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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission file number: 0-21317
TCI SATELLITE ENTERTAINMENT, INC.
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(Exact name of Registrant as specified in its charter)
State of Delaware 84-1299995
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
7600 East Orchard Road, Suite 330 South
Englewood, Colorado 80111
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 268-5400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock, par value $1.00 per share
Series B Common Stock, par value $1.00 per share
Indicated 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
Indicated by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. __X__
The aggregate market value of the voting stock held by nonaffiliates of TCI
Satellite Entertainment, Inc. computed by reference to the last sales price of
such stock, as of the close of trading on February 29, 2000, was approximately
$850,935,134.
The number of shares outstanding of TCI Satellite Entertainment, Inc.'s
common stock as of February 29, 2000 was:
Series A Common Stock - 62,894,446 shares; and
Series B Common Stock - 8,465,224 shares.
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TCI SATELLITE ENTERTAINMENT, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
Item 1. Business I-1
Item 2. Properties I-11
Item 3. Legal Proceedings I-11
Item 4. Submission of Matters to a Vote of Security Holders I-12
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters II-1
Item 6. Selected Financial Data II-2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations II-3
Item 8. Financial Statements and Supplementary Data II-7
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-7
PART III
Item 10. Directors and Executive Officers of the Registrant III-1
Item 11. Executive Compensation III-4
Item 12. Security Ownership of Certain Beneficial Owners
and Management III-10
Item 13. Certain Relationships and Related Transactions III-14
PART IV
Item 14. Exhibits, Financial Statements and Financial Statement
Schedules and Reports on Form 8-K IV-1
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PART I
ITEM 1. BUSINESS
(a) INTRODUCTION
Since its formation in 1996, TCI Satellite Entertainment, Inc. ("TSAT" or
the "Company") has undergone a number of significant changes in its
business. This Annual Report incorporates, for TSAT and its subsidiaries,
consolidated audited balance sheets as of December 31, 1999 and 1998, and
audited statements of income (loss) and cash flows for each of the three
fiscal years ended December 31, 1999, 1998 and 1997, as well as certain
selected financial data for each of the five fiscal years ended December
31, 1999, 1998, 1997, 1996 and 1995. In order to help the reader to
understand the financial information presented herein, this Annual Report
briefly describes the business of TSAT and its predecessors over such five
year period, as well as certain material transactions affecting TSAT during
such period.
On March 16, 2000, the Company completed its previously announced
transactions with Liberty Media Corporation ("Liberty Media"). As a result
of such transactions, the Company became the managing member (through its
wholly-owned subsidiaries) of two new limited liability companies
(collectively, the "Liberty Joint Ventures"), through which the Company
holds interests in a number of satellite and related businesses. The
Company also acquired from Liberty Media beneficial ownership in over
5,000,000 shares of Sprint Corporation PCS common stock, having a market
value of approximately $330 million as of March 24, 2000, in exchange for
the issuance by the Company to Liberty Media of (i) Series A Preferred
Stock of the Company with a liquidation value of $150 million and (ii)
Series B Preferred Stock of the Company with a liquidation value of
$150 million. The Series B Preferred Stock is convertible into Series B
Common Stock of the Company at a conversion price of $8.84 per share,
subject to adjustment, and prior to conversion represents approximately
85% of the voting power of the Company. The Company currently intends to
leverage its capital position and interests in the Liberty Joint Ventures
to pursue strategic opportunities worldwide in the distribution of internet
data and other content via satellite and related businesses and is
actively seeking to develop or acquire an operating business related to,
or complementary with, such strategy.
(b) HISTORY OF THE BUSINESS
THE SPIN-OFF. TSAT was incorporated in Delaware in November 1996. Prior to
the Spin-off (as defined below), the Company was wholly owned by
Tele-Communications, Inc. ("TCI"), which, through various subsidiaries, was
engaged in the business of distributing PRIMESTAR satellite television
services, a medium power digital satellite service, from December 1990
until the consummation of the Spin-off.
TSAT was formed to own and operate certain businesses of TCI
Communications, Inc. ("TCIC"), a subsidiary of TCI, constituting TCI's
collective interest ("TCI SATCO") in the digital satellite business. On
December 4, 1996 (the "Spin-off Date"), TCI distributed (the "Spin-off"),
as a dividend, all of the issued and outstanding TSAT Common Stock to the
holders of record of shares of Tele-Communications, Inc., Series A TCI
Group Common Stock, $1.00 par value per share (the "Series A TCI Group
Stock"), and Tele-Communications, Inc., Series B TCI Group Common Stock,
$1.00 par value per share (the "Series B TCI Group Stock" and, together
with the Series A TCI Group Stock, the "TCI Group Stock"), on the basis of
one share of the Series A Common Stock for each ten shares of Series A TCI
Group Stock, and one share of Series B Common Stock for each ten shares of
Series B TCI Group Stock. References herein to the "Company" may, as the
context requires, refer to (i) TCI SATCO prior to the Spin-off Date and
(ii) TSAT and its consolidated subsidiaries on and after the Spin-off Date.
PRIMESTAR BY TCI. From December 4, 1996 until March 31, 1998, TSAT marketed
and distributed the PRIMESTAR programming service under the brand names
"PRIMESTAR By TCI" and "PRIMESTAR By TSAT" and owned an aggregate 20.86%
partnership interest in PRIMESTAR
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Partners L.P. (now known as Phoenixstar Partners L.P.) ("Phoenixstar
Partners"), which owned and operated the PRIMESTAR-Registered Trademark-
service. In addition, the Company, through its wholly-owned subsidiary,
Tempo Satellite, Inc. ("Tempo"), held a construction permit (the "FCC
Permit") issued by the Federal Communications Commission ("FCC"),
authorizing construction of a high power direct broadcast satellite
("DBS") system consisting of two or more satellites delivering DBS service
in 11 frequencies at the 119DEG. W.L. orbital position. Tempo was a party
to a satellite construction agreement (the "Satellite Construction
Agreement") with Space Systems/Loral, Inc. ("Loral") pursuant to which
Tempo arranged for the construction of two high power direct broadcast
satellites (the "Tempo Satellites"). On March 8, 1997, one of the Tempo
Satellites ("Tempo DBS-1") was launched into geosynchronous orbit. The
other Tempo Satellite ("Tempo DBS-2") served as a ground spare for Tempo
DBS-1.
THE PRIMESTAR ROLL-UP. On March 6, 1998, the TSAT stockholders voted to
approve a proposal to adopt the provisions of certain agreements and the
transactions contemplated thereby, collectively referred to herein as the
"Roll-up Plan". The Roll-up Plan was a two-step transaction comprising
the Restructuring and the proposed TSAT Merger, as described below.
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, PRIMESTAR, Inc. (now known as Phoenixstar, Inc.)
("Phoenixstar"), Time Warner Entertainment Company, L.P. ("TWE"),
Advance/Newhouse Partnership ("Newhouse"), Comcast Corporation ("Comcast"),
Cox Communications, Inc. ("Cox"), MediaOne of Delaware, Inc. ("MediaOne")
and GE American Communications, Inc. ("GE Americom") 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 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 Phoenixstar Partners and the
business of distributing PRIMESTAR-Registered Trademark- programming
service of each of TWE, Newhouse, Comcast, Cox and affiliates of MediaOne
were consolidated into Phoenixstar. As part of the Roll-up Plan, TSAT and
Phoenixstar also entered into an Agreement and Plan of Merger dated as of
February 6, 1998 (the "TSAT Merger Agreement"), providing for the merger of
TSAT with and into Phoenixstar, with Phoenixstar as the surviving
corporation (the "TSAT Merger").
In connection with the TSAT Asset Transfer, Phoenixstar assumed all of
TSAT's indebtedness on the Closing Date, and TSAT received from Phoenixstar
such number of shares of Class A Common Stock of Phoenixstar ("Phoenixstar
Class A Common Stock") and Class B Common Stock of Phoenixstar
("Phoenixstar Class B Common Stock" and together with the Phoenixstar Class
A Common Stock, "Phoenixstar Common Stock"), respectively, as equals the
number of shares of Series A Common Stock of TSAT ("Series A Common Stock")
and Series B Common Stock of TSAT ("Series B Common Stock"), respectively,
issued and outstanding on the Closing Date, in accordance with the
Restructuring Agreement and the TSAT Asset Transfer Agreement. In addition,
TSAT received one share of Phoenixstar Class A Common Stock for each share
of Series A Common Stock issuable at the Closing Date ("Issuable TSAT
Shares") pursuant to certain TSAT stock options, restricted stock awards
and other arrangements. TSAT received 66.3 million shares of Phoenixstar
Class A Common Stock and 8.5 million shares of Phoenixstar Class B Common
Stock, and as a result, owned approximately 37% of the outstanding shares
of common equity of Phoenixstar at the closing of the Restructuring,
representing approximately 38% of the combined voting power of such common
equity. The outstanding shares of Series A Common Stock and Series B
Common Stock remain outstanding and were not directly affected by the
Restructuring.
As a result of the TSAT Asset Transfer, as of March 31, 1998, TSAT became a
holding company, with no substantial assets or liabilities other than (i)
100% of the outstanding capital stock of Tempo,
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(ii) its ownership interest in Phoenixstar, and (iii) its rights and
obligations under certain agreements with Phoenixstar and others.
THE HUGHES TRANSACTIONS. On January 22, 1999, the Company announced that
the Company, Tempo, Phoenixstar and Phoenixstar Partners had reached an
agreement (the "Hughes High Power Agreement") with Hughes Electronics
Corporation ("Hughes"), a subsidiary of General Motors Corporation, to sell
(i) Tempo DBS-1 and Tempo DBS-2 (ii) Tempo's 119DEG. W.L. orbital location
license (the "FCC License") and (iii) Phoenixstar's rights to use Tempo's
direct broadcast satellite ("DBS") system (the "Tempo Rights" and
collectively, the "Tempo High Power Assets") to Hughes, for aggregate
consideration valued at $500 million (the "Hughes High Power Transaction").
Due to the fact that regulatory approval was required to transfer Tempo
DBS-1 and the FCC License to Hughes, the Hughes High Power Transaction was
to 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) $9.75 million paid to
Phoenixstar for the Tempo DBS-2 Option (including any amounts allocable to
Phoenixstar Partners in consideration of the termination and relinquishment
of the Tempo Rights), (ii) $750,000 paid to TSAT to exercise the Tempo
DBS-2 Option and (iii) the assumption by Hughes of $139.5 million due to
Phoenixstar Partners from TSAT in exchange for Tempo DBS-2. In connection
with the First Closing, the Company and Phoenixstar terminated the TSAT
Merger Agreement.
The FCC approved the transfer of the FCC License to Hughes on May 28, 1999,
and the second closing under the Hughes High Power Agreement was
consummated effective June 4, 1999. In the second closing, Hughes acquired
Tempo DBS-1 and related assets, including all rights of Tempo with respect
to the FCC License, for aggregate consideration of $350 million comprised
of (i) $22.75 million paid by Hughes to Phoenixstar and Phoenixstar
Partners for the transfer to Hughes of that portion of the Tempo Purchase
Option allocable to the Tempo DBS-1 and the termination of that portion of
the Tempo Capacity Option allocable to Tempo DBS-1, (the "Tempo DBS-1
Option") (ii) $1.75 million paid by Hughes to Tempo to exercise the Tempo
DBS-1 Option; and (iii) the assumption and payment by Hughes of the
remainder of the Tempo Reimbursement Obligation, in the amount of $325.5
million.
The carrying value of Tempo DBS-1 was approximately $239 million at the
time of the second closing. In addition, Phoenixstar agreed to forgive
amounts due from Tempo not assumed by Hughes in the amount of $9.346
million.
In a separate transaction (the "Hughes Medium Power Transaction") completed
on April 28, 1999 (the "Hughes Closing Date"), Phoenixstar sold to Hughes,
Phoenixstar's medium-power DBS business and assets for $1.1 billion in cash
and 4.871 million shares of General Motors Class H common stock ("GMH
Stock") valued at approximately $258 million on the date of closing. The
foregoing purchase price was subject to adjustments for working capital at
the date of closing, which subsequently totaled approximately $9.9 million.
Phoenixstar retained responsibility for the payment of certain obligations
not assumed by Hughes, and the payment of costs, estimated not to exceed
$180 million at December 31, 1999, 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 $1,013.3 million
to fund such payments. Through December 31, 1999, approximately $467.3
million of such commitments have been funded to Phoenixstar, and $382.6
million of such commitments expired undrawn.
In connection with their approval of the Hughes Medium Power Transaction
and other transactions, the stockholders of Phoenixstar approved the
payment to TSAT of consideration in the form of 1.407
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million shares of GMH Stock (the "Phoenixstar Payment"), subject to the
terms and conditions 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. Pursuant to the
Phoenixstar Payment Agreement, the Company 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
and, subject to the approval of the Company's stockholders, to transfer its
shares in Phoenixstar to the other Phoenixstar stockholders. 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.
(c) CURRENT BUSINESS
HOLDING COMPANY. As a result of the Hughes Medium Power Transaction and
Hughes High Power Transaction, the Company is no longer engaged in the
direct-to-home satellite television business through Phoenixstar and Tempo.
The Company is planning to take advantage of its industry expertise and
relationships and tax loss carryforward in various future business
opportunities.
LIBERTY MEDIA TRANSACTIONS. On March 16, 2000, the Company completed a
transaction with Liberty Media in which Liberty Media purchased shares
of cumulative preferred stock of the Company in exchange for Liberty
Media's economic interest in 5,084,745 shares of Sprint Corporation PCS
common stock, valued at over $333 million as of March 24, 2000.
The Company issued Series A 12% Cumulative Preferred Stock with a
liquidation value of $150 million ("Series A Preferred Stock") and
Series B 8% Cumulative Convertible Voting Preferred Stock with a
liquidation value of $150 million ("Series B Preferred Stock" and
together with the Series A Preferred Stock, the "Preferred Stock"). The
Preferred Stock is senior to all other classes and series of capital
stock of the Company. The Series A Preferred Stock does not have voting
rights and is not convertible into common stock. The holders of the
Series B Preferred stock have voting rights representing, in the
aggregate, approximately 85% of the total voting power of the Company
(after giving effect to such issuance) and will vote together with the
holders of all other classes or series of voting stock of the Company,
except as required by law. In addition, the Series B Preferred stock is
convertible at the option of the holder into shares of Series B Common
Stock at a conversion price of $8.84 per share of Series B Common Stock,
subject to adjustments as described in the Certificate of Designation
for the Series B Preferred Stock.
Concurrently with the investment by Liberty Media in the Company, the
Company and Liberty Media formed a new joint venture to hold and manage
interests in entities engaged globally in the distribution of internet data
and other content via satellite and related businesses. Liberty Media
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contributed interests in XM Satellite Radio Holdings, Inc., iSky, Inc.,
LSAT Astro LLC and the Sky Latin America satellite businesses in exchange
for an 89.41% ownership interest in the joint venture. The Company
contributed its interest in Jato Communications Corp. and General Motors
Class H Common Stock in exchange for a 10.59% ownership interest in the
joint venture. The Company will manage the business and affairs of the
venture, which has been named Liberty Satellite, LLC.
In a related transaction, the Company paid Liberty Media $60 million in the
form of an unsecured promissory note in exchange for a 13.99% ownership
interest in LSAT Astro LLC, a limited liability company that owns an
approximate 31.5% interest in ASTROLINK International LLC. The remaining
86.01% of LSAT Astro LLC was contributed by Liberty Media to Liberty
Satellite, LLC, as indicated above.
OTHER BUSINESS. Effective February 1, 2000, the Company entered into a
Management Agreement with Phoenixstar pursuant to which the Company is
managing Phoenixstar's affairs in exchange for a monthly management fee of
$45,000.
In July 1999, the Company negotiated a preliminary agreement (the "Asvan
Agreement") with Asvan Technology, LLC ("Asvan"). The Asvan Agreement
provides for Asvan to transfer certain assets to the Company's
subsidiary, TSAT Technologies, Inc. ("Technologies Sub") in exchange for
a 20% equity interest in Technologies Sub and for the Company to contribute
a maximum of $3,000,000 in exchange for an 80% equity interest in
Technologies Sub. The Asvan Agreement contemplates that Technologies Sub
will perform research and development related to certain emerging
technologies.
Certain statements in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of the Company,
or industry results, to differ materially from any future results,
performance or achievements express or implied by such forward-looking
statements. Such risks, uncertainties and other factors include, among
others: general economic and business conditions and industry trends; the
continued strength of the multichannel video programming distribution
industry and the satellite services industry and the growth of satellite
delivered television programming; uncertainties inherent in proposed
business strategies and development plans; future financial performance,
including availability, terms and deployment of capital; the ability of
vendors to deliver required equipment, software and services; availability
of qualified personnel; changes in, or the failure or the inability to
comply with, government regulation, 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; competitor responses to the Company's products and
services, and the overall market acceptance of such products and services,
including acceptance of the pricing of such products and services; 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 (and such risks, uncertainties and
other factors) speak only as of the date of this Report. The Company
expressly disclaims any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement
is based.
(d) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Not applicable.
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(e) NARRATIVE DESCRIPTION OF BUSINESS
INTRODUCTION
During the periods prior to the Hughes Closing Date on April 28, 1999,
covered by the financial statements and selected financial data included in
this report, the Company was engaged, directly and through Phoenixstar and
Phoenixstar Partners, in the PRIMESTAR-Registered Trademark- satellite
business described below and related high power satellite efforts of Tempo
Satellite, Inc., a wholly-owned subsidiary of the Company. Since the
consummation of the Hughes transactions described herein, the Company has not
been engaged directly or indirectly in the PRIMESTAR-Registered Trademark- or
Tempo businesses. Since the Hughes Closing Date, "PRIMESTAR" has been a
registered trademark of Hughes.
THE PRIMESTAR-Registered Trademark- SERVICE
Prior to the Hughes Closing Date, Phoenixstar was a leading provider of
digital satellite services in the U.S. Phoenixstar owned and operated the
PRIMESTAR-Registered Trademark-digital satellite business, which was the
second largest digital satellite business and the eighth largest multichannel
video programming distribution business in the U.S., measured by the number
of subscribers as of December 31, 1998.
PRIMESTAR-Registered Trademark- offered a medium power satellite service with
over 160 channels of digital video and audio programming throughout the
continental United States. The medium power service was transmitted via GE-2,
which is owned by GE Americom and located at the 85DEG. W.L. orbital
position. The PRIMESTAR-Registered Trademark- medium power service served
approximately 2.3 million subscribers as of December 31, 1998.
PRIMESTAR-Registered Trademark- included a variety of advertiser-supported
networks (sometimes referred to as "basic cable" channels), a broad selection
of movie services, national and regional sports packages and other premium
services, and multiplexed pay-per-view programming. Phoenixstar secured its
rights to broadcast such programming via satellite by entering into
non-exclusive affiliation agreements with programming vendors. In addition to
video services, PRIMESTAR-Registered Trademark- included digital audio
services and regional weather services covering ten regions of the country.
Pursuant to an Amended and Restated Memorandum between GE Americon and
Phoenixstar (the "GE-2 Agreement"), GE Americom provided Phoenixstar with
service on 24 transponders on GE-2. Phoenixstar was entitled to non-preemptible
service on 18 of the transponders on GE-2 and preemptible service on six
transponders. Preemptible transponders are transponders that may be reassigned
to restore service to protected customers if such protected customers experience
transponder or satellite failure. Phoenixstar received "orbital location
protected service" on all 24 of its transponders, meaning that if there was a
failure of GE-2, Phoenixstar would have been entitled to restore the lost
service on another GE Americom medium power satellite, GE-3, which was
successfully launched on September 4, 1997 into the same 85DEG. W.L. orbital
position used by GE-2. Even in those circumstances, the six preemptible
transponders, although protected, would have remained preemptible.
Phoenixstar used proprietary authorization, encryption and digital
compression technology developed by an affiliate of General Instruments
Corporation ("GI"). Uplinking, encoding and compression services were
provided by National Digital Television Center, Inc., a subsidiary of TCI
("NDTC"), under a Master Digital Transmission Agreement between NDTC and
Phoenixstar.
PROGRAMMING. At December 31, 1998, Phoenixstar offered consumers programming
packages with 76 to 100 channels of audio and video programming depending upon
the package. Each of the packages included a monthly programming guide. Most of
Phoenixstar's customers rented their equipment for an additional $3 - $10
monthly charge, which included free maintenance and customer service.
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As of December 31, 1998, PRIMESTAR-Registered Trademark- also offered 15
channels of pay-per-view movies and events; a regional sports tier and other
sports packages that provided expanded coverage of regular-season,
out-of-market sports events; and niche services such as PBS and east and west
coast feeds of ABC, NBC, CBS and FOX (to those subscribers unable to receive
such networks through local affiliates). Such offerings were made on an a la
carte basis.
Phoenixstar contracted with and billed its residential and commercial
subscribers directly for PRIMESTAR-Registered Trademark- service. Most
residential subscribers could terminate their service at any time upon notice
to Phoenixstar. Commercial subscribers' service contracts automatically
renewed for successive terms unless the commercial subscribers provided 90
days' prior written notice to Phoenixstar of their intent to terminate their
service at the end of the current term. In addition, commercial customers
could terminate the contract prior to the expiration of the contractual term
by paying a cancellation fee. Satellite reception equipment reclaimed from
terminating subscribers was tested, refurbished as necessary and placed back
into service.
DISTRIBUTION. Phoenixstar distributed PRIMESTAR-Registered Trademark-
services through multiple distribution channels, including sales agents,
full-service providers, telemarketing agents and consumer retail outlets,
such as RadioShack-Registered Trademark-. Phoenixstar had sales agents, (the
"Sales Agents"), each of which had extensive experience distributing C-band
direct-to-home ("DTH") satellite equipment. Sales Agents generally did not
sell directly to customers, but recruited, trained and maintained a network
of sub-agents comprised generally of full-service independent satellite
retailers. The sub-agents sold PRIMESTAR-Registered Trademark- services on
behalf of Phoenixstar and installed, serviced and maintained customer
premises equipment for Phoenixstar's subscribers. Authorization of new
customers was provided by Phoenixstar's call center(s). Sales Agents were
responsible for maintaining their sub-agents' inventories of home satellite
dishes ("HSD") and other customer premises equipment, which were provided by
Phoenixstar on consignment.
Phoenixstar also contracted with independent contractors who had experience
in distributing and servicing DTH satellite equipment ("Full-Service
Providers"or "FSPs") to engage them to sell, install and service their own
accounts. The FSPs solicited potential subscribers by making door-to-door
sales calls, setting up booths at special events and otherwise marketing the
PRIMESTAR-Registered Trademark- service to customers in target markets in
their authorized distribution areas. FSPs also installed and serviced
customers obtained through retail outlets and call centers.
Phoenixstar paid the Sales Agents and FSPs commissions on equipment leased or
sold, as well as an installation reimbursement to cover the cost of each new
installation. The Sales Agents and FSPs also received a residual sales
commission for a contractually determined period of time (generally five years).
Sales Agents were responsible for compensating their sub-agents.
Phoenixstar operated a call center, located in Englewood, Colorado to take
subscription orders and provide both sales support and customer service. In
addition, Phoenixstar obtained call center support services from TCIC's Boise,
Idaho call center (the "Boise Call Center"), as well as call centers operated on
behalf of Phoenixstar by unaffiliated third parties. The call centers offered
customers around-the-clock telephone support for sales, installation,
authorization and billing, as well as for repair and customer service.
Phoenixstar also distributed its services through certain national consumer
electronics retailers, including Radio Shack. Pursuant to Phoenixstar's
national agreement with Radio Shack, Radio Shack was compensated based on the
number of installations generated. Phoenixstar's distribution network was
further supported by local market retailers, such as hardware stores and
convenience stores, which promoted Phoenixstar's services and further
assisted Phoenixstar in its distribution efforts.
EQUIPMENT AND INSTALLATION. Unlike other digital satellite television services,
Phoenixstar did not require consumers to purchase or finance the equipment
needed to receive its programming. Phoenixstar provided the HSD, satellite
receiver and remote control to subscribers for a monthly rental fee ($3 - $10
per month at December 31, 1998), which included ongoing maintenance and service
at no additional charge. The
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<PAGE>
monthly equipment rental fee was normally included in a service package that
included various levels of basic and premium programming. Satellite receivers
were manufactured by GI, and packaged by GI with remote controls, and HSDs were
manufactured by multiple vendors.
In addition to monthly fees for programming and the purchase or lease of
equipment, Phoenixstar generally charged new subscribers an installation fee
ranging from $49 to $99.
HIGH POWER SATELLITES
TEMPO DBS SYSTEM. The Company, through Tempo, held the FCC Permit, authorizing
construction of a high power DBS system consisting of two or more satellites
delivering DBS service in 11 frequencies at the 119DEG. W.L. orbital position.
The 119DEG. W.L. orbital position is generally visible to HSDs throughout the
entire continental U.S. Tempo was also a party to the Satellite Construction
Agreement with Loral, pursuant to which Tempo arranged for the construction of
Tempo DBS-1 and Tempo DBS-2 and had an option to purchase up to three additional
satellites. As constructed, each Tempo Satellite could operate in either "single
transponder" mode (with 32 transponders broadcasting at 113 watts per channel)
or in "paired transponder" mode (with 16 transponders broadcasting at 220 watts
per channel).
Tempo DBS-1 was outfitted with an antenna designed for operation at the 119DEG.
W.L. orbital location and was launched into geosynchronous orbit on March 8,
1997. During 1997, Loral notified Tempo of nine separate occurrences of power
reductions on Tempo DBS-1. In addition, Loral notified Tempo of two additional
power reductions that occurred on March 29, 1999 and April 2, 1999.
TEMPO OPTION. In February 1990, Tempo entered into an option agreement (the
"Tempo Option Agreement") with Phoenixstar Partners, granting Phoenixstar
Partners the right and option (the "Tempo Capacity Option"), upon exercise,
to purchase or lease 100% of the capacity of the DBS system to be built,
launched and operated by Tempo pursuant to the FCC Permit. Under the Tempo
Option Agreement, upon the exercise of the Tempo Capacity Option, Phoenixstar
Partners was obligated to pay Tempo $1 million (the "Exercise Fee") and to
lease or purchase the entire capacity of the DBS system, with the purchase
price (or aggregate lease payments) for such capacity sufficient to cover the
costs of constructing, launching and operating such DBS system. In connection
with the Tempo Capacity Option and certain related matters, Tempo and
Phoenixstar Partners subsequently entered into two letter agreements (the
"Tempo Letter Agreements"), which provided for, among other things, the
funding by Phoenixstar Partners of milestone and other payments due under the
Satellite Construction Agreement, and certain related costs, through advances
by Phoenixstar Partners to Tempo ("PRIMESTAR Advances"). Phoenixstar Partners
financed such advances to Tempo through borrowings under a bank credit
facility (the "Partnership Credit Facility"), which is in turn supported by
letters of credit arranged for by affiliates of the partners of Phoenixstar
Partners (other than GE Americom). At December 31, 1998, the aggregate
funding provided to Tempo by Phoenixstar Partners was $469.5 million, and the
balance due under the Partnership Credit Facility was $575 million, including
amounts borrowed to pay interest charges. The Tempo Letter Agreements
permitted Phoenixstar to apply its advances to Tempo against any payments
(other than the Exercise Fee) due under the Tempo Capacity Option with
respect to its purchase or lease of satellite capacity.
On February 7, 1997, the Partners Committee of Phoenixstar Partners adopted a
resolution (i) affirming that Phoenixstar Partners had unconditionally exercised
the Tempo Capacity Option, (ii) approving the proposed launch of Tempo DBS-1
into the 119DEG. W.L. orbital position and the use of Tempo DBS-2 as a spare or
back-up for Tempo DBS-1, pending other deployment or disposition as determined
by Phoenixstar Partners, and (iii) authorizing the payment by Phoenixstar
Partners to Tempo of the Exercise Fee and other amounts in connection with the
Tempo Capacity Option and the Tempo Letter Agreements, including funding of
substantially all construction and related costs relating to the Tempo
Satellites not previously funded by the Phoenixstar Partners.
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As described above, the Company entered into the Hughes High Power Agreement,
which provided for the sale of the Tempo Satellites, the 119DEG. W.L. orbital
location license and PRIMESTAR's right to use Tempo's high power DBS system to
Hughes for aggregate consideration of $500 million. In connection with the
Hughes High Power Transaction, Hughes agreed to assume, and to satisfy and
discharge, $465 million of Tempo's obligation to Phoenixstar Partners for the
PRIMESTAR Advances, and Phoenixstar Partners agreed to forgive the remaining
balance. In addition, Phoenixstar terminated its rights under the Tempo Capacity
Option to lease or purchase 100% of the capacity of the Tempo DBS system.
(f) REGULATORY MATTERS
GENERAL. Pursuant to the Communications Act of 1934, as amended (the
"Communications Act"), the FCC regulates the use of radio spectrum in the United
States. United States DBS licensees and permittees are subject to the regulatory
authority of the FCC. Although the non-technical aspects of DBS operations are
generally subject to less regulation than other communications services; some
regulations do apply. In addition, the FCC has proposed to adopt regulations
that will affect DBS licensees and permittees.
TEMPO FCC PERMITS AND LICENSES. Prior to June 4, 1999, Tempo was the holder
of the FCC Permit, which authorized construction of a high power DBS system
consisting of two or more satellites delivering DBS service in 11 frequencies
at the 119DEG. W.L. orbital location. As the holder of a DBS permit, Tempo
was subject to FCC jurisdiction and review primarily for: (i) authorization
of individual satellites (i.e. meeting minimum financial, legal, and
technical standards) and earth stations, (ii) avoiding interference with
other radio frequency transmitters, (iii) complying with the rules the FCC
has established specifically for holders of U.S. DBS authorizations and (iv)
complying with applicable provisions of the Communications Act.
Under the FCC Permit, the time by which the Tempo Satellites were to 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
(i) TSAT's request for consent to the transfer of control of Tempo to
Phoenixstar (the "Transfer Application") and (ii) Phoenixstar's application
(in connection with a subsequently terminated transaction between Phoenixstar
and ASkyB, a proposed joint venture between MCI and the News Corporation
Ltd.) for consent to the assignment to Phoenixstar of the high power DBS
authorizations and certain assets owned by MCI Communications, Inc. (the
"Assignment Application").
On April 30, 1998, the FCC determined that Tempo's satellite at 119DEG. 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 119DEG. W.L.
Such extension was granted until six months after the FCC determination on the
Transfer Application and Assignment 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 and the
Assignment Application. In addition, Tempo voluntarily surrendered its permit
for 166DEG. W.L. Effective November 19, 1998, Phoenixstar voluntarily withdrew
the Assignment Application.
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<PAGE>
ANTITRUST DECREE. Phoenixstar Partners and the parties named in the actions
described below were subject to the jurisdiction of the U.S. District Court for
the Southern District of New York to ensure compliance with an antitrust consent
decree. In United States v. PRIMESTAR Partners, L.P., et al., 93 Civ. 3919 (SDNY
1993) (the "Federal Decree"), Phoenixstar Partners and such parties agreed to
refrain from
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(i) enforcing any provisions of the Phoenixstar Partnership Agreement that
affect the availability, price, terms or conditions of sale of programming to
any provider of multichannel subscription television, or (ii) entering into
certain other agreements restricting the availability of programming services.
The Company was not named as a defendant in the above action, but may have been
subject to certain provisions of the Federal Decree as a successor-in-interest
to TCI K-1, Inc. and United Artists K-1 Investments, Inc., indirect subsidiaries
of TCI that were original partners in Phoenixstar Partners and named defendants
in the action. The Company believes that it is currently in compliance with the
Federal Decree in all material respects and that the Federal Decree does not
currently have a material adverse effect on the Company or its operations.
(g) OTHER
During 1999, the Company purchased approximately $200,000 in equipment to be
used in research and development activities, in addition to approximately
$200,000 in research and development activities included in operations.
Amounts expended in 1998 and 1997 were insignificant.
There is no one customer or affiliated group of customers to whom sales are made
in an amount that exceeds 10% of the Company's revenue.
Compliance with federal, state and local provisions that have been enacted or
adopted regulating the discharge of material into the environment or otherwise
relating to the protection of the environment has had no material effect upon
the capital expenditures, results of operations or competitive position of the
Company.
As of December 31, 1999, the Company had approximately 7 employees.
(h) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Not applicable.
ITEM 2. PROPERTIES.
The Company owns no real estate. The Company has entered into noncancellable
operating leases for two facilities in Englewood, Colorado with expiration dates
in February and December 2001. The Company believes that such facilities are
adequate for its business operations for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company is a party
or to which any of its property is subject, except as follows:
In a civil action entitled DANIEL BOONE, OZARK HEARTLAND ELECTRONICS, INC. V.
RADIO SHACK, ET AL, pending in the United States District Court, Western
District, Springfield Division, Missouri, Civil Action No.
99-3109-CV-S-RGC-ECF, plaintiff alleges that the Company and other defendants
(i) entered into a vertical resale price maintenance agreement with Radio
Shack, in violation of Sherman Act Section 1, and (ii) tortiously interfered
with plaintiff's contractual relationship with Radio Shack when they
requested that Radio Shack terminate plaintiff's right to market
PRIMESTAR-Registered Trademark- products. The Company has denied any
liability to the plaintiffs and is vigorously contesting the claims asserted
in the complaint. Phoenixstar has a contractual obligation to indemnify the
Company for liability, if any, arising out of this matter.
In a civil action entitled TCI SATELLITE ENTERTAINMENT, INC. ET AL V. BOARD OF
EQUALIZATION OF MONTEZUMA COUNTY, pending in the Court of Appeals for the State
of Colorado, Case No. 99-CA-0975, the Board of Equalization of Montezuma County
(the "Montezuma Board") has appealed a ruling by the Colorado State Board of
Assessment Appeals that the Montezuma Board violated administrative, statutory
and judicial mandates in denying the Company and Phoenixstar personal property
tax exemptions found in Colorado
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Revised Statutes Section 39-3-119.5. The Colorado Court of Appeals has received
briefs and heard oral arguments and the parties are awaiting a ruling.
Phoenixstar has a contractual obligation to indemnify the Company for
liability, if any, arising out of this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
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<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of the Company's Series A Common Stock and Series B Common Stock trade
over-the-counter on the OTC Bulletin Board under the symbols "TSATA" and
"TSATB", respectively. The following table sets forth the range of high and
low sale prices in U.S. dollars of shares of Series A Common Stock and Series
B Common Stock for the period indicated. The prices have been rounded up to
the nearest eighth, and do not include retail markups, markdowns, or
commissions.
<TABLE>
<CAPTION>
SERIES A SERIES B
--------------------------- ------------ ------------
HIGH LOW HIGH LOW
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1999
First quarter 3 3/4 1/2 4 3/4 1
Second quarter 5 5/8 5/8 5 3/4 1
Third quarter 5 1/8 3 5 1/4 3
Fourth quarter 20 3 3/4 19 3 5/8
1998
First quarter 8 1/8 5 1/2 7 1/8 4 3/4
Second quarter 8 1/8 4 3/4 9 1/8 5
Third quarter 6 2 7/8 5 5/8 1 5/8
Fourth quarter 2 1/2 3/4 2 5/8 7/8
</TABLE>
As of February 29, 2000, there were approximately 4,567 and 271 record holders
of the Series A Common Stock and Series B Common Stock, respectively (which
amounts do not include the number of shareholders whose shares are held of
record by banks, brokerage houses or other institutions but include each such
institution as one shareholder).
The Company has not paid cash dividends on its Series A Common Stock and Series
B Common Stock and has no present intention of so doing. Payment of cash
dividends, if any, in the future will be determined by the Company's Board of
Directors in light of its earnings, financial condition and other relevant
considerations. As a holding company, the Company's ability to pay cash
dividends is dependent on its ability to receive cash dividends, loans and
advances from its subsidiaries and its ability to monetize its beneficial
ownership of approximately 5,000,000 shares of PCS stock.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data related to the Company's financial condition and results
of operations for the five years ended December 31, 1999 are summarized as
follows (such information should be read in conjunction with the accompanying
consolidated financial statements of the Company).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998(1) 1997 1996 1995
-------- -------- -------- -------- --------
amounts in thousands, except per share amounts
<S> <C> <C> <C> <C> <C>
Summary Statement of
Operations Data:
Revenue $ -- 168,500 561,990 417,461 208,903
Operating, selling, general
and administrative expenses
and stock compensation (12,160) (158,810) (489,947) (410,390) (214,117)
Depreciation (2) (23) (65,105) (243,642) (191,355) (55,488)
-------- -------- -------- -------- --------
Operating loss (12,183) (55,415) (171,599) (184,284) (60,702)
Gain on sale of satellites (5) 13,712 -- -- -- --
Interest expense, net (3) (140) (14,177) (47,992) (2,023) --
Share of losses of Phoenixstar, Inc. -- (369,231) -- -- --
Share of losses of
Phoenixstar Partners -- (5,822) (20,473) (3,275) (8,969)
Interest income 146 20 2,519 -- --
Other, net (6) 66,143 (641) (796) 3,641 306
Income tax (expense) benefit (416) -- -- 45,937 21,858
-------- -------- -------- -------- --------
Net earnings (loss) $ 67,262 (445,266) (238,341) (140,004) (47,507)
======== ======== ======== ======== =======
Basic and diluted earnings
(loss) per common share (4) $ 0.97 (6.58) (3.58) (2.11) (.72)
======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1999 1998(1) 1997 1996 1995
-------- -------- -------- -------- --------
amounts in thousands
<S> <C> <C> <C> <C> <C>
Summary Balance Sheet Data:
Property and equipment, net $ 275 463,133 1,121,937 1,107,654 889,220
Investment in, and related
advances to, Phoenixstar Partners -- -- 11,093 32,240 17,963
Investments in Jato Communications
and General Motors 140,101 -- -- -- --
Total assets 143,197 463,133 1,204,856 1,180,273 933,443
Due to Phoenixstar, Inc. -- 469,498 463,133 457,685 382,900
Debt (3) 3,044 -- 418,729 247,230 --
Stock appreciation 74,513 -- -- -- --
right liabilities
Equity (deficit) 64,727 (6,365) 136,269 372,358 483,584
</TABLE>
(1) The Restructuring was consummated on April 1, 1998. In connection
therewith, TSAT contributed and transferred to Phoenixstar all of its
assets and liabilities except for assets and liabilities related to the
high power DBS system being constructed by Tempo.
(2) Effective October 1, 1996, the Company (i) changed the method used to
depreciate its subscriber installation costs, and (ii) reduced the
estimated useful life of certain satellite reception equipment. The
inception-to-date effect of the change in depreciation method aggregated
$55,304,000 and was recorded during the fourth quarter of 1996, and the
effect of the reduction in estimated useful life was accounted for on a
prospective basis.
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<PAGE>
(3) Effective December 31, 1996, TSAT entered into a bank credit facility with
initial commitments of $350 million. In addition, on February 20, 1997,
TSAT issued senior subordinated notes and senior subordinated discount
notes with aggregate principal amounts at maturity of $475 million.
On November 19, 1999, TSAT entered into a Loan Agreement with the Bank
of America for the following facilities (i) Facility A Commitment of
$5,000,000; (ii) Facility B commitment of $15,000,000; and (iii) Facility C
commitment of $5,000,000. Upon the "Collateral Pledge Perfection Date"
as defined in the Agreement, the undrawn portions of Facility C expires
and the Facility A commitment increases to $10,000,000. At December 31,
1999, $3,044,000 had been drawn on Facility C at an interest rate of
10.5% per annum. The unused Facility A, Facility B and Facility C amounts
are charged a commitment fee at a rate of 0.375%.
(4) In connection with the December 4, 1996 consummation of the Spin-off, the
Company issued 66,408,000 shares of Company Common Stock. The basic and
diluted loss per common share amounts for the years ended December 31, 1996
and 1995 assume that the shares issued pursuant to the Spin-off were issued
and outstanding since January 1, 1995. Accordingly the calculation of the
net loss per share assumes weighted average shares outstanding of
66,408,000 for each of the years ended December 31, 1996 and 1995. The
effect of all other common stock equivalents has been excluded for all
periods as inclusion would be anti-dilutive.
(5) In connection with the Hughes Transaction, the Company recognized a gain on
the sale of the Tempo Satellites and related orbital location license in
1999.
(6) In connection with 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, valued at $66,143,000, subject to the
terms set forth in the Phoenixstar Payment Agreement.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
HUGHES TRANSACTIONS
Effective June 4, 1999, the Company completed the sale of its high power DBS
assets to Hughes Electronics Corporation ("Hughes"), pursuant to an asset
purchase agreement dated as of January 22, 1999 (the "Hughes High Power
Agreement"), among Tempo Satellite, Inc., a wholly-owned subsidiary of the
Company ("Tempo"), Phoenixstar, Inc., a Delaware corporation formerly known as
PRIMESTAR, Inc. ("Phoenixstar"), Phoenixstar Partners L.P., a Delaware limited
partnership and wholly-owned subsidiary of Phoenixstar formerly known as
PRIMESTAR Partners L.P. ("Phoenixstar Partners"), and Hughes, a subsidiary of
General Motors. The assets transferred by the Company pursuant to the Hughes
High Power Agreement consisted of Tempo's two high-power DBS satellites (the
"Tempo Satellites"), one of which was in orbit at 119DEG. West Longitude ("Tempo
DBS-1") and one of which was used as a ground spare ("Tempo DBS-2"), its FCC
authorizations with respect to the 119DEG. West Longitude orbital location (the
"FCC License"), and certain related assets (collectively, the "Tempo High Power
Assets").
The Company had previously granted Phoenixstar the transferable right and
option (the "Tempo Purchase Option") to purchase 100% of the Tempo High Power
Assets for aggregate consideration of $2.5 million in cash and the assumption
of all related liabilities. In addition, Tempo had previously granted to
Phoenixstar Partners the right to purchase or lease 100% of the capacity of
the DBS system being constructed by Tempo (the "Tempo Capacity Option"), and
Phoenixstar Partners had made advances to Tempo to fund the construction of
Tempo's DBS system in the aggregate amount of $465 million (the "Tempo
Reimbursement Obligation").
The Hughes High Power Agreement provided for (i) the sale by Phoenixstar to
Hughes of the Tempo Purchase Option, (ii) the exercise of the Tempo Purchase
Option by Hughes, and (iii) the termination of the Tempo Capacity Option
(collectively, the "Hughes High Power Transaction"). The aggregate
consideration payable by Hughes in the Hughes High Power Transaction was $500
million, payable as described below.
As regulatory approval was required to transfer Tempo DBS-1 and the FCC License,
the Hughes High Power Agreement provided for the Hughes High Power Transaction
to be completed in two steps. To facilitate the transaction, the Tempo Purchase
Option was amended to provide for a two-stage exercise process. The parties
allocated 70% of the total consideration under the Hughes High Power Agreement
to Tempo DBS-1 and related assets and 30% of the total consideration thereunder
to Tempo DBS-2 and related assets.
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<PAGE>
The first closing under the Hughes High Power Agreement was consummated
effective March 10, 1999. In the first closing, Hughes acquired Tempo DBS-2 and
related assets for aggregate consideration of $150 million, comprised of (i)
$9.75 million paid by Hughes to Phoenixstar and Phoenixstar Partners for the
transfer to Hughes of that portion of the Tempo Purchase Option allocable to
Tempo DBS-2 and the termination of that portion of the Tempo Capacity Rights
allocable to the Tempo DBS-2, (ii) $750,000 paid by Hughes to TSAT to exercise
that portion of the Tempo Purchase Option allocable to the Tempo DBS-2; and
(iii) the assumption and payment by Hughes of a portion of the Tempo
Reimbursement Obligation in the amount of $139.5 million.
In addition, as required by the Hughes High Power Agreement, the Company and
Phoenixstar agreed to terminate the previously announced merger of the Company
with and into Phoenixstar, effective as of such first closing.
The FCC approved the transfer of the FCC License to Hughes on May 28, 1999, and
the second closing under the Hughes High Power Agreement was consummated
effective June 4, 1999. In the second closing, Hughes acquired Tempo DBS-1 and
related assets, including all rights of Tempo with respect to the FCC License,
for aggregate consideration of $350 million comprised of (i) $22.75 million paid
by Hughes to Phoenixstar and Phoenixstar Partners for the transfer to Hughes of
that portion of the Tempo Purchase Option allocable to Tempo DBS-1 and the
termination of that portion of the Tempo Capacity Rights allocable to Tempo
DBS-1, (ii) $1.75 million paid by Hughes to Tempo to exercise that portion of
the Tempo Purchase Option allocable to Tempo DBS-1; and (iii) the assumption and
payment by Hughes of the remainder of the Tempo Reimbursement Obligation, in the
amount of $325.5 million.
The carrying value of Tempo DBS-1 was approximately $239 million at the time of
the second closing. In addition, Phoenixstar agreed to forgive amounts due from
Tempo not assumed by Hughes in the amount of $9.346 million.
Effective April 28, 1999, Phoenixstar completed the Hughes Medium Power
Transaction in which 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. The
foregoing purchase price was subject to adjustments for working capital at
the date of closing, which subsequently totaled approximately $9.9 million.
Phoenixstar retained responsibility for the payment of certain obligations
not assumed by Hughes, and the payment of costs, estimated not to exceed $180
million at December 31, 1999, 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 TCI, have committed to make funds available to Phoenixstar, up
to an aggregate of $1,013.3 million to fund such payments. Through December
31, 1999, approximately $467.3 million of such commitments have been funded
to Phoenixstar, and $382.6 million of such commitments expired undrawn.
In connection with their approval of the Hughes Medium Power Transaction and
other transactions, 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 conditions 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. 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 and, subject to the approval of the
Company's stockholders, to
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<PAGE>
transfer its shares in Phoenixstar to the other Phoenixstar stockholders. 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.
The increase in the share appreciation right liability of approximately $69
million through December 31, 1999, is effectively hedged by the unrealized
holding gain on the GMH Stock.
RESTRUCTURING TRANSACTION
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. ("GE American"), 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 Phoenixstar Partners and the
business of distributing the PRIMESTAR-Registered Trademark-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 on such date, and TSAT received 66.3 million Phoenixstar Class A
Common Stock and 8.5 million shares of Phoenixstar Class B 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.
TSAT MERGER
The TSAT Merger Agreement provided that TSAT would be merged with and into
Phoenixstar, with Phoenixstar as the surviving corporation. In connection with
the First Closing, the Company and Phoenixstar terminated the TSAT Merger
Agreement.
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<PAGE>
SUMMARY OF OPERATIONS
As a result of the consummation of the Restructuring, TSAT is a holding
company whose primary assets during the period from April 1, 1998, through
the consummation of the various transactions with Hughes described above
were: (i) Tempo's authorizations granted by the FCC and other assets and
liabilities relating to a proposed direct broadcast system being constructed
by Tempo and (ii) TSAT's investment in Phoenixstar. Accordingly, subsequent
to the Restructuring, TSAT's operations consisted of (i) expenses incurred to
maintain TSAT as a public company, including accounting and legal fees
($376,000 and $152,000 during 1999 and 1998), (ii) expenses associated with
the operation and maintenance of the Tempo Satellites ($6,365,000 during
1998) and (iii) TSAT's share of Phoenixstar's earnings or losses. TSAT's
results of operations for the year ended December 31, 1998 also include three
months of operations of TSAT's medium power DBS distribution business. Such
medium power business was contributed to Phoenixstar in connection with the
Restructuring.
During the periods covered by this report, the Company had no significant
operations subsequent to the TSAT Asset Transfer other than expenses
associated with the operation and maintenance of the Tempo Satellites, prior
to the sale of the Tempo Satellites to Hughes effective March 10, 1999 and
June 4, 1999. General and administrative expenses incurred to maintain the
Company's status as a publicly traded company and the increase in the share
appreciation right liability which is effectively hedged by the unrealized
holding gain on the GMH Stock.
In connection with the Hughes Medium Power Transactions, the stockholders of
Phoenixstar approved the payment to TSAT of consideration in the form of
1.407 million shares of GMH stock, valued at $66,143,000, subject to the
terms set forth in the Phoenixstar Payment Agreement. Such payment is
recorded as other income in the 1999 consolidated statement of operations.
TSAT recognized no income tax benefit during the years ended December 31,
1999, 1998 and 1997. 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 December 31, 1999 and 1998.
The Company is currently evaluating its course of action and plans to take
advantage of its industry expertise and relationships in various future
business opportunities.
II-6
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES" ("Statement No. 133"). Statement No. 133 is effective
for fiscal quarters beginning after June 15, 1999. In June 1999, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 137, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES -- DEFERRAL OF EFFECTIVE DATE OF FASB NO. 133" which deferred
Statement No. 133's effective date to fiscal quarter beginning after June 15,
2000.
The Company has not assessed the impact of implementing Statement No. 133,
but believes it will be insignificant.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the consummation of the Hughes transactions, the Company
currently has no operating income or cash flow. As of December 31, 1999, the
Company's sources of liquidity were its available cash and any proceeds from
the liquidation of the GMH Stock (subject to a one-year holding period).
At December 31, 1999, TSAT had no substantial assets or liabilities other
than cash, its ownership interest in General Motors Class H Common Stock, a
certain equity investment, a majority owned subsidiary and its ownership
interest in Phoenixstar.
In July 1999, the Company negotiated a preliminary agreement (the "Asvan
Agreement") with Asvan Technology, LLC ("Asvan"). The Asvan Agreement
provides for Asvan to transfer certain assets to the Company's subsidiary,
TSAT Technologies, Inc. ("Technologies Sub") in exchange for a 20% equity
interest in Technologies Sub and for the Company to contribute a maximum of
$3,000,000 in exchange for an 80% equity interest in Technologies Sub. The
Asvan Agreement contemplates that Technologies Sub will perform research and
development related to certain emerging technologies. The operations of the
subsidiary are consolidated into the accompanying consolidated financial
statements.
In September 1999, the Company made an investment of $5,000,000 for 714,286
shares of Series C Preferred Stock ("Preferred Stock") of Jato Communications
Corp. ("Jato"). The investment included a payment of $2,000,000 and,
originally, a promissory note that was subsequently satisfied and discharged.
On November 16, 1999, Jato issued TSAT an additional 178,571 shares in
accordance with a change in the conversion ratio pursuant to a provision in
the original agreement.
As a result of the transactions with Liberty Media described herein, which
closed on March 16, 2000, the Company is the beneficial owner of 5,084,745
shares of Sprint Corporation PCS Common Stock (the "PCS Stock"), having a
market value on March 24, 2000 of approximately $333 million. The Company
currently intends to meet its liquidity requirements by selling, borrowing
against and/or otherwise monetizing such investment, until such time as the
Company has cash flow from operations or other sources of liquidity.
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 and is actively seeking to develop or acquire an
operating business related to or complementary with the Company's strategy to
pursue opportunities in the distribution of Internet data and other content
via satellite and related businesses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company are filed under this item beginning
on page II-9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
II-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TCI Satellite Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of TCI Satellite
Entertainment, Inc. and subsidiaries (as defined in note 1) as of December 31,
1999 and 1998 and the related consolidated statements of operations, equity
(deficit) and comprehensive income, and cash flows for each of the years in the
three-year period ended December 31, 1999. In connection with our audit of the
consolidated financial statements, we have also audited the financial statement
schedule listed in the index at Item 14(a). These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TCI Satellite
entertainment, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
Denver, Colorado
March 29, 2000
II-8
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
--------- --------
Amounts in thousands
<S> <C> <C>
Cash and cash equivalents $ 2,473 --
Prepaid expenses 113 --
Preferred stock investment, at cost (note 6) 5,000 --
Investment in Phoenixstar, Inc. (note 6) -- --
Investment in General Motors Corporation
at fair value (note 6) 135,101 --
--------- --------
Equipment and leasehold improvements, at cost:
Satellites (note 7) -- 463,133
Support equipment 223 --
Leasehold improvements 75 --
--------- --------
298 463,133
Less accumulated depreciation 23 --
--------- --------
275 463,133
Deferred financing costs 235 --
--------- --------
Total assets $ 143,197 463,133
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 139 --
Accrued interest payable 53 --
Other accrued expenses 41 --
Taxes payable 650 --
General Motors Corporation share appreciation right
liability (note 2) 68,959 --
Employee stock appreciation right liability (note 12) 5,554 --
Due to Phoenixstar (note 7) -- 469,498
Franchise taxes payable 30 --
Debt (note 8) 3,044 --
--------- --------
Total liabilities 78,470 469,498
--------- --------
Stockholders' equity (deficit) (note 9):
Preferred stock, $.01 par value; authorized 5,000,000
shares; none issued -- --
Series A common stock, $1 par value; authorized
185,000,000 shares; issued 62,894,446 in 1999 and
59,280,466 in 1998 62,894 59,280
Series B common stock, $1 par value; authorized
10,000,000 shares; issued 8,465,224 in 1999 and 1998 8,465 8,465
Additional paid-in capital 825,726 825,276
Accumulated deficit (832,358) (899,386)
--------- --------
Total stockholders' equity (deficit) 64,727 (6,365)
--------- --------
Commitments and Contingencies (note 11)
Total liabilities and stockholders' equity (deficit) $ 143,197 463,133
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
II-9
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
Amounts in thousands
except per share amounts
<S> <C> <C> <C>
Revenue:
Programming and equipment rental $ -- 154,257 512,894
Installation -- 14,243 49,096
--------- -------- --------
-- 168,500 561,990
--------- -------- --------
Operating costs and expenses:
Charges from Phoenixstar Partners (note 12) -- 82,235 259,600
Operating (note 12) 4,536 16,211 23,992
Selling, general and administrative (note 12) 751 55,495 198,263
Stock compensation (notes 10 and 12) 6,873 4,869 8,092
Depreciation 23 65,105 243,642
--------- -------- --------
12,183 223,915 733,589
--------- -------- --------
Operating loss (12,183) (55,415) (171,599)
--------- -------- --------
Other income (expense):
Gain on sale of satellites 13,712 -- --
Interest expense (140) (14,177) (47,992)
Share of losses of Phoenixstar (note 6) -- (369,231) --
Share of losses of Phoenixstar Partners -- (5,822) (20,473)
Interest income 146 20 2,519
Other (note 2) 66,143 (641) (796)
--------- -------- --------
79,861 (389,851) (66,742)
--------- -------- --------
Earnings (loss) before income taxes 67,678 (445,266) (238,341)
Income tax expense (note 10) (416) -- --
--------- -------- --------
Net earnings (loss) 67,262 (445,266) (238,341)
========= ======== ========
Basic and diluted earnings (loss) per
common share $ 0.97 (6.58) (3.58)
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
II-10
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
and Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL OTHER STOCKHOLDERS'
---------------------- PAID-IN ACCUMULATED COMPREHENSIVE EQUITY
SERIES A SERIES B CAPITAL DEFICIT INCOME (DEFICIT)
--------- --------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $57,946 8,467 521,724 (215,779) -- 372,358
Recognition of stock compensation
related to stock options and
restricted stock awards -- -- 1,781 -- -- 1,781
Issuance of Series A Common Stock related
to restricted stock awards 33 -- 180 -- -- 213
Issuance of Series a Common Stock upon
conversion of convertible securities of
Tele-Communications, Inc. 258 -- -- -- -- 258
Conversion of Series B to Series A 2 (2) -- -- -- --
Net loss -- -- -- (238,341) -- (238,341)
------- ------ -------- -------- ------- --------
Balance at December 31, 1997 58,239 8,465 523,685 (454,120) -- 136,269
Recognition of stock compensation related
to stock options and restricted stock awards -- -- 2,595 -- -- 2,595
Issuance of Series A Common Stock related to
restricted stock awards 50 -- (50) -- -- --
Issuance of Series A Common Stock upon
conversion of convertible securities of
Tele-Communications, Inc. 991 -- -- -- -- 991
Issuance of common stock by subsidiary (note 3) -- -- 299,046 -- -- 299,046
Net loss -- -- -- (445,266) -- (445,266)
------- ------ -------- -------- ------- --------
Balance at December 31, 1998 59,280 8,465 825,276 (899,386) -- (6,365)
Recognition of stock compensation related to
stock options and restricted stock awards 162 -- 450 -- -- 612
Tax benefit related to stock options and
restricted stock awards -- -- -- (234) -- (234)
Issuance of Series A Common Stock related to
Naify conversion 3,452 -- -- -- -- 3,452
------- ------ -------- -------- ------- --------
Comprehensive income:
Net Earnings -- -- -- 67,262 -- 67,262
Unrealized holding gains on available for sale
securities, net of tax -- -- -- -- 42,583 42,583
Share appreciation right liability, net of tax -- -- -- -- (42,583) (42,583)
------- ------ -------- -------- ------- --------
Total comprehensive income -- -- -- 67,262 -- 67,262
------- ------ -------- -------- ------- --------
Balance at December 31, 1999 $62,894 8,465 825,726 (832,858) -- 64,727
======= ====== ======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
II-11
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
Amounts in thousands
(see note 7)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 67,262 (445,266) (238,341)
Adjustments to reconcile net earnings (loss) to net cash
(used in) provided by operating activities:
Gain on sale of satellites (13,712) -- --
Depreciation 23 65,105 243,642
Amortization of deferred financing costs 15 -- --
Share of losses of Phoenixstar -- 369,231 --
Share of losses of Phoenixstar Partners -- 5,822 20,473
Accretion of debt discount -- 4,682 16,719
Stock compensation and restricted stock awards 6,873 4,869 8,092
Deferred income tax expense (234) -- --
Receipt of General Motors stock recorded
as other income (66,143) -- --
Other non-cash charges -- 8,108 6,919
Changes in operating assets and liabilities,
net of the effect of the
Restructuring:
Change in receivables -- 10,845 (15,014)
Change in prepared expenses (113) -- --
Change in other assets -- (736) (335)
Change in accruals and payables 957 (10,210) 42,056
Change in subscriber advance payments -- (3,114) 7,426
-------- -------- --------
Net cash (used in) provided by
operating activities (5,072) 9,336 91,637
-------- -------- --------
Cash flows from investing activities:
Capital expended for equipment (298) (73,966) (227,327)
Capital expended for construction of satellites -- -- (5,448)
Payments for stock appreciation rights exercised (707) -- --
Investment in Jato Communications (2,000) -- --
Additional investments in, and related advances to,
Phoenixstar Partners -- (75) (7,073)
Repayments of advances to Phoenixstar Partners -- -- 7,815
Other investing activities -- -- (1,581)
Proceeds from sale of equipment 2,500 -- --
-------- -------- --------
Net cash used in investing activities (505) (74,041) (233,614)
-------- -------- --------
Cash flows from financing activities:
Borrowings of debt -- 113,000 498,061
Repayments of debt -- (61,735) (344,699)
Payment of deferred financing costs (250) -- (17,780)
Increase in due to Phoenixstar 4,848 6,365 5,448
Proceeds from issuance of common stock 3,452 991 471
-------- -------- --------
Net cash provided by financing activities 8,050 58,621 141,501
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 2,473 (6,084) (476)
Cash and cash equivalents:
Beginning of year -- 6,084 6,560
-------- -------- --------
End of year $ 2,473 -- 6,084
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
II-12
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(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 Hughes Transaction described in note 2 and the TSAT
Asset Transfer described in note 3, TSAT is currently a holding company,
with no substantial assets or liabilities other than (i) cash, (ii) its
ownership interest in General Motors, (iii) a certain equity investment,
(iv) a majority owned subsidiary (v) its ownership interest in Phoenixstar,
and (vi) its rights and obligations under certain agreements with
Phoenixstar and others.
In addition, the Company has not had significant operations subsequent to
the TSAT Asset Transfer other than (i) expenses associated with the
operation and maintenance of the Tempo Satellites, as defined below, prior
to the sale to Hughes effective June 4, 1999 and (ii) general and
administrative expenses incurred to maintain the Company's status as a
publicly traded company. The Company's majority owned subsidiary conducts
research and development in certain emerging technology.
Certain prior year amounts have been reclassified for comparability with
the 1999 presentation.
(2) HUGHES TRANSACTIONS
Effective June 4, 1999, the Company completed the sale of its high power
direct broadcast satellite ("DBS") assets to Hughes Electronics Corporation
("Hughes"), pursuant to an asset purchase agreement dated as of January 22,
1999 (the "Hughes High Power Agreement"), among Tempo Satellite, Inc., a
wholly-owned subsidiary of the Company ("Tempo"), Phoenixstar, Inc., a
Delaware corporation formerly known as PRIMESTAR, Inc. ("Phoenixstar"),
Phoenixstar Partners L.P. a Delaware limited partnership and wholly-owned
subsidiary of Phoenixstar formerly known as PRIMESTAR Partners L.P.
("Phoenixstar Partners"), and Hughes, a subsidiary of General Motors. The
assets transferred by the Company pursuant to the Hughes High Power
Agreement consisted of Tempo's two high-power DBS satellites (the "Tempo
Satellites"), one of which was in orbit at 119DEG. West Longitude ("Tempo
DBS-1") and one of which was used as a ground spare ("Tempo DBS-2"), its
FCC authorizations with respect to the 119DEG. West Longitude orbital
location (the "FCC License"), and certain related assets (collectively,
the "Tempo High Power Assets").
The Company had previously granted Phoenixstar the transferable right and
option (the "Tempo Purchase Option") to purchase 100% of the Tempo High
Power Assets for aggregate consideration of $2.5 million in cash and the
assumption of all liabilities. In addition, Tempo had previously granted to
Phoenixstar Partners the right to purchase or lease 100% of the capacity of
the DBS system being constructed by Tempo (the "Tempo Capacity Rights"),
and Phoenixstar Partners had made
II-13
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
advances to Tempo to fund the construction of Tempo's DBS system in the
aggregate amount of $465 million (the "Tempo Reimbursement Obligation")
Accordingly, the Hughes High Power Agreement provided for (i) the sale of
Phoenixstar to Hughes of the Tempo Purchase Option, (ii) the exercise of
the Tempo Purchase Option by Hughes, and (iii) the termination of the Tempo
Capacity Rights (collectively, the "Hughes High Power Transaction"). The
aggregate consideration payable by Hughes in the Hughes High Power
Transaction was $500 million, payable as described below.
As regulatory approval was required to transfer Tempo DBS-1 and the FCC
License, the Hughes High Power Agreement provided for the Hughes High
Power Transaction to be completed in two steps. To facilitate the
transaction, the Tempo Purchase Option was amended to provide for two-stage
exercise process. The parties allocated 70% of the total consideration
under the Hughes High Power Agreement to Tempo DBS-1 and related assets
and 30% of the total consideration thereunder to Tempo DBS-2 and related
assets.
The first closing under the Hughes High Power Agreement was consummated
effective March 10, 1999. In the first closing, Hughes acquired Tempo
DBS-2 and related assets for aggregate consideration of $150 million,
comprised of (i) $9.75 million paid by Hughes to Phoenixstar and
Phoenixstar Partners for the transfer to Hughes of the portion of the
Tempo Purchase Option allocable to Tempo DBS-2 and the termination of
that portion of the Tempo Capacity Rights allocable to Tempo DBS-2,
(ii) $750,000 paid by Hughes to Tempo to exercise that portion of the
Tempo Purchase Option allocable to Tempo DBS-2; and (iii) the assumption
and payment by Hughes of a portion of the Tempo Reimbursement Obligation
in the amount of $139 million.
In addition, as required by the Hughes High Power Agreement, the Company
and Phoenixstar agreed to terminate the previously announced merger of the
Company with and into Phoenixstar, effective as of such first closing.
The FCC approved the transfer of the FCC License to Hughes on May 28, 1999,
and the second closing under the Hughes High Power Agreement was
consummated effective June 4, 1999. In the second closing Hughes acquired
Tempo DBS-1 and related assets, including all rights of Tempo with respect
to the FCC License, for aggregate consideration of $350 million comprised
of (i) $22.75 million paid by Hughes to Phoenixstar and Phoenixstar
Partners for the transfer to Hughes of the portion of the Tempo Purchase
Option allocable to Tempo DBS-1 and the termination of that portion of the
Tempo Capacity Rights allocable to Tempo DBS-1, (ii) $1.75 million paid by
Hughes to Tempo to exercise that portion of the Tempo Purchase Option
allocable to Tempo DBS-1; and (iii) the assumption and payment by Hughes
of the remainder of the Tempo Reimbursement Obligation, in the amount of
$325.5 million.
The carrying value of Tempo DBS-1 was approximately $239 million at the
time of the second closing. In addition, Phoenixstar agreed to forgive
amounts due from Tempo not assumed by Hughes in the amount of $9,346,000.
In a separate transaction (the Hughes Medium Power Transaction) completed
on April 28, 1999 (the Hughes Closing Date), Phoenixstar sold to Hughes
Phoenixstar's medium-power DBS business and
II-14
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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. The foregoing purchase price was subject to
adjustments for working capital at the date of closing, which subsequently
totaled approximately $9.9 million. At December 31, 1999, Phoenixstar
retained responsibility for the payment of certain obligations not assumed
by Hughes, and the payment of costs, estimated not to exceed $180 million
at December 31, 1999, 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 $1,013.3 million to fund such
payments. Through December 31, 1999, approximately $465.3 million of
such commitments have been funded to Phoenixstar, and $382.6 million of
such commitments expired undrawn.
In connection with their approval of the Hughes Medium Power Transaction
and other transactions, 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 term and conditions 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. Pursuant to the Phoenixstar Payment Agreement, TSAT has also
agreed to forego any liquidation distribution or other payment that may be
made in respect of the outstanding shares of Phoenixstar upon any
dissolution and winding-up of Phoenixstar, or otherwise in respect of
Phoenixstar's existing equity and, subject to the approval of the
Company's stockholders, to transfer its shares in Phoenixstar to the other
Phoenixstar stockholders. On the Hughes Closing Date, the Company received
1.407 million shares of GMH Stock, valued at approximately $66,143,000,
from Phoenixstar in satisfaction of the Phoenixstar Payment. Such amount is
recorded as other income in the 1999 consolidated statement of operations.
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 restriction 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.
The Company's investment in GMH Stock is being accounted for as an
available-for-sale security and is recorded at fair value. Unrealized
holding gains and losses from increases and decreases in the fair value
of the security are reported as separate components of stockholders' equity
in comprehensive income. The TSAT GMH SAR serves as a hedge of the
unrealized holding gain on the GMH Stock and is also reported as a separate
component of stockholders' equity in comprehensive income.
(3) 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
II-15
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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 Phoenixstar Partners and the business of
distributing the PRIMESTAR-Registered Trademark- programming service
("PRIMESTAR-Registered Trademark-") 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 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. In connection with the Restructuring, Phoenixstar assumed
TSAT's obligations pursuant to the Indemnification Agreements. 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) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at the date of acquisition to be cash
equivalents.
(b) INVESTMENTS
Investments mainly consist of equity securities. The Company
classifies its equity securities as available-for-sale and are
recorded at fair value.
A decline in the market value of any available-for-sale security below
cost that is deemed to be other than temporary results in a reduction
in carrying amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is established.
II-16
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Investments in entities without a readily determinable market value
are carried at cost if the Company cannot significantly influence
operations, or as an equity investment if the Company's influence
over operations is deemed to be less than control.
(c) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The Company states equipment at cost and begins depreciation upon
acceptance of delivery, using the straight-line method over the useful
life of the asset. Leasehold improvements are amortized over the
shorter of the useful life of the asset or lease term.
The Company periodically reviews the carrying amount of its long-lived
assets to determine whether current events or circumstances warrant
adjustments to such carrying amounts. The Company considers historical
and expected future net operating losses to be its primary indicators
of potential impairment. Assets are grouped and evaluated for
impairment at the lowest level for which there are identifiable cash
flows that are largely independent of the cash flows of other groups
of assets ("Assets"). The Company deems Assets to be impaired if the
Company is unable to recover the carrying value of its Assets over
their expected remaining useful life through a forecast of
undiscounted future operating cash flows directly related to the
Assets. If Assets are deemed to be impaired, the loss is measured as
the amount by which the carrying amount of the Assets exceeds their
fair values. TSAT generally measures fair value by considering sales
prices for similar assets or by discounting estimated future cash
flows. Considerable management judgment is necessary to estimate
discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates.
(d) DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the term of the related
loan facility.
(e) REVENUE RECOGNITION
Programming and equipment rental revenue is recognized in the period
that services are delivered. Installation revenue is recognized in the
period the installation services are provided to the extent of direct
selling costs. To date, direct selling costs have exceeded
installation revenue.
(f) ADVERTISING COSTS
Advertising costs generally are expensed as incurred. Amounts expensed
for advertising aggregated $5,066,000 and $23,062,000 during 1998 and
1997, respectively. There were no advertising costs in 1999.
(g) MARKETING AND DIRECT SELLING COSTS
Marketing and direct selling costs are expensed as incurred. The
excess cost of customer premises equipment over proceeds received upon
sales of such equipment is recognized at the time of sale and is
included in selling expense.
II-17
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(h) RESIDUAL SALES COMMISSIONS
Residual sales commissions, which become payable upon the collection
of programming revenue from certain subscribers, are expensed during
the period in which such commissions become payable.
(i) STOCK BASED COMPENSATION
The Company accounts for stock-based employee compensation using the
intrinsic value method pursuant to Accounting Principles Board Opinion
No. 25.
(j) INCOME TAXES
TSAT accounts for its income taxes using the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(k) EARNINGS (LOSS) PER COMMON SHARE
The earnings (loss) per common share for the years ended December 31,
1999, 1998 and 1997 is based on 69,587,000, 67,718,000 and 66,658,000
weighted average shares outstanding during the respective periods.
Excluded from the computation of diluted EPS for the years ended
December 31, 1999, 1998 and 1997 are options to acquire 3,462,000,
6,929,000 and 7,894,000 weighted average shares of Series A Common
Stock, respectively, because inclusion of such options would be
anti-dilutive.
(l) ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(5) SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS
Cash paid for interest was $13,844,000 and $20,224,000 during the years
ended December 31, 1998 and 1997, respectively. Cash paid for income taxes
was not material during the years ended December 31, 1999, 1998 and 1997.
II-18
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Significant non-cash investing and financing activities for the year ended
December 31, 1999 and 1998 are as follows (amounts in thousands):
<TABLE>
<S> <C>
1999
Issuance of note payable in connection
with investment $ 3,044
===========
Increase in value of GMH stock and
corresponding SAR liability $ 68,959
===========
1998
Contribution of operating assets and
liabilities to subsidiary in
Restructuring $ 68,796
===========
Increase in equity due to issuance of
stock by subsidiary in
Restructuring $ 299,046
===========
</TABLE>
Accounts payable include accrued capital expenditures of $35,645,000 at
December 31, 1997, which has been excluded from the accompanying statements
of cash flows.
(6) INVESTMENTS
Prior to the Hughes Medium Power Transaction, Phoenixstar owned and
operated the PRIMESTAR-Registered Trademark- direct to home satellite
service throughout the continental United States. In connection with the
Phoenixstar Payment Agreement as discussed in Note 2, the Company has
agreed to forego any liquidation distribution or other payment that may be
made in respect of the outstanding shares of Phoenixstar, or otherwise in
respect of Phoenixstar's existing equity and, subject to the approval of
the Company's stockholders, to transfer its shares in Phoenixstar to the
other Phoenixstar stockholders. The Company's investment in Phoenixstar at
December 31, 1999 and 1998 is zero as a result of the cumulative losses of
Phoenixstar and the expected transfer of the Company's shares in
Phoenixstar pursuant to the Phoenixstar Payment Agreement.
On September 16, 1999, the Company made an investment of $5,000,000 for
714,286 shares of Series C Preferred Stock ("Preferred Stock") of Jato
Communications Corp. ("Jato"). The investment included a payment of
$2,000,000 and a promissory note in the amount of $3,000,000 originally due
October 31, 1999 and subsequently extended to November 10, 1999, bearing
interest at 10%, and secured by 434,208 shares of the Preferred Stock.
The note was subsequently satisfied and discharged. The Preferred Stock is
convertible into common stock at the option of the holder based on certain
conversion rates and allows the holder to vote equally with all other
classes of stock, on a per share basis, based on the number of shares of
common stock into which the Preferred Stock is convertible. The Preferred
Stock also has certain liquidation preferences and voting rights with
respect to certain actions by Jato. The Preferred Stock is carried at
cost. On November 16, 1999, Jato issued TSAT an additional 178,571 shares
in accordance with a change in the conversion ratio pursuant to a
provision in the original agreement.
The Company's investment in General Motors Corporation is an investment
in marketable equity securities and is accounted for as available-for-sale
under Statement of Financial Accounting Standard No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Such investment is
recorded at fair value. Unrealized gains and losses on available-for-sale
securities are reported as a separate component of stockholders' equity.
(7) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The Company purchased certain equipment in 1999 for research and
development purposes. The equipment is being depreciated over its useful
life, estimated to be 5 years. Leasehold improvements are amortized over
the leasehold term of 2 years.
TEMPO DBS SYSTEM
Prior to the Hughes Transactions, the Company, through Tempo, held the
FCC Permit authorizing construction of a high power DBS system consisting
of two or more satellites delivering DBS service in 11 frequencies at the
119DEG. W.L. orbital position.
II-19
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Tempo was 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
had an option to purchase up to three additional satellites.
On April 30, 1998, the FCC determined that Tempo's satellite at
119DEG. 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 119DEG. 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 166DEG. W.L.
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. EchoStar filed a petition to
deny the DirecTV Application on March 5, 1999, on the basis that
DirecTV should not be allowed to control high power DBS spectrum at
three full-CONUS orbital locations and that EchoStar had offered to
purchase the Tempo high power DBS assets. On the same date, the Small
Cable Business Association submitted a request that any grant of the
DirecTV Application be conditioned on DirecTv providing a digital
add-on service that small cable systems can self-brand, and Media
Access Project filed a petition to deny the application to the extent
the FCC did not apply and DirecTv did not accept application of
Section 310(b) of the Communications Act. DirecTv and Terripo each
filed oppositions to these petitions on March 19, 1999. On April 12,
1999, Echostar filed a response, to which Tempo and DirecTV replied.
By order dated May 28, 1999, the FCC granted the DirecTV Application
and dismissed the Transfer Application.
TEMPO OPTION
In February 1990, Tempo entered into an option agreement (the "Tempo
Option Agreement") with Phoenixstar Partners granting Phoenixstar
Partners the right and option (the "Tempo Capacity Option"), upon
exercise, to purchase or lease 100% of the capacity of the DBS system
to be built, launched and operated by Tempo pursuant to the FCC
Permit. Under the Tempo Option Agreement, upon the exercise of the
Tempo Capacity Option, Phoenixstar Partners was obligated to pay Tempo
$1,000,000 (the "Exercise Fee") and to lease or purchase the entire
capacity of the DBS system with the purchase price (or aggregate lease
payments) being sufficient to cover the costs of constructing,
launching and operating such DBS system. In connection with the Tempo
Capacity Option and certain related matters, Tempo and Phoenixstar
Partners subsequently entered into two letter agreements (the "Tempo
Letter Agreements"), which provided for, among other things, the
funding by Phoenixstar Partners of
II-20
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
milestone and other payments due under the Satellite Construction
Agreement, and certain related costs, through advances by Phoenixstar
Partners to Tempo (the "Phoenixstar Advances"). The Phoenixstar
Advances aggregated $469,498,000 at December 31, 1998 and are
reflected in due to Phoenixstar, Inc. in the accompanying 1998
consolidated balance sheets.
On February 7, 1997, the Partners Committee of Phoenixstar Partners
adopted a resolution (i) affirming that Phoenixstar Partners had
unconditionally exercised the Tempo Capacity Option, (ii) approving
the proposed launch of Tempo DBS-1 into the 119DEG. W.L. orbital
position and the use of Tempo DBS-2 as a spare or back-up for Tempo
DBS-1, pending other deployment or disposition as determined by
Phoenixstar Partners, and (iii) authorizing the payment by Phoenixstar
Partners to Tempo of the Exercise Fee and other amounts in connection
with the Tempo Capacity Option and the Tempo Letter Agreements,
including funding of substantially all construction and related costs
relating to the Tempo Satellites not previously funded by Phoenixstar
Partners.
In connection with the Hughes High Power Transaction, Hughes assumes
$465 million of Tempo's obligation to Phoenixstar Partners for the
Phoenixstar Advances, and Phoenixstar Partners forgive the remaining
balance. In addition, Phoenixstar Partners has agreed to terminate its
rights under the Tempo Capacity Option.
(8) DEBT
On November 9, 1999, the Company entered into a Demand Note with the Bank
of America wherein TSAT could borrow up to $5,000,000 prior to November 19,
1999. Interest was based on the bank's prime rate plus .75%. On
November 10, 1999 approximately $3,044,000 was drawn on the demand note
in order to satisfy the Promissory Note, and accrued interest thereon,
with Jato as discussed in note 4.
On November 19, 1999, TSAT entered into a Loan Agreement with the Bank of
America for the following facilities (i) Facility A commitment of
$5,000,000; (ii) Facility B commitment of $15,000,000; and (iii) Facility C
commitment of $5,000,000. Upon the "Collateral Pledge Perfection Date" as
defined as in the Agreement, the undrawn portions of Facility C expires
and the Facility A commitment increases to $10,000,000.
II-21
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
At December 31, 1999, $3,044,000 had been drawn on Facility C at an
interest rate of 10.5% per annum. The unused Facility A, Facility B and
Facility C amounts are charged a commitment fee at a rate of 0.375%.
(9) STOCKHOLDERS' EQUITY
(a) COMMON STOCK
The Series A Common Stock has one vote per share and the Series B
Common Stock has ten votes per share. Each share of Series B Common
Stock is convertible, at the option of the holder, into one share of
Series A Common Stock.
(b) PREFERRED STOCK
TSAT is authorized to issue 5,000,000 shares of Preferred Stock. The
Preferred Stock may be issued from time to time as determined by the
Board of Directors, without stockholder approval. Such Preferred Stock
may be issued in such series and with such designations, preferences,
conversion or other rights voting powers, qualifications, limitations,
or restrictions as shall be stated or expressed in a resolution or
resolutions providing for the issue of such series adopted by the
Company's Board of Directors (the "TSAT Board").
(c) EMPLOYEE RETIREMENT PLAN
TSAT's Employee Stock Purchase Plan (the "TSAT ESPP") became effective
on January 1, 1997. The TSAT Plan provided eligible employees with an
opportunity to invest in TSAT and to create a retirement fund. Terms
of the TSAT ESPP provided for eligible employees to contribute up to
10% of their compensation to a trust for investment in TSAT common
stock. TSAT, by annual resolution of the TSAT Board, could elect to
contribute up to 100% of the amount contributed by employees. TSAT
contributed $317,000 and $1,200,000 in 1998 and 1997, respectively,
to the TSAT ESPP. The TSAT ESPP was merged into Phoenixstar Partners'
retirement plan in connection with the Restructuring, accordingly, no
further contributions were made by TSAT.
(d) STOCK OPTIONS
On the Spin-off Date, the TSAT Board adopted, and TCI as the sole
stockholder of the Company prior to the Spin-off, approved, the TCI
Satellite Entertainment, Inc. 1996 Stock Incentive Plan (the "TSAT
1996 Plan"). The TSAT 1996 Plan provides for awards to be made in
respect of a maximum of 3,200,000 shares of Series A Common Stock
(subject to certain anti-dilution adjustments). Awards may be made as
grants of stock options, stock appreciation rights ("SARs"),
restricted shares, stock units, performance awards or any
combination thereof (collectively, "Awards"). Awards may be made
to employees and to consultants and advisors to the Company who are
not employees. Shares of Series A Common Stock that are subject to
Awards that expire, terminate or are annulled for any reason
without having been exercised (or deemed exercised, by virtue of
the exercise of a related SAR), or are forfeited prior to becoming
vested, will return to the pool of such shares available for grant
under the TSAT 1996 Plan.
II-22
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
In June 1996, the Board of Directors of TCI (the "TCI Board")
authorized TCI to permit certain of its executive officers to acquire
equity interests in certain of TCI's subsidiaries. In connection
therewith, the TCI Board approved the acquisition by each of two
executive officers of TCI who are not employees of the Company (the
"TCI Officers"), of 1.0% of the net equity of the Company. The TCI
Board also approved the acquisition by the chief executive officer and
a director of the Company (the "Company Officer"), of 1.0% of the net
equity of the Company and the acquisition by an executive officer of
certain TCI subsidiaries who is also a director, but not an employee,
of the Company (the "TCI Subsidiary Officer"), of 0.5% of the net
equity of the Company. The TCI Board determined to structure such
transactions as grants by the Company to such persons of options to
purchase shares of Series A Common Stock representing 1.0% ( in the
case of each of the TCI Officers and the Company Officer) and 0.5% (in
the case of the TCI Subsidiary Officer) of the shares of Series A
Common Stock and Series B Common Stock issued and outstanding on the
Spin-off Date, determined immediately after giving effect to the
Spin-off, but before giving effect to any exercise of such options
(the "Spin-off Date Options").
Spin-off Date Options to purchase 2,324,266 shares of Series A Common
Stock at a per share price of $8.86 were granted on the Spin-off Date.
The Spin-off Date options vest in 20% cumulative increments on each
of the first five anniversaries of February 1, 1996, and are
exercisable for up to ten years following February 1, 1996.
Compensation expense with respect to the Spin-off Date Options held
by the Company Officer aggregated $246,000, $621,000 and $1,101,000
during the years ended December 31, 1999, 1998 and 1997, respectively.
Pursuant to the Reorganization Agreement, and (in the case of the TCI
Officers and the TCI Subsidiary Officer) in partial consideration for
the capital contribution made by TCI to the Company in connection with
the Spin-off, the Company agreed, effective as of the Spin-off Date,
to bear all obligations under such options and to enter into stock
option agreements with respect to such options with each of the TCI
Officers, the Company Officer and the TCI Subsidiary Officer.
On March 6, 1998, stockholders of the Company approved the TCI
Satellite Entertainment, Inc. 1997 Nonemployee Director Stock Option
Plan (the "TSAT DSOP") including the grant, effective as of February
3, 1997, to each person that as of that date was a member of the TSAT
Board and was not an employee of the Company or any of its
subsidiaries, of options to purchase 50,000 shares of Series A Common
Stock. Pursuant to the TSAT DSOP, options to purchase 200,000 shares
of Series A Common Stock were granted at an exercise price of $8.00
per share. As originally granted, options issued pursuant to the TSAT
DSOP vest and become exercisable over a five-year period from the date
of grant and expire 10 years from the date of grant. In November 1997,
the TSAT Board approved modifications to the vesting provisions to
provide for vesting in three annual installments, commencing February
1998. In November 1997, the TSAT Board also voted to increase the
number of directors by one, and the director
II-23
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
named to fill such newly created directorship received options to
purchase 50,000 shares of Series A Common Stock at an exercise price
of $6.50.
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for its stock options, and accordingly, compensation
expense has been recognized for its stock options in the accompanying
financial statements using the intrinsic value method. Had the Company
determined compensation expense based on the grant-date fair value
method pursuant to Statement of Financial Accounting Standards No.
123, the Company's net earnings (loss) and earnings (loss) per share
would have been $66,498,000 and $0.96 for 1999, ($447,012,000) and
($6.60) for 1998, ($240,384,000) and ($3.61) for 1997, respectively.
The following table presents the number, weighted-average exercise
price and weighted-average grant-date fair value of options to buy
Series A Common Stock.
<TABLE>
<CAPTION>
WEIGHTED - WEIGHTED -
AVERAGE AVERAGE
NUMBER OF EXERCISE GRANT-DATE
OPTIONS PRICE FAIR VALUE
----------- ----------- -----------
<S> <C> <C> <C>
Granted in connection with Spin-off 2,324,266 $ 8.86 8.74
Granted in 1997 1,070,000 7.93 4.77
---------
Outstanding at December 31, 1997 and 1998 3,394,266 8.57
Exercised 80,000 8.00
Forfeited and cancelled 20,000 8.00
Granted in 1999 1,190,500 7.93 6.03
Outstanding at December 31, 1999 4,484,766 8.40
========= ====
Exercisable at December 31, 1997 464,853 8.86
========= ====
Exercisable at December 31, 1998 1,241,706 8.64
========= ====
Exercisable at December 31, 1999 2,204,720 8.52
========= ====
</TABLE>
II-24
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
As originally granted in February 1997, options granted to employees
vest evenly over five years with such vesting period beginning
January 1, 1997, first become exercisable on January 1, 1998 and
expire on December 31, 2006. In November 1997, the TSAT Board
approved modifications to the vesting provisions to provide for
vesting in three equal annual installments, commencing February
1998. In accordance with the TSAT 1996 Plan, absent action by the
TSAT Board, vesting would accelerate and the options would terminate
upon a sale of substantially all assets of the Company which
occurred with the sale of the Tempo DBS-1 Assets on June 4, 1999.
Pursuant to a provision in the TSAT 1996 Plan, the TSAT Board allowed
the options held by most of the employees and officers to vest and
extended the termination date to June 4, 2000. The original terms
for the options were maintained for employees and officers who were
continuing with the Company.
Options outstanding at December 31, 1999 have a range of exercise
prices from $6.50 to $8.86 and a weighted-average remaining
contractual life of approximately eight years.
The respective estimated grant-date fair values of the options noted
above are based on the Black-Scholes model and are stated in current
annualized dollars on a present value basis. The key assumptions used
in the model for purposes of these calculations include the following:
(a) a discount rate equal to the one-year Treasury Bill rate for the
twelve months ended December 31, 1999; (b) a 84% volatility rate;
(c) the 10-year option term; (d) the closing price of the Series A
Common Stock on the date of grant; and (e) an expected dividend rate
of zero.
In February 1997, certain key employees of the Company were granted,
pursuant to the TSAT 1996 Plan, an aggregate of 325,000 restricted
shares of Series A Common Stock. As originally granted, such
restricted shares vest as to 50% on January 1, 2001 and as to the
remaining 50% on January 1, 2002. In November 1997, the TSAT Board
approved modifications to the vesting provisions accelerating the
vesting schedules under such restricted stock awards to provide for
vesting of 50% on each of the second and third anniversaries of the
date of granting. Compensation expense with respect to the restricted
shares aggregated $366,000 and $434,000 during the years ended
December 31, 1999 and 1998, respectively.
On December 1, 1999, certain key employees and officers of TSAT
were granted, pursuant to the TSAT 1996 Plan, an aggregate of
628,000 options to acquire shares of Class A Common Stock at a per
share exercise price of $7.125 and 562,500 options to acquire
shares of Class A Common Stock at a per share exercise price of
$8.84 ("the 1999 Grant"). Each grant of options vest over a 5 year
period beginning on the date of the grant, first becomes
exercisable as to 25% on the second anniversary of the date of
grant and become exercisable as to an additional 25% on each of the
third, fourth and fifth anniversaries of the date of grant, and
expires on December 1, 2009.
(e) OTHER
Pursuant to the Reorganization Agreement, the Company granted to TCI
an option to purchase up to 4,765,000 shares of Series A Common Stock,
at an exercise price of $1.00 per share, as required by TCI from time
to time to meet its obligations under the conversion features of
certain convertible securities of TCI as such conversion features were
adjusted as a result of the Spin-off. During 1999 and 1998, TCI
purchased 3,452,000 shares and 991,000 shares, respectively, of
Series A Common Stock pursuant to such option.
In connection with the Spin-off, TCI and the Company also entered into
a "Share Purchase Agreement" to sell to each other from time to time,
at the then current market price, shares of Series A TCI Group Stock
and Series A Common Stock, respectively, as necessary to satisfy their
respective obligations after the Spin-off Date under certain stock
options and SARs held by their respective employees and non-employee
directors.
At December 31, 1999, a total of 5,338,329 shares of Series A Common
Stock were reserved for issuance pursuant to the Spin-off Date
Options, the Share Purchase Agreements, the
II-25
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Reorganization Agreement, the TSAT 1996 Plan and the TSAT DSOP. In
addition, one share of Series A Common Stock is reserved for each
outstanding share of Series B Common Stock.
(10) INCOME TAXES
Through the Spin-off Date, TSAT's results of operations were included in
TCI's consolidated U.S. Federal income tax returns, in accordance with the
existing tax sharing arrangements among TCI and its consolidated
subsidiaries. Effective July 1, 1995 TCI, TCIC and certain other
subsidiaries of TCI entered into a tax sharing agreement (the "Tax Sharing
Agreement"), which formalized such pre-existing tax sharing arrangements
and implemented additional provisions regarding the allocation of certain
consolidated income tax attributes and the settlement procedures with
respect to the intercompany allocation of current tax attributes. In
connection with the Spin-off, the Tax Sharing Agreement was amended to
provide that TSAT be treated as if it had been a party to the Tax Sharing
Agreement, effective July 1, 1995. TSAT's intercompany income tax
allocation through the Spin-off Date has been calculated in accordance with
the Tax Sharing Agreement. Subsequent to the Spin-off Date, TSAT files
separate U.S. Federal and state income tax returns.
In connection with the Restructuring, TSAT and TCI entered into a tax
sharing agreement dated June 1997, to confirm that pursuant to the amended
Tax Sharing Agreement (i) neither TSAT nor any of its subsidiaries has any
obligation to indemnify TCI or the TCI shareholders for any tax resulting
from the Spin-off failing to qualify as a tax-free distribution pursuant to
Section 355 of the Internal Revenue Code of 1986 (the "Code"); (ii) TCI is
obligated to indemnify TSAT and its subsidiaries for any taxes resulting
from the Spin-off failing to qualify as a tax-free distribution pursuant to
Section 355 of the Code; (iii) to the best knowledge of TCI, TSAT's total
payment obligation under the Tax Sharing Agreement could not reasonably be
expected to exceed $5 million; and (iv) the sole agreement between TCI and
TSAT or any of its subsidiaries relating to taxes is the Tax Sharing
Agreement.
TSAT recognized no income tax benefit during either of the years ended
December 31, 1999, 1998 and 1997. As a result of the Spin-off, TSAT is no
longer a part of the TCI consolidated tax group, and accordingly, 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
December 31, 1999, 1998 and 1997.
Income tax benefit (expense) for the year ended December 31, 1999
consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
amounts in thousands
<S> <C> <C> <C>
Year ended December 31, 1999:
Federal $ (650) (1,197) (1,847)
State and local -- 1,431 1,431
------- -------- ------
$ (650) 234 (416)
======= ======== ======
</TABLE>
II-26
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Income tax benefit (expense) differs from the amounts computed by applying
the Federal income tax rate of 35% as a result of the following (amounts in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
------- --------- -------
amounts in thousands
<S> <C> <C> <C>
Computed "expected" tax (expense)
benefit (23,687) $ 155,843 83,419
State and local income taxes, net
of Federal income tax benefit 931 -- 13,009
Issuance of common stock by subsidiary -- (104,666) --
Change in valuation allowance 15,695 (51,736) (98,521)
Other 6,645 559 2,093
------- --------- -------
$ (416) -- --
======= ========= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ---------
amounts in thousands
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards and tax credits $ 150,286 152,468
Investment in Phoenixstar, principally due to losses
recognized for financial statement purposes in excess
of losses recognized of tax purposes -- 15,827
Share appreciation right liability 26,376 --
Future deductible amounts principally due to
accruals deductible in later periods 642 --
Property and equipment, principally due to differences in
depreciation net of increase in tax basis resulting from
intercompany transfer 5 --
---------- ---------
Total deferred tax assets 177,309 168,295
Less - valuation allowance (150,933) (166,628)
---------- ---------
Net deferred tax assets 26,376 1,667
Deferred tax liability:
II-27
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Future gain related to unrealized appreciation on held
for sale security 26,376 --
Other -- 1,667
---------- ---------
Net deferred tax liability $ -- --
========== =========
</TABLE>
The valuation allowances for deferred tax assets as of December 31, 1999
and 1998 were $150,933,000 and $166,628,000, respectively. Such balances
increased $15,195,000 and $51,736,000 from December 31, 1998 and 1997,
respectively.
The Company has analyzed the sources and expected reversal periods of its
deferred tax assets. The Company believes that the tax benefits
attributable to deductible temporary differences will be realized to the
extent of future reversals of existing taxable temporary differences.
At December 31, 1999, the Company had net operating loss carry forwards for
income tax purposes aggregating approximately $390,565,000 of which, if not
utilized to reduce taxable income in future periods, $18,953,000 expire in
2010, $17,094,000 expire in 2011, $238,558,000 expire in 2012 and
$115,960,000 expire in 2018.
(11) COMMITMENTS AND CONTINGENCIES
The Company leases its office space under noncancelable operating leases.
Future minimum rental payments on these leases are as follows (in
thousands):
<TABLE>
<S> <C>
2000 $ 186
2001 131
--------
$ 317
========
</TABLE>
Rent expense was approximately $23,000, $358,000 and $1,866,000 in 1999,
1998 and 1997, respectively.
The Company has contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business. Although it is
reasonably possible the Company may incur losses upon conclusion of such
matters, an estimate of any loss or range of loss cannot be made. In the
opinion of management, it is expected that amounts, if any, which may be
required to satisfy such contingencies will not be material in relation to
the accompanying financial statements.
II-28
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(12) TRANSACTIONS WITH RELATED PARTIES
Pursuant to the terms of the TSAT Merger Agreement, Phoenixstar reimbursed
TSAT for all reasonable costs and expenses incurred by TSAT (i) to comply
with its tax and financial reporting obligations, (ii) to maintain certain
insurance coverage and (iii) to maintain its status as a publicly traded
company. During the years ended December 31, 1999 and 1998, such
reimbursements aggregated $376,000 and $152,000, respectively. The effects
of such reimbursements have been reflected as a reduction of TSAT's
investment in Phoenixstar.
In addition, Phoenixstar makes advances to TSAT for the payment of certain
costs related to the Tempo Satellite and the proposed high power strategy.
Such advances aggregated $6,365,000 during 1998, and are included in due to
Phoenixstar in the accompanying 1998 consolidated balance sheets.
Certain former employees of TSAT, who are now employees of Phoenixstar,
hold stock options, stock options with tandem stock appreciation rights,
and restricted shares of TSAT (collectively, the "TSAT Options").
Subsequent to the Restructuring, compensation expense related to the TSAT
Options aggregated $1,541,000 and has been reflected as an increase in
TSAT's investment in PRIMESTAR in the accompanying consolidated financial
statements.
Prior to the Restructuring, Phoenixstar 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, Phoenixstar Partners arranged for satellite capacity and uplink
services, and provided national marketing and administrative support
services in exchange of a separate authorization fee.
Effective January 1, 1997, charges for customer fulfillment services
provided by TCI were made pursuant to the Fulfillment Agreement entered
into by the Company and TCIC in connection with the Spin-off. Pursuant to
the fulfillment Agreement, TCIC continued to provide fulfillment services
on an exclusive basis to the Company following the Spin-off with respect to
customers of the PRIMESTAR-Registered Trademark- medium power service.
Such services were performed in accordance with specified performance
standards. Charges to TSAT pursuant to the Fulfillment Agreement
aggregated $54,823,000 during 1997, of which $46,498,000 were capitalized
installation costs. The Fulfillment Agreement terminated on
December 31, 1997.
Effective on the Spin-off Date, charges for administrative services
provided by TCIC were made pursuant to the Transition Services Agreement.
Pursuant to the Transition Services Agreement, TCI was obligated to provide
to the Company certain services and other benefits. As compensation for the
services rendered and for the benefits made available to the Company
pursuant to the Transition Services Agreement, the Company was required to
pay TCI a monthly fee of $1.50 per qualified subscribing household or other
residential or commercial unit (counted as one subscriber regardless of the
number of satellite receivers), up to a maximum of $3,000,000 per month,
and to reimburse TCI quarterly for direct, out-of-pocket expenses incurred
by TCI to third parties in providing the services. Amounts charged to TSAT
pursuant to the Transition Services Agreement aggregated $3,174,000 and
$11,579,000 for the years ended December 31, 1998 and 1997, respectively,
and was included in selling, general and administrative expense in the
accompanying consolidated statements of operations. Upon
II-29
<PAGE>
TCI SATELLITE ENTERTAINMENT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
consummation of the Restructuring, TSAT and TCI agreed to terminate the
Transition Services Agreement.
Beginning in March 1997, and through the Closing Date, TCIC provided TSAT
with customer support services from TCIC's Boise, Idaho call center.
Amounts charged by TCIC to TSAT for such services aggregated $5,026,000
and $12,173,000 during the years ended December 31, 1998 and 1997,
respectively, and are included in selling, general and administrative
expenses in the accompanying consolidated statements of operations.
Certain key employees of the Company hold stock options in tandem with SARs
with respect to certain common stock of TCI. In connection with the
Spin-off, the Company assumed the stock compensation liability with respect
to such TCI options and SARs. Estimates of the compensation related to the
options and/or SARs granted to employees of the Company have been recorded
in the accompanying financial statements, but are subject to future
adjustment based upon the market value of the underlying TCI common stock
and, ultimately, on the final determination of market value when the rights
are exercised. Non-cash increases (decreases) to such estimated stock
compensation liability aggregated $5,554,000 during the year ended December
31, 1999. In 1999, 1998 and 1997, the Company recognized $6,261,000,
$3,814,000 and $6,134,000, respectively, of stock compensation expense
related to the aforementioned options with tandem SARs.
(13) SUBSEQUENT EVENTS
Effective February 1, 2000, the Company entered into a Management Agreement
with Phoenixstar pursuant to which the Company is managing Phoenixstar's
affairs in exchange for a monthly management fee of $45,000.
On March 16, 2000, the Company completed transactions with Liberty Media
Corporation ("Liberty Media"). As a result of such transactions, the
Company became the managing member (through its wholly-owned subsidiaries)
of two new limited liability companies (collectively, the "Liberty Joint
Ventures"), through which the Company holds interests in a number of
satellite and related businesses. The Company also acquired from Liberty
Media beneficial ownership in 5,084,745 shares of Sprint Corporation
PCS common stock, having a market value of approximately $333 million as
of March 24, 2000, in exchange for the issuance by the Company to Liberty
Media of (i) Series A Preferred Stock of the Company with a liquidation
value of $150 million and (ii) Series B Preferred Stock of the Company
with a liquidation value of $150 million. The Series B Preferred Stock is
convertible into Series B Common Stock of the Company at a conversion
price of $8.84 per share, subject to adjustment, and prior to conversion
represents approximately 85% of the voting power of the Company.
II-30
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following lists the directors and executive officers of the Company, their
birth dates, a description of their business experience and positions held with
the Company, as of February 1, 2000.
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------- ------------------------------------------------------
<S> <C>
John C. Malone
Born March 7, 1941 Has served as Chairman of the Board and a director
of the Company since December 1996. Dr. Malone is also
currently the Chairman of the Board and a director of
Liberty Media Corporation. Dr. Malone served as Chief Executive
Officer of TCI from January 1994 until March 1999, and as
Chairman of the Board of TCI from November 1996 until March 1999.
Dr. Malone served as President of TCI from January 1994 to March
1997. Dr. Malone is also a director to AT&T, The Bank of New
York, USANi LLC, At Home Corporation, United GlobalCom, Inc. and
Cendant Corporation.
Gary S. Howard
Born February 22, 1951 Has served as Chief Executive Officer of the Company since
December 1996 and a director of the Company since November
1996. From February 1995 through August 1997, Mr. Howard
also served as President of the Company. Mr. Howard is also
currently the Executive Vice President and Chief Operating
Officer of Liberty Media Corporation. Mr. Howard
served as Executive Vice President of TCI from December 1997
to March 1999; as Chief Executive Officer, Chairman of the
Board and director of TV Guide, Inc. from June 1997 to March
1999; and as President and Chief Executive Officer of TCI
Ventures Group, LLC from December 1997 to March 1999. Mr. Howard
served as President of TV Guide, Inc. from June 1997 to
September 1997; and as Senior Vice President of TCI
Communications, Inc. from October 1994 to December 1996.
Mr. Howard is a director of Liberty Media Corporation, TV Guide,
Inc., Liberty Digital, Inc., and Teligent, Inc.
David P. Beddow
Born December 27, 1943 Has served as a director of the Company since December 1996.
Mr. Beddow has served as Vice President of Liberty Media
Corporation since April 1999. Mr. Beddow served as
Executive Vice President of TCIC and President and Chief
Executive Officer of NDTC from August 1998 until April 2000.
Prior to August 1998, Mr. Beddow served as Senior Vice
President of TCITV and NDTC since February 1995. Mr. Beddow
served as Vice President of TCI Technology, Inc. from June
1993 to February 1995.
William E. Johnson
Born June 23, 1941 Has served as a director of the Company since December 1996.
Mr. Johnson served as Chief Executive Officer of Scientific
Atlanta, Inc. from January 1987 until his retirement in
December 1992. Mr. Johnson served as a director of
Intelligent Electronic, Inc. from November 1994 to 1998 and
as a director of ATX, Inc. since January 1993.
</TABLE>
III-1
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------- ------------------------------------------------------
<S> <C>
John W. Goddard
Born May 4, 1941 Has served as a director of the Company since December 1996.
Mr. Goddard served as President and Chief Executive Officer
of the cable division of Viacom International, Inc. from
1980 until the division was sold in July 1996. Mr. Goddard
is also a director of Diva Systems Corporations, Phoenixstar,
Bend Cable Communications, Cable Television Laboratories, Inc.
(Cablelabs), and the Deafness Research Foundation and is a
Trustee of the Walter Kaitz Foundation.
Leo J. Hindery, Jr.
Born October 31, 1947 Has served as a director of the Company since November 1997.
Mr. Hindery is the Chief Executive Officer of Global
Crossings, Ltd. and of Global Center, Inc. Mr. Hindery served
as President and Chief Operating Officer of TCI, and as
President and a director of TCIC, from March 1997 until March 1999,
and as President and Chief Executive Officer of AT&T Broadband
and Internet Services from March 1999 until October 1999. Prior
to joining TCI, Mr. Hindery was the founder, Managing General
Partner and Chief Executive Officer of InterMedia Partners and its
affiliated entities since 1988. Mr. Hindery is also a
director of Tanning Technology Corp., TD Waterhouse Group, Inc.,
VerticalNet, Inc., and Phoenixstar.
Christopher Sophinos
Born January 26, 1952 Has served as President of the Company since September 1997,
and was previously Senior Vice President of the Company from
February 1996. Mr. Sophinos served as Senior Vice President
of Phoenixstar from April 1998 until August 1999. Mr.
Sophinos served as the President of Boats Unlimited from
November 1993 to September 1998 and has served as a director
of Sophinos & Sons, Inc. since November 1993.
Kenneth G. Carroll
Born April 21, 1955 Has served as Senior Vice President and Chief Financial
Officer of the Company since February 1995 and as Treasurer since
August 1999. He also served as Senior Vice President and Chief
Financial Officer of Phoenixstar since April 1998. From December
1994 to May 1997, Mr. Carroll served as Vice President of TCI K-1,
Inc. and as Vice President of United Artists K-1 Investments,
Inc. From April 1994 through January 1995, Mr. Carroll
served as Vice President of Business Operations and Chief
Financial Officer of Netlink USA, a subsidiary of TCI and
from July 1992 to May 1994, Mr. Carroll served as Senior
Director of Finance and Business Operations of Netlink.
William D. Myers
Born March 23, 1958 Served as Vice President and Treasurer of the Company from
September 1996 until August 1999. He also served as Vice
President and Treasurer of Phoenixstar from April 1998 until
August 1999. Mr. Myers served as Vice President of TCI Cable
Management Corporation from November 1994 through August
1996. Mr. Myers served as Director of Finance of TCI from
December 1991 to November 1994.
</TABLE>
III-2
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------- ------------------------------------------------------
<S> <C>
</TABLE>
The directors of the Company will hold office until the next annual meeting of
stockholders of the Company and until their successors are duly elected and
qualified. The executive officers named above will be elected to serve in such
capacities until the next annual meeting of the Company's Board of Directors
(the "TSAT Board"), or until their respective successors have been duly elected
and have been qualified, or until their earlier death, resignation,
disqualification or removal from office.
The Company's charter provides for a classified Board of Directors of not
less than three members, divided into three classes of approximately equal
size, with each class to be elected for a three-year term at each annual
meeting of stockholders. The exact number of directors is fixed by resolution
of the TSAT Board. In connection with the Spin-off, the number of directors
on the TSAT Board was fixed at five. On November 10, 1997, the TSAT Board
voted to increase the size of the TSAT Board from five to six, and to add Leo
J. Hindery, Jr. to fill the newly created directorship. For purposes of
determining their terms, directors are divided into three classes. The Class
I directors, whose terms were scheduled to expire at the 1997 annual
stockholders' meeting, are Mr. Beddow and Mr. Hindery. The Class II
directors, whose terms were to expire at the 1998 annual stockholders'
meeting, are Messrs. Howard and Johnson. The Class III directors, whose terms
were to expire at the 1999 annual stockholders' meeting, are Dr. Malone and
Mr. Goddard. On November 10, 1997, approximately 11 months after the
Spin-off, the TSAT Board determined that the 1997 annual stockholders meeting
would not be held, as a result of the pendency of the proposed Roll-up Plan,
which would have resulted in the merger of the Company with and into
Phoenixstar. On March 6, 1998, the Company held a special meeting of
stockholders to vote on the Roll-up Plan, which was approved by more than
66-2/3% of the outstanding voting power of the Series A Common Stock and
Series B Common Stock, voting together as a class. Due to the pendency of the
TSAT Merger in 1998 and the Hughes High Power Transaction and Medium Power
Transaction in 1999, the 1998 and 1999 annual stockholders meeting were also
deferred. The Company currently expects that the 2000 annual stockholders
meeting will be held during the summer of 2000. At the 2000 annual
stockholders meeting, TSAT stockholders will have an opportunity to vote with
respect to the election of two Class I directors (whose terms will expire in
2001), two Class II directors (whose terms will expire in 2002 and two Class
III directors (whose terms will expire in 2003.
There are no family relations by blood, marriage or adoption, of first cousin or
closer, among the above named individuals.
III-3
<PAGE>
During the past five years, none of the persons named above has had any
involvement in such legal proceedings as would be material to an evaluation of
his ability or integrity.
Section 16(a) of the Security Exchange Act of 1934, as amended, requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Security and Exchange Commission
("SEC"). Officers, directors and greater-than-ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on review of the copies of Forms 3, 4 and 5 and amendments thereto
furnished to the Company with respect to its most recent fiscal year, or written
representations that no Forms 5 were required, the Company believes that, during
the year ended December 31, 1999, its officers, directors and
greater-than-ten-percent beneficial owner complied with all Section 16(a) filing
requirements.
ITEM 11. EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION TABLE
Certain directors, officers and employees of TCI and its subsidiaries
(including the Company, prior to the Spin-off) were granted options to
purchase shares of Series A TCI Group Common Stock ("TCI Options") and
stock appreciation rights with respect to shares of Series A TCI Group
Common Stock ("TCI SARs"). The TCI Options and TCI SARs were granted
pursuant to various stock plans of TCI (the "TCI Plans").
Immediately prior to the Spin-off, each TCI Option was divided into two
separately exercisable options: (i) an option to purchase Series A Common
Stock (an "Add-on Company Option"), exercisable for the number of shares of
Series A Common Stock that would have been issued in the Spin-off in
respect of the shares of Series A TCI Group Stock subject to the applicable
TCI Option, if such TCI Option had been exercised in full immediately prior
to the Spin-off Date, and (ii) an option to purchase Series A TCI Group
Stock (an "Adjusted TCI Option"), exercisable for the same number of shares
of Series A TCI Group Stock as the corresponding TCI Option had been. The
aggregate exercise price of each TCI Option was allocated between the
Add-on Company Option and the Adjusted TCI Option into which it was
divided, and all other terms of the Add-on Company Option and Adjusted TCI
Option are in all material respects the same as the terms of such TCI
Option. Similar adjustments were made to the outstanding TCI SARs,
resulting in the holders thereof holding Adjusted TCI SARs and Add-on
Company SARs instead of TCI SARs, and to outstanding restricted share
awards, resulting in the holders thereof holding restricted shares of
Series A Common Stock in addition to restricted shares of Series A TCI
Group Stock, effective immediately prior the Spin-off.
As a result of the foregoing, certain persons who remained TCI employees or
non-employee directors after the Spin-off and certain persons who were TCI
employees prior the Spin-off but became Company employees after the
Spin-off hold both adjusted TCI Options and separate Add-on Company Options
and/or hold both Adjusted TCI SARs and separate Add-on Company SARs. The
obligations with respect to the Adjusted TCI Options, Add-on Company
Options, Adjusted TCI SARs and Add-on Company SARs held by TCI employees
and non-employee directors are obligations solely of TCI. The obligations
with respect to the Adjusted TCI Options, Add-on Company Options, Adjusted
TCI SARs and Add-on Company SARs held by persons who were Company employees
at the time of the Spin-off and following the Spin-off were no longer TCI
employees ("Company Employees") are obligations solely of the Company.
Prior to the Spin-off, TCI and the Company entered into an agreement to
sell to each other from time to time at the then current market price
shares of Series A TCI Group Common Stock and Series A Common Stock,
respectively, as necessary to satisfy their respective obligations under
such securities.
III-4
<PAGE>
The following table is a summary of all forms of compensation paid by the
Company to the officers named therein for services rendered in all
capacities to the Company for the fiscal years ended December 31, 1999,
1998, and 1997 (total of four persons).
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- ---------------------------
OTHER SECURITIES ALL
NAME AND ANNUAL RESTRICTED UNDERLYING OTHER
PRINCIPAL POSITION COMPENSATION STOCK OPTIONS/ COMPENSATION
WITH THE COMPANY YEAR SALARY BONUS (4) AWARD SARS (8)
- -------------------- ---- -------- ------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary S. Howard (1) 1999 $ -- -- -- -- -- --
(Chief Executive Officer) 1998 -- -- -- -- -- $ --
1997 215,519 120,600 2,976 1,000,000(5) -- 17,158
Christopher Sophinos (2) 1999 51,923(3) -- -- -- 425,000(7) --
(President) 1998 51,626 35,500 -- -- -- 4,667
1997 174,538 70,000 -- 400,000(5) 100,000(6) 10,240
Kenneth G. Carroll (2) 1999 -- -- -- -- 425,000(7) --
(Senior Vice President 1998 51,827 35,500 -- -- -- 4,590
and Chief Financial 1997 174,538 78,846 2,182 400,000(5) 100,000(6) 9,934
Officer)
William D. Meyers (2) 1999 -- -- -- -- -- --
(Vice President and 1998 41,731 26,000 -- -- -- 2,617
Treasurer) 1997 139,827 35,000 2,352 400,000(5) 100,000(6) 9,711
</TABLE>
III-5
<PAGE>
(1) Effective June 1, 1997 and through December 31, 1997, TSAT and UVSG agreed
that 75% of Mr. Howard's annual salary was to be charged to UVSG, of which
Mr. Howard is a director and chief Executive Officer. The 1997 amount
represents Mr. Howard's 1997 annual salary less amount charged to UVSG
($215,481). Subsequent to December 31, 1997, all of Mr. Howard's annual
salary is charged to UVSG and other TCI subsidiaries.
(2) In connection with the Restructuring and effective April 1, 1998, Messrs.
Sophinos, Carroll and Myers became officers of Phoenixstar; and from that
date forward, all of such officers' compensation for 1998 was paid by
Phoenixstar. Accordingly, the 1998 compensation information included in the
table represents three months of employment.
(3) Mr. Sophinos' employment by Phoenixstar terminated on August 31, 1999. Mr.
Sophinos began receiving compensation from TSAT on September 1, 1999.
Accordingly, the 1999 compensation information included in the table
represents four months of employment.
(4) Consists of amounts reimbursed during the year for the payment of taxes.
(5) Pursuant to the TCI Satellite Entertainment, Inc. 1996 Stock Incentive Plan
(the "TSAT 1996 Plan"), Mr. Howard was granted 125,000 restricted shares of
Series A Common Stock and Messrs. Sophinos, Carroll and Myers were each
granted 50,000 restricted shares vested as to 50% on each of January 1,
2001 and January 1, 2002. On November 10, 1997, the TSAT Board and the
Compensation Committee of the TSAT Board approved modifications to the
terms of such awards, accelerating the vesting provisions to provide for
vesting of 50% on February 3, 1999 and as to the remaining 50% on February
3, 2000. The value of Mr. Howard's unvested restricted shares at the end of
1999 was $1,000,000, and the value of each of Messrs. Sophinos', Carroll's
and Myers' unvested restricted shares at the end of 1999 was $400,000. The
Company has not paid cash dividends on the Series A common Stock and does
not anticipate paying cash dividends on the Series A Common Stock at any
time in the foreseeable future.
(6) Pursuant to the TSAT 1996 Plan, Messrs. Sophinos, Carroll and Myers were
each granted options with tandem SARs to purchase 100,000 shares of Series
A Common Stock at a purchase price of $8.00. As originally granted each
such grant of options vests evenly over five years with such vesting period
beginning January 1, 1997, first became exercisable on January 1, 1998 and
expires on December 31, 2006. On November 10, 1997, the TSAT Board and the
TSAT compensation committee approved modifications to the vesting of all
options issued pursuant to the TSAT 1996 Plan, accelerating the vesting
schedules under such options from five to three years, commencing February
1998.
(7) Pursuant to the TSAT 1996 Plan, Messrs. Sophinos and Carroll were each
granted options to purchase 200,000 shares of Series A Common Stock at a
purchase price of $7.125 and 225,000 shares of Series A Common stock at a
purchase price of $8.84.
III-6
<PAGE>
(8) Includes TSAT contributions to the TSAT Employee Stock Purchase Plan
(the "TSAT ESPP") from January 1, 1997 through March 31, 1998. All named
executives were fully vested in such plans. Directors who are not
employees of TSAT are ineligible to participate in the TSAT ESPP. The
TSAT ESPP, a defined contribution plan, enables participating employees
to acquire a proprietary interest in TSAT and benefits upon retirement.
Under the terms of the TSAT ESPP, employees were eligible for
participation after one year of service. The TSAT ESPP's normal
retirement age is 65 years. Participants could contribute up to 10% of
their compensation and TSAT (by annual resolution of the TSAT Board)
could contribute up to a matching 100% of the participants'
contributions. The TSAT ESPP included a salary deferral feature in
respect of employee contributions. Forfeitures (due to participants'
withdrawal prior to full vesting) were used to reduce TSAT's otherwise
determined contributions. In connection with the Restructuring and
effective June 30, 1998, the TSAT ESPP was merged into the Phoenixstar,
Inc. 401(k) Savings Plan. Also includes insurance premiums paid by TSAT
in 1998 for the benefit of Messrs. Sophinos, Carroll and Myers in the
amount of $245, $148 and $113, respectively, and in 1997 for the benefit
of Messrs. Howard, Sophinos, Carroll and Myers in the amount of $2,158,
$740, $434 and $211, respectively.
(b) OPTION AND SARS GRANTS IN LAST FISCAL YEAR
The following table discloses information regarding stock options granted
during the year ended December 31, 1999 to each of the named executive
officers of the Company in respect of shares of Class A Common stock under
the TSAT 1996 Plan.
<TABLE>
<CAPTION>
% OF
NUMBER OF TOTAL MARKET
SECURITIES GRANTED TO EXERCISE PRICE ON
UNDERLYING OFFICERS AND OR BASE GRANT GRANT DATE
OPTIONS EMPLOYEES PRICE DATE PRESENT
NAME GRANTED (1) 1999 ($/SH) ($/SH)(2) EXPIRATION DATE VALUE (3)
- --------------------- ----------- ---------- ------ --------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gary S. Howard -- -- -- -- -- --
Christopher Sophinos 200,000 16.80% 7.125 7.125 December 1, 2009 1,218,600
225,000 18.90% 8.84 7.125 December 1, 2009 1,342,800
Kenneth G. Carroll 200,000 16.80% 7.125 7.125 December 1, 2009 1,218,600
225,000 18.90% 8.84 7.125 December 1, 2009 1,342,800
William D. Meyers -- -- -- -- -- --
</TABLE>
(1) Effective December 1, 1999 certain key employees and officers of TSAT
were granted, pursuant to the TSAT 1996 Plan, an aggregate of 628,000
options to acquire shares of Class A Common stock at a per share
exercise price of $7.125 and 562,500 options to acquire shares of Class
A Common Stock at a per share exercise price of $8.84 (the "1999
Grant"). Each such grant of options vests over a five-year period
beginning on the date of grant, first becomes exercisable as to 25% on
the second anniversary of the date of grant and becomes exercisable as
to an additional 25% on each of the third, fourth, and fifth
anniversaries of the date of grant, and expires on
III-7
<PAGE>
December 1, 2009.
(2) Represents the closing market price per share of TSAT Series A Common Stock
on December 1, 1999, the date of grant.
(3) The value shown is based on the Black-Scholes model and is stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
(a) a 5% discount rate; (b) a 84% volatility factor; (c) the 10-year
option term; (d) the closing price of TSAT Series A Common Stock on
December 1, 1999; and (e) a per share exercise price of $7.125 or $8.84
accordingly. The actual value an executive may realize will depend upon
the extent to which the stock price exceeds the exercise price on the date
the option is exercised. Accordingly, the value, if any, realized by an
executive will not necessarily be the value determined by the model.
(c) AGGREGATED TSAT OPTION/SAR EXERCISES AND FISCAL YEAR-END TSAT OPTION/SAR
VALUES
The following table provides, for the executives named in the Summary
Compensation Table, information on (i) the exercise during the year ended
December 31, 1999, of options with respect to shares of Series A Common
Stock, (ii) the number of shares of Series A Common Stock represented by
unexercised options owned by them at December 31, 1999, and (iii) the value
of those options as of the same date.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/ OPTIONS/
SARS AT SARS AT
DECEMBER 31, DECEMBER 31,
SHARES 1999 1999
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
------------------ ------------ -------- ------------- -------------
<S> <C> <C> <C> <C>
Gary S. Howard
Exercisable Series A -- $ -- 425,446 $ 2,844,901
Unexercisable Series A -- -- 268,630 1,923,391
Christopher Sophinos
Exercisable Series A -- -- 66,667 533,336
Unexercisable Series A -- -- 458,333 3,652,664
</TABLE>
III-8
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/ OPTIONS/
SARS AT SARS AT
DECEMBER 31, DECEMBER 31,
SHARES 1999 1999
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
------------------ ------------ -------- ------------- -------------
<S> <C> <C> <C> <C>
Kenneth G. Carroll
Exercisable Series A -- -- 68,467 $ 533,336
Unexercisable Series A -- -- 458,683 3,652,664
William D. Myers
Exercisable Series A -- -- 101,900 800,000
Unexercisable Series A -- -- -- --
</TABLE>
(d) COMPENSATION OF DIRECTORS
Members of the TSAT Board who are also full-time employees of the Company
or Liberty Media, or any of their respective subsidiaries, do not receive
any additional compensation for their services as directors. Directors who
are not full-time employees of the Company or Liberty Media, or any of
their respective subsidiaries, receive a retainer of $30,000 per year. All
members of the TSAT Board are also reimbursed for expenses incurred to
attend any meeting of the TSAT Board or any committee thereof. In addition,
on March 6, 1998, the TSAT stockholders approved the TCI Satellite
Entertainment, Inc. 1997 Nonemployee Director Stock Option Plan (the "TSAT
DSOP"). Pursuant to the TSAT DSOP, each of the persons who were directors
of the Company, but not employees of the Company or any of the Company's
subsidiaries (each such director, a "Nonemployee Director") as of
February 3, 1997 has been granted options to purchase 50,000 shares of
Series A Common Stock, and each person who becomes a Nonemployee Director
after February 3, 1997 will be automatically granted options to purchase
50,000 shares of Series A Common Stock upon such person's becoming a
director. The TSAT DSOP provides that the per share exercise price of each
option granted under the TSAT DSOP will be equal to the fair market value
of the Series A Common Stock on the date such option is granted. In
general, fair market value is determined by reference to the last sale
price for shares of Series A Common Stock on the date of grant.
III-9
<PAGE>
(e) ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER
PARTICIPATION IN COMPENSATION DECISIONS
The members of the Company's compensation committee are Messrs. William E.
Johnson and John. W. Goddard, each a director of the Company. None of the
members of the compensation committee are or were officers of the Company
or any of its subsidiaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table lists stockholders believed by the Company to be the
beneficial owners of more than five percent of the outstanding Company
Common Stock as of December 31, 1999. Shares issuable upon exercise of
options and upon vesting of restricted shares are deemed to be outstanding
for the purpose of computing the percentage ownership and overall voting
power of persons believed to beneficially own such securities, but have not
been deemed to be outstanding for the purpose of computing the percentage
ownership or overall voting power of any other person. Voting power in the
table is computed with respect to a general election of directors. So far
as is known to the Company, the persons indicated below have sole voting
and investment power with respect to the shares indicated as believed to be
owned by them except as otherwise stated in the notes to the table.
<TABLE>
<CAPTION>
NAME AND ADDRESS TITLE NUMBER OF SHARES PERCENT VOTING
OF BENEFICIAL OWNER OF CLASS BENEFICIALLY OWNED OF CLASS (1) POWER (1)
- -------------------------- --------- ------------------ ------------ ---------
<S> <C> <C> <C> <C>
John C. Malone,
Chairman of the Board
5619 DTC Parkway Series A 909,845(3) 1.4% 23.9%
Englewood, Colorado Series B 3,439,958(4) 40.6%
Kim Magness
(individually as
a member of Magness
Security LLC
4000 E. Belleview Series A 383,806(2)(7) 0.61% 21.3%
Greenwood Village, Colorado Series B 3,745,206(2) 25.6%
Gary Magness
(as co-representative
of the estate of Bob
Magness)
29 Sunset Drive Series A 243,373 * 21.3%
Englewood, Colorado Series B 3,120,770(2) 36.9%
The Associated Group, Inc.
200 Gateway Towers Series A 1,247,997(5) 2.0% 5.6%
Pittsburgh, Pennsylvania Series B 707,185(6) 8.4%
</TABLE>
III-10
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS TITLE NUMBER OF SHARES PERCENT VOTING
OF BENEFICIAL OWNER OF CLASS BENEFICIALLY OWNED OF CLASS (1) POWER (1)
- -------------------------- --------- ------------------ ------------ ---------
<S> <C> <C> <C> <C>
Tudor Investment Corporation
600 Steamboat Road Series A 4,238,670(8) 6.7% 2.9%
Greenwich, CT 06830
Paul Tudor Jones, II
c/o Tudor Investment Series A 4,519,100(8) 7.2% 3.1%
Corporation
600 Steamboat Road
Greenwich, CT 06830
</TABLE>
*Less than one percent.
(1) Based on 62,894,446 shares of Series A Common Stock and 8,465,224 shares of
Series B Common Stock outstanding as of December 31, 1999.
(2) Effective January 5, 1998, Mr. Kim Magness and Mr. Gary Magness were
appointed co-Personal Representatives of the Estate of Bob Magness.
(3) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARS, whether or not then exercisable or in-the-money, in respect
of the following: (i) stock options granted in tandem with SARs in November
of 1992 to acquire 100,000 shares of Series A Common Stock, all of which
options are currently exercisable; and (ii) stock options granted in tandem
with SARs in December of 1995 to acquire 100,000 shares of Series A Common
Stock, of which options to purchase 80,000 shares are currently
exercisable. Also assumes the exercise in full of options to purchase
50,000 shares of Series A Common Stock granted pursuant to the TSAT DSOP
effective February 3, 1997, 33,333 of which options are vested.
(4) Includes 117,300 shares of Series B Common Stock held by Dr. Malone's wife,
Mrs. Leslie Malone, but Dr. Malone disclaims any beneficial ownership of
such shares.
(5) The number of shares in the table is based on information provided by the
respective stockholder.
(6) The number of shares in the table is based upon information provided by The
Associated Group on February 26, 1998. Said corporation has shared voting
power and dispositive power over 707,185 shares of Series B Common Stock.
(7) Includes 210,533 shares of Series A Common Stock and 634,621 shares of
Series B common Stock held by Magness Securities LLC. Mr. Magness is
deemed to have beneficial ownership over such shares as a member of Magness
Securities LLC. Also assumes the exercise in full of all Add-on Company
Options and Add-on Company SARs, whether or not then exercisable or
in-the-money of stock options granted in November of 1994 to acquire
5,000 shares of Series A Common Stock, all of which options are currently
exercisable.
III-11
<PAGE>
(8) The number of shares in the table is based upon a Schedule 13G, dated
February 14, 2000, filed by Tudor Investment Corporation which Schedule 13G
reflects that said company has shared voting power over 4,238,670 shares
and shared dispositive power over 4,238,670 shares of Series A Common
Stock.
(9) The number of shares in the table is based upon a Schedule 13G, dated
February 14, 2000, filed by Paul Tudor Jones, II, which Schedules 13G
reflects that said individual has shared voting power over 4,519,100 shares
and shared dispositive power over 4,519,100 shares of Series A Common
Stock.
(b) SECURITY OWNERSHIP OF MANAGEMENT
The following table lists the number of shares of Company Common Stock
believed to be owned beneficially by each director and each of the
executive officers named in the above Summary Compensation Table, and
all directors and executive officers as a group as of December 31, 1999,
according to data furnished by the persons named. Shares issuable
upon exercise of options and upon vesting of restricted shares are deemed
to be outstanding for the purpose of computing the percentage ownership and
overall voting power of persons believed to beneficially own such
securities, but have not been deemed to be outstanding for the purpose of
computing the percentage ownership or overall voting power of any other
persons. Voting power in the table is computed with respect to a general
election of directors. So far as is known to the Company, the persons
indicated below have sole voting and investment power with respect to the
shares indicated as believed to be owned by them.
<TABLE>
<CAPTION>
VOTING
NAME SERIES A SERIES B SERIES A SERIES B POWER (1)
- ---------------------- ----------- -------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Directors:
John C. Malone 909,845(2) 3,439,958(3) 1.5% 40.6% 23.9%
Gary S. Howard 824,215(4) -- 1.4% -- *
David P. Beddow 414,300(5) -- * -- *
William E. Johnson 50,200(6) 10 * * *
John W. Goddard 51,408(6)(7) 1,425(7) * * *
Leo J. Hindery, Jr 50,000(6) -- * -- *
Other named executive
officers:
Christopher Sophinos 575,000(8) -- * -- *
Kenneth G. Carroll 577,170(9) -- * -- *
William D. Myers 151,974(10) -- * -- *
All directors and
executive officers
as a group (nine persons) 3,604,112 3,441,393 5.7% 40.7% 25.8%
</TABLE>
*Less than one percent.
(1) Based on 62,894,446 shares of Series A Common Stock and 8,465,224 shares of
Series B Common Stock outstanding as of December 31, 1998.
(2) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARs, whether or not then exercisable or in-the-money, in respect
of the following: (1) stock options granted in tandem with SARs in November
of 1992 to acquire 100,000 shares of Series A
III-12
<PAGE>
Common Stock, all of which options are currently exercisable; and (ii)
stock options granted in tandem with SARs in December of 1995 to acquire
100,000 shares of Series A Common Stock, of which options to purchase
80,000 shares are currently exercisable. Also assumes the exercise in full
of options to purchase 50,000 shares of Series A Common Stock granted
pursuant to the TSAT DSOP effective February 3, 1997, of which options to
purchase 33,333 shares are currently vested.
(3) Includes 117,300 shares of Series B Common Stock held by Dr. Malone's wife,
Mrs. Leslie Malone, but Dr. Malone disclaims any beneficial ownership of
such shares.
(4) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARs, whether or not then exercisable or in-the-money, in respect
of the following: (i) stock options granted in tandem with SARs in November
of 1992 to acquire 5,000 shares of Series A Common Stock, all of which
options are currently exercisable; (ii) stock options in tandem with SARs
granted in October of 1993 to acquire 5,000 shares of Series A Common
Stock, all of which options are currently exercisable; (iii) stock options
in tandem with SARs granted in November of 1994 to acquire 5,000 shares of
Series A Common Stock, all of which options to are currently exercisable;
(iv) stock options granted in tandem with SARs in December of 1995 to
purchase 15,000 shares of Series A Common Stock, of which options to
acquire 12,000 shares are currently exercisable; and (v) stock options
granted in December of 1996 to purchase 664,076 shares of Series A Common
Stock, of which options to acquire 398,446 shares are currently
exercisable. Additionally assumes the vesting in full of 126,500 restricted
shares of Series A Common Stock, 63,250 of which are currently vested. Also
includes 1,022 shares of Series A Common Stock held by trusts in which Mr.
Howard is beneficial owner as trustee for his children.
(5) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARs, whether or not then exercisable or in-the-money, in respect
of the following: (i) stock options granted in tandem with SARs in October
of 1993 to acquire 750 shares of Series A Common Stock, all of which
options are currently exercisable; (ii) stock options granted in tandem
with SARs in November of 1994 to acquire 5,000 shares of Series A Common
Stock, all of which are currently exercisable; (iii) stock options granted
in tandem with SARs in December of 1995 to purchase 25,000 shares of Series
A Common Stock, of which options to purchase 20,000 shares are currently
exercisable; and (iv) stock options granted in December of 1996 to purchase
332,038 shares of Series A Common Stock, of which options to acquire
199,223 shares are currently exercisable. Additionally assumes the vesting
in full of 1,500 restricted shares of Series A Common Stock, 750 of which
are currently vested. Also assumes the exercise in full, whether or not
then exercisable or in-the-money, of options to purchase 50,000 shares of
Series A Common Stock granted pursuant to the TSAT DSOP effective February
3, 1997, of which options to purchase 33,334 shares are currently vested.
(6) Assumes the exercise in full, whether or not then exercisable or
in-the-money, of options to purchase 50,000 shares of Series A Common Stock
granted pursuant to the TSAT DSOP, of which options to purchase 33,334
shares are currently vented.
(7) Includes 478 shares of Series A Common Stock held by Mr. Goddard's wife, of
which Mr. Goddard is beneficial owner, and 129 shares of Series B Common
Stock held by a trust in which Mr. Goddard is beneficial owner as trustee.
(8) Assumes the exercise in full, whether or not then exercisable or
in-the-money, of stock options granted in tandem with SARs in February of
1997 to purchase 100,000 shares of Series A Common Stock, of which options
to purchase 66,667 shares are currently exercisable, and assumes the
vesting in full of 50,000 restricted shares of Series A Common Stock,
25,000 of
III-13
<PAGE>
which are currently vested. Additionally assumes the exercise in full,
whether or not then exercisable or in-the-money of stock options granted in
December of 1999 to purchase 425,000 shares of Series A Common Stock, none
of which are currently exercisable.
(9) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARs, whether or not then exercisable or in-the-money, in respect
of the following: (1) stock options granted in tandem with SARs in November
of 1994 to acquire 400 shares of Series A Common Stock, all of which
options are currently exercisable; and (ii) stock options granted in tandem
with SARs in December of 1995 to purchase 1,750 shares of Series A Common
Stock, of which options to purchase 1,400 shares of Series A Common Stock
are currently exercisable. Additionally assumes the exercise in full,
whether or not then exercisable or in-the-money, of stock options granted
in tandem with SARs in February of 1997 to purchase 100,000 shares of
Series A Common Stock, of which options to purchase 66,667 shares are
currently exercisable, and assumes the vesting in full of 50,000 restricted
shares of Series A Common Stock, 25,000 of which are currently vested.
Additionally assumes the exercise in full, whether or not then exercisable
or in-the-money, of stock options granted in December of 1999 to purchase
425,000 shares of Series A Common Stock, none of which are currently
exercisable.
(10) Assumes the exercise in full of all Add-On Company Options and Add-On
Company SARs, whether or note then exercisable or in-the-money, in respect
of the following: (i) stock options granted in tandem with SARs in November
of 1994 to acquire 900 shares of Series A Common Stock, all of which
options are currently exercisable; and (ii) stock options granted in tandem
with SARs in December of 1995 to purchase 1,000 shares of Series A Common
Stock, all of which options are currently exercisable. Additionally assumes
the exercise in full, whether or not then exercisable or in-the-money, of
stock options granted in tandem with SARs in February of 1997 to purchase
100,000 shares of Series A Common Stock, all of which options are currently
exercisable, and assumes the vesting in full of 50,000 restricted shares of
Series A Common Stock, all of which are currently vested.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the March 9, 1999 merger of TCI into AT&T, John Malone was the
Chairman of the Board and a director of TCI and also the Chairman of the
Board and a director of the Company. Dr. Malone was also a principal
stockholder of TCI and currently is a principal stockholder of the Company.
The Company was formed in connection with the Spin-off to own and operate
certain businesses of TCI constituting all of TCI's interests in the
digital satellite business. On the Spin-off Date, TCI distributed all the
shares of Company Common Stock held by TCI to the holders of record of TCI
Group Stock, on the basis of one share of Series A Stock for each ten
shares of Series A TCI Group
III-14
<PAGE>
Stock, and one share of Series B Common Stock for each ten shares of Series
B TCI Group Stock held by such holders.
Since the consummation of the Spin-off, the Company and TCI have operated
independently. However, for the purposes of governing certain of the
ongoing relationships between the Company and TCI after the Spin-off, and
to provide mechanisms for an orderly transition, the Company and TCI
entered into various agreements, including the "Reorganization Agreement",
the "Transition Services Agreement," an amendment to TCI's existing "Tax
Sharing Agreement," the "Indemnification Agreements," the "Trade name and
Service Mark Agreement" and the "Share Purchase Agreement," all of which
are described below.
REORGANIZATION AGREEMENT. On the Spin-off Date, TCI, TCIC and a number of
other TCI subsidiaries, including the Company, entered into the
Reorganization Agreement, which provided for, among other things, the
principal corporate transactions required to effect the Spin-off, the
conditions thereto and certain provisions governing the relationship
between the Company and TCI with respect to and resulting from the
Spin-off.
Pursuant to the Reorganization Agreement, the Company assumed TCI's
obligations under options granted to Brendan R. Clouston, Larry E. Romrell
and David P. Beddow to purchase shares of Series A Common Stock
representing 1.0%, 1.0% and 0.5%, respectively, of the shares of Company
Common Stock issued and outstanding on the Spin-off Date, determined
immediately after giving effect to the spin-off but before giving effect to
the issuance of the shares of Series A Common Stock issuable upon exercise
of such options; and granted an option to TCI to purchase up to 4,765,000
shares of Series A Common Stock (as such number may be adjusted to reflect
stock dividends, stock splits and the like), for a purchase price equal to
the par value of such shares, as necessary to satisfy TCI's obligations to
deliver shares of Series A Common Stock upon conversion of certain
convertible securities of TCI as a result of the Spin-off. During the year
ended December 31, 1999, the Company issued 3,451,880 shares of Series A
Common Stock to TCI under this arrangement.
III-15
<PAGE>
TRADE NAME AND SERVICE MARK LICENSE AGREEMENT. Pursuant to the Trade Name
and Service Mark License Agreement (the "License Agreement"), TCI granted
to the Company, for an initial term of three years following the
Distribution, a non-exclusive non-assignable license to use certain trade
names and service marks specifically identified in the License Agreement,
including the mark "TCI" in the context of the Digital Satellite Business.
The License Agreement provides, among other things, that all advertising,
promotion and use of certain of TCI's trade names and service markets by
the Company shall be consistent wit TCI guidelines and standards, as well
as subject to TCI approval in certain circumstances. Since the
Distribution, the Company has taken steps to phase out the use of the TCI
names and marks covered by the License Agreement, except in connection with
its corporate name. The Company and TCI amended the License Agreement
immediately prior to the closing of the Restructuring to reflect such
limited use. The License Agreement has now expired.
OTHER ARRANGEMENTS. On the Spin-off Date, TCI and the Company entered into
the Share Purchase Agreement, which obligates TCI and the Company to sell
to each other from time to time, at the then current market price, shares
of Series A TCI Group Common Stock and Series A Common Stock, respectively,
as necessary to satisfy their respective obligations under Adjusted TCI
Options and Add-on Company Options held after the Spin-off Date by their
respective employees and non-employee directors. During the year ended
December 31, 1999, the Company did not issue shares of Series A Common
Stock to TCI under this arrangement.
Certain officers of the Company who were officers or directors of TCI
and/or TCIC prior to the Spin-off received undertakings of indemnification
from TCI and/or TCIC. Such undertakings survived the Spin-off.
In June 1996, the TCI Board authorized TCI to permit certain of its
executive officers to acquire the equity interests in certain of TCI's
subsidiaries. In connection therewith, the TCI Board approved the
acquisition by each of Brendan R. Clouston and Larry E. Romrell, executive
officers of TCI, of 1.0% of the net equity of the Company. The TCI Board
also approved the acquisition by Gary S. Howard, an executive officer of
TCIC prior to the Spin-off Date and chief executive officer and a director
of the Company, of 1.0% of the net equity of the Company and the
acquisition by David P. Beddow, an executive officer of certain TCI
subsidiaries and a director of the Company, of 0.5% of the net equity of
the Company. The TCI Board determined to structure such transactions as
grants to such persons of options to purchase shares of Series A Common
Stock representing 1.0% (in the case of each of Messrs. Clouston, Romrell
and Howard) and 0.5% (in the case of Mr. Beddow) of the shares of Series A
Common Stock and Series B Common Stock issued and outstanding on the
Spin-off Date, determined immediately after giving effect to the Spin-off,
but before giving effect to any exercise of such option ("Distribution Date
Options"). Distribution Date Options to purchase 2,324,266 shares of Series
A Common Stock at a per share price of $8.86 were granted on the Spin-off
Date. Pursuant to the Reorganization Agreement, and (in the case of the
options granted to Messrs. Clouston, Romrell and Beddow) in partial
consideration for the capital contribution made by TCI to the Company in
connection with the Spin-off, the Company agreed, effective as of the
Spin-off Date, to bear all obligations under such options and to enter into
stock option agreements with respect to such options with each of Messrs.
Clouston, Romrell, Howard and Beddow.
III-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ Gary S. Howard
------------------------------
Name: Gary S. Howard
Title: Chief Executive Officer
Dated March 31, 2000
Pursuant to the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John C. Malone
- --------------------------- Chairman of the Board and March 31, 2000
John C. Malone Director
/s/ Gary S. Howard
- --------------------------- Director and Chief Executive March 31, 2000
Gary S. Howard Officer
/s/ David P. Beddow
- --------------------------- Director March 31, 2000
David P. Beddow
/s/ John W. Goddard
- --------------------------- Director March 31, 2000
John W. Goddard
/s/ Leo J. Hindery, Jr.
- --------------------------- Director March 31, 2000
Leo J. Hindery, Jr.
/s/ Christopher Sophinos
- --------------------------- President March 31, 2000
Christopher Sophinos
/s/ Kenneth G. Carroll
- --------------------------- Senior Vice President March 31, 2000
Kenneth G. Carroll Chief Financial Officer and
Treasurer (Principal Financial
Officer)
</TABLE>
III-17
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Included in Part II of this Report: Page No.
<S> <C>
Independent Auditors' Report II-8
Consolidated Balance Sheets,
December 31, 1999 and 1998 II-9
Consolidated Statements of Operations,
Years ended December 31, 1999, 1998 and 1997 II-10
Consolidated Statements of Equity (Deficit),
Years ended December 31, 1999, 1998 and 1997 II-11
Consolidated Statements of Cash Flows,
Years ended December 31, 1999, 1998 and 1997 II-12
Notes to Consolidated Financial Statements,
December 31, 1999, 1998 and 1997 II-13
(a) (2) FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this Report:
(i) Financial Statement Schedules required to be filed:
Schedule II - Valuation and Qualifying Accounts,
Years ended December 31, 1999, IV-6
</TABLE>
IV-1
<PAGE>
(a) (3) EXHIBITS
The following exhibits are filed herewith or are incorporated by reference
herein (according to the number assigned to them in Item 601 of Regulation S-K)
as noted:
<TABLE>
<S> <C>
2 - Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
2.1 Reorganization Agreement dated as of December 4, 1996, among
Tele-Communications, Inc. ("TCI"), TCI Communications, Inc. ("TCIC"),
Tempo Enterprises, Inc., TCI Digital Satellite Entertainment, Inc., TCI
K-1, Inc. ("TCI K-1"), United Artists K-1 Investments, Inc. ("UA K-1"),
TCI SE Partner 1, Inc. ("TCISE 1"), TCI SE Partner 2, Inc. "(TCISE 2")
and TCI Satellite Entertainment, Inc. (the "Company"). (d)
2.2 Merger and Contribution Agreement dates as of February 6, 1998, among
the Company, PRIMESTAR, Inc., Time Warner Entertainment Company L.P.
("TWE"), Advance/Newhouse Partnership ("Newhouse"), Comcast Corporation
("Comcast"), Cox Communications, Inc. ("Cox"), MediaOne of Delaware,
Inc. ("MediaOne") and GE American Communications, Inc. ("GE Americom"). (f)
2.3 Asset Transfer Agreement dates as of February 6, 1998, between the
Company and PRIMESTAR, Inc. (f)
2.4 Agreement and plan of Merger dates as of February 6, 1998, between the
Company and PRIMESTAR, Inc. (f)
2.5 Guarantee Agreement dated as of February 6, 1998, by US WEST Media
Group, Inc. ("US West"), in favor of each of the Company, PRIMESTAR,
Inc., TWE, Newhouse, Comcast, Cox and GE Americom. (f)
2.6 Letter Agreement dates as of February 6, 1998, between John C. Malone
and the Company, PRIMESTAR, Inc., TWE, Newhouse, Comcast, Cox, MediaOne
and GE Americom, for the benefit of the Company, PRIMESTAR, Inc., TWE,
Newhouse, Comcast, Cox, MediaOne and GE Americom. (f)
2.7 Voting Agreement dates as of June 12, 1997, among John C. Malone, Time
Warner Cable, a division of TWE, Comcast, the Company, Cox, MediaOne,
Newhouse and GE Americom. (f)
2.8 Voting Agreement dates as of June 12, 1997, among Donne F. Fisher, as
Co-Personal Representative of the Estate of Bob Magness, Time Warner
Cable, a division of TWE, Comcast, the Company, Cox, MediaOne, Newhouse
and GE Americom. (f)
2.9 Voting Agreement dates as of June 12, 1997, among TCI, John C. Malone,
Time Warner Cable, a division of TWE, Comcast, the Company, Cox,
MediaOne, Newhouse and GE Americom. (f)
</TABLE>
IV-2
<PAGE>
<TABLE>
<S> <C>
2.10 Form of Stockholders Agreement among PRIMESTAR, Inc., the Company, TWE,
Newhouse, Comcast, Cox, MediaOne, Continental Satellite company, Inc./,
Continental Satellite Company of Chicago, Inc., Continental Satellite
Company of Minnesota, inc., Continental Satellite company of New
England, Inc., Continental Satellite Company of Michigan, Inc.,
Continental Satellite Company of Ohio, Inc., Continental Satellite
Company of Virginia, Inc., MediaOne Satellite II, Inc., GE Americom and
John C. Malone. (f)
2.11 Form of Registration Rights Agreement among PRIMESTAR, inc., the
Company, TWE, Newhouse, Comcast, Cox, MediaOne, Continental Satellite
company, Inc./, Continental Satellite Company of Chicago, Inc.,
Continental Satellite Company of Minnesota, inc., Continental Satellite
company of New England, Inc., Continental Satellite Company of Michigan,
Inc., Continental Satellite Company of Ohio, Inc., Continental Satellite
Company of Virginia, Inc., MediaOne Satellite II, Inc., GE Americom and
John C. Malone. (f)
2.12 Share Appreciation Rights Agreement, dated as of April 28, 1999(h)
2.13 Pledge and Security Agreement dated as of April 28, 1999(h)
2.14 Amendment dated as of March 10, 1999 to TSAT Tempo Agreement Dated as
of February 6, 1998 Between Primestar, Inc. and TCI Satellite
Entertainment, Inc.(a)
2.15 Termination Agreement TSAT Merger Agreement(a)
2.16 Stockholders Agreement dates as of February 6, 1998, among PRIMESTAR,
Inc., the Company and John C. Malone. (f)
2.17 TSAT Tempo Agreement dated as of February 6, 1998, between PRIMESTAR,
Inc., and the Company. (f)
2.18 Contribution and Exchange Agreement (TSAT) among TCI Satellite Entertainment,
Inc., Liberty LSAT, Inc. and Liberty LSAT II, Inc. dated as of March 16, 2000. (a)
2.19 Contribution Agreement by and among Liberty Media Corporation, Liberty Media
International, Inc., LSAT Holdings, Inc., TCI Satellite Entertainment, Inc.,
TSAT Holding 1, Inc., each of the Liberty Members signatory hereto, Liberty
Satellite, LLC, and LSAT Astro, LLC dated March 16, 2000. (a)
2.20 Operating Agreement of Liberty Satellite, LLC dated March 16, 2000. (a)
2.21 Amended and Restated Operating Agreement of LSAT Astro LLC dated March 16, 2000. (a)
3 - Articles of Incorporation and Bylaws:
3.1 Amended and Restated Certificate of Incorporation of the Company. (e)
3.2 Amended and Restated Bylaws of the Company. (e)
3.3 TCI Satellite Entertainment, Inc. Certificate of Designations, Series A
Preferred Stock. (a)
3.4 TCI Satellite Entertainment, Inc. Certificate of Designations, Series B
Preferred Stock. (a)
4 - Instruments Defining the Rights of Security Holders:
4.1 Specimen certificate representing shares of Series A Common Stock of the
Company. (e)
4.2 Specimen certificate representing shares of Series B Common Stock of the
Company. (e)
10 - Material Contracts
10.1 TCI Satellite Entertainment, Inc. 1996 Stock Incentive Plan. (e)
10.2 Qualified Employee Stock Purchase Plan of the Company. (d)
10.3 Indemnification Agreement dated December 4, 1996, by and between TCI and
Gary S. Howard. (d)
10.4 Option Agreement, dated as of December 4, 1996, by and between the
Company and Gary S. Howard. (d)
10.5 Option Agreement, dated as of December 4, 1996, by and between the
Company and Larry E, Romrell. (d)
10.6 Option Agreement, dated as of December 4, 1996, by an between the
Company and Brendan R. Clouston. (d)
</TABLE>
IV-3
<PAGE>
<TABLE>
<S> <C>
10.7 Option Agreement, dated as of December 4, 1996, by ad between the
Company and David P. Beddow. (d)
10.8 1996 Ancillary Agreement Among Partners dates as of October 18, 1996,
among PRIMESTAR Partners L.P., the Participating Partners named therein,
GE Americom Services, Inc. and its affiliate GE American Communications,
Inc. (d)
10.9 Annex A to the 1996 Ancillary Agreement Among Partners. (e)
10.10 Option agreement dated February 8, 1990, between Tempo and K Prime
Partners, L.P. (e)
10.11 Letter Agreement dated July 30, 1993, between Tempo and PRIMESTAR
Partners, L.P. relating to FSS. (e)
10.12 Letter Agreement dated July 30, 1993, between Tempo an PRIMESTAR
Partners, L.P. relating to BSS. (e)
10.13 TPO-1-290 BSS Construction Agreement dates as of February 22, 1990,
between Tempo and Space Systems/Loral, Inc. (e)(h)
10.14 Trade Name and Service Mark License Agreement dates as of December 4,
1996, between TCI and the Company. (d)
10.15 Tax Sharing Agreement effective July 1, 1995, among TCIC and certain
other subsidiaries of TCI. (e)
10.16 First Amendment to Tax Sharing Agreement dates as of October 1995, among
TCIC a certain other subsidiaries of TCI. (e)
10.17 Second Amendment to Tax Sharing Agreement dates as of December 3, 1996,
among TCIC and certain other subsidiaries of TCI. (d)
10.18 TCI/TSAT Tax Sharing Agreement dated June 1997, by and between the
Company and TCI. (f)
10.19 Share Purchase Agreement dated as of December 4, 1996, between TCI and
the Company. (d)
10.20 Option Agreement dated as of December 4, 1996, between TCI and the
Company. (d)
10.21 Indemnification Agreement dated as of June 11, 1997, among News Corp.,
the Company, PRIMESTAR Partners, Time Warner, Comcast, Cox, MediaOne,
Newhouse, and GE Americom. (f)
10.22 TCI Satellite Entertainment, Inc. 1997 Nonemployee Director Plan. (f)
10.23 Asset Purchase Agreement by and among Hughes Electronics Corporation,
PRIMESTAR, Inc., PRIMESTAR Partners L.P., Tempo Satellite, Inc. and the
Stockholders of PRIMESTAR listed herein, dates as of January 22, 1999. (g)
10.24 Asset Purchase Agreement among PRIMESTAR, Inc., PRIMESTAR Partners L.P.,
PRIMESTAR MOV, Inc., the Stockholders of PRIMESTAR, Inc. listed herein and
Hughes Electronics Corporation dated as of January 22, 1999. (g)
10.25 PRIMESTAR Payment Agreement dated as of January 22, 1999 among TCI Satellite
Entertainment, Inc., PRIMESTAR, Inc., the Funding Parties and Paragon
Communications. (j)
21 Subsidiaries of the Registrant. (a)
27 Financial Data Schedule. (a)
</TABLE>
IV-4
<PAGE>
(a) Filed herewith.
(b) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 (Commission File No. 0-21317).
(c) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File No. 0-21317).
(d) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 (Commission File No. 0-21317).
(e) Incorporated by reference to the Company's Registration Statement on
Form 10 filed with the Securities and Exchange Commission ("SEC") on
November 15,1996 (Registration No. 0-21317).
(f) Incorporated by reference to PRIMESTAR, Inc.'s Registration Statement on
Form S-4 filed with the SEC on February 9, 1998 (Registration No.
333-45835).
(g) Incorporated by reference to the Company's Current Report on Form 8-K,
dated February 1, 1999.
(h) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the period ended, March 31, 1999
(i) Portions of this document have been granted confidential treatment by
the SEC and have been redacted in accordance therewith.
(j) Incorporated by reference to Phoenixstar, Inc's Current Report on
Form 8-K, dated May 13, 1999.
(b) REPORTS ON FORM 8-K FILED DURING THE QUARTER ENDED DECEMBER 31, 1999:
None.
IV-5
<PAGE>
SCHEDULE II
TCI SATELLITE ENTERTAINMENT, INC.
Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
BALANCE AT CHARGED TO WRITE-OFFS BALANCE
BEGINNING PROFIT NET OF AT END
OF YEAR AND LOSS RECOVERIES OTHER (1) OF YEAR
---------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful receivables - trade $ -- -- -- -- --
======== ====== ======= ====== =====
Year ended December 31, 1998:
Allowance for doubtful receivables - trade $ 5,307 3,062 (4,003) (4,366) --
======== ====== ======= ====== =====
Year ended December 31, 1997:
Allowance for doubtful receivables - trade $ 4,666 18,339 (17,698) -- 5,307
======== ====== ======= ====== =====
</TABLE>
(1) Contribution of accounts receivable and related allowance for doubtful
accounts in connection with TSAT Asset Transfer.
IV-6
<PAGE>
AMENDMENT
DATED AS OF MARCH 10, 1999
TO
TSAT TEMPO AGREEMENT
DATED AS OF FEBRUARY 6, 1998
BETWEEN PRIMESTAR, INC.
AND
TCI SATELLITE ENTERTAINMENT, INC.
<PAGE>
This agreement, dated as of March 10, 1999 (the "Amendment"), by and among
PRIMESTAR, Inc., a Delaware corporation (the "Company"), TCI Satellite
Entertainment, Inc., a Delaware corporation ("TSAT") and Tempo Satellite, Inc.,
an Oklahoma corporation and wholly-owned subsidiary of TSAT ("Tempo") amends the
TSAT Tempo Agreement, dated as of February 6, 1998 (the "Option Agreement"),
between the Company and TSAT. The Option Agreement, as amended hereby, is
hereinafter referred to as the "Amended Option Agreement." Capitalized terms
used herein but not defined shall have the meanings ascribed to such terms in
the Option Agreement.
WHEREAS, TSAT has granted to the Company (together with its successors and
assigns, the "Option Holder"), the exclusive and irrevocable option (the "Tempo
Sale Option"), exercisable at any time during the term of the Option Agreement
(a) to purchase all of the Tempo Shares or (b) to purchase from TSAT all of its
rights, title and interest in, to and under the Tempo Assets and assume all of
the liabilities associated with the Tempo Assets;
WHEREAS, the Company and Tempo are parties to the Asset Purchase Agreement,
dated as of January 22, 1999 (the "High Power Agreement"), by and among Hughes
Electronics Corporation ("Buyer"), the Company, PRIMESTAR Partners L.P., Tempo
and certain stockholders of the Company, that provides for, among other things,
the assignment by the Company of the Tempo Sale Option to Buyer;
WHEREAS, the High Power Agreement provides that the Option Agreement must be
amended so that it can be exercisable in part;
WHEREAS, the Company and TSAT (i) desire to amend the Option Agreement so that
the Tempo Sale Option may be exercisable in part and (ii) desire the assignment
of the Option to Buyer;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Section 1.01. PARTIAL EXERCISE OF TEMPO SALE OPTION. The Option Holder under the
Option Agreement may exercise the Tempo Sale Option in whole at any time or in
part from time to time. If the Option Holder elects to purchase only a portion
of the Tempo Shares, the BSS Price for such purchased shares shall be pro rated.
If the Option Holder elects to purchase only a portion of the Tempo Assets, the
BSS Price for such purchased assets shall be pro rated and the Tempo Liabilities
to be assumed by the Option Holder shall also be pro rated pursuant to Section
1.02 hereof.
<PAGE>
Section 1.02 PARTIAL EXERCISE OF OPTION TO PURCHASE TEMPO ASSETS. If the Option
Holder elects to purchase only a portion of the Tempo Assets:
(a) In addition to the elements required to be included in the written notice to
TSAT as specified in Section 1.02 of the Option Agreement, the Option Holder
must also include the identity of the Tempo Assets that it is purchasing (the
"Identified Tempo Assets"). Notwithstanding Section 1.02 of the Option
Agreement, the Option Holder shall not be required to provide advance notice of
the Tempo Closing Date other than as specified in the Notice of Exercise
attached hereto as EXHIBIT A.
(b) (i) The Option Holder and TSAT shall mutually agree on the fair market value
of the Identified Tempo Assets in order to prorate the BSS Price pursuant to
Section 1.01 hereto and shall mutually agree on the fair market value of the
Tempo Assets that are not being sold (the "Unsold Tempo Assets" and, together
with the Identified Tempo Assets, the "Total Tempo Assets"). The price to be
paid by Option Holder shall be equal to the product of (A) the fair market value
of the Identified Tempo Assets DIVIDED by (B) the fair market value of to the
Total Tempo Assets, TIMES (C) the BSS Price.
(ii) If the Option Holder and TSAT are unable to agree on such fair market
values, the Option Holder and TSAT shall elect an independent appraisal firm to
determine such values. The conclusions of such appraisal firm shall be
conclusive and binding. The fees and expenses of such appraisal firm shall be
shared equally by the Option Holder and TSAT.
(iii) Notwithstanding anything herein or in the Option Agreement to the
contrary, the exercise price relating to the Ground Satellite Assets (as defined
in the High Power Agreement) shall be equal to 30% of the BSS Price and the
exercise price relating to the In- Orbit Satellite Assets (as defined in the
High Power Agreement) shall be equal to 70% of the BSS Price.
(c) The Option Holder and TSAT shall mutually agree on the identity the Tempo
Liabilities associated with the Identified Tempo Assets (the "Identified Tempo
Liabilities"). If the Option Holder and TSAT are unable to agree on the
Identified Tempo Liabilities, the Option Holder and TSAT shall elect an
independent public accountant to determine the Identified Tempo Liabilities. The
conclusions of such independent public accountant shall be conclusive and
binding. The fees and expenses of such independent public accountant shall be
shared equally by the Option Holder and TSAT. Notwithstanding anything herein or
in the Option Agreement to the contrary, in connection with the acquisition of
the Ground Satellite Assets, the Identified Tempo Liabilities shall only be the
Ground Satellite Liabilities (as defined in the High Power Agreement) and, in
connection with the acquisition of the In- Orbit Satellite Assets, the
Identified Tempo Liabilities shall only be the In-Orbit Satellite Liabilities
(as defined in
<PAGE>
the High Power Agreement).
(d) Anything contained herein or in the Option Agreement notwithstanding, TSAT
shall not be required to liquidate Tempo immediately prior to the Tempo Closing
until all of the Tempo Assets are sold. If the Option Holder elects to purchase
all or a portion of the Tempo Assets, and TSAT shall not theretofore have
liquidated Tempo, then Tempo shall sell and deliver and TSAT shall cause Tempo
to sell and deliver such asset at the closing of such purchase in accordance
with the terms and conditions of the Sections 1.02(a) - (c) of this Amendment.
(e) At each Tempo closing under the Option Agreement, TSAT shall deliver to the
Option Holder (x) such appropriately executed bills of sale, assignments and
other instruments of transfer relating to the Identified Tempo Assets in form
and substance reasonably satisfactory to the Option Holder and its counsel and
(y) such other documents as the Option Holder or its counsel may reasonably
request to demonstrate satisfaction of the conditions and compliance as set
forth in the Amended Option Agreement. The Option Holder shall deliver to TSAT
(x) subject to Section 1.02(b)(iii), the pro rated BSS Price and (y) a duly
executed assignment and assumption agreement pertaining to the Identified Tempo
Liabilities, in the form attached hereto as EXHIBIT B (the "Assignment and
Assumption Agreement").
(f) Subject to Section 1.02(b)(iii), if, after initially purchasing only part of
the Tempo Assets, the Option Holder desires to purchase an additional portion of
the Tempo Assets, the Option Holder and TSAT shall use the value placed on the
Unsold Tempo Assets as the basis for pro rating the BSS Price.
ARTICLE II
Section 2.01. ASSIGNMENT OF OPTION. The Option shall be assigned to Buyer upon
the terms and conditions set forth in the Assignment and Assumption Agreement.
ARTICLE III
Section 3.01 INTERPRETATION. The Section headings contained in this Amendment
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Amendment.
Section 3.02 SEVERABILITY. If any term or other provision of this Amendment is
invalid, illegal or incapable of being enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the
<PAGE>
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are
fulfilled to the extent possible.
Section 3.03 GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Section 3.04 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 3.05 THIRD PARTY BENEFICIARIES. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. Buyer is intended to be a third-party beneficiary of this
Amendment.
<PAGE>
IN WITNESS WHEREOF, the Company, TSAT and Tempo have duly executed this
Agreement, all of the date first written above.
PRIMESTAR, INC.,
By: /s/ [ILLEGIBLE]
-----------------------------
Name:
Title:
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ [ILLEGIBLE]
-----------------------------
Name:
Title:
TEMPO SATELLITE, INC.
By: /s/ [ILLEGIBLE]
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
<PAGE>
TERMINATION AGREEMENT
TSAT MERGER AGREEMENT
THIS TERMINATION AGREEMENT is entered into as of March 10, 1999, by and
between PRIMESTAR, Inc. ("Primestar") and TCI Satellite Entertainment, Inc.
("TSAT").
RECITALS
A. Primestar and TSAT are parties to an Agreement and Plan of Merger,
dated as of February 8, 1998 (the "TSAT Merger Agreement"), pursuant to which
TSAT was to merge with and into Primestar.
B. Primestar is a party to the Asset Purchase Agreement, dated as of
January 22, 1999 (the "High Power Agreement"), among Hughes Electronics
Corporation ("Buyer"), Primestar, PRIMESTAR Partners L.P., Tempo Satellite, Inc.
(a wholly owned subsidiary of TSAT) and certain stockholders of Primestar,
pursuant to which Buyer has agreed to purchase the Ground Satellite Assets and
the In-Orbit Satellite Assets (together, the "Satellites") at separate closings
and to assume certain liabilities of Tempo in connection therewith. Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
such terms in the High Power Agreement).
C. Pursuant to Section 9.2 of the High Power Agreement, and as a
condition to the Initial Closing, at which Buyer will purchase the Ground
Satellite Assets, the TSAT Merger Agreement must be terminated in accordance
with its terms on or before the Initial Closing Date and no party thereto shall
have any Liability to any other party to the High Power Agreement as a result of
such termination.
D. Pursuant to Article VI of the TSAT Merger Agreement, the TSAT Merger
Agreement may be terminated by the mutual written consent of Primestar and TSAT
and such termination shall be without any liability or obligation under such
agreement.
E. Primestar and TSAT each desire to terminate the TSAT Merger
Agreement pursuant to its terms, effective as of the Initial Closing Date.
NOW THEREFORE, in consideration of the mutual covenants
contained in this Termination Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Primestar and TSAT agree as follows:
1. The TSAT Merger Agreement is hereby terminated as of the
Initial Closing Date, subject to the consummation of the Initial Closing on that
day. From and after the Initial
<PAGE>
Closing, neither Primestar nor TSAT shall have any further rights or
obligations under the TSAT Merger Agreement.
2. No party to the High Power Agreement shall have any
Liability to any other party to the High Power Agreement as a result of this
Termination Agreement.
3. This Termination Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
4. This Termination Agreement shall be governed by and
construed and interpreted exclusively in accordance with the laws of New York.
2
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
TERMINATION AGREEMENT as of the day and year first above written.
PRIMESTAR, INC.
By: /s/ [ILLEGIBLE]
----------------------
Name:
Title:
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ [ILLEGIBLE]
----------------------
Name:
Title:
<PAGE>
=================================================================
CONTRIBUTION AND EXCHANGE AGREEMENT (TSAT)
among
TCI SATELLITE ENTERTAINMENT, INC.
and
LIBERTY LSAT, INC.
LIBERTY LSAT II, INC.
Dated as of March 16, 2000
=================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions................................................................................................1
2. Authorization of Securities................................................................................6
3. Issuance of Preferred Stock and Contributions..............................................................6
4. Closing....................................................................................................6
5. Register of Securities; Restrictions on Transfer of Securities.............................................7
6. Representations and Warranties by the Company..............................................................7
7. Representations and Warranties by the Investors...........................................................11
8. Conditions Precedent to the Investor's Obligations at the Closing.........................................13
9. Conditions Precedent to the Company's Obligations at the Closing..........................................15
10. Affirmative Covenants.....................................................................................16
11. Indemnification and Enforcement...........................................................................19
12. Miscellaneous............................................................................................ 21
ANNEXES
A Certificate of Stock Designation for Series A Preferred Stock
B Certificate of Stock Designation for Series B Preferred Stock
C Form of PCS Share Trust Certificate
D Proposed Amendments to Certificate of Incorporation
E Registration Rights Agreement
6(a) Capitalization
6(c) Subsidiaries
6(d) Required Consents
6(h) Material Undisclosed Liabilities
6(i) Material Adverse Changes
6(j) Material Defaults
</TABLE>
i
<PAGE>
CONTRIBUTION AND EXCHANGE AGREEMENT (TSAT)
This Contribution and Exchange Agreement (TSAT) is made as of March 16,
2000, by and among TCI Satellite Entertainment, Inc., a Delaware corporation
(the "COMPANY"), Liberty LSAT, Inc., a Delaware corporation ("WIRELESS SUB 1")
and Liberty LSAT II, Inc., a Delaware corporation ("WIRELESS SUB 2" and together
with Wireless Sub 1, the "INVESTORS").
The Investors desire to acquire, and the Company desires to issue to
Investors, shares of Preferred Stock (as hereinafter defined) on the terms and
conditions set forth in this Agreement. Such acquisition and issuance will be
made concurrently with, or immediately following, the consummation of the
transactions described in that Contribution Agreement among Liberty KASTR Corp.,
Liberty XMSR, Inc., Liberty Astro, Inc., LSAT Astro, LLC and LMI/LSAT Holdings,
Inc. (collectively, the "LIBERTY AFFILIATES"), the Company and Liberty
Satellite, LLC (the "SATELLITE VENTURE") dated the same date as this Agreement
(the "SATELLITE VENTURE CONTRIBUTION AGREEMENT").
For United States federal income tax purposes, it is intended that the
transactions contemplated by this Agreement will qualify as a tax-free
contribution under Section 351 of the Internal Revenue Code of 1986, as amended.
Accordingly, in consideration of the covenants and agreements set forth in
this Agreement and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Unless the context otherwise requires, the terms defined in this
SECTION 1 will have the meanings specified in this SECTION 1 for all purposes of
this Agreement, applicable to both the singular and plural forms. All accounting
terms defined in this SECTION 1 and other accounting terms used in this
Agreement will, except as otherwise provided for herein, be construed in
accordance with those generally accepted accounting principles that the Company
is required to employ by the terms of this Agreement. If and so long as the
Company has any Subsidiary, the accounting terms defined in this SECTION 1 and
other accounting terms appearing in this Agreement will be determined on a
consolidated basis for the Company and each of its Subsidiaries, and the
financial statements and other financial information to be furnished by the
Company pursuant to this Agreement will be prepared on a consolidated basis.
"ACTION" will have the meaning assigned to it in SECTION 11(c).
"AFFILIATE" will mean any Person which directly or indirectly controls, is
controlled by, or is under common control with, the indicated Person. For
purposes of this SECTION 1, "control" when used with respect to any Person
includes the direct or indirect beneficial ownership of 50% or more of the
voting securities or voting equity or partnership interests of such Person, or
the power to direct
1
<PAGE>
or cause the direction of the management or policies of such Person, whether by
contract or otherwise.
"AGREEMENT" will mean this Contribution and Exchange Agreement (TSAT).
"APPLICABLE LAW" will mean all provisions of constitutions, statutes,
rules, regulations, and orders of Governmental Authorities applicable to the
Company, including the Licenses, the Communications Act of 1934, as amended,
Environmental Laws, and Title 17 of the United States Code and all orders and
decrees of all courts and arbitrators in proceedings or actions to which the
Company is a party or by which it is bound.
"AUTHORIZED SIGNATORY" will mean such senior personnel of the Company as
may be duly authorized and designated in writing by the Company to execute
documents, agreements and instruments on behalf of the Company.
"BOARD" will mean the Board of Directors of the Company.
"BUSINESS DAY" will mean a day on which banks are open for the transaction
of business in New York.
"CERTIFICATE OF INCORPORATION" will mean the Company's Certificate of
Incorporation, as amended.
"CLOSING" will have the meaning assigned to it in SECTION 4.
"CLOSING DATE" will have the meaning assigned to it in SECTION 4.
"COMMISSION" will mean the Securities and Exchange Commission.
"COMPANY" will have the meaning assigned to it in the introductory
paragraph of this Agreement.
"COMPANY SEC REPORTS" will have the meaning assigned to it in SECTION 6(m).
"DESIGNATIONS" will have the meaning assigned to it in SECTION 2.
"ENVIRONMENTAL LAWS" will mean any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, permit
conditions, decrees or requirements of any Governmental Authority regulating,
relating to or imposing liability or standards of conduct concerning
environmental protection matters, including those relating to releases,
discharges, emissions or disposals to air, water, land or ground water, to the
withdrawal or use of ground water, to the use, handling or disposal of
polychlorinated biphenyls, asbestos or urea formaldehyde, to the treatment,
storage, disposal or management of hazardous substances (including petroleum,
crude oil
2
<PAGE>
or any fraction thereof, or other hydrocarbons), pollutants or contaminants,
to exposure to toxic, hazardous or other controlled, prohibited or regulated
substances, including any provisions under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C.
Section 9601 ET SEQ.) or the Resource Conservation and Recovery Act of 1976,
as amended (42 U.S.C. Section 6901, ET SEQ.).
"EQUITY SECURITIES" will mean the stock of, and any similar interest in,
the Company and all securities (whether stock or indebtedness) convertible or
exchangeable, with or without consideration, into or for any stock or similar
interest and all securities (whether stock or indebtedness) carrying any warrant
or right to subscribe to or purchase any stock or similar interest or any such
warrant or right.
"EXCHANGE ACT" will mean the Securities Exchange Act of 1934, as amended.
"FCC" will mean the Federal Communications Commission or any successor
agency.
"FCC LICENSE" will mean any construction permit, community antennae relay
service, broadcast auxiliary license, earth station registration, business
radio, microwave or special safety radio service license issued by the FCC
pursuant to the Communications Act of 1934, as amended, and any other FCC
license from time to time necessary or advisable for the operation of the
Company's business.
"FINANCIALS" will have the meaning assigned to it in SECTION 6(h).
"GOVERNMENTAL AUTHORITY" will mean the United States of America, any state,
commonwealth, territory or possession of the United States of America and any
political subdivision or quasi-governmental authority of any of the same,
including any court, tribunal, department, commission, council, board, bureau,
agency, county, municipality, province, parish or other instrumentality of any
of the foregoing.
"HOLDER" of any Security will mean the record owner of such Security.
"HSR ACT" will mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"INDEMNIFIED PARTY" will have the meaning assigned to it in SECTION 11(c).
"INDEMNIFYING PARTY" will have the meaning assigned to it in SECTION 11(c).
"INTERNAL REVENUE CODE" will mean the Internal Revenue Code of 1986, as
amended.
"INVESTORS" will have the meaning assigned to it in the introductory
paragraph of this Agreement.
3
<PAGE>
"LICENSES" will mean any license, permit, certificate of need,
authorization, certification, accreditation, franchise, approval or grant of
rights, whether based upon any agreement, statute, order, ordinance or otherwise
granted by any Governmental Authority to the Company or any Subsidiary necessary
or appropriate for the Company or any Subsidiary to engage in its business as
currently conducted, including in order to provide direct broadcast satellite,
telecommunication, local, long distance and wireless telephone services, cable
television services or internet services to residential, commercial or
governmental users, including FCC Licenses, together with any amendment,
modification or replacement with respect thereto.
"LIEN" will mean with respect to any property, any mortgage, lien, pledge,
charge, security interest or other encumbrance of any kind, whether or not
filed, recorded or otherwise perfected under applicable law (including any
conditional sale or other title retention agreement and any lease deemed to
constitute a security interest and any option or other agreement to give any
security interest).
"LOSSES" will have the meaning assigned to it in SECTION 11(a).
"MATERIAL AGREEMENT" will have the meaning assigned to it in SECTION 6(j).
"MATERIALLY ADVERSE EFFECT" will mean any materially adverse effect upon
the business operation, assets, liabilities, financial condition, results of
operations or business prospects of the Company or any of its Subsidiaries, or
the ability of the Company to perform this Agreement or observe the terms of the
Designations, resulting from any act, omission, situation, status, event or
undertaking, either singly or taken together.
"MAXIMUM AMOUNT" will have the meaning assigned to it in SECTION 11(a).
"MINIMUM AMOUNT" will have the meaning assigned to it in SECTION 11(a).
"PCS SHARES" will have the meaning assigned to it in SECTION 3.
"PCS TRUST DOCUMENTS" will mean the Trust Agreement of the Liberty PCS
Trust entered into as of March 9, 1999 between TCI Wireless Holdings, Inc., as
Grantor, and M. LaVoy Robison, as Trustee; the Stipulation entered on August 23,
1999, in the United States District Court for the District of Columbia in UNITED
STATES OF AMERICA V. AT&T CORP. AND TELE-COMMUNICATIONS, INC., No. 98-CV03170;
the Final Judgment entered on August 23, 1999, in the United States District
Court for the District of Columbia in UNITED STATES OF AMERICA V. AT&T CORP. AND
TELECOMMUNICATIONS, INC., No. 98-CV03170; the Order adopted March 5, 1999 by the
FCC in the Matter of Applications for Consent to Transfer of Control of Licenses
and Section 214 Authorizations from Tele-Communications, Inc. to AT&T Corp., CS
Docket No. 98-178; the Top Up Right Agreement entered into as of March 9, 1999,
among France Telecom S.A., Deutsche Telekom AG, and Liberty PCS Trust; and the
Standstill Agreement dated as of March 9, 1999, between Sprint Corporation and
the Liberty PCS Trust.
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"PERSON" will mean any natural person or any corporation, trust,
association, company, partnership, limited liability company, joint venture or
other entity, including any Governmental Authority.
"PREFERRED STOCK" will have the meaning assigned to it in SECTION 2.
"PROPOSED AMENDMENTS" will have the meaning assigned to it in SECTION 8(d).
"REGISTRATION RIGHTS AGREEMENT" will have the meaning assigned to it in
SECTION 8(g)(ix).
"REQUIRED CONSENTS" will mean any and all consents, authorizations and
approvals required for the execution, delivery and performance by the Company of
this Agreement and the Designations, each in accordance with their respective
terms, and the consummation of the transactions contemplated by this Agreement
and the Designations.
"SATELLITE VENTURE" will have the meaning assigned it in the second
paragraph of this Agreement.
"SATELLITE VENTURE CONTRIBUTION AGREEMENT" will have the meaning assigned
to it in the second paragraph of this Agreement.
"SECURITIES" will have the meaning assigned to it in SECTION 2.
"SECURITIES ACT" will mean the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" will have the meaning assigned to it in SECTION
2.
"SERIES B COMMON STOCK" will have the meaning assigned to it in SECTION 2.
"SERIES B PREFERRED STOCK" will have the meaning assigned to it in SECTION
2.
"SUBSIDIARY" will mean (i) any corporation of which 50% or more of the
voting stock, or any partnership or limited liability company of which 50% or
more of outstanding interests, is at any time owned by the Company, or by one or
more Subsidiaries of the Company, or by the Company and one or more Subsidiaries
of the Company, and (ii) any other entity which is controlled or capable of
being controlled by the Company or by one or more Subsidiaries of the Company or
by the Company and one or more Subsidiaries of the Company.
"TRADING PRICE" means, with respect to the PCS Shares as of the Closing
Date, the last reported sale price of shares of Sprint PCS Group Common Stock as
reported on the New York Stock Exchange on the day that is two full trading days
before the Closing Date. For purposes of this definition, a "trading day" is a
day on which the New York Stock Exchange is open for the transaction of business
(unless such trading will have been suspended for the entire day).
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"WIRELESS SUB 1" will have the meaning assigned to it in the introductory
paragraph of this Agreement.
"WIRELESS SUB 2" will have the meaning assigned to it in the introductory
paragraph of this Agreement.
2. AUTHORIZATION OF SECURITIES. The Company has authorized the issuance of an
aggregate of 150,000 shares of its Cumulative Preferred Stock, Series A (the
"SERIES A PREFERRED STOCK") and 150,000 shares of its Cumulative Convertible
Voting Preferred Stock, Series B (the "SERIES B PREFERRED STOCK"), each having
the rights, preferences and privileges set forth with respect to such series in
their respective Certificates of Stock Designation (hereinafter referred to as
the "DESIGNATIONS"), copies of which are attached hereto as ANNEX A and ANNEX B,
respectively. The shares of Series B Preferred Stock are convertible into shares
of Series B Common Stock of the Company (the "SERIES B COMMON STOCK") upon the
terms and conditions set forth in the Designations. The Series A Preferred Stock
and the Series B Preferred Stock are sometimes referred to collectively herein
as the "PREFERRED STOCK" and the Preferred Stock and Series B Common Stock are
sometimes referred to collectively as the "SECURITIES."
3. ISSUANCE OF PREFERRED STOCK AND CONTRIBUTION. Upon the terms and subject to
the conditions herein contained, the Company agrees to issue to Wireless Sub 2,
and Wireless Sub 2 agrees to acquire from the Company, at the Closing on the
Closing Date, 150,000 shares of Series A Preferred Stock. Upon the terms and
subject to the conditions herein contained, the Company agrees to issue to
Wireless Sub 1, and Wireless Sub 1 agrees to acquire from the Company, at the
Closing on the Closing Date, 150,000 shares of Series B Preferred Stock. In
exchange for such issuance, the Investors will each contribute to the Company
trust certificates issued by the Liberty PCS Trust representing an economic
interest in a number of shares of Sprint PCS Group Common Stock having an
aggregate value on the Closing Date, calculated at the Trading Price, equal to
$150,000,000 (the aggregate of such contributions is referred to as the "PCS
SHARES"), and the Company will assume the applicable obligations arising in
connection with the PCS Shares under the PCS Trust Documents. The trust
certificates and the interests represented thereby will be subject to the terms
of the PCS Trust Documents.
4. CLOSING. The closing of the issuance to the Investors of the Securities (the
"CLOSING") will occur at the offices of Sherman & Howard L.L.C. in Denver,
Colorado, at 10:00 A.M., mountain time, on the satisfaction or waiver of the
conditions to Closing set forth in SECTIONS 8 and 9, or at such different time
or day as the Investors and the Company may agree (the "CLOSING DATE"). At the
Closing, the Company will deliver to the Investors certificates evidencing the
number of shares of Series A Preferred Stock and Series B Preferred Stock issued
to them in accordance with SECTION 3, each of which will be registered in the
appropriate Investor's name, and the Investors will each deliver to the Company
trust certificates in the form of ANNEX C representing an interest in the number
of PCS Shares prescribed by SECTION 3.
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5. REGISTER OF SECURITIES; RESTRICTIONS ON TRANSFER OF SECURITIES.
(a) REGISTER OF SECURITIES. The Company or its duly appointed agent will
maintain a separate register for the shares of each series and class of Equity
Securities, for the registration of the issuance and sale of all such shares.
All transfers of Preferred Stock, or Series B Common Stock issued upon
conversion of Series B Preferred Stock, will be recorded on the register
maintained by the Company or its agent, and the Company will be entitled to
regard the registered Holder of such Securities as the actual Holder of the
Securities so registered until the Company or its agent is required to record a
transfer of such Securities on its register. Subject to SECTION 5(b) hereof, the
Company or its agent will be required to record any such transfer when it
receives the Security to be transferred, duly and properly endorsed by the
registered Holder thereof or by its attorney-in-fact duly authorized in writing.
(b) RESTRICTIONS ON TRANSFER.
(i) The Investors will not sell, transfer, assign, pledge, hypothecate
or otherwise dispose of any of the Securities except in compliance with the
Securities Act and the registration or qualification requirements of any
applicable state securities laws or any exemption therefrom.
(ii) The certificates evidencing the Preferred Stock, each certificate
issued in transfer thereof, and each certificate evidencing the Series B Common
Stock issued upon conversion of shares of the Preferred Stock will bear a legend
substantially to the effect of the following, along with any legend required
under any applicable state securities laws:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
any applicable state securities laws. These securities may not be
sold or transferred in the absence of such registration or an
exemption therefrom under such Act and under any applicable state
securities laws."
(iii) The Company will make a notation on its records and may give
instructions to any transfer agent of the Series B Common Stock or Preferred
Stock in order to implement the restrictions on transfer set forth in this
SECTION 5(b).
6. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. To induce the Investors to
enter into this Agreement and to consummate the transactions contemplated
hereby, the Company covenants with, and represents and warrants to, the
Investors as follows:
(a) ORGANIZATION; POWER; QUALIFICATION; CAPITAL STOCK.
(i) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Company has the
corporate power and authority to own or lease and operate its properties and to
carry on its business as it is now being and
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hereafter proposed to be conducted. The Company is duly qualified, in good
standing and authorized to do business in each jurisdiction in which the
character of its properties or the nature of its businesses requires such
qualification or authorization. ANNEX 6(a) sets forth the number of authorized
shares of each class and series of Equity Securities of the Company, the par
value per share, and the number of issued and outstanding shares of each such
class and series on the date hereof, after giving effect to the transactions
contemplated hereby. Except as described on ANNEX 6(a) attached hereto, the
Company does not have outstanding any stock or other securities convertible into
or exchangeable for any shares of its Equity Securities, nor are there any
preemptive or other rights to subscribe for or to purchase, or any other rights
to subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments, or claims of any character relating to, any Equity
Securities or any stock or securities convertible into or exchangeable for any
Equity Securities. Except as set forth on ANNEX 6(a), the Company is not subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its Equity Securities or to register any shares of its
Equity Securities, and there are no agreements restricting the transfer of any
shares of the Company's Equity Securities.
(ii) Other than the Preferred Stock to be issued to the Investors
pursuant to this Agreement, there are no shares of preferred stock of the
Company or its Subsidiaries outstanding. The Preferred Stock has been duly
authorized and, when issued and paid for pursuant to the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, will have the rights, preferences and privileges specified in the
Designations and will be free and clear of all Liens and restrictions, other
than Liens that might have been created by the Investors and restrictions on
transfer imposed by SECTION 5(b) hereof; and the Series B Common Stock issuable
upon conversion of the Preferred Stock has been (or will be upon the
effectiveness of the Proposed Amendments) duly authorized and reserved for
issuance upon conversion of the Preferred Stock and, when issued will be duly
authorized, validly issued, fully paid and nonassessable Series B Common Stock,
and clear of all Liens and restrictions, other than Liens that might have been
created by the Investors and restrictions imposed by SECTION 5(b) hereof.
(b) AUTHORIZATION. The Company has the corporate power and has taken all
necessary corporate action to authorize it to issue the Preferred Stock and to
execute, deliver and perform this Agreement and the Designations in accordance
with their respective terms, and to consummate the transactions contemplated by
this Agreement and the Designations. This Agreement has been duly executed and
delivered by the Company and is, along with the Designations, a legal, valid and
binding obligation of the Company enforceable in accordance with its terms,
subject, as to enforcement of remedies, to the following qualifications: (i)
certain equitable remedies are discretionary and, in particular, may not be
available where damages are considered an adequate remedy at law; and (ii)
enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws affecting enforcement of
creditors' rights generally (insofar as any such law relates to the bankruptcy,
insolvency or similar event of the Company).
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(c) SUBSIDIARIES. The Subsidiaries of the Company are listed in ANNEX 6(c)
attached hereto. The Company owns all of the outstanding capital stock of each
Subsidiary, except as set forth in ANNEX 6(c).
(d) COMPLIANCE WITH OTHER DOCUMENTS AND CONTEMPLATED TRANSACTIONS. Except
for, and subject to the receipt of the Required Consents, all of which are set
forth in ANNEX 6(d), the execution, delivery and performance by the Company of
this Agreement and the Designations, each in accordance with their respective
terms, and the consummation of the transactions contemplated by this Agreement
and the Designations, do not and will not (i) require any consent, approval,
authorization, permit or license which has not already been obtained from, or
effect any filing or registration which has not already been effected with, any
federal, state or local regulatory authority, (ii) violate any Applicable Law
with respect to the Company, (iii) conflict with, result in a breach of, or
constitute a default under the Certificate of Incorporation or the bylaws of the
Company, or under any indenture, agreement, or other instrument, including the
Licenses, to which the Company or any Subsidiary of the Company is a party or by
which any such company or its properties may be bound, or (iv) result in or
require the creation or imposition of any Lien upon or with respect to any
property now owned or hereafter acquired by the Company or any of its
Subsidiaries. All Notification and Report Forms required to be filed under the
HSR Act with respect to the transactions contemplated by this Agreement have
been filed and the applicable waiting period under the HSR Act has been
terminated.
(e) LICENSES. All material Licenses necessary to the operation of the
Company's business have been authorized by the grantors thereof and are in full
force and effect, and the Company is in compliance in all material respects with
all of the provisions thereof.
(f) COMPLIANCE WITH LAW. The Company is in compliance in all material
respects with all Applicable Laws.
(g) LITIGATION. There is no action, suit or proceeding pending or, to the
best of the Company's knowledge, threatened against or in any other manner
relating directly and adversely to, the Company or any of its properties in any
court or before any arbitrator of any kind or before or by any Governmental
Authority, and no such action, suit, proceeding or investigation (i) calls into
question the validity of this Agreement or the Designations, or (ii) if
determined adversely to the Company, would be likely to have a Materially
Adverse Effect.
(h) FINANCIAL STATEMENTS. The Company has furnished or caused to be
furnished to the Investors the audited balance sheet and statement of income for
the fiscal year ended December 31, 1998 and unaudited balance sheets and
statements of income for each quarterly period since December 31, 1998
(collectively, the "FINANCIALS"), which as of the date hereof are complete and
correct in all material respects and present fairly in accordance with generally
accepted accounting principles the Company's financial position on and as at
such dates and the results of operations for the periods then ended. Except as
set forth in ANNEX 6(h), there are no material liabilities, contingent or
otherwise, of the Company which are not disclosed in such Financials.
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<PAGE>
(i) NO ADVERSE CHANGE. Except as set forth in ANNEX 6(i), since December
31, 1998, there has occurred no event which is likely to have a Materially
Adverse Effect.
(j) ABSENCE OF DEFAULT, ETC. The Company is in compliance with all the
provisions of its Certificate of Incorporation and bylaws, and, except as set
forth in ANNEX 6(j), no event has occurred or failed to occur, which has not
been remedied or waived, the occurrence or non-occurrence of which constitutes,
or which with the passage of time or giving of notice or both would constitute a
material default by the Company under any material indenture, agreement or other
instrument (a "MATERIAL AGREEMENT"), including any License or any judgment,
decree or order to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries or their properties may be bound or
affected. All Material Agreements are in full force and effect, and the Company
has no knowledge that any party to any Material Agreement is seeking or
presently intends to seek to terminate, amend or modify such Material Agreement.
(k) INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT. The Company
is not subject to regulation under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), as an "investment company" or a company
"controlled by an investment company" that is required to register, in each
case, under the provisions of the Investment Company Act, and neither the
entering into or performance by the Company of this Agreement violates any
provision of such Act or requires any consent, approval or authorization of, or
registration with, the Commission or any other Governmental Authority pursuant
to any provisions of such Act. The Company is not a "public utility holding
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended. None of the transactions contemplated by this Agreement (including
the use of proceeds from the sale of the Securities) will violate or result in a
violation of Section 7 of the Exchange Act or any regulation issued pursuant
thereto.
(l) SECURITIES LAWS. The Company and any underwriters, sales agents,
representatives or brokers representing or acting on behalf of the Company have
complied with all material federal and state securities laws in connection with
the offer and issuance of share interests in the Company, including the
Preferred Stock to be issued pursuant to this Agreement. The offer and issuance
of the Securities, including the issuance of the shares of Series B Common Stock
in connection with the conversion of the Series B Preferred Stock (assuming no
action is taken after the date hereof by the Holders of Preferred Stock to make
an exemption from registration unavailable), are, in each case, exempt from the
registration requirements of the Securities Act and from the registration or
qualification requirements of the laws of any applicable state or other
jurisdiction, so long as the Investors do not take any action which would cause
the loss of such exemption. Neither the Company nor anyone on its behalf will
take any action hereafter that would or would be likely to cause the loss of
such exemption.
(m) DISCLOSURE; SEC FILINGS. There is no fact known to the Company which
the Company has not disclosed to the Investors in writing which has or is
reasonably expected to have a Materially Adverse Effect. As of the date of this
Agreement, the information contained in this
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Agreement, the Financials and in any writing furnished pursuant hereto or in
connection herewith, does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or herein or
necessary to make the statements therein or herein not misleading. Additionally,
the Company has delivered or has made available to the Investors true and
complete copies of each registration statement, report and proxy or information
statement, including any Annual Reports to Shareholders incorporated by
reference in any of such reports, in form (including exhibits and any amendments
thereto) required to be filed with the Commission since December 31, 1996
(collectively, the "COMPANY SEC REPORTS"). As of the respective dates the
Company SEC Reports were filed, or, if any such Company SEC Report was amended,
as of the date such amendment was filed, each of the Company SEC Reports (i)
complied in all respects with all applicable requirements of the Securities Act
and the Exchange Act, and the rules and regulations promulgated thereunder, and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
misleading. Each of the audited financial statements and unaudited interim
financial statements of the Company (including any related notes and schedules)
included (or incorporated by reference) in its Annual Reports on Form 10-K for
each of the three fiscal years ended December 31, 1996, 1997 and 1998 and its
Quarterly Reports on Form 10-Q for all interim periods subsequent thereto fairly
present, in conformity with generally accepted accounting principles, the
financial position of the Company as of its date and the results of operations
and cash flows for the period then ended (subject to normal year-end adjustments
in the case of any unaudited interim financial statements).
(n) YEAR 2000 COMPLIANCE. All of the business operations of the Company and
its Subsidiaries are Year 2000 compliant except to the extent that a failure to
do so could not reasonably be expected to have a Materially Adverse Effect. To
the best knowledge of the Company after due investigation, any suppliers and
vendors that are material to the operations of the Company or its Subsidiaries
are Year 2000 compliant for their own computer applications except to the extent
that a failure to do so could reasonably be expected not to have a Materially
Adverse Effect.
(o) BROKERS' AND FINDERS' FEES. The Company has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
7. REPRESENTATIONS AND WARRANTIES BY THE INVESTORS. To induce the Company to
enter into this Agreement and consummate the transactions contemplated hereby,
each of the Investors, severally and not jointly, covenants with, and represents
and warrants to, the Company as follows:
(a) ORGANIZATION; POWER; QUALIFICATION; ACCREDITED INVESTOR STATUS. Each
Investor is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each Investor has the corporate power
and authority to own or lease and operate its properties and to carry on its
business as it is now being and hereafter proposed to be conducted. Each
Investor is duly qualified, in good standing and authorized to do business in
each jurisdiction
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in which the character of its properties or the nature of its businesses
requires such qualification or authorization. Each Investor is an "accredited
investor" as that term is defined in Rule 501 under the Securities Act.
(b) AUTHORIZATION. Each Investor has the corporate power and has taken all
necessary corporate action to authorize it to execute, deliver and perform this
Agreement in accordance with its terms, and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Investors and is a legal, valid and binding obligation of each of them
enforceable in accordance with its terms, except that: (i) certain equitable
remedies are discretionary and, in particular, may not be available where
damages are considered an adequate remedy at law; and (ii) enforcement may be
limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction
and other similar laws affecting enforcement of creditors' rights generally
(insofar as any such law relates to the bankruptcy, insolvency or similar event
of the Investors).
(c) COMPLIANCE WITH OTHER DOCUMENTS AND CONTEMPLATED TRANSACTIONS. The
execution, delivery and performance by the Investors of this Agreement in
accordance with its terms, and the consummation of the transactions contemplated
hereby, do not and will not (i) require any consent, approval, authorization,
permit or license which has not already been obtained from, or effect any filing
or registration which has not already been effected with, any federal, state or
local regulatory authority, (ii) violate any Applicable Law with respect to
either Investor, (iii) conflict with, result in a breach of, or constitute a
default under the certificate of incorporation or the bylaws of either Investor,
or under any indenture, agreement, or other instrument to which either Investor
is a party or by which any such company or its properties may be bound, or (iv)
result in or require the creation or imposition of any Lien upon or with respect
to the PCS Shares.
(d) LITIGATION. There is no action, suit or proceeding pending or, to the
best of the Investors' knowledge, threatened against or in any other manner
relating directly and adversely to, either Investor or any of its properties in
any court or before any arbitrator of any kind or before or by any Governmental
Authority, and no such action, suit, proceeding or investigation calls into
question the validity of this Agreement.
(e) BROKERS' AND FINDERS' FEES. Neither Investor has incurred, nor will
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
(f) INFORMATION. The Investors have been given full access to and ample
opportunity to review such financial and other information concerning the
transactions contemplated by this Agreement as they have deemed necessary to
make an informed investment decision and have availed themselves of such access
and opportunity to the full extent that they desired. The Investors acknowledge
that the Company has afforded them the opportunity to make inquiries and obtain
information from the Company and its representatives and advisors. Based upon
their own investigations and upon information provided by the Company their own
tax, legal, financial and
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regulatory advisers with regard to all matters relating to this Agreement and
not on any advice or recommendation of the Company.
(g) PCS SHARES. As of the Closing Date:
(i) Each Investor will own the interests in the PCS Shares which it
will be contributing to the Company under SECTION 3, free and clear of all Liens
(other than Liens created by the Company), subject, however, to the terms of the
PCS Trust Documents;
(ii) Neither Investor will be a party to any option, warrant, purchase
right, or other contract or commitment that could require it to sell, transfer
or otherwise dispose of any of the interests in the PCS Shares which it will be
contributing to the Company under SECTION 3 (other than this Agreement); and
(iii) Neither Investor will be a party to any voting trust, proxy or
other agreement or understanding, other than the PCS Trust Documents, with
respect to the voting or disposition of any of the PCS Shares as to which it
will be contributing its interests to the Company under SECTION 3.
8. CONDITIONS PRECEDENT TO THE INVESTORS' OBLIGATIONS AT THE CLOSING. The
obligation of the Investors to execute, deliver and consummate this Agreement is
subject to the prior fulfilment of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company under this Agreement will be true and correct in all material
respects as of the date hereof and any exceptions thereto will be acceptable to
the Investors.
(b) SATELLITE VENTURE CONTRIBUTION. The conditions to the Liberty
Affiliates' consummation of the Satellite Venture Contribution Agreement will
have been satisfied or waived, and the Company, the Liberty Affiliates and the
Satellite Venture will have consummated, or will be contemporaneously
consummating, the transactions contemplated by the Contribution Agreement.
(c) NO MATERIAL ADVERSE CHANGE. There will not have occurred (i) a change
in the financial condition, business, assets or prospects of the Company or any
of its Subsidiaries that constitutes a Materially Adverse Effect with respect to
the Company and its Subsidiaries taken as a whole, (ii) any substantive change
in Applicable Laws affecting the business of the Company or any of its
Subsidiaries or the business proposed to be conducted by the Company or any of
its Subsidiaries that has a Materially Adverse Effect, or (iii) any threatened,
instituted or pending action, proceeding, application or counterclaim by or
before any Governmental Authority or foreign governmental body, which seeks to
restrain or prohibit the transactions contemplated by this Agreement or seeks
damages in connection therewith or resulting therefrom, seeks to impose any
limitations on the ability of the Investors effectively to acquire or to hold or
to exercise full rights
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of ownership of the Securities, including the right to vote the Securities in
accordance with their terms, or would otherwise be reasonably likely to have a
Materially Adverse Effect on the Company.
(d) DESIGNATIONS AND PROPOSED AMENDMENTS. The Designations will have been
approved by the Company as required by applicable law, will have been filed and
recorded with the Delaware Secretary of State and will have become effective,
and a copy of the Certificate of Incorporation, as amended, certified by the
Delaware Secretary of State will have been delivered to the Investors. The Board
will have resolved to submit for shareholder approval at or before the next
annual meeting of the shareholders, but in no event later than July 15, 2000,
the proposed amendments to the Certificate of Incorporation set forth on ANNEX D
(the "PROPOSED AMENDMENTS").
(e) QUALIFICATION UNDER STATE SECURITIES LAWS. All registrations,
qualifications, permits and approvals required under applicable state securities
laws will have been obtained for the lawful execution, delivery and performance
of this Agreement and the performance of the Designations, including all such
registrations, qualifications, permits and approvals necessary for the offer,
sale, issue and delivery of the Securities.
(f) FAIRNESS OPINION. The Company will have received from a nationally
recognized investment banking firm reasonably acceptable to the Investors an
opinion that the transactions contemplated by this Agreement and the Satellite
Venture Contribution Agreement are fair to the Company's stockholders (other
than the Investors and their Affiliates) from a financial point of view, and
such firm will not have withdrawn such opinion prior to the Closing Date.
(g) DELIVERY OF DOCUMENTS. The Investors will have received the following:
(i) copies of resolutions of the Board, certified by an Authorized
Signatory of the Company, authorizing and approving the Designations and the
matters set forth in SECTION 8(d) hereof, the execution, delivery and
performance of this Agreement, and all other documents and instruments to be
delivered pursuant hereto and thereto;
(ii) a copy of the bylaws of the Company certified by an Authorized
Signatory of the Company;
(iii) a true and complete copy of each and any agreements or
arrangements of any kind among the shareholders of the Company, or otherwise
with respect to the ownership of the Company;
(iv) evidence satisfactory to the Investors that all Required Consents
have been obtained, and a certificate of an Authorized Signatory of the Company
so stating;
(v) good standing certificates for the Company issued by the Secretary
of State, or similar official, of each state in which the Company is
incorporated or qualified to do business as a foreign corporation;
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(vi) this duly executed Agreement;
(vii) certificates representing the shares of Preferred Stock to be
purchased by each Investor;
(viii) a certificate of incumbency with respect to each Authorized
Signatory;
(ix) a duly executed Registration Rights Agreement in the form attached
to this Agreement as ANNEX E (the "REGISTRATION RIGHTS AGREEMENT");
(x) such agreements and undertakings reasonably requested by the
Investors to evidence the Company's assumption of obligations under the PCS
Trust Documents, as set forth in Section 3; and
(xi) such additional supporting documentation and other information
with respect to the transactions contemplated hereby as the Investors may
reasonably request.
(h) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings and
actions taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments and documents mentioned in this
Agreement or incident to any such transactions, will be satisfactory in form and
substance to the Investors.
9. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
obligation of the Company to execute, deliver and consummate this Agreement is
subject to the prior fulfilment of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Investors under this Agreement will be true and correct in all material
respects as of the date hereof and any exceptions thereto will be acceptable to
the Company.
(b) SATELLITE VENTURE CONTRIBUTION. The conditions to the Company's
consummation of the Satellite Venture Contribution Agreement will have been
satisfied or waived, and the Company, the Liberty Affiliates and the Satellite
Venture will have consummated, or will be contemporaneously consummating, the
transactions contemplated by the Satellite Venture Contribution Agreement.
(c) FAIRNESS OPINION. The Company will have received from a nationally
recognized investment banking firm reasonably acceptable to the Investors an
opinion that the transactions contemplated by this Agreement and the Satellite
Venture Contribution Agreement are fair to the Company's stockholders (other
than the Investors and their Affiliates) from a financial point of view, and
such firm will not have withdrawn such opinion prior to the Closing Date.
15
<PAGE>
(d) DELIVERY OF DOCUMENTS. The Company will have received the following:
(i) copies of resolutions of the board of directors of each Investor,
certified by a duly authorized officer of the Company, authorizing and approving
the delivery and performance of this Agreement, and all other documents and
instruments to be delivered pursuant hereto and thereto;
(ii) this duly executed Agreement;
(iii) trust certificates delivered pursuant to SECTION 4 representing
the PCS Shares;
(iv) a certificate of incumbency with respect to each officer
authorized by the Investors to execute and deliver on behalf of each of them
this Agreement and the documents described in this Section 9(d);
(v) a duly executed Registration Rights Agreement; and
(vi) such additional supporting documentation and other information
with respect to the transactions contemplated hereby as the Company may
reasonably request.
(e) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings and
actions taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments and documents mentioned in this
Agreement or incident to any such transactions, will be satisfactory in form and
substance to the Company.
10. AFFIRMATIVE COVENANTS. The Company agrees, that, unless the Holders of a
Majority of the then-outstanding shares of each series of Preferred Stock
otherwise agree in writing, so long as any shares of either series of Preferred
Stock are outstanding, the Company will (and will cause its Subsidiaries to) do
the following:
(a) PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. Preserve and maintain,
or timely obtain and thereafter preserve and maintain, its existence, material
rights, franchises and Licenses and its material privileges and qualify and
remain qualified and authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualifications or authorizations.
(b) COMPLIANCE WITH APPLICABLE LAW. Comply in all respects with the
requirements of all Applicable Laws except where compliance is being contested
in good faith by appropriate proceedings and adequate reserves have been set
aside therefor.
(c) MAINTENANCE OF PROPERTIES. Maintain or cause to be maintained in the
ordinary course of business in good repair, working order and condition
(reasonable wear and tear excepted) all properties used or useful in its
business (whether owned or held under lease), and from time to time
16
<PAGE>
make or cause to be made all needed and appropriate repairs, renewals,
replacements, additions, betterments and improvements thereto; PROVIDED,
HOWEVER, that the provisions of this SECTION 10(c) will not prevent the Company
from selling, transferring or otherwise disposing of property.
(d) ACCOUNTING METHODS AND FINANCIAL RECORDS. Maintain a system of
accounting established and administered in accordance with generally accepted
accounting principles consistently applied, keep adequate records and books of
account in which complete entries will be made in accordance with such
accounting principles consistently applied and reflecting all transactions
required to be reflected by such accounting principles. The Company will also
maintain a fiscal year ending on December 31.
(e) MAINTAIN INSURANCE. Maintain in full force and effect a policy or
policies of insurance issued by insurers of recognized responsibility, insuring
it and its properties and business against such losses and risks, and in such
amounts, as are customary in the case of corporations of established reputation
engaged in the same or a similar business and similarly situated.
(f) PAY TAXES AND OTHER LIABILITIES. Pay and discharge all taxes,
assessments and governmental charges or levies imposed upon it or any of its
Subsidiaries or their income or profits or upon any properties belonging to them
prior to the date on which penalties attach thereto, and all lawful claims for
labor, materials and supplies which, if unpaid, might become a Lien or charge
upon any of their properties; except that no such tax, assessment, charge, levy
or claim need be paid which is being contested in good faith by appropriate
proceedings and for which adequate reserves will have been set aside on the
appropriate books, but only so long as such tax, assessment, charge, levy or
claim does not become a Lien or charge (other than a Lien for taxes not yet due
and payable) and no foreclosure, distraint, sale or similar proceedings will
have been commenced. The Company will timely file all information returns
required by federal, state or local tax authorities.
(g) FINANCIAL REPORTS. The Company will furnish to each Holder of Preferred
Stock:
(i) As soon as practicable and in any event within 60 days after the
last day of each quarter of each fiscal year of the Company, the consolidated
balance sheet of the Company as at the end of such quarter and the related
consolidated statement of income and retained earnings and related consolidated
statement of cash flows of the Company for such quarter and for the elapsed
portion of the year ended with the last day of such quarter, all of which will
be certified by the chief financial officer or chief accounting officer of the
Company, to be, in his opinion, complete and correct in all material respects
and to present fairly, in accordance with generally accepted accounting
principles, the financial position of the Company as at the end of such period
and the results of operation for such periods, and the elapsed portion of the
year ended with the last day of such period, subject only to normal year-end
adjustments; and
(ii) As soon as practicable and in any event within 120 days after the
end of each fiscal year of the Company, the audited consolidated balance sheet
of the Company as at the end of such fiscal year and the related audited
consolidated statements of income and retained earnings or
17
<PAGE>
deficit and related consolidated statement of cash flows for the Company for
such fiscal year, setting forth in comparative form the figures as at the end of
and for the previous fiscal year and certified by independent certified public
accountants of national recognized standing, whose opinion will be in scope and
substance reasonably satisfactory to the Holders of Preferred Stock, and who
will have authorized the Company to deliver such financial statements and
opinions thereon to the Holders of Preferred Stock pursuant to this Agreement.
(h) ANNUAL BUDGETS. Promptly after its preparation and in no event later
than January 31 of each year, a copy of the annual budget of the Company and its
Subsidiaries for the fiscal year, including the budget for capital expenditures
for the operations of their businesses.
(i) NOTICE OF LITIGATION AND OTHER MATTERS. Provide prompt notice (and in
any event, notice within three Business Days) to the Holders of Preferred Stock
of the following events after the Company has received notice thereof or
otherwise becomes aware of:
(i) The commencement of any material proceeding or investigation by or
before any Governmental Authority and any material actions or proceedings in any
court or before any arbitrator against, or in any other way relating materially
adversely and directly to, the Company or any Subsidiary or any of their
properties, assets or businesses or any License; and
(ii) Any material amendment or material modification to the budget
submitted under SECTION 10(h) hereof.
(j) BOARD OF DIRECTORS. As soon as practicable following the Closing and so
long as any shares of Preferred Stock are outstanding, the Company will fill any
vacancies on its Board of Directors and otherwise increase the size of the Board
(as necessary) to include a majority of directors, the nominees for which will
be designated by the Investors.
(k) PROXY STATEMENT. The Company will (i) sufficiently in advance of its
next regularly scheduled annual Stockholders' meeting to permit consideration at
such Stockholders' meeting, prepare and file with the Commission, and use its
commercially reasonable efforts to have cleared by the Commission and thereafter
mail to its stockholders a proxy statement and a form of proxy, in connection
with the vote at such regularly scheduled annual meeting of the Company's
stockholders (such proxy statement, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to the Company's
stockholders, is called the "PROXY STATEMENT"), (ii) use its best efforts to
obtain the necessary approvals by its stockholders of the Proposed Amendments
and (iii) otherwise comply with all legal requirements applicable to such
meeting. The Company will include in the Proxy Statement the recommendation of
the Board that stockholders of the Company vote in favor of the approval of the
Proposed Amendments. The Company will use its best efforts to conduct the
stockholders' meeting on or before July 15, 2000.
(l) REPLACEMENT OF CERTIFICATES. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any certificate representing any of the
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Securities, and subject to the Company's right to require reasonable
indemnification by the holder, issue a new certificate representing such
Securities in lieu of such lost, stolen, destroyed, or mutilated certificate.
(m) COMPLIANCE WITH DESIGNATIONS AND BYLAWS. Perform and observe all
requirements of the Company's bylaws and the Designations, including its
obligations to the Holders of Securities set forth in the Designations and the
Company's bylaws.
(n) AMENDMENTS TO OR REPEAL OF BYLAWS. Not amend or repeal any bylaw in any
manner that would significantly and adversely affect the right and preferences
of the Preferred Stock.
11. INDEMNIFICATION AND ENFORCEMENT.
(a) INDEMNIFICATION BY EACH INVESTOR. Subject to written notice of such
claim for indemnification being given to the Investors within the appropriate
survival period referred to in SECTION 12(d), each Investor, severally and not
jointly, covenants and agrees to indemnify, defend and hold harmless the
Company, its Affiliates and their respective stockholders, directors, officers,
employees, agents, successors and assigns from and against:
(i) all losses, damages, liabilities, deficiencies, obligations, costs
and expenses resulting from or arising out of any misrepresentation or breach of
warranty or any nonperformance or breach of any covenant or agreement of such
Investor contained in this Agreement or any document delivered under SECTION
9(d) to which such Investor is a party; and
(ii) all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including, without
limitation, settlement costs and reasonable legal, accounting, experts, and
other fees, costs and expenses) incident or relating to or resulting from any of
the foregoing.
Notwithstanding the foregoing provisions of this SECTION 11(a), no claim
shall be made by the Company, its Affiliates or their respective stockholders,
directors, officers, employees, agents, successors and assigns hereunder unless
and until any or all of the losses, damages, liabilities, deficiencies,
obligations, costs and expenses (and amounts incident or relating to or
resulting from any or all of the foregoing) (collectively, the "LOSSES")
referred to in this SECTION 11(a) exceeds, either individually or in the
aggregate, $3,000,000 (the "MINIMUM AMOUNT"); provided, however, that at such
time as the aggregate amount of the Losses exceeds the Minimum Amount, the
Company, its Affiliates and their respective stockholders, directors, officers,
employees, agents, successors and assigns may assert a claim for the full amount
of the Losses up to a maximum of $150,000,000 (the "MAXIMUM AMOUNT").
(b) INDEMNIFICATION BY THE COMPANY. Subject to written notice of such claim
for indemnification being delivered to the Company within the appropriate
survival period set forth in SECTION 12(d), the Company agrees to indemnify,
defend and hold harmless each Investor, its
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<PAGE>
Affiliates and their respective stockholders, directors, officers, employees,
agents, successors and assigns from and against:
(i) all losses, damages, liabilities, deficiencies, obligations, costs
and expenses resulting from or arising out of any misrepresentation or breach of
warranty or any nonperformance or breach of any covenant or agreement of the
Company contained in this Agreement or any document delivered under SECTION 8(g)
to which it is a party; and
(ii) all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including, without
limitation, settlement costs and reasonable legal, accounting, experts, and
other fees, costs and expenses) incident or relating to or resulting from any of
the foregoing.
Notwithstanding the foregoing provisions of this SECTION 11(b), no claim
shall be made by either Investor, their Affiliates or their respective
stockholders, directors, officers, employees, agents, successors and assigns
hereunder unless and until any or all of the Losses referred to in this SECTION
11(b) exceeds, either individually or in the aggregate the Minimum Amount;
provided, however, that at such time as the aggregate amount of the Losses
exceeds the Minimum Amount, each of the Investors, their Affiliates and their
respective stockholders, directors, officers, employees, agents, successors and
assigns may assert a claim for the full amount of its Losses up to a maximum of
the Maximum Amount.
(c) THIRD PARTY CLAIMS. Promptly after the receipt by the Company or an
Investor of notice of any claim, action, suit or proceeding (collectively, an
"ACTION") by any third party for which indemnification is sought hereunder, such
party (the "INDEMNIFIED PARTY") shall give reasonable written notice to the
party from whom indemnification is claimed (the "INDEMNIFYING PARTY"). The
Indemnified Party's failure to so notify the Indemnifying Party of any such
matter shall not release the Indemnifying Party, in whole or in part, from its
obligations to indemnify under this SECTION 11, except to the extent the
Indemnified Party's failure to so notify actually prejudices the Indemnifying
Party's ability to defend against such Action. The Indemnified Party shall be
entitled, at the sole expense and liability of the Indemnifying Party, to
exercise full control of the defense, compromise or settlement of any such
Action unless the Indemnifying Party, within a reasonable time after the giving
of such notice by the Indemnified Party, shall: (i) notify the Indemnified Party
in writing of the Indemnifying Party's intention to assume the defense thereof,
and (ii) retain legal counsel reasonably satisfactory to the Indemnified Party
to conduct the defense of such Action; in which case the Indemnifying Party
shall be entitled to exercise full control of the defense, compromise or
settlement of such action, subject to the terms of this SECTION 11. The
Indemnified Party and the Indemnifying Party shall cooperate with the party
assuming the defense, compromise or settlement of any such Action in accordance
herewith in any manner that such party reasonably may request. If the
Indemnifying Party so assumes the defense of any such Action, the Indemnified
Party shall have the right to employ separate counsel and to participate in (but
not control) the defense, compromise, or settlement thereof, but the fees and
expenses of such counsel shall be the expense of the Indemnified Party unless
(i) the Indemnifying Party has agreed to pay such fees and
20
<PAGE>
expenses, (ii) any material relief other than the payment of money damages is
sought against the Indemnified Party or (iii) the Indemnified Party shall have
been advised by its counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
Indemnifying Party, and in any such case the fees and expenses of such separate
counsel shall be borne by the Indemnifying Party. No Indemnified Party shall
settle or compromise or consent to entry of any judgment with respect to any
such Action for which it is entitled to indemnification hereunder without the
prior written consent of the Indemnifying Party, unless the Indemnifying Party
shall have failed, after reasonable notice thereof, to undertake control of such
Action in the manner provided above in this SECTION 11(c). No Indemnifying Party
shall, without the written consent of the Indemnified Party, settle or
compromise or consent to entry of any judgment with respect to any such Action
in which any relief other than the payment of money damages is sought against
any Indemnified Party or any Action unless such settlement, compromise or
consent includes as an unconditional term thereof the giving by the claimant,
petitioner or plaintiff, as applicable, to such Indemnified Party of a release
from all liability with respect to such Action.
(d) CUMULATIVE REMEDIES. None of the rights, powers or remedies conferred
upon any Holder of shares of Preferred Stock or Series B Common Stock will be
mutually exclusive, and each such right, power or remedy will be cumulative and
in addition to every other right, power or remedy, whether conferred hereby or
by the Designations or now or hereafter available at law, in equity, by statute
or otherwise (subject to the application of the last paragraph of Section 11(a)
or 11(b), as the case may be, regarding the Minimum Amount and the Maximum
Amount).
(e) NO IMPLIED WAIVER. Except as expressly provided in this Agreement, no
course of dealing between the Company and the Investors or the Holder of any
Security and no delay in exercising any such right, power or remedy conferred
hereby or by the Designations now or hereafter existing at law, in equity, by
statute or otherwise, will operate as a waiver of, or otherwise prejudice any
such right, power or remedy.
12. MISCELLANEOUS.
(a) TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned (i) by the Investors upon written notice to
the Company, if any of the conditions to its obligations set forth in SECTION 8
are not satisfied on or before March 31, 2000; (ii) by the Company upon written
notice to the Investors if any of the condition to its obligations set forth in
SECTION 9 are not satisfied on or before March 31, 2000; or (iii) by either the
Investors or the Company if an injunction, restraining order or decree of any
nature of any Governmental Authority of competent jurisdiction is issued that
prohibits the consummation of any of the transactions contemplated hereby and
such injunction, restraining order or decree is final and nonappealable;
provided, however, that the party seeking to terminate this Agreement pursuant
to this clause has used commercially reasonable efforts to have such injunction,
order or decree vacated or denied. This Agreement will be deemed terminated
automatically and without further action of the parties upon the termination of
the Satellite Venture Contribution Agreement.
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(b) WAIVERS AND AMENDMENTS. With the written consent of the Holders of a
majority of the outstanding shares of Preferred Stock or such other percentage
as is expressly stated herein or in the Designations, the obligations of the
Company and the rights of the Holders of the Securities under this Agreement and
the rights of the Holder of the Securities under the Designations may be waived
(either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely), and
with the same consent the Company, when authorized by resolution of its Board,
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of any supplemental agreement or modifying in any manner the
rights and obligations hereunder of the Holders of the Securities and the
Company; PROVIDED, HOWEVER, that no such waiver or supplemental agreement will
(a) affect any of the rights of any Holder of a Security created by the
Designations or by the Delaware General Corporation Law without compliance with
all applicable provisions of the Designations and the Delaware General
Corporation Law or (b) reduce the aforesaid proportion of Preferred Stock, the
Holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the Holders of all of the shares of Preferred
Stock. Upon the effectuation of each such waiver, consent or agreement of
amendment or modification, the Company will promptly give written notice thereof
to all the Holders of the shares of Preferred Stock in writing. Neither this
Agreement nor the Designations nor any provision hereof or thereof, may be
amended, waived, discharged or terminated orally or by course of dealing, but
only by a statement in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought, except to the extent
provided in this SECTION 12(b).
(c) NOTICES. All notices, requests, consents and other communications
required or permitted hereunder will be in writing and will be hand-delivered,
sent by recognized overnight courier, mailed first class postage prepaid,
registered or certified mail, or sent by facsimile transmission as follows:
If to either Investor, at
c/o Liberty Media Corporation
9197 Peoria Street
Englewood, Colorado 80112
Attention: Charles Y. Tanabe
Telecopy: 720-875-5382
With a copy (which will not constitute notice) to:
Sherman & Howard L.L.C.
633 Seventeenth Street
Suite 3000
Denver, Colorado 80202
Attention: Steven D. Miller, Esq.
Telecopy: (303) 298-0940
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<PAGE>
If to the Company, at
TCI Satellite Entertainment, Inc.
7600 East Orchard Road
Englewood, Colorado 80111
Attention: General Counsel
Telecopy: (303) 268-5467
With a copy (which will not constitute notice) to:
Baker & Botts L.L.P.
599 Lexington Avenue
New York, New York 10022-6030
Attention: Marc A. Leaf
Telecopy: (212) 705-5125
and each such notice, request, consent and other communication will for all
purposes of the Agreement be treated as being effective or having been given
when delivered, if delivered personally, by overnight courier or by facsimile
transmission, or, if sent by mail, at the earlier of its actual receipt or three
days after the same has been deposited in a regularly maintained receptacle for
the deposit of United States mail, addressed and postage prepaid as aforesaid.
(d) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in, pursuant to or in connection with this Agreement will
survive the execution and delivery of this Agreement, any investigation at any
time made by or on behalf of the parties, and the issuance of the Securities
under this Agreement. All statements contained in any certificate, instrument or
other writing delivered by or on behalf of any party pursuant to this Agreement
will constitute representa tions and warranties hereunder. Any claim against any
party based upon any inaccuracy in any of the representations or breach of any
of the warranties hereunder must be asserted, if at all, either by written
notice given to such party specifying with reasonable particularity the claimed
inaccuracy or breach or by institution of an action at law or suit in equity
against such party and the serving of the process and complaint with respect
thereto, within one year after the Closing Date.
(e) SEVERABILITY. Should any one or more of the provisions of this
Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
will be given effect separately from the provision or provisions determined to
be illegal or unenforceable and will not be affected thereby.
(f) PARTIES IN INTEREST. All the terms and provisions of this Agreement
will be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto, whether so expressed or
not, and, in particular, will inure to the benefit of and be enforceable by the
Holder or Holders at the time of any of the Securities. Subject to the
immediately
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<PAGE>
preceding sentence, this Agreement will not run to the benefit of or be
enforceable by any Person other than a party to this Agreement and its
successors and assigns.
(g) RULES OF CONSTRUCTION. The headings of the Sections and paragraphs of
this Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement. The word "include" and derivatives of that
word are used in this Agreement in an illustrative sense rather than limiting
sense. References to Sections and Annexes will be deemed to refer to Sections
and Annexes of this Agreement, unless the context requires otherwise. This
Agreement has been negotiated by the parties and their respective legal counsel,
and legal or equitable principles that might require the construction of this
Agreement or any provision of this Agreement against the party drafting this
Agreement will not apply in any construction or interpretation of this
Agreement.
(h) ENTIRE AGREEMENT. This Agreement (including Annexes) and the documents,
instruments and agreements to be delivered at the Closing contain the entire
agreement of the parties and supersede all prior oral or written agreements and
understandings with respect to the subject matter, except that the
representations and warranties of the Company set forth in that letter of intent
between the Company and Liberty Media Corporation dated December 17, 1999, will
survive the execution and delivery of this Agreement in accordance with SECTION
12(d).
(i) CHOICE OF LAW. It is the intention of the parties that the internal
substantive laws, and not the laws of conflicts, of the State of Delaware will
govern the enforceability and validity of this Agreement, the construction of
its terms and the interpretation of the rights and duties of the parties.
(j) EXPENSES. Whether or not the transactions contemplated hereby are
consummated, each of the parties will bear the fees and expenses relating to its
compliance with the various provisions of this Agreement, and each of the
parties will pay all of its own expenses (including all attorneys' fees and
expenses) incurred in connection with this Agreement, the transactions
contemplated hereby, the negotiations leading to the same and the preparation
made for carrying the same into effect.
(k) COUNTERPARTS; TELEFACSIMILE. This Agreement and any certificate
contemplated hereby may be executed in any number of counterparts and by
different parties hereto in separate counterparts, with the same effect as if
all parties had signed the same document. All such counterparts will be deemed
an original, will be construed together and will constitute one and the same
instrument. Delivery of an executed counterpart of this Agreement any
certificate or other document contemplated hereby by facsimile transmission will
be as effective as delivery of a manually executed counterpart hereof.
[the remainder of this page has intentionally been left blank]
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The parties have executed this Contribution and Exchange Agreement (TSAT)
as of the date first written above.
LIBERTY LSAT, INC.
By: /s/ ILLEGIBLE
-----------------------------------
Name:
Title:
LIBERTY LSAT II, INC.
By: /s/ ILLEGIBLE
-----------------------------------
Name:
Title:
TCI SATELLITE ENTERTAINMENT, INC.
By: /s/ ILLEGIBLE
-----------------------------------
Name:
Title:
<PAGE>
EXECUTION COPY
------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
BY AND AMONG
LIBERTY MEDIA CORPORATION,
LIBERTY MEDIA INTERNATIONAL, INC.
LSAT HOLDINGS, INC.,
TCI SATELLITE ENTERTAINMENT, INC.
TSAT HOLDING 1, INC.,
EACH OF THE LIBERTY MEMBERS SIGNATORY HERETO,
LIBERTY SATELLITE, LLC,
AND
LSAT ASTRO, LLC
MARCH 16, 2000
<PAGE>
CONTRIBUTION AGREEMENT
This Agreement is made as of March 16, 2000, by Liberty Media Corporation
("LMC"), LSAT Holdings, Inc. ("LSAT Holdco"), Liberty Media International, Inc.
("LMII"), Liberty KASTR Corp. ("Liberty KASTR"), Liberty XMSR, Inc. ("Liberty
XMSR"), Liberty Astro, Inc. ("Liberty Astro"), LMI/LSAT Holdings, Inc. ("Liberty
LA DTH"), TCI Satellite Entertainment, Inc. ("Satco"), TSAT Holding 1, Inc. (the
"LSAT Member"), Liberty Satellite, LLC (the "Company"); and LSAT Astro LLC
("Astro LLC").
RECITALS:
Satco and each of the Liberty Members are the initial members of the
Company and are entering into this Agreement to provide for their respective
initial capital contributions to the Company, as contemplated by the Operating
Agreement.
NOW, THEREFORE, for good and valuable consideration, and intending to be
bound, the parties hereto agree as follows:
ARTICLE 1 DEFINITIONS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the corresponding meanings:
"AGREEMENT" means this Agreement, including any schedules or exhibits
attached hereto.
"ASTRO OPERATING AGREEMENT" means the Amended and Restated Operating
Agreement of LSAT Astro LLC, dated as of March 16, 2000, between TSAT Holding 2,
Inc. and
"BUSINESS DAY" means any day on which banks are required to be open in
both the State of New York and the State of Colorado.
"CLOSING" means the consummation of the transactions contemplated by
this Agreement.
"CLOSING DATE" means the date of the Closing.
<PAGE>
"GMH PLEDGE AGREEMENT" means the Pledge and Security Agreement dated as
of April 28, 1999, among Satco, Phoenixstar, Inc. (formerly known as "Primestar,
Inc.") and The Bank of New York, as collateral agent.
"GMH SAR" means the obligations of Satco under that certain agreement
dated April 28, 1999, between Satco and Phoenixstar, Inc. (formerly known as
"Primestar, Inc."), captioned "Share Appreciation Rights with Respect to Shares
of Class H Common Stock of General Motors".
"GMH SHARES" means 1,407,307 shares of the Class H Common Stock of
General Motors Corporation.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any court, agency or other body exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any arbitrator.
"LA DTH AGREEMENTS" means each of the agreements set forth in Schedule
1 attached hereto.
"LATIN AMERICAN DTH VENTURES" means and includes each of (i) Net Sat
Servicos Ltda., a Brazilian limited liability quota company, (ii) Innova S. de
R. L., a Sociedad de Responsabilidad Limitada in corporate form formed under the
laws of Mexico, (iii) DTH Techco Partners, a Delaware general partnership, (iv)
Sky Multi-Country Partners, a Delaware general partnership, and (v) Sky Latin
America Partners, a Delaware general partnership.
"LIABILITIES" of a Person means and includes all debts, liabilities and
obligations, whether absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising, and
whether or not the same would properly be reflected on a balance sheet,
including all costs and expenses relating thereto.
"LIBERTY MEMBERS" means each of Liberty KASTR, Liberty XMSR, Liberty
Astro, and Liberty LA DTH.
"LIEN" means any lien, pledge, claim, encumbrance, mortgage or security
interest in real or personal property.
"MATERIAL ADVERSE EFFECT" means a material adverse change in, or
material adverse effect on, the business, assets, liabilities, results of
operations, condition (financial or otherwise) or prospects of a party
(considered together with its consolidated
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subsidiaries on a combined basis), other than any changes in, or effects on, any
of the foregoing arising primarily out of or resulting primarily from general
economic or industry conditions.
"MEMBERS" means Satco and each of the Liberty Members.
"OPERATING AGREEMENT" means the Operating Agreement of the Company,
dated as of the date hereof, among the Members and the Company.
"PERMITTED LIENS" means (i) Liens for taxes not yet due and payable,
(ii) Liens for taxes, the validity of which is being contested in good faith in
appropriate proceedings and with respect to which appropriate reserves have been
set aside on the books of the party against which such Liens have been created,
(iii) inchoate mechanic's and materialmen's Liens for construction in progress
or which are being contested in good faith in appropriate proceedings, (iv)
Liens on property which secure the purchase price of such property, (v)
workmen's, repairmen's, warehousemen's and carriers' Liens arising in the
ordinary course of business and evidencing indebtedness for related services
that is not more than 60 days past due or which is being contested in good faith
in appropriate proceedings, and (vi) minor imperfections in title and
encumbrances and other minor matters, if any, which singly or in the aggregate
are not substantial in amount, do not materially detract from the value of the
property subject thereto or interfere with the present use thereof or otherwise
impair the operations of a Person.
"PERSON" means any individual, corporation, partnership, limited
liability company, trust, unincorporated association or other entity.
1.2 TERMS GENERALLY. The definitions in Section 1.1 and elsewhere in this
Agreement apply to both the singular and plural forms of the terms defined. The
word "includes" and other forms of that word should be construed as if followed
by the phrase "without limitation". The words "hereof", "hereto" and "hereunder"
refer to this Agreement (including the Schedules and Exhibits) in its entirety
and not to any part hereof unless the context shall otherwise require.
References in this Agreement to Articles, Sections, Exhibits and Schedules refer
to Articles and Sections of, and Exhibits and Schedules to, this Agreement
unless the context otherwise requires. Unless the context otherwise requires,
references herein to any agreement or other instrument (other than any such
references in the Schedules) or statute or regulation are to it as amended and
supplemented from time to time (and, in the case of a statute or regulation, to
any corresponding provisions of successor statutes or regulations). Any
reference in this Agreement to a "day" or number of "days" (without the explicit
qualification of "Business") refers to a calendar day or number of calendar
days. If any action or notice is to be taken or given on or by a particular
calendar day, and such calendar day is not a
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Business Day, then such action or notice shall be deferred until, or may be
taken or given without penalty on, the next Business Day.
ARTICLE 2 CONTRIBUTIONS
2.1 SATCO CONTRIBUTION - GMH SHARES.
(a) On the Closing Date, the LSAT Member will contribute to the Company
the entire beneficial interest of the LSAT Member in the GMH Shares, including:
(i) all voting and consensual rights of Satco relating to the GMH
Shares;
(ii) the right to direct any sale or disposition of the GMH
Shares, or any of them, and to control the time, place, terms and
manner of any such sale or disposition;
(iii) all rights and beneficial interests of Satco as pledgor
under the GMH Pledge Agreement and as issuer of the GMH SAR, including
the right to direct the manner in which the obligations of Satco under
the GMH SAR will be satisfied; and
(iv) subject to the provisions of the GMH SAR and the GMH Pledge
Agreement, all rights to any proceeds of the GMH Shares, including the
proceeds of any sale or disposition of the GMH Shares and any
dividends or distributions declared or paid thereon.
(b) Concurrently with the contribution by the LSAT Member of its
beneficial interest in the GMH Shares, the Company will assume, and agree to pay
and discharge, as and when they become due, and otherwise take the GMH Shares
subject to, all Liabilities of Satco under the GMH Pledge Agreement and the GMH
SAR.
(c) The beneficial interest in the GMH Shares, as contributed by the
LSAT Member to the Company hereunder, subject to the GMH SAR and other
Liabilities to be assumed by the Company in connection with such contribution,
are hereby agreed to have a value on the Closing Date, for all purposes of this
Agreement and the Operating Agreement, equal to $66,130,000.
(d) As soon as practicable following the satisfaction of the GMH SAR
and the release of the GMH Shares from the lien of the GMH Pledge Agreement,
Satco shall transfer title to the GMH Shares to the Company, for no additional
consideration.
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2.2 SATCO CONTRIBUTION - JATO SHARES.
On the Closing Date, the LSAT Member will contribute to the Company
892,857 shares of Series C Preferred Stock of Jato Communications Corp. ("Jato")
having an agreed aggregate value on the Closing Date of $10,000,000.
2.3 LIBERTY XMSR CONTRIBUTION.
(a) On the Closing Date, Liberty XMSR will contribute to the Company
1,000,000 shares of common stock of XM Satellite Radio Holdings, Inc. ("XMSR").
(b) The shares of XMSR contributed by Liberty XMSR to the Company
hereunder will be valued at the 4:00 p.m. closing price of such shares on the
second business day preceding the Closing Date on The Nasdaq Stock Market, or if
such shares are not then traded on Nasdaq, on the principal national or regional
stock exchange on which they are listed for trading.
2.4 LIBERTY KASTR CONTRIBUTION.
(a) On the Closing Date, Liberty KASTR will contribute to the Company
19,621,397 shares of convertible preferred stock of iSky, Inc. ("ISKY").
(b) The shares of iSky contributed by Liberty KASTR to the Company
hereunder will be valued at Liberty KASTR's cost, plus carrying costs calculated
at 10% per annum from the date of investment through the Closing Date.
2.5 LIBERTY ASTRO CONTRIBUTION.
(a) On the Closing Date, Liberty Astro will contribute to the Company
an 85.88% equity interest in Astro LLC with an associated capital account of
$365,000,000.
(b) Concurrently with the contribution by Liberty Astro of its equity
interest in Astro LLC, the Company will become a party to the Astro Operating
Agreement by executing and delivering a counterpart to the Astro Operating
Agreement, and LMC and Liberty Astro will cause the Company to be admitted as a
member of Astro LLC.
(c) The equity interest in Astro LLC contributed by Liberty Astro to
the Company hereunder will be valued at Liberty Astro's cost, plus carrying
costs calculated at 10% per annum from the date of investment through the
Closing Date.
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(d) To the extent that any funding obligation of Astro LLC to Astrolink
LLC remains outstanding on the Closing Date, Liberty Astro shall satisfy such
obligation as and when due, or contribute to the Company in cash the funds
required to do so.
2.6 LIBERTY LA DTH CONTRIBUTION.
(a) On the Closing Date, Liberty LA DTH will contribute to the Company
the entire beneficial interest of Liberty LA DTH in the Latin American DTH
Venture, including:
(i) all voting and consensual rights of Liberty LA DTH relating
to the Latin American DTH Venture;
(ii) the right to direct any sale or disposition of any debt or
equity securities of, or other ownership or investment interests in,
the Latin American DTH Venture (collectively, the "LA DTH SECURITIES")
and to control the time, place, terms and manner of any such sale or
disposition; and
(iii) all rights to any proceeds of the Latin American DTH
Venture and the LA DTH Securities, including the proceeds of any sale
or disposition of the LA DTH Securities and any dividends or
distributions declared or paid thereon.
(b) Concurrently with the contribution by LA DTH of its beneficial
interest in the LA DTH Securities, the Company will assume, and agree to pay and
discharge, as and when they become due, and otherwise take the LA DTH Securities
subject to, all Liabilities of LA DTH under the LA DTH Agreements.
(c) The beneficial interest in the LA DTH Venture contributed by LA DTH
to the Company hereunder, subject to the Liabilities to be assumed by the
Company in connection with such contribution, is hereby agreed to have a value
on the Closing Date, for all purposes of this Agreement and the Operating
Agreement, equal to $200,000,000.
(d) From time to time following the Closing Date, LMC, LSAT Holdco and
Liberty LA DTH shall use their best commercially reasonable efforts to obtain
all necessary governmental and other third party consents (collectively, the
"Required DTH Consents"), including the consent of each other member of the LA
DTH Venture, to the transfer to the Company of full legal ownership of Liberty
LA DTH's interest in the Latin American DTH Venture, including record and legal
title to the LA
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DTH Securities ("DTH Legal Ownership"). As soon as practicable following the
receipt of the Required DTH Consents, Liberty LA DTH shall transfer to the
Company, for no additional consideration, DTH Legal Ownership.
2.7 ASSIGNMENT OF RELATED CONTRACT RIGHTS. Concurrently with each of the
contributions to be made by the Members pursuant to Sections 2.1 through 2.6,
each Member shall contribute and assign to the Company, as part of such
contribution and without any additional consideration, all contract rights of
such Member relating to the property so contributed, including (i) all rights
under any purchase agreements, security holder agreements, registration rights
agreements, voting agreements, operating agreements, partnership agreements,
joint venture agreements and similar agreements relating to such property to
which such Member is a party, (ii) any and all rights that such Member may have
to direct or participate in the management of any Person that is the issuer of
any securities or other ownership interests so contributed to the Company, (iii)
any and all preemptive rights, rights of refusal or offer or other rights that
such Member may have to maintain (in whole or in part) or increase such Member's
equity interest in any such Person, and (iv) any and all contract rights,
including rights of refusal or offer, relating to the provision of marketing,
distribution, installation, support, maintenance, repair and/or other services
to any such Person. The parties acknowledge that any and all such contract
rights have already been taken into account in establishing the valuation or
valuation methodology applicable to such contribution for purposes of this
Agreement and the Operating Agreement.
2.8 INITIAL CONTRIBUTIONS CONTEMPLATED BY OPERATING AGREEMENT. The
contributions of the LSAT Member and each of the Liberty Members provided for in
Sections 2.1 through 2.6 constitute the Initial Contributions to the Company by
such Members, as contemplated by Section 3.1 of the Operating Agreement.
2.9 TRANSFER AND DOCUMENTATION. At the Closing, each Member shall execute
and deliver to the Company such instruments of conveyance as the Company or any
Member may reasonably request in order to convey, assign and (as applicable)
transfer title to all properties and assets required to be contributed to the
Company at the Closing, and the Company shall execute an assumption agreement
pursuant to which Company assumes and agrees to pay when due and otherwise
satisfy, discharge and perform all Liabilities required to be assumed by the
Company at the Closing, in each case as provided in Sections 2.1 through 2.6.
2.10 UNASSIGNABLE RIGHTS AND ASSETS.
(a) Notwithstanding anything in this Agreement to the contrary, this
Agreement shall not constitute an agreement to assign any security, contract
rights or other property without the consent of another Person if an assignment
or attempted
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assignment thereof without the consent of such Person would constitute a breach
of such contract or a breach of any material contract or instrument governing or
establishing such property, or would otherwise result in a material impairment
of such property or the rights of the contributing Member (or of the Company, as
assignee) in connection therewith.
(b) If any such consent is not obtained or if an attempted assignment
would be ineffective or would impair any party's rights with respect to such
property so that the Company would not receive all such rights, then (i) the
contributing Member (and, in the case of any Liberty Member, LMC and LSAT Holdco
and, in the case of the LSAT Member, Satco), as applicable, shall continue
(before and after the Closing Date) to use its best commercially reasonable
efforts to obtain such consents and approvals and use its best commercially
reasonable efforts to provide or cause to be provided to the Company, to the
extent permitted by law, all economic and other benefits of such property
(including the rights to direct any sale or disposition thereof, to exercise any
voting and other consensual rights relating thereto, to make any other elections
or determinations that the contributing Member would be entitled to make with
respect thereto, and to receive all proceeds and products thereof and therefrom)
and (ii) if such contributing Member is able to provide the Company with the
benefits thereof, the Company shall pay, perform and discharge on behalf of the
contributing Member all of such Members Liabilities with respect thereto in a
timely manner and in accordance with the terms thereof. In addition, the
contributing Member (and, in the case of any Liberty Member, LMC and LSAT Holdco
and, in the case of the LSAT Member, Satco), as applicable, shall take such
other actions as may reasonably be requested by the Company in order to place
the Company, insofar as reasonably possible, in the same position as if such
property had been transferred as contemplated hereby, so that all the benefits
and burdens relating thereto shall inure to the Company.
(c) If and when any such consents and approvals are obtained, or are no
longer required, the transfer of the applicable property shall be promptly
effected in accordance with the terms of this Agreement.
2.11 CONVEYANCE TAXES; EXPENSES.
(a) Each Member shall be liable for and shall pay all transfer, stamp,
real property transfer taxes and any other similar taxes incurred as a result of
the contributions by such Member contemplated hereby, and shall hold each of the
other parties hereto harmless against any such taxes.
(b) Each Member shall bear its own fees and expenses relating to the
transactions contemplated by this Article II (including all legal and accounting
fees and
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expenses and the fees and expenses of any investment banking firms
engaged by such party), whether or not such transactions are consummated.
2.12 FURTHER ASSURANCES. At and, at the reasonable request of the Company
or any Member, from time to time following the Closing, each of the parties
hereto will promptly execute such other documents and instruments, and will take
such further actions, as may be necessary to vest, perfect or confirm in the
Company all rights, titles and interests in, to and under the property and
assets required to be contributed to the Company hereunder, and otherwise to
carry out the provisions hereof.
2.13 STOCKHOLDER CONSENT. LSAT Holdco, as sole stockholder of each of
Liberty KASTR, Liberty XMSR and Liberty Astro, LMII, as sole stockholder of
Liberty LA DTH, and Satco, as sole stockholder of the LSAT Member, hereby
approve, authorize and consent to each of the contributions to be made by each
of such Members, respectively, and agrees to execute and deliver to such Member
(with a copy to the Company and each other Member) such written consents and/or
other instruments confirming such approval, authorization and consent as the
Company or any Member may reasonably request to confirm such consent.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Each party hereby represents and warrants to each of the other parties as
follows:
3.1 DUE INCORPORATION OR ORGANIZATION; GOOD STANDING; POWER AND AUTHORITY;
AUTHORIZATION, EXECUTION AND DELIVERY OF AGREEMENTS; LEGALITY AND BINDING
EFFECT. Such party is a corporation or limited liability company duly organized
and validly existing under the laws of the jurisdiction of its incorporation or
organization and has all requisite corporate or organizational power and
authority to own its property and carry on its business as owned and carried on
at the date hereof. Such party is duly qualified to do business and in good
standing (if applicable) in each jurisdiction in which the failure to be so
qualified would have a Material Adverse Effect on such party. Such party has all
requisite corporate or organizational power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by such party, and the execution, delivery and performance of this
Agreement by such party have been duly authorized by all requisite corporate or
organizational action, including any required approval of the stockholder(s) or
member(s) of such party. This Agreement constitutes the legal, valid and binding
obligation of such party, enforceable in accordance with its terms (except as
such enforceability may be limited by bankruptcy, insolvency (including all laws
relating to fraudulent transfers), reorganization, moratorium and similar laws
affecting the rights and remedies of creditors generally and the application of
general principles of equity).
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3.2 NO CONFLICT; NO DEFAULT. Except, as to clauses (i), (iii), (iv) and (v)
below only, as would not have a Material Adverse Effect on such party, neither
the execution or delivery of this Agreement by such party nor the performance of
this Agreement by such party or the consummation by such party of the
transactions contemplated hereby in accordance with the terms and conditions
hereof (i) will conflict with, violate or result in a breach of any of the
terms, conditions or provisions of any law, regulation, order, writ, injunction,
decree, determination or award of any Governmental Authority applicable to such
party or any of its subsidiaries, (ii) will conflict with, violate, result in a
breach of or constitute a default under any of the terms, conditions or
provisions of the certificate or articles of incorporation, bylaws or
partnership agreement (or other governing documents) of such party or any of its
subsidiaries, (iii) will conflict with, violate, result in a breach of or
constitute a default under any of the terms, conditions or provisions of any
material agreement or instrument to which such party or any of its subsidiaries
is a party or by which such party or any of its subsidiaries is or may be bound
or to which any equity interest held by such party in any other entity or any of
its other material properties or assets is subject, (iv) will conflict with,
violate, result in a breach of, constitute a default under (whether with notice
or lapse of time or both), accelerate or permit the acceleration of the
performance required by, give to others any interests or rights or require any
consent, authorization or approval under any indenture, mortgage, lease
agreement or similar instrument to which such party or any of its subsidiaries
is a party or by which such party or any of its subsidiaries is or may be bound,
(v) will result in the creation or imposition of any Lien upon any asset held by
such party that is transferred to the Company pursuant to this Agreement or (vi)
will result in the creation or imposition of any Lien upon any of the other
material properties or assets of such party or any of its subsidiaries, other
than Permitted Liens.
ARTICLE 4 COVENANT TO COOPERATE IN GOOD FAITH
Each of the parties hereby agrees and covenants for the benefit of each
other party that, between the date of this Agreement and the Closing (or, if
later, the contribution of the applicable property to the Company pursuant to
Section 2.1(d), 2.6(d) or 2.10(c)), such party shall cooperate in good faith
with each other party in their respective efforts to obtain all necessary
consents and approvals for the consummation of the transactions contemplated
hereby, including making qualified personnel available for attending hearings
and meetings respecting such required consents. Without limiting the generality
of the foregoing, each party shall use its best efforts (i) to obtain all
consents and authorizations of third parties and Governmental Authorities and to
make all filings with and give all notices to third parties and Governmental
Authorities which may be necessary or reasonably required in order to effect the
transactions contemplated hereby and (ii) to provide the other parties and their
respective counsel with copies of all such filings made and all such notices
given as such other parties may reasonably request and to afford the other
parties the opportunity to participate in any discussions with any such
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third party or Governmental Authority or representative thereof in connection
with the transactions contemplated hereby to the extent reasonably requested by
any other party hereto.
ARTICLE 5 CONDITIONS TO CLOSING
5.1 CONDITIONS PRECEDENT TO CLOSING. The obligations of each of the parties
under this Agreement to effect the transactions contemplated to occur at the
Closing are subject to the satisfaction, on or prior to the Closing Date of the
following conditions, compliance with which or the occurrence of which may be
waived in whole or in part by the other parties hereto.
5.2 CONSENTS. Subject to Sections 2.1, 2.6 and 2.10, each consent,
authorization or approval required to be obtained in connection with the
consummation of the transactions contemplated to occur at the Closing shall have
been obtained on or prior to the Closing Date, except for any of the foregoing
the failure of which to obtain would not, individually or in the aggregate, have
a Material Adverse Effect on any party to this Agreement
5.3 NO INJUNCTION. No preliminary or permanent injunction or other order,
decree or ruling issued by a Governmental Authority, nor any statute, rule,
regulation or executive order promulgated or enacted by any Governmental
Authority shall be in effect, in any case that enjoins or delays in any material
respect the consummation of the transactions to be effected at the Closing or
imposes any material restrictions or requirements thereon or on any of the
parties in connection therewith.
ARTICLE 6 CLOSING
The Closing will take place at the offices of Sherman & Howard L.L.C., 633
Seventeenth Street, Denver Colorado 80202, at 10:00 a.m. local time on the third
Business Day after the satisfaction of all conditions set forth in Article 5, or
at such other place, date or time as the parties hereto shall agree.
ARTICLE 7 MISCELLANEOUS
7.1 NOTICES. Except as expressly provided in this Agreement, all notices,
consents, waivers and other communications required or permitted to be given by
any provision of this Agreement shall be in writing and mailed or sent by hand
or overnight courier, or by facsimile transmission, charges prepaid and
addressed to the intended recipient as follows, or to such other address or
number as such Person may from time to time specify by like notice to the
parties:
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If to LMC, LMII, LSAT Holdco, or any of the Liberty Members:
Liberty Media Corporation
9197 South Peoria Street
Englewood, Colorado 80112
Attention: General Counsel
Telephone: (303) 721-5440
Telecopy: (303) 721-5382
with a copy to:
Sherman & Howard LLC
633 17th Street
Denver, Colorado
Attention: Steven Miller
Telephone: (303) 299-8144
Telecopy: (303) 298-0940
If to Satco, the LSAT Member, the Company or Astro LLC:
TCI Satellite Entertainment, Inc.
7600 East Orchard Road
Suite 330 South
Englewood, Colorado 80111
Attention: General Counsel
Telephone: (303) 268-5459
Telecopy: (303) 268-5467
with a copy to:
Baker Botts LLP
599 Lexington Avenue
New York, New York 10022
Attention: Marc A. Leaf, Esq.
Any party may from time to time specify a different address for
notices by like notice to the other parties. All notices and other
communications given to a Person in accordance with the provisions of this
Agreement shall be deemed to have been given and received (i) three Business
Days after the same are sent by mail, postage prepaid, (ii) upon receipt when
delivered by hand or transmitted by facsimile or (iii) one Business
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Day after the same are sent by a reliable overnight courier service, with
acknowledgment of receipt.
7.2 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors, permitted transferees,
and permitted assigns.
7.3 SEVERABILITY. Each provision of this Agreement is intended to be
severable from each other provision of this Agreement. If any term or provision
hereof is held by any Governmental Authority to be illegal, invalid or
unenforceable for any reason whatsoever, that term or provision will be enforced
to the maximum extent permissible so as to effect the intent of the parties, and
such illegality, invalidity or unenforceability shall not affect the validity,
legality or enforceability of the remainder of this Agreement. If necessary to
effect the intent of the parties hereto, the parties hereto will negotiate in
good faith to amend this Agreement to replace the unenforceable language with
enforceable language that as closely as possible reflects such intent.
7.4 AMENDMENTS. This Agreement may be modified or amended only by written
instrument signed by each of the parties hereto affected by such modification or
amendment.
7.5 ASSIGNMENT. No party shall assign any of its rights under this
Agreement or delegate its duties hereunder without the prior written consent of
each of the other parties hereto, which consent shall not unreasonably be
withheld or delayed.
7.6 WAIVERS; REMEDIES. The observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) by the party or parties entitled to enforce such term, but any
such waiver shall be effective only if in a writing signed by the party or
parties against which such waiver is to be asserted. Except as otherwise
provided in this Agreement, no failure or delay of any party hereto in
exercising any power or right under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power.
7.7 TABLE OF CONTENTS; HEADINGS. The table of contents and section and
other headings contained in this Agreement are for reference purposes only and
are not intended to define, interpret or limit the scope or intent of this
Agreement or any provision hereof.
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7.8 GOVERNING LAW. The validity of this Agreement, the construction of its
terms and the interpretation of the rights and duties of the parties shall be
governed by the laws of the State of Delaware, without regard to conflict of law
principles.
7.9 CONSENT TO JURISDICTION; SPECIFIC PERFORMANCE.
(a) Each party to this Agreement hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
Colorado court or any United States Federal court sitting in the District of
Colorado, and any appellate court from any such court, in any suit, action or
proceeding arising out of or relating to this Agreement, or for recognition or
enforcement of any judgment, and each party hereto irrevocably and
unconditionally agrees that all claims in respect of any such suit, action or
proceeding may be heard and determined in such Colorado court or, to the extent
permitted by law, in such Federal court.
(b) Each party to this Agreement hereby irrevocably and unconditionally
waives, to the fullest extent it may legally do so, any objection that such
party may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any New York State
court sitting in the County of New York or any United States Federal court
sitting in the Southern District of New York. Each party to this Agreement
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of any such suit, action or
proceeding in any such court and hereby further waives the right to object, with
respect to such suit, action or proceeding, that such court does not have
jurisdiction over such party.
(c) Each party hereto hereby irrevocably consents to service of process
in the manner provided for the giving of notices pursuant to this Agreement;
PROVIDED, HOWEVER, that such service shall be deemed to have been given only
when actually received by such party. Nothing in this Agreement shall affect the
right of a party to serve process in any other manner permitted by law.
(d) Each party hereto agrees with each of the other parties hereto that
each other party would be irreparably harmed if any of the provisions of this
Agreement were not performed in accordance with their specific terms, and that
in any such event, monetary damages would not provide an adequate remedy for
such harm. Accordingly, in addition to any other remedy to which the
nonbreaching parties may be entitled, at law or in equity, each of the
nonbreaching parties shall be entitled to injunctive relief to prevent breaches
of this Agreement and specifically to enforce the terms and provisions hereof.
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7.10 WAIVER OF JURY TRIAL. Each party hereto hereby waives, to the fullest
extent permitted by applicable law, any right it may have to a trial by jury in
respect of any action, suit or proceeding arising out of or relating to this
Agreement or any other transactions contemplated hereby.
7.11 COUNTERPARTS; EXECUTION. This Agreement may be executed in any number
of counterparts, and on multiple counterparts, with the same effect as if all
parties hereto had signed the same document. All counterparts shall be construed
together and shall constitute one agreement. The signature pages from any duly
executed counterpart of this Agreement may be removed from such counterpart and
attached to any identical counterpart of this Agreement, with the same effect as
if the parties signing such signature pages had signed such latter counterpart
directly. Signature pages may be signed and delivered by telecopier or
facsimile.
7.12 NO THIRD-PARTY RIGHTS. Nothing in this Agreement, whether express or
implied, shall be construed to give any Person other than the parties hereto any
legal or equitable right, remedy or claim under or in respect of this Agreement,
as a so-called "third-party beneficiary" or otherwise.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
LMI/LSAT HOLDINGS, INC.
By:
-------------------------------
Name:
Title:
LIBERTY KSTR CORP.
By:
-------------------------------
Name:
Title:
LIBERTY XMSR, INC.
By:
-------------------------------
Name:
Title:
LIBERTY ASTRO, INC.
By:
-------------------------------
Name:
Title:
TSAT HOLDING 1, INC.
By:
-------------------------------
Name:
Title:
TCI SATELLITE ENTERTAINMENT, INC.
By:
-------------------------------
Name:
Title:
16
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LIBERTY MEDIA CORPORATION
By:
-------------------------------
Name:
Title:
LIBERTY MEDIA INTERNATIONAL, INC.
By:
-------------------------------
Name:
Title:
LSAT HOLDINGS, INC.,
By:
-------------------------------
Name:
Title:
LIBERTY SATELLITE, LLC
By:
-------------------------------
Name:
Title:
LSAT ASTRO, LLC
By:
-------------------------------
Name:
Title:
17
<PAGE>
SCHEDULE 1
LA DTH AGREEMENTS
18
<PAGE>
OPERATING AGREEMENT
OF
LIBERTY SATELLITE, LLC
MARCH 16, 2000
THE OWNERSHIP INTERESTS IN THIS LIMITED LIABILITY COMPANY HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR STATE SECURITIES
AUTHORITIES AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED. THE SALE OR OTHER TRANSFER OF THE
OWNERSHIP INTERESTS IS ALSO RESTRICTED BY PROVISIONS OF THIS AGREEMENT.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1. FORMATION AND DEFINITIONS.....................................................................1
1.1 FORMATION...........................................................................1
1.2 NAME................................................................................1
1.3 INITIAL MEMBERS AND OWNERSHIP INTERESTS.............................................1
1.4 OFFICE AND AGENT....................................................................1
1.5 FOREIGN QUALIFICATION...............................................................2
1.6 TERM................................................................................2
1.7 DEFINITIONS.........................................................................2
ARTICLE 2. PURPOSES AND POWERS...........................................................................8
2.1 PRINCIPAL PURPOSE...................................................................8
2.2 OTHER PURPOSES......................................................................8
2.3 POWERS..............................................................................8
ARTICLE 3. CAPITAL OF THE COMPANY........................................................................8
3.1 INITIAL CONTRIBUTIONS...............................................................8
3.2 ADDITIONAL CONTRIBUTIONS............................................................9
3.3 CAPITAL ACCOUNTS...................................................................10
3.4 TRANSFER...........................................................................10
3.5 ADJUSTMENTS........................................................................10
3.6 MARKET VALUE ADJUSTMENTS...........................................................11
3.7 NO WITHDRAWAL OF CAPITAL...........................................................11
3.8 NO INTEREST ON CAPITAL.............................................................11
3.9 NO DRAWING ACCOUNTS................................................................11
ARTICLE 4. PROFITS AND LOSSES...........................................................................11
4.1 DETERMINATION......................................................................11
4.2 ALLOCATION OF PROFITS AND LOSSES GENERALLY.........................................11
4.3 NONRECOURSE DEDUCTIONS.............................................................12
4.4 MINIMUM GAIN CHARGEBACK............................................................12
4.5 GAIN CHARGEBACK....................................................................12
4.6 TAX ALLOCATIONS....................................................................13
4.7 QUALIFIED INCOME OFFSET............................................................13
4.8 LIMIT ON LOSS ALLOCATIONS..........................................................13
4.9 SECTION 754 ADJUSTMENTS............................................................13
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4.10 CONTRIBUTED PROPERTY...............................................................13
4.11 TAX CREDITS........................................................................14
4.12 ALLOCATION ON TRANSFER.............................................................14
4.13 TIER PARTNERSHIPS..................................................................14
ARTICLE 5. DISTRIBUTIONS................................................................................15
5.1 DISTRIBUTIONS GENERALLY............................................................15
5.2 PAYMENT............................................................................15
5.3 WITHHOLDING........................................................................15
5.4 DISTRIBUTION LIMITATIONS...........................................................15
ARTICLE 6. MANAGEMENT15
6.1 MANAGEMENT.........................................................................15
6.2 ACTIONS REQUIRING A UNANIMOUS VOTE.................................................16
6.3 OTHER MATTERS......................................................................17
6.4 MEMBER REPRESENTATIVES.............................................................17
6.5 NO DISSOLUTION, RESIGNATION OR RETIREMENT..........................................17
6.6 OFFICERS...........................................................................17
6.7 BUDGETS AND BUSINESS PLANS; FINANCIAL INFORMATION..................................18
6.8 MANAGEMENT CONDUCT.................................................................18
6.9 UNAUTHORIZED ACTIONS...............................................................19
ARTICLE 7. MEETINGS OF MEMBERS.....................................................................19
7.1 MEETINGS...........................................................................19
7.2 WAIVER OF NOTICE...................................................................19
7.3 QUORUM.............................................................................20
7.4 MANNER OF ACTING...................................................................20
7.5 PROXIES............................................................................20
7.6 MEETINGS BY TELEPHONE..............................................................20
7.8 ACTION WITHOUT A MEETING...........................................................20
ARTICLE 8. LIABILITY OF A MEMBER.....................................................................20
8.1 LIMITED LIABILITY..................................................................20
8.2 CAPITAL CONTRIBUTION...............................................................21
8.3 CAPITAL RETURN.....................................................................21
8.4 RELIANCE...........................................................................21
ARTICLE 9. INDEMNIFICATION...........................................................................21
9.1 GENERAL............................................................................21
9.2 EXCEPTION..........................................................................22
9.3 EXPENSE ADVANCEMENT................................................................22
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9.4 INSURANCE..........................................................................22
9.5 INDEMNIFICATION OF OTHERS..........................................................22
9.6 EXCULPATION........................................................................22
ARTICLE 10. ACCOUNTING AND REPORTING................................................................23
10.1 FISCAL YEAR........................................................................23
10.2 ACCOUNTING METHOD..................................................................23
10.3 TAX ELECTIONS......................................................................23
10.4 RETURNS............................................................................23
10.5 FINANCIAL REPORTS..................................................................23
10.6 ANNUAL AUDIT.......................................................................23
10.7 BOOKS AND RECORDS..................................................................23
10.8 INFORMATION........................................................................24
10.9 BANKING............................................................................24
10.10 TAX MATTERS PARTNER................................................................25
10.11 NO PARTNERSHIP....................................................................25
ARTICLE 11. DISSOLUTION...............................................................................25
11.1 DISSOLUTION........................................................................25
11.2 EVENTS OF WITHDRAWAL...............................................................26
11.3 CONTINUATION.......................................................................26
ARTICLE 12. LIQUIDATION...............................................................................26
12.1 LIQUIDATION........................................................................26
12.2 TAX TERMINATION....................................................................27
12.3 PRIORITY OF PAYMENT................................................................27
12.4 LIQUIDATING DISTRIBUTIONS..........................................................27
12.5 NO RESTORATION OBLIGATION..........................................................28
12.6 TIMING.............................................................................28
12.7 LIQUIDATING REPORTS................................................................28
12.9 CERTIFICATE OF CANCELLATION........................................................28
ARTICLE 13. TRANSFER RESTRICTIONS.....................................................................28
13.1 GENERAL RESTRICTION................................................................28
13.2 NO MEMBER RIGHTS...................................................................29
13.3 PERMITTED TRANSFEREES..............................................................29
13.4 GENERAL CONDITIONS ON TRANSFERS....................................................29
13.5 RIGHTS OF TRANSFEREES..............................................................30
13.6 ADMISSION..........................................................................31
13.7 SECURITY INTEREST..................................................................31
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ARTICLE 14. CERTAIN BUSINESS MATTERS..................................................................31
14.1 RESTRICTED ACTIVITIES..............................................................31
14.2 DETERMINATION OF FAIR MARKET VALUE.................................................32
ARTICLE 15. GENERAL PROVISIONS........................................................................33
15.1 AMENDMENT..........................................................................33
15.2 REPRESENTATIONS....................................................................33
15.3 UNREGISTERED INTERESTS.............................................................33
15.4 WAIVER OF ALTERNATIVE WITHDRAWAL RIGHTS............................................34
15.5 WAIVER OF PARTITION RIGHT..........................................................34
15.6 WAIVERS GENERALLY..................................................................34
15.7 EQUITABLE RELIEF...................................................................34
15.8 REMEDIES FOR BREACH................................................................34
15.9 COSTS..............................................................................34
15.10 INDEMNIFICATION....................................................................34
15.11 COUNTERPARTS.......................................................................34
15.12 NOTICE.............................................................................35
15.13 DEEMED NOTICE......................................................................35
15.14 PARTIAL INVALIDITY.................................................................35
15.15 ENTIRE AGREEMENT...................................................................35
15.16 BENEFIT............................................................................35
15.17 BINDING EFFECT.....................................................................35
15.18 FURTHER ASSURANCES.................................................................35
15.19 HEADINGS...........................................................................35
15.20 TERMS..............................................................................35
15.21 GOVERNING LAW; FORUM...............................................................36
15.22 CERTIFICATED INTERESTS.............................................................36
</TABLE>
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<PAGE>
OPERATING AGREEMENT
OF
LIBERTY SATELLITE, LLC
This Operating Agreement is made as of the 16th day of March, 2000, by and among
Liberty KASTR Corp. ("Liberty KASTR"), Liberty XMSR, Inc. ("Liberty XMSR"),
Liberty Astro, Inc. ("Liberty Astro"), LMI/LSAT Holdings, Inc. ("Liberty LA
DTH"),and TSAT Holding 1, Inc., such parties being the initial Members of
Liberty Satellite, LLC, a Delaware limited liability company.
In consideration of the mutual covenants contained in this Agreement and
intending to be legally bound, the parties agree as follows:
ARTICLE 1. FORMATION AND DEFINITIONS
1.1 FORMATION. The Company was formed on March 7, 2000, by the filing with the
Delaware Secretary of State on behalf of the initial Members of the Company of a
Certificate of Formation pursuant to the Act. Kenneth G. Carroll is hereby
designated as an authorized person within the meaning of the Act, to execute,
deliver and file the Certificate of Formation of the Company with the Secretary
of State of the State of Delaware. Upon the filing of the Certificate of
Formation of the Company with the Secretary of State of the State of Delaware,
his powers as an authorized person shall cease and the Managing Member shall
thereafter be designated as an authorized person within the meaning of the Act.
1.2 NAME. The name of the Company is Liberty Satellite, LLC. The business of the
Company will be conducted under such name, and any other name or names as the
Company may from time to time determine.
1.3 INITIAL MEMBERS AND OWNERSHIP INTERESTS. The name and address of each
initial Member and its initial Ownership Interest are set forth in Schedule 1.3.
1.4 OFFICE AND AGENT.
(a) The initial registered office of the Company in Delaware will be c/o RL&F
Service Corp., One Rodney Square, Tenth and King Streets, Wilmington, New Castle
County, Delaware 19801, and its initial registered agent will be RL&F Service
Corp. The Company may change its registered office or registered agent in
Delaware in accordance with the Act.
(b) The initial principal office of the Company will be at 7600 East Orchard
Road, Suite 330 South, Englewood, CO 80111. The Company may change its principal
office upon the unanimous Vote of the Members.
1
<PAGE>
1.5 FOREIGN QUALIFICATION. The Company will apply for a certificate of authority
to do business in any other state or jurisdiction, as required or appropriate
from time to time, and will file such other certificates and instruments as may
be required or appropriate from time to time in connection with its formation,
existence and operation.
1.6 TERM. This Agreement shall be effective as of the formation of the Company
and will continue in effect thereafter, unless and until the Certificate is
cancelled in accordance with the Act or this Agreement is replaced by a new
agreement of the Members.
1.7 DEFINITIONS. The following terms used in this Agreement have the
corresponding meanings set forth below:
Act: the Delaware Limited Liability Company
Act, as amended from time to time
Additional Contribution: a capital contribution (other than the
Initial Contribution) that a Member
makes to the Company, as described in
3.2
Adjusted Capital Account as to any Member, the deficit balance
(if any) in such Member's Deficit:
Capital Account as of the end of the
Fiscal Year, after (a) crediting to such
Capital Account any amount that such
Member is obligated to restore pursuant
to this Agreement or is deemed obligated
to restore pursuant to the minimum gain
chargeback provisions of the Section
704(b) Regulations and (b) charging to
such Capital Account any adjustments,
allocations or distributions described
in the qualified income offset
provisions of the Section 704(b)
Regulations that are required to be
charged to such Capital Account
pursuant to this Agreement.
Affiliate: with respect to any Person, any Person
that directly or indirectly Controls, is
Controlled by, or is under common
Control with such Person; PROVIDED that,
for purposes of this Agreement only,
LSAT and its Controlled Affiliates will
not be deemed to be Affiliates of LMC.
Agreement: this Operating Agreement, also known as
a limited liability company agreement
under the Act, as amended from time to
time.
Available Cash: for any Fiscal Year or other period,
net income (or loss) of the Company
determined in accordance with GAAP,
adjusted, without duplication, by adding
(a) depreciation, amortization and other
non-cash charges to the extent deducted
in determining net income and deducting
(b) (i)
2
<PAGE>
the current portion of indebtedness of
the Company, (ii) payments required to
be paid by the Company within one year
after the date of calculation, (iii)
prepaid expenses and other cash
expenditures to the extent not deducted
in determining net income or loss and
(iv) reasonable reserves for working
capital and contingent liabilities of
the Company as determined by the
Managing Member.
Bankruptcy: of a Member means the occurrence of
any of the following:
(a) the filing by such Member of a
voluntary petition in bankruptcy;
(b) the making by such Member of a
general assignment for the benefit of
creditors;
(c) the adjudication of such Member as
bankrupt or insolvent, or the entry of
an order, judgment or decree by any
court of competent jurisdiction,
granting relief against such Member in
any bankruptcy or insolvency Proceeding;
(d) the filing by such Member of a
petition or answer seeking for such
Member any reorganization, arrangement,
composition, readjustment, liquidation,
dissolution or similar relief under any
statute, law or regulation;
(e) the filing by such Member of an
answer or other pleading admitting or
failing to contest the material
allegations of a petition filed against
such Member in any proceeding for
reorganization, arrangement,
composition, readjustment, liquidation,
dissolution or similar proceeding under
any statute, law or regulation;
(f) the valid appointment, with the
consent of such Member, of a receiver,
trustee or liquidator to administer all
or a substantial portion of such
Member's assets or its Ownership
Interest; or
(g) the valid appointment, without the
consent of such Member, of a receiver,
trustee or liquidator to administer all
or a substantial portion of such
Member's assets or its Ownership
Interest, if such appointment is not
vacated or
3
<PAGE>
stayed within 90 days after such
appointment.
The foregoing definition of "Bankruptcy"
is intended to, and shall, replace and
supersede the events of bankruptcy set
forth in Section 18-304 of the Act.
Business Day: any day other than a Saturday, a Sunday
or a day on which banking institutions
in Denver, Colorado, or New York, New
York are required or authorized to be
closed.
Capital Account: the capital account of a Member
established and maintained in accordance
with 3.3.
Capital Contribution: any contribution of money or property by
a Member to the Company that is either
an Initial Contribution or an Additional
Contribution.
Certificate: the Certificate of Formation referred to
in 1.1, as amended from time to time.
CEO: as defined in 6.6(a).
CFO: as defined in 6.6(a).
Code: The Internal Revenue Code of 1986, as
amended from time to time, and the
corresponding provisions of any
subsequent revenue laws.
Company: The limited liability company formed
under the Certificate and governed by
this Agreement.
Contribution Agreement: The Contribution Agreement dated as of
the date of this Agreement among Liberty
Media Corporation, Liberty Media
International, Inc., LSAT Holdings,
Inc., each of the initial Members of
the Company, the Company and LSAT
Astro, LLC.
Control: The possession, direct or indirect, of
the power to direct or cause the
direction of the management and policies
of a Person, whether through the
ownership of voting securities, by
contract or otherwise.
Controlled Affiliate: With respect to any Person, an Affiliate
of such Person
4
<PAGE>
that such Person Controls.
COO: as defined in 6.6(a).
Dissolution: The happening of any of the events
described in 11.1.
Distribution: The amount of any money or the Fair
Market Value of any property distributed
by the Company to a Member as an
operating or liquidating Distribution in
accordance with this Agreement, reduced
by the amount of any Company liabilities
assumed by the distributee or to which
the distributed property is subject.
Fair Market Value: The cash price at which a willing seller
would sell and a willing buyer would
buy, both having full knowledge of the
relevant facts and being under no
compulsion to buy or sell, in an
arm's-length transaction without time
constraints. Except as otherwise
expressly provided in this Agreement,
the Fair Market Value of any item will
be determined in accordance with 14.2.
Fiscal Year: The fiscal and taxable year of the
Company, including both 12-month and
short fiscal or taxable years; until
changed as provided in this Agreement,
each Fiscal Year will begin on January 1
of each year and end on December 31 of
such year, provided that the first
Fiscal Year will begin on the date of
this Agreement and the last Fiscal Year
will end on the date on which
Liquidation of the Company is completed.
GAAP: Generally accepted accounting principles
as in effect from time to time in the
United States of America.
Indemnified Persons: as defined in 9.1.
Initial Contribution: The initial capital contribution made by
a Member to the Company, as described in
Schedule 3.1.
Lien: A mortgage, lien, pledge, security
interest or other encumbrance.
Liquidation: The process of winding up and
terminating the Company after its
Dissolution.
5
<PAGE>
LMC: Liberty Media Corporation, a Delaware
corporation.
LMC Members: Liberty KASTR, Liberty XMSR, Liberty
Astro, and Liberty LA DTH, and any
successor to or Permitted Transferee of
any LMC Member who is admitted as a
Member pursuant to Article 13; provided
that if any LMC Member Transfers less
than 100% of its Ownership Interest to
one or more Permitted Transferees, then
such LMC Member and all of its Permitted
Transferees will be treated as one
Member on a combined basis for all
purposes under this Agreement and will
be referred to in the aggregate as such
LMC Member.
Losses: as defined in 4.1.
LSAT: TCI Satellite Entertainment, Inc.
LSAT Member: TSAT Holding 1, Inc. and any successor
to or Permitted Transferee of the LSAT
Member who is admitted as a Member
pursuant to Article 13, provided that if
the LSAT Member Transfers less than 100%
of its Ownership Interest to one or more
Permitted Transferres, then the LSAT
Member and all of its Permitted
Transferees will be treated as one
Member on a combined basis for all
purposes under this Agreement and will
be referred to in the aggregate as the
LSAT Member.
Managing Member: as defined in 6.1(a).
Member: an initial member of the Company as
listed in Schedule 1.3 and any other
Person subsequently admitted to the
Company as an additional or substitute
member in accordance with this
Agreement.
Notice: any written notice actually delivered or
deemed delivered pursuant to 15.13.
Ownership Interest: with respect to each Person owning a
limited liability company interest in
the Company, all the limited liability
company interests of such Person in the
Company (including an interest in the
Profits and Losses of the Company, a
Capital Account interest and all other
rights and obligations of such Person
under this Agreement)
6
<PAGE>
expressed as a percentage based on such
Person's pro rata share of the total
Capital Contributions to the Company, as
initially set forth in Schedule 1.3 and
as subsequently adjusted in accordance
with this Agreement.
Permitted Transferee: a Person described in 13.3 to whom an
Ownership Interest may be Transferred.
Person: a natural person, corporation,
partnership, limited liability company,
trust, unincorporated organization,
association or other entity.
Portfolio Company: a Person in whom the Company has made an
equity or convertible debt investment.
Proceeding: any threatened, pending, ongoing, or
completed action, suit or proceeding,
whether formal or informal, and whether
civil, administrative, investigative or
criminal.
Profits: as defined in 4.1.
Regulations: the Treasury Regulations (including
temporary or proposed regulations)
promulgated under the Code, as amended
from time to time (including
corresponding provisions of succeeding
regulations).
Representative: as defined in 6.4.
Satellite Business: the business of transmitting and/or
distributing Internet data and/or other
content via satellite, and related
businesses, worldwide.
Tax Matters Partner: as defined in 10.10.
Third Party: with respect to any Member or the
Company, a Person other than an
Affiliate of such Member or the Company.
Transfer: a sale, exchange, assignment, transfer
or other disposition of all or any part
of an Ownership Interest (other than the
creation of a Lien on all or any part of
an Ownership Interest), whether
voluntary, involuntary or by operation
of law.
7
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Transferee: a Person to whom an Ownership Interest
is Transferred in compliance with this
Agreement and who will have the rights
specified in 13.5 of this Agreement.
Transferor: a Person who Transfers all or any part
of an Ownership Interest in compliance
with this Agreement.
Vote: the action of the Members made in
accordance with the voting requirements
set forth in Article 6 or any other
applicable provision of this Agreement,
either in meeting assembled or by
written consent without a meeting.
Withdrawal: the occurrence of an event that
terminates a Person's membership in the
Company, as provided in 11.2.
ARTICLE 2. PURPOSES AND POWERS
2.1 PRINCIPAL PURPOSES. Subject to the provisions of this Agreement, the
business and principal purposes of the Company are (a) to engage in the
Satellite Business, either directly or indirectly through the ownership of
interests in other Persons, (b) to acquire, own, hold, vote, manage, sell or
otherwise dispose of interests in the assets used to conduct the Satellite
Business or interests in any other Person through which the Satellite Business
is conducted, (c) to do any and all other acts and things that the LMC Members
(acting together) and the LSAT Member determine to be in the best interests of
the Company, including to acquire, own, hold, vote, manage, sell or otherwise
dispose of any other asset contributed to the Company pursuant to the
Contribution Agreement and (d) to do any and all other acts or things that may
be incidental or necessary to carry on the business of the Company as
contemplated by this Agreement.
2.2 OTHER PURPOSES. The Company may engage in activities related or incidental
to its principal purpose, as well as any other business or investment activity
as may be approved by the affirmative Vote of all Members. However, as provided
in the Act, the Company may not engage in the business of granting policies of
insurance, assuming insurance risks, issuing debt instruments for circulation as
money or receiving deposits of money.
2.3 POWERS. The Company has all the powers granted to a limited liability
company under the Act, as well as all powers necessary or convenient to achieve
its purposes and to further its business that are not expressly prohibited to
the Company by applicable law.
ARTICLE 3. CAPITAL OF THE COMPANY
3.1 INITIAL CONTRIBUTIONS.
8
<PAGE>
(a) Contemporaneously with the execution of this Agreement (or as otherwise
contemplated by the Contribution Agreement), each Member will make the capital
contribution (or contributions) to the Company required to be made by such
Member pursuant to the Contribution Agreement. The agreed Fair Market Value of
such contributions as specified in Schedule 3.1 will be credited to the
applicable Member's Capital Account and such agreed Fair Market Value will be
deemed to be the amount of such Member's Initial Capital Contribution.
3.2 ADDITIONAL CONTRIBUTIONS.
(a) Except as required by law, no Additional Contributions will be required to
be made by any Member.
(b) Subject in any case to the prior approval, by Vote, of Members holding in
the aggregate a majority of the Ownership Interests of the Company, each of the
LMC Members, acting together, and the LSAT Member shall have the right, but not
the obligation, to make one or more Additional Contributions. If either the LMC
Members, acting together, or the LSAT Member elects to make an Additional
Contribution pursuant to this 3.2, the other such Member (or, in the case of the
LMC Members, any such Member) shall have the right, but not the obligation,
exercisable by written notice to the Company and each of the other Members
within 30 days after any such Additional Contribution (and without the
requirement of a separate Vote pursuant to the first sentence of this 3.2(b)),
to make such Additional Contribution as shall be necessary to cause the
respective aggregate Capital Contributions of all of the LMC Members, considered
together (on the one hand), and the LSAT Member (on the other hand) to remain in
proportion to their respective Ownership Interests, as in effect immediately
prior to the Additional Contribution that gave rise to such right.
(c) Any Additional Contribution hereunder shall be in the form of cash or, with
the prior approval, by Vote, of Members holding in the aggregate a majority of
the Ownership Interests of the Company, any other property, valued at the Fair
Market Value of such other property determined in accordance with 14.2. In
addition, in the case of any Additional Contribution pursuant to the second
sentence of 3.2(b), any one or more of the LMC Members, or the LSAT Member, as
applicable, may make such Additional Contribution in the form of an unsecured
promissory note of such Member, payable on demand or for a term of not more than
12 months, with a market rate of interest (payable at maturity or sooner).
(d) Subject to 3.2(b), upon the receipt by the Company of any Additional
Contribution pursuant to this 3.2, the respective Ownership Interests of the
Members shall be appropriately adjusted so that the Ownership Interest of each
Member is equal to the ratio (expressed as a percentage) that the aggregate
Capital Contributions of such Member bear to the aggregate Capital Contributions
of all Members.
(e) The provisions of this 3.2 are intended solely to benefit the Members and,
to the fullest extent permitted by applicable law, shall not be construed as
conferring any benefit upon any creditor of the Company (and no such creditor
shall be a third party beneficiary of this
9
<PAGE>
Agreement), and no Member shall have any duty or obligation to any creditor of
the Company to make any Additional Contributions.
3.3 CAPITAL ACCOUNTS. A Capital Account will be maintained for each Member
and credited, charged and otherwise adjusted as required by Section 704(b) of
the Code and the Section 704(b) Regulations. Each Member's Capital Account
will be:
(a) Credited with (i) the amount of money contributed by the Member as an
Initial Contribution or an Additional Contribution, (ii) the Fair Market
Value of assets contributed by the Member as an Initial Contribution or
Additional Contribution (net of liabilities that the Company assumes or takes
subject to), (iii) the Member's allocable share of Profits and (iv) all other
items properly credited to such Capital Account as required by the Section
704(b) Regulations;
(b) Charged with (i) the amount of money distributed to the Member by the
Company, (ii) the Fair Market Value of assets distributed to the Member by the
Company (net of liabilities that the Member assumes or takes subject to), (iii)
the Member's allocable share of Losses and (iv) all other items properly charged
to such Capital Account as required by the Section 704(b) Regulations; and
(c) Otherwise adjusted as required by the Section 704(b) Regulations.
Any unrealized appreciation or depreciation with respect to any asset
distributed in kind will be allocated among the Members in accordance with
the provisions of Article 4 as though such asset had been sold for its Fair
Market Value on the date of Distribution and the Members' Capital Accounts
will be adjusted to reflect both the deemed realization of such
appreciation or depreciation and the Distribution of such property.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
the Section 704(b) Regulations and will be interpreted and applied in a
manner consistent with such Regulations and any amendment or successor
provision thereto. The Members will cause appropriate modifications to
be made if unanticipated events might otherwise cause this Agreement not
to comply with the Section 704(b) Regulations, so long as such
modifications do not cause a material change in the relative economic
benefits of the Members under this Agreement.
3.4 TRANSFER. If all or any part of an Ownership Interest is Transferred in
accordance with this Agreement, the Capital Account of the Transferor that is
attributable to the Transferred Ownership Interest will carry over to the
Transferee.
3.5 ADJUSTMENTS. The Members intend to comply with the Section 704(b)
Regulations in all respects, and the Capital Accounts of the Members will be
adjusted to the full extent that the Section 704(b) Regulations may apply
(including applying the concepts of qualified income offsets and minimum gain
chargebacks).
10
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3.6 MARKET VALUE ADJUSTMENTS. Appropriate Capital Account adjustments will be
made upon any Transfer of an Ownership Interest, including those that apply
upon the constructive liquidation of the Company under Section 708(b) of the
Code, all in accordance with the Section 704(b) Regulations. Similarly, if
optional basis adjustments are made under Section 734 or Section 743 of the
Code, appropriate Capital Account adjustments will be made as required by the
Section 704(b) Regulations.
3.7 NO WITHDRAWAL OF CAPITAL. Except as specifically provided in this Agreement,
no Member will be entitled to withdraw all or any part of its Capital
Contribution from the Company prior to the Company's Dissolution and Liquidation
or, when such withdrawal of capital is permitted, to demand a Distribution of
property other than money or as otherwise provided in this Agreement.
3.8 NO INTEREST ON CAPITAL. No Member will be entitled to receive interest on
such Person's Capital Account or Capital Contribution.
3.9 NO DRAWING ACCOUNTS. The Company will not maintain a drawing account for any
Member. All Distributions to Members will be governed by Article 5 (relating to
Distributions not in Liquidation of the Company) and by Article 12 (relating to
Liquidation).
ARTICLE 4. PROFITS AND LOSSES
4.1 DETERMINATION. The terms "Profits" and "Losses" mean, respectively, the
net profits and losses of the Company determined for each Fiscal Year in
accordance with the method of accounting adopted by the Company for federal
income tax purposes, except that such net profit or loss will be determined
(a) by including as an item of income any income that is exempt from
taxation, (b) by deducting as an expense any expenditure of the Company not
deductible in computing its taxable income and not properly chargeable to any
Capital Account, or deemed not deductible in computing its taxable income and
not properly chargeable to any Capital Account in accordance with the Section
704(b) Regulations and (c) by calculating the gain, loss, depreciation and
amortization on property that is reflected in the Capital Accounts at a book
basis different from the basis of such property for federal income tax
purposes based on the book basis of such property in accordance with the
Section 704(b) Regulations. Any allocation of Profits or Losses will be
considered a pro rata allocation of each item entering into the computation
of Profits and Losses.
4.2 ALLOCATION OF PROFITS AND LOSSES GENERALLY. Except as provided in 4.3
through 4.13, Profits or Losses, as the case may be, for each Fiscal Year will
be allocated as follows:
(a) Profits will be allocated:
(i) first, to the Members to the extent of, and in proportion to Losses
previously allocated to the Members pursuant to 4.2(b)(i) (and not previously
offset by an allocation pursuant to this 4.2(a)(i));
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(ii) second, to the Members to the extent of, and in proportion to, Losses
previously allocated to such Members pursuant to 4.2(b)(iii)(and not previously
offset by an allocation pursuant to this 4.2(a)(ii)); and
(iii) thereafter, to the Members in proportion to their Ownership Interests.
(b) Losses will be allocated:
(i) first, an amount equal to 99% of the Losses to the LMC Members, in
proportion to their respective Ownership Interests, and an amount equal to 1% of
the Losses to the LSAT Member;
(ii) second, to the Members to the extent of, and in proportion to, Profits
previously allocated to such Members pursuant to 4.2(a)(iii)(and not previously
offset by an allocation pursuant to this 4.2(b)(ii)); and
(iii) thereafter, to the Members in proportion to their Ownership Interests.
4.3 NONRECOURSE DEDUCTIONS. Losses attributable to any Company nonrecourse
liability (for which no Member or related Person (within the meaning of the
Section 752 Regulations) bears the economic risk of loss) will be allocated
in the same manner as Losses are allocated pursuant to 4.2(b), and Losses of
the Company attributable to any Member nonrecourse liability (that is
nonrecourse to the Company, but for which one or more Members or related
Persons bear the economic risk of loss) will be allocated in accordance with
the Section 704(b) Regulations to those Members bearing (or who, because of
their relationship to Persons who bear such economic risk of loss, are deemed
to bear) the economic risk of loss for the liability. The allocation of
liabilities to a property, the determination of nonrecourse deductions, the
effect of property revaluations and all other issues affecting the allocation
of nonrecourse deductions will be determined in accordance with the Section
704(b) Regulations.
4.4 MINIMUM GAIN CHARGEBACK. Notwithstanding the general rule on allocation of
Profits stated in 4.2(a), if there is a net decrease in Company minimum gain for
any Fiscal Year, each Member will be allocated items of Profits for such year
equal to such Member's share of the net decrease in Company minimum gain. If
there is a net decrease in Member nonrecourse debt minimum gain for any Fiscal
Year, each Member having a share of such minimum gain will be allocated items of
Profits equal to such Member's share of such net decrease in Company nonrecourse
debt minimum gain. The determination of net decreases in Company minimum gain
and Member nonrecourse debt minimum gain, allocations of such net decreases,
exceptions to minimum gain chargebacks and all other issues affecting the
minimum gain chargeback requirements will be determined in accordance with the
Section 704(b) Regulations.
4.5 GAIN CHARGEBACK. Notwithstanding the general rule on allocation of Profits
stated in 4.2(a) but subject to the prior application of the minimum gain
chargeback rule stated in 4.4, Profits of the Company incident to Dissolution
and Liquidation will be allocated among the Members in the following order and
priority: (a) if any Members have negative Capital Account balances, to such
Members in proportion to and to the extent of such negative balances until all
such negative
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balances are eliminated; (b) to the Members, to the extent required to cause the
Capital Accounts of the Members to be in proportion to their respective
Ownership Interests; and (c) the balance to the Members in proportion to their
Ownership Interests.
4.6 TAX ALLOCATIONS. Allocation of items of income, gain, loss and deduction of
the Company for federal income tax purposes for a Fiscal Year will be allocated,
as nearly as is practicable, in accordance with the manner in which such items
are reflected in the allocations of Profits and Losses among the Members for
such Fiscal Year. To the extent possible, principles identical to those that
apply to allocations for federal income tax purposes will apply for state and
local income tax purposes.
4.7 QUALIFIED INCOME OFFSET. Notwithstanding any other provision of this
Agreement to the contrary (except 4.4, which will be applied first), if in
any Fiscal Year or other period a Member unexpectedly receives an adjustment,
allocation or Distribution described in the qualified income offset
provisions of the Section 704(b) Regulations, such Member will be specially
allocated items of income in an amount and manner sufficient to eliminate, to
the extent required by the Section 704(b) Regulations, the Adjusted Capital
Account Deficit of such Member as quickly as possible.
4.8 LIMIT ON LOSS ALLOCATIONS. Notwithstanding the provisions of 4.2(b) or
any other provision of this Agreement to the contrary, Losses (or items
thereof) will not be allocated to a Member if such allocation would cause or
increase a Member's Adjusted Capital Account Deficit and will be reallocated
to the other Members in proportion to their Ownership Interests, subject to
the limitations of this 4.8.
4.9 SECTION 754 ADJUSTMENTS. To the extent an adjustment to the adjusted tax
basis of any Company asset under Section 734(b) or Section 743(b) of the Code
is required to be taken into account in determining Capital Accounts under
the Section 704(b) Regulations, the amount of the adjustment to the Capital
Accounts will be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis), and the
gain or loss will be specially allocated to the Members in a manner
consistent with the manner in which their Capital Accounts are required to be
adjusted under the Section 704(b) Regulations.
4.10 CONTRIBUTED PROPERTY. All items of gain, loss and deduction with respect
to property that is reflected in the Capital Accounts of the Members at a
basis different from such property's adjusted tax basis will be allocated,
solely for tax purposes, among the Members to take into account the variation
between the adjusted tax basis of the property and the basis reflected in the
Member's Capital Account according to the principles of the Section 704(c)
Regulations. For example, if there is built-in gain with respect to certain
property at the time of such property's contribution to the Company, upon the
Company's sale of that property the pre-contribution taxable gain (as
subsequently adjusted under the Section 704(c) Regulations during the period
such property was held by the Company) would be allocated to the contributing
Member (and such pre-contribution gain would not again create a Capital
Account adjustment because the property was credited to Capital Account upon
contribution
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at its Fair Market Value). Except as limited by the following sentence, the
allocation of tax items with respect to Section 704(c) property to Members
that do not reflect a basis difference with respect to such property in their
Capital Accounts will, to the extent possible, be equal to the allocation of
the corresponding book items made to such Members with respect to such
property. All tax allocations made under this 4.10 will be made in accordance
with Section 704(c) of the Code, and the method of making such allocations
will be determined by the LMC Members, acting together.
4.11 TAX CREDITS. To the extent that the federal income tax basis of an asset
is allocated to the Members in accordance with the Regulations promulgated
under Section 46 of the Code, any tax credit attributable to such tax basis
will be allocated to the Members in the same ratio as such tax basis. With
respect to any other tax credit, to the extent that a Company expenditure
gives rise to an allocation of loss or deduction, any tax credit attributable
to such expenditure will be allocated to the Members in the same ratio as
such loss or deduction. Consistent principles will apply in determining the
Members' interests in tax credits that arise from taxable or non-taxable
receipts of the Company. All allocations of tax credits will be made as of
the time such credit arises. Any recapture of a tax credit will be allocated,
to the extent possible, to the Members in the same manner as the tax credit
was allocated to them. Except as otherwise specifically provided in the
Section 704(b) Regulations (such as the adjustments required when there is an
upward or downward adjustment in the tax basis of investment credit
property), allocations of tax credits and their recapture will not be
reflected by any adjustment to Capital Accounts.
4.12 ALLOCATION ON TRANSFER. If any Ownership Interest is Transferred during any
Fiscal Year of the Company (whether by liquidation of an Ownership Interest,
Transfer of all or part of an Ownership Interest or otherwise), the books of the
Company will be closed as of the effective date of Transfer. The Profits or
Losses attributed to the period from the first day of such Fiscal Year through
the effective date of Transfer will be allocated to the Transferor and the
Profits or Losses attributed to the period commencing on the day after the
effective date of Transfer will be allocated to the Transferee. In lieu of an
interim closing of the books of the Company and with the agreement of the
Transferor and the Transferee, the Company may allocate Profits and Losses for
such Fiscal Year between the Transferor and the Transferee based on a daily
proration of items for such Fiscal Year or any other reasonable method of
allocation (including an allocation of extraordinary Company items, as
determined by the Company, based on when such items are recognized for federal
income tax purposes).
4.13 TIER PARTNERSHIPS. Rules similar to those stated in this Article will
apply to the extent the Company is an owner of an interest in another Person
that is classified as a partnership for federal income tax purposes, all in
accordance with the Section 704(b) Regulations.
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ARTICLE 5. DISTRIBUTIONS
5.1 DISTRIBUTIONS GENERALLY. Except for Distributions incident to the Company's
Dissolution and Liquidation (which will be governed by 12.4), Available Cash
will be distributed quarterly to the Members in accordance with their respective
Ownership Interests.
5.2 PAYMENT. All Distributions will be made to Members owning Ownership
Interests on the date of record, such date being the day immediately preceding
the date of Distribution, as reflected on the books of the Company.
5.3 WITHHOLDING. If required by the Code or by state or local law, the Company
will withhold any required amount from Distributions to a Member for payment to
the appropriate taxing authority. Any amount so withheld from a Member will be
treated as a Distribution by the Company to such Member. Each Member will timely
file any agreement that is required by any taxing authority in order to avoid
any withholding obligation that would otherwise be imposed on the Company.
5.4 DISTRIBUTION LIMITATIONS. Notwithstanding any other provision of this
Agreement, the Company will not make any Distribution to the Members if, after
the Distribution, the liabilities of the Company (other than liabilities to
Members on account of their Ownership Interests) would exceed the Fair Market
Value of the Company's assets. With respect to any property subject to a
liability for which the recourse of creditors is limited to the specific
property, such property will be included in assets only to the extent the
property's Fair Market Value exceeds its associated liability, and such
liability will be excluded from the Company's liabilities. Notwithstanding any
other provision of this Agreement, the Company will not make a Distribution to
any Member if such Distribution would cause or increase any Member's Adjusted
Capital Account Deficit.
ARTICLE 6. MANAGEMENT
6.1 MANAGEMENT.
(a) The LMC Members and the LSAT Member, acting together, may designate any
Member as manager of the Company within the meaning of the Act (any Member so
designated, the "Managing Member"). The designation of a Managing Member shall
be effective immediately upon Notice of such designation to the Company, subject
to the acceptance of such designation by the Member so designated. If no
Managing Member has been designated at any time, all references in this
Agreement to the Managing Member shall mean and refer to the Members, acting
pursuant to the second sentence of 6.1(b), unless the context shall otherwise
require.
(b) If the LMC Members and the LSAT Member designate a Managing Member, the
Managing Member shall be the manager of the Company within the meaning of the
Act, and as such shall have the full power and authority of a manager under the
Act to manage the
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business and affairs of the Company, subject to the terms and conditions of this
Agreement. If no Managing Member has been designated at any time, the management
of the Company shall be vested in the Members, acting by Vote in accordance with
this Agreement. The Managing Member will cause the Company to be managed and
operated with the intent to maximize the long-term value of the Company and the
total return to the Members, as a whole, of their investment in the Company,
determined on a stand-alone basis.
(c) If, at any time, (i) LMC does not hold, directly or indirectly, capital
stock of LSAT which entitles it to exercise a majority of the combined voting
power of all outstanding capital stock of LSAT and (ii) the LMC Members hold, in
the aggregate, a majority of the Ownership Interests held by the Members, the
LMC Members, acting together, shall have the right, exercisable by written
Notice to the Company, the Managing Member and the LSAT Member at any time, to
remove the Managing Member as manager of the Company under the Act and this
Agreement, with or without cause, effective immediately (or at such other time
as may be designated in such Notice). Any Managing Member so removed as manager
shall nevertheless continue as a Member of the Company in accordance with this
Agreement and the Act, and shall have all the rights of a Member hereunder.
(d) The Managing Member may resign as Managing Member at any time, by written
Notice to the Company, the LMC Member and the LSAT Member; PROVIDED, that no
such resignation shall be effective on less than 60 days' prior written Notice
without the prior written consent of the LMC Members, acting together, and the
LSAT Member. Any Managing Member that resigns as manager shall nevertheless
continue as a Member of the Company in accordance with this Agreement and the
Act, and shall have all the rights of a Member hereunder.
(e) Whenever this Agreement provides for any action to be taken by, or any Vote,
consent or approval to be given by, the LMC Members, acting together, such
action may be taken by, and such Vote, consent or approval may be given by, LMC
Members owning Ownership Interests representing in the aggregate a majority of
the aggregate Ownership Interests then owned by all of the LMC Members.
(f) The LSAT Member shall be, and is hereby designated by all the initial
Members as, the initial Managing Member of the Company.
6.2 ACTIONS REQUIRING CONCURRENCE OF BOTH THE LSAT MEMBER AND THE LMC MEMBERS,
ACTING TOGETHER. In addition to any actions described elsewhere in this
Agreement as requiring a majority or unanimous Vote of, or approval by, the
Members, the following actions or decisions by the Company will be made only by
the affirmative Vote of (i) the LSAT Member and (ii) the LMC Members, acting
together:
(a) amendment of this Agreement or any other organizational document of the
Company or any Person directly or indirectly Controlled by the Company or in
which the Company has an interest directly or indirectly entitling it to vote on
such amendment;
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(b) appointment or removal of auditors of the Company, approval or adoption of
accounting principles applicable to the Company, and any change in the Fiscal
Year of the Company;
(c) any decision to distribute cash or other assets of the Company, except any
Distribution pursuant to Article 5 or Article 12;
(d) the admission of additional Members (except as provided in 13.3) or the
grant by the Company of any right to acquire any interest in the Company or any
profit participation, equity appreciation or similar right with respect to the
Company or any Portfolio Company;
(e) causing the Company to be characterized as an entity other than a
partnership for U.S. federal income tax purposes; or
(f) any agreement by the Company to take any of the foregoing actions.
Notwithstanding this Section 6.2, Persons dealing with the Company are entitled
to rely conclusively on the power and authority of the Managing Member, whether
or not any Vote required by this Section shall have been taken.
6.3 OTHER MATTERS. Unless otherwise restricted by a Vote of the Members, any
action not requiring a unanimous Vote will be deemed authorized by the Company
if such action is taken by the Managing Member, or by an officer of the Company
or the Managing Member in the ordinary course of business in a manner consistent
with any business plan or budget approved by the Members. In the absence of a
Managing Member, the members may authorize the Company to act by majority Vote.
6.4 MEMBER REPRESENTATIVES. The LSAT Member and the LMC Members, acting
together, will each be entitled to designate two individuals to act as such
Members' duly authorized representatives and agents (each a "Representative")
for purposes of exercising the Vote of such Members on any matter involving the
Company. A Member will designate its Representatives by Notice to each other
Member and may change any such designation at any time upon similar Notice.
6.5 NO DISSOLUTION, RESIGNATION OR RETIREMENT. No Member will voluntarily
dissolve, resign from or retire from the Company, except by a Transfer to a
Permitted Transferee or following Dissolution and Liquidation of the Company. If
any such voluntary dissolution, resignation or retirement occurs in
contravention of this Agreement, the withdrawing Member will, without further
act, become a Transferee of such Member's Ownership Interest (with the limited
rights of a Transferee as set forth in 13.5).
6.6 OFFICERS.
(a) The Managing Member will have the exclusive right to cause the Company to
appoint a chief executive officer ("CEO"), chief financial officer ("CFO"), and
chief operating officer ("COO"), if the Managing Member determines that such
officers are necessary in connection with the business and principal purposes of
the Company as set forth in 2.1. The CEO will have the authority to select such
other officers as may be necessary or desirable to carry out
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the day-to-day management of the Company, such day-to-day management to be under
the direction of the Members and subject to their approval as provided in this
Agreement. Unless the Members decide otherwise, if the title of an officer is
one commonly used for officers of a business corporation formed under the
Delaware General Corporation Law, the assignment of such title shall constitute
the delegation to such person of the authorities and duties that are normally
associated with that office.
(b) The Managing Member will have the right, in its sole discretion, to cause
the Company to terminate any CEO, CFO or COO.
(c) Appointment of a Person as an officer or agent of the Company will not, in
itself, create any contract rights relating to such appointment, or to any
employment or compensation of such Person by the Company. The officers of the
Company, acting in their capacities as such, will be agents acting on behalf of
the Company as principal.
6.7 BUDGETS AND BUSINESS PLANS; FINANCIAL INFORMATION.
(a) The LMC Members, acting together, and the LSAT Member will each have the
right, exercisable at any time and from time upon not less than three months'
prior written notice to the Company and the other such Member(s), to require the
appropriate officers and employees of the Company to prepare and present to the
Members an annual operating and capital budget and a three-year business plan
for the business of the Company.
(b) The Members will require the appropriate officers and employees of the
Company to prepare and deliver to the Members (i) reasonably detailed quarterly
and annual financial statements, including balance sheets and statements of
income and cash flows for the Company, prepared in accordance with GAAP
(subject, in the case of interim financial statements, to the omission of
footnotes and normal year-end adjustments), (ii) monthly statements of income
and cash flows for the Company, including, in the case of such statements of
income, identification and appropriate disclosure of all transactions between
the Company and a Member or any of its Affiliates, (iii) quarterly reports
setting forth in reasonable detail information concerning investments made by
the Company, (iv) monthly comparisons of any applicable budget to actual
performance and (v) as required by the Members, 12-month forward rolling
operating and capital forecasts. The financial information to be provided
pursuant to this 6.7(b) will be distributed to the Members within the following
time periods: information required to be furnished monthly will be provided
within 30 days following the end of the applicable month, information required
to be furnished quarterly will be provided within 45 days following the end of
the applicable quarter, and information required to be furnished annually will
be provided within 90 days following the end of the applicable Fiscal Year.
6.8 MANAGEMENT CONDUCT. The Managing Member will cause the officers and
employees of the Company promptly and diligently to perform the duties
contemplated by this Agreement.
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6.9 UNAUTHORIZED ACTIONS. If a Member takes any action that is not authorized
under this Agreement and, as a consequence of such action, the Company incurs
any liability or obligation to any Person, at the election of a majority (by
Ownership Interest) of the other Members (other than the Member taking such
unauthorized action and any Affiliates of such Member), the Member taking such
unauthorized action will be solely responsible for the full amount of such
liability or obligation and will indemnify the Company against any claim for
satisfaction thereof. Subject to receipt of an assumption agreement, duly
executed by such Member, to the effect set forth in the foregoing sentence,
which assumption agreement is in form and substance reasonably satisfactory to
the other Members, the Company will assign to such Member all the Company's
rights in and to any asset, income or benefit arising solely from the
unauthorized action that resulted in the incurrence of such liability or
obligation (such assignment to be effected by an assignment duly executed by the
Company, which assignment is in form and substance reasonably satisfactory to
such Member). After such assignment, the Member to which such rights have been
assigned may use or transfer such rights as if such Member had originally taken
such unauthorized action on its own behalf, rather than purportedly on behalf of
the Company.
ARTICLE 7. MEETINGS OF MEMBERS
7.1 MEETINGS.
(a) Regular meetings of the Members will be held quarterly, at such time and
place as the Managing Member shall reasonably determine and set forth in the
Notice of meeting.
(b) Special meetings of the Members may be called upon Notice given by the LSAT
Member, any LMC Member, or any other Member owning at least 10% of the Ownership
Interests held by all Members.
(c) Notice of any meeting will be given by the Member calling such meeting to at
least one Representative of each Member not less than ten days or more than 30
days before the date of the meeting. Such Notice will state the place, day and
hour of the meeting and, in the case of a special meeting, the purpose for which
the meeting is called.
7.2 WAIVER OF NOTICE. Any Member may waive, in writing, any Notice required to
be given to such Member, whether before or after the time for the meeting to
which such Notice would relate. Any Member who signs minutes of action (or a
written consent) will be deemed to have waived any required Notice with respect
to such action.
For the purpose of determining Members entitled to Notice of or to Vote at
any meeting of Members, the date on which Notice of the meeting is first
given will be the record date for the determination of Members. Any such
determination of Members entitled to Vote at any meeting of Members will
apply to any adjournment of a meeting.
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7.3 QUORUM. A quorum at any meeting of Members will be deemed to exist if at
least one Representative of the LMC Members, acting together, and at least one
Representative of the LSAT Member, is present in person or by proxy. Any meeting
at which a quorum is not present may be adjourned to another place, day and hour
without further Notice. Each Member will cause its Representatives to act in
good faith to attend any meetings (including by proxy as provided in 7.5 or by
telephone as provided in 7.6 so as to assure that a quorum will be present at
any meeting of Members.
7.4 MANNER OF ACTING. If a quorum is present at any meeting of the Members, the
affirmative Vote of Members as set forth in Article 6 will be the act of the
Company. Prompt Notice describing all actions taken at a meeting will be
provided to all Representatives who were not in attendance at such meeting.
7.5 PROXIES. At any meeting of Members, a Representative of a Member may Vote in
person or by written proxy given to another Representative of a Member. A proxy
will be valid if signed by a Representative of a Member or by a duly authorized
attorney-in-fact and filed with the Company before or at the time of the
meeting. No proxy will be valid after three months from the date of its signing
unless otherwise provided in the proxy. Attendance at the meeting by a
Representative of a Member giving the proxy will be deemed to revoke the proxy
during the period of attendance.
7.6 MEETINGS BY TELEPHONE. The Members may participate in a meeting by means of
conference telephone or similar communications equipment by which all
Representatives participating in the meeting can hear each other at the same
time. Such participation will constitute presence in person at the meeting and
waiver of any required Notice.
7.7 ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a
meeting of Members may be taken without a meeting if the action is evidenced by
one or more minutes of action or written consents describing the action taken,
signed by (i) at least one Representative of the LMC Members and (ii) at least
one Representative of the LSAT Members (provided that the Representatives
signing such minutes of action or written consent represent at least the
percentage of Ownership Interests, of all Members entitled to Vote required
pursuant to this Agreement). Action so taken will be effective when such
Representatives have signed the consent, unless the consent specifies a later
effective date. Prompt Notice describing all actions taken without a meeting of
Members will be provided to all Representatives who have not signed the written
consent authorizing such actions.
ARTICLE 8. LIABILITY OF A MEMBER
8.1 LIMITED LIABILITY. Except as otherwise provided in the Act and in 6.9, the
debts, obligations and liabilities of the Company (whether arising in contract,
tort or otherwise) will be solely the debts, obligations and liabilities of the
Company, and no Member (or former Member) of the Company is liable or will be
obligated personally for any such debt, obligation or liability of the Company
solely by reason of such status. No Representative,
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individual trustee, officer, director, employee or agent of any Member will have
any personal liability for the performance of any obligation of such Member
under this Agreement.
8.2 CAPITAL CONTRIBUTION. Each Member is liable to the Company for (a) the
Initial Contribution agreed to be made under 3.1 and (b) subject to 8.3, any
Capital Contribution or Distribution that has been wrongfully or erroneously
returned or made to such Person in violation of the Act, the Certificate or this
Agreement.
8.3 CAPITAL RETURN. Any Member who has received the return of all or any part of
such Person's Capital Contribution will have no liability to return such
Distribution to the Company after the expiration of three years from the date of
such Distribution unless Notice of an obligation to return is given to such
Person within such three-year period; provided that if such return of capital
has occurred without violation of the Act, the Certificate or this Agreement,
the three-year obligation to return capital will apply only to the extent
necessary to discharge the Company's liability to its creditors who reasonably
relied on such obligation in extending credit prior to such return of capital.
8.4 RELIANCE. Any Member will be fully protected in relying in good faith upon
the records of the Company and upon such information, opinions, reports or
statements by (a) any of the Company's other Members, employees or committees or
(b) any other Person who has been selected with reasonable care as to matters
such Member reasonably believes are within such other Person's professional or
expert competence. Matters as to which such reliance may be made include the
value and amount of assets, liabilities, Profits and Losses of the Company, as
well as other facts pertinent to the existence and amount of assets from which
Distributions to Members might properly be made.
ARTICLE 9. INDEMNIFICATION
9.1 GENERAL. To the full extent permitted by law, the Company will indemnify
each Member (and each such Member's, shareholders, directors, officers,
partners, members, employees and agents), each Representative and each officer
of the Company (collectively, "Indemnified Persons") from and against any and
all loss, damage, expense (including reasonable fees and expenses of attorneys
and other advisors and any court costs incurred by such Indemnified Person) or
liability incurred in any Proceeding to which such Indemnified Person is made a
party because such Person was a Member, Representative or officer of the Company
(or was a shareholder, director, officer, partner, member, employee or agent of
a Member) or acted or failed to act with respect to the business or affairs of
the Company if (a) such Person acted in good faith, (b) such Person reasonably
believed that its conduct in an official capacity was in the Company's best
interests or, if the conduct was not in an official capacity, that its conduct
was at least not opposed to the Company's best interests and (c) such Person, in
the case of any criminal Proceeding, had no reasonable cause to believe its
conduct was unlawful.
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9.2 EXCEPTION. Notwithstanding the general rule stated in 9.1, the Company will
not indemnify any Person in connection with (a) any Proceeding by or in right of
the Company in which such Person was adjudged liable to the Company, (b) in
connection with any Proceeding charging improper personal benefit to such Person
(or another Person of which such Person is or was a shareholder, director,
officer, partner, member, employee or agent) (whether or not involving action in
an official capacity) in which such Person was adjudged liable on the basis that
personal benefit was improperly received or (c) any liability or obligation for
which such Person (or another Person of which such Person is or was a
shareholder, director, officer, partner, member, employee or agent) is liable
under 6.9.
9.3 EXPENSE ADVANCEMENT. With respect to the reasonable expenses incurred by an
Indemnified Person who is a party to a Proceeding, the Company may provide funds
to such Person (and, in the case of a Member, to the shareholders, directors,
officers, partners, members, employees and agents of such Person) in advance of
the final disposition of the Proceeding if (a) such Person furnishes the Company
with such Person's written affirmation of a good-faith belief that it has met
the standard of conduct described in 9.1, (b) such Person agrees in writing to
repay the advance if it is determined that it has not met such standard of
conduct and (c) the Company determines that, based on then known facts,
indemnification is permissible under this Article.
9.4 INSURANCE. The indemnification provisions of this Article do not limit any
Person's right to recover under any insurance policy maintained by the Company.
If, with respect to any loss, damage, expense or liability described in 9.1, any
Person receives an insurance policy indemnification payment that, together with
any indemnification payment made by the Company, exceeds the amount of such
loss, damage, expense or liability, then such Person will immediately repay such
excess to the Company.
9.5 INDEMNIFICATION OF OTHERS. To the same extent that the Company will
indemnify and advance expenses to a Member, the Company may indemnify and
advance expenses to any employee or agent of the Company. In addition, the
Company, in its discretion, may indemnify and advance expenses to any employee
or agent to a greater extent than a Member.
9.6 EXCULPATION. No Indemnified Person shall be liable to the Company or any
other Member for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Company and in a manner reasonably believed to be within the scope of the
authority conferred on the applicable Member, Representative or officer by this
Agreement, except that an Indemnified Person shall be liable to the Company for
any such loss, damage or claim incurred by reason of such Indemnified Person's
willful misconduct.
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ARTICLE 10. ACCOUNTING AND REPORTING
10.1 FISCAL YEAR. For income tax and accounting purposes, the fiscal year of the
Company will be the Fiscal Year.
10.2 ACCOUNTING METHOD. For income tax and accounting purposes, the Company will
use the accrual method of accounting, unless otherwise required by the Code. The
Tax Matters Partner will have the authority to adopt all other accounting
methods for tax purposes.
10.3 TAX ELECTIONS. The Tax Matters Partner will have the authority to make
such tax elections, and to revoke any such election, as the Tax Matters
Partner may from time to time determine. Notwithstanding the preceding
sentence, following any Transfer (within the meaning of Section 754 of the
Code) of an Ownership Interest, the Tax Matters Partner will make the
election under Section 754 of the Code upon the timely written request of
either the Transferor Member or the Transferee. In addition, the Tax Matters
Partner may make the Section 754 election if the Tax Matters Partner
determines that such election is in the best interests of the Company or any
Member.
10.4 RETURNS. At the expense of the Company, the Tax Matters Partner will cause
the preparation and timely filing of all tax returns required to be filed by the
Company pursuant to the Code, as well as all other tax returns required in each
jurisdiction in which the Company does business.
10.5 FINANCIAL REPORTS. The Members will cause the appropriate officers or
employees of the Company, at the expense of the Company, to cause to be prepared
and distributed to the Members the financial statements, reports and other
information prescribed by 6.7(b) and such other financial statements, budgets,
plans and schedules as are required for the reporting purposes of, and/or are
from time to time reasonably requested by, the Members.
10.6 ANNUAL AUDIT.
(a) Each Fiscal Year, an audit will be made by the Company's accountants at the
expense of the Company, in accordance with generally accepted auditing
standards.
(b) Within 60 days after the end of each Fiscal Year, the Company will furnish
the Members with audited financial statements prepared by the Company's
accountants in accordance with GAAP consistently applied. Such audited financial
statements will contain a balance sheet as of the end of the Fiscal Year and
statements of income, changes in the Capital Accounts and cash flow for the
Fiscal Year then ended.
10.7 BOOKS AND RECORDS.
(a) The following books and records of the Company will be kept at its principal
office: (i) a current list of the full name and last known business, residence
or mailing address of each Member; (ii) originals of the Certificate and of this
Agreement, as amended (as well as any signed powers of attorney pursuant to
which any such document was executed); (iii) a copy
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of the Company's federal, state and local income tax returns and reports and
annual financial statements of the Company, for the six most recent years; and
(iv) minutes, or minutes of action or written consent, of every meeting of
Members of the Company.
(b) The Company will maintain at its own expense, and keep at is principal
office, true and accurate books of account in accordance with GAAP consistently
applied and the reasonable and customary business practices of business
enterprises similarly situated to the Company.
(c) Each Member, at its sole expense, will have the right, at any time and
without Notice to any other Member, to examine, copy and audit the Company's
books and records during normal business hours.
10.8 INFORMATION.
(a) Each Member has the right, from time to time and upon reasonable demand for
any purpose reasonably related to such Person's interest as a Member of the
Company, to obtain from the Company: (i) a current list of the full name and
last known business, residence or mailing address of each Member; (ii) a copy of
the Certificate and of this Agreement, as amended (as well as any signed powers
of attorney pursuant to which any such document was executed); (iii) a copy of
the Company's federal, state and local income tax returns and reports and annual
financial statements of the Company, for the six most recent years; (iv)
minutes, or minutes of action or written consent, of every meeting of the
Members of the Company; (v) true and full information regarding the amount of
money and a description and statement of the agreed value of any other property
or services contributed or to be contributed by each Member, and the date on
which each became a Member; (vi) true and full information regarding the status
of the business and financial condition of the Company; and (vii) other
information regarding the affairs of the Company (and, to the extent available
to the Company, regarding the affairs of any Portfolio Company that is not a
public company) as reasonably may be requested by such Member.
(b) The Members will cause the Company (i) to deliver to each Member, for its
review and approval, a copy of each tax return or report required to be filed by
the Company at least 30 days before the required filing date (including
extensions) and (ii) to provide to each Member, not more than 135 days after
each Fiscal Year end, such information for such Fiscal Year as the Member
reasonably requires to prepare tax returns or reports required to be filed by it
or one or more of its Affiliates, including federal and state tax information
and projections and estimates.
10.9 BANKING. The Company may establish and maintain one or more accounts or
safe deposit boxes at banks or other financial institutions. The Company may
authorize one or more individuals to sign checks on and withdraw funds from such
bank or financial accounts and to have access to such safe deposit boxes, and
may place such limitations and restrictions on such authority as the Company
deems advisable. No funds of the Company will be commingled with funds of any
Member or any other Person.
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10.10 TAX MATTERS; TAX MATTERS PARTNER. Until further action by the Company,
the Managing Member is designated as the Tax Matters Partner under Section
6231(a)(7) of the Code. The Tax Matters Partner will take no action that is
reasonably expected to have a material adverse effect on one or more of the
Members unless such action is approved by the unanimous Vote of the Members.
The Tax Matters Partner will be responsible for notifying all Members of
ongoing tax Proceedings, both administrative and judicial, and will represent
the Company throughout any such Proceeding. The Members will furnish the Tax
Matters Partner with such information as it may reasonably request to provide
the Internal Revenue Service with sufficient information to allow proper
notice to the Members. If an administrative Proceeding with respect to a
partnership item under the Code has begun, and the Tax Matters Partner so
requests, each Member will notify the Tax Matters Partner of its treatment of
any partnership item on its federal income tax return, if any, which is
inconsistent with the treatment of that item on the partnership return for
the Company. Any settlement agreement with the Internal Revenue Service will
be binding upon the Members only as provided in the Code. The Tax Matters
Partner will not bind any other Member to any extension of the statute of
limitations or to a settlement agreement without such Member's written
consent. Any Member who enters into a settlement agreement with respect to
any partnership item will notify the other Members of such settlement
agreement and its terms within 30 days after the date of settlement. If the
Tax Matters Partner does not file a petition for readjustment of the
partnership items in the Tax Court, federal District Court or Claims Court
within the 90-day period following a notice of a final partnership
administrative adjustment, any notice partner or 5-percent group (as such
terms are defined in the Code) may institute such action within the following
60 days. The Tax Matters Partner will timely notify the other Members in
writing of its decision. Any notice partner or 5-percent group will notify
the other Members of its filing of any petition for readjustment.
10.11 CLASSIFICATION OF COMPANY AS PARTNERSHIP FOR TAX PURPOSES, NOT STATE LAW.
The Company will be classified as a partnership for federal (and, as
appropriate, state and local) income tax purposes. This characterization, solely
for tax purposes, does not create or imply a general partnership or limited
partnership between the Members for state law or any other purpose. Instead, the
Members acknowledge the status of the Company as a limited liability company
formed under the Act.
ARTICLE 11. DISSOLUTION
11.1 DISSOLUTION. Dissolution of the Company will occur upon the happening of
any of the following events:
(a) The sale or other disposition of all or substantially all of the Company's
assets;
(b) An event of Withdrawal (as defined in 11.2) of a Member, if the remaining
Members make an election to dissolve the Company in accordance with 11.3;
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(c) The affirmative Vote of all Members; or
(d) The Withdrawal of the sole remaining Member.
11.2 EVENTS OF WITHDRAWAL. An event of Withdrawal of a Member occurs when any of
the following occurs:
(a) With respect to any Member, upon the Transfer of all of such Member's
Ownership Interest (which Transfer is treated as a resignation);
(b) With respect to any Member, upon the voluntary Withdrawal (including any
resignation or retirement in contravention of 6.5) of the Member;
(c) With respect to any Member that is a corporation, upon filing of articles of
dissolution of the corporation;
(d) With respect to any Member that is a partnership, a limited liability
company or a similar entity, upon dissolution and liquidation of such entity
(but not solely by reason of a technical termination under Section
708(b)(1)(b) of the Code);
(e) With respect to any Member that is a trust, upon termination of the trust;
(f) With respect to any Member, the Bankruptcy of the Member; or
(g) Any other event that terminates the continued membership of a Member in the
Company.
Within 10 days after the occurrence of any event of Withdrawal with respect
to a Member, such Member will give Notice of the date and the nature of
such event to the Company. Any Member failing to give such Notice will be
liable in damages for the consequences of such failure as otherwise
provided in this Agreement.
11.3 CONTINUATION. Subject to 11.1(d), in the event of Withdrawal of a Member,
the Company will be continued, without Dissolution, unless within 90 days
following the occurrence of such event, there is an affirmative Vote of a
majority (by Ownership Interest) of the remaining Members to dissolve the
Company. If the Company is so continued, with respect to any Member as to which
an event of Withdrawal has occurred, such Member or such Member's Transferee or
other successor-in-interest (as the case may be) will, without further act,
become a Transferee of such Ownership Interest (with the limited rights of a
Transferee as set forth in 13.5, unless admitted as a substitute Member).
ARTICLE 12. LIQUIDATION
12.1 LIQUIDATION. Upon Dissolution of the Company, the Company will immediately
proceed to wind up its affairs and liquidate pursuant to this 12.1. If there is
only one remaining Member, that Member will act as the liquidating trustee.
Otherwise, any Person appointed by Members owning more than 50% of the Ownership
Interests held by all Members will act as the liquidating trustee. The
Liquidation of the Company will be accomplished in a businesslike manner as
determined by the liquidating trustee. A
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reasonable time will be allowed for the orderly Liquidation of the Company and
the discharge of liabilities to creditors so as to enable the Company to
minimize any losses attendant upon Liquidation. Any gain or loss on disposition
of any Company assets in Liquidation will be allocated to Members in accordance
with the provisions of Article 4. Any liquidating trustee is entitled to
reasonable compensation for services actually performed, and may contract for
such assistance in the liquidating process as such Person deems necessary or
desirable. Until the filing of a certificate of cancellation under 12.8, and
without affecting the liability of the Members and without imposing liability on
the liquidating trustee, the liquidating trustee may settle and close the
Company's business, prosecute and defend suits, dispose of its property,
discharge or make provision for its liabilities, and make Distributions in
accordance with the priorities set forth in this Article.
12.2 TAX TERMINATION. In addition to termination of the Company following its
Dissolution, a termination of the Company will occur, for federal income tax
purposes only, on the date the Company is terminated under Section 708(b)(1)
of the Code. Under current law, events causing such a termination include the
sale or exchange of 50% or more of the total interest in the capital and
profits of the Company within a 12-month period. Upon the occurrence of a
termination under Section 708(b)(1) of the Code, a constructive Liquidation
and a constructive reformation of the Company as a tax partnership will be
deemed to occur for federal income tax purposes. All adjustments and
computations will be made under this Agreement as if the constructive
transactions had actually occurred, and the Capital Accounts of the Members
in such new tax partnership will be determined and maintained in accordance
with the Section 704(b) Regulations.
12.3 PRIORITY OF PAYMENT. The assets of the Company will be distributed in
Liquidation in the following order:
(a) First, to creditors by the payment or provision for payment of the debts and
liabilities of the Company (other than any loans or advances that may have been
made by any Member or any Affiliate of a Member) and the expenses of
Liquidation, including the setting up of any reserves that are reasonably
necessary for any contingent, conditional or unmatured liabilities or
obligations of the Company;
(b) Second, to the repayment of any loans to the Company that may have been made
by any Member or any Affiliate of a Member (according to the relative priority
of repayment of such loans and proportionally among loans of equal priority if
the amount available for repayment is insufficient for payment in full); and
(c) Third, to the Members in proportion to the positive balances in their
respective Capital Accounts after such Capital Accounts have been adjusted for
all allocations of Profits and Losses and items thereof for the Fiscal Year
during which such Liquidation occurs.
12.4 LIQUIDATING DISTRIBUTIONS. If the Company is not continued pursuant to
11.3, the liquidating Distributions due to the Members will be made by selling
the assets of the Company and distributing the net proceeds. Notwithstanding the
preceding sentence, but only upon the affirmative Vote of all Members, the
liquidating Distributions may be made
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by distributing the assets of the Company in kind to the Members in proportion
to the amounts distributable to them pursuant to 12.3, valuing such assets at
their Fair Market Value (net of liabilities secured by such property that the
Member takes subject to or assumes) on the date of Distribution. Each Member
agrees to save and hold harmless the other Members from such Member's
proportionate share of any and all such liabilities that are taken subject to or
assumed. Appropriate and customary prorations and adjustments will be made
incident to any Distribution in kind. The Members will look solely to the assets
of the Company for the return of their Capital Contributions, and if the assets
of the Company remaining after the payment or discharge of the debts and
liabilities of the Company are insufficient to return such contributions, they
will have no recourse against any other Member. The Members acknowledge that
12.3 may establish Distribution priorities on Liquidation different from those
set forth in the Act, as in effect at the time of any Distribution; and, in such
event, it is the Members' intention that the provisions of 12.3 shall control,
to the extent possible.
12.5 NO RESTORATION OBLIGATION. Except as otherwise specifically provided in 8.2
and 8.3, nothing contained in this Agreement imposes on any Member an obligation
to make an Additional Contribution in order to restore a deficit Capital Account
upon Liquidation of the Company.
12.6 TIMING. Final Distributions in Liquidation (except in the case of a
constructive Liquidation under 12.2) will be made by the end of the Company's
Fiscal Year in which such actual Liquidation occurs (or, if later, within 90
days after such event) in the manner required to comply with the Section
704(b) Regulations. Payments or Distributions in Liquidation may be made to a
liquidating trust established by the Company for the benefit of those
entitled to payments under 12.3, in any manner consistent with this Agreement
and the Section 704(b) Regulations.
12.7 LIQUIDATING REPORTS. A report will be submitted with each liquidating
Distribution to Members made pursuant to 12.4, showing the collections,
disbursements and Distributions during the period that is subsequent to any
previous report. A final report, showing cumulative collections, disbursements
and Distributions, will be submitted upon completion of the Liquidation.
12.8 CERTIFICATE OF CANCELLATION. Upon Dissolution of the Company and the
completion of the winding up of its business, the Company will file a
certificate of cancellation (to cancel the Certificate of Formation) with the
Delaware Secretary of State pursuant to the Act. At such time, the Company will
also file an application for withdrawal of its certificate of authority in any
jurisdiction where it is then qualified to do business.
ARTICLE 13. TRANSFER RESTRICTIONS
13.1 GENERAL RESTRICTION. No Person may Transfer all or any part of such
Person's Ownership Interest in any manner whatsoever except to a Permitted
Transferee as set forth
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in 13.3 and only if the requirements of 13.4 have also been satisfied. Any other
Transfer of all or any part of an Ownership Interest is null and void, and of no
effect. Any Member who makes a Transfer of all of such Person's Ownership
Interest will be treated as resigning from the Company on the effective date of
such Transfer. The rights and obligations of any resigning Member or of any
Transferee of an Ownership Interest will be governed by the other provisions of
this Agreement.
13.2 NO MEMBER RIGHTS. Except as otherwise provided in this Agreement, no Member
has the right or power to confer upon any Transferee the attributes of a Member
in the Company. The Transferee of all or any part of an Ownership Interest by
operation of law does not, by virtue of such Transfer, succeed to any rights as
a Member in the Company.
13.3 PERMITTED TRANSFEREES. Subject to the requirements set forth in 13.4, a
Person may Transfer all or any portion of such Person's Ownership Interest to
any Affiliate of such Person, or, with the prior written consent of (i) a
majority by Ownership Interest of the non-transferring Members and (ii) the LSAT
Member and the LMC Members, acting together, to any other Person (each a
Permitted Transferee") and the Permitted Transferee will be admitted as a Member
as of the effective date thereof.
13.4 GENERAL CONDITIONS ON TRANSFERS. No Transfer of an Ownership Interest will
be effective unless all the conditions set forth below are satisfied:
(a) Unless waived by each nontransferring Member, the Transferor signs and
delivers to the Company an undertaking in form and substance satisfactory to the
Company to pay all reasonable expenses incurred by the Company in connection
with the Transfer (including reasonable fees of counsel and accountants and the
costs to be incurred with any additional accounting required in connection with
the Transfer, and the cost and fees attributable to preparing, filing and
recording such amendments to the Certificate or other organizational documents
or filings as may be required by law);
(b) Unless waived by each nontransferring Member, the Transferor delivers to the
Company (i) an opinion of counsel for the Transferor reasonably satisfactory in
form and substance to the Company to the effect that, assuming the accuracy of
the statement of the Transferee described in (ii) below, the Transfer of the
Ownership Interest as proposed does not violate requirements for registration
under applicable federal and state securities laws and (ii) a statement of the
Transferee in form and substance reasonably satisfactory to the Company making
appropriate representations and warranties with respect to compliance with the
applicable federal and state securities laws and as to any other matter
reasonably required by the Company;
(c) Unless waived by each nontransferring Member, the Transferor provides an
opinion of counsel for the Transferor reasonably satisfactory in form and
substance to the nontransferring Members or other evidence reasonably
satisfactory to the nontransferring Members that the Transfer of the
Ownership Interest will not result in the termination of the Company within
the meaning of Section 708(b)(1)(b) of the Code. If the immediate Transfer of
such Ownership Interest would cause such a termination, but the following
action would not
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cause such a termination, the Transferor will be entitled (i) immediately to
Transfer only that portion of the Ownership Interest as may be Transferred
without causing such a termination and (ii) to enter into an agreement to
Transfer the remainder of its Ownership Interest, in one or more Transfers,
at the earliest date or dates on which such Transfer or Transfers may be
effected without causing such a termination. In determining whether a
particular proposed Transfer will result in a termination of the Company, the
Members will take into account the existence of prior written commitments to
Transfer of which Notice has been given pursuant to this Agreement and those
proposed Transfers will be given precedence over subsequent proposed
Transfers. Each nontransferring Member will waive the foregoing provisions of
this 13.4(c) upon the written request of the Transferor, unless such
nontransferring Member reasonably determines that the termination of the
Company within the meaning of Section 708(b)(1)(b) of the Code is reasonably
likely to have a material adverse effect on such nontransferring Member.
(d) The Transferor signs and delivers to the Company a copy of the assignment of
the Ownership Interest to the Transferee (substantially in the form of the
attached EXHIBIT A), which assignment will provide that the Transferor will
continue to be liable for the performance of such liabilities; and
(e) The Transferee signs and delivers to the Company an agreement (substantially
in the form of the attached EXHIBIT B) to be bound by this Agreement.
The Transfer of an Ownership Interest will be effective as of 12:01 a.m.
(Mountain Time) on the first day of the month following the month in which
all of the above conditions have been satisfied. The Company will amend
Schedule 1.3 as of the effective time of any Transfer of an Ownership
Interest to reflect the new Ownership Interests.
13.5 RIGHTS OF TRANSFEREES. Any Transferee of an Ownership Interest will, on the
effective date of the Transfer, have only those rights of an assignee as
specified in the Act unless and until such Transferee is admitted as a
substitute Member. This provision limiting the rights of a Transferee will not
apply if such Transferee is already a Member; provided that any Member who
resigns or retires from the Company in contravention of 6.5 will have only the
rights of an assignee as specified in the Act. Any Transferee of an Ownership
Interest who is not admitted as a substitute Member in accordance with this
Agreement has no right (a) to participate or interfere in the management or
administration of the Company's business or affairs, (b) to Vote or agree on any
matter affecting the Company or any Member, (c) to require any information on
account of any Company transactions or (d) to inspect the Company's books and
records. The only rights of a Transferee of an Ownership Interest who is not
admitted as a substitute Member in accordance with this Agreement is to receive
the allocations and Distributions to which the Transferor was entitled (to the
extent of the Ownership Interest Transferred) and to receive all necessary tax
reporting information. In any event, each Transferee of an Ownership Interest
(including both immediate and remote Transferees) will be subject to all of the
obligations, restrictions and other terms
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contained in this Agreement as if such Transferee were a Member. To the extent
of any Ownership Interest Transferred, the Transferor will not possess any right
or power as a Member and may not exercise any such right or power directly or
indirectly on behalf of the Transferee.
13.6 ADMISSION. Except as set forth in 13.3 or as to any Transferee that is an
Affiliate of the Transferor, a Transferee of an Ownership Interest will not
become a substitute Member of the Company unless such substitution is consented
to by all Members, which consent may be granted or withheld in the sole
discretion of the Members and which consent may be arbitrarily withheld,
effective upon a date specified (which must be on or after the effective date of
the Transfer, as determined under 13.4).
13.7 SECURITY INTEREST. The pledge or granting to a bank or other financial
institution of a bona fide Lien for collateral security purposes only affecting
all or any part of a Member's Ownership Interest will not in itself constitute a
Transfer hereunder or cause the Member to cease to be a Member. In no event will
any secured party be entitled to foreclose upon (or to receive a Transfer in
lieu of foreclosure of) any such secured interest or to exercise any rights of a
Member under this Agreement (unless and until such Person is admitted as a
substitute Member), and such secured party may look only to such Member for the
enforcement of any of its rights as a creditor. In no event will the Company
have any liability or obligation to any Person by reason of the Company's
payment of a Distribution to any secured party as long as the Company makes such
payment in reliance upon written instructions from the Member to whom such
Distributions would be payable. Any secured party will be entitled, with respect
to the security interest granted, only to the allocations and Distributions to
which the assigning Member would be entitled under this Agreement, and only if,
as and when such allocations and Distributions are made by the Company, and to
receive any necessary tax reporting information. Neither the Company nor any
Member will owe any fiduciary duty of any nature to a secured party. Each
Ownership Interest shall constitute a "security" within the meaning of (i)
Article 8 of the Uniform Commercial Code (including Section 8-102(a)(15)
thereof) as in effect from time to time in the States of Delaware and Colorado
and (ii) the Uniform Commercial Code of any other applicable jurisdiction that
now or hereafter substantially includes the 1994 revisions to Article 8 thereof
as adopted by the American Law Institute and the National Conference of
Commissioners on Uniform State Laws and approved by the American Bar Association
on February 14, 1995.
ARTICLE 14. CERTAIN BUSINESS MATTERS
14.1 OTHER BUSINESS VENTURES. Except as otherwise expressly provided in this
Agreement, each Member and its Affiliates may engage in or possess interests in
other businesses or ventures of any nature or description, without regard to
whether such businesses or ventures are or may be deemed to be competitive in
any way with the business
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of the Company or of any Portfolio Company. No Member will have any obligation
to offer any business or investment opportunity to the Company.
14.2 DETERMINATION OF FAIR MARKET VALUE. Wherever this Agreement refers to, or
calls for a determination of, Fair Market Value, the Fair Market Value of the
item in question will be determined in accordance with the following provisions:
(a) The Members may, by unanimous Vote, determine the Fair Market Value of such
item.
(b) If the Members are unable to agree on a Fair Market Value within 15 days
after the date Notice requesting the determination of such Fair Market Value is
given by a Member to the others, or if they determine that an appraisal should
be used to determine Fair Market Value, then the Members will cause the Fair
Market Value as of the most recent month end to be determined by a qualified
appraiser acceptable to the Members. If the Members are unable to agree on a
single appraiser within 30 days after the date of such Notice, each of the LSAT
Member and the LMC Members, acting together, will have an additional ten days to
select one appraiser nationally recognized in valuing items of the kind required
to be valued. If either fails to appoint an appraiser, then the determination of
Fair Market Value by the one appraiser will be binding.
(c) Each appraiser will determine the Fair Market Value. The Company and the
Members will use their reasonable best efforts to cause such appraiser to submit
to them a written report indicating its determination of such Fair Market Value
within 30 days after the date such appraiser is selected.
(d) If the higher of the two appraisals is 110% or less of the lower appraisal,
the average of the two will be the Fair Market Value.
(e) If the higher of the two appraisals is more than 110% of the lower
appraisal, the Company will immediately notify the two appraisers and cause them
to appoint a third similarly qualified appraiser within 10 days after such
notice. The Company and the Members will use their reasonable best efforts to
cause such third appraiser (who will not be apprised of the determination of the
other appraisers) to submit a written report to each of them indicating such
appraiser's determination of Fair Market Value within 30 days after the date
such third appraiser is selected. If three appraisals are necessary, then the
average of the two appraisals in which the determinations of Fair Market Value
are closest together will be the Fair Market Value or, if the highest and lowest
are equidistant from the middle determination, then the middle determination
will be the Fair Market Value.
(f) A determination of Fair Market Value made pursuant to this 14.2 will be
final, binding and nonappealable.
(g) The Company will pay the fees and costs of any appraiser involved in a
determination of Fair Market Value pursuant to this 14.2.
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ARTICLE 15. GENERAL PROVISIONS
15.1 AMENDMENT. This Agreement may be amended only by the affirmative Vote of
all Members. Any amendment will become effective upon such approval, unless
otherwise provided. Notice of any proposed amendment must be given at least five
days in advance of the meeting at which the amendment will be considered (unless
the approval is evidenced by duly signed minutes of action or written consent).
Any duly adopted amendment to this Agreement is binding on, and inures to the
benefit of, each Person who holds an Ownership Interest at the time of such
amendment, without the requirement that such Person sign the amendment or any
republication or restatement of this Agreement.
15.2 REPRESENTATIONS. Each Member hereby represents and warrants to each other
Member that, as of the signing of this Agreement:
(a) Such Member is duly organized, validly existing and in good standing under
the laws of the jurisdiction where it purports to be organized, and is a United
States Person;
(b) Such Member has full power and authority as a corporation or limited
liability company to enter into and perform its obligations under this
Agreement;
(c) All actions on the part of such Member necessary to authorize the signing
and delivery of this Agreement, and the performance by such Member of its
obligations hereunder, have been duly taken;
(d) This Agreement has been duly signed and delivered by a duly authorized
officer or other representative of such Member and constitutes the legal, valid
and binding obligation of such Member enforceable in accordance with its terms,
except as such enforceability may be affected by applicable bankruptcy,
insolvency or other similar laws affecting creditors' rights generally, and
except that the availability of equitable remedies is subject to judicial
discretion;
(e) No consent or approval of any other Person is required in connection with
the signing, delivery and performance of this Agreement by such Member; and
(f) The signing, delivery and performance of this Agreement do not violate the
organizational documents of such Member or any material agreement to which such
Member is a party or by which such Member is bound.
15.3 UNREGISTERED INTERESTS. Each Member (a) acknowledges that the Ownership
Interests are being offered and sold without registration under the Securities
Act of 1933, as amended, or under similar provisions of state law, (b)
acknowledges that such Member is fully aware of the economic risks of an
investment in the Company, and that such risks must be borne for an indefinite
period of time, (c) represents and warrants that such Member is acquiring an
Ownership Interest for such Member's own account, for investment, and without a
view to the distribution of the Ownership Interest, and (d) agrees not to
Transfer, or to attempt to Transfer, all or any part of its Ownership Interest
without registration under the
33
<PAGE>
Securities Act of 1933, as amended, and any applicable state securities laws,
unless the Transfer is exempt from such registration requirements.
15.4 WAIVER OF ALTERNATIVE WITHDRAWAL RIGHTS. Each Member hereby waives and
renounces any alternative rights that might otherwise be provided by law upon
the Withdrawal of such Person and accepts the provisions under this Agreement as
such Person's sole entitlement upon the happening of such event.
15.5 WAIVER OF PARTITION RIGHT. Each Member hereby waives and renounces any
right that it might otherwise have prior to Dissolution and Liquidation to
institute or maintain any action for partition with respect to any property held
by the Company.
15.6 WAIVERS GENERALLY. No course of dealing will be deemed to amend or
discharge any provision of this Agreement. No delay in the exercise of any right
will operate as a waiver of such right. No single or partial exercise of any
right will preclude its further exercise. A waiver of any right on any one
occasion will not be construed as a bar to, or waiver of, any such right on any
other occasion.
15.7 EQUITABLE RELIEF. If any Member proposes to Transfer all or any part of its
Ownership Interest in violation of the terms of this Agreement, the Company or
any Member may apply to any court of competent jurisdiction for an injunctive
order prohibiting such proposed Transfer except in compliance with the terms of
this Agreement, and the Company or any Member may institute and maintain any
action or Proceeding against the Person proposing to make such Transfer to
compel the specific performance of this Agreement. Any attempted Transfer in
violation of this Agreement is null and void, and of no force and effect. The
Person against whom such action or Proceeding is brought hereby waives the claim
or defense that an adequate remedy at law exists, and such Person will not urge
in any such action or proceeding the claim or defense that such remedy at law
exists.
15.8 REMEDIES FOR BREACH. The rights and remedies of the Members set forth in
this Agreement are neither mutually exclusive nor exclusive of any right or
remedy provided by law, in equity or otherwise, and all legal remedies (such as
monetary damages) as well as all equitable remedies (such as specific
performance) will be available for any breach or threatened breach of any
provision of this Agreement.
15.9 COSTS. If the Company or any Member retains counsel for the purpose of
enforcing or preventing the breach or any threatened breach of any provision of
this Agreement or for any other remedy relating to it, then the prevailing party
will be entitled to be reimbursed by the nonprevailing party for all costs and
expenses so incurred (including reasonable attorney's fees, costs of bonds and
fees and expenses for expert witnesses).
15.10 INDEMNIFICATION. Each Member hereby indemnifies and agrees to hold
harmless the Company and each other Member from any liability, cost or expense
arising from or related to any act or failure to act of such Member that is in
violation of this Agreement.
15.11 COUNTERPARTS. This Agreement may be signed in multiple counterparts and on
separate counterparts, the signature pages of which may be detached and
reattached to
34
<PAGE>
another identical counterpart. Each counterpart will be considered an original
instrument, but all of them in the aggregate will constitute one agreement.
15.12 NOTICE. All Notices under this Agreement will be in writing and will be
either delivered or sent addressed as follows: (a) if to the Company, at the
Company's principal office in Englewood, Colorado, and (b) if to any Member, at
such Person's address as then appearing in the records of the Company. In
computing time periods, the day of Notice will be included.
15.13 DEEMED NOTICE. Any Notices given to the Company or any Member in
accordance with this Agreement will be deemed to have been duly given: (a) on
the date of receipt if personally delivered, (b) five days after being sent by
U.S. mail, postage prepaid, (c) on the date of receipt, if sent by registered or
certified U.S. mail, postage prepaid, (d) on the date of receipt, if sent by
confirmed facsimile or telecopier transmission or (e) one Business Day after
having been sent by a nationally recognized overnight courier service.
15.14 PARTIAL INVALIDITY. Wherever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law. However, if for any reason any one or more of the provisions of this
Agreement are held to be invalid, illegal or unenforceable in any respect, such
action will not affect any other provision of this Agreement. In such event,
this Agreement will be construed as if such invalid, illegal or unenforceable
provision had never been contained in it.
15.15 ENTIRE AGREEMENT. This Agreement (including its Schedules and Exhibits)
contains the entire agreement and understanding of the Members concerning its
subject matter. The Members acknowledge and agree that the admission of any
additional Member may require amendment of this Agreement as certain provisions
of this Agreement contemplate that the LMC Members and the LSAT Member are the
only Members of the Company.
15.16 BENEFIT. This Agreement and the rights and obligations of the Members
hereunder will inure solely to the benefit of the Members and the Company,
without conferring on any other Person any rights of enforcement or other
rights.
15.17 BINDING EFFECT. This Agreement is binding upon, and inures to the benefit
of, the Members and their Permitted Transferees, provided that any Transferee
will have only the rights specified in 13.5 unless admitted as a substitute
Member in accordance with this Agreement.
15.18 FURTHER ASSURANCES. Each Member will sign and deliver, without additional
consideration, such other documents of further assurance as may reasonably be
necessary to give effect to the provisions of this Agreement.
15.19 HEADINGS. Article and section titles have been inserted for convenience of
reference only. They are not intended to affect the meaning or interpretation of
this Agreement.
15.20 TERMS. Terms used with initial capital letters will have the meanings
specified, applicable to both singular and plural forms, for all purposes of
this Agreement. All
35
<PAGE>
pronouns (and any variations) will be deemed to refer to the masculine, feminine
or neuter, as the identity of the Person may require. The singular or plural
includes the other, as the context requires or permits. The word "include" (and
any variation) is used in an illustrative sense rather than a limiting sense.
The word "day" means a calendar day, unless a Business Day is specified.
15.21 GOVERNING LAW; FORUM. This Agreement will be governed by, and construed in
accordance with, the laws of the State of Delaware. Any conflict or apparent
conflict between this Agreement and the Act will be resolved in favor of this
Agreement, except as otherwise required by the Act. Any action to enforce any
provision of this Agreement may be brought only in a court in the State of
Delaware or the State of Colorado or in the United States District Court for the
District of Delaware or the District of Colorado. Each party (i) agrees to
submit to the general jurisdiction of such courts and to accept service of
process at its address for Notices pursuant to this Agreement in any such action
or Proceeding and (ii) irrevocably waives any objection it may have to the
laying of venue of such action or Proceeding brought in any such court and any
claim that such action or Proceeding brought in any such court has been brought
in an inconvenient forum.
15.22 CERTIFICATED INTERESTS.
(a) Upon the issuance of Ownership Interests to any Member in accordance with
the provisions of this Agreement, the Company may issue one or more certificates
in the name of such Member evidencing the Ownership Interests held by such
Member (each, an "Interest Certificate"). Any such Interest Certificate shall be
in the form attached hereto as Exhibit C or such other form as shall have been
approved by the Managing Member. Each such Interest Certificate shall specify
the percentage of Ownership Interests of the Company represented thereby. Each
Interest Certificate shall be signed by manual or facsimile signature of an
authorized officer of the Company.
(b) The Company shall issue a new Interest Certificate in place of any Interest
Certificate previously issued if the holder of the Ownership Interests
represented by such Interest Certificate, as reflected on the books and records
of the Company:
(i) makes proof by affidavit, in form and substance satisfactory to the Company,
that such previously issued Interest Certificate has been lost, stolen or
destroyed;
(ii) requests the issuance of a new Interest Certificate; PROVIDED that no such
request shall be made if the Company or such holder has notice that such
previously issued Interest Certificate has been acquired by a purchaser for
value in good faith and without notice of an adverse claim;
(iii) if requested by the Company, delivers to the Company a bond, in form and
substance satisfactory to the Company, with such surety or sureties as the
Company may direct, to indemnify the Company against any claim that may be made
on account of the alleged loss, destruction or theft of the previously issued
Interest Certificate; and
(iv) satisfies any other reasonable requirements imposed by the Company.
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<PAGE>
(c) Upon a Member's Transfer in accordance with the provisions of this Agreement
of any or all Ownership Interests represented by an Interest Certificate, the
Transferee of such Ownership Interests shall deliver such Interest Certificate
to the Company for cancellation (executed by such Transferee on the reverse side
thereof), and the Company shall thereupon issue a new Interest Certificate to
such Transferee for the number of Ownership Interests being Transferred and, if
applicable, cause to be issued to the Transferor a new Interest Certificate for
that number of Ownership Interests that were represented by the canceled
Interest Certificate and that are not being Transferred.
(d) Upon any other change in the percentages of Ownership Interests held by the
Members made in accordance with this Agreement, the Company may cancel all
outstanding Interest Certificates and issue replacement Interest Certificates to
the Members reflecting the revised percentages of Ownership Interests held by
the Members.
37
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Operating Agreement of
Liberty Satellite, LLC, to be duly executed and delivered, effective from the
date first above mentioned, notwithstanding the actual date of signing.
LMI/LSAT HOLDINGS, INC.
By:
-------------------------------
Name:
Title:
Date:
LIBERTY KASTR CORP.
By:
-------------------------------
Name:
Title:
Date:
LIBERTY XMSR, INC.
By:
-------------------------------
Name:
Title:
Date:
LIBERTY ASTRO, INC.
By:
-------------------------------
Name:
Title:
Date:
TSAT HOLDING 1, INC.
By:
-------------------------------
Name:
Title:
Date:
<PAGE>
LIST OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE
- --------
<S> <C>
1.3 Names and Addresses and Ownership Interests of Initial Members
3.1 Initial Capital Contributions
</TABLE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
- -------
<S> <C>
A Form of Assignment of Ownership Interest
B Form of Transferee's Agreement
C Form of Interest Certificate
</TABLE>
<PAGE>
EXECUTION COPY
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
LSAT ASTRO LLC
MARCH 16, 2000
THE OWNERSHIP INTERESTS IN THIS LIMITED LIABILITY COMPANY HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR STATE SECURITIES
AUTHORITIES AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED. THE SALE OR OTHER TRANSFER OF THE
OWNERSHIP INTERESTS IS ALSO RESTRICTED BY PROVISIONS OF THIS AGREEMENT.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1: FORMATION AND DEFINITIONS.....................................................................2
1.1 Formation...................................................................................2
1.2 Name........................................................................................2
1.3 Members and Ownership Interests.............................................................2
1.4 Office and Agent............................................................................2
1.5 Foreign Qualification.......................................................................2
1.6 Term........................................................................................2
1.7 Definitions.................................................................................2
ARTICLE 2: PURPOSES AND POWERS..........................................................................8
2.1 Principal Purpose...........................................................................8
2.2 Other Purposes..............................................................................8
2.3 Powers......................................................................................8
ARTICLE 3: CAPITAL OF THE COMPANY.......................................................................8
3.1 Initial Capital Accounts....................................................................9
3.2 Additional Contributions....................................................................9
3.3 Capital Accounts...........................................................................10
3.4 Transfer...................................................................................11
3.5 Adjustments................................................................................11
3.6 Market Value Adjustments...................................................................11
3.7 No Withdrawal of Capital...................................................................11
3.8 No Interest on Capital.....................................................................11
3.9 No Drawing Accounts........................................................................12
ARTICLE 4: PROFITS AND LOSSES..........................................................................12
4.1 Determination..............................................................................12
4.2 Allocation of Profits and Losses Generally.................................................12
4.3 Nonrecourse Deductions.....................................................................13
4.4 Minimum Gain Chargeback....................................................................13
4.5 Gain Chargeback............................................................................13
4.6 Tax Allocations............................................................................13
4.7 Qualified Income Offset....................................................................14
4.8 Limit on Loss Allocations..................................................................14
4.9 Section 754 Adjustments....................................................................14
4.10 Contributed Property.......................................................................14
4.11 Tax Credits................................................................................14
4.12 Allocation on Transfer.....................................................................15
4.13 Tier Partnerships..........................................................................15
ARTICLE 5: DISTRIBUTIONS...............................................................................15
5.1 Distributions Generally....................................................................15
5.2 Payment....................................................................................15
5.3 Withholding................................................................................15
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<PAGE>
5.4 Distribution Limitations...................................................................16
ARTICLE 6: MANAGEMENT..................................................................................16
6.1 Management.................................................................................16
6.2 Actions Requiring Concurrence of Both the LSAT Member and the
LMC Member.................................................................................17
6.3 Other Matters..............................................................................18
6.4 Member Representatives.....................................................................18
6.5 No Dissolution, Resignation or Retirement..................................................18
6.6 Officers...................................................................................18
6.7 Financial Information......................................................................19
6.8 Management Conduct.........................................................................19
6.9 Unauthorized Actions.......................................................................19
ARTICLE 7: MEETINGS OF MEMBERS........................................................................20
7.1 Meetings...................................................................................20
7.2 Waiver of Notice...........................................................................20
7.3 Record Date................................................................................20
7.4 Quorum.....................................................................................20
7.5 Manner of Acting...........................................................................20
7.6 Proxies....................................................................................20
7.7 Meetings by Telephone......................................................................21
7.8 Action Without a Meeting...................................................................21
ARTICLE 8: LIABILITY OF A MEMBER......................................................................21
8.1 Limited Liability..........................................................................21
8.2 Capital Contribution.......................................................................21
8.3 Capital Return.............................................................................21
8.4 Reliance...................................................................................21
ARTICLE 9: INDEMNIFICATION............................................................................22
9.1 General....................................................................................22
9.2 Exception..................................................................................22
9.3 Expense Advancement........................................................................22
9.4 Insurance..................................................................................23
9.5 Indemnification of Others..................................................................23
9.6 Exculpation................................................................................23
ARTICLE 10: ACCOUNTING AND REPORTING................................................................23
10.1 Fiscal Year................................................................................23
10.2 Accounting Method..........................................................................23
10.3 Tax Elections..............................................................................23
10.4 Returns....................................................................................23
10.5 Financial Reports..........................................................................24
10.6 Books and Records..........................................................................24
10.7 Information................................................................................24
10.8 Banking....................................................................................25
10.9 Tax Matters; Tax Matters Partner...........................................................25
10.10 Classification of Company as Partnership for Tax Purposes, Not State Law...................25
ii
<PAGE>
ARTICLE 11: DISSOLUTION...............................................................................26
11.1 Dissolution................................................................................26
11.2 Events of Withdrawal.......................................................................26
11.3 Continuation...............................................................................27
ARTICLE 12: LIQUIDATION...............................................................................27
12.1 Liquidation................................................................................27
12.2 Tax Termination............................................................................27
12.3 Priority of Payment........................................................................27
12.4 Liquidating Distributions..................................................................28
12.5 No Restoration Obligation..................................................................28
12.6 Timing.....................................................................................28
12.7 Liquidating Reports........................................................................29
12.8 Certificate of Cancellation................................................................29
ARTICLE 13: TRANSFER RESTRICTIONS.....................................................................29
13.1 General Restriction........................................................................29
13.2 No Member Rights...........................................................................29
13.3 Permitted Transferees......................................................................29
13.4 General Conditions on Transfers............................................................29
13.5 Rights of Transferees......................................................................31
13.6 Admission..................................................................................31
13.7 Security Interest..........................................................................31
ARTICLE 14: CERTAIN BUSINESS MATTERS..................................................................32
14.1 Other Business Activities of Members.......................................................32
14.2 Determination of Fair Market Value...........................................................32
ARTICLE 15: GENERAL PROVISIONS.........................................................................33
15.1 Amendment..................................................................................33
15.2 Representations............................................................................33
15.3 Unregistered Interests.....................................................................34
15.4 Waiver of Alternative Withdrawal Rights....................................................34
15.5 Waiver of Partition Right..................................................................34
15.6 Waivers Generally..........................................................................34
15.7 Equitable Relief...........................................................................34
15.8 Remedies for Breach........................................................................35
15.9 Costs......................................................................................35
15.10 Indemnification............................................................................35
15.11 Counterparts...............................................................................35
15.12 Notice.....................................................................................35
15.13 Deemed Notice..............................................................................35
15.14 Partial Invalidity.........................................................................35
15.15 Entire Agreement...........................................................................36
15.16 Benefit....................................................................................36
15.17 Binding Effect.............................................................................36
15.18 Further Assurances.........................................................................36
15.19 Headings...................................................................................36
iii
<PAGE>
15.20 Terms......................................................................................36
15.21 Governing Law; Forum.......................................................................36
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
LSAT ASTRO LLC
This AMENDED AND RESTATED OPERATING AGREEMENT (this "Agreement") is made as of
the 16th day of May, 2000 (the "Effective Date"), by and between LIBERTY
SATELLITE, LLC and TSAT HOLDING 2, INC., such parties being the Members of LSAT
ASTRO LLC, a Delaware limited liability company (the "Company"), as of the
Effective Date.
RECITALS:
A. The Company was formed on August 16, 1999 pursuant to the Act (as defined
below), and the Certificate of Formation was amended by a Certificate of
Amendment changing its name to LSAT Astro LLC on December 7, 1999. The initial
Member of the Company was Liberty Astro, Inc., and immediately prior to the
Effective Date, Liberty Astro, Inc. owned all of the Ownership Interests in the
Company.
B. Prior to the Effective Date, Liberty Astro, Inc. made total Capital
Contributions to the Company of $425 million in cash.
C. On the Effective Date, the following transfers of Ownership Interests
(collectively, the "Pre-Effective Date Transfers") occurred in the following
sequence and chronological order:
1. Liberty Astro, Inc. transferred a 13.99% Ownership Interest in the
Company to its parent, Liberty Media Corporation, as an equity
distribution;
2. Liberty Astro, Inc. transferred its remaining 86.01% Ownership
Interest in the Company to Liberty Satellite, LLC, as a capital
contribution, in exchange for a 51.30% interest in Liberty Satellite,
LLC;
3. Liberty Media Corporation transferred its 13.99% Ownership Interest in
the Company to TCI Satellite Entertainment, Inc. in exchange for a
note in the principal amount of $60 million issued by TCI Satellite
Entertainment, Inc.; and
4. TCI Satellite Entertainment, Inc. transferred its 13.99% Ownership
Interest in the Company to its wholly owned subsidiary, TSAT Holding
2, Inc., as a capital contribution.
D. In connection with the Pre-Effective Date Transfers of Ownership Interests in
the Company, the parties hereto desire to amend and restate the Operating
Agreement of LSAT Astro LLC.
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<PAGE>
In consideration of the mutual covenants contained in this Agreement and
intending to be legally bound, the parties agree as follows:
ARTICLE 1: FORMATION AND DEFINITIONS
1.1 FORMATION. The Company was formed on August 16, 1999 (the "Formation Date"),
by the filing with the Delaware Secretary of State of a Certificate of Formation
pursuant to the Act, and the Certificate of Formation was amended by a
Certificate of Amendment changing its name to LSAT Astro LLC on December 7,
1999.
1.2 NAME. The name of the Company is LSAT ASTRO LLC. The business of the Company
will be conducted under such name, and any other name or names as the Company
may from time to time determine.
1.3 MEMBERS AND OWNERSHIP INTERESTS. The name and address of each Member and its
Ownership Interest as of the Effective Date after the Pre-Effective Date
Transfers occurred are set forth in Schedule 1.3.
1.4 OFFICE AND AGENT.
(a) The registered office of the Company in Delaware is at 1013 Centre Road,
Wilmington, DE 19805-1297, and its registered agent is Corporation Service
Company. The Company may change its registered office or registered agent in
Delaware in accordance with the Act.
(b) The principal office of the Company as of the Effective Date is 7600 East
Orchard Road, Suite 330 South, Englewood, CO 80111. The Company may change its
principal office upon the unanimous Vote of the Members.
1.5 FOREIGN QUALIFICATION. The Company will apply for a certificate of authority
to do business in any other state or jurisdiction, as required or appropriate
from time to time, and will file such other certificates and instruments as may
be required or appropriate from time to time in connection with its formation,
existence and operation.
1.6 TERM. This Agreement will be effective as of the Effective Date and will
continue in effect thereafter, unless and until the Certificate is cancelled in
accordance with the Act or this Agreement is replaced by a new agreement of the
Members.
1.7 DEFINITIONS. The following terms used in this Agreement have the
corresponding meanings set forth below:
2
<PAGE>
<TABLE>
<S> <C>
Act: the Delaware Limited Liability Company
Act, as amended from time to time.
Additional Contribution: a Capital Contribution that a Member
makes to the Company, as described in
3.2.
Adjusted Capital Account Deficit: as to any Member, the deficit balance
(if any) in such Member's Capital
Account as of the end of the Fiscal
Year, after (a) crediting to such
Capital Account any amount that such
Member is obligated to restore pursuant
to this Agreement or is deemed obligated
to restore pursuant to the minimum gain
chargeback provisions of the Section 704(b)
Regulations and (b) charging to such
Capital Account any adjustments,
allocations or Distributions described
in the qualified income offset
provisions of the Section 704(b) Regulations
that are required to be charged to such
Capital Account pursuant to this
Agreement.
Affiliate: with respect to any Person, any Person
that directly or indirectly Controls, is
Controlled by, or is under common
Control with such Person; provided that,
for purposes of this Agreement only,
LSAT and its Controlled Affiliates will
not be deemed to be Affiliates of LMC.
Agreement: this Operating Agreement, also known
as a limited liability company agreement
under the Act, as amended from time to
time.
Astrolink Operating Agreement: the Amended and Restated Limited
Liability Company Agreement of Astrolink
International LLC, dated as of
December 13, 1999, as amended from time
to time.
Astrolink Option Rights: as defined in 3.2(b).
Available Cash: all cash distributed to the
Company by Astrolink International LLC
less (a) the current portion of
indebtedness of the Company, (b)
payments required to be paid by the
Company within one year after the date
of calculation and (c) reasonable
reserves for working capital and
contingent liabilities of the Company as
determined by the Managing Member.
Bankruptcy: of a Member means the occurrence of any
of the following:
(a) the filing by such Member of a
voluntary petition in bankruptcy;
(b) the making by such Member of a
general assignment for the
3
<PAGE>
benefit of creditors;
(c) the adjudication of such Member as
bankrupt or insolvent, or the entry of
an order, judgment or decree by any
court of competent jurisdiction,
granting relief against such Member in
any bankruptcy or insolvency Proceeding;
(d) the filing by such Member of a
petition or answer seeking for such
Member any reorganization, arrangement,
composition, readjustment, liquidation,
dissolution or similar relief under any
statute, law or regulation;
(e) the filing by such Member of an
answer or other pleading admitting or
failing to contest the material
allegations of a petition filed against
such Member in any Proceeding for
reorganization, arrangement,
composition, readjustment, liquidation,
dissolution or similar Proceeding under
any statute, law or regulation;
(f) the valid appointment, with the
consent of such Member, of a receiver,
trustee or liquidator to administer all
or a substantial portion of such
Member's assets or its Ownership
Interest; or
(g) the valid appointment, without the
consent of such Member, of a receiver,
trustee or liquidator to administer all
or a substantial portion of such
Member's assets or its Ownership
Interest, if such appointment is not
vacated or stayed within 90 days after
such appointment.
The foregoing definition of "Bankruptcy"
is intended to, and shall, replace and
supersede the events of bankruptcy set
forth in Section 18-304 of the Act.
Business Day: any day other than a Saturday, a Sunday
or a day on which banking institutions
in Denver, Colorado, or New York, New
York are required or authorized to be
closed.
Capital Account: the capital account of a Member
established and maintained in accordance
with 3.3.
Capital Contribution: with respect to each Member, the initial
Capital Account balance of such Member
as set forth on Schedule 3.1 and any
contribution of money or property by a
Member to the Company that is an
Additional Contribution.
4
<PAGE>
Certificate: the Certificate of Formation referred to
in 1.1, as amended from time to time.
CEO: as defined in 6.6(a).
CFO: as defined in 6.6(a).
Code: the Internal Revenue Code of 1986, as
amended from time to time, and the
corresponding provisions of any
subsequent revenue laws.
Company: the limited liability company formed
under the Certificate and governed by
this Agreement.
Control: the possession, direct or indirect, of
the power to direct or cause the
direction of the management and policies
of a Person, whether through the
ownership of voting securities, by
contract or otherwise.
Controlled Affiliate: with respect to any Person, an Affiliate
of such Person that such Person
Controls.
COO: as defined in 6.6(a).
Dissolution: the happening of any of the events
described in 11.1.
Distribution: the amount of any money or the Fair
Market Value of any property distributed
by the Company to a Member as an
operating or liquidating Distribution in
accordance with this Agreement, reduced
by the amount of any Company liabilities
assumed by the distributee or to which
the distributed property is subject.
Effective Date: as defined in the Preamble.
Exercise Amount: as defined in 3.2(b).
Exercise Date: as defined in 3.2(b)
Exercise Notice: as defined in 3.2(b).
Fair Market Value: the cash price at which a willing seller
would sell and a willing buyer would
buy, both having full knowledge of the
relevant facts and being under no
compulsion to buy or sell, in an
arm's-length transaction without time
constraints. Except as otherwise
expressly provided in this Agreement,
the Fair Market Value of any item will
be determined in accordance with 14.2.
5
<PAGE>
Fiscal Year: the fiscal and taxable year of the
Company, including both 12-month and
short fiscal or taxable years; until
changed as provided in this Agreement,
each Fiscal Year will begin on January 1
of each year and end on December 31 of
such year, provided that the first
Fiscal Year began on the Formation Date
and the last Fiscal Year will end on the
date on which Liquidation of the Company
is completed.
Formation Date: as defined in 1.1.
GAAP: generally accepted accounting principles
as in effect from time to time in the
United States of America.
Indemnified Persons: as defined in 9.1.
Interest Certificate: as defined in 15.22(a).
Lien: a mortgage, lien, pledge, security
interest or other encumbrance.
Liquidation: the process of winding up and
terminating the Company after its
Dissolution.
LMC: Liberty Media Corporation.
LMC Member: Liberty Satellite, LLC, and any
successor to or Permitted Transferee of
the LMC Member who is admitted as a
Member pursuant to Article 13; provided
that if the LMC Member Transfers less
than 100% of its Ownership Interest to
one or more Permitted Transferees, then
the LMC Member and all of its Permitted
Transferees will be treated as one
Member on a combined basis for all
purposes under this Agreement and will
be referred to in the aggregate as the
LMC Member.
Losses: as defined in 4.1.
LSAT: TCI Satellite Entertainment, Inc.
LSAT Member: TSAT Holding 2, Inc. and any successor
to or Permitted Transferee of the LSAT
Member who is admitted as a Member
pursuant to Article 13; provided that if
the LSAT Member Transfers less than 100%
of its Ownership Interest to one or more
Permitted Transferees, then the LSAT
Member and all of its Permitted
Transferees will be treated as one
Member on a combined basis for all
purposes under this Agreement and will
be referred to in the aggregate as the
LSAT Member.
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Managing Member: as defined in 6.1(a).
Member: a member of the Company as listed in
Schedule 1.3 and any other Person
subsequently admitted to the Company as
an additional or substitute member in
accordance with this Agreement.
Notice: any written notice actually delivered or
deemed delivered pursuant to 15.13.
Ownership Interest: with respect to each Person owning a
limited liability company interest in
the Company, all the limited liability
company interests of such Person in the
Company (including an interest in the
Profits and Losses of the Company, a
Capital Account interest and all other
rights and obligations of such Person
under this Agreement) expressed as a
percentage based on such Person's pro
rata share of the total Capital
Contributions to the Company, as set
forth in Schedule 1.3 as of the
Effective Date and as subsequently
adjusted in accordance with this
Agreement.
Permitted Transferee: a Person described in 13.3 to whom an
Ownership Interest may be Transferred.
Person: a natural person, corporation,
partnership, limited liability company,
trust, unincorporated organization,
association or other entity.
Portfolio Company: a Person in whom the Company has made an
equity or convertible debt investment.
Pre-Effective Date Transfers: as defined in Recital C.
Proceeding: any threatened, pending, ongoing, or
completed action, suit or proceeding,
whether formal or informal, and whether
civil, administrative, investigative or
criminal.
Profits: as defined in 4.1.
Regulations: the Treasury Regulations (including
temporary or proposed regulations)
promulgated under the Code, as amended
from time to time (including
corresponding provisions of succeeding
regulations).
Representative: as defined in 6.4.
Tax Matters Partner: as defined in 10.9.
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Transfer: a sale, exchange, assignment, transfer
or other disposition of all or any part
of an Ownership Interest (other than the
creation of a Lien on all or any part of
an Ownership Interest), whether
voluntary, involuntary or by operation
of law.
Transferee: a Person to whom an Ownership Interest
is Transferred in compliance with this
Agreement and who will have the rights
specified in 13.5 of this Agreement.
Transferor: a Person who Transfers all or any part
of an Ownership Interest in compliance
with this Agreement.
Vote: the action of the Members made in
accordance with the voting requirements
set forth in Article 6, or any other
applicable provision of this Agreement,
either in meeting assembled or by
written consent without a meeting.
Withdrawal: the occurrence of an event that
terminates a Person's membership in the
Company, as provided in 11.2.
</TABLE>
ARTICLE 2: PURPOSES AND POWERS
2.1 PRINCIPAL PURPOSE. Subject to the provisions of this Agreement, the business
and principal purpose of the Company is to (a) hold an ownership interest in
Astrolink International LLC, a Delaware limited liability company, and (b) do
any and all other acts or things that may be incidental or necessary to carry on
the business of the Company as contemplated by this Agreement.
2.2 OTHER PURPOSES. The Company may engage in activities related or incidental
to its principal purpose, as well as any other business or investment activity
as may be approved by the affirmative Vote of all Members. However, as provided
in the Act, the Company may not engage in the business of granting policies of
insurance, assuming insurance risks, issuing debt instruments for circulation as
money or receiving deposits of money.
2.3 POWERS. The Company has all the powers granted to a limited liability
company under the Act, as well as all powers necessary or convenient to achieve
its purposes and to further its business that are not expressly prohibited to
the Company by applicable law.
ARTICLE 3: CAPITAL OF THE COMPANY
3.1 INITIAL CAPITAL ACCOUNTS. The balance of each Member's Capital Account as of
the Effective Date after the Pre-Effective Date Transfers occurred is set forth
in Schedule 3.1.
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3.2 ADDITIONAL CONTRIBUTIONS.
(a) Except as required by this Agreement or law, no Member will be required to
make any Additional Contributions.
(b) Pursuant to Article 4.1(d)(i) of the Astrolink Operating Agreement, the
Company has the right at specified times to acquire up to 2,600,000 additional
Class A Units of Astrolink International LLC. Pursuant to Article 8 of the
Astrolink Operating Agreement, the Company has the right, under certain
circumstances, to (i) exercise preemptive rights to acquire additional units of
Astrolink International LLC and (ii) purchase additional units of Astrolink
International LLC from any other member of Astrolink International LLC who
proposes to make a voluntary transfer of its units or whose units are subject to
involuntary transfer. The rights of the Company described in the preceding two
sentences are referred to in the Agreement individually as an "Astrolink Option
Right," and collectively as the "Astrolink Option Rights." The Managing Member
will cause the Company to give Notice to each Member at the time any Astrolink
Option Right arises stating (i) the nature of the Astrolink Option Right
available to the Company, (ii) the amount of cash that the Company would require
to exercise the particular Astrolink Option Right (the "Exercise Amount") and
(iii) the date on which the Company is required to exercise the particular
Astrolink Option Right in accordance with the terms of the Astrolink Operating
Agreement (the "Exercise Date"). Each of the LMC Member and the LSAT Member will
have the authority to direct the Company to exercise any Astrolink Option Right
according to the procedures set forth in this 3.2(b). If either the LMC Member
or the LSAT Member desires to direct the Company to exercise any Astrolink
Option Right, it will give Notice to the Company and the other Member (an
"Exercise Notice") at least ten Business Days prior to the Exercise Date. Each
of the LMC Member and the LSAT Member will have the right, but not the
obligation, to make an Additional Contribution equal to its pro rata share
(based on the Members' respective percentage Ownership Interests on the date of
the Exercise Notice) of the Exercise Amount. To the extent that either the LMC
Member or the LSAT Member fails to contribute its pro rata share of the Exercise
Amount to the Company within two Business Days prior to the Exercise Date, the
non-contributing Member's right to make such Additional Contribution shall
terminate, the Company shall immediately give Notice to the other Member of the
amount that such non-contributing Member failed to contribute, and the other
Member may (in addition to contributing its pro rata share of the Exercise
Amount) either make a loan to the Company or make an Additional Contribution, in
each case in an amount equal to the amount that the non-contributing Member
failed to contribute. If such contributing Member elects to make a loan to the
Company, such loan shall be evidenced by the issuance of an unsecured promissory
note in the form of EXHIBIT C.
(c) With respect to Additional Contributions for purposes other than those set
forth in 3.2(b) and subject in any case to the prior approval, by Vote, of
Members holding in the aggregate a majority of the Ownership Interests of the
Company, each of the LMC Member and the LSAT Member shall have the right, but
not the obligation, to make one or more Additional Contributions. If either the
LMC Member or the LSAT Member elects to make an Additional Contribution pursuant
to this 3.2(c), the other such Member shall have the right, but not the
obligation, exercisable by written Notice to the Company and such other Member
within 30 days after any such Additional
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<PAGE>
Contribution (and without the requirement of a separate Vote pursuant to the
first sentence of this 3.2(c)), to make such Additional Contribution as shall be
necessary to cause the respective aggregate Capital Contributions of the LMC
Member and the LSAT Member to remain in proportion to their respective Ownership
Interests as in effect immediately prior to such Additional Contribution that
gave rise to such right.
(d) Any Additional Contribution under 3.2(b) shall be in the form of cash and
any Additional Contribution under 3.2(c) shall be in the form of cash or, with
the prior approval, by Vote, of Members holding in the aggregate a majority of
the Ownership Interests of the Company, any other property, valued at the Fair
Market Value of such other property determined in accordance with 14.2. In
addition, in the case of any Additional Contribution pursuant to the second
sentence of 3.2(c), the LMC Member or the LSAT Member, as applicable, may make
such Additional Contribution in the form of an unsecured promissory note of such
Member, payable on demand or for a term of not more than 12 months, with a
market rate of interest (payable at maturity or sooner).
(e) Subject to 3.2(b), upon the receipt by the Company of any Additional
Contribution pursuant to this 3.2, the respective Ownership Interests of the
Members shall be appropriately adjusted so that the Ownership Interest of each
Member is equal to the ratio (expressed as a percentage) that the aggregate
Capital Contributions of such Member bear to the aggregate Capital Contributions
of all Members.
(f) The provisions of this 3.2 are intended solely to benefit the Members and,
to the fullest extent permitted by applicable law, shall not be construed as
conferring any benefit upon any creditor of the Company (and no such creditor
shall be a third party beneficiary of this Agreement), and no Member shall have
any duty or obligation to any creditor of the Company to make any Additional
Contributions.
3.3 CAPITAL ACCOUNTS. A Capital Account will be maintained for each Member
and credited, charged and otherwise adjusted as required by Section 704(b) of
the Code and the Section 704(b) Regulations. Each Member's Capital Account
will include the amount set forth opposite such Member's name on Schedule 3.1
and will be:
(a) Credited with (i) the amount of money contributed by the Member as an
Additional Contribution, (ii) the Fair Market Value of assets contributed by
the Member as an Additional Contribution (net of liabilities that the Company
assumes or takes subject to), (iii) the Member's allocable share of Profits
and (iv) all other items properly credited to such Capital Account as
required by the Section 704(b) Regulations;
(b) Charged with (i) the amount of money distributed to the Member by the
Company, (ii) the Fair Market Value of assets distributed to the Member by the
Company (net of liabilities that the Member assumes or takes subject to), (iii)
the Member's allocable share of Losses and (iv) all other items properly charged
to such Capital Account as required by the Section 704(b) Regulations; and
(c) Otherwise adjusted as required by the Section 704(b) Regulations.
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<PAGE>
Any unrealized appreciation or depreciation with respect to any asset
distributed in kind will be allocated among the Members in accordance with the
provisions of Article 4 as though such asset had been sold for its Fair Market
Value on the date of Distribution and the Members' Capital Accounts will be
adjusted to reflect both the deemed realization of such appreciation or
depreciation and the Distribution of such property.
The foregoing provisions and the other provisions of this Agreement relating
to the maintenance of Capital Accounts are intended to comply with the
Section 704(b) Regulations and will be interpreted and applied in a manner
consistent with such Regulations and any amendment or successor provision
thereto. The Members will cause appropriate modifications to be made if
unanticipated events might otherwise cause this Agreement not to comply with
the Section 704(b) Regulations, so long as such modifications do not cause a
material change in the relative economic benefits of the Members under this
Agreement.
3.4 TRANSFER. If all or any part of an Ownership Interest is Transferred in
accordance with this Agreement, the Capital Account of the Transferor that is
attributable to the Transferred Ownership Interest will carry over to the
Transferee.
3.5 ADJUSTMENTS. The Members intend to comply with the Section 704(b)
Regulations in all respects, and the Capital Accounts of the Members will be
adjusted to the full extent that the Section 704(b) Regulations may apply
(including applying the concepts of qualified income offsets and minimum gain
chargebacks).
3.6 MARKET VALUE ADJUSTMENTS. Appropriate Capital Account adjustments will be
made upon any Transfer of an Ownership Interest, including those that apply
upon the constructive liquidation of the Company under Section 708(b) of the
Code, all in accordance with the Section 704(b) Regulations. Similarly, if
optional basis adjustments are made under Section 734 or Section 743 of the
Code, appropriate Capital Account adjustments will be made as required by the
Section 704(b) Regulations.
3.7 NO WITHDRAWAL OF CAPITAL. Except as specifically provided in this Agreement,
no Member will be entitled to withdraw all or any part of its Capital
Contribution from the Company prior to the Company's Dissolution and Liquidation
or, when such withdrawal of capital is permitted, to demand a Distribution of
property other than money or as otherwise provided in this Agreement.
3.8 NO INTEREST ON CAPITAL. No Member will be entitled to receive interest on
such Person's Capital Account or Capital Contribution.
3.9 NO DRAWING ACCOUNTS. The Company will not maintain a drawing account for any
Member. All Distributions to Members will be governed by Article 5 (relating to
Distributions not in Liquidation of the Company) and by Article 12 (relating to
Liquidation).
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ARTICLE 4: PROFITS AND LOSSES
4.1 DETERMINATION. The terms "Profits" and "Losses" mean, respectively, the
net profits and losses of the Company determined for each Fiscal Year in
accordance with the method of accounting adopted by the Company for federal
income tax purposes, except that such net profit or loss will be determined
(a) by including as an item of income any income that is exempt from
taxation, (b) by deducting as an expense any expenditure of the Company not
deductible in computing its taxable income and not properly chargeable to any
Capital Account, or deemed not deductible in computing its taxable income and
not properly chargeable to any Capital Account in accordance with the Section
704(b) Regulations and (c) by calculating the gain, loss, depreciation and
amortization on property that is reflected in the Capital Accounts at a book
basis different from the basis of such property for federal income tax
purposes based on the book basis of such property in accordance with the
Section 704(b) Regulations. Any allocation of Profits or Losses will be
considered a pro rata allocation of each item entering into the computation
of Profits and Losses.
4.2 ALLOCATION OF PROFITS AND LOSSES GENERALLY. Except as provided in 4.3
through 4.13, Profits or Losses, as the case may be, for each Fiscal Year will
be allocated as follows:
(a) Profits will be allocated:
(i) first, to the Members to the extent of, and in proportion to, Losses
previously allocated to the Members pursuant to 4.2(b)(i) (and not
previously offset by an allocation pursuant to this 4.2(a)(i));
(ii) second, to the Members to the extent of, and in proportion to, Losses
previously allocated to such Members pursuant to 4.2(b)(iii) (and not
previously offset by an allocation pursuant to this 4.2(a)(ii)); and
(iii) thereafter, to the Members in proportion to their Ownership
Interests.
(b) Losses will be allocated:
(i) first, an amount equal to 99% of the Losses to the LMC Member and an
amount equal to 1% of the Losses to the LSAT Member;
(ii) second, to the Members to the extent of, and in proportion to, Profits
previously allocated to such Members pursuant to 4.2(a)(iii) (and not
previously offset by an allocation pursuant to this 4.2(b)(ii)); and
(iii) thereafter, to the Members in proportion to their Ownership
Interests.
4.3 NONRECOURSE DEDUCTIONS. Losses attributable to any Company nonrecourse
liability (for which no Member or related Person (within the meaning of the
Section 752 Regulations) bears the economic risk of loss) will be allocated
in the same manner as Losses are allocated pursuant to
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4.2(b), and Losses of the Company attributable to any Member nonrecourse
liability (that is nonrecourse to the Company, but for which one or more
Members or related Persons bear the economic risk of loss) will be allocated
in accordance with the Section 704(b) Regulations to those Members bearing
(or who, because of their relationship to Persons who bear such economic risk
of loss, are deemed to bear) the economic risk of loss for the liability. The
allocation of liabilities to a property, the determination of nonrecourse
deductions, the effect of property revaluations and all other issues
affecting the allocation of nonrecourse deductions will be determined in
accordance with the Section 704(b) Regulations.
4.4 MINIMUM GAIN CHARGEBACK. Notwithstanding the general rule on allocation of
Profits stated in 4.2(a), if there is a net decrease in Company minimum gain for
any Fiscal Year, each Member will be allocated items of Profits for such year
equal to such Member's share of the net decrease in Company minimum gain. If
there is a net decrease in Member nonrecourse debt minimum gain for any Fiscal
Year, each Member having a share of such minimum gain will be allocated items of
Profits equal to such Member's share of such net decrease in Company nonrecourse
debt minimum gain. The determination of net decreases in Company minimum gain
and Member nonrecourse debt minimum gain, allocations of such net decreases,
exceptions to minimum gain chargebacks and all other issues affecting the
minimum gain chargeback requirements will be determined in accordance with the
Section 704(b) Regulations.
4.5 GAIN CHARGEBACK. Notwithstanding the general rule on allocation of Profits
stated in 4.2(a) but subject to the prior application of the minimum gain
chargeback rule stated in 4.4, Profits of the Company incident to Dissolution
and Liquidation will be allocated among the Members in the following order and
priority: (a) if any Members have negative Capital Account balances, to such
Members in proportion to and to the extent of such negative balances until all
such negative balances are eliminated; (b) to the Members, to the extent
required to cause the Capital Accounts of the Members to be in proportion to
their respective Ownership Interests; and (c) the balance to the Members in
proportion to their Ownership Interests.
4.6 TAX ALLOCATIONS. Allocation of items of income, gain, loss and deduction of
the Company for federal income tax purposes for a Fiscal Year will be allocated,
as nearly as is practicable, in accordance with the manner in which such items
are reflected in the allocations of Profits and Losses among the Members for
such Fiscal Year. To the extent possible, principles identical to those that
apply to allocations for federal income tax purposes will apply for state and
local income tax purposes.
4.7 QUALIFIED INCOME OFFSET. Notwithstanding any other provision of this
Agreement to the contrary (except 4.4, which will be applied first), if in
any Fiscal Year or other period a Member unexpectedly receives an adjustment,
allocation or Distribution described in the qualified income offset
provisions of the Section 704(b) Regulations, such Member will be specially
allocated items of income in an amount and manner sufficient to eliminate, to
the extent required by the Section 704(b) Regulations, the Adjusted Capital
Account Deficit of such Member as quickly as possible.
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4.8 LIMIT ON LOSS ALLOCATIONS. Notwithstanding the provisions of 4.2(b) or any
other provision of this Agreement to the contrary, Losses (or items thereof)
will not be allocated to a Member if such allocation would cause or increase a
Member's Adjusted Capital Account Deficit and will be reallocated to the other
Members in proportion to their Ownership Interests, subject to the limitations
of this 4.8.
4.9 SECTION 754 ADJUSTMENTs. To the extent an adjustment to the adjusted tax
basis of any Company asset under Section 734(b) or Section 743(b) of the Code
is required to be taken into account in determining Capital Accounts under
the Section 704(b) Regulations, the amount of the adjustment to the Capital
Accounts will be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis), and the
gain or loss will be specially allocated to the Members in a manner
consistent with the manner in which their Capital Accounts are required to be
adjusted under the Section 704(b) Regulations.
4.10 CONTRIBUTED PROPERTY. All items of gain, loss and deduction with respect
to property that is reflected in the Capital Accounts of the Members at a
basis different from such property's adjusted tax basis will be allocated,
solely for tax purposes, among the Members to take into account the variation
between the adjusted tax basis of the property and the basis reflected in the
Member's Capital Account according to the principles of the Section 704(c)
Regulations. For example, if there is built-in gain with respect to certain
property at the time of such property's contribution to the Company, upon the
Company's sale of that property the pre-contribution taxable gain (as
subsequently adjusted under the Section 704(c) Regulations during the period
such property was held by the Company) would be allocated to the contributing
Member (and such pre-contribution gain would not again create a Capital
Account adjustment because the property was credited to Capital Account upon
contribution at its Fair Market Value). Except as limited by the following
sentence, the allocation of tax items with respect to Section 704(c) property
to Members that do not reflect a basis difference with respect to such
property in their Capital Accounts will, to the extent possible, be equal to
the allocation of the corresponding book items made to such Members with
respect to such property. All tax allocations made under this 4.10 will be
made in accordance with Section 704(c) of the Code, and the method of making
such allocations will be determined by the LMC Member.
4.11 TAX CREDITS. To the extent that the federal income tax basis of an asset
is allocated to the Members in accordance with the Regulations promulgated
under Section 46 of the Code, any tax credit attributable to such tax basis
will be allocated to the Members in the same ratio as such tax basis. With
respect to any other tax credit, to the extent that a Company expenditure
gives rise to an allocation of loss or deduction, any tax credit attributable
to such expenditure will be allocated to the Members in the same ratio as
such loss or deduction. Consistent principles will apply in determining the
Members' interests in tax credits that arise from taxable or non-taxable
receipts of the Company. All allocations of tax credits will be made as of
the time such credit arises. Any recapture of a tax credit will be allocated,
to the extent possible, to the Members in the same manner as the tax credit
was allocated to them. Except as otherwise specifically provided in the
Section 704(b) Regulations (such as the adjustments required when there is an
upward or downward adjustment in the tax basis of investment credit
property), allocations of tax credits and their recapture will not be
reflected by any adjustment to Capital Accounts.
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4.12 ALLOCATION ON TRANSFER. If any Ownership Interest is Transferred during any
Fiscal Year of the Company (whether by liquidation of an Ownership Interest,
Transfer of all or part of an Ownership Interest or otherwise), the books of the
Company will be closed as of the effective date of Transfer. The Profits or
Losses attributed to the period from the first day of such Fiscal Year through
the effective date of Transfer will be allocated to the Transferor and the
Profits or Losses attributed to the period commencing on the day after the
effective date of Transfer will be allocated to the Transferee. In lieu of an
interim closing of the books of the Company and with the agreement of the
Transferor and the Transferee, the Company may allocate Profits and Losses for
such Fiscal Year between the Transferor and the Transferee based on a daily
proration of items for such Fiscal Year or any other reasonable method of
allocation (including an allocation of extraordinary Company items, as
determined by the Company, based on when such items are recognized for federal
income tax purposes).
4.13 TIER PARTNERSHIPS. Rules similar to those stated in this Article will apply
to the extent the Company is an owner of an interest in another Person that is
classified as a partnership for federal income tax purposes, all in accordance
with the Section 704(b) Regulations.
ARTICLE 5: DISTRIBUTIONS
5.1 DISTRIBUTIONS GENERALLY. Except for Distributions incident to the Company's
Dissolution and Liquidation (which will be governed by 12.4), Available Cash
will be distributed quarterly to the Members in accordance with their respective
Ownership Interests (or, if sooner, as soon as practically possible after
receipt by the Company of any distribution from Astrolink International LLC).
5.2 PAYMENT. All Distributions will be made to Members owning Ownership
Interests on the date of record, such date being the day immediately preceding
the date of Distribution, as reflected on the books of the Company.
5.3 WITHHOLDING. If required by the Code or by state or local law, the Company
will withhold any required amount from Distributions to a Member for payment to
the appropriate taxing authority. Any amount so withheld from a Member will be
treated as a Distribution by the Company to such Member. Each Member will timely
file any agreement that is required by any taxing authority in order to avoid
any withholding obligation that would otherwise be imposed on the Company.
5.4 DISTRIBUTION LIMITATIONS. Notwithstanding any other provision of this
Agreement, the Company will not make any Distribution to the Members if, after
the Distribution, the liabilities of the Company (other than liabilities to
Members on account of their Ownership Interests) would exceed the Fair Market
Value of the Company's assets. With respect to any property subject to a
liability for which the recourse of creditors is limited to the specific
property, such property will be included in assets only to the extent the
property's Fair Market Value exceeds its associated liability, and such
liability will be excluded from the Company's liabilities. Notwithstanding any
other
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provision of this Agreement, the Company will not make a Distribution to any
Member if such Distribution would cause or increase any Member's Adjusted
Capital Account Deficit.
ARTICLE 6: MANAGEMENT
6.1 MANAGEMENT.
(a) The LMC Member and the LSAT Member, acting together, may designate any
Member as manager of the Company within the meaning of the Act (any Member so
designated, the "Managing Member"). The designation of a Managing Member shall
be effective immediately upon Notice of such designation to the Company, subject
to the acceptance of such designation by the Member so designated. If no
Managing Member has been designated at any time, all references in this
Agreement to the Managing Member shall mean and refer to the Members, acting
pursuant to the second sentence of 6.1(b), unless the context shall otherwise
require.
(b) If the LMC Member and the LSAT Member designate a Managing Member, the
Managing Member shall be the manager of the Company within the meaning of the
Act, and as such shall have the full power and authority of a manager under the
Act to manage the business and affairs of the Company, subject to the terms and
conditions of this Agreement. If no Managing Member has been designated at any
time, the management of the Company shall be vested in the Members, acting by
Vote in accordance with this Agreement. The Managing Member will cause the
Company to be managed and operated with the intent to maximize the long-term
value of the Company and the total return to the Members, as a whole, of their
investment in the Company, determined on a stand-alone basis.
(c) If at any time (i) LMC does not hold, directly or indirectly, capital stock
of LSAT which entitles it to exercise a majority of the combined voting power of
all outstanding capital stock of LSAT and (ii) the LMC Member holds a majority
of the Ownership Interests held by the Members, then the LMC Member shall have
the right, exercisable by written Notice to the Company, the Managing Member and
the LSAT Member at any time, to remove the Managing Member as manager of the
Company under the Act and this Agreement, with or without cause, effective
immediately (or at such other time as may be designated in such Notice). Any
Managing Member so removed as manager shall nevertheless continue as a Member of
the Company in accordance with this Agreement and the Act, and shall have all
the rights of a Member hereunder.
(d) The Managing Member may resign as Managing Member at any time, by written
Notice to the Company, the LMC Member and the LSAT Member; provided, that no
such resignation shall be effective on less than 60 days' prior written Notice
without the prior written consent of the LMC Member and the LSAT Member. Any
Managing Member that resigns as manager shall nevertheless continue as a Member
of the Company in accordance with this Agreement and the Act, and shall have all
the rights of a Member hereunder.
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(e) The LSAT Member shall be, and is hereby designated by all the Members as,
the initial Managing Member of the Company.
6.2 ACTIONS REQUIRING CONCURRENCE OF BOTH THE LSAT MEMBER AND THE LMC MEMBER. In
addition to any actions described elsewhere in this Agreement as requiring a
majority or unanimous Vote of, or approval by, the Members, the following
actions or decisions by the Company will be made only by the affirmative Vote of
the LSAT Member and the LMC Member, acting together:
(a) expansion of the Company's business beyond its principal purpose as set
forth in 2.1;
(b) appointment or removal of auditors of the Company, approval or adoption of
accounting principles applicable to the Company, and any change in the Fiscal
Year of the Company;
(c) any decision to distribute cash or other assets of the Company, except any
Distribution pursuant to Article 5 or Article 12;
(d) the admission of additional Members (except as provided in 13.3) or the
grant by the Company of any right to acquire any interest in the Company or any
profit participation, equity appreciation or similar right with respect to the
Company or any Portfolio Company;
(e) causing the Company to be characterized as an entity other than a
partnership for U.S. federal income tax purposes;
(f) amendment of this Agreement or any other organizational document of the
Company or any Person directly or indirectly Controlled by the Company or in
which the Company has an interest directly or indirectly entitling it to vote on
such amendment; or
(g) any agreement by the Company to take any of the foregoing actions.
Notwithstanding this 6.2, Persons dealing with the Company are entitled to rely
conclusively on the power and authority of the Managing Member, whether or not
any Vote required by this 6.2 shall have been taken.
6.3 OTHER MATTERS. Unless otherwise restricted by a Vote of the Members, any
action not requiring a unanimous Vote will be deemed authorized by the Company
if such action is taken (a) by the Managing Member, or by an officer of the
Company or of the Managing Member in the ordinary course of business, or (b) in
the absence of a Managing Member, by majority Vote of the Members.
6.4 MEMBER REPRESENTATIVES. The LSAT Member and the LMC Member will each be
entitled to designate two individuals to act as such Member's duly authorized
representatives and agents (each a "Representative") for purposes of exercising
the Vote of such Member on any matter involving the Company. A Member will
designate its Representatives by Notice to each other Member and may change any
such designation at any time upon similar Notice.
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6.5 NO DISSOLUTION, RESIGNATION OR RETIREMENT. No Member will voluntarily
dissolve, resign from or retire from the Company, except by a Transfer to a
Permitted Transferee or following Dissolution and Liquidation of the Company. If
any such voluntary dissolution, resignation or retirement occurs in
contravention of this Agreement, the withdrawing Member will, without further
act, become a Transferee of such Member's Ownership Interest (with the limited
rights of a Transferee as set forth in 13.5).
6.6 OFFICERS.
(a) The Managing Member will have the exclusive right to cause the Company to
appoint a chief executive officer ("CEO"), chief financial officer ("CFO"), and
chief operating officer ("COO"), if the Managing Member determines that such
officers are necessary in connection with the business and principal purpose of
the Company as set forth in 2.1. The CEO will have the authority to select such
other officers as may be necessary or desirable to carry out the day-to-day
management of the Company, such day-to-day management to be under the direction
of the Members and subject to their approval as provided in this Agreement.
Unless the Members decide otherwise, if the title of an officer is one commonly
used for officers of a business corporation formed under the Delaware General
Corporation Law, the assignment of such title shall constitute the delegation to
such Person of the authorities and duties that are normally associated with that
office.
(b) The Managing Member will have the right, in its sole discretion, to cause
the Company to terminate any CEO, CFO or COO.
(c) Appointment of a Person as an officer or agent of the Company will not, in
itself, create any contract rights relating to such appointment, or to any
employment or compensation of such Person by the Company. The officers of the
Company, acting in their capacities as such, will be agents acting on behalf of
the Company as principal.
6.7 FINANCIAL INFORMATION. The Managing Member will require the appropriate
officers and employees of the Company to prepare and deliver to the Members (i)
reasonably detailed quarterly and annual financial statements, including balance
sheets and statements of income and cash flows for the Company, prepared in
accordance with GAAP (subject, in the case of interim financial statements, to
the omission of footnotes and normal year-end adjustments), (ii) monthly
statements of income and cash flows for the Company, including, in the case of
such statements of income, identification and appropriate disclosure of all
transactions between the Company and a Member or any of its Affiliates and (iii)
quarterly reports setting forth in reasonable detail information concerning
investments made by the Company. The Managing Member also will cause the Company
to distribute to the Members copies of all financial reports (including
operating and capital budgets and business plans) that the Company receives from
Astrolink International LLC, as soon as practically possible after receipt by
the Company from Astrolink International LLC. The financial information to be
provided pursuant to this 6.7 will be distributed to the Members within the
following time periods: information required to be furnished monthly will be
provided within 30 days following the end of the applicable month, information
required to be furnished quarterly will
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be provided within 45 days following the end of the applicable quarter, and
information required to be furnished annually will be provided within 90 days
following the end of the applicable Fiscal Year.
6.8 MANAGEMENT CONDUCT. The Managing Member will cause the officers and
employees of the Company promptly and diligently to perform the duties
contemplated by this Agreement.
6.9 UNAUTHORIZED ACTIONS. If a Member takes any action that is not authorized
under this Agreement and, as a consequence of such action, the Company incurs
any liability or obligation to any Person, at the election of a majority (by
Ownership Interest) of the other Members (other than the Member taking such
unauthorized action and any Affiliates of such Member), the Member taking such
unauthorized action will be solely responsible for the full amount of such
liability or obligation and will indemnify the Company against any claim for
satisfaction thereof. Subject to receipt of an assumption agreement, duly
executed by such Member, to the effect set forth in the foregoing sentence,
which assumption agreement is in form and substance reasonably satisfactory to
the other Members, the Company will assign to such Member all the Company's
rights in and to any asset, income or benefit arising solely from the
unauthorized action that resulted in the incurrence of such liability or
obligation (such assignment to be effected by an assignment duly executed by the
Company, which assignment is in form and substance reasonably satisfactory to
such Member). After such assignment, the Member to which such rights have been
assigned may use or transfer such rights as if such Member had originally taken
such unauthorized action on its own behalf, rather than purportedly on behalf of
the Company.
ARTICLE 7: MEETINGS OF MEMBERS
7.1 MEETINGS.
(a) Meetings of the Members may be called upon Notice given by the LSAT Member,
the LMC Member or any other Member owning at least 10% of the Ownership
Interests held by all Members; provided that no Member may call a meeting more
frequently than once each calendar quarter.
(b) Notice of any meeting will be given by the Member calling such meeting to at
least one Representative of each Member not less than ten days or more than 30
days before the date of the meeting. Such Notice will state the place, day and
hour of the meeting and the purposes for which the meeting is called.
7.2 WAIVER OF NOTICE. Any Member may waive, in writing, any Notice required to
be given to such Member, whether before or after the time for the meeting to
which such Notice would relate. Any Member who signs minutes of action (or a
written consent) will be deemed to have waived any required Notice with respect
to such action.
7.3 RECORD DATE. For the purpose of determining Members entitled to Notice of or
to Vote at any meeting of Members, the date on which Notice of the meeting is
first given will be the record date
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for the determination of Members. Any such determination of Members entitled to
Vote at any meeting of Members will apply to any adjournment of a meeting.
7.4 QUORUM. A quorum at any meeting of Members will be deemed to exist if at
least one Representative of each Member entitled to Vote is present in person or
by proxy. Any meeting at which a quorum is not present may be adjourned to
another place, day and hour without further Notice. Each Member will cause its
Representatives to act in good faith to attend any meetings (including by proxy
as provided in 7.6 or by telephone as provided in 7.7) so as to assure that a
quorum will be present at any meeting of Members.
7.5 MANNER OF ACTING. If a quorum is present at any meeting of the Members, the
affirmative Vote of Members as set forth in Article 6 will be the act of the
Company. Prompt Notice describing all actions taken at a meeting will be
provided to all Representatives who were not in attendance at such meeting.
7.6 PROXIES. At any meeting of Members, a Representative of a Member may Vote in
person or by written proxy given to another Representative of a Member. A proxy
will be valid if signed by a Representative of a Member or by a duly authorized
attorney-in-fact and filed with the Company before or at the time of the
meeting. No proxy will be valid after three months from the date of its signing
unless otherwise provided in the proxy. Attendance at the meeting by a
Representative of a Member giving the proxy will be deemed to revoke the proxy
during the period of attendance.
7.7 MEETINGS BY TELEPHONE. The Members may participate in a meeting by means of
conference telephone or similar communications equipment by which all
Representatives participating in the meeting can hear each other at the same
time. Such participation will constitute presence in person at the meeting and
waiver of any required Notice.
7.8 ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a
meeting of Members may be taken without a meeting if the action is evidenced by
one or more minutes of action or written consents describing the action taken,
signed by at least one Representative of each Member entitled to Vote (provided
that the Representatives signing such minutes of action or written consent
represent at least the percentage of Ownership Interests of all Members entitled
to Vote required pursuant to this Agreement). Action so taken will be effective
when such Representatives have signed the consent, unless the consent specifies
a later effective date. Prompt Notice describing all actions taken without a
meeting of Members will be provided to all Representatives who have not signed
the written consent authorizing such actions.
ARTICLE 8: LIABILITY OF A MEMBER
8.1 LIMITED LIABILITY. Except as otherwise provided in the Act and in 6.9, the
debts, obligations and liabilities of the Company (whether arising in contract,
tort or otherwise) will be solely the debts, obligations and liabilities of the
Company, and no Member (or former Member) of the Company is liable or will be
obligated personally for any such debt, obligation or liability of the Company
solely
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by reason of such status. No Representative, individual trustee, officer,
director, employee or agent of any Member will have any personal liability for
the performance of any obligation of such Member under this Agreement.
8.2 CAPITAL CONTRIBUTION. Subject to 8.3, each Member is liable to the Company
for any Capital Contribution or Distribution that has been wrongfully or
erroneously returned or made to such Person in violation of the Act, the
Certificate or this Agreement.
8.3 CAPITAL RETURN. Any Member who has received the return of all or any part of
such Person's Capital Contribution will have no liability to return such
Distribution to the Company after the expiration of three years from the date of
such Distribution unless Notice of an obligation to return is given to such
Person within such three-year period; provided that if such return of capital
has occurred without violation of the Act, the Certificate or this Agreement,
the three-year obligation to return capital will apply only to the extent
necessary to discharge the Company's liability to its creditors who reasonably
relied on such obligation in extending credit prior to such return of capital.
8.4 RELIANCE. Any Member will be fully protected in relying in good faith upon
the records of the Company and upon such information, opinions, reports or
statements by (a) any of the Company's other Members, employees or committees or
(b) any other Person who has been selected with reasonable care as to matters
such Member reasonably believes are within such other Person's professional or
expert competence. Matters as to which such reliance may be made include the
value and amount of assets, liabilities, Profits and Losses of the Company, as
well as other facts pertinent to the existence and amount of assets from which
Distributions to Members might properly be made.
ARTICLE 9: INDEMNIFICATION
9.1 GENERAL. To the full extent permitted by law, the Company will indemnify
each Member (and each such Member's shareholders, directors, officers, partners,
members, employees and agents), each Representative, and each officer of the
Company (collectively, "Indemnified Persons"), from and against any and all
loss, damage, expense (including reasonable fees and expenses of attorneys and
other advisors and any court costs incurred by such Indemnified Person) or
liability incurred in any Proceeding to which such Indemnified Person is made a
party because such Person was a Member, Representative or officer of the Company
(or was a shareholder, director, officer, partner, member, employee or agent of
a Member) or acted or failed to act with respect to the business or affairs of
the Company if (a) such Person acted in good faith, (b) such Person reasonably
believed that its conduct in an official capacity was in the Company's best
interests or, if the conduct was not in an official capacity, that its conduct
was at least not opposed to the Company's best interests and (c) such Person, in
the case of any criminal Proceeding, had no reasonable cause to believe its
conduct was unlawful.
9.2 EXCEPTION. Notwithstanding the general rule stated in 9.1, the Company will
not indemnify any Person in connection with (a) any Proceeding by or in right of
the Company in which such Person was adjudged liable to the Company, (b) in
connection with any Proceeding charging
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improper personal benefit to such Person (or another Person of which such Person
is or was a shareholder, director, officer, partner, member, employee or agent)
(whether or not involving action in an official capacity) in which such Person
was adjudged liable on the basis that personal benefit was improperly received
or (c) any liability or obligation for which such Person (or another Person of
which such Person is or was a shareholder, director, officer, partner, member,
employee or agent) is liable under 6.9.
9.3 EXPENSE ADVANCEMENT. With respect to the reasonable expenses incurred by an
Indemnified Person who is a party to a Proceeding, the Company may provide funds
to such Person (and, in the case of a Member, to the shareholders, directors,
officers, partners, members, employees and agents of such Person) in advance of
the final disposition of the Proceeding if (a) such Person furnishes the Company
with such Person's written affirmation of a good-faith belief that it has met
the standard of conduct described in 9.1, (b) such Person agrees in writing to
repay the advance if it is determined that it has not met such standard of
conduct and (c) the Company determines that, based on then known facts,
indemnification is permissible under this Article.
9.4 INSURANCE. The indemnification provisions of this Article do not limit any
Person's right to recover under any insurance policy maintained by the Company.
If, with respect to any loss, damage, expense or liability described in 9.1, any
Person receives an insurance policy indemnification payment that, together with
any indemnification payment made by the Company, exceeds the amount of such
loss, damage, expense or liability, then such Person will immediately repay such
excess to the Company.
9.5 INDEMNIFICATION OF OTHERS. To the same extent that the Company will
indemnify and advance expenses to a Member, the Company may indemnify and
advance expenses to any employee or agent of the Company. In addition, the
Company, in its discretion, may indemnify and advance expenses to any employee
or agent to a greater extent than a Member.
9.6 EXCULPATION. No Indemnified Person will be liable to the Company or any
other Member for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Company and in a manner reasonably believed to be within the scope of the
authority conferred on the applicable Member, Representative or officer by this
Agreement, except that an Indemnified Person will be liable to the Company for
any such loss, damage or claim incurred by reason of such Indemnified Person's
willful misconduct.
ARTICLE 10: ACCOUNTING AND REPORTING
10.1 FISCAL YEAR. For income tax and accounting purposes, the fiscal year of the
Company will be the Fiscal Year.
10.2 ACCOUNTING METHOD. For income tax and accounting purposes, the Company will
use the accrual method of accounting, unless otherwise required by the Code. The
Tax Matters Partner will have the authority to adopt all other accounting
methods for tax purposes.
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10.3 TAX ELECTIONS. The Tax Matters Partner will have the authority to make
such tax elections, and to revoke any such election, as the Tax Matters
Partner may from time to time determine. Notwithstanding the preceding
sentence, following any Transfer (within the meaning of Section 754 of the
Code) of an Ownership Interest, the Tax Matters Partner will make the
election under Section 754 of the Code upon the timely written request of
either the Transferor or the Transferee. In addition, the Tax Matters Partner
may make the Section 754 election if the Tax Matters Partner determines that
such election is in the best interests of the Company or any Member.
10.4 RETURNS. At the expense of the Company, the Tax Matters Partner will cause
the preparation and timely filing of all tax returns required to be filed by the
Company pursuant to the Code, as well as all other tax returns required in each
jurisdiction in which the Company does business.
10.5 FINANCIAL REPORTS. The Members will cause the appropriate officers or
employees of the Company, at the expense of the Company, to cause to be prepared
and distributed to the Members the financial statements, reports and other
information prescribed by 6.7 and such other financial statements, budgets,
plans and schedules as are required for the reporting purposes of, and/or are
from time to time reasonably requested by, the Members.
10.6 BOOKS AND RECORDS.
(a) The following books and records of the Company will be kept at its principal
office: (i) a current list of the full name and last known business, residence
or mailing address of each Member; (ii) originals of the Certificate and of this
Agreement, as amended (as well as any signed powers of attorney pursuant to
which any such document was executed); (iii) a copy of the Company's federal,
state and local income tax returns and reports and annual financial statements
of the Company, for the six most recent years; and (iv) minutes, or minutes of
action or written consent, of every meeting of Members of the Company.
(b) The Company will maintain at its own expense, and keep at is principal
office, true and accurate books of account in accordance with GAAP consistently
applied and the reasonable and customary business practices of business
enterprises similarly situated to the Company.
(c) Each Member, at its sole expense, will have the right, at any time and
without Notice to any other Member, to examine, copy and audit the Company's
books and records during normal business hours.
10.7 INFORMATION.
(a) Each Member has the right, from time to time and upon reasonable demand for
any purpose reasonably related to such Person's interest as a Member of the
Company, to obtain from the Company: (i) a current list of the full name and
last known business, residence or mailing address of each Member; (ii) a copy of
the Certificate and of this Agreement, as amended (as well as any signed powers
of attorney pursuant to which any such document was executed); (iii) a copy of
the
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Company's federal, state and local income tax returns and reports and annual
financial statements of the Company, for the six most recent years; (iv)
minutes, or minutes of action or written consent, of every meeting of the
Members of the Company; (v) true and full information regarding the amount of
money and a description and statement of the agreed value of any other property
or services contributed or to be contributed by each Member, and the date on
which each became a Member; (vi) true and full information regarding the status
of the business and financial condition of the Company; and (vii) other
information regarding the affairs of the Company (and, to the extent available
to the Company, regarding the affairs of any Portfolio Company that is not a
public company) as reasonably may be requested by such Member.
(b) The Members will cause the Company (i) to deliver to each Member, for its
review and approval, a copy of each tax return or report required to be filed by
the Company at least 30 days before the required filing date (including
extensions) and (ii) to provide to each Member, not more than 135 days after
each Fiscal Year end, such information for such Fiscal Year as the Member
reasonably requires to prepare tax returns or reports required to be filed by it
or one or more of its Affiliates, including federal and state tax information
and projections and estimates.
10.8 BANKING. The Company may establish and maintain one or more accounts or
safe deposit boxes at banks or other financial institutions. The Company may
authorize one or more individuals to sign checks on and withdraw funds from such
bank or financial accounts and to have access to such safe deposit boxes, and
may place such limitations and restrictions on such authority as the Company
deems advisable. No funds of the Company will be commingled with funds of any
Member or any other Person.
10.9 TAX MATTERS; TAX MATTERS PARTNER. Until further action by the Company,
the Managing Member is designated as the Tax Matters Partner under Section
6231(a)(7) of the Code. The Tax Matters Partner will take no action that is
reasonably expected to have a material adverse effect on one or more of the
Members unless such action is approved by the unanimous Vote of the Members.
The Tax Matters Partner will be responsible for notifying all Members of
ongoing tax Proceedings, both administrative and judicial, and will represent
the Company throughout any such Proceeding. The Members will furnish the Tax
Matters Partner with such information as it may reasonably request to provide
the Internal Revenue Service with sufficient information to allow proper
notice to the Members. If an administrative Proceeding with respect to a
partnership item under the Code has begun, and the Tax Matters Partner so
requests, each Member will notify the Tax Matters Partner of its treatment of
any partnership item on its federal income tax return, if any, which is
inconsistent with the treatment of that item on the partnership return for
the Company. Any settlement agreement with the Internal Revenue Service will
be binding upon the Members only as provided in the Code. The Tax Matters
Partner will not bind any other Member to any extension of the statute of
limitations or to a settlement agreement without such Member's written
consent. Any Member who enters into a settlement agreement with respect to
any partnership item will notify the other Members of such settlement
agreement and its terms within 30 days after the date of settlement. If the
Tax Matters Partner does not file a petition for readjustment of the
partnership items in the Tax Court, federal District Court or Claims Court
within the 90-day period following a notice of a final partnership
administrative adjustment, any notice partner or 5-percent group (as such
terms are
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defined in the Code) may institute such action within the following 60 days. The
Tax Matters Partner will timely notify the other Members in writing of its
decision. Any notice partner or 5-percent group will notify the other Members of
its filing of any petition for readjustment.
10.10 CLASSIFICATION OF COMPANY AS PARTNERSHIP FOR TAX PURPOSES, NOT STATE LAW.
The Company will be classified as a partnership for federal (and, as
appropriate, state and local) income tax purposes. This characterization, solely
for tax purposes, does not create or imply a general partnership or limited
partnership between the Members for state law or any other purpose. Instead, the
Members acknowledge the status of the Company as a limited liability company
formed under the Act.
ARTICLE 11: DISSOLUTION
11.1 DISSOLUTION. Dissolution of the Company will occur upon the happening of
any of the following events:
(a) The sale or other disposition of all or substantially all of the Company's
assets;
(b) An event of Withdrawal (as defined in 11.2) of a Member if the remaining
Members make an election to dissolve the Company in accordance with 11.3;
(c) The affirmative Vote of all Members; or
(d) The Withdrawal of the sole remaining Member.
11.2 EVENTS OF WITHDRAWAL. An event of Withdrawal of a Member occurs when any of
the following occurs:
(a) With respect to any Member, upon the Transfer of all of such Member's
Ownership Interest (which Transfer is treated as a resignation);
(b) With respect to any Member, upon the voluntary Withdrawal (including any
resignation or retirement in contravention of 6.5) of the Member;
(c) With respect to any Member that is a corporation, upon filing of articles of
dissolution of the corporation;
(d) With respect to any Member that is a partnership, a limited liability
company or a similar entity, upon dissolution and liquidation of such entity
(but not solely by reason of a technical termination under Section
708(b)(1)(b) of the Code);
(e) With respect to any Member that is a trust, upon termination of the trust;
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(f) With respect to any Member, the Bankruptcy of the Member; or
(g) Any other event that terminates the continued membership of a Member in the
Company.
Within ten days after the occurrence of any event of Withdrawal with respect to
a Member, such Member will give Notice of the date and the nature of such event
to the Company. Any Member failing to give such Notice will be liable in damages
for the consequences of such failure as otherwise provided in this Agreement.
11.3 CONTINUATION. Subject to 11.1(d), in the event of Withdrawal of a Member,
the Company will be continued, without Dissolution, unless within 90 days
following the occurrence of such event, there is an affirmative Vote of a
majority (by Ownership Interest) of the remaining Members to dissolve the
Company. If the Company is so continued, with respect to any Member as to which
an event of Withdrawal has occurred, such Member or such Member's Transferee or
other successor-in-interest (as the case may be) will, without further act,
become a Transferee of such Ownership Interest (with the limited rights of a
Transferee as set forth in 13.5, unless admitted as a substitute Member).
ARTICLE 12: LIQUIDATION
12.1 LIQUIDATION. Upon Dissolution of the Company, the Company will immediately
proceed to wind up its affairs and liquidate pursuant to this 12.1. If there is
only one remaining Member, that Member will act as the liquidating trustee.
Otherwise, any Person appointed by Members owning more than 50% of the Ownership
Interests held by all Members will act as the liquidating trustee. The
Liquidation of the Company will be accomplished in a businesslike manner as
determined by the liquidating trustee. A reasonable time will be allowed for the
orderly Liquidation of the Company and the discharge of liabilities to creditors
so as to enable the Company to minimize any losses attendant upon Liquidation.
Any gain or loss on disposition of any Company assets in Liquidation will be
allocated to Members in accordance with the provisions of Article 4. Any
liquidating trustee is entitled to reasonable compensation for services actually
performed, and may contract for such assistance in the liquidating process as
such Person deems necessary or desirable. Until the filing of a certificate of
cancellation under 12.8, and without affecting the liability of the Members and
without imposing liability on the liquidating trustee, the liquidating trustee
may settle and close the Company's business, prosecute and defend suits, dispose
of its property, discharge or make provision for its liabilities, and make
Distributions in accordance with the priorities set forth in this Article.
12.2 TAX TERMINATION. In addition to termination of the Company following its
Dissolution, a termination of the Company will occur, for federal income tax
purposes only, on the date the Company is terminated under Section 708(b)(1)
of the Code. Under current law, events causing such a termination include the
sale or exchange of 50% or more of the total interest in the capital and
profits of the Company within a 12-month period. Upon the occurrence of a
termination under Section 708(b)(1) of the Code, a constructive Liquidation
and a constructive reformation of the Company as a tax
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partnership will be deemed to occur for federal income tax purposes. All
adjustments and computations will be made under this Agreement as if the
constructive transactions had actually occurred, and the Capital Accounts of the
Members in such new tax partnership will be determined and maintained in
accordance with the Section 704(b) Regulations.
12.3 PRIORITY OF PAYMENT. The assets of the Company will be distributed in
Liquidation in the following order:
(a) First, to creditors by the payment or provision for payment of the debts and
liabilities of the Company (other than any loans or advances that may have been
made by any Member or any Affiliate of a Member) and the expenses of
Liquidation, including the setting up of any reserves that are reasonably
necessary for any contingent, conditional or unmatured liabilities or
obligations of the Company;
(b) Second, to the repayment of any loans to the Company that may have been made
by any Member or any Affiliate of a Member (according to the relative priority
of repayment of such loans and proportionally among loans of equal priority if
the amount available for repayment is insufficient for payment in full); and
(c) Third, to the Members in proportion to the positive balances in their
respective Capital Accounts after such Capital Accounts have been adjusted for
all allocations of Profits and Losses and items thereof for the Fiscal Year
during which such Liquidation occurs.
12.4 LIQUIDATING DISTRIBUTIONS. If the Company is not continued pursuant to
11.3, the liquidating Distributions due to the Members will be made by selling
the assets of the Company and distributing the net proceeds. Notwithstanding the
preceding sentence, but only upon the affirmative Vote of all Members,
liquidating Distributions may be made by distributing the assets of the Company
in kind to the Members in proportion to the amounts distributable to them
pursuant to 12.3, valuing such assets at their Fair Market Value (net of
liabilities secured by such property that the Member takes subject to or
assumes) on the date of Distribution. Each Member agrees to save and hold
harmless the other Members from such Member's proportionate share of any and all
such liabilities that are taken subject to or assumed. Appropriate and customary
prorations and adjustments will be made incident to any Distribution in kind.
The Members will look solely to the assets of the Company for the return of
their Capital Contributions, and if the assets of the Company remaining after
the payment or discharge of the debts and liabilities of the Company are
insufficient to return such contributions, they will have no recourse against
any other Member. The Members acknowledge that 12.3 may establish Distribution
priorities on Liquidation different from those set forth in the Act, as in
effect at the time of any Distribution; and, in such event, it is the Members'
intention that the provisions of 12.3 will control, to the extent possible.
12.5 NO RESTORATION OBLIGATION. Except as otherwise specifically provided in 8.2
and 8.3, nothing contained in this Agreement imposes on any Member an obligation
to make an Additional Contribution in order to restore a deficit Capital Account
upon Liquidation of the Company.
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12.6 TIMING. Final Distributions in Liquidation (except in the case of a
constructive Liquidation under 12.2) will be made by the end of the Company's
Fiscal Year in which such actual Liquidation occurs (or, if later, within 90
days after such event) in the manner required to comply with the Section
704(b) Regulations. Payments or Distributions in Liquidation may be made to a
liquidating trust established by the Company for the benefit of those
entitled to payments under 12.3, in any manner consistent with this Agreement
and the Section 704(b) Regulations.
12.7 LIQUIDATING REPORTS. A report will be submitted with each liquidating
Distribution to Members made pursuant to 12.4, showing the collections,
disbursements and Distributions during the period that is subsequent to any
previous report. A final report, showing cumulative collections, disbursements
and Distributions, will be submitted upon completion of the Liquidation.
12.8 CERTIFICATE OF CANCELLATION. Upon Dissolution of the Company and the
completion of the winding up of its business, the Company will file a
certificate of cancellation (to cancel the Certificate) with the Delaware
Secretary of State pursuant to the Act. At such time, the Company will also file
an application for withdrawal of its certificate of authority in any
jurisdiction where it is then qualified to do business.
ARTICLE 13: TRANSFER RESTRICTIONS
13.1 GENERAL RESTRICTION. No Person may Transfer all or any part of such
Person's Ownership Interest in any manner whatsoever except to a Permitted
Transferee as set forth in 13.3 and only if the requirements of 13.4 have also
been satisfied. Any other Transfer of all or any part of an Ownership Interest
is null and void, and of no effect. Any Member who makes a Transfer of all of
such Person's Ownership Interest will be treated as resigning from the Company
on the effective date of such Transfer. The rights and obligations of any
resigning Member or of any Transferee of an Ownership Interest will be governed
by the other provisions of this Agreement.
13.2 NO MEMBER RIGHTS. Except as otherwise provided in this Agreement, no Member
has the right or power to confer upon any Transferee the attributes of a Member
in the Company. The Transferee of all or any part of an Ownership Interest by
operation of law does not, by virtue of such Transfer, succeed to any rights as
a Member in the Company.
13.3 PERMITTED TRANSFEREES. Subject to the requirements set forth in 13.4, a
Person may Transfer all or any portion of such Person's Ownership Interest to
any Affiliate of such Person or, with the prior written consent of a majority by
Ownership Interest of the non-transferring Members, to any other Person (each, a
"Permitted Transferee"), and the Permitted Transferee will be admitted as a
Member as of the effective date thereof. Except as provided in this 13.3, no
Person shall Transfer such Person's Ownership Interest to any other Person in
whole or in part without the prior written consent of the LMC Member and the
LSAT Member.
13.4 GENERAL CONDITIONS ON TRANSFERS. No Transfer of an Ownership Interest will
be effective unless all the conditions set forth below are satisfied:
28
<PAGE>
(a) Unless waived by each nontransferring Member, the Transferor signs and
delivers to the Company an undertaking in form and substance satisfactory to the
Company to pay all reasonable expenses incurred by the Company in connection
with the Transfer (including reasonable fees of counsel and accountants and the
costs to be incurred with any additional accounting required in connection with
the Transfer, and the cost and fees attributable to preparing, filing and
recording such amendments to the Certificate or other organizational documents
or filings as may be required by law);
(b) Unless waived by each nontransferring Member, the Transferor delivers to the
Company (i) an opinion of counsel for the Transferor reasonably satisfactory in
form and substance to the Company to the effect that, assuming the accuracy of
the statement of the Transferee described in (ii) below, the Transfer of the
Ownership Interest as proposed does not violate requirements for registration
under applicable federal and state securities laws and (ii) a statement of the
Transferee in form and substance reasonably satisfactory to the Company making
appropriate representations and warranties with respect to compliance with the
applicable federal and state securities laws and as to any other matter
reasonably required by the Company;
(c) Unless waived by each nontransferring Member, the Transferor provides an
opinion of counsel for the Transferor reasonably satisfactory in form and
substance to the nontransferring Members or other evidence reasonably
satisfactory to the nontransferring Members that the Transfer of the
Ownership Interest will not result in the termination of the Company within
the meaning of Section 708(b)(1)(b) of the Code. If the immediate Transfer of
such Ownership Interest would cause such a termination, but the following
action would not cause such a termination, the Transferor will be entitled
(i) immediately to Transfer only that portion of the Ownership Interest as
may be Transferred without causing such a termination and (ii) to enter into
an agreement to Transfer the remainder of its Ownership Interest, in one or
more Transfers, at the earliest date or dates on which such Transfer or
Transfers may be effected without causing such a termination. In determining
whether a particular proposed Transfer will result in a termination of the
Company, the Members will take into account the existence of prior written
commitments to Transfer of which Notice has been given pursuant to this
Agreement and those proposed Transfers will be given precedence over
subsequent proposed Transfers. Each nontransferring Member will waive the
foregoing provisions of this 13.4(c) upon the written request of the
Transferor, unless such nontransferring Member reasonably determines that the
termination of the Company within the meaning of Section 708(b)(1)(b) of the
Code is reasonably likely to have a material adverse effect on such
nontransferring Member.
(d) The Transferor signs and delivers to the Company a copy of the assignment of
the Ownership Interest to the Transferee (substantially in the form of the
attached EXHIBIT A), which assignment will provide that the Transferor will
continue to be liable for the performance of such liabilities; and
(e) The Transferee signs and delivers to the Company an agreement (substantially
in the form of the attached EXHIBIT B) to be bound by this Agreement.
29
<PAGE>
The Transfer of an Ownership Interest will be effective as of 12:01 a.m.
(Mountain Time) on the first day of the month following the month in which all
of the above conditions have been satisfied. The Company will amend Schedule 1.3
as of the effective time of any Transfer of an Ownership Interest to reflect the
new Ownership Interests.
13.5 RIGHTS OF TRANSFEREES. Any Transferee of an Ownership Interest will, on the
effective date of the Transfer, have only those rights of an assignee as
specified in the Act unless and until such Transferee is admitted as a
substitute Member. This provision limiting the rights of a Transferee will not
apply if such Transferee is already a Member; provided that any Member who
resigns or retires from the Company in contravention of 6.5 will have only the
rights of an assignee as specified in the Act. Any Transferee of an Ownership
Interest who is not admitted as a substitute Member in accordance with this
Agreement has no right (a) to participate or interfere in the management or
administration of the Company's business or affairs, (b) to Vote or agree on any
matter affecting the Company or any Member, (c) to require any information on
account of any Company transactions or (d) to inspect the Company's books and
records. The only rights of a Transferee of an Ownership Interest who is not
admitted as a substitute Member in accordance with this Agreement is to receive
the allocations and Distributions to which the Transferor was entitled (to the
extent of the Ownership Interest Transferred) and to receive all necessary tax
reporting information. In any event, each Transferee of an Ownership Interest
(including both immediate and remote Transferees) will be subject to all of the
obligations, restrictions and other terms contained in this Agreement as if such
Transferee were a Member. To the extent of any Ownership Interest Transferred,
the Transferor will not possess any right or power as a Member and may not
exercise any such right or power directly or indirectly on behalf of the
Transferee.
13.6 ADMISSION. Except as set forth in 13.3 or as to any Transferee that is an
Affiliate of the Transferor, a Transferee of an Ownership Interest will not
become a substitute Member of the Company unless such substitution is consented
to by all Members, which consent may be granted or withheld in the sole
discretion of the Members and which consent may be arbitrarily withheld,
effective upon a date specified (which must be on or after the effective date of
the Transfer, as determined under 13.4).
13.7 SECURITY INTEREST. The pledge or granting to a bank or other financial
institution of a bona fide Lien for collateral security purposes only affecting
all or any part of a Member's Ownership Interest will not in itself constitute a
Transfer hereunder or cause the Member to cease to be a Member. In no event will
any secured party be entitled to foreclose upon (or to receive a Transfer in
lieu of foreclosure of) any such secured interest or to exercise any rights of a
Member under this Agreement (unless and until such Person is admitted as a
substitute Member), and such secured party may look only to such Member for the
enforcement of any of its rights as a creditor. In no event will the Company
have any liability or obligation to any Person by reason of the Company's
payment of a Distribution to any secured party as long as the Company makes such
payment in reliance upon written instructions from the Member to whom such
Distributions would be payable. Any secured party will be entitled, with respect
to the security interest granted, only to the allocations and Distributions to
which the assigning Member would be entitled under this Agreement, and only if,
as and when such allocations and Distributions are made by the Company, and to
receive any
30
<PAGE>
necessary tax reporting information. Neither the Company nor any Member will owe
any fiduciary duty of any nature to a secured party. Each Ownership Interest
shall constitute a "security" within the meaning of (i) Article 8 of the Uniform
Commercial Code (including Section 8-102(a)(15) thereof) as in effect from time
to time in the States of Delaware and Colorado and (ii) the Uniform Commercial
Code of any other applicable jurisdiction that now or hereafter substantially
includes the 1994 revisions to Article 8 thereof as adopted by the American Law
Institute and the National Conference of Commissioners on Uniform State Laws and
approved by the American Bar Association on February 14, 1995.
ARTICLE 14: CERTAIN BUSINESS MATTERS
14.1 OTHER BUSINESS ACTIVITIES OF MEMBERS. Except as otherwise expressly
provided in this Agreement, each Member and its Affiliates may engage in or
possess interests in other businesses or ventures of any nature or description,
without regard to whether such businesses or ventures are or may be deemed to be
competitive in any way with the business of the Company or of any Portfolio
Company. No Member will have any obligation to offer any business or investment
opportunity to the Company.
14.2 DETERMINATION OF FAIR MARKET VALUE. Wherever this Agreement refers to, or
calls for a determination of, Fair Market Value, the Fair Market Value of the
item in question will be determined in accordance with the following provisions:
(a) The Members may, by unanimous Vote, determine the Fair Market Value of such
item.
(b) If the Members are unable to agree on a Fair Market Value within 15 days
after the date Notice requesting the determination of such Fair Market Value is
given by a Member to the others, or if they determine that an appraisal should
be used to determine Fair Market Value, then the Members will cause the Fair
Market Value as of the most recent month end to be determined by a qualified
appraiser acceptable to the Members. If the Members are unable to agree on a
single appraiser within 30 days after the date of such Notice, each of the LSAT
Member and the LMC Member will have an additional ten days to select one
appraiser nationally recognized in valuing items of the kind required to be
valued. If either fails to appoint an appraiser, then the determination of Fair
Market Value by the one appraiser will be binding.
(c) Each appraiser will determine the Fair Market Value. The Company and the
Members will use their reasonable best efforts to cause such appraiser to submit
to them a written report indicating its determination of such Fair Market Value
within 30 days after the date such appraiser is selected.
(d) If the higher of the two appraisals is 110% or less of the lower appraisal,
the average of the two will be the Fair Market Value.
(e) If the higher of the two appraisals is more than 110% of the lower
appraisal, the Company will immediately notify the two appraisers and cause them
to appoint a third similarly qualified appraiser
31
<PAGE>
within ten days after such notice. The Company and the Members will use their
reasonable best efforts to cause such third appraiser (who will not be apprised
of the determination of the other appraisers) to submit a written report to each
of them indicating such appraiser's determination of Fair Market Value within 30
days after the date such third appraiser is selected. If three appraisals are
necessary, then the average of the two appraisals in which the determinations of
Fair Market Value are closest together will be the Fair Market Value or, if the
highest and lowest are equidistant from the middle determination, then the
middle determination will be the Fair Market Value.
(f) A determination of Fair Market Value made pursuant to this 14.2 will be
final, binding and nonappealable.
(g) The Company will pay the fees and costs of any appraiser involved in a
determination of Fair Market Value pursuant to this 14.2.
ARTICLE 15: GENERAL PROVISIONS
15.1 AMENDMENT. This Agreement may be amended only by the affirmative Vote of
all Members. Any amendment will become effective upon such approval, unless
otherwise provided. Notice of any proposed amendment must be given at least five
days in advance of the meeting at which the amendment will be considered (unless
the approval is evidenced by duly signed minutes of action or written consent).
Any duly adopted amendment to this Agreement is binding on, and inures to the
benefit of, each Person who holds an Ownership Interest at the time of such
amendment, without the requirement that such Person sign the amendment or any
republication or restatement of this Agreement.
15.2 REPRESENTATIONS. Each Member hereby represents and warrants to each other
Member that, as of the signing of this Agreement:
(a) Such Member is duly organized, validly existing and in good standing under
the laws of the jurisdiction where it purports to be organized, and is a United
States Person;
(b) Such Member has full power and authority as a corporation or limited
liability company to enter into and perform its obligations under this
Agreement;
(c) All actions on the part of such Member necessary to authorize the signing
and delivery of this Agreement, and the performance by such Member of its
obligations hereunder, have been duly taken;
(d) This Agreement has been duly signed and delivered by a duly authorized
officer or other representative of such Member and constitutes the legal, valid
and binding obligation of such Member enforceable in accordance with its terms,
except as such enforceability may be affected by applicable bankruptcy,
insolvency or other similar laws affecting creditors' rights generally, and
except that the availability of equitable remedies is subject to judicial
discretion;
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<PAGE>
(e) No consent or approval of any other Person is required in connection with
the signing, delivery and performance of this Agreement by such Member; and
(f) The signing, delivery and performance of this Agreement do not violate the
organizational documents of such Member or any material agreement to which such
Member is a party or by which such Member is bound.
15.3 UNREGISTERED INTERESTS. Each Member (a) acknowledges that the Ownership
Interests are being offered and sold without registration under the Securities
Act of 1933, as amended, or under similar provisions of state law, (b)
acknowledges that such Member is fully aware of the economic risks of an
investment in the Company, and that such risks must be borne for an indefinite
period of time, (c) represents and warrants that such Member is acquiring an
Ownership Interest for such Member's own account, for investment, and without a
view to the distribution of the Ownership Interest, and (d) agrees not to
Transfer, or to attempt to Transfer, all or any part of its Ownership Interest
without registration under the Securities Act of 1933, as amended, and any
applicable state securities laws, unless the Transfer is exempt from such
registration requirements.
15.4 WAIVER OF ALTERNATIVE WITHDRAWAL RIGHTS. Each Member hereby waives and
renounces any alternative rights that might otherwise be provided by law upon
the Withdrawal of such Person and accepts the provisions under this Agreement as
such Person's sole entitlement upon the happening of such event.
15.5 WAIVER OF PARTITION RIGHT. Each Member hereby waives and renounces any
right that it might otherwise have prior to Dissolution and Liquidation to
institute or maintain any action for partition with respect to any property held
by the Company.
15.6 WAIVERS GENERALLY. No course of dealing will be deemed to amend or
discharge any provision of this Agreement. No delay in the exercise of any right
will operate as a waiver of such right. No single or partial exercise of any
right will preclude its further exercise. A waiver of any right on any one
occasion will not be construed as a bar to, or waiver of, any such right on any
other occasion.
15.7 EQUITABLE RELIEF. If any Member proposes to Transfer all or any part of its
Ownership Interest in violation of the terms of this Agreement, the Company or
any Member may apply to any court of competent jurisdiction for an injunctive
order prohibiting such proposed Transfer except in compliance with the terms of
this Agreement, and the Company or any Member may institute and maintain any
action or Proceeding against the Person proposing to make such Transfer to
compel the specific performance of this Agreement. Any attempted Transfer in
violation of this Agreement is null and void, and of no force and effect. The
Person against whom such action or Proceeding is brought hereby waives the claim
or defense that an adequate remedy at law exists, and such Person will not urge
in any such action or Proceeding the claim or defense that such remedy at law
exists.
15.8 REMEDIES FOR BREACH. The rights and remedies of the Members set forth in
this Agreement are neither mutually exclusive nor exclusive of any right or
remedy provided by law, in equity or
33
<PAGE>
otherwise, and all legal remedies (such as monetary damages) as well as all
equitable remedies (such as specific performance) will be available for any
breach or threatened breach of any provision of this Agreement.
15.9 COSTS. If the Company or any Member retains counsel for the purpose of
enforcing or preventing the breach or any threatened breach of any provision of
this Agreement or for any other remedy relating to it, then the prevailing party
will be entitled to be reimbursed by the nonprevailing party for all costs and
expenses so incurred (including reasonable attorney's fees, costs of bonds and
fees and expenses for expert witnesses).
15.10 INDEMNIFICATION. Each Member hereby indemnifies and agrees to hold
harmless the Company and each other Member from any liability, cost or expense
arising from or related to any act or failure to act of such Member that is in
violation of this Agreement.
15.11 COUNTERPARTS. This Agreement may be signed in multiple counterparts and on
separate counterparts, the signature pages of which may be detached and
reattached to another identical counterpart. Each counterpart will be considered
an original instrument, but all of them in the aggregate will constitute one
agreement.
15.12 NOTICE. All Notices under this Agreement will be in writing and will be
either delivered or sent addressed as follows: (a) if to the Company, at the
Company's principal office in Englewood, Colorado, and (b) if to any Member, at
such Person's address as then appearing in the records of the Company. In
computing time periods, the day of Notice will be included.
15.13 DEEMED NOTICE. Any Notices given to the Company or any Member in
accordance with this Agreement will be deemed to have been duly given: (a) on
the date of receipt if personally delivered, (b) five days after being sent by
U.S. mail, postage prepaid, (c) on the date of receipt, if sent by registered or
certified U.S. mail, postage prepaid, (d) on the date of receipt, if sent by
confirmed facsimile or telecopier transmission or (e) one Business Day after
having been sent by a nationally recognized overnight courier service.
15.14 PARTIAL INVALIDITY. Wherever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law. However, if for any reason any one or more of the provisions of this
Agreement are held to be invalid, illegal or unenforceable in any respect, such
action will not affect any other provision of this Agreement. In such event,
this Agreement will be construed as if such invalid, illegal or unenforceable
provision had never been contained in it.
15.15 ENTIRE AGREEMENT. This Agreement (including its Schedules and Exhibits)
contains the entire agreement and understanding of the Members concerning its
subject matter. The Members acknowledge and agree that the admission of any
additional Member may require amendment of this Agreement as certain provisions
of this Agreement contemplate that the LMC Member and the LSAT Member are the
only Members of the Company.
34
<PAGE>
15.16 BENEFIT. This Agreement and the rights and obligations of the Members
hereunder will inure solely to the benefit of the Members and the Company,
without conferring on any other Person any rights of enforcement or other
rights.
15.17 BINDING EFFECT. This Agreement is binding upon, and inures to the benefit
of, the Members and their Permitted Transferees, provided that any Transferee
will have only the rights specified in 13.5 unless admitted as a substitute
Member in accordance with this Agreement.
15.18 FURTHER ASSURANCES. Each Member will sign and deliver, without additional
consideration, such other documents of further assurance as may reasonably be
necessary to give effect to the provisions of this Agreement.
15.19 HEADINGS. Article and section titles have been inserted for convenience of
reference only. They are not intended to affect the meaning or interpretation of
this Agreement.
15.20 TERMS. Terms used with initial capital letters will have the meanings
specified, applicable to both singular and plural forms, for all purposes of
this Agreement. All pronouns (and any variations) will be deemed to refer to the
masculine, feminine or neuter, as the identity of the Person may require. The
singular or plural includes the other, as the context requires or permits. The
word "include" (and any variation) is used in an illustrative sense rather than
a limiting sense. The word "day" means a calendar day, unless a Business Day is
specified.
15.21 GOVERNING LAW; FORUM. This Agreement will be governed by, and construed in
accordance with, the laws of the State of Delaware. Any conflict or apparent
conflict between this Agreement and the Act will be resolved in favor of this
Agreement, except as otherwise required by the Act. Any action to enforce any
provision of this Agreement may be brought only in a court in the State of
Delaware or the State of Colorado or in the United States District Court for the
District of Colorado. Each party (i) agrees to submit to the general
jurisdiction of such courts and to accept service of process at its address for
Notices pursuant to this Agreement in any such action or Proceeding and (ii)
irrevocably waives any objection it may have to the laying of venue of such
action or Proceeding brought in any such court and any claim that such action or
Proceeding brought in any such court has been brought in an inconvenient forum.
15.22 CERTIFICATED INTERESTS.
(a) Upon the issuance of Ownership Interests to any Member in accordance with
the provisions of this Agreement, the Company may issue one or more
certificates in the name of such Member evidencing the Ownership Interests
held by such Member (each, an "Interest Certificate"). Any such Interest
Certificate shall be in the form attached hereto as EXHIBIT D or such other
form as shall have been approved by the Managing Member. Each such Interest
Certificate shall specify the percentage of Ownership Interests of the
Company represented thereby. Each Interest Certificate shall be signed by
manual or facsimile signature of an authorized officer of the Company.
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<PAGE>
(b) The Company shall issue a new Interest Certificate in place of any Interest
Certificate previously issued if the holder of the Ownership Interests
represented by such Interest Certificate, as reflected on the books and
records of the Company:
(i) makes proof by affidavit, in form and substance satisfactory to the
Company, that such previously issued Interest Certificate has been
lost, stolen or destroyed;
(ii) requests the issuance of a new Interest Certificate; provided that no
such request shall be made if the Company or such holder has notice
that such previously issued Interest Certificate has been acquired by
a purchaser for value in good faith and without notice of an adverse
claim;
(iii) if requested by the Company, delivers to the Company a bond, in form
and substance satisfactory to the Company, with such surety or
sureties as the Company may direct, to indemnify the Company against
any claim that may be made on account of the alleged loss,
destruction or theft of the previously issued Interest Certificate;
and (iv) satisfies any other reasonable requirements imposed by the
Company.
(c) Upon a Member's Transfer in accordance with the provisions of this
Agreement of any or all Ownership Interests represented by an Interest
Certificate, the Transferee of such Ownership Interests shall deliver such
Interest Certificate to the Company for cancellation (executed by such
Transferee on the reverse side thereof), and the Company shall thereupon
issue a new Interest Certificate to such Transferee for the number of
Ownership Interests being Transferred and, if applicable, cause to be
issued to the Transferor a new Interest Certificate for that number of
Ownership Interests that were represented by the canceled Interest
Certificate and that are not being Transferred.
(d) Upon any other change in the percentages of Ownership Interests held by the
Members made in accordance with this Agreement, the Company may cancel all
outstanding Interest Certificates and issue replacement Interest
Certificates to the Members reflecting the revised percentages of Ownership
Interests held by the Members.
36
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this AMENDED AND RESTATED
OPERATING AGREEMENT of LSAT ASTRO LLC, to be duly executed and delivered,
effective from the date first above mentioned, notwithstanding the actual date
of signing.
TSAT HOLDING 2, INC.
By:
--------------------------------
Name:
Title:
LIBERTY SATELLITE, LLC
BY: TSAT HOLDING 1, INC.,
as the Managing Member
By:
--------------------------------
Name:
Title:
37
<PAGE>
LIST OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE
<S> <C>
1.3 Names and Addresses and Ownership Interests of Members
3.1 Capital Account Balances (as of the Effective Date)
</TABLE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
<S> <C>
A Form of Assignment of Ownership Interest
B Form of Transferee's Agreement
C Form of Promissory Note
D Form of Interest Certificate
</TABLE>
38
<PAGE>
Series A Preferred Stock
TCI SATELLITE ENTERTAINMENT, INC.
CERTIFICATE OF DESIGNATIONS
---------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CUMULATIVE PREFERRED STOCK, SERIES A"
ADOPTED BY THE BOARD OF DIRECTORS
OF TCI SATELLITE ENTERTAINMENT, INC.
---------------
The undersigned, an assistant secretary of TCI SATELLITE ENTERTAINMENT,
INC., a Delaware corporation (this "Corporation"), HEREBY CERTIFIES that the
Board of Directors of this Corporation on March 2, 2000, duly adopted the
following resolutions creating a new series of this Corporation's Series
Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted by the
provisions of Article IV, Section B of the Certificate of Incorporation of this
Corporation, the Board of Directors hereby creates and authorizes the issuance
of a new series of this Corporation's Series Preferred Stock, par value $.01 per
share ("Series Preferred Stock"), and hereby fixes the powers, designations,
dividend rights, voting powers, rights on liquidation, conversion rights,
redemption rights and other preferences and relative, participating, optional or
other special rights and the qualifications, limitations or restrictions of the
shares of such series (in addition to the powers, designations, preferences and
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions thereof set forth in the Certificate
of Incorporation that are applicable to each class and series of this
Corporation's preferred stock, par value $.01 per share ("Preferred Stock")), as
follows:
1. DESIGNATION AND NUMBER. The designation of the series of Series
Preferred Stock, par value $.01 per share, of this Corporation authorized hereby
is "Cumulative Preferred
<PAGE>
Stock, Series A" (the "Series A Preferred Stock"). The number of shares
constituting the Series A Preferred Stock will be 150,000.
2. CERTAIN DEFINITIONS. Unless the context otherwise requires, the terms
defined in this paragraph 2 will, for all purposes of this Certificate of
Designations, have the meanings herein specified:
"AVERAGE MARKET PRICE": As of any Record Date or Special Record Date for a
dividend payment declared by the Board of Directors, the product of (a) .90 and
(b) the average of the daily Closing Prices of the Series A Common Stock for a
period of 20 consecutive trading days ending on the tenth trading day prior to
such Record Date, appropriately adjusted to take into account any stock
dividends on the Series A Common Stock, or any stock splits, reclassifications
or combinations of the Series A Common Stock, during the period following the
first of such 20 trading days and ending on the last full trading day
immediately preceding the Dividend Payment Date or other date fixed for the
payment of dividends to which such Record Date or Special Record Date, as the
case may be, relates.
"BOARD OF DIRECTORS": The Board of Directors of this Corporation and, to
the extent permitted by law, unless the context indicates otherwise, any
committee thereof authorized with respect to any particular matter to exercise
the power of the Board of Directors of this Corporation with respect to such
matter.
"BUSINESS DAY": Any day other than a Saturday, Sunday or a day on which
banking institutions in Denver, Colorado are not required to be open.
"CAPITAL STOCK": Any and all shares, interests, participations or other
equivalents (however designated) of corporate stock of this Corporation.
"CLOSING PRICE": Of any security for any day (which for this purpose only
will mean the period from 9:30 a.m. to 4:00 p.m., New York time), the last
reported sale price of such security regular way or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices regular way, in either case on the composite tape, or if such security is
not quoted on the composite tape, on the principal United States securities
exchange registered under the Exchange Act on which such security is listed or
admitted to trading, or if such security is not listed or admitted to trading on
any such exchange, the last reported sale price (or the average of the quoted
closing bid and asked prices if there were no reported sales) on The Nasdaq
Stock Market or any comparable quotation system, or if such security is not
quoted on The Nasdaq Stock Market or any comparable system, the average of the
closing bid and asked prices as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by this
2
<PAGE>
Corporation for that purpose or, in the absence of such quotations, such other
method of determining market value as the Board of Directors will from time to
time deem to be fair.
"DEBT INSTRUMENT": Any bond, debenture, note, indenture, guarantee or other
instrument or agreement evidencing any Indebtedness, whether existing at the
Issue Date or thereafter created, incurred, assumed or guaranteed.
"DEFAULT": The occurrence of any of the following events:
(a) the failure of the Corporation to declare and, on or within five days
of the applicable Dividend Payment Date, pay any portion of the accrued
dividends on the Series A Preferred Stock for any Dividend Period;
(b) there has been entered a decree or order for relief in respect of the
Corporation under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal or state bankruptcy law or
other similar law, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator, or similar official of the Corporation or of any
substantial part of its properties, or ordering the winding-up or liquidation of
the affairs of the Corporation or an involuntary petition has been filed against
the Corporation and a temporary stay entered, and (i) such petition and stay has
not been diligently contested, or (ii) any such petition and stay has continued
undismissed for a period of sixty (60) consecutive days; or
(c) the Corporation has filed a petition, answer, or consent seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal or state bankruptcy law or other
similar law, or the Corporation has consented to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment or taking
of possession of a receiver, liquidator, assignee, trustee, custodian,
sequestrator, or other similar official, of the Corporation or of any
substantial part of its properties, or the Corporation has failed generally to
pay its debts as they become due, or has taken any action in furtherance of any
such action.
"DIVIDEND PAYMENT DATE": The last day of each March, June, September and
December, commencing with March 2000, or the next succeeding Business Day if any
such date is not a Business Day.
"DIVIDEND PERIOD": The period from and including the Issue Date to but
excluding the first Dividend Payment Date and, thereafter, each quarterly period
from and including a Dividend Payment Date to but excluding the next Dividend
Payment Date.
"EXCHANGE ACT": The Securities Exchange Act of 1934, as amended.
3
<PAGE>
"INDEBTEDNESS": Any: (a) liability, contingent or otherwise, of this
Corporation (i) for borrowed money whether or not the recourse of the lender is
to the whole of the assets of this Corporation or only to a portion thereof),
(ii) evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given other than in connection with the acquisition of
inventory or similar property in the ordinary course of business, or (iii) for
the payment of money relating to an obligation under a lease that is required to
be capitalized for financial accounting purposes in accordance with generally
accepted accounting principles; (b) liability of others described in the
preceding clause (a) which this Corporation has guaranteed or which is otherwise
its legal liability; and (c) obligations secured by a mortgage, pledge, lien,
charge or other encumbrance to which the property or assets of this Corporation
are subject whether or not the obligations secured thereby have been assumed by
or shall otherwise be this Corporation's legal liability.
"ISSUE DATE": March 16, 2000, such date being the first date on which any
shares of the Series A Preferred Stock are first issued or deemed to have been
issued.
"JUNIOR SECURITIES": All shares of Series A Common Stock, Series B Common
Stock, and any class or series of stock of this Corporation, whether now
existing or hereafter created, to the extent that it ranks junior to the Series
A Preferred Stock as to dividend rights or rights on liquidation. A class or
series of Junior Stock will rank junior to the Series A Preferred Stock as to
dividend rights or rights on liquidation if the holders of shares of Series A
Preferred Stock are entitled to dividend payments or payments of amounts
distributable upon liquidation, dissolution or winding up of the affairs of this
Corporation, as the case may be, in preference or priority to the holders of
shares of such class or series.
"LIQUIDATION PREFERENCE": Measured per Share of the Series A Preferred
Stock as of any date in question (the "Relevant Date") means an amount equal to
the sum of (a) the Stated Value of such Share, plus (b) an amount equal to all
dividends accrued on such Share which pursuant to paragraph 3(c) of this
Certificate of Designations have been added to and remain a part of the
Liquidation Preference as of the Relevant Date, plus (c) for purposes of
paragraph 4 and paragraph 5 of this Certificate of Designations and the
definition of Redemption Price, an amount equal to all unpaid dividends accrued
on the sum of the amounts specified in clauses (a) and (b) above during the
period from and including the immediately preceding Dividend Payment Date (or
the Issue Date if the Relevant Date is on or prior to the first Dividend Payment
Date) to but excluding the Relevant Date, and, in the case of clauses (b) and
(c) hereof, whether or not such unpaid dividends have been declared or there are
any unrestricted funds of the Corporation legally available for the payment of
dividends. In connection with the determination of the Liquidation Preference of
a Share of Series A Preferred Stock upon redemption, or upon liquidation,
dissolution or winding up of the Corporation, the Relevant Date will be the
applicable date of redemption or the date of distribution of amounts payable to
stockholders in connection with any such liquidation, dissolution or winding up.
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"PARITY SECURITIES": (a) Any class or series of stock of this Corporation,
whether now existing or hereafter created, ranking on a parity basis with the
Series A Preferred Stock as to dividend rights or rights on liquidation. Stock
of any class or series will rank on a parity basis as to dividend rights or
rights on liquidation with the Series A Preferred Stock, whether or not the
dividend rates, dividend payment dates or liquidation prices per share are
different from those of the Series A Preferred Stock, if the holders of shares
of such class or series are entitled to dividend payments or payments of amounts
distributable upon liquidation, dissolution or winding up of the affairs of this
Corporation, as the case may be, in proportion to their respective accumulated
and accrued and unpaid dividends or liquidation prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Series A Preferred Stock. No class or
series of capital stock that ranks junior to the Series A Preferred Stock as to
rights on liquidation will rank or be deemed to rank on a parity basis with the
Series A Preferred Stock as to dividend rights unless the instrument creating or
evidencing such class or series of capital stock otherwise expressly provides;
and (b) the Series B Preferred Stock.
"PERSON": A natural person, corporation, limited liability company,
partnership or other legal entity.
"RECORD DATE": For the dividends payable on any Dividend Payment Date, the
15th day of the month during which such Dividend Payment Date occurs as and if
designated by the Board of Directors.
"REDEMPTION DATE": As to any Share, the date, which shall be a Business
Day, fixed for redemption of such Share as specified in the notice of redemption
given in accordance with paragraph 5(c), provided that no such date will be a
Redemption Date unless the applicable Redemption Price is actually paid on such
date or the consideration sufficient for the payment thereof, and for no other
purpose, has been set apart, and if the Redemption Price is not so paid in full
or the consideration sufficient therefor so set apart then the Redemption Date
will be the date, which shall be a Business Day, on which such Redemption Price
is fully paid or the consideration sufficient for the payment thereof, and for
no other purpose, has been set apart.
"REDEMPTION PRICE": As to any Share that is to be redeemed on any
Redemption Date, the Liquidation Preference as in effect on such Redemption
Date.
"SENIOR SECURITIES": Any class or series of stock of this Corporation,
whether now existing or hereafter created, ranking senior to the Series A
Preferred Stock as to dividend rights or rights on liquidation. Stock of any
class or series will rank senior to the Series A Preferred Stock as to dividend
rights or rights on liquidation if the holders of shares of such class or series
are entitled to dividend payments or payments of amounts distributable upon
dissolution, liquidation or winding up of the affairs of this Corporation, as
the case may be, in preference or priority to the
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holders of shares of Series A Preferred Stock. No class or series of capital
stock that ranks on a parity basis with or junior to the Series A Preferred
Stock as to rights on liquidation will rank or be deemed to rank prior to the
Series A Preferred Stock as to dividend rights, notwithstanding that the
dividend rate or dividend payment dates thereof are different from those of the
Series A Preferred Stock, unless the instrument creating or evidencing such
class or series of capital stock otherwise expressly provides.
"SERIES A COMMON STOCK": The Series A Common Stock, par value $.01 per
share, of this Corporation, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series A Common Stock may thereafter have been changed.
"SERIES A DIVIDEND RATE":
(a) At all times prior to April 1, 2005, 12%;
(b) On and after April 1, 2005 and prior to April 1, 2010, 11%; and
(c) On and after April 1, 2010, 10%.
"SERIES B COMMON STOCK": The Series B Common Stock, par value $.01 per
share, of this Corporation, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series B Common Stock may thereafter have been changed.
"SERIES B PREFERRED STOCK": The Cumulative Convertible Voting Preferred
Stock, Series B, par value $.01 per share, of this Corporation, as such exists
on the date of this Certificate of Designations, and Capital Stock of any other
class or series into which such Series B Preferred Stock may thereafter have
been changed.
"SHARE": A share of Series A Preferred Stock.
"STATED VALUE": Of a Share of the Series A Preferred Stock, $1,000.
"SUBSIDIARY": With respect to any person, any corporation, limited
liability company, partnership or other legal entity more than 50% of whose
outstanding voting securities or membership, partnership or other ownership
interests, as the case may be, are directly or indirectly owned by such person.
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3. DIVIDENDS.
(a) Subject to the prior preferences and other rights of any Senior
Securities, the holders of Series A Preferred Stock will be entitled to receive
cumulative dividends, in preference to dividends on any Junior Securities, which
will accrue as provided herein. Dividends on each Share will accrue on a daily
basis on the amount of the Liquidation Preference of such Share at a rate per
annum equal to the Series A Dividend Rate in effect from time to time, from and
including the Issue Date to but excluding the date on which the Liquidation
Preference or Redemption Price of such Share is made available pursuant to
paragraph 4 or 5, respectively, of this Certificate of Designations, as
applicable, PROVIDED, HOWEVER, that on and after the occurrence and during the
continuance of a Default, the dividend rate will be the sum of (i) the Series A
Dividend Rate and (ii) 2%. Dividends will accrue as provided herein whether or
not such dividends have been declared and whether or not there are any
unrestricted funds of this Corporation legally available for the payment of
dividends. Accrued dividends on the Series A Preferred Stock will be payable
quarterly on each Dividend Payment Date to the holders of record of the Series A
Preferred Stock as of the close of business on the applicable Record Date. For
purposes of determining the amount of dividends "accrued" (i) as of the first
Dividend Payment Date and as of any date that is not a Dividend Payment Date,
such amount will be calculated on the basis of the rate per annum specified
above in this paragraph 3(a) for the actual number of days elapsed from and
including the Issue Date (in the case of the first Dividend Payment Date and any
date prior to the first Dividend Payment Date) or the last preceding Dividend
Payment Date (in the case of any other date) to but excluding the date as of
which such determination is to be made, based on a 365-day year, and (ii) as of
any Dividend Payment Date after the first Dividend Payment Date, such amount
will be calculated on the basis of such rate per annum based on a 360-day year
of twelve 30-day months.
(b) For all Dividend Periods ending on or prior to March 31, 2003, all
dividends payable with respect to the Shares may be declared and paid, in the
sole discretion of the Board of Directors, in cash, through the issuance of
Series A Common Stock or in any combination of the foregoing. For all Dividend
Periods ending after March 31, 2003, all dividends payable with respect to the
Shares will be declared and paid in cash. If any dividend payment declared by
the Board of Directors with respect to the shares of Series A Preferred Stock is
to be paid in whole or in part through the issuance of shares of Series A Common
Stock, the amount of such dividend payment to be paid per share of Series A
Preferred Stock in shares of Series A Common Stock (the "Stock Dividend Amount")
will be satisfied and paid by the delivery to the holders of record of such
shares of Series A Preferred Stock on the Record Date or Special Record Date (as
defined below) for such dividend payment, of a number of shares of Series A
Common Stock determined by dividing the Stock Dividend Amount by the Average
Market Price of a share of Series A Common Stock as of such Record Date or
Special Record Date. The Corporation will not be required to issue any
fractional share of Series A Common Stock to which any holder of Series A
Preferred Stock may become entitled pursuant to this paragraph 3(b). The Board
of Directors may elect to settle any final
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fraction of a share of Series A Common Stock which a holder of one or more
shares of Series A Preferred Stock would otherwise be entitled to receive
pursuant to this paragraph 3(b) by having the Corporation pay to such holder, in
lieu of issuing such fractional share, cash in an amount (rounded upward to the
nearest whole cent) equal to the same fraction of the Average Market Price of a
share of Series A Common Stock as of the Record Date or Special Record Date, as
the case may be, for the dividend payment with respect to which such shares of
Series A Common Stock are being delivered. Such election, if made, will be made
as to all holders of Series A Preferred Stock who would otherwise be entitled to
receive a fractional share of Series A Common Stock on the Dividend Payment Date
or other date fixed for the payment of such dividend. Payment of such dividends
as provided herein will be deemed to have been made, if paid in cash, when such
payment has been delivered by wire transfer of immediately available funds to
the record holders of the Series A Preferred Stock entitled to receive the same,
in accordance with the instructions of such holders delivered in writing to the
Corporation at least two Business Days prior to any Dividend Payment Date (or if
no such instructions are received, by mail to the address of such record holder
on the books of the Corporation), or, if paid in shares of Series A Common
Stock, when shares of Series A Common Stock have been issued to the record
holders of the Series A Preferred Stock entitled to receive the same. All
dividends paid with respect to the Shares pursuant to this paragraph 3 will be
paid PRO RATA to all the holders of Shares outstanding on the applicable Record
Date or Special Record Date, as the case may be.
(c) If on any Dividend Payment Date this Corporation, pursuant to
applicable law or otherwise, is prohibited or restricted from paying the full
dividends to which holders of Series A Preferred Stock, and any Parity
Securities ranking on a parity basis with the Series A Preferred Stock with
respect to the right to receive dividend payments, are entitled, the amount
available for such payment pursuant to applicable law and which is not otherwise
restricted (if any) will be distributed among the holders of Series A Preferred
Stock and any such Parity Securities ratably in proportion to the full amounts
to which they would otherwise be entitled. On each Dividend Payment Date, all
dividends that have accrued on each share of Series A Preferred Stock during the
Dividend Period ending on such Dividend Payment Date will, to the extent not
paid on such Dividend Payment Date for any reason (whether or not such unpaid
dividends have been declared or there are any unrestricted funds of this
Corporation legally available for the payment of dividends), be added
cumulatively to the Liquidation Preference of such Share and will remain a part
thereof until such dividends are paid. That portion of the Liquidation
Preference of a Share that consists of accrued unpaid dividends, together with
all dividends accrued in respect thereof, may be declared and paid at any time
(subject to the rights of any Senior Securities and to the concurrent
satisfaction of any dividend arrearages then existing with respect to any Parity
Securities that rank on a parity basis with the Series A Preferred Stock as to
the payment of dividends), without reference to any regular Dividend Payment
Date, to holders of record as of the close of business on such date, not more
than 45 days nor less than 10 days preceding the payment date thereof, as may be
fixed by the Board of Directors (the "Special Record Date"). Notice of each
Special Record Date will be
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given, not more than 45 days nor less than 10 days prior thereto, to the holders
of record of the Shares. Any dividend payment made on the Shares will first be
credited against the earliest accrued but unpaid dividend due with respect to
such Shares.
(d) If at any time this Corporation fails to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Series A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative dividends
on the Series A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, (i) this Corporation will not
redeem, or discharge any sinking fund obligation with respect to, any Shares,
Parity Securities or Junior Securities, or set aside any money or assets for any
such purpose, unless all then outstanding Shares are redeemed pursuant to the
terms hereof, (ii) this Corporation will not declare or pay any dividend on or
make any distribution with respect to any Junior Securities or Parity Securities
or set aside any money or assets for any such purpose, except that this
Corporation may declare and pay a dividend on any Parity Securities ranking on a
parity basis with the Series A Preferred Stock with respect to the right to
receive dividend payments, contemporaneously with the declaration and payment of
a dividend on the Series A Preferred Stock, PROVIDED that such dividends are
declared and paid PRO RATA so that the amount of dividends declared and paid per
share of Series A Preferred Stock and such Parity Securities will in all cases
bear to each other the same ratio that accumulated and accrued and unpaid
dividends per share on the Series A Preferred Stock and such Parity Securities
bear to each other, and (iii) neither this Corporation nor any Subsidiary
thereof will purchase or otherwise acquire any Shares, Parity Securities or
Junior Securities.
Nothing contained in the preceding paragraph of this paragraph 3(d)
will prevent (x) the payment of dividends on any Junior Securities solely in
shares of Junior Securities or the redemption, purchase or other acquisition of
Junior Securities solely in exchange for shares of Junior Securities, (y) the
payment of dividends on any Parity Securities solely in shares of Junior
Securities or the redemption, exchange, purchase or other acquisition of Series
A Preferred Stock or Parity Securities solely in exchange for (together with a
cash adjustment for fractional shares, if any) shares of Junior Securities, or
(z) the purchase or acquisition of Shares pursuant to a purchase or exchange
offer or offers made to all holders of outstanding shares of Series A Preferred
Stock, PROVIDED that the terms of the purchase or exchange offer are identical
for all shares of Series A Preferred Stock and all accrued dividends on such
Shares have been paid or have been declared and irrevocably set apart in trust
for the benefit of the holders of shares of Series A Preferred Stock and for no
other purpose. The provisions of this paragraph 3(d) are for the benefit of the
holders of Series A Preferred Stock and accordingly the provisions of this
paragraph 3(d) will not restrict any redemption or purchase by this Corporation
or a Subsidiary thereof of Shares held by any holder,
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provided that all other holders of Shares have waived in writing the benefits of
this provision with respect to such redemption.
4. LIQUIDATION. Upon any liquidation, dissolution or winding up of this
Corporation, whether voluntary or involuntary, the holders of Series A Preferred
Stock will be entitled to be paid an amount in cash equal to the aggregate
Liquidation Preference at the date of payment of all Shares outstanding, which
amounts will be paid (x) before any distribution or payment upon any such
liquidation, dissolution or winding up of this Corporation is made upon any
Junior Securities, (y) on a PARI PASSU basis with any such payment made to the
holders of any Parity Securities, and (z) after any such payment is made upon
any Senior Securities. The holders of Series A Preferred Stock will be entitled
to no other or further distribution of or participation in any remaining assets
of this Corporation after receiving the full preferential amounts provided for
in the preceding sentence. If upon such liquidation, dissolution or winding up,
the assets of this Corporation to be distributed among the holders of Series A
Preferred Stock and to all holders of Parity Securities are insufficient to
permit payment in full to such holders of the aggregate preferential amounts
which they are entitled to be paid, then the entire assets of this Corporation
to be distributed to such holders will be distributed ratably among them based
upon the full preferential amounts to which the shares of Series A Preferred
Stock and such Parity Securities would otherwise respectively be entitled. Upon
any such liquidation, dissolution or winding up, after the holders of Series A
Preferred Stock and Parity Securities have been paid in full the amounts to
which they are entitled, the remaining assets of this Corporation may be
distributed to the holders of Junior Securities. This Corporation will mail
written notice of such liquidation, dissolution or winding up to each record
holder of Series A Preferred Stock not less than 20 days prior to the payment
date stated in such written notice unless such notice is waived by the holders
of a majority of the aggregate amount of the Liquidation Preference of all
Series A Preferred Stock then outstanding. Neither the consolidation or merger
of this Corporation into or with any other corporation or corporations, nor the
sale, transfer or lease by this Corporation of all or any part of its assets,
will be deemed to be a liquidation, dissolution or winding up of this
Corporation within the meaning of this paragraph 4.
5. REDEMPTION.
(a) Subject to paragraph 5(f), the shares of Series A Preferred Stock
may be redeemed out of funds legally available therefor, at the option of this
Corporation by action of the Board of Directors, in whole or from time to time
in part, on any Business Day after April 1, 2020 at the Redemption Price per
Share as of the applicable Redemption Date. If less than all outstanding Shares
are to be redeemed, Shares will be redeemed ratably (as nearly as may be
practicable) among the holders thereof.
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(b) Subject to the rights of any Parity Securities and the provisions
of paragraph 5(f) and subject to any prohibitions or restrictions contained in
any Debt Instrument, at any time on or after April 1, 2020, any holder will have
the right, at such holder's option, to require redemption by this Corporation at
the Redemption Price per Share as of the applicable Redemption Date of all or
any portion of such holder's Shares, by written notice to this Corporation
stating the number of Shares to be redeemed. This Corporation will redeem, out
of funds legally available therefor and not restricted in accordance with the
first sentence of this paragraph 5(b), the Shares so requested to be redeemed on
such date within 60 days following this Corporation's receipt of such notice as
this Corporation will state in its notice given pursuant to paragraph 5(c). If
the funds of this Corporation legally available for redemption of Shares and not
restricted in accordance with the first sentence of this paragraph 5(b) are
insufficient to redeem the total number of Shares required to be redeemed
pursuant to this paragraph 5(b), then, those funds which are legally available
for redemption of such Shares and not so restricted will be used to redeem the
maximum possible number of such Shares ratably among the holders who have
required Shares to be redeemed under this paragraph 5(b). At any time thereafter
when additional funds of this Corporation are legally available and not so
restricted for such purpose, such funds will immediately be used to redeem the
Shares this Corporation failed to redeem on such Redemption Date until the
balance of such Shares are redeemed. Further, if the funds of this Corporation
legally available for redemption of Shares are sufficient to pay the Redemption
Price of the Shares requested to be redeemed in full, then any portion of such
Redemption Price not paid when due as provided in this paragraph 5(b),
notwithstanding that payment thereof is restricted pursuant to any Debt
Instrument in accordance with the first sentence of this paragraph 5(b), will
constitute indebtedness of this Corporation for borrowed money, the payment of
which indebtedness the holders requesting such redemption will be entitled to
enforce by the exercise of any and all rights at law or in equity.
(c) Notice of any redemption pursuant to this paragraph 5 will be
mailed, first class, postage prepaid, not less than 30 days nor more than 60
days prior to the Redemption Date, to the holders of record of the shares of
Series A Preferred Stock to be redeemed, at their respective addresses as the
same appear upon the books of this Corporation or are supplied by them in
writing to this Corporation for the purpose of such notice; but no failure to
mail such notice or any defect therein or in the mailing thereof will affect the
validity of the proceedings for the redemption of any shares of the Series A
Preferred Stock. Such notice will set forth the Redemption Price, the Redemption
Date, the number of Shares to be redeemed and the place at which the Shares
called for redemption will, upon presentation and surrender of the stock
certificates evidencing such Shares, be redeemed. In case fewer than the total
number of shares of Series A Preferred Stock represented by any certificate are
redeemed, a new certificate representing the number of unredeemed Shares will be
issued to the holder thereof without cost to such holder.
(d) If notice of any redemption by this Corporation pursuant to this
paragraph 5 has been mailed as provided in paragraph 5(c) and if on or before
the Redemption Date
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specified in such notice the consideration necessary for such redemption has
been set apart so as to be available therefor and only therefor, then on and
after the close of business on the Redemption Date, the Shares called for
redemption, notwithstanding that any certificate therefor has not been
surrendered for cancellation, will no longer be deemed outstanding, and all
rights with respect to such Shares will forthwith cease and terminate, except
the right of the holders thereof to receive upon surrender of their certificates
the consideration payable upon redemption thereof.
(e) All shares of Series A Preferred Stock redeemed, retired,
purchased or otherwise acquired by this Corporation will be retired and will be
restored to the status of authorized and unissued shares of preferred stock and
may be reissued as part of another series of the preferred stock of this
Corporation, but such shares will not be reissued as Series A Preferred Stock.
(f) If and so long as this Corporation fails to redeem on a Redemption
Date pursuant to this paragraph 5 all shares of Series A Preferred Stock
required to be redeemed on such date, this Corporation will not redeem, or
discharge any sinking fund obligation with respect to, any Shares, Junior
Securities or Parity Securities, or set aside any money or assets for any such
purpose, unless all then outstanding Shares required to be redeemed are redeemed
pursuant to the terms hereof, and will not declare or pay any dividend on or
make any distribution with respect to any Junior Securities or set aside any
money or assets for any such purpose, and neither this Corporation nor any
Subsidiary thereof will purchase or otherwise acquire any Shares, Parity
Securities or Junior Securities. Nothing contained in this paragraph 5(f) will
prevent (i) the payment of dividends on any Junior Securities solely in shares
of Junior Securities or the redemption, purchase or other acquisition of Junior
Securities solely in exchange for shares of Junior Securities, (ii) the
redemption, exchange, purchase or other acquisition of Series A Preferred Stock
or Parity Securities solely in exchange for (together with a cash adjustment for
fractional shares, if any), shares of Junior Securities, or (iii) the purchase
or acquisition of shares of Series A Preferred Stock pursuant to a purchase or
exchange offer or offers made to all holders of outstanding shares of Series A
Preferred Stock, PROVIDED that the terms of the purchase or exchange offer shall
be identical for all Shares and all accrued dividends on such Shares shall have
been declared and irrevocably set apart in trust for the benefit of the holders
of Shares and for no other purpose. The provisions of this paragraph 5(f) are
for the benefit of holders of Series A Preferred Stock and accordingly the
provisions of this paragraph 5(f) will not restrict any redemption or purchase
by this Corporation or a Subsidiary thereof of Shares held by any holder,
provided that all other holders of Shares shall have waived in writing the
benefits of this provision with respect to such redemption.
6. VOTING RIGHTS. The holders of the Series A Preferred Stock will have no
voting rights whatsoever, except as required by law and except that, for so long
as any Shares remain outstanding, this Corporation will not, either directly or
indirectly, without the consent of the holders of record of at least 662/3% of
the number of Shares then outstanding, take any action (including by
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merger, consolidation or binding share exchange with any other corporation or
entity) to amend, alter or repeal (i) any of the provisions of this paragraph 6,
(ii) any of the provisions of the Certificate of Incorporation of this
Corporation so as to affect adversely any preference or any relative or other
right given to the Series A Preferred Stock, or (iii) any of paragraphs 3 or 4.
7. WAIVER. Any provision of this Certificate of Designations which, for the
benefit of the holders of Series A Preferred Stock, prohibits, limits or
restricts actions by the Corporation, or imposes obligations on the Corporation,
including but not limited to provisions relating to the obligation of the
Corporation to redeem or convert such Shares, may be waived in whole or in part,
or the application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case by the affirmative vote or
with the consent of the holders of record of at least 662/3% of the number of
Shares then outstanding (or such greater percentage thereof as may be required
by this Certificate of Designations, applicable law or any applicable rules of
any national securities exchange or national interdealer quotation system),
either in writing or by vote at an annual meeting or a special meeting called
for such purpose at which the holders of Series A Preferred Stock will vote as a
separate class.
8. PREEMPTIVE RIGHTS. The holders of the Series A Preferred Stock will not
have any preemptive right to subscribe for or purchase any shares of stock or
any other securities which may be issued by this Corporation.
9. SENIOR SECURITIES. The Series A Preferred Stock will not rank junior to
any other classes or series of stock of this Corporation outstanding on the
Issue Date in respect of the right to receive dividends or the right to
participate in any distribution upon liquidation, dissolution or winding up of
this Corporation. Without the prior consent of the holders of record of at least
662/3% of the number of Shares then outstanding, this Corporation will not issue
any Senior Securities.
10. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by law
and for the equitable rights and remedies that may otherwise be available to
holders of Series A Preferred Stock, the shares of Series A Preferred Stock will
not have any designations, preferences, limitations or relative rights, other
than those specifically set forth in these resolutions (as such resolutions may,
subject to paragraph 6, be amended from time to time) and in the Certificate of
Incorporation of this Corporation.
11. HEADINGS. The headings of the various paragraphs and subparagraphs
hereof are for convenience of reference only and will not affect the
interpretation of any of the provisions hereof.
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FURTHER RESOLVED, that the appropriate officers of this Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware."
The undersigned has signed this Certificate of Designations on this 16th
day of March, 2000.
By: /s/ Pamela J. Strauss
---------------------------
Name: Pamela J. Strauss
Title: Assistant Secretary
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Series B Preferred Stock
TCI SATELLITE ENTERTAINMENT, INC.
CERTIFICATE OF DESIGNATIONS
---------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CUMULATIVE CONVERTIBLE VOTING PREFERRED STOCK, SERIES B"
ADOPTED BY THE BOARD OF DIRECTORS
OF TCI SATELLITE ENTERTAINMENT, INC.
---------------
The undersigned, an assistant secretary of TCI SATELLITE ENTERTAINMENT,
INC., a Delaware corporation (this "Corporation"), HEREBY CERTIFIES that the
Board of Directors of this Corporation on March 2, 2000, duly adopted the
following resolutions creating a new series of this Corporation's Series
Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted by the
provisions of Article IV, Section B of the Certificate of Incorporation of this
Corporation, the Board of Directors hereby creates and authorizes the issuance
of a new series of this Corporation's Series Preferred Stock, par value $.01 per
share ("Series Preferred Stock"), and hereby fixes the powers, designations,
dividend rights, voting powers, rights on liquidation, conversion rights,
redemption rights and other preferences and relative, participating, optional or
other special rights and the qualifications, limitations or restrictions of the
shares of such series (in addition to the powers, designations, preferences and
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions thereof set forth in the Certificate
of Incorporation that are applicable to each class and series of this
Corporation's preferred stock, par value $.01 per share ("Preferred Stock")), as
follows:
1. DESIGNATION AND NUMBER. The designation of the series of Series
Preferred Stock, par value $.01 per share, of this Corporation authorized hereby
is "Cumulative Convertible
<PAGE>
Voting Preferred Stock, Series B" (the "Series B Preferred Stock"). The number
of shares constituting the Series B Preferred Stock will be 150,000.
2. CERTAIN DEFINITIONS. Unless the context otherwise requires, the terms
defined in this paragraph 2 will, for all purposes of this Certificate of
Designations, have the meanings herein specified:
"AVERAGE MARKET PRICE": As of any Record Date or Special Record Date for a
dividend payment declared by the Board of Directors, the product of (a) .90 and
(b) the average of the daily Closing Prices of the Series A Common Stock for a
period of 20 consecutive trading days ending on the tenth trading day prior to
such Record Date, appropriately adjusted to take into account any stock
dividends on the Series A Common Stock, or any stock splits, reclassifications
or combinations of the Series A Common Stock, during the period following the
first of such 20 trading days and ending on the last full trading day
immediately preceding the Dividend Payment Date or other date fixed for the
payment of dividends to which such Record Date or Special Record Date, as the
case may be, relates.
"BOARD OF DIRECTORS": The Board of Directors of this Corporation and, to
the extent permitted by law, unless the context indicates otherwise, any
committee thereof authorized with respect to any particular matter to exercise
the power of the Board of Directors of this Corporation with respect to such
matter.
"BUSINESS DAY": Any day other than a Saturday, Sunday or a day on which
banking institutions in Denver, Colorado are not required to be open.
"CAPITAL STOCK": Any and all shares, interests, participations or other
equivalents (however designated) of corporate stock of this Corporation.
"CLOSING PRICE": Of any security for any day (which for this purpose only
will mean the period from 9:30 a.m. to 4:00 p.m. New York time), the last
reported sale price of such security regular way or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices regular way, in either case on the composite tape, or if such security is
not quoted on the composite tape, on the principal United States securities
exchange registered under the Exchange Act on which such security is listed or
admitted to trading, or if such security is not listed or admitted to trading on
any such exchange, the last reported sale price (or the average of the quoted
closing bid and asked prices if there were no reported sales) on The Nasdaq
Stock Market or any comparable quotation system, or if such security is not
quoted on The Nasdaq Stock Market or any comparable system, the average of the
closing bid and asked prices as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by this
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Corporation for that purpose or, in the absence of such quotations, such other
method of determining market value as the Board of Directors will from time to
time deem to be fair.
"COMMON STOCK": The Common Stock, $.01 par value per share, of this
Corporation, and all series thereof now existing or hereafter created, including
the Series A Common Stock and the Series B Common Stock.
"CONVERSION DATE": Of a share of Series B Preferred Stock, the date on
which the requirements for conversion of such Share set forth in paragraph 5(m)
have been satisfied by the holder thereof.
"CONVERSION RATE": The kind and amount of securities, cash or other assets
that as of any date are issuable or deliverable upon conversion of a share of
Series B Preferred Stock. The Conversion Rate of a Share of Series B Preferred
Stock will initially be as set forth in paragraph 5(b), subject to adjustment as
set forth in paragraph 5 of this Certificate of Designations. In the event that
pursuant to paragraph 5 the Series B Preferred Stock becomes convertible into
more than one class or series of capital stock of this Corporation, the term
Conversion Rate, when used with respect to any such class or series, will mean
the number or fraction of shares or other units of such capital stock that as of
any date would be issued upon conversion of a share of Series B Preferred Stock.
"CONVERTIBLE SECURITIES": The Series A Convertible Securities and the
Series B Convertible Securities.
"DEBT INSTRUMENT": Any bond, debenture, note, indenture, guarantee or other
instrument or agreement evidencing any Indebtedness, whether existing at the
Issue Date or thereafter created, incurred, assumed or guaranteed.
"DEFAULT": The occurrence of any of the following events:
(a) the failure of the Corporation to declare and, on or within five days
of the applicable Dividend Payment Date, pay any portion of the accrued
dividends on the Series B Preferred Stock for any Dividend Period;
(b) there has been entered a decree or order for relief in respect of the
Corporation under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal or state bankruptcy law or
other similar law, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator, or similar official of the Corporation or of any
substantial part of its properties, or ordering the winding-up or liquidation of
the affairs of the Corporation or an involuntary petition has been filed against
the Corporation and a temporary stay entered, and
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(i) such petition and stay has not be diligently contested, or (ii) any such
petition and stay has continued undismissed for a period of 60 consecutive days;
or
(c) the Corporation has filed a petition, answer, or consent seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal or state bankruptcy law or other
similar law, or the Corporation has consented to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment or taking
of possession of a receiver, liquidator, assignee, trustee, custodian,
sequestrator, or other similar official, of the Corporation or of any
substantial part of its properties, or the Corporation has failed generally to
pay its debts as they become due, or has taken any action in furtherance of any
such action.
"DETERMINATION DATE": For any issuance of rights or warrants or any
distribution to which paragraph 5(d) or 5(e) applies, the earlier of (a) the
record date for the determination of stockholders entitled to receive the rights
or warrants or the distribution to which such paragraph applies and (b) the
Ex-Dividend Date for such rights, warrants or distribution.
"DIVIDEND PAYMENT DATE": The last day of each March, June, September and
December, commencing with March 2000, or the next succeeding Business Day if any
such date is not a Business Day.
"DIVIDEND PERIOD": The period from and including the Issue Date to but
excluding the first Dividend Payment Date and, thereafter, each quarterly period
from and including a Dividend Payment Date to but excluding the next Dividend
Payment Date.
"EX-DIVIDEND DATE": The date on which "ex-dividend" trading commences for a
dividend, an issuance of rights or warrants or a distribution to which paragraph
5(c), 5(d) or 5(e) applies in the over-the-counter market or the principal
exchange on which the Series A Common Stock is then quoted or listed.
"EXCHANGE ACT": The Securities Exchange Act of 1934, as amended.
"EXCHANGE OFFER": An issuer tender offer (within the meaning of Rule
13e-4(a)(2) of the rules and regulations promulgated by the Securities and
Exchange Commission under the Exchange Act, as such Rule is in effect on the
date hereof), including, without limitation, one that is effected through the
distribution of rights or warrants, made to holders of Series B Common Stock (or
to holders of other stock of this Corporation receivable by a holder of Shares
upon conversion thereof (or upon conversion of securities receivable by a holder
of Shares upon conversion of such Shares)), to issue stock of this Corporation
or of a Subsidiary of this Corporation and/or other
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property to a tendering stockholder in exchange for shares of Series B Common
Stock (or such other stock) validly tendered pursuant to such issuer tender
offer.
"EXCHANGE PREFERRED STOCK": A series of convertible preferred stock of this
Corporation, having terms, conditions, designations, dividend rights, voting
powers, rights on liquidation and other preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof that are identical, or as nearly so as is practicable in
the judgment of the Board of Directors, to those of the Series B Preferred Stock
for which such Exchange Preferred Stock is exchanged, except that (i) the
liquidation preference will be determined as provided in paragraph 5(h) or 5(i),
as applicable, (ii) the running of any time periods pursuant to the terms of the
Series B Preferred Stock will be tacked to the corresponding time periods in the
Exchange Preferred Stock and (iii) the Exchange Preferred Stock will not be
convertible into, and the holders will have no conversion rights thereunder with
respect to, (x) in the case of a redemption of Redeemable Capital Stock, the
Redeemable Capital Stock redeemed, or the Redemption Securities issued, in the
Redemption Event, and (y) in the case of a Spin Off, the Spin Off Securities.
"EXCHANGE SECURITIES": Stock of this Corporation or of a Subsidiary of this
Corporation that is issued in exchange for shares of Series B Common Stock (or
other stock of this Corporation receivable by a holder of Shares upon conversion
thereof (or upon conversion of securities receivable by a holder of Shares upon
conversion of such Shares)) pursuant to an Exchange Offer; PROVIDED, HOWEVER,
that in the case of an Exchange Offer made to holders of Series A Common Stock
and Series B Common Stock, if the same kind and quantity of stock is issued in
exchange for shares of both Series A Common Stock and Series B Common Stock or
if stock of one class or series is issued in exchange for Series A Common Stock
and the same quantity of stock of a different class or series is issued in
exchange for Series B Common Stock and the differences between such classes or
series are no less favorable to the holders of Series B Common Stock than the
differences between the Series A Common Stock and the Series B Common Stock,
then the Exchange Securities will be the stock issued in exchange for shares of
Series B Common Stock and not the stock issued in exchange for shares of Series
A Common Stock.
"INDEBTEDNESS": Any: (a) liability, contingent or otherwise, of this
Corporation (i) for borrowed money whether or not the recourse of the lender is
to the whole of the assets of this Corporation or only to a portion thereof),
(ii) evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given other than in connection with the acquisition of
inventory or similar property in the ordinary course of business, or (iii) for
the payment of money relating to an obligation under a lease that is required to
be capitalized for financial accounting purposes in accordance with generally
accepted accounting principles; (b) liability of others described in the
preceding clause (a) which this Corporation has guaranteed or which is otherwise
its legal liability; and (c) obligations secured by a mortgage, pledge, lien,
charge or other encumbrance to which the property or assets of this Corporation
are subject whether or not the
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obligations secured thereby have been assumed by or shall otherwise be this
Corporation's legal liability.
"ISSUE DATE": March 16, 2000, such date being the first date on which any
shares of the Series B Preferred Stock are first issued or deemed to have been
issued.
"JUNIOR SECURITIES": All shares of Series A Common Stock, Series B Common
Stock, and any class or series of stock of this Corporation, whether now
existing or hereafter created, to the extent that it ranks junior to the Series
B Preferred Stock as to dividend rights or rights on liquidation. A class or
series of Junior Stock will rank junior to the Series B Preferred Stock as to
dividend rights or rights on liquidation if the holders of shares of Series B
Preferred Stock are entitled to dividend payments or payments of amounts
distributable upon liquidation, dissolution or winding up of the affairs of this
Corporation, as the case may be, in preference or priority to the holders of
shares of such class or series.
"LIQUIDATION PREFERENCE": Measured per Share of the Series B Preferred
Stock as of any date in question (the "Relevant Date") means an amount equal to
the sum of (a) the Stated Value of such Share, plus (b) an amount equal to all
dividends accrued on such Share which pursuant to paragraph 3(c) of this
Certificate of Designations have been added to and remain a part of the
Liquidation Preference as of the Relevant Date, plus (c) for purposes of
paragraph 4, paragraph 5 (except as otherwise provided in paragraph 5(m)) and
paragraph 7 of this Certificate of Designations and the definition of Redemption
Price, an amount equal to all unpaid dividends accrued on the sum of the amounts
specified in clauses (a) and (b) above during the period from and including the
immediately preceding Dividend Payment Date (or the Issue Date if the Relevant
Date is on or prior to the first Dividend Payment Date) to but excluding the
Relevant Date, and, in the case of clauses (b) and (c) hereof, whether or not
such unpaid dividends have been declared or there are any unrestricted funds of
the Corporation legally available for the payment of dividends. In connection
with the determination of the Liquidation Preference of a Share of Series B
Preferred Stock upon redemption, or upon liquidation, dissolution or winding up
of the Corporation or upon a conversion of Shares, the Relevant Date will be the
applicable date of redemption or the date of distribution of amounts payable to
stockholders in connection with any such liquidation, dissolution or winding up
or the applicable Conversion Date.
"MIRROR PREFERRED STOCK": Convertible preferred stock issued by (a) in the
case of a redemption of Redeemable Capital Stock, the issuer of the applicable
Redemption Securities, (b) in the case of a Spin Off, the issuer of the
applicable Spin Off Securities, and (c) in the case of an Exchange Offer, the
issuer of the applicable Exchange Securities, and having terms, conditions,
designations, dividend rights, voting powers, rights on liquidation and other
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof that are identical, or as
nearly so as practicable in the judgment of the Board of Directors, to those
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of the Series B Preferred Stock for which such Mirror Preferred Stock is
exchanged, except that (i) the liquidation preference will be determined as
provided in paragraph 5 (h), 5(i) or 6, as applicable, (ii) the running of any
time periods pursuant to the terms of the Series B Preferred Stock will be
tacked to the corresponding time periods in the Mirror Preferred Stock, and
(iii) the Mirror Preferred Stock will be convertible into the kind and amount of
Redemption Securities, Spin Off Securities or Exchange Securities, as
applicable, and other securities and property that the holder of a share of
Series B Preferred Stock in respect of which such Mirror Preferred Stock is
issued pursuant to the terms hereof would have received (x) in the case of the
redemption of Redeemable Capital Stock, upon such redemption had such shares of
Series B Preferred Stock been converted immediately prior to the effective date
of the Redemption Event, (y) in the case of a Spin Off, in such Spin Off had
such share of Series B Preferred Stock been converted immediately prior to the
record date for such Spin Off and (z) in the case of an Exchange Offer, upon
consummation thereof had such share of Series B Preferred Stock that such holder
elects to tender pursuant to Section 6 been converted and the shares of Series B
Common Stock received upon such conversion been tendered in full pursuant to
such Exchange Offer prior to the expiration thereof and the same percentage of
such tendered shares had been accepted for exchange as the percentage of validly
tendered shares of Series B Common Stock were accepted for exchange pursuant to
such Exchange Offer, as the case may be.
"PARITY SECURITIES": (a) Any class or series of stock of this Corporation,
whether now existing or hereafter created, ranking on a parity basis with the
Series B Preferred Stock as to dividend rights or rights on liquidation. Stock
of any class or series will rank on a parity basis as to dividend rights or
rights on liquidation with the Series B Preferred Stock, whether or not the
dividend rates, dividend payment dates or liquidation prices per share are
different from those of the Series B Preferred Stock, if the holders of shares
of such class or series are entitled to dividend payments or payments of amounts
distributable upon liquidation, dissolution or winding up of the affairs of this
Corporation, as the case may be, in proportion to their respective accumulated
and accrued and unpaid dividends or liquidation prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Series B Preferred Stock. No class or
series of capital stock that ranks junior to the Series B Preferred Stock as to
rights on liquidation will rank or be deemed to rank on a parity basis with the
Series B Preferred Stock as to dividend rights unless the instrument creating or
evidencing such class or series of capital stock otherwise expressly provides;
and (b) the Series A Preferred Stock.
"PERSON": A natural person, corporation, limited liability company,
partnership or other legal entity.
"RECORD DATE": For the dividends payable on any Dividend Payment Date, the
15th day of the month during which such Dividend Payment Date occurs as and if
designated by the Board of Directors.
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"REDEEMABLE CAPITAL STOCK": A class or series of Capital Stock of this
Corporation that provides by its terms a right in favor of this Corporation to
call, redeem, exchange or otherwise acquire all of the outstanding shares or
units of such class or series.
"REDEMPTION DATE": As to any Share, the date, which shall be a Business
Day, fixed for redemption of such Share as specified in the notice of redemption
given in accordance with paragraph 7(c), provided that no such date will be a
Redemption Date unless the applicable Redemption Price is actually paid on such
date or the consideration sufficient for the payment thereof, and for no other
purpose, has been set apart, and if the Redemption Price is not so paid in full
or the consideration sufficient therefor so set apart then the Redemption Date
will be the date, which shall be a Business Day, on which such Redemption Price
is fully paid or the consideration sufficient for the payment thereof, and for
no other purpose, has been set apart.
"REDEMPTION PRICE": As to any Share that is to be redeemed on any
Redemption Date, the Liquidation Preference as in effect on such Redemption
Date.
"REDEMPTION SECURITIES": With respect to the redemption of any Redeemable
Capital Stock, stock of a Subsidiary of this Corporation that is distributed by
this Corporation in payment, in whole or in part, of the redemption price of
such Redeemable Capital Stock.
"SENIOR SECURITIES": Any class or series of stock of this Corporation,
whether now existing or hereafter created, ranking senior to the Series B
Preferred Stock as to dividend rights or rights on liquidation. Stock of any
class or series will rank senior to the Series B Preferred Stock as to dividend
rights or rights on liquidation if the holders of shares of such class or series
are entitled to dividend payments or payments of amounts distributable upon
dissolution, liquidation or winding up of the affairs of this Corporation, as
the case may be, in preference or priority to the holders of shares of Series B
Preferred Stock. No class or series of capital stock that ranks on a parity
basis with or junior to the Series B Preferred Stock as to rights on liquidation
will rank or be deemed to rank prior to the Series B Preferred Stock as to
dividend rights, notwithstanding that the dividend rate or dividend payment
dates thereof are different from those of the Series B Preferred Stock, unless
the instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"SERIES A COMMON STOCK": The Series A Common Stock, par value $.01 per
share, of this Corporation, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series A Common Stock may thereafter have been changed.
"SERIES A CONVERTIBLE SECURITIES": Securities, other than the Series B
Common Stock, that are convertible into or exercisable or exchangeable for
Series A Common Stock at the option
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of the holder thereof, or which otherwise entitle the holder thereof to
subscribe for, purchase or otherwise acquire Series A Common Stock.
"SERIES A PREFERRED STOCK": The Cumulative Preferred Stock, Series A, par
value $.01 per share, of this Corporation.
"SERIES B COMMON STOCK": The Series B Common Stock, par value $.01 per
share, of this Corporation, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series B Common Stock may thereafter have been changed.
"SERIES B CONVERTIBLE SECURITIES": Securities that are convertible into or
exercisable or exchangeable for Series B Common Stock at the option of the
holder thereof or which otherwise entitle the holder thereof to subscribe for,
purchase or otherwise acquire Series B Common Stock.
"SHARE": A share of Series B Preferred Stock.
"SPIN OFF": The distribution of stock of a Subsidiary of this Corporation
as a dividend to all holders of Series B Common Stock (or to holders of other
stock of this Corporation receivable by a holder of Shares upon conversion
thereof (or upon conversion of securities receivable by a holder of Shares upon
conversion of such Shares)).
"SPIN OFF SECURITIES": Stock of a Subsidiary of this Corporation that is
distributed to holders of Series B Common Stock (or to holders of other stock of
this Corporation receivable by a holder of Shares upon conversion thereof (or
upon conversion of securities receivable by a holder of Shares upon conversion
of such Shares)) in a Spin Off; PROVIDED, HOWEVER, that in the case of a Spin
Off distribution made to holders of Series A Common Stock and Series B Common
Stock, if the same kind and quantity of stock is distributed with respect to
both Series A Common Stock and Series B Common Stock or if stock of one class or
series is distributed with respect to Series A Common Stock and the same
quantity of stock of a different class or series is distributed with respect to
Series B Common Stock and the differences between such classes or series are no
less favorable to the holders of Series B Common Stock than the differences
between the Series A Common Stock and the Series B Common Stock, then the Spin
Off Securities will be the stock distributed with respect to shares of Series B
Common Stock and not the stock distributed with respect to shares of Series A
Common Stock.
"STATED VALUE": Of a Share of the Series B Preferred Stock, $1,000.
"SUBSIDIARY": With respect to any person, any corporation, limited
liability company, partnership or other legal entity more than 50% of whose
outstanding voting securities or
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membership, partnership or other ownership interests, as the case may be, are
directly or indirectly owned by such person.
3. DIVIDENDS.
(a) Subject to the prior preferences and other rights of any Senior
Securities, the holders of Series B Preferred Stock will be entitled to receive
cumulative dividends, in preference to dividends on any Junior Securities, which
will accrue as provided herein. Dividends on each Share will accrue on a daily
basis at the rate of 8% per annum on the amount of the Liquidation Preference of
such Share from and including the Issue Date to but excluding the date on which
the Liquidation Preference or Redemption Price of such Share is made available
pursuant to paragraph 4 or 7, respectively, of this Certificate of Designations
or the Conversion Date of such Share pursuant to paragraph 5 hereof, as
applicable, PROVIDED, HOWEVER, that on and after the occurrence and during the
continuance of a Default, the dividend rate will be 10% per annum, rather than
8% per annum. Dividends will accrue as provided herein whether or not such
dividends have been declared and whether or not there are any unrestricted funds
of this Corporation legally available for the payment of dividends. Accrued
dividends on the Series B Preferred Stock will be payable quarterly on each
Dividend Payment Date to the holders of record of the Series B Preferred Stock
as of the close of business on the applicable Record Date. For purposes of
determining the amount of dividends "accrued" (i) as of the first Dividend
Payment Date and as of any date that is not a Dividend Payment Date, such amount
will be calculated on the basis of the rate per annum specified above in this
paragraph 3(a) for the actual number of days elapsed from and including the
Issue Date (in the case of the first Dividend Payment Date and any date prior to
the first Dividend Payment Date) or the last preceding Dividend Payment Date (in
the case of any other date) to but excluding the date as of which such
determination is to be made, based on a 365-day year, and (ii) as of any
Dividend Payment Date after the first Dividend Payment Date, such amount will be
calculated on the basis of such rate per annum based on a 360-day year of twelve
30-day months.
(b) For all Dividend Periods ending on or prior to March 31, 2003, all
dividends payable with respect to the Shares may be declared and paid, in the
sole discretion of the Board of Directors, in cash, through the issuance of
Series A Common Stock or in any combination of the foregoing, except as
otherwise provided in paragraph 5 in connection with the Conversion of a Share.
For all Dividend Periods ending after March 31, 2003, all dividends payable with
respect to the Shares will be declared and paid in cash. If any dividend payment
declared by the Board of Directors with respect to the shares of Series B
Preferred Stock is to be paid in whole or in part through the issuance of shares
of Series A Common Stock, the amount of such dividend payment to be paid per
share of Series B Preferred Stock in shares of Series A Common Stock (the "Stock
Dividend Amount") will be satisfied and paid by the delivery to the holders of
record of such shares of Series B Preferred Stock on the Record Date or Special
Record Date (as defined below) for such dividend payment, of a number of shares
of Series A Common Stock determined by dividing the
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Stock Dividend Amount by the Average Market Price of a share of Series A Common
Stock as of such Record Date or Special Record Date. The Corporation will not be
required to issue any fractional share of Series A Common Stock to which any
holder of Series B Preferred Stock may become entitled pursuant to this
paragraph 3(b). The Board of Directors may elect to settle any final fraction of
a share of Series A Common Stock which a holder of one or more shares of Series
B Preferred Stock would otherwise be entitled to receive pursuant to this
paragraph 3(b) by having the Corporation pay to such holder, in lieu of issuing
such fractional share, cash in an amount (rounded upward to the nearest whole
cent) equal to the same fraction of the Average Market Price of a share of
Series A Common Stock as of the Record Date or Special Record Date, as the case
may be, for the dividend payment with respect to which such shares of Series A
Common Stock are being delivered. Such election, if made, will be made as to all
holders of Series B Preferred Stock who would otherwise be entitled to receive a
fractional share of Series A Common Stock on the Dividend Payment Date or other
date fixed for the payment of such dividend. Payment of such dividends as
provided herein will be deemed to have been made, if paid in cash, when such
payment has been delivered by wire transfer of immediately available funds to
the record holders of the Series B Preferred Stock entitled to receive the same,
in accordance with the instructions of such holders delivered in writing to the
Corporation at least two Business Days prior to any Dividend Payment Date (or if
no such instructions are received, by mail to the address of such record holder
on the books of the Corporation), or, if paid in shares of Series A Common
Stock, when shares of Series A Common Stock have been issued to the record
holders of the Series B Preferred Stock entitled to receive the same. All
dividends paid with respect to the Shares pursuant to this paragraph 3 will be
paid PRO RATA to all the holders of Shares outstanding on the applicable Record
Date or Special Record Date, as the case may be.
(c) If on any Dividend Payment Date this Corporation, pursuant to
applicable law or otherwise, is prohibited or restricted from paying the full
dividends to which holders of Series B Preferred Stock, and any Parity
Securities ranking on a parity basis with the Series B Preferred Stock with
respect to the right to receive dividend payments, are entitled, the amount
available for such payment pursuant to applicable law and which is not otherwise
restricted (if any) will be distributed among the holders of Series B Preferred
Stock and any such Parity Securities ratably in proportion to the full amounts
to which they would otherwise be entitled. On each Dividend Payment Date, all
dividends that have accrued on each share of Series B Preferred Stock during the
Dividend Period ending on such Dividend Payment Date will, to the extent not
paid on such Dividend Payment Date for any reason (whether or not such unpaid
dividends have been declared or there are any unrestricted funds of this
Corporation legally available for the payment of dividends), be added
cumulatively to the Liquidation Preference of such Share and will remain a part
thereof until such dividends are paid. That portion of the Liquidation
Preference of a Share that consists of accrued unpaid dividends, together with
all dividends accrued in respect thereof, may be declared and paid at any time
(subject to the rights of any Senior Securities and to the concurrent
satisfaction of any dividend arrearages then existing with respect to any Parity
Securities that rank
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on a parity basis with the Series B Preferred Stock as to the payment of
dividends), without reference to any regular Dividend Payment Date, to holders
of record as of the close of business on such date, not more than 45 days nor
less than 10 days preceding the payment date thereof, as may be fixed by the
Board of Directors (the "Special Record Date"). Notice of each Special Record
Date will be given, not more than 45 days nor less than 10 days prior thereto,
to the holders of record of the Shares. Any dividend payment made on the Shares
will first be credited against the earliest accrued but unpaid dividend due with
respect to such Shares.
(d) If at any time this Corporation fails to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Series B Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative dividends
on the Series B Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, (i) this Corporation will not
redeem, or discharge any sinking fund obligation with respect to, any Shares,
Parity Securities or Junior Securities, or set aside any money or assets for any
such purpose, unless all then outstanding Shares are redeemed pursuant to the
terms hereof, (ii) this Corporation will not declare or pay any dividend on or
make any distribution with respect to any Junior Securities or Parity Securities
or set aside any money or assets for any such purpose, except that this
Corporation may declare and pay a dividend on any Parity Securities ranking on a
parity basis with the Series B Preferred Stock with respect to the right to
receive dividend payments, contemporaneously with the declaration and payment of
a dividend on the Series B Preferred Stock, PROVIDED that such dividends are
declared and paid PRO RATA so that the amount of dividends declared and paid per
share of Series B Preferred Stock and such Parity Securities will in all cases
bear to each other the same ratio that accumulated and accrued and unpaid
dividends per share on the Series B Preferred Stock and such Parity Securities
bear to each other, and (iii) neither this Corporation nor any Subsidiary
thereof will purchase or otherwise acquire any Shares, Parity Securities or
Junior Securities.
Nothing contained in the preceding paragraph of this paragraph 3(d) will
prevent (x) the payment of dividends on any Junior Securities solely in shares
of Junior Securities or the redemption, purchase or other acquisition of Junior
Securities solely in exchange for shares of Junior Securities, (y) the payment
of dividends on any Parity Securities solely in shares of Junior Securities or
the redemption, exchange, purchase or other acquisition of Series B Preferred
Stock or Parity Securities solely in exchange for (together with a cash
adjustment for fractional shares, if any) shares of Junior Securities, or (z)
the purchase or acquisition of Shares pursuant to a purchase or exchange offer
or offers made to all holders of outstanding shares of Series B Preferred Stock,
PROVIDED that the terms of the purchase or exchange offer are identical for all
shares of Series B Preferred Stock and all accrued dividends on such Shares have
been paid or have been declared and irrevocably set apart in trust for the
benefit of the holders of shares of Series B Preferred Stock and for no other
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purpose. The provisions of this paragraph 3(d) are for the benefit of the
holders of Series B Preferred Stock and accordingly the provisions of this
paragraph 3(d) will not restrict any redemption or purchase by this Corporation
or a Subsidiary thereof of Shares held by any holder, provided that all other
holders of Shares have waived in writing the benefits of this provision with
respect to such redemption.
4. LIQUIDATION. Upon any liquidation, dissolution or winding up of this
Corporation, whether voluntary or involuntary, the holders of Series B Preferred
Stock will be entitled to be paid an amount in cash equal to the aggregate
Liquidation Preference at the date of payment of all Shares outstanding, which
amounts will be paid (x) before any distribution or payment upon any such
liquidation, dissolution or winding up of this Corporation is made upon any
Junior Securities, (y) on a PARI PASSU basis with any such payment made to the
holders of any Parity Securities, and (z) after any such payment is made upon
any Senior Securities. The holders of Series B Preferred Stock will be entitled
to no other or further distribution of or participation in any remaining assets
of this Corporation after receiving the full preferential amounts provided for
in the preceding sentence. If upon such liquidation, dissolution or winding up,
the assets of this Corporation to be distributed among the holders of Series B
Preferred Stock and to all holders of Parity Securities are insufficient to
permit payment in full to such holders of the aggregate preferential amounts
which they are entitled to be paid, then the entire assets of this Corporation
to be distributed to such holders will be distributed ratably among them based
upon the full preferential amounts to which the shares of Series B Preferred
Stock and such Parity Securities would otherwise respectively be entitled. Upon
any such liquidation, dissolution or winding up, after the holders of Series B
Preferred Stock and Parity Securities have been paid in full the amounts to
which they are entitled, the remaining assets of this Corporation may be
distributed to the holders of Junior Securities. This Corporation will mail
written notice of such liquidation, dissolution or winding up to each record
holder of Series B Preferred Stock not less than 20 days prior to the payment
date stated in such written notice. Neither the consolidation or merger of this
Corporation into or with any other corporation or corporations, nor the sale,
transfer or lease by this Corporation of all or any part of its assets, will be
deemed to be a liquidation, dissolution or winding up of this Corporation within
the meaning of this paragraph 4.
5. CONVERSION.
(a) Except as provided below in this paragraph 5(a) with respect to
Shares previously called for redemption as provided in paragraph 7 hereof, the
Series B Preferred Stock may be converted at any time on or after March 16,
2002, at the option of the holder thereof, in such manner and upon such terms
and conditions as hereinafter provided in this paragraph 5 into fully paid and
non-assessable full shares of Series B Common Stock. In the case of Shares
called for redemption by this Corporation pursuant to paragraph 7(a) hereof, the
conversion right provided by this paragraph 5 will terminate at the close of
business on the Redemption Date. In the case of
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Shares required to be redeemed pursuant to paragraph 7(b), the conversion right
provided by this paragraph 5 will terminate immediately upon receipt by this
Corporation of a notice given pursuant to said paragraph; PROVIDED, HOWEVER,
that such right will be reinstated as of the day following the date fixed for
redemption of such Share as specified in the notice of redemption given in
accordance with paragraph 7(c) unless the applicable Redemption Price is
actually paid on such date or the consideration sufficient for the payment
thereof, and for no other purpose, has been set apart. In case securities, cash
or other assets other than Series B Common Stock are payable, deliverable or
issuable upon conversion as provided herein, then all references to Series B
Common Stock in this paragraph 5 will be deemed to apply, so far as appropriate
and as nearly as may be, to such securities, cash or other assets.
(b) Subject to the provisions for adjustment hereinafter set forth in
this paragraph 5, the Series B Preferred Stock may be converted into Series B
Common Stock at the initial conversion rate of 113.1145 fully paid and
non-assessable shares of Series B Common Stock for one share of the Series B
Preferred Stock, which rate was determined by dividing the Stated Value of a
Share of Series B Preferred Stock by $8.8406 (the "initial conversion price").
If on any Conversion Date, the Liquidation Preference of a Share of Series B
Preferred Stock is greater than the Stated Value of such Share (the amount of
such difference, the "Differential Amount"), then the number of shares of Series
B Common Stock or units of securities, cash or other assets otherwise issuable
or deliverable upon conversion of such Share will be increased by an amount
determined by dividing the Differential Amount by the Effective Conversion Price
of such Share. The "Effective Conversion Price" of a Share as of a Conversion
Date means the quotient obtained by dividing the Stated Value of such Share by
the Conversion Rate then in effect, in each case, before giving effect to the
adjustment contemplated by the preceding sentence.
(c) In case this Corporation, on or after the Issue Date, (i) pays a
dividend or makes a distribution on its then outstanding shares of Series B
Common Stock in shares of Series B Common Stock, (ii) subdivides the then
outstanding shares of Series B Common Stock into a greater number of shares of
Series B Common Stock, (iii) combines the then outstanding shares of Series B
Common Stock into a smaller number of shares of Series B Common Stock, (iv) pays
a dividend or makes a distribution on its then outstanding shares of Series B
Common Stock in shares of its Capital Stock or Convertible Securities (other
than Series B Common Stock or rights or warrants for its Capital Stock or for
its Convertible Securities), or (v) issues by reclassification of its then
outstanding shares of Series B Common Stock (other than a reclassification by
way of merger or binding share exchange that is subject to paragraph 5(g)) any
shares of any other class or series of Capital Stock of this Corporation (other
than rights, warrants or options for its Capital Stock), then, subject to the
following sentence and to paragraph 5(k), the conversion privilege and the
Conversion Rate in effect immediately prior to the opening of business on the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification will be adjusted so that the holder
of each share of the Series B Preferred Stock
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thereafter surrendered for conversion will be entitled to receive the number and
kind of shares of Capital Stock of this Corporation that such holder would have
owned or been entitled to receive immediately following such action had such
shares of Series B Preferred Stock been converted immediately prior to the
record date for, or effective date of, as the case may be, such event.
An adjustment made pursuant to this paragraph 5(c) for a dividend or
distribution will become effective immediately after the record date for the
dividend or distribution and an adjustment made pursuant to this paragraph 5(c)
for a subdivision, combination or reclassification will become effective
immediately after the effective date of the subdivision, combination or
reclassification. Such adjustment will be made successively whenever any action
listed above is taken.
Any shares of Series B Common Stock issuable in payment of a dividend will
be deemed to have been issued immediately prior to the time of the record date
for such dividend for purposes of calculating the number of outstanding shares
of Series B Common Stock under paragraph 5(d) below.
(d) In case this Corporation, on or after the Issue Date, distributes
any rights or warrants to all holders of shares of Series B Common Stock
entitling them (for a period expiring within 45 days after the record date for
the determination of stockholders entitled to receive such rights or warrants)
to subscribe for or purchase shares of Series B Common Stock (or Series B
Convertible Securities) at a price per share of Series B Common Stock (or having
an initial exercise price or conversion price per share of Series B Common
Stock, after adding thereto an allocable portion of the exercise price of the
right or warrant to purchase such Series B Convertible Securities, computed on
the basis of the maximum number of shares of Series B Common Stock issuable upon
conversion of such Series B Convertible Securities) less than the current market
price per share of Series B Common Stock (as determined in accordance with the
provisions of paragraph 5(f) below) on the Determination Date, the number of
shares of Series B Common Stock into which each Share shall thereafter be
convertible will be determined by multiplying the number of shares of Series B
Common Stock into which such Share was theretofore convertible immediately prior
to the opening of business on such record date by a fraction of which the
numerator will be the number of shares of Series B Common Stock outstanding on
such record date plus the number of additional shares of Series B Common Stock
offered for subscription or purchase (or into which the Series B Convertible
Securities so offered are initially convertible) and of which the denominator
will be the number of shares of Series B Common Stock outstanding on such record
date plus the number of shares of Series B Common Stock which the aggregate
offering price of the total number of shares of Series B Common Stock so offered
(or the aggregate initial conversion or exercise price of the Series B
Convertible Securities so offered, after adding thereto the aggregate exercise
price of the rights or warrants to purchase such Series B Convertible
Securities) would purchase at the current market price per share of Series B
Common Stock (as determined in accordance with the provisions of paragraph 5(f)
below) on the Determination Date. Such adjustment will be made successively
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whenever any such rights or warrants are issued and will become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights or warrants. In the event that all of the shares of
Series B Common Stock (or all of the Series B Convertible Securities) subject to
such rights or warrants have not been issued when such rights or warrants expire
(or, in the case of rights or warrants to purchase Series B Convertible
Securities which have been exercised, all of the shares of Series B Common Stock
issuable upon conversion of such Series B Convertible Securities have not been
issued prior to the expiration of the conversion right thereof), then the
Conversion Rate will be readjusted retroactively to be the Conversion Rate which
would then be in effect had the adjustment upon the issuance of such rights or
warrants been made on the basis of the actual number of shares of Series B
Common Stock (or Series B Convertible Securities) issued upon the exercise of
such rights or warrants (or the conversion of such Series B Convertible
Securities); but such subsequent adjustment will not affect the number of shares
of Series B Common Stock issued upon the conversion of any Share prior to the
date such subsequent adjustment is made. No adjustment will be made under this
paragraph 5(d) if the adjusted Conversion Rate would be lower than the
Conversion Rate in effect immediately prior to such adjustment.
(e) In case this Corporation, on or after the Issue Date, distributes
to all holders of shares of Series B Common Stock any evidences of its
indebtedness or assets or rights or warrants to purchase shares of Series A
Common Stock (or Series A Convertible Securities) or Series B Common Stock (or
Series B Convertible Securities) (excluding (x) dividends or distributions
referred to in paragraph 5(c), distributions of rights or warrants referred to
in paragraph 5(d), distributions of Spin Off Securities referred to in paragraph
5(i) and distributions of rights or warrants exercisable for Exchange Securities
(which will be governed by paragraph 6) and (y) cash dividends or distributions
unless such cash dividends or cash distributions are Extraordinary Cash
Dividends), then in each such case the number of shares of Series B Common Stock
into which each Share is thereafter convertible will be determined by
multiplying the number of shares of Series B Common Stock into which such Share
was theretofore convertible immediately prior to the opening of business on (A)
the record date for the determination of stockholders entitled to receive the
distribution or (B) in the case of a reclassification, the effective date of
such reclassification, by a fraction of which the numerator will be the current
market price per share of the Series B Common Stock (as determined in accordance
with the provisions of paragraph 5(f) below) on the Determination Date and of
which the denominator will be such current market price per share of Series B
Common Stock less the fair market value (as determined by the Board of Directors
of this Corporation, whose determination will be conclusive) on such record date
or effective date of the portion of the assets or evidences of indebtedness or
rights or warrants so to be distributed applicable to one share of Series B
Common Stock; PROVIDED, HOWEVER, that in the event the denominator of the
foregoing fraction is zero or negative, in lieu of the foregoing adjustment,
adequate provision will be made so that each holder of a Share will have the
right to receive upon conversion of such Share, in addition to the shares of
Series B Common Stock to which the holder is entitled, the assets or evidences
of indebtedness or rights or warrants such holder would have received had such
holder
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converted such Share immediately prior to the record date for such distribution.
Such adjustment will be made successively whenever any such distribution is made
and will become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution. No
adjustment will be made under this paragraph 5(e) if the adjusted Conversion
Rate would be lower than the Conversion Rate in effect immediately prior to such
adjustment.
For purposes of this paragraph 5(e), the term "Extraordinary Cash Dividend"
will mean any cash dividend with respect to the Series B Common Stock the amount
of which, together with the aggregate amount of cash dividends on the Series B
Common Stock to be aggregated with such cash dividend in accordance with the
following provisions of this paragraph, equals or exceeds the threshold
percentage set forth below in the following sentence. If, upon the date prior to
the Ex-Dividend Date with respect to a cash dividend on Series B Common Stock,
the aggregate of the amount of such cash dividend together with the amounts of
all cash dividends on the Series B Common Stock with Ex-Dividend Dates occurring
in the 365 consecutive day period ending on the date prior to the Ex-Dividend
Date with respect to the cash dividend to which this provision is being applied
(other than any such other cash dividends with Ex-Dividend Dates occurring in
such period for which a prior adjustment in the Conversion Rate was previously
made under this paragraph 5(e)) equals or exceeds on a per share basis 10% of
the average of the Closing Prices during the period beginning on the date after
the first such Ex-Dividend Date in such period and ending on the date prior to
the Ex-Dividend Date with respect to the cash dividend to which this provision
is being applied (except that if no other cash dividend has had an Ex-Dividend
Date occurring in such period, the period for calculating the average of the
Closing Prices will be the period commencing 365 days prior to the date
immediately prior to the Ex-Dividend Date with respect to the cash dividend to
which this provision is being applied), such cash dividend together with each
other cash dividend with an Ex-Dividend Date occurring in such 365-day period
that is aggregated with such cash dividend in accordance with this paragraph
will be deemed to be an Extraordinary Cash Dividend.
(f) For the purpose of any computation under paragraph 5(d) or 5(e)
the current market price per share of Series B Common Stock on any Determination
Date or date of issuance, as the case may be, will be deemed to be the product
of (i) the number of shares of Series A Common Stock into which a share of
Series B Common Stock is then convertible at the option of the holder thereof
times (ii) the average of the daily Closing Prices for a share of Series A
Common Stock for the 10 consecutive trading days before the Determination Date
in question, appropriately adjusted to take into account any stock dividends on
the Series A Common Stock or any stock splits, reclassifications or combinations
of the Series A Common Stock, during the period following the first of such 10
trading days and ending on the last full trading day immediately preceding the
Determination Date or date of issuance, as the case may be.
(g) If this Corporation consolidates with any other entity or merges
into another entity, or in case of any sale or transfer to another entity (other
than by mortgage or pledge)
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of all or substantially all of the properties and assets of this Corporation, or
if the Corporation is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Series B Common Stock, this Corporation
(or its successor in such transaction) or the purchaser of such properties and
assets will make appropriate provision so that the holder of a Share will have
the right thereafter to convert such Share into the kind and amount of
securities, cash or other assets that such holder would have owned immediately
after such consolidation, merger, sale or transfer if such holder had converted
such Share into Series B Common Stock immediately prior to the effective date of
such consolidation, merger, sale or transfer (taking into account for this
purpose (to the extent applicable) the valid exercise by such holder of any
rights of election made available to holders of Series B Common Stock, which
rights of election will simultaneously be made available to holders of Shares on
the same basis as if such Shares had theretofore been converted into shares of
Series B Common Stock), and the holders of the Series B Preferred Stock will
have no other conversion rights under these provisions; PROVIDED that effective
provision will be made, in the Articles or Certificate of Incorporation of the
resulting or surviving corporation or otherwise or in any contracts of sale or
transfer, so that the provisions set forth herein for the protection of the
conversion rights of the Series B Preferred Stock will thereafter be made
applicable, as nearly as reasonably may be, to any such other securities and
other assets deliverable upon conversion of the Series B Preferred Stock
remaining outstanding or other convertible preferred stock or other convertible
securities received by the holders of Series B Preferred Stock in place thereof;
and PROVIDED, FURTHER, that any such resulting or surviving corporation or
purchaser will expressly assume the obligation to deliver, upon the exercise of
the conversion privilege, such securities, cash or other assets as the holders
of the Series B Preferred Stock remaining outstanding, or other convertible
preferred stock or other convertible securities received by the holders in place
thereof, will be entitled to receive pursuant to the provisions hereof, and to
make provision for the protection of the conversion rights as above provided.
(h) Subject to paragraph 5(k) and to the remaining provisions of this
paragraph 5(h), in the event that a holder of Series B Preferred Stock would be
entitled to receive upon conversion thereof pursuant to this paragraph 5 any
Redeemable Capital Stock and this Corporation redeems, exchanges or otherwise
acquires all of the outstanding shares or other units of such Redeemable Capital
Stock (such event being a "Redemption Event"), then, from and after the
effective date of such Redemption Event, the holders of Shares of Series B
Preferred Stock then outstanding will be entitled to receive upon conversion of
such Shares, in lieu of shares or units of such Redeemable Capital Stock, the
kind and amount of securities, cash and other assets receivable upon the
Redemption Event by a holder of the number of shares or units of such Redeemable
Capital Stock into which such Shares of Series B Preferred Stock could have been
converted immediately prior to the effective date of such Redemption Event
(taking into account for this purpose (to the extent applicable) the valid
exercise by such holder of any rights of election made available to holders of
Series B Common Stock, which rights of election will simultaneously be made
available to holders of Shares on the same basis as if such Shares had
theretofore been converted into shares
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of Series B Common Stock), and (from and after the effective date of such
Redemption Event) the holders of the Series B Preferred Stock will have no other
conversion rights under these provisions with respect to such Redeemable Capital
Stock.
Notwithstanding the foregoing, if the redemption price for the shares of
such Redeemable Capital Stock is paid in whole or in part in Redemption
Securities, and the Mirror Preferred Stock Condition is met, the Series B
Preferred Stock will not be convertible into such Redemption Securities and,
from and after the applicable redemption date, the holders of any shares of
Series B Preferred Stock that have not been exchanged for Mirror Preferred Stock
and Exchange Preferred Stock will have no conversion rights under these
provisions except for any conversion right that may have existed immediately
prior to the effective date of the Redemption Event with respect to any
securities (including the Series B Common Stock), cash or other assets other
than the Redeemable Capital Stock so redeemed. This Corporation will use all
commercially reasonable efforts to ensure that the Mirror Preferred Stock
Condition is satisfied. The Mirror Preferred Stock Condition will be satisfied
in connection with a redemption of any Redeemable Capital Stock into which the
Series B Preferred Stock is then convertible if appropriate provision is made so
that the holders of the Series B Preferred Stock have the right to exchange
their shares of Series B Preferred Stock on the effective date of the Redemption
Event for Exchange Preferred Stock of this Corporation and Mirror Preferred
Stock of the issuer of the Redemption Securities. The sum of the initial
liquidation preferences of the shares of Exchange Preferred Stock and Mirror
Preferred Stock delivered in exchange for a Share of Series B Preferred Stock
will equal the Liquidation Preference of a share of Series B Preferred Stock on
the effective date of the Redemption Event. The Mirror Preferred Stock will have
an aggregate initial liquidation preference equal to the product of the
aggregate Liquidation Preference of the Shares of Series B Preferred Stock
exchanged therefor and the quotient of (x) the product of the Conversion Rate
for the Redeemable Capital Stock to be redeemed (determined immediately prior to
the effective date of the Redemption Event) and the average of the daily Closing
Prices of the Redeemable Capital Stock for the period of ten consecutive trading
days ending on the third trading day prior to the effective date of the
Redemption Event, divided by (y) the sum of the amount determined pursuant to
clause (x), plus the fair value of the securities (other than the Redeemable
Capital Stock being redeemed), cash or other assets that would have been
receivable by a holder of Series B Preferred Stock upon conversion thereof
immediately prior to the effective date of the Redemption Event (such fair value
to be determined in the case of stock or other securities with a Closing Price
in the same manner as provided in clause (x) and otherwise by the Board of
Directors in the exercise of its good faith judgment). The shares of Exchange
Preferred Stock will have an aggregate initial liquidation preference equal to
the difference between the aggregate Liquidation Preference of the Shares of
Series B Preferred Stock exchanged therefor and the aggregate initial
liquidation preference of the Mirror Preferred Stock.
(i) If this Corporation effects a Spin Off, this Corporation will make
appropriate provision so that the holders of the Series B Preferred Stock have
the right to exchange
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their Shares of Series B Preferred Stock on the effective date of the Spin Off
for Exchange Preferred Stock of this Corporation and Mirror Preferred Stock of
the issuer of the Spin Off Securities. The sum of the initial liquidation
preferences of the shares of Exchange Preferred Stock and Mirror Preferred Stock
delivered in exchange for a Share of Series B Preferred Stock will equal the
Liquidation Preference of a Share of Series B Preferred Stock on the effective
date of the Spin Off. The Mirror Preferred Stock will have an aggregate
liquidation preference equal to the product of the aggregate Liquidation
Preference of the Shares of Series B Preferred Stock exchanged therefor and the
quotient of (x) the product of the number (or fraction) of Spin Off Securities
that would have been receivable upon such Spin Off by a holder of the number of
shares of Series B Common Stock issuable upon conversion of a Share of Series B
Preferred Stock immediately prior to the effective date of the Spin Off and the
average of the daily Closing Prices of the Spin Off Securities for the period of
ten consecutive trading days commencing on the tenth trading day following the
effective date of the Spin Off, divided by (y) the sum of the amount determined
pursuant to clause (x), plus the fair value of the shares of Series B Common
Stock and other securities (other than Spin Off Securities), cash or other
assets that would have been receivable by a holder of a Share of Series B
Preferred Stock upon conversion thereof immediately prior to the effective date
of the Spin Off (such fair value to be determined in the case of Series B Common
Stock or other securities with a Closing Price in the same manner as provided in
clause (x) and otherwise by the Board of Directors in the exercise of its good
faith judgment). The shares of Exchange Preferred Stock will have an aggregate
initial liquidation preference equal to the difference between the aggregate
Liquidation Preference of the Shares of Series B Preferred Stock exchanged
therefor and the aggregate initial liquidation preference of the Mirror
Preferred Stock. From and after the effective date of such Spin Off, the holders
of any Shares of Series B Preferred Stock that have not been exchanged for
Mirror Preferred Stock and Exchange Preferred Stock as provided above will have
no conversion rights under these provisions with respect to such Spin Off
Securities.
(j) Whenever the Conversion Rate or the conversion privilege are
adjusted as provided in this paragraph 5, this Corporation will promptly cause a
notice to be mailed to the holders of record of the Series B Preferred Stock
describing the nature of the event requiring such adjustment, the Conversion
Rate in effect immediately thereafter and the kind and amount of Capital Stock
or other securities or cash or other assets into which the Series B Preferred
Stock is convertible after such event. Where appropriate, such notice may be
given in advance and included as a part of a notice required to be mailed under
the provisions of paragraph 5(l).
(k) This Corporation may, but will not be required to, make any
adjustment of the Conversion Rate if such adjustment would require an increase
or decrease of less than 1% in such Conversion Rate; provided, however, that any
adjustments which by reason of this paragraph 5(k) are not made will be carried
forward and taken into account in any subsequent adjustment. All calculations
under this paragraph 5 will be made to the nearest cent or the nearest 1/1000th
of a share, as the case may be. In any case in which this paragraph 5(k)
requires that an
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adjustment will become effective immediately after a record date for such event,
the Corporation may defer until the occurrence of such event (x) issuing to the
holder of any Shares of Series B Preferred Stock converted after such record
date and before the occurrence of such event the additional shares of Series B
Common Stock or other Capital Stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of Series B
Common Stock or other Capital Stock issuable upon such conversion before giving
effect to such adjustment and (y) paying to such holder cash in lieu of any
fractional interest to which such holder is entitled pursuant to paragraph 5(p);
provided, however, that, if requested by such holder, this Corporation will
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares of Series B Common Stock
or other Capital Stock, and such cash, upon the occurrence of the event
requiring such adjustment.
To the extent the shares of Series B Preferred Stock become convertible
into cash, no adjustment need be made thereafter as to the cash. Interest will
not accrue on the cash.
(l) In case at any time:
(i) this Corporation takes any action which would require an
adjustment in the Conversion Rate pursuant to this paragraph;
(ii) there shall be any capital reorganization or
reclassification of the Series B Common Stock (other than a change in par
value), or any consolidation, merger or binding share exchange to which the
Corporation is a party and for which approval of any stockholders of this
Corporation is required, or any sale, transfer or lease of all or
substantially all of the assets of the Corporation, or a tender offer for
shares of Common Stock of any series representing at least a majority of
the total voting power represented by the outstanding shares of Common
Stock of such series which has been recommended by the Board of Directors
as being in the best interests of the holders of Common Stock; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of this Corporation;
then, in any such event, this Corporation will give written notice, in the
manner provided in the first sentence of paragraph 7(c) hereof, to the holders
of the Series B Preferred Stock at their respective addresses as the same appear
on the books of the Corporation, at least 20 days (or ten days in the case of a
recommended tender offer as specified in clause (ii) above) prior to any record
date for such action, dividend or distribution or the date as of which it is
expected that holders of Series B Common Stock of record will be entitled to
exchange their shares of Series B Common Stock for securities, cash or other
assets, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, binding share exchange, sale, transfer, lease, tender
offer, dissolution,
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liquidation or winding up; PROVIDED, HOWEVER, that any notice required by any
event described in clause (ii) of this paragraph 5(l) will be given in the
manner and at the time that such notice is given to the holders of Common Stock.
Without limiting the obligations of this Corporation to provide notice of
corporate actions hereunder, the failure to give the notice required by this
paragraph 5(l) or any defect therein will not affect the legality or validity of
any such corporate action of the Corporation or the vote upon such action.
(m) Before any holder of Series B Preferred Stock is entitled to
convert the same into Series B Common Stock, such holder will surrender the
certificate or certificates for such Series B Preferred Stock at the office of
this Corporation or at the office of the transfer agent for the Series B
Preferred Stock, which certificate or certificates, if this Corporation shall so
request, will be duly endorsed to this Corporation or in blank or accompanied by
proper instruments of transfer to this Corporation or in blank (such
endorsements or instruments of transfer to be in form satisfactory to this
Corporation), and will give written notice to this Corporation at said office
that it elects to convert all or a part of the Shares represented by said
certificate or certificates in accordance with the terms of this paragraph 5,
and will state in writing therein the name or names in which such holder wishes
the certificates for Series B Common Stock to be issued. Every such notice of
election to convert will constitute a contract between the holder of such Series
B Preferred Stock and the Corporation, whereby the holder of such Series B
Preferred Stock will be deemed to subscribe for the amount of Series B Common
Stock which such holder will be entitled to receive upon conversion of the
number of shares of Series B Preferred Stock to be converted, and, in
satisfaction of such subscription, to deposit the shares of Series B Preferred
Stock to be converted, and thereby this Corporation will be deemed to agree that
the surrender of the shares of Series B Preferred Stock to be converted will
constitute full payment of such subscription for Series B Common Stock to be
issued upon such conversion. This Corporation will as soon as practicable after
such deposit of a certificate or certificates for Series B Preferred Stock,
accompanied by the written notice and the statement above prescribed, issue and
deliver at the office of this Corporation or of the transfer agent to the person
for whose account such Series B Preferred Stock was so surrendered, or to his
nominee(s) or, subject to compliance with applicable law, transferee(s), a
certificate or certificates for the number of full shares of Series B Common
Stock to which such holder is entitled, together with cash or its check in lieu
of any fraction of a share as hereinafter provided. If surrendered certificates
for Series B Preferred Stock are converted only in part, this Corporation will
issue and deliver to the holder, or to his nominee(s), without charge therefor,
a new certificate or certificates representing the aggregate of the unconverted
Shares.
The person or persons entitled to receive the Series B Common Stock
issuable upon conversion of such Series B Preferred Stock will be treated for
all purposes as the record holder or holders of such Series B Common Stock on
the Conversion Date. Notwithstanding the foregoing, this Corporation will not be
required to convert any Shares of Series B Preferred Stock, and no surrender of
Series B Preferred Stock will be effective for that purpose, while the stock
transfer
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books of this Corporation are closed for any purpose; but such surrender will be
effective (assuming all other requirements of this paragraph 5(m) have been
satisfied) for conversion, and to constitute the person or persons entitled to
receive the Series B Common Stock issuable upon such conversion as the record
holder(s) of such shares of Series B Common Stock, for all purposes immediately
upon the reopening of such books. Upon conversion of Shares, the rights of the
holder of the Shares so converted, as a holder thereof, will cease; PROVIDED,
HOWEVER, that if the Board of Directors declares any dividend on the Series B
Preferred Stock pursuant to paragraph 3(a) of this Certificate of Designations
and the Conversion Date for any Shares of Series B Preferred Stock occurs after
the Record Date and before the Dividend Payment Date for such dividend, then the
holder of such Shares on such Record Date will be entitled to receive such
dividend on such Dividend Payment Date as if such Conversion Date had not
occurred and the amount of such declared dividend that would otherwise have been
added to the Liquidation Preference of such converted Shares pursuant to clause
(c) of the definition of "Liquidation Preference" will not be added thereto.
The issuance of certificates for shares of Series B Common Stock upon
conversion of Shares of Series B Preferred Stock will be made without charge for
any issue, stamp or other similar tax in respect of such issuance; PROVIDED,
HOWEVER, if any such certificate is to be issued in a name other than that of
the registered holder of the Share or Shares of Series B Preferred Stock
converted, the person or persons requesting the issuance thereof will pay to
this Corporation the amount of any tax which may be payable in respect of any
transfer involved in such issuance or will establish to the satisfaction of this
Corporation that such tax has been paid.
(n) From and after the date of the Corporation's first meeting of
stockholders following the Issue Date, this Corporation will at all times
reserve and keep available, solely for the purpose of issuance upon conversion
of the outstanding shares of Series B Preferred Stock, such number of shares of
Series B Common Stock (or other Capital Stock) as shall be issuable upon the
conversion of all outstanding Shares, provided that nothing contained herein
will be construed to preclude this Corporation from satisfying its obligations
in respect of the conversion of the outstanding shares of Series B Preferred
Stock by delivery of shares of Series B Common Stock (or such other Capital
Stock) which are held in the treasury of this Corporation. This Corporation will
take all such corporate and other actions as from time to time may be necessary
to insure that all shares of Series B Common Stock (or other Capital Stock)
issuable upon conversion of shares of Series B Preferred Stock from time to time
will, upon issue, be duly and validly authorized and issued, fully paid and
nonassessable and free of any preemptive or similar rights.
(o) All shares of Series B Preferred Stock received by this
Corporation upon conversion thereof into Series B Common Stock will be retired
and will be restored to the status of authorized and unissued shares of
preferred stock (and may be reissued as part of another series of the preferred
stock of this Corporation, but such shares will not be reissued as Series B
Preferred Stock).
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<PAGE>
(p) This Corporation will not be required to issue fractional shares
of Series B Common Stock or scrip upon conversion of the Series B Preferred
Stock. As to any final fraction of a share of Series B Common Stock which a
holder of one or more Shares would otherwise be entitled to receive upon
conversion of such Shares in the same transaction, this Corporation will pay a
cash adjustment in respect of such final fraction in an amount equal to the same
fraction of the market value of a full share of Series B Common Stock. For
purposes of this paragraph 5(p), the market value of a share of Series B Common
Stock will be the product of (i) the Closing Price of a share of Series A Common
Stock on the trading day immediately preceding the Conversion Date times (ii)
the number of shares of Series A Common Stock into which a share of Series B
Common Stock is then convertible at the option of the holder.
(q) This Corporation will not, by amendment of this Certificate of
Designations or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, other than as expressly permitted by this Certificate of
Designations or approved by the requisite vote or written consent of the holders
of Series B Preferred Stock taken or given in accordance with this Certificate,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by this Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this paragraph 5
and in the taking of all such action as may be necessary or appropriate in order
to protect the conversion rights of the holders of Series B Preferred Stock
against impairment.
6. EXCHANGE OPTION.
(a) In the event an Exchange Offer is made by this Corporation or a
Subsidiary thereof (the applicable of the foregoing being the "Offeror"), the
Offeror will concurrently therewith make an equivalent offer to the holders of
Series B Preferred Stock pursuant to which such holders may tender Shares, based
upon the number of shares of Series B Common Stock into which such tendered
Shares are then convertible (or other stock of this Corporation receivable by a
holder of tendered Shares upon conversion thereof (or upon conversion of
securities receivable by a holder of Shares upon conversion of such tendered
Shares)) (and in lieu of tendering outstanding shares of Series B Common Stock
(or such other stock)), together with such other consideration as may be
required to be tendered pursuant to such Exchange Offer, and receive in exchange
therefor, in lieu of Exchange Securities (and other property, if applicable),
Mirror Preferred Stock with an aggregate liquidation preference equal to the
aggregate Liquidation Preference of the shares of Series B Preferred Stock
exchanged therefor. Whether or not a holder of Shares elects to accept such
offer and tender Shares, no adjustment to the Conversion Rate of the Shares will
be made pursuant to paragraph 5 in connection with the Exchange Offer.
24
<PAGE>
(b) If an Exchange Offer is made as discussed above, the Offeror will,
concurrently with the distribution of the offering circular or prospectus and
related documents to holders of Common Stock, provide each holder of Series B
Preferred Stock with a notice setting forth the offer described in paragraph
6(a) above and describing the Exchange Offer, the Exchange Securities and the
Mirror Preferred Stock. Such notice will be accompanied by the offering
circular, prospectus or similar document provided to holders of Common Stock in
respect of the Exchange Offer and a copy of the certificate of designations (or
similar document) proposed to be filed by the Offeror in order to establish the
Mirror Preferred Stock. No failure to mail the notice contemplated by this
paragraph 6(b) or any defect therein or in the mailing thereof will affect the
validity of the applicable Exchange Offer.
7. REDEMPTION.
(a) Subject to paragraph 7(f), the shares of Series B Preferred Stock
may be redeemed out of funds legally available therefor, at the option of this
Corporation by action of the Board of Directors, in whole or from time to time
in part, on any Business Day after April 1, 2005 at the Redemption Price per
Share as of the applicable Redemption Date. If less than all outstanding Shares
are to be redeemed, Shares will be redeemed ratably (as nearly as may be
practicable) among the holders thereof.
(b) Subject to the rights of any Parity Securities and the provisions
of paragraph 7(f) and subject to any prohibitions or restrictions contained in
any Debt Instrument, at any time on or after April 1, 2020, any holder will have
the right, at such holder's option, to require redemption by this Corporation at
the Redemption Price per Share as of the applicable Redemption Date of all or
any portion of such holder's Shares, by written notice to this Corporation
stating the number of Shares to be redeemed. This Corporation will redeem, out
of funds legally available therefor and not restricted in accordance with the
first sentence of this paragraph 7(b), the Shares so requested to be redeemed on
such date within 60 days following this Corporation's receipt of such notice as
this Corporation will state in its notice given pursuant to paragraph 7(c). If
the funds of this Corporation legally available for redemption of Shares and not
restricted in accordance with the first sentence of this paragraph 7(b) are
insufficient to redeem the total number of Shares required to be redeemed
pursuant to this paragraph 7(b), then, those funds which are legally available
for redemption of such Shares and not so restricted will be used to redeem the
maximum possible number of such Shares ratably among the holders who have
required Shares to be redeemed under this paragraph 7(b). At any time thereafter
when additional funds of this Corporation are legally available and not so
restricted for such purpose, such funds will immediately be used to redeem the
Shares this Corporation failed to redeem on such Redemption Date until the
balance of such Shares are redeemed. Further, if the funds of this Corporation
legally available for redemption of Shares are sufficient to pay the Redemption
Price of the Shares requested to be redeemed in full, then any portion of such
Redemption Price not paid when due as provided in this paragraph 7(b),
25
<PAGE>
notwithstanding that payment thereof is restricted pursuant to any Debt
Instrument in accordance with the first sentence of this paragraph 7(b), will
constitute indebtedness of this Corporation for borrowed money, the payment of
which indebtedness the holders requesting such redemption will be entitled to
enforce by the exercise of any and all rights at law or in equity.
(c) Notice of any redemption pursuant to this paragraph 7 will be
mailed, first class, postage prepaid, not less than 30 days nor more than 60
days prior to the Redemption Date, to the holders of record of the shares of
Series B Preferred Stock to be redeemed, at their respective addresses as the
same appear upon the books of this Corporation or are supplied by them in
writing to this Corporation for the purpose of such notice; but no failure to
mail such notice or any defect therein or in the mailing thereof will affect the
validity of the proceedings for the redemption of any shares of the Series B
Preferred Stock. Such notice will set forth the Redemption Price, the Redemption
Date, the number of Shares to be redeemed and the place at which the Shares
called for redemption will, upon presentation and surrender of the stock
certificates evidencing such Shares, be redeemed. In case fewer than the total
number of shares of Series B Preferred Stock represented by any certificate are
redeemed, a new certificate representing the number of unredeemed Shares will be
issued to the holder thereof without cost to such holder.
(d) If notice of any redemption by this Corporation pursuant to this
paragraph 7 has been mailed as provided in paragraph 7(c) and if on or before
the Redemption Date specified in such notice the consideration necessary for
such redemption has been set apart so as to be available therefor and only
therefor, then on and after the close of business on the Redemption Date, the
Shares called for redemption, notwithstanding that any certificate therefor has
not been surrendered for cancellation, will no longer be deemed outstanding, and
all rights with respect to such Shares will forthwith cease and terminate,
except the right of the holders thereof to receive upon surrender of their
certificates the consideration payable upon redemption thereof.
(e) All shares of Series B Preferred Stock redeemed, retired,
purchased or otherwise acquired by this Corporation will be retired and will be
restored to the status of authorized and unissued shares of preferred stock and
may be reissued as part of another series of the preferred stock of this
Corporation, but such shares will not be reissued as Series B Preferred Stock.
(f) If and so long as this Corporation fails to redeem on a Redemption
Date pursuant to this paragraph 7 all shares of Series B Preferred Stock
required to be redeemed on such date, this Corporation will not redeem, or
discharge any sinking fund obligation with respect to, any Shares, Junior
Securities or Parity Securities, or set aside any money or assets for any such
purpose, unless all then outstanding Shares required to be redeemed are redeemed
pursuant to the terms hereof, and will not declare or pay any dividend on or
make any distribution with respect to any Junior Securities or set aside any
money or assets for any such purpose, and neither this
26
<PAGE>
Corporation nor any Subsidiary thereof will purchase or otherwise acquire any
Shares, Parity Securities or Junior Securities. Nothing contained in this
paragraph 7(f) will prevent (i) the payment of dividends on any Junior
Securities solely in shares of Junior Securities or the redemption, purchase or
other acquisition of Junior Securities solely in exchange for shares of Junior
Securities, (ii) the redemption, exchange, purchase or other acquisition of
Series B Preferred Stock or Parity Securities solely in exchange for (together
with a cash adjustment for fractional shares, if any), shares of Junior
Securities, or (iii) the purchase or acquisition of shares of Series B Preferred
Stock pursuant to a purchase or exchange offer or offers made to all holders of
outstanding shares of Series B Preferred Stock, PROVIDED that the terms of the
purchase or exchange offer shall be identical for all Shares and all accrued
dividends on such Shares shall have been declared and irrevocably set apart in
trust for the benefit of the holders of Shares and for no other purpose. The
provisions of this paragraph 7(f) are for the benefit of holders of Series A
Preferred Stock and accordingly the provisions of this paragraph 7(f) will not
restrict any redemption or purchase by this Corporation or a Subsidiary thereof
of Shares held by any holder, provided that all other holders of Shares shall
have waived in writing the benefits of this provision with respect to such
redemption.
8. VOTING RIGHTS.
(a) In addition to voting rights required by law, the holders of the
Series B Preferred Stock will have the voting rights described in this
paragraph 8.
(b) Each share of Series B Preferred Stock will be entitled to vote
together with holders of the Series A Common Stock (and any other class or
series which may similarly be entitled to vote with the shares of Series A
Common Stock) as a single class upon all matters upon which holders of Series A
Common Stock are entitled to vote. In any such vote, the holders of Series B
Preferred Stock will be entitled to 5,580 votes per share of Series B Preferred
Stock.
(c) So long as any Shares remain outstanding, this Corporation will
not, either directly or indirectly, without the consent of the holders of record
of at least 66 2/3% of the number of Shares then outstanding, take any action
(including by merger, consolidation or binding share exchange with any other
corporation or entity) to amend, alter or repeal (i) any of the provisions of
this paragraph 8, (ii) any of the provisions of the Certificate of Incorporation
of this Corporation so as to affect adversely any preference or any relative or
other right given to the Series B Preferred Stock or the Series B Common Stock,
or (iii) any of paragraphs 3 or 4 or the first sentence of paragraph 2 of
Section A of Article IV of the Certificate of Incorporation of this Corporation.
9. WAIVER. Any provision of this Certificate of Designations which, for the
benefit of the holders of Series B Preferred Stock, prohibits, limits or
restricts actions by the Corporation, or imposes obligations on the Corporation,
including but not limited to provisions
27
<PAGE>
relating to the obligation of the Corporation to redeem or convert such Shares,
may be waived in whole or in part, or the application of all or any part of such
provision in any particular circumstance or generally may be waived, in each
case by the affirmative vote or with the consent of the holders of record of at
least 66 2/3% of the number of Shares then outstanding (or such greater
percentage thereof as may be required by this Certificate of Designations,
applicable law or any applicable rules of any national securities exchange or
national interdealer quotation system), either in writing or by vote at an
annual meeting or a special meeting called for such purpose at which the holders
of Series B Preferred Stock will vote as a separate class.
10. PREEMPTIVE RIGHTS. The holders of the Series B Preferred Stock will not
have any preemptive right to subscribe for or purchase any shares of stock or
any other securities which may be issued by this Corporation.
11. SENIOR SECURITIES. The Series B Preferred Stock will not rank junior
to any other classes or series of stock of this Corporation outstanding on
the Issue Date in respect of the right to receive dividends or the right to
participate in any distribution upon liquidation, dissolution or winding up
of this Corporation. Without the prior consent of the holders of record of at
least 66 2/3% of the number of Shares then outstanding, this Corporation will
not issue any Senior Securities.
12. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by law
and for the equitable rights and remedies that may otherwise be available to
holders of Series B Preferred Stock, the shares of Series B Preferred Stock will
not have any designations, preferences, limitations or relative rights, other
than those specifically set forth in these resolutions (as such resolutions may,
subject to paragraph 8, be amended from time to time) and in the Certificate of
Incorporation of this Corporation.
13. HEADINGS. The headings of the various paragraphs and subparagraphs
hereof are for convenience of reference only and will not affect the
interpretation of any of the provisions hereof.
FURTHER RESOLVED, that the appropriate officers of this Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware."
28
<PAGE>
The undersigned has signed this Certificate of Designations on this 16th
day of March 2000.
By: /s/ Pamela J. Strauss
--------------------------
Name: Pamela J. Strauss
Title: Assistant Secretary
29
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
TSAT Technologies, Inc., a Colorado Corporation doing business under the name
TSAT Technologies, Inc.
TSAT Holding 1, Inc., a Delaware Corporation doing business under the name
TSAT Holding 1, Inc.
TSAT Holding 2, Inc., a Delaware Corporation doing business under the name
TSAT Holding 2, Inc.
Liberty Satellite, LLC, a Delaware limited liability corporation doing
business under the name Liberty Satellite, LLC
LSAT Astro LLC, a Delaware limited liability corporation doing
business under the name LSAT Astro LLC
Tempo Satellite, Inc., an Oklahoma corporatoin doing business under the name
Tempo Satellite, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED HEREIN, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,473
<SECURITIES> 140,101
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 298
<DEPRECIATION> 23
<TOTAL-ASSETS> 143,197
<CURRENT-LIABILITIES> 78,470
<BONDS> 3,044
0
0
<COMMON> 71,359
<OTHER-SE> (6,632)
<TOTAL-LIABILITY-AND-EQUITY> 143,197
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 12,183
<OTHER-EXPENSES> (79,861)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> 67,678
<INCOME-TAX> 416
<INCOME-CONTINUING> 67,262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,262
<EPS-BASIC> 0.97
<EPS-DILUTED> 0.97
</TABLE>
