<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: April 15, 1998
Date of Earliest Event Reported: April 1, 1998
PRIMESTAR, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE
(State or other jurisdiction of incorporation)
000-23883 84-1441684
(Commission File Number) (I.R.S. Employer Identification No.)
8085 SOUTH CHESTER, SUITE 300
ENGLEWOOD, COLORADO 80112
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 712-4600
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
- ------ --------------------------------------
On February 6, 1998, the Registrant, a wholly-owned subsidiary of TCI
Satellite Entertainment, Inc. ("TSAT"), entered into (i) a Merger and
Contribution Agreement dated as of February 6, 1998 (the "Restructuring
Agreement"), (ii) an Asset Transfer Agreement dated as of February 6, 1998 (the
"TSAT Asset Transfer Agreement"), (iii) an Agreement and Plan of Merger dated as
of February 6, 1998 ("TSAT Merger Agreement") and (iv) certain other agreements
contemplated by the Restructuring Agreement. The transactions contemplated by
the Restructuring Agreement, the TSAT Asset Transfer Agreement, the TSAT Merger
Agreement and such other agreements are hereinafter referred to, collectively,
as the "Roll-up Plan". The Roll-up Plan is a two step transaction.
Effective April 1, 1998, certain of the transactions (collectively, the
"Restructuring Transaction") contemplated by the Restructuring Agreement and the
TSAT Asset Transfer Agreement were consummated. The Restructuring Transaction,
which is the first step of the Roll-up Plan, comprised (i) the contribution of
substantially all of TSAT's assets and liabilities to the Registrant, and (ii)
the concurrent contribution to the Registrant by the existing partners (the
"Partners") of PRIMESTAR Partners L.P. (the "Partnership") of their respective
interests in the PRIMESTAR(R) digital satellite business.
In connection with such mergers and asset transfers, the parties to the
Restructuring Transaction received, directly or indirectly, from the Registrant
a combination of cash (or an assumption of indebtedness by the Registrant) and
shares of common stock of the Registrant, in an amount determined pursuant to
the Restructuring Agreement.
As a result of the Restructuring Transaction, the Registrant owns the
entire PRIMESTAR(R) digital satellite business and TSAT and the Partners (or
their respective
2
<PAGE>
affiliates) own, in the aggregate, all the outstanding capital stock of the
Registrant. The Partners include (i) Time Warner Entertainment Company L.P.
("TWE"), a subsidiary of Time Warner, Inc., (ii) Advance/Newhouse Partnership
("Newhouse"), a subsidiary of Newhouse Broadcasting Corporation, (iii) Cox
Communications, Inc. ("Cox"), (iv) Comcast Corporation (`Comcast"), (v) MediaOne
of Delaware, Inc. (`MediaOne"), a subsidiary of US WEST, Inc. and (vi) GE
American Communications, Inc. (`GE Americom") a subsidiary of General Electric
Company ("GE").
Under the Restructuring Agreement, the amount of cash received by, or debt
assumed in respect of, each of TSAT, Comcast, Cox, MediaOne, TWE and Newhouse at
the closing of the Restructuring Transaction was dependent upon subscriber
counts and TSAT's debt balance on such date. The approximate cash consideration
paid to Cox and MediaOne was $74.0 million and $76.6 million, respectively, the
approximate debt assumed in respect of TWE and Newhouse (collectively) and
Comcast was $239.5 million and $74.7 million, respectively, and the approximate
debt assumed in respect of TSAT was $475 million, plus outstanding letters of
credit in the aggregate amount of $30 million. Under the Restructuring
Agreement, the debt assumed by the Registrant in respect of GE Americom was
fixed at $14.0 million.
As of the date of the Restructuring Transaction, the approximate ownership
of the Registrant's common stock was as set forth in the following table:
<TABLE>
<CAPTION>
Name of Beneficial Owner Ownership Percentage Voting Power
------------------------ -------------------- ------------
<S> <C> <C>
TSAT 37.23% 38.02%
TWE and Newhouse (collectively) 30.02% 30.66%
Comcast 9.50% 9.70%
MediaOne 9.69% 9.90%
Cox 9.43% 9.63%
GE Americom 4.13% 2.09%
</TABLE>
3
<PAGE>
The total amount of funds paid by the Registrant in connection with the
closing of the Restructuring Transaction aggregated approximately $499 million,
of which approximately $479 million was paid to the Restructuring parties other
than TSAT as cash consideration (or assumption of debt in lieu of cash
consideration) and approximately $20 million was paid to fund financing costs
and other expenses related thereto. Such consideration and expenses were
financed by a $350 million unsecured senior subordinated interim loan (the
"Interim Loan") and through borrowings under the Registrant's credit facility.
In addition, the Registrant assumed indebtedness of TSAT and the Partnership
aggregating approximately $1,046 million, including (i) $571 million outstanding
under the Partnership's bank credit facility, (ii) $373 million under TSAT's 10
7/8% Senior Subordinated Notes and 12 1/4% Senior Subordinated Discount Notes,
(iii) $100 million outstanding prior to the closing of the Restructuring
Transaction under TSAT's credit facility and (iv) $2 million of other debt.
The second step of the Roll-up Plan (the "TSAT Merger"), in which TSAT will
be merged with and into the Registrant, is subject to regulatory approval of the
transfer of certain licenses held by TSAT. Assuming that necessary regulatory
approvals are received and that the other conditions provided for in the TSAT
Merger Agreement are satisfied or waived, the stockholders of TSAT will receive,
in a transaction designed to be tax-free to such stockholders, (i) one share of
Class A Common Stock of the Registrant for each share of TSAT's Series A Common
Stock outstanding immediately prior to the closing of the TSAT Merger, and (ii)
one share of Class B Common Stock of the Registrant for each share of TSAT's
Series B Common Stock outstanding immediately prior to the closing of the TSAT
Merger. Each share of the Registrant's common stock then held by TSAT will be
canceled.
4
<PAGE>
The nature of all material relationships between the Registrant and any of
the parties to the Restructuring Transaction or any of their respective
affiliates, any director or officer of the Registrant, or any associate of any
such director or officer, has been previously reported in TSAT's Current Report
on Form 8-K dated February 11, 1998 (Commission File No. 0-21317). Please see
the sections entitled "THE ROLL-UP PLAN--Interests of Certain Persons in the
Roll-up Plan" and "RELATED AGREEMENTS" included therein.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
- ------ -------------------------------------------------------------------
(a) Financial Statements.
The financial statements required by this item are not included
herein, but will be filed by amendment to the Current Report within 60
days of the date of this Current Report.
(b) Pro Forma Financial Statements.
PRIMESTAR, Inc. condensed Pro Forma combined Financial Statements -
year ended December 31, 1997.
(c) Exhibits.
None.
5
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has dully caused this report to be signed on its behalf by the
undersigned hereunto dully authorized.
Dated April 15, 1998
PRIMESTAR, INC.
(Registrant)
By: /s/ Kenneth G. Carroll
--------------------------------
Name: Kenneth G. Carroll
Title: Senior Vice President and
Chief Financial Officer
6
<PAGE>
PRIMESTAR, INC.
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
Effective April 1, 1998 and pursuant to (i) a Merger and Contribution
Agreement dated as of February 6, 1998 (the "Restructuring Agreement"), among
TCI Satellite Entertainment, Inc. ("TSAT"), PRIMESTAR, Inc. (the "Company"),
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) the Asset Transfer Agreement
dated as of February 6, 1998 (the "TSAT Asset Transfer Agreement"), between TSAT
and the Company, a business combination (the "Restructuring") was consummated
whereby (a) TSAT contributed and transferred to the Company pursuant to the TSAT
Asset Transfer Agreement, (the "TSAT Asset Transfer") all of TSAT's assets and
liabilities, except (I) the capital stock of Tempo Satellite, Inc. ("Tempo"), a
wholly-owned subsidiary of TSAT that holds certain authorizations granted by the
Federal Communications Commission (the "FCC") and other assets and liabilities
relating to a proposed direct broadcast satellite ("DBS") system being
constructed by Tempo, (II) the consideration received by TSAT in the
Restructuring and (III) the rights and obligations under certain agreements with
the Company (such contributed and transferred assets and liabilities, the "TSAT
Business"), and (b) the business of PRIMESTAR Partners L.P. (the "Partnership")
and the business of distributing the PRIMESTAR(R) programming service
("PRIMESTAR(R)") of each of TWE, Newhouse, Comcast, Cox and affiliates of
MediaOne was consolidated into the Company. See note 2.
Pursuant to an Agreement and Plan of Merger dated as of February 6, 1998 (the
"TSAT Merger Agreement"), between TSAT and the Company, it is contemplated that,
subsequent to the consummation of the Restructuring, TSAT will be merged with
and into the Company, with the Company as the surviving corporation (the "TSAT
Merger"). See note 3.
The Restructuring (including the TSAT Asset Transfer) and the TSAT Merger are
collectively referred to herein as the Roll-up Plan.
In a separate transaction (the "ASkyB Transaction"), pursuant to an asset
acquisition agreement, dated as of June 11, 1997 (the "ASkyB Agreement") among
the Partnership, The News Corporation Limited ("News Corp."), MCI
Telecommunications Corporation ("MCI"), American Sky Broadcasting LLC, a
wholly-owned subsidiary of News Corp. ("ASkyB"), and for certain purposes
only, each of the partners of the Partnership, the Company will acquire from
MCI two high power communications satellites currently under construction (the
"MCI Satellites"), certain authorizations granted to MCI by the FCC to operate
a DBS business at the 110(degrees) West Longitude orbital location and certain
related contracts (the "MCI FCC Licenses"). See note 4.
The following unaudited condensed pro forma combined balance sheet of the
Company, dated as of December 31, 1997, assumes that the Restructuring, the TSAT
Merger and the ASkyB Transaction had occurred as of such date. The following
unaudited condensed pro forma combined statement of operations of the Company
for the year ended December 31, 1997 assumes that the Restructuring, the TSAT
Merger and the ASkyB Transaction had occurred as of January 1, 1997.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the Restructuring, the
TSAT Merger and the ASkyB Transaction had occurred as of January 1, 1997.
<PAGE>
PRIMESTAR, INC.
CONDENSED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA FOR
PRO FORMA FOR ASKYB RESTRUCTURING,
RESTRUCTURING TSAT MERGER RESTRUCTURING TRANSACTION TSAT MERGER
HISTORICAL PRO FORMA PRO FORMA FOR PRO FORMA AND TSAT PRO FORMA AND ASKYB
COMBINED(1) ADJUSTMENTS(2) RESTRUCTURING ADJUSTMENTS(3) MERGER ADJUSTMENTS(4) TRANSACTION
----------- -------------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash, receivables
and prepaids.. $ 286,758 (34,657)(8) 114,712 -- 114,712 -- 114,712
(137,389)(9)
Investment in,
and related
advances to, the
Partnership..... 77,983 (11,093)(5) -- -- -- -- --
(66,890)(7)
Property and
equipment, net
of accumulated
depreciation:
Satellites..... 1,010,760 (463,133)(6) 463,133 -- 463,133 381,930(19) 845,063
(84,494)(7)
Satellite
reception and
other.......... 1,516,114 (293,485)(7) 1,247,765 -- 1,247,765 -- 1,247,765
25,136 (10)
---------- ---------- --------- ------ --------- ---------- ---------
2,526,874 (815,976) 1,710,898 -- 1,710,898 381,930 2,092,828
---------- ---------- --------- ------ --------- ---------- ---------
Intangible
assets.......... 31,601 2,294,091 (7) 1,184,954 -- 1,184,954 734,370(19) 1,919,324
(1,140,738)(8)
Other assets.... 67,141 (25,136)(10) 30,789 -- 30,789 -- 30,789
(11,216)(8)
---------- ---------- --------- ------ --------- ---------- ---------
$2,990,357 50,996 3,041,353 -- 3,041,353 1,116,300 4,157,653
========== ========== ========= ====== ========= ========== =========
Payables,
accruals and
other operating
liabilities..... $ 424,123 (137,389)(9) 284,220 -- 284,220 -- 284,220
(2,514)(8)
Due to the
Partnership..... 463,133 (463,133)(6) -- -- -- -- --
Debt:
Due to parent.. 1,184,097 (1,184,097)(8) -- -- -- -- --
Other.......... 983,729 458,784 (7) 1,442,513 -- 1,442,513 516,300(19) 1,958,813
Deferred income
taxes........... 22,257 223,713 (7) 245,970 -- 245,970 -- 245,970
---------- ---------- --------- ------ --------- ---------- ---------
Total
liabilities.... 3,077,339 (1,104,636) 1,972,703 -- 1,972,703 516,300 2,489,003
---------- ---------- --------- ------ --------- ---------- ---------
Mandatorily redeemable -- -- -- -- -- 600,000(19) 600,000
preferred stock
Equity:
Class A Common
Stock.......... -- 664 (5) 1,806 82 (18) 1,724 -- 1,724
1,142 (7)
Class B Common
Stock.......... -- 85 (5) 85 -- 85 -- 85
Class C Common
Stock.......... -- 135 (7) 135 -- 135 -- 135
Additional
paid-in
capital........ 678,427 (11,842)(5) 1,520,744 82 (18) 1,520,826 -- 1,520,826
(88,038)(7)
942,197 (7)
Accumulated
deficit........ (818,566) 364,446 (7) (454,120) -- (454,120) -- (454,120)
Partners'
capital........ 53,157 (53,157)(7) -- -- -- -- --
---------- ---------- --------- ------ --------- ---------- ---------
(86,982) 1,155,632 1,068,650 -- 1,068,650 -- 1,068,650
---------- ---------- --------- ------ --------- ---------- ---------
$2,990,357 50,996 3,041,353 -- 3,041,353 1,116,300 4,157,653
========== ========== ========= ====== ========= ========== =========
</TABLE>
<PAGE>
PRIMESTAR, INC.
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA FOR
TSAT PRO FORMA FOR ASKY B RESTRUCTURING,
RESTRUCTURING MERGER RESTRUCTURING TRANSACTION TSAT MERGER
HISTORICAL PRO FORMA PRO FORMA FOR PRO FORMA AND TSAT PRO FORMA AND ASKY B
COMBINED(1) ADJUSTMENTS(2) RESTRUCTURING ADJUSTMENTS(3) MERGER ADJUSTMENTS(4) TRANSACTION
----------- -------------- --------------- -------------- ------------- -------------- -------------
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.......... $ 1,898,378 (626,104)(11) 1,272,274 -- 1,272,274 -- 1,272,274
Operating,
selling, general
and
administrative
expenses......... (1,772,176) 626,104 (11) (1,137,422) -- (1,137,422) -- (1,137,422)
8,650 (12)
Depreciation and
amortization..... (404,420) (70,196)(12) (593,639) -- (593,639) -- (593,639)
(119,023)(13)
----------- -------- ---------- ----- ---------- ------- -----------
Operating loss.. (278,218) (180,569) (458,787) -- (458,787) -- (458,787)
Interest
expense.......... (126,814) (45,878)(14) (111,706) -- (111,706) (25,815)(20) (137,521)
60,986 (15)
Share of losses
of the
Partnership...... (79,544) 79,544 (16) -- -- -- -- --
Other, net....... 1,768 -- 1,768 -- 1,768 -- 1,768
----------- -------- ---------- ----- ---------- ------- -----------
Loss before
income taxes.... (482,808) (85,917) (568,725) -- (568,725) (25,815) (594,540)
Income tax
benefit.......... 24,738 34,367 (17) 59,105 -- 59,105 10,326(17) 69,431
----------- -------- ---------- ----- ---------- ------- -----------
Net loss........ (458,070) (51,550) (509,620) -- (509,620) (15,489) (525,109)
Dividend
requirement on
preferred stock.. -- -- -- -- -- (30,000)(21) (30,000)
----------- -------- ---------- ----- ---------- ------- -----------
Net loss
attributable to
common
stockholders..... $ (458,070) (51,550) (509,620) -- (509,620) (45,489) (555,109)
=========== ======== ========== ===== ========== ======= ===========
Pro forma net
loss per share.. $ (2.86)(22)
===========
</TABLE>
3
<PAGE>
PRIMESTAR, INC.
NOTES TO CONDENSED
PRO FORMA COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
(1) Represents the combined historical financial position and results of
operations for TSAT, TWSSI, Cox Satellite, Comcast Satellite, MediaOne
Satellite, GE Americom Services, Inc., a subsidiary of GE Americom
("GEAS"), and the Partnership as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------------------------------
COX COMCAST MEDIAONE HISTORICAL
TSAT TWSSI SATELLITE SATELLITE SATELLITE GEAS PARTNERSHIP COMBINED
---------- -------- --------- --------- --------- ------- ----------- ----------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash, receivables and
prepaids............... $ 42,425 15,407 9,177 18,348 44,695 -- 156,706 286,758
Investment in, and
related advances to,
the Partnership........ 11,093 17,270 7,685 5,544 28,178 8,213 -- 77,983
Property and equipment,
net of accumulated
depreciation:
Satellites............. 463,133 -- -- -- -- -- 547,627 1,010,760
Satellite reception and
other................. 658,804 447,438 116,618 108,858 163,175 -- 21,221 1,516,114
---------- -------- ------- -------- ------- ------- ------- ---------
1,121,937 447,438 116,618 108,858 163,175 -- 568,848 2,526,874
---------- -------- ------- -------- ------- ------- ------- ---------
Intangible assets....... -- -- -- -- 31,601 -- -- 31,601
Other assets............ 29,401 96 11,770 25,136 642 -- 96 67,141
---------- -------- ------- -------- ------- ------- ------- ---------
$1,204,856 480,211 145,250 157,886 268,291 8,213 725,650 2,990,357
========== ======== ======= ======== ======= ======= ======= =========
LIABILITIES AND EQUITY
Payables, accruals and
other operating
liabilities............ $ 186,725 73,188 15,257 24,789 16,671 -- 107,493 424,123
Due to the Partnership.. 463,133 -- -- -- -- -- -- 463,133
Debt:
Due to parent.......... -- 518,910 204,314 210,436 250,437 -- -- 1,184,097
Other.................. 418,729 -- -- -- -- -- 565,000 983,729
Deferred income taxes... -- -- 3,221 -- 19,036 -- -- 22,257
---------- -------- ------- -------- ------- ------- ------- ---------
Total liabilities...... 1,068,587 592,098 222,792 235,225 286,144 -- 672,493 3,077,339
---------- -------- ------- -------- ------- ------- ------- ---------
Equity:
Additional paid-in
capital............... 590,389 -- -- 31,855 -- 56,183 -- 678,427
Accumulated deficit.... (454,120) (111,887) (77,542) (109,194) (17,853) (47,970) -- (818,566)
Partners' capital...... -- -- -- -- -- -- 53,157 53,157
---------- -------- ------- -------- ------- ------- ------- ---------
136,269 (111,887) (77,542) (77,339) (17,853) 8,213 53,157 (86,982)
---------- -------- ------- -------- ------- ------- ------- ---------
$1,204,856 480,211 145,250 157,886 268,291 8,213 725,650 2,990,357
========== ======== ======= ======== ======= ======= ======= =========
</TABLE>
4
<PAGE>
PRIMESTAR, INC.
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------
COX COMCAST MEDIAONE HISTORICAL
TSAT TWSSI SATELLITE SATELLITE SATELLITE GEAS PARTNERSHIP COMBINED
--------- -------- --------- --------- --------- ------- ----------- ----------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 561,990 377,226 109,646 114,128 109,284 -- 626,104 1,898,378
Operating, selling,
general and
administrative
expenses............... (489,947) (308,180) (98,911) (99,887) (94,375) -- (680,876) (1,772,176)
Depreciation and
amortization........... (243,642) (67,472) (36,385) (27,957) (25,082) -- (3,882) (404,420)
--------- -------- ------- ------- ------- ------- -------- ----------
Operating income
(loss)................ (171,599) 1,574 (25,650) (13,716) (10,173) -- (58,654) (278,218)
Interest expense........ (47,992) (27,921) (10,659) (16,285) (6,121) -- (17,836) (126,814)
Share of losses of the
Partnership............ (20,473) (23,284) (6,788) (7,984) (8,691) (12,324) -- (79,544)
Other, net.............. 1,723 (1,657) (497) 281 (155) -- 2,073 1,768
--------- -------- ------- ------- ------- ------- -------- ----------
Loss before income
taxes................. (238,341) (51,288) (43,594) (37,704) (25,140) (12,324) (74,417) (482,808)
Income tax benefit...... -- -- 15,251 -- 9,487 -- -- 24,738
--------- -------- ------- ------- ------- ------- -------- ----------
Net loss................ $(238,341) (51,288) (28,343) (37,704) (15,653) (12,324) (74,417) (458,070)
========= ======== ======= ======= ======= ======= ======== ==========
</TABLE>
(2) Pursuant to the Restructuring Agreement, the following transactions
occurred on April 1, 1998:
(x) TSAT contributed and transferred to PRIMESTAR Satellite the TSAT
Business, comprising all the assets and liabilities of TSAT except (i) the
capital stock of Tempo, a wholly-owned subsidiary of TSAT that holds the
FCC Permit and other assets and liabilities relating to a proposed DBS
system being constructed by Tempo, (ii) the consideration received by TSAT
in the Restructuring and (iii) the rights and obligations of TSAT under
certain agreements with the Company and others (the "TSAT Asset
Transfer");
(y) Each of (i) Comcast DBS, Inc., a subsidiary of Comcast whose sole
asset was Comcast's 10.43% interest in the Partnership, (ii) Comcast
Satellite Communications, Inc., a subsidiary of Comcast that held
Comcast's PRIMESTAR(R) distribution business, (iii) Cox Satellite, Inc., a
subsidiary of Cox that held Cox's 10.43% interest in the Partnership and
Cox's PRIMESTAR(R) distribution business, and (iv) GEAS, a subsidiary of
GE Americom that held GE Americom's 16.56% interest in the Partnership,
respectively, merged with and into PRIMESTAR Satellite, and PRIMESTAR
Satellite was the surviving corporation of each such merger (collectively,
the "Mergers"); and
(z) Each of TWE, Newhouse and MediaOne (and its subsidiaries)
contributed and transferred to PRIMESTAR Satellite its respective
Partnership Interests, PRIMESTAR Assets, including its PRIMESTAR(R)
subscribers, inventory and other PRIMESTAR(R)-related assets, and
PRIMESTAR Liabilities (collectively, and together with the TSAT Asset
Transfer, the "Asset Transfers").
In connection with the Mergers and Asset Transfers, each of TSAT,
Comcast, Cox, MediaOne, TWE, Newhouse and GE Americom, directly or
indirectly, received from PRIMESTAR Satellite (i) in the case of Cox and
MediaOne, an amount of cash, and in the case of TSAT, TWE, Newhouse,
Comcast and GE Americom, an assumption of indebtedness by PRIMESTAR
Satellite, (ii) shares of Class A Common Stock, $.01 par value per share,
of PRIMESTAR Satellite (which in the Holding Company Formation became the
Class A Common Stock, $.01 par value per share, of PRIMESTAR Holdings
("PRIMESTAR Class A Common Stock")), (iii) in the case of TSAT only,
shares of Class B Common Stock, $.01 par value per share, of PRIMESTAR
Satellite (which in the Holding Company Formation became the Class B
Common Stock, $.01 par value per share, of PRIMESTAR Holdings ("PRIMESTAR
Class B Common Stock")), and (iii) except in the case of TSAT and GE
Americom, shares of Class C Common Stock, $.01 par value per share, of
PRIMESTAR Satellite (which in the Holding Company Formation became the
5
<PAGE>
PRIMESTAR, INC.
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Class C Common Stock, $.01 par value per share, of PRIMESTAR Holdings
("PRIMESTAR Class C Common Stock")), in each case in an amount determined
pursuant to the Restructuring Agreement.
The TSAT Asset Transfer was recorded at TSAT's historical cost due to the
fact that PRIMESTAR Satellite was a wholly-owned subsidiary of TSAT prior
to the Restructuring. The remaining elements of the Restructuring, as set
forth above, were treated as the acquisition by PRIMESTAR Satellite of the
Partnership Interests and PRIMESTAR Assets, and the assumption by
PRIMESTAR Satellite of the PRIMESTAR Liabilities, of the Restructuring
Parties other than TSAT (the "Non-TSAT Parties"), and such acquisition was
accounted for using the purchase method of accounting. TSAT has been
identified as the acquiror for accounting purposes and the predecessor for
financial reporting purposes due to the fact that TSAT owned the largest
interest in the Company immediately following consummation of the
Restructuring. The fair value of the consideration issued to the Non-TSAT
Parties was allocated to the assets and liabilities acquired based upon
the estimated fair values of such assets and liabilities. The estimated
fair value of the consideration issued to the Non-TSAT Parties and the
estimated fair values of the assets and liabilities acquired, as reflected
in the accompanying condensed pro forma combined financial statements, are
based upon information available at the date of the preparation of these
condensed pro forma combined financial statements, and will be adjusted
upon the final determination of such fair values. Management is not aware
of any circumstances which would cause the final purchase price allocation
to be significantly different from that which is reflected in the
accompanying condensed pro forma combined balance sheet. However, actual
valuations and allocations may differ from those reflected herein. The
final purchase price allocation will be based on an appraisal that is
expected to be completed within the 90-day period following the closing of
the Restructuring.
(3) Pursuant to the TSAT Merger Agreement, (i) each outstanding share of
Series A Common Stock, $1 par value per share, of TSAT ("TSAT Series A
Common Stock") will be converted into the right to receive one share of
PRIMESTAR Class A Common Stock and (ii) each outstanding share of Series
B Common Stock, $1 par value per share, of TSAT ("TSAT Series B Common
Stock" and, together with the TSAT Series A Common Stock, the "TSAT
Common Stock") will be converted into the right to receive one share of
PRIMESTAR Class B Common Stock subject to adjustment. Each share of
PRIMESTAR Common Stock then held by TSAT will be canceled. Upon the
closing of the TSAT Merger, the then existing stockholders of TSAT will
become the direct owners of TSAT's ownership interest in the Company. The
respective obligations of the parties to the TSAT Merger Agreement to
consummate the TSAT Merger are subject to the satisfaction or waiver of a
number of conditions, including, among others, (a) occurrence of one of
the following: (i) FCC approval of TSAT's pending application to transfer
control of Tempo to the Company, (ii) divestiture of the FCC Permit by
TSAT in accordance with TSAT's obligations under the TSAT Tempo
Agreement, or (iii) FCC permission to consummate the TSAT Merger without
divestiture of the FCC Permit (including pursuant to an agreement to
divest the FCC Permit within a specific time period following the
effectiveness of the TSAT Merger); (b) the absence of any legal restraint
or prohibition preventing consummation of the TSAT Merger; and (c)
receipt of approval for listing on the National Market tier of The Nasdaq
Stock Market of the shares of PRIMESTAR Class A Common Stock and
PRIMESTAR Class B Common Stock issuable to the stockholders of TSAT
pursuant to the TSAT Merger Agreement, subject to official notice of
issuance. In addition, the Company has the right to terminate the TSAT
Merger Agreement, and abandon the TSAT Merger, under certain
circumstances. In light of the foregoing conditions, there can be no
assurance that the TSAT Merger will be consummated as currently
contemplated by the TSAT Merger Agreement.
The TSAT Merger will be treated as the acquisition of TSAT by the Company.
Such acquisition will be accounted for at TSAT's historical cost since (i)
the percentage of the Company to be owned by TSAT stockholders following
consummation of the TSAT Merger will be approximately equal to the
percentage
6
<PAGE>
PRIMESTAR, INC.
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
of the Company owned by TSAT prior thereto and (ii) the TSAT Merger and
the Restructuring were both part of the same reorganization plan.
(4) Pursuant to the ASkyB Agreement, it is contemplated that the ASkyB
Transaction will be consummated whereby the Company will acquire from MCI
the MCI Satellites and MCI's FCC licenses. In consideration, ASkyB will
receive non-voting convertible securities of the Company, comprising,
subject to closing adjustments, approximately $600 million liquidation
value of PRIMESTAR Convertible Preferred Stock (convertible into
approximately 52 million shares of non-voting Class D Common Stock, $.01
par value per share, of PRIMESTAR Holdings (the "PRIMESTAR Class D Common
Stock), subject to adjustment) and approximately $516 million principal
amount of PRIMESTAR Convertible Subordinated Notes (convertible into
approximately 45 million shares of PRIMESTAR Class D Common Stock). The
PRIMESTAR Convertible Subordinated Notes will be due and payable, and the
PRIMESTAR Convertible Preferred Stock will be mandatorily redeemable, on
the tenth anniversary of the date of issuance. The PRIMESTAR Convertible
Preferred Stock will accrue cumulative dividends at the annual rate of 5%
of the liquidation value of such share and the PRIMESTAR Convertible
Subordinated Notes will have an interest rate of 5%. Dividends on the
PRIMESTAR Convertible Preferred Stock and interest on the PRIMESTAR
Convertible Subordinated Notes will be payable in cash or, at the option
of PRIMESTAR Holdings, in shares of the non-voting PRIMESTAR Class D
Common Stock, for a period of four years. Thereafter, all dividend and
interest payments will be made solely in cash. Such convertible
securities, and the shares of PRIMESTAR Class D Common Stock issued to
ASkyB or any of its affiliates upon conversion of such PRIMESTAR
Convertible Preferred Stock and PRIMESTAR Convertible Subordinated Notes,
or in payment of dividend or interest obligations thereunder, will be
non-voting; however, shares of PRIMESTAR Class D Common Stock will in
turn automatically convert into shares of PRIMESTAR Class A Common Stock,
on a one-to-one basis, upon transfer to any person other than ASkyB, News
Corp. or any of their respective affiliates. The accompanying condensed
pro forma combined financial statements assume that Tempo will not divest
the Tempo Satellites in connection with the ASkyB Transaction. Due to
regulatory and other uncertainties, no assurance can be given that Tempo
will not divest one or both of the Tempo Satellites in connection with
the ASkyB Transaction.
(5) Represents the assumed issuance of 66,395,000 shares of New PRIMESTAR Class
A Common Stock and 8,465,324 shares of New PRIMESTAR Class B Common Stock
that will be exchanged for the TSAT Business. The value of such common
stock has been recorded at TSAT's historical basis in the TSAT Business.
The number of shares of New PRIMESTAR Class A Common Stock assumed to be
issued includes 8,156,000 shares (the "TSAT Option Shares") to be issued to
TSAT in respect of shares of TSAT Common Stock ("Issuable TSAT Shares")
issuable in December 31, 1997 pursuant to certain stock options, restricted
stock awards and other arrangements. Upon consummation of the TSAT Merger,
all shares of New PRIMESTAR Common Stock issued to TSAT (including the TSAT
Option Shares) will be cancelled, and all outstanding shares of TSAT
Common Stock will be exchanged for shares of New PRIMESTAR Common Stock.
Accordingly, the number of shares of New PRIMESTAR Common Stock issued to
TSAT stockholders in connection with the TSAT Merger will be less than the
number of shares of New PRIMESTAR Common Stock owned by TSAT prior to the
TSAT Merger to the extent Issuable TSAT Shares are not issued and
outstanding at the time of the TSAT Merger.
(6) Represents the elimination of Tempo's historical assets and liabilities.
Such assets and liabilities were not transferred to the Company in the
Restructuring.
7
<PAGE>
PRIMESTAR, INC.
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(7) Represents the consummation of the Mergers and Asset Transfers.
Information concerning the aggregate purchase price is set forth below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------
AMOUNTS IN THOUSANDS
<S> <C>
PRIMESTAR Class A Common Stock (114,167,000 shares
valued at estimated fair value of $7.39 per share)... $ 843,694(a)
PRIMESTAR Class C Common Stock (13,502,000 shares
valued at estimated fair value of $7.39 per share)... 99,780(a)
Cash consideration (or assumption of debt in lieu of
cash consideration).................................. 438,784
Elimination of Non-TSAT Parties' investment in the
Partnership.......................................... 66,890
Deferred income tax effect of purchase price
allocation........................................... 223,713
Elimination of historical equity...................... 223,251
Write-down of satellite reception equipment to
estimated fair market value(b)....................... 293,485
Adjustment to reflect satellite capacity rights at
TSAT's historical cost............................... 84,494
Estimated direct costs of acquisition (funded by debt
of the Company)...................................... 20,000
----------
Increase to intangible assets....................... $2,294,091
==========
</TABLE>
--------
(a) For purposes of the accompanying condensed pro forma combined
financial statements, the PRIMESTAR Common Stock issued to the Non-
TSAT Parties has been valued at $7.39 per share based upon the per
share market value of TSAT Common Stock and other relevant factors
during a reasonable period before and after the closing date of the
Restructuring, which is the date that the amount of cash and number of
shares to be received by the Non-TSAT Parties became fixed.
(b) The adjustment to the property and equipment is based on the estimated
depreciated replacement cost for the satellite reception and other
property and equipment of the Non-TSAT Parties. Such amount is
computed using the depreciation policies and useful lives of TSAT. The
adjusted intangible assets balance represents the excess of the
Restructuring purchase price over the estimated fair values of the
identifiable net assets of the Non-TSAT Parties. The Company's
intangible assets are assumed to be primarily associated with its
customer relationships, tradenames and goodwill, and, for pro forma
purposes, have been amortized over useful lives of 4 years, 20 years
and 20 years, respectively.
(8) Represents the elimination of all amounts due to or from the respective
parents of the Non-TSAT Parties.
(9) Represents the elimination of all amounts payable by TSAT and the Non-
TSAT Parties to the Partnership with respect to programming, satellite,
national marketing and distribution fees.
(10) Represents the reclassification of the subscriber installation costs of
Comcast Satellite. Such subscriber installation costs were reclassified
to conform to the Company's classification of such costs as a component
of property and equipment.
(11) Represents the elimination of programming, satellite, national marketing
and distribution fees received by the Partnership from TSAT and the Non-
TSAT Parties.
(12) Adjusts depreciation expense to reflect the preliminary purchase price
allocation and to conform the depreciation policies and depreciable lives
of the Non-TSAT Parties to those of TSAT. TSAT computes depreciation on a
straight-line basis using estimated useful lives of 4 to 6 years for
satellite reception equipment; 3 to 10 years for support equipment and 4
years for subscriber installation costs. Also reclassifies amounts
included in Comcast Satellite's operating, selling, general and
administrative expenses that will be included in depreciation expense
under the Company's accounting policies.
8
<PAGE>
PRIMESTAR, INC.
NOTES TO CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(13) Represents amortization of the intangible assets that result from the
preliminary purchase price allocation. Such amortization is calculated
using useful lives for intangible assets related to customer
relationships, tradenames and goodwill of 4 years, 20 years and 20 years,
respectively.
(14) Represents assumed interest expense on the debt to be incurred or assumed
by the Company in connection with the Restructuring. The pro forma
adjustment has been calculated using an assumed interest rate of 10% per
annum. A 1/8% change in the assumed interest rate would have resulted in
a $573,000 change to the Company's pro forma interest expense for the
year ended December 31, 1997.
(15) Represents the elimination of interest expense incurred on amounts owed
to the respective parents of the Non-TSAT Parties.
(16) Represents the elimination of each Partner's share of the losses of the
Partnership.
(17) Represents the assumed income tax effect of the pro forma adjustments.
(18) Represents the cancellation of the TSAT Option Shares. The adjustment
assumes that none of the Issuable TSAT Shares will have been issued as of
the closing date of the TSAT Merger. To the extent any of the Issuable TSAT
Shares are issued as of such closing date, such issued shares will be
exchanged for shares of New PRIMESTAR Common Stock.
(19) Represents the issuance of the PRIMESTAR Convertible Preferred Stock and
the PRIMESTAR Convertible Subordinated Notes in consideration for the MCI
Satellites and MCI's FCC licenses. Such securities have been recorded at
their estimated fair value based on management's discussions with
investment bankers as of the date of the preparation of these condensed pro
forma combined financial statements. Accordingly, the actual fair value of
such consideration on the date of issuance may differ from the values
reflected herein. Once the MCI Satellites and MCI's FCC licenses are placed
into service, amortization will be calculated on a straight-line basis over
an estimated useful life of 12 years and 40 years, respectively.
(20) Represents assumed interest expense on the PRIMESTAR Convertible
Subordinated Notes. The pro forma adjustment is calculated using the
stated interest rate of 5% per annum.
9
<PAGE>
PRIMESTAR, INC.
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(21) Represents dividends on the PRIMESTAR Convertible Preferred Stock. The
pro forma adjustment is calculated using the stated dividend rate of 5%
per annum.
(22) Represents pro forma loss per share assuming 194.4 million weighted
average shares of PRIMESTAR Common Stock were outstanding during the year
ended December 31, 1997. Such weighted average share amount assumes that
the estimated number of shares of PRIMESTAR Common Stock that would have
been issued if the Restructuring and the TSAT Merger had occurred on
December 31, 1997 had been outstanding since January 1, 1997.
10
