as of
this 28th day of April, 1999, by and among TCI Satellite Entertainment, Inc., a
Delaware corporation, as pledgor ("Pledgor"), PRIMESTAR, Inc., a Delaware
corporation, as the initial secured party ("Primestar"), and The Bank of New
York, as collateral agent (the "Collateral Agent").
RECITALS
A. Reference is made to the Share Appreciation Right Agreement ("SAR
Agreement"), dated as of the date hereof, between Pledgor and Primestar. This
Agreement is the Pledge and Security Agreement referred to in the SAR Agreement.
Capitalized terms used in this Agreement and not defined herein have the
meanings ascribed to such terms in the SAR Agreement.
B. The SAR Agreement provides for the issuance by Pledgor to Primestar of
share appreciation rights ("SARs"), on the terms set forth therein, with respect
to an aggregate of 1,407,307 shares (the "GMH Shares") of the Class H Common
Stock of General Motors Corporation ("GMH Stock") being acquired concurrently
herewith by the Pledgor.
C. Pledgor desires to grant to the Collateral Agent, for the benefit of
Primestar and its successors and permitted assigns (collectively, the "Secured
Party") a pledge of and security interest in all of Pledgor's right, title and
interest in, to and under the Collateral (as defined herein) from time to time
pledged hereunder, to secure (i) the full and timely payment by Pledgor to the
Secured Party, on the terms and subject to the conditions set forth in the SAR
Agreement, of the obligations of Pledgor thereunder and (ii) the payment of the
reasonable costs and expenses (including, without limitation, attorneys' fees
and expenses) incurred by the Collateral Agent or the Secured Party in
connection with enforcing its rights under this Agreement after an Event of
Default (as defined herein) has occurred (collectively, the "Secured
Obligations") on the Settlement Date (as defined in the SAR Agreement).
D. Concurrently with the execution and delivery of this Agreement,
Primestar is entering into the Primestar Pledge and Security Agreement and is
granting to The Bank of New York, as the collateral agent under the Primestar
Pledge and Security Agreement (the "Primestar PSA Collateral Agent"), a security
interest in (i) the SAR Agreement and (ii) all Primestar's rights, title and
interests as secured party under this Pledge and Security Agreement and the
security interest in the GMH Shares granted herein (collectively, "Primestar's
Pledged Rights").
<PAGE>
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be bound hereby, the parties hereto hereby agree
as follows:
1. Grant of Security Interest. The Pledgor hereby assigns, pledges,
--------------------------
transfers and grants to the Collateral Agent, on behalf of and for the benefit
of the Secured Party, a security interest in all of Pledgor's right, title and
interest in, to and under the property described in Section 2 below
(collectively, the "Collateral"), to secure the full and timely payment by
Pledgor of the Secured Obligations.
2. Collateral. The Collateral shall consist of all right, title and
----------
interest of the Pledgor in, to and under each of the following, in each case
whether now owned or existing or hereafter acquired or arising:
(a) 1,407,307 shares of GMH Stock represented by certificate number
CHF086306;
(b) The Cash Collateral Account (as defined in Section 8), any and
all funds at any time held in such account, and any and all
rights of the Pledgor to payments made in respect of such
account; and
(c) All proceeds of any of the foregoing.
3. Appointment of Custodian. The Pledgor hereby appoints the Collateral
------------------------
Agent to act as agent, bailee and custodian for the benefit of the Pledgor and
the Secured Party as their respective interests shall appear with respect to the
Collateral. The Collateral Agent hereby accepts such appointment and agrees to
maintain and hold all Collateral at any time delivered to it as agent, bailee
and custodian for the benefit of the Pledgor and the Secured Party in accordance
with the terms of this Agreement. The Collateral Agent agrees to act in
accordance with this Agreement and in accordance with any written instructions
properly delivered hereunder. The Collateral Agent shall deliver possession of
the Collateral to the Pledgor or any other person named by Pledgor, or otherwise
release any Collateral from the lien created hereby, only in accordance with the
express terms of this Agreement or otherwise upon the written instruction of the
Pledgor and/or the Secured Party, as applicable.
4. Certain Actions to Maintain Perfection of Security Interest. The
-----------------------------------------------------------
Pledgor agrees (i) that the lien created or purported to be created hereunder
shall at all times be valid and enforceable against the Pledgor and all third
parties, in accordance with the terms hereof, as security for the Secured
Obligations, (ii) that the lien created by this Agreement with respect to the
Collateral shall be a first priority perfected lien, and (iii) that the
Collateral shall not at any time be subject to any other lien, except that
Primestar may subject its interest in the Collateral to a lien as contemplated
by Section 27 of this Agreement and the Primestar Pledge and Security Agreement.
The Pledgor shall take all action that may be necessary or desirable so as at
all times
2
<PAGE>
(a) to maintain the validity, perfection, enforceability and priority of the
liens created or purported to be created hereunder in conformity with the
requirements of the immediately preceding sentence, (b) to protect and preserve
the Collateral and (c) to protect and preserve, and to enable the exercise and
enforcement of, the rights of the Secured Party therein and hereunder.
5. Delivery of Collateral. Pledgor agrees that the GMH Shares and any
----------------------
other certificated securities that may from time constitute Collateral hereunder
shall be evidenced by certificates, and that all such certificates shall be
accompanied by stock powers, executed in blank, or by other proper instruments
of assignment duly executed by Pledgor, and by any such other instruments or
documents as the Collateral Agent may reasonably request.
6. Custody of Collateral. Upon the Collateral Agent's receipt of the
---------------------
Collateral, the Collateral Agent shall retain exclusive possession and custody
thereof, subject to the terms of this Agreement (including, without limitation,
Section 27 hereof), for purposes of perfecting the security interest therein of
the Secured Party. The Collateral Agent shall make appropriate notations in its
books and records to reflect that the Collateral contained therein has been
pledged to the Secured Party and is held by the Collateral Agent for the benefit
of the Pledgor and the Secured Party as their respective interests appear
hereunder. Except as otherwise expressly provided in this Agreement, all
instruments representing Collateral shall be (i) held by the Collateral Agent in
fire-proof vaults, safe deposit boxes or file cabinets under its exclusive
custody and control and (ii) segregated from all such documents held by The Bank
of New York for its own account or for the account of other persons. The
Collateral Agent shall not have any duty to collect dividends, or other amounts
due or to become due on any Collateral or, except as expressly set forth herein,
to take any action to preserve any rights of the Pledgor or the Secured Party as
against any person obligated with respect to any Collateral.
7. Release of Collateral. During the term of this Agreement, the
---------------------
Collateral shall be released only as follows:
(a) From the Determination Date through the Termination Date, so long
as no Event of Default shall have occurred and be continuing, the
Collateral Agent shall (i) release to the Pledgor for sale or otherwise, or
(ii) sell in accordance with the instructions of the Pledgor, in either
case promptly upon Pledgor's written request, all or any portion of the
Collateral that constitutes Covered Shares; provided that, in the case of
--------
any release pursuant to clause (i) of this subsection, Pledgor shall
simultaneously deposit or cause to be deposited into the Cash Collateral
Account (as defined below), and in the case of any sale by the Collateral
Agent pursuant to clause (ii) of this subsection, the Collateral Agent
shall deposit into the Cash Collateral Account out of the proceeds of such
sale, in cash, an amount equal to the product of (A) the Per Share
Settlement Amount times (B) the number of Covered Shares so sold or
-----
released.
(b) On the Settlement Date, the Collateral Agent shall pay, by wire
transfer of immediately available funds, the Aggregate Settlement Amount
owing to the Secured
3
<PAGE>
Party under the SAR Agreement pursuant to instructions, which shall include
the Aggregate Settlement Amount and wire transfer instructions certified in
writing to the Collateral Agent two business days prior to the Settlement
Date by the Pledgor, or, during an Event of Default, the Secured Party.
Payment of the Aggregate Settlement Amount pursuant to this Section 7(b)
shall be made first, from amounts on deposit in the Cash Collateral Account
-----
at the end of the business day preceding the Settlement Date, including
cash, if any, that Pledgor has deposited in the Cash Collateral Account to
enable the payment of the Aggregate Settlement Amount hereunder, and
second, from the proceeds of the sale by the Collateral Agent, at the
------
instruction of the Pledgor or, during an Event of Default, the Secured
Party, of such amount of Pledged Securities (as defined in Section 9) as
shall be required to enable the Collateral Agent to pay the Aggregate
Settlement Amount. Any amounts realized from a sale of Pledged Securities
in excess of the amount required to pay the Aggregate Settlement Amount
owing on the Settlement Date and any other Secured Obligations hereunder
shall be deposited in the Cash Collateral Account and distributed in
accordance with Section 7(c).
(c) On the first business day following the date all obligations
of the Pledgor under the SARs shall have been satisfied or discharged in full
(the "Termination Date"), the lien and security interest created by this
Agreement on and in the Collateral shall automatically be released, and the
entire Collateral, including without limitation all amounts in the Cash
Collateral Account, shall be returned to the Pledgor on or promptly following
such date, and the Collateral Agent shall execute and deliver such agreements,
termination statements or other documents or filings as the Pledgor shall
reasonably request to evidence or effect the release of such lien and security
interest.
8. Cash Collateral Account. All cash proceeds of any Collateral
-----------------------
hereunder, including, without limitation, all cash distributions and dividends
with respect to such Collateral, and all amounts paid by or on behalf of the
Pledgor pursuant to Section 7(a)(i) shall be paid directly to a "no access"
account of the Pledgor maintained with the Collateral Agent (the "Cash
Collateral Account"). Until the Termination Date, the Cash Collateral Account
shall be under the exclusive dominion and control of the Collateral Agent for
the ratable benefit of each of the Secured Party, and any transfer or withdrawal
of funds therefrom shall be governed by this Agreement. On the Termination
Date, all amounts on deposit in the Cash Collateral Account shall be paid to the
Pledgor in accordance with Section 7(c) hereof.
9. Rights of Pledgor With Respect to The Collateral. Notwithstanding
------------------------------------------------
Pledgor's pledge of the Collateral under this Agreement, Pledgor shall have
during the term of this Agreement, except as expressly set forth to the contrary
in this Agreement, all rights associated with the ownership of the Collateral,
including, without limitation, in the case of the GMH Shares and any other
securities from time to time constituting Collateral (collectively, "Pledged
Securities"), (a) all voting and consensual rights relating to Pledged
Securities and (b) the right to make any election to which a holder of Pledged
Securities may become entitled with respect to any dividend or distribution on,
or conversion, exchange, reclassification or other change to, such
4
<PAGE>
Pledged Securities, including without limitation any election with respect to
the consideration to be received in any merger affecting the issuer of such
Pledged Securities, together with all other rights now or hereafter associated
with ownership of any Pledged Securities.
10. Sale of Collateral. Upon any sale or other disposition of the
------------------
Collateral pursuant to this Agreement, upon Event of Default or otherwise, the
Collateral Agent shall have the right to deliver, assign and transfer to the
purchaser thereof (including the Pledgor) the Collateral or portion thereof so
sold or disposed of and all proceeds thereof shall be promptly transmitted to
the Collateral Agent for application by the Collateral Agent in accordance with
Section 7 of this Agreement. Each purchaser (including Pledgor) at any such
sale or other disposition shall hold the Collateral free from any claim or right
of whatever kind. The Pledgor hereby specifically waives (to the extent
permitted by law) all rights of stay or appraisal which it has or may have under
any rule of law or statute now existing or hereafter adopted. Nothing herein
contained shall be construed as an assumption by the Collateral Agent, the
Secured Party or any of their respective appointees of any liability of the
Pledgor with respect to any of the Collateral, and the Pledgor shall be and
remain responsible for all such liabilities. Pledgor hereby acknowledges that
any sale by the Collateral Agent of any Pledged Securities must be made in
compliance with the Securities Act of 1933 (the "Securities Act"), all other
Federal securities laws, as well as any applicable Blue Sky or other state
securities laws which may impose limitations as to the manner in which a Secured
Party or any other person may sell, transfer or otherwise dispose of securities.
Pledgor acknowledges that any sale or disposition contemplated pursuant hereto
may be at prices and on terms less favorable to the Secured Party than those
obtainable through a public sale without any applicable restrictions, and,
notwithstanding such circumstances, Pledgor agrees that any such sale or other
disposition shall be deemed to have been made in a commercially reasonable
manner.
11. Standard of Care of Collateral Agent; Duties; Indemnification. The
-------------------------------------------------------------
Collateral Agent is a bailee for hire and shall hold the Collateral in
accordance with customary standards for those engaged as custodians of
commercial documents in similar capacities. Notwithstanding anything to the
contrary contained herein:
(a) The provisions of this Agreement set forth the exclusive duties of
the Collateral Agent and no implied duties or obligations shall be read
into this Agreement against the Collateral Agent. The Collateral Agent
shall not be bound in any way by any agreement or contract other than this
Agreement and any other agreement to which it is a party. The Collateral
Agent shall not be required to ascertain or inquire as to the performance
or observance of any of the conditions or agreements to be performed or
observed by any other party, except as specifically provided in this
Agreement. The Collateral Agent disclaims any responsibility for the
validity or accuracy of the recitals to this Agreement and any
representations and warranties contained herein, unless specifically
identified as recitals, representations or warranties of the Collateral
Agent.
5
<PAGE>
(b) Throughout the term of this Agreement, the Collateral Agent shall
have no responsibility for ascertaining the value of any Collateral, the
title of any party therein, the validity or adequacy of the security
afforded thereby, or the validity of this Agreement (except as to
Collateral Agent's authority to enter into this Agreement and to perform
its obligations hereunder).
(c) The Collateral Agent shall not be under any duty to examine or
pass upon the genuineness, validity or legal sufficiency of any of the
documents constituting part of the Collateral, and shall be entitled to
assume that all documents constituting part of such Collateral are genuine
and valid and that they are what they purport to be, and that any
endorsements or assignments thereof are genuine and valid. The Collateral
Agent may rely upon and shall be protected in acting in good faith upon any
notice, resolution, request, consent, order, certificate, report, statement
or other paper or document appearing on its face to be genuine and to have
been signed or presented by the proper party or parties or by a person or
persons authorized to act on behalf of the proper party or parties. The
Collateral Agent shall not be liable for any action or omission to act as
bailee except for its own gross negligence or willful misconduct.
(d) No provision of this Agreement shall require the Collateral Agent
to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of any
of its rights or powers, if, in its sole judgment, it shall believe that
repayment of such funds or adequate indemnity against such risk or
liability is not assured to it.
(e) The Collateral Agent is not responsible for preparing or filing
any reports or returns relating to Federal, state or local income taxes
with respect to this Agreement, other than for the Collateral Agent's
compensation or for reimbursement of expenses.
(f) The Pledgor agrees to reimburse and hold harmless the Collateral
Agent, its directors, officers, employees and agents from and against any
and all liability, damage, claim (whether asserted by the Pledgor, the
Secured Party or any other person) and loss and reasonable out-of-pocket
expenses (including reasonable counsel fees and expenses) arising from or
connected with the Collateral Agent's execution and performance of this
Agreement, including the claims of any third parties (including any
assignee) relating to the Collateral Agent's execution and performance of
this Agreement, except in any such case for any liability, damage, claim,
loss or expense resulting from gross negligence or willful misconduct on
the part of the Collateral Agent.
(g) The Collateral Agent shall have the power to employ such agents as
it may deem necessary or appropriate in the performance of its duties and
the exercise of its powers under this Agreement and shall not be liable for
the acts or omissions of any agent appointed with due care by it hereunder.
6
<PAGE>
(h) Notwithstanding anything to the contrary herein, this Section 11
shall survive the termination of this Agreement.
12. Fees and Expenses of Collateral Agent. The Collateral Agent shall
-------------------------------------
notify the Pledgor of all fees, expenses and charges of the Collateral Agent
arising out of the Collateral Agent's execution and performance of its duties
and obligations under this Agreement, and such reasonable fees, expenses and
charges shall be paid promptly by the Pledgor. The Collateral Agent may employ,
at the Pledgor's reasonable expense, such legal counsel and other experts as it
deems necessary in connection with performing its duties and obligations under
this Agreement. Notwithstanding anything to the contrary contained herein, this
provision shall survive the termination of this Agreement.
13. Removal or Resignation of Collateral Agent. Pledgor, with the consent
------------------------------------------
of the Secured Party may at any time remove and discharge the Collateral Agent
from the performance of its duties under this Agreement. Any such removal shall
be effective immediately if such termination is for cause or upon not less than
30 days' prior written notice to the Collateral Agent if such termination is
without cause. In addition, the Collateral Agent may, at any time, effective
upon 30 days' prior written notice to the Pledgor and the Secured Party of the
appointment of a successor Collateral Agent, terminate its agreement to act as
the Collateral Agent under both this Agreement and the Primestar Pledge and
Security Agreement. Upon the date of any such termination, the Collateral Agent
shall promptly deliver the Collateral then held by it or its agents to the
successor Collateral Agent and shall execute and shall promptly deliver, upon
payment of all amounts owed it hereunder, such notices, instructions and
assignments as may be reasonably necessary or desirable to transfer the rights
of the Collateral Agent with respect to the Collateral to the successor
Collateral Agent. The appointment of the Collateral Agent by the Pledgor
pursuant to Section 3 above shall constitute the appointment of any successor
Collateral Agent designated pursuant to this Section 13.
14. Availability of Documents. Each of the Pledgor, the Secured Party and
-------------------------
their respective agents, accountants, attorneys and auditors will be permitted
during normal business hours at any time and from time to time upon reasonable
notice to the Collateral Agent to examine (to the extent permitted by applicable
law) the files, documents, records and other papers in the possession or under
the control of the Collateral Agent relating to any or all of the Collateral and
to make copies thereof. All costs and expenses associated with the exercise
from time to time by the Pledgor or the Secured Party of its rights under this
Section 14 shall be for the account of the Pledgor or the Secured Party, as
applicable.
15. Representations and Warranties of Pledgor. The Pledgor hereby
-----------------------------------------
represents and warrants that: (a) the Pledgor is the sole owner of the
Collateral (or, in the case of after acquired Collateral, at the time the
Pledgor acquires rights in the Collateral, will be the sole owner thereof); (b)
except for the lien granted hereunder to the Secured Party and the lien granted
by Primestar on its interest in the Collateral under the Primestar Pledge and
Security Agreement to the Secured Parties thereunder, no Person has (or, in the
case of after-acquired Collateral, at the
7
<PAGE>
time the Pledgor acquires rights therein, will have) any right, title, claim or
interest (by way of security interest or other lien or charge or otherwise) in,
against or to all or any of the Collateral; (c) no consent of any other Person
is required for the grant of the security interest provided herein by the
Pledgor in any of the Collateral (except for any consent of Hughes Electronics
Corporation or General Motors Corporation, which has been received), nor will
any consent need to be obtained for the Secured Party to exercise its rights
with respect to any of the Collateral, and (d) no filings, except for such
filings as have been made, are being made concurrently with the execution of
this Agreement, or will be made by the Pledgor within the time period required
by applicable law, are required to perfect the lien granted by this Agreement.
16. Covenants of Pledgor. The Pledgor hereby agrees: (a) to procure,
--------------------
execute and deliver from time to time any and all endorsements, assignments,
financing statements, notices and other writings necessary or appropriate to
perfect, maintain and protect the Collateral Agent's security interest hereunder
and the priority thereof and to deliver promptly to the Collateral Agent all
originals of Collateral or proceeds consisting of chattel paper or instruments;
(b) not to surrender or lose possession of (other than to the Collateral Agent
or as otherwise permitted by this Agreement), sell, encumber, or otherwise
dispose of or transfer, any Collateral or right or interest therein other than
as otherwise permitted under this Agreement; (c) to account fully for and
promptly to deliver to the Collateral Agent, in the form received, all proceeds
received, endorsed to the Collateral Agent as appropriate and accompanied by
such assignments and powers, duly executed, as the Collateral Agent shall
request, and until so delivered all Collateral and proceeds shall be held in
trust for the Collateral Agent, separate from all other property of the Pledgor
and identified as being subject to the interest of the Collateral Agent; (d) not
to move its chief executive office to a new location unless (i) the Secured
Party shall have approved such move in writing or (ii) (A) the Pledgor shall
have given the Secured Party not less than 20 days prior notice thereof, (B) the
new location shall be within one of the 50 States of the United States or the
District of Columbia and (C) the Collateral Agent shall have received such
evidence reasonably satisfactory to it as it may reasonably request (including
acknowledgment copies of financing statements and opinions of counsel) that
Pledgor's rights with respect to the Collateral will not be adversely affected
by such move; (e) to do, to the extent permitted by this Agreement, all acts to
maintain, preserve and protect the Collateral that an owner of assets of the
same type as the Collateral would deem customarily necessary or desirable
therefor; and (f) to appear in and defend, at the Pledgor's cost and expense,
any action or proceeding which may affect its title to or the Secured Party's
interest in the Collateral.
17. Authorized Action by Collateral Agent. The Pledgor hereby irrevocably
-------------------------------------
appoints the Collateral Agent as its attorney-in-fact, coupled with an interest,
to do (but the Collateral Agent shall not be obligated to and shall incur no
liability to the Pledgor or any third party for not so doing), at the request
and direction of the Secured Party upon the occurrence of an Event of Default
and while such Event of Default is continuing, any act which the Pledgor is
obligated by this Agreement to do, and to exercise such rights and powers as the
Pledgor might exercise with respect to the Collateral, including the right to
(a) collect by legal proceedings or otherwise and endorse, receive and receipt
for all interest, payments, proceeds and other sums and property
8
<PAGE>
now or hereafter payable on or on account of the Collateral; (b) preserve the
Collateral; (c) transfer the Collateral to the Collateral Agent's own or its
nominee's name; or (d) sell or otherwise dispose of the Collateral (provided
--------
that nothing in this Section 17 shall limit the power of the Collateral Agent to
- ----
sell Pledged Securities as provided in this Agreement). Notwithstanding
anything contained herein, in no event shall the Collateral Agent or the Secured
Party be required to make any presentment, demand or protest or give any notice,
and neither the Collateral Agent nor the Secured Party need take any action to
preserve any rights against any prior party or any other person in connection
with the Secured Obligations or with respect to the Collateral. The Collateral
Agent is, and shall at all times continue to be, authorized to file financing
statements (and amendments to, and continuation statements in respect of,
financing statements) with respect to the Collateral without the signature of
the Pledgor in such filing offices as shall be necessary or appropriate for the
purpose of perfecting or maintaining the perfection of the security interest
provided for herein. The Collateral Agent shall give the Pledgor a copy of each
filing so made prior thereto or promptly thereafter.
18. Default and Remedies.
--------------------
(a) As used herein, the term "Event of Default" means the occurrence
of any of the following events:
(i) the Pledgor's failure to pay or cause to be paid, when due,
to or for the account of the Secured Party, the Aggregate Settlement
Amount and any other outstanding Secured Obligations payable to the
Secured Party in respect of the SARs, as provided in the SAR
Agreement;
(ii) any representation of the Pledgor in this Agreement shall
have been untrue in any material respect when made;
(iii) the Pledgor shall breach in any material respect any
covenant of the Pledgor in this Agreement;
(iv) the Pledgor shall make an assignment for the benefit of
creditors or admit in writing its inability to pay its debts as they
mature or come due, or shall petition or apply for the appointment of
a trustee or other custodian, liquidator or receiver, or shall
commence any case or other proceeding under any bankruptcy,
reorganization, arrangement, insolvency , readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, now or
hereafter in effect, or if any such case or other proceeding shall be
commenced against the Pledgor, the Pledgor shall indicate its approval
thereof, consent thereto or acquiescence therein or such petition or
application shall not have been dismissed within 90 days after the
filing thereof; or
9
<PAGE>
(v) a decree or order shall be entered appointing any such
trustee, custodian, liquidator or receiver or adjudicating the Pledgor
bankrupt or insolvent, or approving a petition in any such case or
other proceeding, or a decree or order for relief is entered in
respect of the Pledgor in a case under Federal bankruptcy laws as now
or hereafter constituted.
(b) On or after the Determination Date, upon the occurrence and during
the continuation of any Event of Default (whether such Event of Default
first occurred before or on or after the Determination Date), the
Collateral Agent, upon request of the Secured Party, shall: (i) foreclose
or otherwise enforce the Secured Party's lien in the Collateral in any
manner permitted by law or provided for hereunder; or sell or otherwise
dispose of the Collateral or any part thereof at one or more public or
private sales, for credit or future delivery (without the assumption of any
credit risk), on such terms and in such manner as the Collateral Agent may
determine to be commercially reasonable (taking into account the
circumstances under which the Collateral is being sold); and (ii) pay and
distribute to the Secured Party out of the Cash Collateral Account (and
against delivery of the SAR Agreement or such other evidence as the
Collateral Agent shall reasonably request), any and all amounts then due
and payable to the Secured Party in respect of the SARs, which amounts
shall be satisfied and discharged to the extent of any such payments
actually received.
19. Cumulative Rights. The rights, powers and remedies of the Collateral
-----------------
Agent and the Secured Party under this Agreement shall be in addition to all
rights, powers and remedies given to the Collateral Agent and the Secured Party
by virtue of any statute or rule of law, the SAR Agreement or any other
agreement, all of which rights, powers and remedies shall be cumulative and may
be exercised successively or concurrently. Without limiting the generality of
the foregoing, the Collateral Agent shall have all rights of a secured party
under the New York Uniform Commercial Code and other applicable New York law.
20. Waiver. Any waiver, forbearance, failure or delay by the Collateral
------
Agent or the Secured Party in exercising, or the exercise or beginning of
exercise by the Collateral Agent or the Secured Party of, any right, power or
remedy, simultaneous or later, shall not preclude the further, simultaneous or
later exercise thereof, and every right, power or remedy of the Collateral Agent
or the Secured Party shall continue in full force and effect.
21. Binding Upon Successors. All rights and obligations of the Pledgor,
-----------------------
the Collateral Agent and the Secured Party under this Agreement shall bind and
inure to the benefit of the Pledgor, the Collateral Agent and the Secured Party
and their respective successors and assigns.
22. Entire Agreement; Severability. This Agreement contains the entire
------------------------------
security agreement and agency agreement, with respect to the Collateral, among
the Collateral Agent, the Secured Party and the Pledgor (other than the
Primestar Pledge and Security Agreement, to the
10
<PAGE>
extent applicable). If any of the provisions of this Agreement shall be held
invalid or unenforceable, this Agreement shall be construed as if not containing
such provisions, and the rights and obligations of the parties hereto shall be
construed and enforced accordingly.
23. Choice of Law; Submission to Jurisdiction. This Agreement shall be
-----------------------------------------
construed in accordance with and governed by the internal laws of the State of
New York without giving effect to any conflicts of laws principles, and terms
used herein, except as otherwise (by reference or otherwise) defined herein
shall have the meanings given to them in the New York Uniform Commercial Code.
Each party hereto irrevocably submits to the jurisdiction of any New York State
court sitting in the Borough of Manhattan or any Federal court sitting in the
Borough of Manhattan in respect of any suit, action or proceeding arising out of
or relating to this Agreement and the transactions pursuant hereto and in
connection herewith, and irrevocably agrees that all claims in respect of any
such suit, action or proceeding shall be heard and determined in any such court.
Each party irrevocably waives any objection which it may now or hereafter have
to the laying of the venue of such suit, action or proceeding brought in any
such court and any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum.
24. Amendments, Etc. No amendment or waiver of any provision of this
---------------
Agreement, nor consent to any departure by the Pledgor or the Collateral Agent
here from, shall be effective unless the same shall have been effected in
accordance with Section 15 of the SAR Agreement.
25. Notice. All notices, requests, demands, claims, and other
------
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given to the
intended recipient (i) upon telephonic confirmation of facsimile, (ii) when sent
by overnight delivery or (iii) seventy-two hours after deposit in the United
States mail when mailed by first class mail, postage prepaid, to the intended
recipient at the address or telecopier number, as applicable, for such recipient
set forth on the signature page hereof. Notices, requests, demands, claims and
other communications may be sent by any other means (including personal
delivery, expedited courier, messenger service, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other party notice in the manner herein set forth, but no such notice
shall be deemed given until actually received.
26. Execution in Counterparts. This Agreement may be executed in
-------------------------
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
27. Authorization to Further Pledge. Notwithstanding any other provision
-------------------------------
herein, Pledgor consents to the creation of a lien on the Primestar Pledged
Rights pursuant to the Primestar Pledge and Security Agreement. In order to
perfect the grant by Primestar under the
11
<PAGE>
Primestar Pledge and Security Agreement of a pledge of and security interest in
Primestar's Pledged Rights, the Secured Party hereby directs and authorizes the
Collateral Agent to pay and deliver to the Primestar PSA Collateral Agent
pursuant to the Primestar Pledge and Security Agreement, on behalf of the
Secured Party, any and all property and amounts, whether in cash or in kind, to
which the Secured Party may at any time, and from time to time, be entitled
hereunder. The Collateral Agent shall not have any liability whatsoever to
Pledgor or the Secured Party for any action by the Primestar PSA Collateral
Agent with respect to any property or amount paid or delivered to the Primestar
PSA Collateral Agent by the Collateral Agent pursuant to this Section 27. The
direction and authorization made herein is for the benefit of the Secured
Parties under the Primestar Pledge and Security Agreement and shall be
irrevocable prior to the Termination Date, whereupon it shall automatically
terminate.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the day and year first above written.
TCI SATELLITE ENTERTAINMENT, INC.
By:
----------------------------------------------
Name:
Title:
Notice Address: 8085 South Chester, Suite 300
Englewood, Colorado 80112
Telephone No.: (303) 712-4600
Telecopy No.: (303) 712-4977
Attention: Chief Financial Officer
with a copy to: Baker & Botts, L.L.P.
599 Lexington Avenue
New York, NY 10022
Telephone No. (212) 705-5000
Telecopy No.: (212) 705-5125
Attention: Elizabeth M. Markowski, Esq.
THE BANK OF NEW YORK, as Collateral Agent
By:
----------------------------------------------
Name: Walter N. Gitlin
Title: Vice President
Notice Address: 101 Barclay Street, Floor 21 West
New York, New York 10286
Telephone No.: (212) 815-5375
Telecopy No.: (212) 815-5915
Attention: Corporate Trust/
Trust Administration
13
<PAGE>
PRIMESTAR, INC.
By:
----------------------------------------------
Name:
Title:
Notice Address: 8085 South Chester, Suite 300
Englewood, Colorado 80112
Telephone: (303) 712-4600
Telecopy: (303) 712-4977
Attention: Chief Financial Officer
with a copy to: Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Telephone: (212) 705-5000
Telecopy: (212) 705-5125
Attention: Marc A. Leaf, Esq.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TCI
SATELLITE ENTERTAINMENT INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 752
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 239,118
<DEPRECIATION> 0
<TOTAL-ASSETS> 239,870
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 67,820
<OTHER-SE> (160,768)
<TOTAL-LIABILITY-AND-EQUITY> 239,870
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (86,764)
<INCOME-TAX> 0
<INCOME-CONTINUING> (86,764)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86,764)
<EPS-PRIMARY> (1.28)
<EPS-DILUTED> (1.28)
</TABLE>
