<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
Commission File Number: 000-23883
PHOENIXSTAR, INC.
----------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1441684
- -------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8085 South Chester Street, Suite 300
Englewood, Colorado 80112
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 712-4600
PRIMESTAR, INC.
---------------
(Former name)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days [X] Yes [ ] No
None of Phoenixstar, Inc.'s shares of common stock were publicly traded as
of April 30, 1999. The number of shares outstanding of Phoenixstar, Inc.'s
common stock as of April 30, 1999 was:
Class A common stock 179,143,934 shares;
Class B common stock 8,465,324 shares; and
Class C common stock 13,332,365 shares.
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------------- ---------------------
amounts in thousands
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 170,380 --
Accounts receivable 94,738 117,655
Other receivables 6,836 29,387
---------- ---------
101,574 147,042
Less allowance for doubtful accounts 8,804 7,442
---------- ---------
92,770 139,600
---------- ---------
Prepaid expenses 4,855 3,967
Property and equipment, at cost:
Satellite reception equipment 1,228,718 1,198,376
Subscriber installation costs 284,134 270,384
Support equipment 93,660 93,698
---------- ---------
1,606,512 1,562,458
Less accumulated depreciation 456,915 413,868
---------- ---------
1,149,597 1,148,590
---------- ---------
Intangible assets, net of accumulated amortization 615,568 786,373
Deferred financing costs and other assets,
net of accumulated amortization 32,307 33,557
---------- ---------
$2,065,477 2,112,087
========== =========
</TABLE>
(continued)
I-1
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------------ -----------------------
amounts in thousands
<S> <C> <C>
Liabilities and Stockholders' Deficit
- -------------------------------------
Accounts payable $ 230,822 195,873
Accrued expenses 108,713 136,901
Accrued charges from related parties 22,172 14,792
Deferred revenue 106,364 100,948
Debt (note 7) 1,860,717 1,833,195
Deferred income taxes 66,786 75,057
Other liabilities 38,402 40,095
----------- ----------
Total liabilities 2,433,976 2,396,861
----------- ----------
Stockholders' Deficit:
Preferred stock, $.01 par value; authorized
350,000,000 shares; none issued -- --
Class A common stock, $.01 par value; authorized
850,000,000 shares;
issued 179,143,934 in 1999 and 1998 1,791 1,791
Class B common stock, $.01 par value; authorized
50,000,000 shares;
issued 8,465,324 in 1999 and 1998 85 85
Class C common stock, $.01 par value; authorized
30,000,000 shares;
issued 13,332,365 in 1999 and 1998 133 133
Class D common stock, $.01 par value; authorized
150,000,000 shares;
none issued -- --
Additional paid-in capital 1,511,041 1,511,041
Accumulated deficit (1,881,549) (1,797,824)
----------- ----------
Total stockholders' deficit (368,499) (284,774)
----------- ----------
Commitments and contingencies
(notes 2 and 9)
$ 2,065,477 2,112,087
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------------------------
1999 1998
----------------------- -----------------------
amounts in thousands,
except per share amounts
<S> <C> <C>
Revenue:
Programming and equipment rental $385,266 154,257
Installation 8,598 14,243
-------- -------
393,864 168,500
-------- -------
Operating costs and expenses:
Charges from PRIMESTAR Partners L.P.
(the "Partnership") (note 8) -- 82,235
Operating (note 8) 199,664 9,847
Selling, general and administrative (note 8) 104,934 55,341
Stock compensation (note 8) 271 4,869
Depreciation 114,461 65,105
Amortization 24,375 --
-------- -------
443,705 217,397
-------- -------
Operating loss (49,841) (48,897)
Other income (expense):
Interest expense (42,428) (14,177)
Share of losses of the Partnership -- (5,822)
Other, net 273 (621)
-------- -------
(42,155) (20,620)
-------- -------
Loss before income taxes (91,996) (69,517)
Income tax benefit 8,271 --
-------- -------
Net loss $(83,725) (69,517)
======== =======
Basic and diluted loss per common share (note 5) $(.42) (1.03)
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Consolidated Statement of Stockholders' Deficit
Three months ended March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Common stock Additional Total
------------------------------------------------- paid-in Accumulated stockholders'
Class A Class B Class C Class D capital deficit deficit
------------ ------- ----------- ------------- ---------- ----------- ------------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $1,791 85 133 -- 1,511,041 (1,797,824) (284,774)
Net loss -- -- -- -- -- (83,725) (83,725)
------------ ------- ----------- ------------- ---------- ---------- --------
Balance at March 31, 1999 $1,791 85 133 -- 1,511,041 (1,881,549) (368,499)
============ ======= =========== ============= ========== ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-4
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------------------
1999 1998
------------------- -------------------
amounts in thousands
(see note 6)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (83,725) (69,517)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 138,836 65,105
Share of losses of the Partnership -- 5,822
Accretion of debt discount 5,644 4,682
Stock compensation 271 4,869
Payments related to stock appreciation rights (1,625) --
Payments related to restructuring charges (10,231) --
Deferred tax benefit (8,271) --
Other non-cash charges 421 7,956
Changes in operating assets and liabilities:
Change in receivables 46,830 10,845
Change in prepaid expenses and other assets (888) (736)
Change in accruals and payables 27,653 (10,209)
Change in deferred revenue 5,416 (3,114)
--------- -------
Net cash provided by operating activities 120,331 15,703
--------- -------
Cash flows from investing activities:
Capital expended for property and equipment (118,221) (73,966)
Proceeds from First Closing of Hughes High Power
Transaction 149,250 --
Other investing activities (2,820) (75)
--------- -------
Net cash provided (used) by investing activities 28,209 (74,041)
--------- -------
Cash flows from financing activities:
Borrowings of debt 22,000 113,000
Repayments of debt (160) (61,735)
Proceeds from issuance of common stock -- 989
--------- -------
Net cash provided by financing activities 21,840 52,254
--------- -------
Net increase (decrease) in cash and cash
equivalents 170,380 (6,084)
Cash and cash equivalents:
Beginning of period -- 6,084
--------- -------
End of period $ 170,380 --
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
I-5
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
(1) Organization and Basis of Presentation
--------------------------------------
The accompanying consolidated financial statements of Phoenixstar, Inc.
(formerly PRIMESTAR, Inc.) ("Phoenixstar" or the "Company") include the
historical financial information of TCI Satellite Entertainment, Inc.
("TSAT") and its consolidated subsidiaries for the period prior to March
31, 1998 and Phoenixstar and its consolidated subsidiaries for the period
subsequent to March 31, 1998. All significant intercompany transactions
have been eliminated.
Phoenixstar was incorporated on August 27, 1997. Through the Hughes
Closing Date, as defined below, the Company owned and operated the
PRIMESTAR(R) direct to home satellite service throughout the continental
U.S. The PRIMESTAR(R) service is transmitted via a satellite ("GE-2")
owned and operated by GE American Communications ("GE Americom") at the 85
West Longitude ("W.L.") orbital position. As a result of the consummation
of the Hughes Medium Power Transaction, as defined below, the Company is no
longer engaged in the digital satellite-based television services industry.
The Company is in the process of satisfying its remaining liabilities,
terminating any remaining contracts and winding up its business affairs.
(2) The Hughes Transactions
-----------------------
Effective April 28, 1999 (the "Hughes Closing Date") and pursuant to an
asset purchase agreement dated January 22, 1999 (the "Hughes Medium Power
Agreement"), the Company sold its medium-power direct broadcast satellite
business to Hughes Electronics Corporation ("Hughes"), a subsidiary of
General Motors Corporation, for aggregate consideration of $1,358.2 million
(the "Hughes Medium Power Transaction"). Such consideration was comprised
of $1,100 million in cash (before working capital adjustments and
transaction costs) and 4.871 million shares of General Motors Class H
common stock ("GMH Stock") valued at $258.2 million on the Hughes Closing
Date. The Company recognized a gain of approximately $97 million, before
income tax effects, upon consummation of the Hughes Medium Power
Transaction. The purchase price is subject to working capital adjustments
to be settled within 90 days after the Hughes Closing Date.
(continued)
I-6
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Notes to Consolidated Financial Statements
Concurrently with the Hughes Medium Power Transaction, Phoenixstar reached
an agreement (the "Lock-up Agreement") with holders of approximately 84% of
the aggregate principal amount of its 10-7/8% Senior Subordinated Notes due
2007 (the "Senior Subordinated Notes"), 12-1/4% Senior Subordinated
Discount Notes due 2007 (the "Senior Subordinated Discount Notes" and,
together with the Senior Subordinated Notes, the "Notes"), and notes issued
under its Senior Subordinated Credit Facility dated as of April 1, 1998
(the "Bridge Loans"). Holders participating in the privately negotiated
transaction agreed to sell their Notes and Bridge Loans to the Company for
cash equal to 85.6% of the aggregate principal amount thereof, plus stock
appreciation rights ("SARs") on the shares of GMH Stock received by
Phoenixstar in the Hughes Medium Power Transaction. Each SAR issued in the
transaction entitles the holder to receive a payment from Phoenixstar at
the end of one year from the date of issuance in the amount, if any, by
which the market price per share of GMH Stock at such time exceeds $47.00
per share. Participating Note holders and bridge lenders received
approximately 7.8 SARs per $1,000 principal amount of debt sold to
Phoenixstar pursuant to the Lock-up Agreement. Participating Note holders
and bridge lenders also agreed to (i) consent to the transaction with
Hughes and (ii) amend the indentures and credit agreement governing such
debt obligations to remove substantially all covenants, other than
covenants to pay interest on and principal of the Notes and Bridge Loan
when due and covenants relating to certain required purchase offerings.
Under the terms of the indentures and credit agreement governing
Phoenixstar's subordinated debt, Phoenixstar is required to make an offer
to purchase the remainder of the outstanding publicly traded Notes at a
purchase price equal to 101% of par. In that connection, the Company has
commenced an offer to purchase the remaining Notes (the "Offer to
Purchase").
In connection with the Hughes Medium Power Transaction and pursuant to a
funding agreement, dated as of March 31, 1999 (the "Funding Agreement"),
affiliates of the stockholders of the Company, other than TSAT, and an affiliate
of Tele-Communications, Inc. (collectively, the "Stockholder Affiliates")
committed to make funds available to the Company, either in the form of capital
contributions or loans, up to an aggregate of $1,013 million, subject to certain
conditions and triggering events set forth in the Funding Agreement (the
"Stockholder Commitment"). Pursuant to such commitment, the Stockholder
Affiliates contributed to the Company $307.7 million on the Hughes Closing Date
(the "Initial Funding Amount"). On the Hughes Closing Date, the Company used a
portion of the cash proceeds from the Hughes Medium Power Transaction and the
Initial Funding Amount to (i) repay principal, interest and fees due under the
Company's senior bank credit facility ($537.5 million) and (ii) fund amounts due
pursuant to the Lock-up Agreement ($543.5 million) and (iii) fund amounts to
holders of Bridge Loans who were not party to the Lock-up Agreement ($10.1
million).
(continued)
I-7
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Notes to Consolidated Financial Statements
Pursuant to the indentures governing the notes (the "Indentures'), on May
13, 1999, the Company commenced a tender offer to purchase all Notes not
purchased pursuant to the Lock-up Agreement (the "Remaining Notes"), on the
terms required by the Indentures. The terms and conditions of such tender
offer are set forth in the Offer to Purchase, dated May 13, 1999, sent by
the Company to the holders of the Remaining Notes. In connection with
therewith, the Company also sent to the holders of the Remaining Notes
notice informing them that a "change of control" had occurred and informing
them of the effectiveness of the Supplemental Indentures, as required by
the Indentures.
In connection with their approval of the Hughes Medium Power Transaction,
the stockholders of Phoenixstar also 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 dated as of January 22, 1999 (the "Phoenixstar Payment
Agreement"). In consideration of the Phoenixstar Payment, TSAT agreed to
approve the Hughes Medium Power Transaction and Hughes High Power
Transaction (as defined below) as a stockholder of Phoenixstar, to modify
certain agreements to facilitate the Hughes High Power Transaction, and to
issue the Company a share appreciation right with respect to the shares of
GMH Stock received as the Phoenixstar Payment, granting the Company the
right to any market price appreciation in such GMH Stock over 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. On the Hughes Closing Date, the Company
issued to TSAT 1.407 million shares of GMH Stock in satisfaction of the
Phoenixstar Payment.
Subsequent to the Hughes Closing Date, the Company is responsible for (i)
the payment of certain obligations not assumed by Hughes, (ii) the payment
of costs, currently estimated to range from $270 million to $340 million,
associated with the termination of certain vendor and service contracts and
lease agreements not assumed by Hughes, (iii) the payment to all Note
holders who accept the Offer to Purchase, the purchase price for each Note
tendered, and the repayment of principal and interest due pursuant to the
Notes not paid as part of the Lock-up Agreement or the Offer to Purchase
and (iv) the repayment of amounts due under the Company's Partnership
Credit Facility. The Company currently expects to fund such obligations
with available cash, additional advances and/or contributions from the
Stockholder Affiliates pursuant to the Stockholder Commitment and
additional proceeds from the Hughes High Power Transaction, if any.
(continued)
I-8
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Notes to Consolidated Financial Statements
In a separate transaction, the Company announced that TSAT and the Company
had reached an agreement with Hughes to sell (i) TSAT's authorizations
granted by the Federal Communications Commission (the "FCC") and other
assets and liabilities relating to a proposed DBS system being constructed
by Tempo Satellite, Inc. ("Tempo"), a subsidiary of TSAT, at 119 degrees
W.L. (collectively, the "Tempo DBS Assets") and (ii) Phoenixstar's rights
relating to the Tempo DBS Assets ("Tempo Rights") to Hughes, for aggregate
consideration valued at $500 million (the "Hughes High Power Transaction").
Pursuant to the agreement, Hughes would assume $465 million of TSAT's
liability to the Partnership, pay TSAT $2.5 million in cash and pay
Phoenixstar and the Partnership $32.5 million in cash. In addition, the
Partnership and Phoenixstar have agreed to forgive amounts due from TSAT in
excess of the $465 million to be assumed by Hughes. To facilitate such
transaction, the Partnership would terminate and relinquish the Tempo
Rights. Due to the fact that regulatory approval is required to transfer
certain of the Tempo DBS Assets to Hughes, the Hughes High Power
Transaction will be completed in two steps.
Effective March 10, 1999, the first closing of the Hughes High Power
Transaction (the "First Closing") was consummated whereby Hughes acquired
one of Tempo's high power satellites ("Tempo DBS-2") and Phoenixstar's
option to acquire Tempo DBS-2 (the "Tempo DBS-2 Option") for aggregate
consideration of $150 million. Such consideration was comprised of the
following: (i) $9,750,000 paid to Phoenixstar and the Partnership for the
Tempo DBS-2 Option and the termination of the Partnership's rights under
the Tempo Capacity Option, (ii) $750,000 paid to TSAT to exercise the Tempo
DBS-2 Option and (iii) the assumption by Hughes of $139,500,000 due to the
Partnership from TSAT in exchange for Tempo DBS-2. Simultaneously with the
First Closing, Hughes repaid the liability to the Partnership that Hughes
assumed.
The sale of the remaining assets contemplated by the Hughes High Power
Agreement (the "Second Closing") is subject to the receipt of appropriate
regulatory approvals and other customary closing conditions and is expected
to be consummated in mid-1999. In the event the Second Closing is not
consummated and the Hughes High Power Agreement is abandoned, there can be
no assurance that the Company will be able to recover the carrying amount
of its satellite rights. Tempo has been notified that its in-orbit
satellite ("Tempo DBS-1") experienced power reductions which occurred on
March 29, 1999 and April 2, 1999. Although the Company does not believe
the extent of such power reductions is significant, a definitive assessment
of the impact on Tempo DBS-1 is not yet complete.
(continued)
I-9
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Notes to Consolidated Financial Statements
(3) The Restructuring
-----------------
Effective April 1, 1998 (the "Restructuring Closing Date") and pursuant to
(i) a Merger and Contribution Agreement dated as of February 6, 1998 (the
"Restructuring Agreement"), among TSAT, 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 Americom, and (ii)
an Asset Transfer Agreement dated as of February 6, 1998, between TSAT and
the Company, a business combination (the "Restructuring") was consummated.
In connection with the Restructuring, TSAT contributed and transferred to
the Company (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 agreements with the Company and others. In addition, (i) the
business of the Partnership, (ii) the business of distributing the
PRIMESTAR(R) programming service ("PRIMESTAR(R)"), including certain
related assets and liabilities of each of TWE, Newhouse, Comcast, Cox and
affiliates of MediaOne, and (iii) the interest in the Partnership of each
of TWE, Newhouse, Comcast, Cox, affiliates of MediaOne and GE Americom
(collectively, the "Non-TSAT Parties") were consolidated into the Company.
In connection with the Restructuring, each of TSAT, Comcast, Cox, MediaOne,
Newhouse, TWE and GE Americom received from the Company (i) cash or an
assumption of indebtedness, (ii) shares of Class A Common Stock, $.01 par
value per share, of the Company, (iii) in the case of TSAT only, shares of
Class B Common Stock, $.01 par value per share, of the Company, and (iv)
except in the case of TSAT and GE Americom, shares of Class C Common Stock,
$.01 par value per share, of the Company, in each case in an amount
determined pursuant to the Restructuring Agreement. The total
consideration paid by Phoenixstar to the Non-TSAT Parties (including
assumed liabilities) aggregated approximately $2.2 billion comprising $1.3
billion of cash and assumed liabilities and $900 million of common stock.
As of March 31, 1999, the approximate ownership of Phoenixstar's common
stock was as follows:
<TABLE>
<CAPTION>
Ownership
Name of Beneficial Owner Percentage
------------------------ ----------
<S> <C>
TSAT 37.23%
TWE and Newhouse (collectively) 30.02%
Comcast 9.50%
MediaOne 9.69%
Cox 9.43%
GE Americom 4.13%
</TABLE>
The TSAT Asset Transfer was recorded at TSAT's historical cost, and the
remaining elements of the Restructuring, as set forth above, were accounted
for using the purchase method of accounting. 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.
(continued)
I-10
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Notes to Consolidated Financial Statements
TSAT was identified as the acquirer 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.
On a pro forma basis, the Company's revenue, net loss and loss per common
share for the three months ended March 31, 1998 would have been
$372,563,000, $154,206,000 and $.77 assuming the Restructuring had been
consummated on January 1, 1998. Such unaudited pro forma financial
information is based upon historical results of operations adjusted for
acquisition costs and, in the opinion of management, is not necessarily
indicative of the results had the Restructuring been consummated on January
1, 1998.
Interim Financial Statements
----------------------------
The accompanying interim consolidated financial statements of the Company
are unaudited. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) have been made which are necessary to
present fairly the financial position of the Company as of March 31, 1999
and the results of its operations for the periods ended March 31, 1999 and
1998. The results of operations for any interim period are not necessarily
indicative of the results for the entire year. These financial statements
should be read in conjunction with the financial statements and related
notes thereto included in the Company's December 31, 1998 Annual Report on
Form 10-K.
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.
Reclassifications
-----------------
Certain amounts have been reclassified for comparability with the 1999
presentation.
(4) Comprehensive Loss
------------------
The Company's total comprehensive loss for all periods presented herein did
not differ from those amounts reported as net loss in the consolidated
statements of operations.
(5) Loss Per Common Share
---------------------
The loss per common share for the three months ended March 31, 1999 and
1998 is based on the weighted average number of shares outstanding during
the period (200,942,000 and 67,633,000 for the three months ended March 31,
1999 and 1998, respectively).
(continued)
I-11
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Notes to Consolidated Financial Statements
(6) Supplemental Disclosures to Consolidated Statements of Cash Flows
-----------------------------------------------------------------
Cash paid for interest was $41,514,000 and $13,844,000 during the three
months ended March 31, 1999 and 1998, respectively. Cash paid for income
taxes was not material during such periods.
(7) Debt
----
The components of debt are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------- -------------------
amounts in thousands
<S> <C> <C>
Bank Credit Facility $ 535,200 513,200
Bridge Loan Agreement (a) 350,000 350,000
Partnership Credit Facility 575,000 575,000
Senior Subordinated Notes 200,000 200,000
Senior Subordinated Discount Notes 195,366 189,722
Other 5,151 5,273
---------- ---------
$1,860,717 1,833,195
========== =========
</TABLE>
(a) On the Restructuring Closing Date, the Company entered into a senior
subordinated credit agreement (the "Bridge Loan Agreement") with
certain financial institutions (the "Lenders") with respect to a $350
million unsecured senior subordinated interim loan. The Bridge Loan
Agreement provided for commitments of $350 million. The commitments
were fully funded to the Company on the Restructuring Closing Date.
The obligations under the Bridge Loan Agreement were due in full one
year from the Restructuring Closing Date. However, the Company had
the option to convert any outstanding principal amount of the Bridge
Loan on such date (the "Conversion Date") into a term loan maturing on
April 1, 2008. The Company gave notice of such conversion on March
29, 1999, in accordance with the terms of the Bridge Loan Agreement.
However, the Bridge Loan was repaid and all commitments were
terminated on the Hughes Closing Date.
In addition, on the Conversion Date, the Company became obligated to
enter into a stock warrant agreement with the Lenders providing for
the issuance of warrants to purchase common stock of the Company equal
to 2% of the Company's outstanding common stock on the Conversion
Date. The warrants are to be exercisable over a ten-year period at a
nominal exercise price.
The fair value of the Company's debt is estimated based upon the quoted
market prices for the same or similar issuances or on the current rates
offered to the Company for debt of the same remaining maturities. With the
exception of the Notes, which had an aggregate fair value of $253,250,000
at March 31, 1999, Phoenixstar believes that the fair value and the
carrying value of its debt were approximately equal at March 31, 1999.
(continued)
I-12
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Notes to Consolidated Financial Statements
(8) Transactions With Related Parties
---------------------------------
The Company is a party to a satellite transponder service agreement, as
amended (the "GE-2 Agreement") with an affiliate of GE Americom for
satellite service on GE-2. Charges to the Company for the use of GE-2 and
other services provided by GE Americom aggregated $21,585,000 for the three
months ended March 31, 1999 and are included in operating expenses in the
accompanying consolidated statements of operations.
TCI and the Non-TSAT Parties, other than GE Americom, have arranged for
letters of credit (the "GE-2 Letters of Credit") to support the Company's
obligations under the GE-2 Agreement. Pursuant to the Restructuring
Agreement, the Company reimburses TCI and the Non-TSAT Parties for fees
related to the Partnership Letters of Credit and the GE-2 Letters of
Credit. Such reimbursements aggregated $2,265,000 during the three months
ended March 31, 1999 and are included in interest expense in the
accompanying consolidated statement of operations.
Since April 1, 1998, a subsidiary of TCI has provided satellite uplink
services to the Company. Charges for such services aggregated $3,550,000
for the three months ended March 31, 1999 and are included in operating
expenses in the accompanying consolidated statements of operations.
TCI also provided the Company with customer support services from TCI's
Boise, Idaho call center. Amounts charged by TCI to the Company for such
services aggregated $9,614,000 and $5,026,000 during the three months ended
March 31, 1999 and 1998, 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
stock appreciation rights with respect to certain common stock of TCI.
Estimates of the compensation related to the options and/or stock
appreciation rights granted to employees of the Company have been recorded
in the accompanying consolidated financial statements, but are subject to
future adjustment based upon the market value of the underlying common
stock of TCI and, ultimately, on the final determination of market value
when the rights are exercised. Compensation expense recognized by the
Company related to such options aggregated $271,000 and $3,814,000 during
the three months ended March 31, 1999 and 1998, respectively.
Prior to the Restructuring, the Partnership provided programming services
to TSAT and other authorized distributors in exchange for a fee based upon
the number of subscribers receiving programming services. In addition, the
Partnership arranged for satellite capacity and uplink services, and
provided national marketing and administrative support services in exchange
for a separate authorization fee.
I-13
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Notes to Consolidated Financial Statements
(9) Commitments and Contingencies
-----------------------------
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 consolidated financial statements.
I-14
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
----------
General
- -------
The following discussion and analysis provides information concerning the
financial condition and results of operations of Phoenixstar and should be read
in conjunction with (i) the accompanying consolidated financial statements of
Phoenixstar, and (ii) the financial statements and related notes of the Company,
and Management's Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations included in the Company's Annual Report on Form 10-K for the year
- ----------
ended December 31, 1998.
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other important factors that could cause
the actual results, performance or achievements of Phoenixstar to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
factors include, among others: general economic and business conditions and
industry trends; uncertainties inherent in proposed business strategies and
development plans, including uncertainties regarding the Hughes High Power
Transactions; future financial performance, including availability, terms and
deployment of capital; availability of qualified personnel; changes in, or the
failure or the inability to comply with, government regulations, including,
without limitation, regulations of the FCC, and adverse outcomes from regulatory
proceedings; reliance on software programs used by the Company or its business
partners containing problems related to the Year 2000; and other factors
referenced in this Report. These forward-looking statements speak only as of
the date of this Report. Phoenixstar expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in Phoenixstar's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.
As discussed in note 2 to the accompanying consolidated financial
statements, the Hughes Medium Power Transaction was consummated on April 28,
1999. As a result of such consummation, the Company is no longer engaged in the
digital satellite-based television service industry. The Company is in the
process of satisfying its remaining liabilities, terminating any remaining
contracts and winding up its business affairs.
Material Changes in Results of Operations
- -----------------------------------------
As discussed in note 3 to the accompanying consolidated financial
statements, the Restructuring was consummated on April 1, 1998. As a result of
the Restructuring, the Company owned and operated the PRIMESTAR(R) digital
satellite business. The Company offered a direct to home satellite service with
over 160 channels of digital video and audio programming throughout the
continental United States. Prior to the Restructuring, the PRIMESTAR(R) service
was owned and operated by the Partnership and separately distributed and
serviced by affiliates of the partners of the Partnership (the "Distributors").
As a result of the Restructuring, the entire PRIMESTAR(R) digital satellite
business was consolidated into the Company.
I-15
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Material Changes in Results of Operations, continued
- ----------------------------------------------------
TSAT was 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 the consummation of the
Restructuring. Accordingly, the periods prior to the Restructuring represent
the results of operations of TSAT, and the periods subsequent to the
Restructuring include the results of operations of TSAT, the Partnership and the
Non-TSAT Parties. To the extent not otherwise described, increases in the
Company's revenue and operating, selling, general and administrative expenses,
as detailed below, are primarily related to the Restructuring.
The Company added 20,000 net customers during the three months ended March
31, 1999 for a total of 2,316,000 customers at March 31, 1999. During the three
months ended March 31, 1999 and 1998 and the years ended December 31, 1998 and
1997, (i) the Company's annualized subscriber churn rate (which represents the
annualized number of subscriber terminations divided by the weighted average
number of subscribers during the period) was 37.3%, 27.1%, 33.2% and 30.1%,
respectively and (ii) the average subscriber life implied by such subscriber
churn rate was 2.7 years, 3.7 years, 3.0 years and 3.3 years, respectively.
The Company believes that the higher churn rate in 1999 is due to increased
competitive pressures in 1999 and the announcement of the Hughes Medium Power
Transaction. In addition, the Company reduced its marketing efforts in the
first quarter of 1999 as a result of the announcement of the Hughes Medium Power
Transaction.
Certain financial information concerning the Company's operations is
presented below (dollar amounts in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------------------------------------------------
1999 1998
-------------------------------------- --------------------------------------
Percentage Percentage
of total of total
Amount revenue Amount revenue
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenue:
Programming and equipment rental $ 385,266 98% $154,257 92%
Installation 8,598 2 14,243 8
--------- ---- -------- ----
Total revenue 393,864 100 168,500 100
--------- ---- -------- ----
Operating costs and expenses:
Charges from the Partnership -- -- (82,235) (49)
Operating (199,664) (51) (9,847) (6)
Selling and marketing (76,957) (19) (38,648) (23)
General and administrative (27,977) (7) (16,693) (10)
--------- ---- -------- ----
Operating Cash Flow (1) 89,266 23 21,077 12
Stock compensation (271) -- (4,869) (3)
Depreciation and amortization (138,836) (36) (65,105) (38)
--------- ---- -------- ----
Operating loss $ (49,841) (13)% $(48,897) (29)%
========= ==== ======== ====
</TABLE>
I-16
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Material Changes in Results of Operations, continued
- ----------------------------------------------------
___________________
(1) Operating Cash Flow, which represents operating income before depreciation,
amortization and stock compensation, is a commonly used measure of value
and borrowing capacity. Operating Cash Flow is not intended to be a
substitute for a measure of performance in accordance with generally
accepted accounting principles and should not be relied upon as such.
Furthermore, Operating Cash Flow may not be comparable to similarly titled
measures reported by other companies. Operating Cash Flow should be viewed
together with cash flows measured in accordance with generally accepted
accounting principles. For information concerning such cash flows, see the
consolidated statements of cash flows included in the accompanying
consolidated financial statements.
During 1998, in an effort to remain competitive, attract new customers and
retain existing customers, the Company implemented various new service offerings
and changed the pricing of certain of its existing offerings. For example, the
Company implemented a national pricing and programming package structure
effective July 1, 1998, whereby customers would receive the same programming
packages for the same price throughout the country. Such national pricing
structure had the effect of lowering certain rates for certain packages in
certain areas of the country. In addition, the Company initiated promotional
offers including installation rebates and packages with reduced rental fees.
The Company believes that such new service offerings, pricing changes and
promotional offers attracted new customers and helped retain existing customers,
but had a negative impact on the Company's recurring revenue per customer and
installation revenue per new customer installed.
Revenue increased $225,364,000 or 134% during the three months ended March
31, 1999, as compared to the corresponding prior year period. The Company's
average monthly programming and equipment rental revenue per customer decreased
from $58 during the 1998 three month period to $56 during the 1999 three month
period. Such decrease was primarily the result of the aforementioned changes in
the price structure of the Company's service offerings. The average
installation revenue from each customer installed decreased from $98 in 1998 to
$37 in 1999. Such decrease is primarily due to a $50 rebate offer that was
initiated by the Company in April 1998 and increased to $100 in September 1998.
Through the Restructuring Closing Date, the Partnership provided
programming services to the Company and other authorized Distributors in
exchange for a fee based upon the number of customers receiving programming
services. The Partnership also arranged for satellite capacity and uplink
services, and provided national marketing and administrative support services,
in exchange for a separate authorization fee from each Distributor, including
the Company, based on such Distributor's total number of authorized satellite
receivers.
Subsequent to the Restructuring Closing Date, operating expenses are
primarily comprised of programming, satellite capacity and uplink costs (costs,
which prior to the Restructuring were included in charges from the Partnership)
and amounts related to customer fulfillment activities.
I-17
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Material Changes in Results of Operations, continued
- ----------------------------------------------------
Selling and marketing expenses, which represented 19% of revenue during the
three months ended March 31, 1999, include sales salaries and commissions,
marketing and advertising expenses, and costs associated with the operation of
customer service call centers. General and administrative expenses represented
7% and 10% of revenue during the three months ended March 31, 1999 and 1998,
respectively. The decrease in such percentage is primarily attributable to the
relatively fixed nature of certain components of the Company's general and
administrative expenses.
During the second half of 1997, the Company began offering a marketing
program that allows subscribers to purchase the Company's proprietary satellite
reception equipment at a price that is less than the Company's cost. Losses
incurred by the Company on such sales of satellite reception equipment are
included in selling expense in the period such sales are consummated. As the
Company stopped aggressively marketing such program in the fourth quarter of
1998, such losses decreased to $244,000 in 1999 from $7,321,000 during 1998.
The $49,356,000 or 76% increase in depreciation expense during the three
months ended March 31, 1999, as compared to the corresponding prior year period,
is the result of an increase in the Company's depreciable assets due primarily
to the Restructuring.
The Company recognized amortization expense of $24,375,000 during the three
months ended March 31, 1999. Such amortization expense relates to intangible
assets recorded in connection with the Restructuring.
The Company incurred interest expense of $42,428,000 and $14,177,000 during
the three months ended March 31, 1999 and 1998, respectively. The increase in
interest expense is due to interest incurred on the Bridge Loan and the
Partnership Credit Facility as well as additional borrowings under the Bank
Credit Facility.
The Company's net loss of $83,725,000 for the three months ended March 31,
1999 represents an increase of $14,208,000 as compared to a net loss of
$69,517,000 for the three months ended March 31, 1998. Such increased net loss
is due primarily to the increases in deprecation, amortization and interest
expense discussed above, partially offset by an increase in the Company's income
tax benefit.
Material Changes in Financial Position
- --------------------------------------
Concurrently with the Hughes Medium Power Transaction, Phoenixstar reached
agreement with holders of approximately 84% of the aggregate principal amount of
its Senior Subordinated Notes, Senior Subordinated Discount Notes and Bridge
Loans. Holders participating in the privately negotiated transaction agreed to
consent to the transaction with Hughes, amend the indentures and credit
agreement governing such debt obligations to remove substantially all covenants,
and sell their Notes and Bridge Loans to the Company for cash equal to 85.6% of
the aggregate principal amount thereof, plus stock appreciation rights on the
shares of GMH Stock received by Phoenixstar in the Hughes Medium Power
Transaction. Each SAR issued in the transaction entitles the holder to receive
a payment from Phoenixstar at the end of one year from the date of issuance in
the amount, if any, by which the market price per share of GMH Stock at such
time exceeds $47.00 per share. Participating note holders and bridge lenders
received approximately 7.8 SARs per $1,000 principal amount of debt sold to
Phoenixstar pursuant to the Lock-up Agreement.
I-18
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Material Changes in Financial Position, continued
- -------------------------------------------------
Under the terms of the indentures and credit agreement governing
Phoenixstar's subordinated debt, Phoenixstar is required to make an offer to
purchase the remainder of the outstanding publicly traded Notes at a purchase
price equal to 101% of par. In that connection, the Company has commenced an
offer to purchase the remaining Notes.
In connection with the Hughes Medium Power Transaction and pursuant to the
Funding Agreement, the Stockholder Affiliates committed to make funds available
to the Company, either in the form of capital contributions or loans, up to an
aggregate of $1,013 million, subject to certain conditions and triggering events
set forth in the Funding Agreement. Pursuant to such commitment, the Stockholder
Affiliates contributed to the Company $307.7 million on the Hughes Closing Date.
On the Hughes Closing Date, the Company used a portion of the cash proceeds from
the Hughes Medium Power Transaction and the Initial Funding Amount to (i) repay
principal, interest and fees due under the Company's bank credit facility
($537.5 million), (ii) fund amounts due pursuant to the Lock-up Agreement
($543.5 million) and (iii) fund amounts to holders of Bridge Loans who were not
party to the Lock-up Agreement ($10.1 million).
Pursuant to the Indentures, on May 13, 1999, the Company commenced a tender
offer to purchase all the Remaining Notes on the terms required by the
Indentures. The terms and conditions of such tender offer are set forth in the
Offer to Purchase, dated May 13, 1999, sent by the Company to the holders of the
Remaining Notes. In connection therewith, the Company also sent to the holders
of the Remaining Notes notice informing them that a "change of control" had
occurred and informing them of the effectiveness of the Supplemental Indentures,
as required by the Indentures.
In addition, the stockholders of Phoenixstar approved the payment to TSAT
of consideration in the form of 1.407 million shares of GMH Stock, subject to
the terms and conditions set forth in the Phoenixstar Payment Agreement. In
consideration of the Phoenixstar Payment, TSAT 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 the Company a share appreciation right with respect to
the shares of GMH Stock received as the Phoenixstar Payment, granting the
Company the right to any market price appreciation in such GMH Stock over 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. On the
Hughes Closing Date, the Company issued to TSAT 1.407 million shares of GMH
Stock in satisfaction of the Phoenixstar Payment.
The obligations under the Bridge Loan Agreement were due in full one year
from the Closing Date. However, the Company had the option to convert any
outstanding principal amount of the Bridge Loan on such date to a term loan
maturing on April 1, 2008. The Company gave notice of such conversion on March
29, 1999, in accordance with the terms of the Bridge Loan Agreement.
I-19
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Material Changes in Financial Position, continued
- -------------------------------------------------
In addition, on the Conversion Date, the Company became obligated to enter
into a stock warrant agreement with the Lenders providing for the issuance of
warrants to purchase common stock of the Company equal to 2% of the Company's
outstanding common stock on the Conversion Date. The warrants are to be
exercisable over a ten-year period at a nominal exercise price.
The Partnership Credit Facility currently allows for borrowings up to $585
million. Borrowings under the Partnership Credit Facility are collateralized by
letters of credit (the "Partnership Letters of Credit"), which were arranged for
by affiliates of the Partners (or, in the case of TSAT, affiliates of TCI) other
than GE Americom. The Partners and TCI agreed to maintain their respective
Partnership Letters of Credit through June 1999, and the Company entered into
Reimbursement Agreements with respect to such letters of credit, whereby the
Company agreed to indemnify the parties arranging for such letters of credit
from and against all obligations thereunder and under the existing reimbursement
agreements and/or other existing documentation relating thereto, including all
existing and future payment obligations.
The maturity date of the Partnership Credit Facility, as amended, is June
30, 1999. The Company currently anticipates that it will use the proceeds from
the Hughes High Power Transaction to repay the Partnership Credit Facility. To
the extent such proceeds are not sufficient to repay all amounts due under the
Partnership Credit Facility, the stockholders of the Company have committed to
make capital contributions in agreed-upon percentages to fund such deficiency,
pursuant to the Funding Agreement.
Subsequent to the Hughes Closing Date, the Company is responsible for (i)
the payment of certain obligations not assumed by Hughes, (ii) the payment of
costs, currently estimated to range from $270 million to $340 million,
associated with the termination of certain vendor and service contracts and
lease agreements not assumed by Hughes, (iii) the payment to all Note holders
who accept the Offer to Purchase, the purchase price for each Note tendered, and
the payment of principal and interest due pursuant to the Notes not paid as part
of the Lock-up Agreement or the Offer to Purchase, and (iv) the repayment of
amounts due under the Company's Partnership Credit Facility. The Company
currently expects to fund such obligations with available cash, additional
advances and/or contributions from the Stockholder Affiliates pursuant to the
Stockholder Commitments and additional proceeds from the Hughes High Power
Transaction, if any.
The Hughes High Power Agreement provides for the sale to Hughes of the
Tempo Satellites, Tempo's 119 degrees W.L. orbital slot license and the Tempo
Rights for aggregate consideration valued at $500 million. Pursuant to the
Hughes High Power Agreement, Hughes would assume $465 million of TSAT's
liability to the Partnership, pay TSAT $2.5 million in cash, and pay Phoenixstar
and the Partnership $32.5 million in cash in consideration for Phoenixstar's
rights to acquire Tempo's assets and the termination and relinquishment by the
Partnership of the Tempo Rights. In addition, the Partnership and Phoenixstar
have agreed to forgive amounts due from TSAT in excess of the $465 million to be
assumed by Hughes.
I-20
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Material Changes in Financial Position, continued
- -------------------------------------------------
Effective March 10, 1999, the First Closing was consummated whereby Hughes
acquired Tempo DBS-2 and the Tempo DBS-2 Option for aggregate consideration of
$150 million. Such consideration was comprised of the following: (i) $9,750,000
paid to PRIMESTAR and the Partnership for the Tempo DBS-2 Option and the
termination of the Tempo Rights, (ii) $750,000 paid to TSAT to exercise the
Tempo DBS-2 Option and (iii) the assumption by Hughes of $139,500,000 due to the
Partnership from TSAT in exchange for Tempo DBS-2. Simultaneously with the
First Closing, Hughes repaid the liability to the Partnership that Hughes
assumed.
The sale of the remaining assets contemplated by the Hughes High Power
Agreement is subject to the receipt of appropriate regulatory approvals and
other customary closing conditions and is expected to be consummated in mid-
1999. In the event the Second Closing is not consummated and the Hughes High
Power Agreement is abandoned, there can be no assurance that the Company will be
able to recover the carrying amount of its satellite rights. Tempo has been
notified that Tempo DBS-1 experienced power reductions which occurred on March
29, 1999 and April 2, 1999. Although the Company does not believe the extent of
such power reductions is significant, a definitive assessment of the impact on
Tempo DBS-1 is not yet complete.
As noted above, the consideration received by the Company in the Hughes
Medium Power Transaction comprised of $1.1 billion in cash and 4.871 million
shares of GMH Stock. Pursuant to the terms of the Hughes Medium Power
Agreement, Phoenixstar will not be able to dispose of the GMH Stock for a
period of one year from the closing of the Hughes Medium Power Transaction
except for certain transfers to affiliates. Phoenixstar is considering its
options with respect to the GMH Stock, but has not yet made any decisions as to
the ultimate disposition of such stock.
The Company has a history of operating losses and reported an accumulated
deficit at March 31, 1999. In connection with the Hughes Medium Power
Transaction, the Stockholder Affiliates have committed to make funds available
to the Company, either in the form of capital contributions or loans, up to an
aggregate of $1,013 million, subject to certain conditions and triggering events
set forth in the Funding Agreement. Management of the Company believes, but
cannot assure, that when such funds are combined with the proceeds from the
Hughes Medium Power and High Power Transactions and the Company's existing
sources of liquidity, that the Company will be able to meet its obligations as
they become due and payable.
The Company is in the process of identifying and addressing issues
surrounding the Year 2000 ("Y2K") and their impact on the Company's operations.
The issue surrounding the Year 2000 is whether the Company's operations and
financial systems, or the systems used by the companies with whom the Company
conducts business, will properly recognize and process date sensitive
information before and after January 1, 2000. The following discussion is based
on information currently available to the Company.
Prior to the Hughes Closing Date, the Company completed an initial
assessment which identified areas of risk associated with the Year 2000. The
Year 2000 Program Office was established to oversee the Company's Year 2000
project. Detailed inventories were gathered and cost estimates were finalized.
For each functional area of the project, detailed work plans were developed and
put into place. Separate test environments completed construction and testing
was initiated in the first quarter of 1999.
I-21
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
Material Changes in Financial Position, continued
- -------------------------------------------------
In connection with the Hughes Medium Power Transaction, Hughes acquired
substantially all of the Company's systems. The Company has analyzed and
continues to analyze its remaining internal IT and non-IT systems. The Company
believes that such systems are currently capable of functioning without
substantial Y2K compliance problems.
Through March 1999, the Company has spent approximately $1,375,000 for Y2K
issues, $1,125,000 of which was spent in 1999, and does not currently expect to
spend any additional amounts for Y2K related issues.
The Company does not currently believe that any of the foregoing will have
a material adverse effect on its financial condition or its results of
operations. However, the process of evaluating the Company's products and third
party products and systems is ongoing. Although not expected, failures of
critical suppliers and/or systems could have a material adverse effect on the
Company's financial condition or results of operations. As widely publicized,
Y2K compliance has many issues and aspects, not all of which the Company is able
to accurately forecast or predict. There is no way to assure that Y2K will not
have adverse effects on the Company, some of which could be material.
Qualitative and Quantitative Disclosures About Market Risk
- ----------------------------------------------------------
At March 31, 1999, the Company had $400,517,000 (or 22%) of fixed-rate debt
with a weighted average interest rate of 11.44% and $1,460,200,000 (or 78%) of
variable-rate debt with a weighted average interest rate of 7.50%. Accordingly,
the Company is sensitive to market rate risk. To date, the Company has not
entered into any derivative instruments to manage its interest rate exposure.
The table below provides principal cash flows and related weighted average
interest rates for the Company's debt obligations.
<TABLE>
<CAPTION>
Expected Maturity Date
----------------------
1999 2000 2001 2002 2003 Thereafter
---- ---- ---- ---- ---- ----------
dollar amounts in thousands
<S> <C> <C> <C> <C> <C> <C>
March 31, 1999
- --------------
Long-term Debt
Fixed-rate $ 799 1,013 342 368 396 397,599
Average interest rate 7.50% 7.50% 7.50% 7.50% 7.50% 11.47%
Variable-rate $575,000 -- 15,000 30,200 175,000 665,000
Average interest rate 5.60% -- 6.64% 6.64% 6.64% 9.43%
</TABLE>
I-22
<PAGE>
PHOENIXSTAR, INC. AND SUBSIDIARIES
(formerly PRIMESTAR, Inc.)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
(a) Exhibits
3.1 - Certificate of Amendment to Restated Certificate of
Incorporation of PRIMESTAR, Inc.
10.1 - Employment Agreement, dated as of July 1, 1998, between
the Company and Carl Vogel
10.2 - Employment Agreement, dated as of March 31, 1999, between
the Company and Daniel O'Brien
10.3 - Employment Agreement, dated as of April 9, 1999, between
the Company and Chris Sophinos
10.4 - Employment Agreement, dated as of April 13, 1999, between
the Company and Ken Carroll.
27 - Financial Data Schedule
(b) Reports on Form 8-K filed during quarter ended March 31, 1999.
Date of Report Items Reported Financial Statements Filed
-------------- -------------- --------------------------
February 1, 1999 Items 5 and 7 None
February 3, 1999 Items 5 and 7 None
March 2, 1999 Items 5 and 7 None
March 16, 1999 Items 5 and 7 None
March 24, 1999 Items 5 and 7 None
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHOENIXSTAR, INC.
Date: May 14, 1999 By: /s/ Kenneth G. Carroll
------------------------------
Kenneth G. Carroll
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 14, 1999 By: /s/ Scott D. Macdonald
------------------------------
Scott D. Macdonald
Vice President and Controller
(Chief Accounting Officer)
II-2
<PAGE>
Exhibit Index
3.1 - Certificate of Amendment to Restated Certificate of Incorporation of
PRIMESTAR, Inc.
10.1 - Employment Agreement, dated as of July 1, 1998, between the Company and
Carl Vogel
10.2 - Employment Agreement, dated as of March 31, 1999, between the Company
and Daniel O'Brien
10.3 - Employment Agreement, dated as of April 9, 1999, between the Company and
Chris Sophinos
10.4 - Employment Agreement, dated as of April 13, 1999, between the Company
and Ken Carroll.
27 - Financial Data Schedule
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION OF
PRIMESTAR, INC.
PRIMESTAR, Inc., a corporation organized under the General Corporation Law
of the State of Delaware (the "GCL"), for the purpose of amending its Restated
Certificate of Incorporation pursuant to Section 242 of the GCL, hereby
certifies that Article I of the Restated Certificate of Incorporation is amended
to read in its entirety as follows:
ARTICLE I
Name. The name of the Corporation is Phoenixstar, Inc.
----
IN WITNESS WHEREOF, the corporation has caused this Certificate of Amendment to
be duly executed the 29th day of April, 1999.
PRIMESTAR, INC.
By: /s/ KENNETH G. CARROLL
------------------------------
Name: Kenneth G. Carroll
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT is entered into as of July 1, 1998, by and
between PRIMESTAR, Inc., a Delaware corporation (the "Company") and CARL VOGEL
("Executive").
Recitals
A. The Company wishes to secure the services of Executive as its Chairman
and Chief Executive Officer on a full-time basis for the period to and including
June 30, 2001.
B. Executive is willing to provide such services on and subject to the
terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and Executive hereby incorporate by
reference and agree to the accuracy of the above recitals and further agree as
follows:
1. Term.
----
The Company shall employ Executive and Executive accepts such employment
for a term beginning July 1, 1998 and ending June 30, 2001 upon the terms and
conditions set forth herein, unless earlier terminated in accordance with the
provisions of this Employment Agreement. Each party shall deliver notice to the
other of its/his intent to renew or extend the term of employment by no later
than December 31, 2000.
2. Duties and Non-Competition.
--------------------------
2.1 Duties. The Company shall, during the term of employment, employ
------
Executive, and Executive shall serve, as Chairman of the Board and Chief
Executive Officer of the Company. Executive's election as a director of the
Company, and as Chairman of the Board, shall become effective upon adoption of
such a resolution by the Company's Board of Directors, which shall occur as soon
after execution of this Agreement as is practical. During the term of
employment, Executive shall report directly and solely to the Company's Board of
Directors ("Board"). Executive shall have the authority, functions, duties,
powers and responsibilities normally associated with such position. Executive
agrees, subject to his election as such and without additional compensation, to
serve during the term of employment in such particular
<PAGE>
additional offices of comparable stature and responsibility in the Company and
its subsidiaries as the Board may designate, and to serve as a director and as a
member of any committee of the Board of Directors of the Company and its
subsidiaries, to which he may be elected from time to time. During the term of
employment, (i) Executive's services shall be rendered on a substantially full-
time, exclusive basis, (ii) Executive will apply on a full-time basis (subject
to Section 10 hereof) all of his skill and experience to the performance of his
duties in such employment, and (iii) unless Executive otherwise consents, the
performance of his services shall be in the Denver metropolitan area, subject to
such reasonable travel as the performance of his duties in the business of the
Company may require.
2.2 Non-Competition. Subject to Section 10 hereof, at all times during
---------------
the term of employment, and for a period of one year following the termination
of the term of employment pursuant to the provisions of Section 4.1, Executive
shall not, directly or indirectly, without the prior written consent of a
majority of the Board of Directors of the Company, render any services to any
other person or entity, or acquire any interest of any type in any other entity,
that is engaged, in whole or in part, either directly or indirectly, in the
ownership or operation of any business delivering multi-channel television
programming in the United States by direct broadcast satellite ("DBS");
provided, however, that the foregoing shall not be deemed to prohibit Executive
- -------- -------
from acquiring, solely as an investment and through market purchases, securities
of any corporation which are registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and which are
publicly traded, so long as he is not part of any control group of such
corporation and such securities, if converted, do not constitute more than one
percent (1%) of the outstanding voting power of that public company. The
foregoing limitation of ownership interest shall not apply to Executive's
present ownership interest in Star Choice Communications, a Canadian direct
broadcast satellite company.
3. Compensation.
------------
3.1 Base Salary. The Company shall pay or cause to be paid to
-----------
Executive, during the term of employment, a base salary at the rate of not less
than (i) $450,000 per annum during the period from July 1, 1998 to June 30,
1999, (ii) $475,000 from July 1,1999 to June 30, 2000, and (iii) $500,000 from
July 1, 2000 to June 30, 2001 ("Base Salary"). Base Salary shall
2
<PAGE>
be payable in monthly or more frequent installments in accordance with the
Company's regular payroll practices for senior executives.
3.2 Reimbursement. The Company shall pay or reimburse Executive for
-------------
all reasonable expenses actually incurred or paid by Executive during the term
of employment in the performance of his services hereunder upon presentation of
expense statements or vouchers or such other supporting information as the
Company may customarily require of its senior executives.
3.3 No Anticipatory Assignments. Except as specifically
---------------------------
contemplated hereunder, neither Executive nor any legal representative or
beneficiary designated by him shall have any right, without the prior written
consent of the Company, to assign, transfer, pledge, hypothecate, anticipate or
commute any payment due in the future to such person pursuant to any provision
of this Agreement, and any attempt to do so shall be void and will not be
recognized by the Company.
3.4. Stock Options. No later than December 1, 1998, the Company
-------------
will grant Executive options to purchase 2,000,000 shares of the Company's Class
A common stock (the "Common Stock") at a purchase price equal to the closing
price per share of the Company's stock on November 13, 1998 (the "Options"),
which Options shall vest and become exercisable at the rate of 1/3 on the date
which is 12 months following execution hereof and an additional 1/3 each 12
months thereafter. In the event the Company terminates Executive's employment
without cause, or in the event Executive terminates his employment pursuant to
Section 5.1 or 5.2 of this Agreement, all of the Options shall become vested at
the time of such termination and shall remain exercisable (but not beyond the
expiration of the option term) for a period of three years following the date
notice of any such termination is given. A separate Option Agreement consistent
with the terms of this Section 3.4 will be entered into between Executive and
the Company. Notwithstanding any provision to the contrary in the PRIMESTAR,
Inc. 1998 Incentive Plan (the "Plan") or any option agreement related to the
Plan, Executive's Options shall not expire or otherwise terminate upon the
occurrence of an Approved Transaction, Board Change or Control Purchase, as such
terms are defined in the Plan.
3.5 Bonus. In addition to Base Salary, Executive shall be eligible
-----
to receive an annual cash bonus with respect to the prior calendar year based on
the performance of the
3
<PAGE>
Company and of Executive. Executive's target bonus shall be 75% of Executive's
Base Salary (or pro-rata portion of such Base Salary in case of partial years),
but Executive acknowledges that his actual bonus will vary depending upon the
performance of the Company and Executive, up to a maximum bonus of 150% of Base
Salary. The Company may increase, but not decrease, the target bonus at any time
and from time to time. The Company's determination of the amount, if any, of the
annual bonuses to be paid to Executive under this Agreement shall be final and
conclusive. Payments of bonus compensation under this Section 3.2 shall be made
in accordance with the Company's then current practices and policies.
4. Termination by Company.
----------------------
4.1 Termination by Company For Cause. The Company may terminate
--------------------------------
Executive's employment and all of the Company's obligations hereunder, other
than its obligations set forth below in this Section 4.1, for cause. As used in
this Section 4.1, "cause" shall mean (a) Executive's conviction (treating a nolo
contendere plea as a conviction) of a felony (whether or not any right to appeal
has been or may be exercised), (b) Executive's willful and continuing refusal
without proper cause to perform his material obligations under this Agreement,
or (c) Executive's willful, material and continuing breach of any of the
covenants provided for in Section 2.2 or Section 9. Such termination shall be
effected by written notice thereof delivered by the Company to Executive and
shall be effective as of the date of such notice; provided, however, that the
-------- -------
termination shall not be effective if (i) such termination is because of
Executive's breach of his obligations set forth in section 9, or the second
paragraph of Section 2 of this Agreement, and (ii) such notice is the first such
notice of termination delivered by the Company to Executive hereunder, and (iii)
within 30 days following the date of such notice Executive shall cure the
breach.
In the event of termination by the Company for cause in accordance with the
foregoing procedures, without prejudice to any other rights or remedies that the
Company may have at law or equity, the Company shall have no further obligations
to Executive other than (i) to pay Base Salary as accrued through the effective
date of termination, together with all accrued vacation pay, and (ii) with
respect to any rights Executive has through the effective date of termination
pursuant to any insurance or other benefit plans or arrangements of the Company.
4
<PAGE>
4.2 Termination by Company Without Cause. The Company shall have the
------------------------------------
right, exercisable by written notice to Executive, to terminate Executive's
employment under this Agreement without cause, effective at least 30 days after
the giving of such notice, which notice shall specify the effective date of such
termination. Upon the effectiveness of any such termination, Executive shall
have no further obligations or liabilities to the Company whatsoever (except for
his obligations under Section 5.4 and under Section 9, which shall survive such
termination) and Executive shall be entitled to the payments and benefits as
hereinafter provided in Section 5.3 hereof.
5. Termination by Executive.
------------------------
5.1 Termination by Executive For Cause. Executive shall have the
----------------------------------
right, exercisable by written notice to the Company, to terminate the term of
employment effective 15 days after the giving of such notice (except as
otherwise provided in Section 5.1.2) upon the occurrence of any of the events
set forth in Sections 5.1.1, 5.1.2, or 5.2 below. Upon the effectiveness of any
such termination, Executive shall have no further obligations or liabilities to
the Company whatsoever (except for his obligations under Section 5.4 and Section
9, all of which shall survive such termination) and Executive shall be entitled
to the payments and benefits as hereinafter provided in Section 5.3 hereof.
5.1.1 Material Breach by Company. Executive shall have the
--------------------------
right to terminate the term of employment for cause at any time, if, at the time
notice is given by Executive to the Company describing the breach which has
occurred, the Company shall be in material breach of its obligations hereunder,
provided that, with the exception of clause (i) below, the term of employment
- --------
shall not so terminate if within the 15-day period following notice by
Executive, the Company shall have cured all such material breaches of its
obligations hereunder. The parties acknowledge and agree that a material breach
by the Company shall include, but not be limited to, (i) the Company's failure
to cause Executive to serve in the capacities set forth in Section 2.1; (ii) the
Company's willful and continuing refusal to permit Executive to discharge his
duties described in Section 2.1 hereof; (iii) the Company failing to cause
Executive to receive the stock option grant described in Section 3.4 hereof;
(iv) Executive being required to report to persons other than as specified in
Section 2.1; (v) unless Executive otherwise consents, a requirement by the
Company that Executive's primary services be
5
<PAGE>
rendered in an area other than in the Denver metropolitan area; or (vi) any
breach of Sections 3.1, 3.2, 3.4, 3.5 or 8 of this Agreement.
5.1.2. Restriction of Management Autonomy. Provided that this
----------------------------------
Agreement has not been terminated previously under any other Section hereof,
Executive shall have the right to terminate the term of employment on 30 days'
notice at any time prior to June 1, 1999 if, at the time notice is given by
Executive to the Company describing the event(s) which have occurred, the Board
of Directors of the Company shall have materially intruded, on a recurring
basis, into matters relating to the day-to-day operations of the Company which
actions constitute a restriction on management's authority; provided, however,
-------- -------
that with respect to the first two such occurrences, the termination shall not
be effective if within 30 days following the date of such notice the Board of
Directors of the Company shall have cured such restriction of management's
autonomy.
5.2 Termination by Executive Upon a Change in Control of Company.
------------------------------------------------------------
Provided that this Agreement has not been terminated previously under any other
Section hereof, Executive shall have the right to terminate the term of
employment at any time, without cause, within six months following the
occurrence of a "Change in Control" of the Company. For purposes of this
Agreement, a "Change in Control" of the Company shall be deemed to have occurred
in the event any person (as such term is defined in Sections 13(d)(3) and 14
(d)(2) of the Exchange Act) or entity which is not currently a shareholder shall
(a) become the "beneficial owner" (as such term is defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities representing more than
50% of the combined voting power of the then outstanding common stock or other
voting securities of the Company (or an amount less than 50% of such combined
voting power if the ownership interest gives such person effective voting
control or veto power over Company actions), other than a Change in Control
necessitated in response to actions by the U.S. Department of Justice, or (b)
acquire (1) the Company's high power assets, or (2) the Company's medium power
business, provided however that Executive cannot exercise the right to terminate
under this Section 5.2(b) prior to June 1, 1999.
5.3. Severance and Damages. Upon the effectiveness of a termination
---------------------
pursuant to Sections 4.2, 5.1 or 5.2, Executive shall cease to be an active
employee of the Company. In the event of any such a termination, Executive
shall be entitled to elect by delivery of written
6
<PAGE>
notice to the Company within 30 days after notice of termination is given,
either (a) to cease being an employee of the Company and receive a lump sum
payment as provided in Section 5.3.1, or (b) to remain an employee of the
Company as provided in Section 5.3.2. Regardless of the election made by
Executive pursuant to the preceding sentence, (i) after the effective date of
such termination, Executive shall have no further obligations or liabilities to
the Company whatsoever, (except for his obligations under Section 2.2 and
Section 9, all of which shall survive such termination), and (ii) Executive
shall be entitled to receive any earned and unpaid compensation including a
prorated bonus through the effective date of such termination.
5.3.1 In the event Executive shall elect to receive a lump sum
payment as provided in Section 5.3 (a) above, and a basis for his termination is
pursuant to Sections 4.2, 5.1, or 5.2(b), the Company shall pay to Executive as
severance an amount equal to twice Executive's then current base salary plus his
target bonus (i.e., 2 X base salary X 1.75). If Executive terminates this
agreement pursuant to Section 5.2(a), the Company shall pay to Executive as
severance the amount of $1.2 million.
5.3.2 In the event Executive shall elect to remain an employee of the
Company as provided in clause (b) of Section 5.3, the term of employment shall
continue and Executive shall remain an employee of the Company for a period
ending on the date which is 24 months after the date notice of termination is
given, in the case of a termination pursuant to Sections 4.2, 5.1 or 5.2, and
time during such period Executive shall be entitled to receive, whether or not
he becomes disabled during such period but subject to Section 7, Base Salary at
an annual rate equal to $600,000 per annum. Except as provided in the next
sentence, if Executive accepts full-time employment with any other entity during
such period or notifies the Company in writing of his intention to terminate his
status as an employee, then the term of employment shall cease and Executive
shall cease to be an employee of the Company effective upon the commencement of
such employment or the effective date of such termination as specified by
Executive in such notice, whichever is applicable, and Executive shall be
entitled to receive as severance, subject to the last sentence of this Section
5.3.2, the balance of the Base Salary Executive would have been entitled to
receive at the times Executive would have received such payments pursuant to
this Section 5.3.2, had Executive remained on the Company's payroll until the
end of the 24-month period. Notwithstanding the preceding sentence, (i) if
Executive accepts
7
<PAGE>
employment with any not-for-profit entity, then Executive shall be entitled to
remain an employee of the Company and receive the payments as provided in the
first sentence of this Section 5.3.2; and (ii) if Executive accepts full-time
employment with any direct or indirect subsidiary of the Company, or any 10%
shareholder of the Company, then the payments provided for in this Section 5.3.2
and the term of employment shall cease and Executive shall not be entitled to
further payment hereunder.
5.3.3 At the time Executive leaves the payroll of the Company
pursuant to the provisions of Sections 4, 5 or 6 of this Agreement, Executive's
rights to benefits and payments under any benefit plans or any insurance or
other death benefit plans or arrangements of the Company or under any bonus
unit, management incentive, stock option or other plan of the Company shall be
determined in accordance with the terms and provisions of such plans and any
agreements under which such awards were granted; provided, however, that
notwithstanding the foregoing or any more restrictive provisions of any such
plan or agreement, if Executive's term of employment with the Company shall
terminate as a result of a termination pursuant to Sections 4.2, 5.1 or 5.2,
then all stock options granted to Executive by the Company shall become vested
at the time of such termination and shall remain exercisable (but not beyond the
expiration of the option term) for a period of three years following the date
notice of any such termination is given.
5.3.4 In partial consideration for the Company's obligation to
make the payments described in this Section 5.3, Executive shall execute and
deliver to the Company a release in substantially the form attached hereto as
Annex A. The Company shall deliver such release to the Executive within 20 days
after the written notice of termination is delivered pursuant to Section 5.2 or
5.3 and Executive shall execute and deliver such release to the Company within
45 days after receipt thereof. If Executive shall fail to execute and deliver
such release to the Company within such 45-day period, or Executive shall revoke
the Executive's consent to such release as provided therein, the Executive's
term of employment shall terminate as provided in Section 5.1 or 5.2, and
Executive shall not be eligible to receive the payments set forth in Section
5.3.1 or 5.3.2.
8
<PAGE>
6. Disability.
----------
If during the term of employment Executive shall become physically or
mentally disabled, whether totally or partially, so that he is prevented from
performing his usual duties for a period of six consecutive months, or for
shorter periods aggregating six months in any 12-month period, the Company
shall, nevertheless, continue to pay Executive his full compensation when
otherwise due, as provided in Section 3, through the last day of the sixth
consecutive month of disability or the date on which the shorter periods of
disability shall have equaled a total of six months in any twelve-month period
(such last day or date being referred to herein as the "Disability Date"). If
Executive has not resumed his usual duties on or prior to the Disability Date,
the Company shall pay Executive disability benefits for the balance of the term
of employment in an amount equal to 75% of what the Base Salary otherwise would
have been pursuant to this Agreement had the disability not occurred. From and
after July 1, 2001 until Executive reaches age 65, Company shall continue to pay
Executive disability benefits in an amount equal to 75% of his Base Salary at
the conclusion of the term of employment. The Company shall be entitled to
deduct from all payments to be made to Executive during any disability period an
amount equal to all disability payments received by Executive (but only with
respect to that portion of the disability period occurring during the term of
employment) from Workmen's Compensation, Social Security and disability
insurance policies maintained by the Company; provided, however, that for so
long as, and to the extent that, proceeds paid to Executive from such disability
insurance policies are not includible in his income for federal income tax
purposes, the Company's deduction with respect to such payments shall be equal
to the product of (i) such payments and (ii) a fraction, the numerator of which
is one and the denominator of which is one less the maximum marginal rate of
federal income taxes applicable to individuals at the time of receipt of such
payments. All payments made under this Section 6 after the Disability Date are
intended to be disability payments, regardless of the manner in which they are
computed. The term of employment shall not be extended or be deemed suspended
by reason of any period of disability.
7. Death.
-----
Upon the death of Executive, this Agreement and all benefits hereunder
shall terminate except that (i) Executive's estate (or a designated beneficiary
thereof) shall be entitled to receive
9
<PAGE>
the Base Salary to the last day of the month in which his death occurs and such
termination shall not affect any vested rights which Executive may have at the
time of his death pursuant to any insurance or other death benefit plans or
arrangements of the Company or any of its affiliated companies or to the benefit
plans described in Section 8, which vested rights shall continue to be governed
by the provisions of such plans; and (ii) all Options granted under this
Agreement shall become vested at the time of death and shall remain exercisable
by the Executive's estate (but not beyond the expiration of the option term) for
a period of one year following the date of death.
8. Benefits.
--------
8.1 Life Insurance. Subject to Executive's satisfactory completion
--------------
of any applications and other documentation and any physical examination that
may be required by the insurer, and to the availability of insurance, the
Company shall obtain $1,000,000 of term insurance on the life of Executive and
shall pay all premiums on such policy during the term of employment. Executive
shall have the right to designate the beneficiary of such policy. The life
insurance provided for in this Section 8.1 shall be in addition to the life
insurance provided by the Company in any group insurance plan generally
applicable to executives of the Company and shall be maintained by the Company
for as long as Executive remains on the payroll of the Company.
8.2 Other Benefits. During the term of employment Executive shall be
--------------
eligible to participate in any pension, profit-sharing, group insurance,
hospitalization, medical, dental, accident, disability or similar plan or
program of the Company now existing or established hereafter to the extent that
he is eligible under the general provisions thereof. In addition, the Company
shall pay directly at Executive's request, or reimburse him upon presentation of
appropriate invoices for (i) Executive's reasonable legal expenses in connection
with the negotiation of terms and the preparation and review of this Agreement,
and (ii) receipt of tax or financial advisory services not to exceed $5,000 per
year. Executive shall also be entitled to not less than four weeks paid
vacation each year and to receive other benefits generally available to all
senior executives of the Company to the extent that he is eligible therefor.
9. Protection of Confidential Information.
--------------------------------------
9.1 Covenant. Executive acknowledges that his employment by the
--------
Company (which, for purposes of this Section 9 shall mean the Company and its
affiliated companies) will,
10
<PAGE>
throughout the term of employment, bring him into close contact with many
confidential affairs of the Company, including information about costs, profits,
markets, sales, products, key personnel, pricing policies, operational methods,
technical processes and other business affairs and methods and other information
not readily available to the public, and plans for future development. Executive
further acknowledges that the services to be performed under this Agreement are
of a special, unique, unusual, extraordinary and intellectual character. In
recognition of the foregoing, Executive covenants and agrees:
9.1.1 Executive will keep secret all confidential matters of
the Company, including without limitation, the terms and provisions of this
Agreement, and will not intentionally disclose such matters to anyone outside of
the Company, either during or after the term of employment, except with the
Company's written consent, provided that (i) Executive shall have no such
obligation to the extent such matters are or become publicly known other than as
a result of Executive's breach of his obligations hereunder, (ii) Executive may,
after giving prior notice to the Company to the extent practicable under the
circumstances, disclose such matters to the extent required by applicable laws
or governmental regulations or judicial or regulatory process and (iii)
Executive may disclose the terms and provisions of this Agreement to his spouse
and legal, tax and financial advisors;
9.1.2 Executive will deliver promptly to the Company on
termination of his employment by the Company, or at any other time the Company
may so request, at the Company's expense, all memoranda, notes, records, reports
and other documents (and all copies thereof) relating to the Company's business,
which he obtained while employed by, or otherwise serving or acting on behalf
of, the Company and which he may then possess or have under his control; and
9.1.3 If the term of employment is terminated pursuant to
Section 4 or Section 5, or if the term of employment terminates as scheduled,
for a period of one year after such termination, without the consent of the
Company, Executive will not employ, and will not cause any entity of which he is
an affiliate to employ, any person who was a full-time executive employee of the
Company or any of its affiliated companies at the date of such termination or
within six months prior thereto.
11
<PAGE>
9.2 Specific Remedy. In addition to such other rights and remedies as
---------------
the Company may have at equity or in law with respect to any breach of this
Agreement, if Executive commits a material breach of any of the provisions of
Section 9.1 or Section 2.2, the Company shall have the right and remedy to have
such provisions specifically enforced by any court having equity jurisdiction,
it being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company.
10. Other Employment.
----------------
During the term of this Agreement, Executive shall devote all of his
business time, skill and energies exclusively to the business of the Company.
Any business interests of Executive outside of the Company must be disclosed to
the Board of Directors and, without the prior written consent of a majority of
the Board of Directors of the Company, Executive shall not maintain any outside
directorships, consulting arrangements, investments in video distribution
companies or other business activities. Notwithstanding the foregoing, Company
acknowledges Executive's service on the Board of Directors of Star Choice
Communications Inc., which may continue through March 31, 1999, but not
thereafter without Company's written consent. Executive shall be entitled to
participate in civic, charitable, and professional activities provided such
activities (i) do not interfere with the performance of his services hereunder,
(ii) do not present a conflict of interest or the appearance of a conflict of
interest, or (iii) are not in conflict with the policies and procedures of
Company regarding conduct of business, as now existing or as may be hereafter
established.
11. Indemnification.
---------------
Provided that Executive performs his duties for the Company in good faith
and in a manner believed by him to be in the best interests of the Company and
not in contravention of the terms of this Agreement, the Company agrees to
indemnify Executive to the fullest extent permitted by applicable law against
all reasonably paid expenses (including reasonable attorneys' fees), judgments,
and amounts paid in settlement to which the Company has consented in writing, in
connection with any threatened, pending or completed investigation, claim,
action, suit or proceeding arising out of the performance by Executive of
services to the Company under this Agreement, provided that Executive cooperates
with the Company in connection therewith.
12
<PAGE>
Executive will provide the Company with prompt notice of the commencement of any
such investigation or litigation. The provisions of this Section 11 shall
survive termination of this Agreement with respect to events that occurred
during Executive's employment with the Company.
12. Notices.
-------
All notices, requests, consents and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by prepaid telegram, or mailed
first-class, postage prepaid, by registered or certified mail, as follows (or to
such other or additional address as either party shall designate by notice in
writing to the other in accordance herewith):
12.1 If to the Company:
PRIMESTAR, Inc.
8085 S. Chester Street, Suite 300
Englewood, CO 80112
Attention: General Counsel
12.2 If to Executive, to his home address set forth on the records of
the Company, with a copy to:
Miles Cortez, Esq.
Cortez Macaulay Bernhardt & Schuetze LLC
1600 Broadway, Suite 1600
Denver, CO 80202
13. General.
-------
13.1 Most Favored Status. The parties intend that, as Company's
---- -------------------
Chairman and Chief Executive Officer, without Executive's prior approval no
Company employee shall receive salary, bonus, stock options, employee benefits
or severance benefits with a value greater than that provided to Executive. In
the event any employee shall receive salary, bonus, stock options, employee
benefits or severance benefits with a value in excess of that provided to
Executive, without Executive's prior approval, Executive's salary, bonus, stock
options, employee benefits or severance benefits shall be appropriately adjusted
to the higher amount. This clause shall not
13
<PAGE>
apply to any salary, bonus, stock options, employee benefits or severance
benefits granted to any employee other than Executive prior to July 1, 1998.
13.2 Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Colorado.
13.3 Captions. The section headings contained herein are for
--------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
13.4 Entire Agreement. This Agreement sets forth the entire
----------------
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior agreements, arrangements and understandings, written or
oral, between the parties.
13.5 No Other Representations. No representation, promise or
------------------------
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or be liable for any alleged representation,
promise or inducement not so set forth.
13.6 Assignability. This Agreement and Executive's rights and
-------------
obligations hereunder may not be assigned by Executive. Subject to the
Executive's rights hereinabove set forth, the Company may assign its rights,
together with its obligations, hereunder in connection with any sale, transfer
or other disposition of all or substantially all of its business and assets; and
such rights and obligations shall inure to, and be binding upon, any successor
to the business or substantially all of the assets of the Company, whether by
merger, purchase of stock or assets or otherwise, and such successor shall
expressly assume such obligations.
13.7 Amendments: Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended, and the terms or covenants hereof may
be waived, only by written instrument executed by both of the parties hereto, or
in the case of a waiver, by the party waiving compliance. The failure of either
party at any time or times to require performance of any provision hereof shall
in no manner affect such party's right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
13.8 Resolution of Disputes. Any dispute or controversy arising
----------------------
with respect to this Agreement may be referred by either party to Judicial
Arbiter Group, Inc. of Denver,
14
<PAGE>
Colorado ("JAG") for resolution in arbitration in accordance with the rules and
procedures of JAG. Any such proceedings shall take place in Denver before a
single arbitrator (rather than a panel of arbitrators), pursuant to any
streamlined or expedited (rather than a comprehensive) arbitration process,
before a nonjudicial (rather than a judicial) arbitrator, and in accordance with
an arbitration process which, in the judgment of such arbitrator, shall have the
effect of reasonably limiting or reducing the cost of such arbitration. The
resolution of any such dispute or controversy by the arbitrator appointed in
accordance with the procedures of JAG shall be final and binding. Judgment upon
the award rendered by such arbitrator may be entered in any court having
jurisdiction thereof, and the parties consent to the jurisdiction of the
Colorado courts for this purpose. The prevailing party shall be entitled to
recover the costs of arbitration (including reasonable attorneys' fees and the
fees of experts) from the losing party. If at any time any dispute or
controversy arises with respect to this Agreement, JAG is not in business or is
no longer providing arbitration services, then the American Arbitration
Association shall be substituted for JAG for the purposes of the foregoing
provision of this Section 13.8. If Executive shall be the prevailing party in
such arbitration, the Company shall promptly pay, upon demand of Executive, all
legal fees, court costs and other costs and expenses incurred by Executive in
any legal action seeking to enforce the award in any court.
13.9 Beneficiaries. Whenever this Agreement provides for any payment
-------------
to Executive's estate, such payment may be made instead to such beneficiary or
beneficiaries as Executive may designate in writing filed with the Company.
Executive shall have the right to revoke any such designation and to redesignate
a beneficiary or beneficiaries by written notice to the Company (and to any
applicable insurance company) to such effect.
13.10 No Conflict. Executive represents and warrants to the Company
-----------
that this Agreement is legal, valid and binding upon Executive and the execution
of this Agreement and the performance of Executive's obligations hereunder does
not and will not constitute a breach of, or conflict with the terms or
provisions of, any agreement or understanding to which Executive is a party
(including, without limitation, any other employment agreement). The Company
represents and warrants to Executive that this Agreement is legal, valid and
binding upon the Company and the Company is not a party to any agreement or
understanding which would prevent the fulfillment by the Company of the terms of
this Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement the 30th
day of March, 1999 to be effective as of the date first above written.
PRIMESTAR, Inc.
By______________________________
Its ____________________________
________________________________
Carl Vogel
16
<PAGE>
Exhibit 10.2
4.13.99
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT dated as of March 31, 1999, effective as of April 1,
1998, between PRIMESTAR, Inc., a Delaware corporation (the "Company"), and
DANIEL O'BRIEN ("Executive").
The Company wishes to secure the services of Executive on a full-time basis
for the period to and including December 31, 2000 on and subject to the terms
and conditions set forth in this Agreement and Executive is willing to provide
such services on and subject to the terms and conditions set forth in this
Agreement.
The parties therefore agree as follows:
1. Term of Services. Executive's "term of employment", as this phrase is
----------------
used throughout this Agreement, shall be for the period beginning April 1,
1998 and ending on December 31, 2000, subject, however, to earlier termination
as expressly provided herein. Each party shall deliver notice to the other of
its/his intent to renew or extend the term of employment by no later than June
30, 2000.
2. Employment. The Company shall, during the term of employment, employ
----------
Executive, and Executive shall serve, as President and Chief Operating Officer
of the Company. During the term of employment, Executive shall have the
functions, duties, powers and responsibilities normally associated with such
position and as may from time to time be delegated to Executive by the Chief
Executive Officer (CEO) of the Company or, if no CEO shall be appointed, by the
Board of Directors of the Company. Executive agrees, subject to his election
as such and without additional compensation, to serve during the term of
employment in such particular additional offices of comparable stature and
responsibility in the Company and its affiliated companies to which he may be
elected from time to time. During the term of employment, (i) Executive's
services shall be rendered on a substantially full-time, exclusive basis, (ii)
Executive will apply on a full-
<PAGE>
time basis all of his skill and experience to the performance of his duties in
such employment, (iii) Executive shall have no other employment and, without the
prior written consent of the CEO, no outside business activities which require
the devotion of substantial amounts of Executive's time and (iv) unless
Executive otherwise consents, the headquarters for the performance of his
services shall be in the Denver metropolitan area, subject to such reasonable
travel as the performance of his duties in the business of the Company may
require.
At all times during the term of employment and for a period of one year
following the termination of the term of employment pursuant to the provisions
of Sections 5.2 or 5.3, Executive shall not, directly or indirectly, without the
prior written consent of a majority of the Board of Directors of the Company,
render any services to any other person or entity, or acquire any interest of
any type in any other entity, that is engaged, in whole or in part, either
directly or indirectly, in the ownership or operation of any business delivering
multi- channel television programming in the United States by direct broadcast
satellite ("DBS"); provided, however, that the foregoing shall not be deemed to
-------- -------
prohibit Executive from acquiring, solely as an investment and through market
purchases, securities of any corporation which are registered under Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and which are publicly traded, so long as he is not part of any control
group of such corporation and such securities, if converted, do not constitute
more than one percent (1%) of the outstanding voting power of that public
company.
3. Compensation.
------------
3.1 Base Salary. The Company shall pay or cause to be paid to
-----------
Executive, during the term of employment, a base salary at the rate of not less
than (i) $350,000 per annum, during the period from April 1, 1998 to June 30,
1998, (ii) $375,000 per annum from July 1, 1998 to June 30, 1999, (iii) $400,000
per annum from July 1, 1999 to June 30, 2000, and (iv) $425,000 per annum from
July 1, 2000 to December 31, 2000 ("Base
-2-
<PAGE>
Salary"). Base Salary shall be payable in monthly or more frequent installments
in accordance with the Company's regular payroll practices for senior
executives.
3.2 Bonus. In addition to Base Salary, Executive shall be eligible
-----
to receive an annual cash bonus with respect to the prior calendar year based on
the performance of the Company and of Executive. Executive's target bonus shall
be 75% of Executive's Base Salary (or pro-rata portion of such Base Salary in
case of partial years) but Executive acknowledges that his actual bonus will
vary depending upon the performance of the Company and Executive, up to a
maximum bonus of 150% of Base Salary. The Company may increase, but not
decrease, the target bonus at any time and from time to time. The Company's
determination of the amount, if any, of the annual bonuses to be paid to
Executive under this Agreement shall be final and conclusive. Payments of bonus
compensation under this Section 3.2 shall be made in accordance with the
Company's then current practices and policies.
3.3 Reimbursement. The Company shall pay or reimburse Executive for
-------------
all reasonable expenses actually incurred or paid by Executive during the term
of employment in the performance of his services hereunder upon presentation of
expense statements or vouchers or such other supporting information as the
Company may customarily require of its senior executives.
3.4 No Anticipatory Assignments. Except as specifically contemplated
---------------------------
hereunder, neither Executive nor any legal representative or beneficiary
designated by him shall have any right, without the prior written consent of the
Company, to assign, transfer, pledge, hypothecate, anticipate or commute any
payment due in the future to such person pursuant to any provision of this
Agreement, and any attempt to do so shall be void and will not be recognized by
the Company.
3.5. Stock Options. On April 2, 1998 the Company granted Executive
-------------
stock options to purchase 400,000 shares of the Company's Class A common stock
at a purchase price of $7.6875 per share.
So long as the term of employment has not been terminated and subject to
the approval of the Board of Directors of the Company, Executive shall be
granted additional
-3-
<PAGE>
options to purchase shares of the Company's Class A common stock at such times
and in the amounts at least equal to the amounts set forth below:
Number of Options Time of Grant
----------------- -------------
100,000 7/1/98 - 6/30/99
100,000 7/1/99 - 6/30/2000
Each of the foregoing option grants shall entitle Executive to purchase
shares of Class A common stock of the Company at a purchase price equal to the
fair market value of such common stock on the date of grant. All such options
shall vest following grant in accordance with a schedule similar to the vesting
schedule applicable to the April 2, 1998 grant and all previously granted
options (collectively, the "Options") shall in any event vest in full in the
event Executive's employment is terminated pursuant to Sections 4.2, 5.2.2 or
5.3 hereof. In connection with each Option grant, a separate Option Agreement
consistent with the terms of this Agreement will be entered into between
Executive and the Company. Notwithstanding any provision to the contrary in the
PRIMESTAR, Inc. 1998 Incentive Plan (the "Plan") or the terms of any Option
Agreement between the Company and Executive , the Options shall not expire or
otherwise terminate upon the occurrence of an Approved Transaction, a Board
Change or a Control Purchase, as such terms are defined in the Plan.
4. Termination by Company.
----------------------
4.1 Termination by Company for Cause. The Company may terminate the
--------------------------------
term of employment and all of the Company's obligations hereunder, other than
its obligations set forth below in this Section 4.1, for "cause". Termination
by the Company for "cause" shall mean termination by action of the CEO or the
Company's Board of Directors because of Executive's conviction (treating a
nolo contendere plea as a conviction) of a felony (whether or not any right to
appeal has been or may be exercised) or willful refusal without proper cause to
perform his obligations under this Agreement or
-4-
<PAGE>
because of Executive's material breach of any of the covenants provided for in
Sections 2 or 9. Such termination shall be effected by written notice thereof
delivered by the Company to Executive and shall be effective as of the date of
such notice; provided, however, that the termination shall not be effective if
-------- -------
(i) such termination is because of Executive's willful refusal without proper
cause to perform any one or more of his obligations under this Agreement or
breach by Executive of the covenants contained herein, and (ii) such notice is
the first such notice of termination for any reason delivered by the Company to
Executive hereunder, and (iii) within 15 days following the date of such notice
Executive shall cease his refusal and shall use his best efforts to perform such
obligations, or if such breach is capable of cure, Executive shall use his best
efforts to cure.
In the event of termination by the Company for cause in accordance with the
foregoing procedures, without prejudice to any other rights or remedies that the
Company may have at law or equity, the Company shall have no further obligations
to Executive other than (i) to pay Base Salary accrued through the effective
date of termination, (ii) to pay any annual bonus pursuant to Section 3.2 to
Executive in respect of any year prior to the year in which such termination is
effective which has been awarded but has not yet been paid as of such
termination and (iii) with respect to any rights Executive has through the
effective date of termination pursuant to any insurance or other benefit plans
or arrangements of the Company.
4.2 Termination by Company without Cause. The Company shall have the
------------------------------------
right, exercisable by written notice to Executive, to terminate Executive's
employment under this Agreement without cause, effective at least 30 days after
the giving of such notice, which notice shall specify the effective date of such
termination. Upon the effectiveness of any such termination, Executive shall
have no further obligations or liabilities to the Company whatsoever (except for
his obligations under Section 5.5 and under Section 9, which shall survive such
termination) and Executive shall be entitled to be paid for any accrued vacation
time and to receive the payments and benefits as hereinafter provided in Section
5.4 hereof and shall not be entitled to notice and severance.
-5-
<PAGE>
5. Termination by Executive.
------------------------
5.1 General. Executive shall have the right, exercisable by written
-------
notice to the Company, to terminate the term of employment effective 15 days
after the giving of such notice (except as otherwise provided in Section 5.2.2)
upon the occurrence of any of the events set forth in Sections 5.2 or 5.3 below.
Upon the effectiveness of any such termination, Executive shall have no further
obligations or liabilities to the Company whatsoever (except for his obligations
under the penultimate paragraph of Section 2 and Section 9, all of which shall
survive such termination) and Executive shall be entitled to the payments and
benefits as hereinafter provided in Section 5.4 hereof and shall not be entitled
to notice and severance.
5.2 Termination by Executive for Cause.
----------------------------------
5.2.1 Material Breach by Company. Provided that this
--------------------------
Agreement has not previously been terminated under any other Section hereof,
Executive shall have the right to terminate the term of employment for cause at
any time, if, at the time notice is given by Executive to the Company describing
the breach which has occurred, the Company shall be in material breach of its
obligations hereunder, provided that, with the exception of clause (i) below,
--------
the term of employment shall not so terminate if within the 15-day period
following notice by Executive, the Company shall have cured all such material
breaches of its obligations hereunder. The parties acknowledge and agree that a
material breach by the Company shall include, but not be limited to, (i) the
Company failing to cause Executive to serve in the capacities set forth in
Section 2; (ii) Executive being required to report to persons other than those
specified in Section 2; (iii) unless Executive otherwise consents, the Company
requiring Executive's primary services to be rendered in an area other than in
the Denver metropolitan area; and (iv) any breach of Sections 3.1, 3.2, 3.3, 3.5
or 8 of this Agreement.
-6-
<PAGE>
5.3 Termination by Executive Upon a Change in Management or Control
---------------------------------------------------------------
of Company.
- ----------
5.3.1 Appointment of New CEO. Provided that this Agreement
----------------------
has not previously been terminated under any other Section hereof, Executive
shall have the right to terminate the term of employment at any time, without
cause, within six months following the commencement of employment of a new CEO
of the Company.
5.3.2 Change in Control. Provided that this Agreement has not
-----------------
previously been terminated under any other Section hereof, Executive shall have
the right to terminate the term of employment at any time, without cause, within
six months following the occurrence of a "Change in Control" of the Company.
For purposes of this Agreement, a "Change in Control" of the Company shall be
deemed to have occurred in the event (a) any person (as such term is defined in
Sections 13(d)(3) and 14 (d)(2) of the Exchange Act) or entity shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities representing more than 50% of the
combined voting power of the then outstanding partnership interests, common
stock or other voting securities of the Company, or (b) after June 1, 1999,
Hughes Electronics Corporation or any of its subsidiaries shall have acquired
the Company's medium power DBS business.
5.4. Severance and Damages; Release. Upon the effectiveness of a
------------------------------
termination pursuant to Section 4.2 or Section 5, Executive shall cease to be an
active employee of the Company. In the event of such a termination, Executive
shall be entitled to elect by delivery of written notice to the Company within
30 days after notice of termination is given, either (a) to cease being an
employee of the Company and receive a lump sum payment as provided in Section
5.4.1, or (b) to remain an employee of the Company as provided in Section 5.4.2.
Regardless of the election made by Executive pursuant to the preceding sentence,
(i) after the effective date of such termination, Executive shall have no
further obligations or liabilities to the Company whatsoever, except as
otherwise provided in Section 5.1, and (ii) Executive shall be entitled to
receive
-7-
<PAGE>
any earned and unpaid Base Salary and to be paid for any accrued vacation time
through the effective date of such termination and a pro rata portion of
Executive's annual bonus for the year in which such termination occurs,
calculated as provided in Section 5.4.3.
5.4.1 In the event Executive shall elect to receive a lump sum
payment as provided in clause (a) above, the Company shall pay to Executive as
severance, an amount equal to the sum of (x) in the case of a termination by
Company without cause or a termination by Executive pursuant to Sections 5.2 or
5.3.2 (b), two times the sum of Executive's then annual Base Salary plus the
amount of his annual bonus, calculated as provided in Section 5.4.3, (y) in the
case of a termination by Executive pursuant to Section 5.3.1, the amount of
Executive's then annual Base Salary for a period of 12 months, plus the amount
of his annual bonus, calculated as provided in Section 5.4.3, or (z) $750,000,
in the case of a termination by Executive pursuant to Section 5.3.2(a).
5.4.2 In the event Executive shall elect to remain an employee
of the Company as provided in clause (b) of Section 5.4, the term of employment
shall continue and Executive shall remain an employee of the Company for a
period ending on the date which is (x) 24 months after the date notice of
termination is given, in the case of a termination by Company without cause or a
termination by Executive pursuant to Sections 5.2 or 5.3.2(b), or (y) 12 months
after the date notice of termination is given, in the case of a termination by
Executive pursuant to Section 5.3.1 or 5.3.2(a), and during such period
Executive shall be entitled to receive, whether or not he becomes disabled
during such period but subject to Section 7, Base Salary at an annual rate equal
to Executive's Base Salary in effect immediately prior to the date notice of
termination is given and an annual bonus in respect of each calendar year or
portion thereof (in which case a pro rata portion of such annual bonus will be
payable) during such period calculated as provided in Section 5.4.3 below.
Except as provided in the next sentence, if Executive accepts full-time
employment with any other entity during such period or notifies the Company in
writing of his intention to terminate his status as an employee, then the term
of employment shall cease and Executive shall cease to be an employee of the
Company effective upon the commencement of such employment or the effective date
of such termination as specified
-8-
<PAGE>
by Executive in such notice, whichever is applicable, and Executive shall be
entitled to receive as severance, subject to the last sentence of this Section
5.4.2, the balance of the Base Salary and regular annual bonuses Executive would
have been entitled to receive at the times Executive would have received such
payments pursuant to this Section 5.4.2, had Executive remained on the Company's
payroll until the end of the period described in the first sentence of this
Section 5.4.2. Notwithstanding the preceding sentence, if Executive accepts
employment with any not-for-profit entity, then Executive shall be entitled to
remain an employee of the Company and receive the payments as provided in the
first sentence of this Section 5.4.2; and if Executive accepts full-time
employment with any direct or indirect subsidiary of the Company, or any 10%
shareholder of the Company, then the payments provided for in this Section 5.4.2
and the term of employment shall cease and Executive shall not be entitled to
further payment hereunder.
5.4.3 The annual bonus payable to Executive in accordance with
Sections 5.4.1 or 5.4.2, as applicable, shall be based on the average of the
regular annual bonuses (excluding the amount of any special or spot bonuses)
received by Executive from the Company hereunder in respect of the two previous
calendar years immediately prior to termination; provided, that if such
termination occurs prior to the determination of Executive's annual bonus for
1998, then the annual bonus payable under this Section 5.4.3 shall be based on
the average of 75% of Executive's Base Salary and his 1997 annual bonus.
5.4.4 At the time Executive leaves the payroll of the Company
pursuant to the provisions of Sections 4, 5 or 6 of this Agreement, Executive's
rights to benefits and payments under any benefit plans or any insurance or
other death benefit plans or arrangements of the Company or under any bonus
unit, management incentive, stock option or other plan of the Company shall be
determined in accordance with the terms and provisions of such plans and any
agreements under which such awards were granted; provided, however, that
notwithstanding the foregoing or any more restrictive provisions of any such
plan or agreement, if Executive's term of employment with the Company shall
terminate as a result
-9-
<PAGE>
of a termination by the Company pursuant to Section 4.2 or as a result of a
termination by Executive pursuant to Sections 5.2 or 5.3, then all stock options
granted to Executive by the Company shall become vested at the time of such
termination and shall remain exercisable (but not beyond the expiration of the
option term) for a period of three years following the date notice of any such
termination is given.
5.4.5 If, as of the date (the "Termination Date") that
Executive leaves the payroll of the Company pursuant to the provisions of
Sections 4.2, 5 or 6 of this Agreement, Executive has not become fully vested in
any of the Time Warner stock options listed on Schedule I attached hereto (the
"TWX Options"), and Executive does not become an employee of Time Warner or any
of its subsidiaries within 90 days following the Termination Date, then within
21 days following the end of such 90-day period the Company shall pay to
Executive an amount equal to (x) the number of unvested TWX Options as of the
Termination Date, multiplied by (y) the average closing stock price of a share
---------- --
of Time Warner common stock on the New York Stock Exchange Composite Tape for
the ten consecutive trading days beginning on the Termination Date minus the
-----
weighted average option exercise price of such unvested TWX Options.
5.4.6 In partial consideration for the Company's obligation to
make the payments described in this Section 5.4, Executive shall execute and
deliver to the Company a release in substantially the form attached hereto as
Annex A. The Company shall deliver such release to the Executive within 20 days
after the written notice of termination is delivered pursuant to Section 5.2 or
5.3 and Executive shall execute and deliver such release to the Company within
21 days after receipt thereof. If Executive shall fail to execute and deliver
such release to the Company within such 21 day period, or Executive shall revoke
the Executive's consent to such release as provided therein, the Executive's
term of employment shall terminate as provided in Section 5.2 or 5.3 and
Executive shall not be eligible to receive the payments provided for in this
Section 5.4.
6. Disability. If during the term of employment Executive shall become
----------
physically or mentally disabled, whether totally or partially, so that he is
prevented from performing
-10-
<PAGE>
his usual duties for a period of six consecutive months, or for shorter periods
aggregating six months in any twelve-month period, the Company shall,
nevertheless, continue to pay Executive his full compensation, when otherwise
due, as provided in Section 3, through the last day of the sixth consecutive
month of disability or the date on which the shorter periods of disability shall
have equaled a total of six months in any twelve-month period (such last day or
date being referred to herein as the "Disability Date"). If Executive has not
resumed his usual duties on or prior to the Disability Date, the Company shall
pay Executive disability benefits for the balance of the term of employment in
an amount equal to (a) 75% of what the Base Salary otherwise would have been
pursuant to this Agreement had the disability not occurred, and (b) 75% of the
annual bonus amount determined in accordance with Section 5.4.3 hereof. From and
after January 1, 2001 until Executive reaches age 65, Company shall continue to
pay Executive disability benefits in an amount equal to 75% of his Base Salary
at the conclusion of the term of employment. The Company shall be entitled to
deduct from all payments to be made to Executive during any disability period an
amount equal to all disability payments received by Executive (but only with
respect to that portion of the disability period occurring during the term of
employment) from Workmen's Compensation, Social Security and disability
insurance policies maintained by the Company; provided, however, that for so
long as, and to the extent that, proceeds paid to Executive from such disability
insurance policies are not includible in his income for federal income tax
purposes, the Company's deduction with respect to such payments shall be equal
to the product of (i) such payments and (ii) a fraction, the numerator of which
is one and the denominator of which is one less the maximum marginal rate of
federal income taxes applicable to individuals at the time of receipt of such
payments. All payments made under this Section 6 after the Disability Date are
intended to be disability payments, regardless of the manner in which they are
computed. The term of employment shall not be extended or be deemed suspended by
reason of any period of disability.
-11-
<PAGE>
7. Death. Upon the death of Executive, this Agreement and all benefits
-----
hereunder shall terminate except that (i) Executive's estate (or a designated
beneficiary thereof) shall be entitled to receive the Base Salary to the last
day of the month in which his death occurs and shall be entitled to receive
bonus compensation equal to the annual bonus determined in accordance with
clause (i) of Section 5.4.3 but prorated according to the number of months of
employment in such year and (ii) such termination shall not affect any vested
rights which Executive may have at the time of his death pursuant to any
insurance or other death benefit plans or arrangements of the Company or any of
its affiliated companies or to the benefit plans described in Section 8, which
vested rights shall continue to be governed by the provisions of such plans.
8. Benefits.
--------
8.1 Life Insurance. Subject to Executive's satisfactory completion
--------------
of any applications and other documentation and any physical examination that
may be required by the insurer and to the availability of insurance, the Company
shall obtain $1,000,000 of term insurance on the life of Executive and shall pay
all premiums on such policy during the term of employment. Executive shall have
the right to designate the beneficiary of such policy. Following termination of
employment for any reason, Executive shall have the right, at his election, to
take over such policy at his expense. The life insurance provided for in this
Section 8.1 shall be in addition to the life insurance provided by the Company
in any group insurance plan generally applicable to executives of the Company
and shall be maintained by the Company for as long as Executive remains on the
payroll of the Company.
8.2 Other Benefits. During the term of employment Executive shall be
--------------
eligible to participate in any pension, profit-sharing, group insurance,
hospitalization, medical, dental, accident, disability or similar plan or
program of the Company now existing or established hereafter to the extent that
he is eligible under the general provisions thereof. In addition, the Company
shall pay directly at Executive's request, or reimburse him upon presentation of
appropriate invoices for, receipt of tax or financial
-12-
<PAGE>
advisory services not to exceed $5,000 per year. Executive shall also be
entitled to not less than four weeks paid vacation each year and to receive
other benefits generally available to all senior executives of the Company to
the extent that he is eligible therefor. Executive shall have the right to
purchase additional disability insurance at the Company's cost for such
coverage.
9. Protection of Confidential Information.
--------------------------------------
9.1 Covenant. Executive acknowledges that his employment by the
--------
Company (which, for purposes of this Section 9 shall mean the Company and its
affiliated companies) will, throughout the term of employment, bring him into
close contact with many confidential affairs of the Company, including
information about costs, profits, markets, sales, products, key personnel,
pricing policies, operational methods, technical processes and other business
affairs and methods and other information not readily available to the public,
and plans for future development. Executive further acknowledges that the
services to be performed under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character. In recognition of the foregoing,
Executive covenants and agrees:
9.1.1 Executive will keep secret all confidential matters of
the Company, including without limitation, the terms and provisions of this
Agreement, and will not intentionally disclose such matters to anyone outside of
the Company, either during or after the term of employment, except with the
Company's written consent, provided that (i) Executive shall have no such
obligation to the extent such matters are or become publicly known other than as
a result of Executive's breach of his obligations hereunder, (ii) Executive may,
after giving prior notice to the Company to the extent practicable under the
circumstances, disclose such matters to the extent required by applicable laws
or governmental regulations or judicial or regulatory process and (iii)
Executive may disclose the terms and provisions of this Agreement to his spouse
and legal, tax and financial advisors;
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<PAGE>
9.1.2 Executive will deliver promptly to the Company on
termination of his employment by the Company, or at any other time the Company
may so request, at the Company's expense, all memoranda, notes, records, reports
and other documents (and all copies thereof) relating to the Company's business,
which he obtained while employed by, or otherwise serving or acting on behalf
of, the Company and which he may then possess or have under his control; and
9.1.3 If the term of employment is terminated pursuant to
Section 4 or Section 5, or if the term of employment terminates as scheduled,
for a period of one year after such termination, without the consent of the
Company, Executive will not employ, and will not cause any entity of which he is
an affiliate to employ, any person who was a full-time executive employee of the
Company or any of its affiliated companies at the date of such termination or
within six months prior thereto.
9.2 Specific Remedy. In addition to such other rights and remedies
---------------
as the Company may have at equity or in law with respect to any breach of this
Agreement, if Executive commits a material breach of any of the provisions of
Section 9.1 or the penultimate paragraph of Section 2, the Company shall have
the right and remedy to have such provisions specifically enforced by any court
having equity jurisdiction, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to the Company and
that money damages will not provide an adequate remedy to the Company.
10. Indemnification. Provided that Executive performs his duties for the
---------------
Company in good faith and in a manner believed by him to be in the best
interests of the Company and not in contravention of the terms of this
Agreement, the Company agrees to indemnify Executive to the fullest extent
permitted by applicable law against all reasonably paid expenses (including
reasonable attorneys' fees), judgments and amounts paid in settlement to which
the Company has consented in writing, in connection with any threatened, pending
or completed investigation, claim, action, suit or proceeding arising out of the
performance by Executive of services to the Company under this Agreement,
provided that
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<PAGE>
Executive cooperates with the Company in connection therewith. Executive will
provide the Company with prompt notice of the commencement of any such
investigation or litigation. The provisions of this Section 10 shall survive
termination of this Agreement with respect to events which occurred during
Executive's employment with the Company.
11. Notices. All notices, requests, consents and other communications
-------
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by prepaid
telegram, or mailed first-class, postage prepaid, by registered or certified
mail, as follows (or to such other or additional address as either party shall
designate by notice in writing to the other in accordance herewith):
11.1 If to the Company:
PRIMESTAR, Inc.
8085 S. Chester Street, Suite 300
Englewood, CO 80112
Attention: General Counsel
11.2 If to Executive, to the address set forth on the records of the
Company.
12. General.
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12.1 Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of New York.
12.2 Captions. The section headings contained herein are for
--------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.3 Entire Agreement. This Agreement sets forth the entire
----------------
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior agreements, arrangements and understandings, written or
oral, between the parties.
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<PAGE>
12.4 No Other Representations. No representation, promise or
------------------------
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or be liable for any alleged representation,
promise or inducement not so set forth.
12.5 Assignability. This Agreement and Executive's rights and
-------------
obligations hereunder may not be assigned by Executive. The Company may assign
its rights, together with its obligations, hereunder in connection with any
sale, transfer or other disposition of all or substantially all of its business
and assets; and such rights and obligations shall inure to, and be binding upon,
any successor to the business or substantially all of the assets of the Company,
whether by merger, purchase of stock or assets or otherwise, and such successor
shall expressly assume such obligations.
12.6 Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by written instrument executed by both of the parties hereto, or
in the case of a waiver, by the party waiving compliance. The failure of either
party at any time or times to require performance of any provision hereof shall
in no manner affect such party's right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
12.7 Resolution of Disputes. Any dispute or controversy arising with
----------------------
respect to this Agreement may be referred by either party to ENDISPUTE for
resolution in arbitration in accordance with the rules and procedures of
ENDISPUTE. Any such proceedings shall take place in Denver before a single
arbitrator (rather than a panel of arbitrators), pursuant to any streamlined or
expedited (rather than a comprehensive) arbitration process, before a
nonjudicial (rather than a judicial) arbitrator, and in accordance with an
arbitration process which, in the judgment of such arbitrator, shall have the
effect of reasonably limiting or reducing the cost of such arbitration. The
resolution of
-16-
<PAGE>
any such dispute or controversy by the arbitrator appointed in accordance with
the procedures of ENDISPUTE shall be final and binding. Judgment upon the award
rendered by such arbitrator may be entered in any court having jurisdiction
thereof, and the parties consent to the jurisdiction of the Colorado courts for
this purpose. The prevailing party shall be entitled to recover the costs of
arbitration (including reasonable attorneys fees and the fees of experts) from
the losing party. If at any time any dispute or controversy arises with respect
to this Agreement, ENDISPUTE is not in business or is no longer providing
arbitration services, then the American Arbitration Association shall be
substituted for ENDISPUTE for the purposes of the foregoing provision of this
Section 12.7. If Executive shall be the prevailing party in such arbitration,
the Company shall promptly pay, upon demand of Executive, all legal fees, court
costs and other costs and expenses incurred by Executive in any legal action
seeking to enforce the award in any court.
12.8 Beneficiaries. Whenever this Agreement provides for any
-------------
payment to Executive's estate, such payment may be made instead to such
beneficiary or beneficiaries as Executive may designate in writing filed with
the Company. Executive shall have the right to revoke any such designation and
to redesignate a beneficiary or beneficiaries by written notice to the Company
(and to any applicable insurance company) to such effect.
12.9 No Conflict. Executive represents and warrants to the Company
-----------
that this Agreement is legal, valid and binding upon Executive and the execution
of this Agreement and the performance of Executive's obligations hereunder does
not and will not constitute a breach of, or conflict with the terms or
provisions of, any agreement or understanding to which Executive is a party
(including, without limitation, any other employment agreement). The Company
represents and warrants to Executive that this Agreement is legal, valid and
binding upon the Company and the Company is not a party to any agreement or
understanding which would prevent the fulfillment by the Company of the terms of
this Agreement.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
PRIMESTAR, Inc.
By_______________________________
_________________________________
Daniel O'Brien
-18-
<PAGE>
Exhibit 10.3
April 9, 1999
Christopher Sophinos
8876 East Phillips Place
Englewood, Colorado 80112
Dear Mr. Sophinos:
This letter agreement and its exhibits ("Agreement") will confirm the
understanding between PRIMESTAR, Inc. and Christopher Sophinos ("you") regarding
your employment with PRIMESTAR, Inc. PRIMESTAR, Inc. and you have agreed as
follows:
1. Employment and Services.
-----------------------
PRIMESTAR, Inc., the new privately held corporate entity created as a
result of the restructuring (as defined in the TCI Satellite Entertainment, Inc.
("TSAT") Definitive Proxy Statement/Prospectus dated February 9, 1998 (the
"Roll-up Transaction")), will employ you as Senior Vice President, Sales and
Distribution, commencing on the first day following the closing of the Roll-up
Transaction, and you have agreed to perform your exclusive and full-time
services in that capacity for PRIMESTAR, Inc. upon the terms and conditions
herein set forth. At all times during your employ hereunder, you agree that you
are subject to and will comply with the personnel policies and procedures of
PRIMESTAR, Inc. currently in effect and as may be modified from time to time by
PRIMESTAR, Inc., except to the extent any such policy or procedure specifically
conflicts with the express terms of this Agreement. This Agreement replaces and
supercedes any other employment agreement or offer letter from TSAT, Primestar
Partners, L.P. or PRIMESTAR, Inc., if any, that may be currently in effect.
2. Term.
----
The term of this Agreement shall commence as of the first day following the
closing of the Roll-up Transaction and will continue for a period of three (3)
years (the "Initial Term").
3. Compensation.
------------
As full compensation for your services rendered under this Agreement, you
will receive the following:
a. Initial base salary, ("Base Salary") at the annual rate of (i)
$235,000.00 during the period from April 1, 1998 to December 31, 1998;
and (ii) $248,000.00 commencing January 1, 1999 and continuing
thereafter with increases at the discretion of the Compensation
Committee of the Board of Directors of PRIMESTAR, Inc. (the "Board");
and
<PAGE>
Christopher Sophinos
April 9, 1999
Page 2
b. A target cash bonus of 45% of annual Base Salary, dependent upon
meeting certain defined goals as determined from time to time by
PRIMESTAR, Inc.; and
c. In addition to the foregoing, officers at your level of management will
be eligible for a long-term incentive plan to be developed and approved
by the Board. This long-term incentive plan may be formulated as a
PRIMESTAR, Inc. stock option incentive plan or a cash incentive as
outlined below.
Long-Term Stock Incentive Plan Alternative
------------------------------------------
You will be eligible for an initial grant of PRIMESTAR, Inc. Class A
common share options in an amount equal to the product of five times
your annual base salary, divided by a predetermined strike price. The
vesting period for this initial grant of options will be three (3)
years, with 1/3 vesting on each of the one year, two year and three
year anniversary dates of the initial option grant. Should PRIMESTAR,
Inc. become a publicly-traded company, shares which are the subject of
these options will become publicly tradable.
Although no assurances can be given, should the initial stock options
be granted as outlined above, it is also anticipated that officers at
your level of management (subject to meeting certain individual and
PRIMESTAR, Inc. performance targets) will be eligible in the future to
receive annual options of PRIMESTAR, Inc. Class A common shares under a
PRIMESTAR, Inc. long-term Stock Incentive Plan to be approved by the
Board.
In the event that PRIMESTAR, Inc. does not become a publicly-traded
company, stock options granted during such period shall be granted with
tandem stock appreciation rights ("SARs"), which will be exercisable
exclusively for cash at any time that the Company's common stock is not
publicly traded.
The timing, availability, other eligibility requirements and other
terms and conditions of the cash bonus program and the long-term
incentive plan will be determined by the Board.
4. Benefits.
--------
During the term of this Agreement, you will be entitled to four (4) weeks
vacation per year, sick leave, reimbursement for your reasonable and necessary
business expenses as provided by PRIMESTAR, Inc. generally to employees at your
level, and all other employee benefits as specified in the current PRIMESTAR,
Inc. Employee Handbook as may be modified from time to time by PRIMESTAR, Inc.
in its discretion.
<PAGE>
Christopher Sophinos
April 9, 1999
Page 3
5. Termination.
-----------
Notwithstanding Paragraph 2 hereof, PRIMESTAR, Inc. may terminate your
services with or without cause. PRIMESTAR, Inc. may terminate your services for
cause in the event of:
a. Your willful and continuing refusal without proper cause to perform
your material obligations under this Agreement;
b. Your willful, material and continuing breach of the Non-Competition and
Confidentiality Agreement set forth in Exhibit A; or
---------
c. Your conviction of (or nolo contendere plea to) any felony(whether or
---------------
not any right to appeal has been or may be exercised).
Such termination for cause shall be effected by written notice thereof
delivered by the Company to you and shall be effective as of the date of such
notice; provided, however, that the termination shall not be effective if (i)
such termination is pursuant to paragraph 5(b) above; and (ii) such notice is
the first such notice of termination delivered by the Company to you hereunder;
and (iii) within thirty (30) days following the date of such notice you shall
cure the breach. In the event of termination by the Company for cause in
accordance with the foregoing procedures, without prejudice to any other rights
or remedies that the Company may have at law or equity, the Company shall have
no further obligations to you other than to pay Base Salary as accrued through
the effective date of termination, together with all accrued vacation pay.
In the event that you are terminated without cause (in which event the
Company will provide you with thirty (30) days notice) or you resign for "good
reason" (which shall mean, PRIMESTAR, Inc.'s breach of any material provision of
this Agreement, any demotion without cause, your being required by PRIMESTAR,
Inc. to maintain your office other than in the Denver metropolitan region or
your resignation following the termination or voluntary resignation of Carl
Vogel from the position of Chief Executive Officer), in either case, subject to
your execution of a Severance and Release Agreement that is not materially
different from the form attached hereto as Exhibit B, you shall be eligible to
---------
receive severance payments equal to two (2) years of your base annual salary at
the time of termination of your employment ("Base Salary Severance") plus two
----
years of your target cash bonus equal to 45% of your base annual salary at the
time of termination of your employment ("Target Bonus Severance") without regard
to whether the Company has met its goals. You may elect to take your Base
Salary Severance plus the first year Target Bonus Severance in a lump sum up
front to be paid after all applicable waiting periods set forth in the Severance
and Release Agreement have run. Under this scenario, your second year Target
Bonus Severance would be paid on or before January 31 of the second January
following your termination date. Alternatively, you may elect to take your Base
Salary Severance, on a biweekly basis when normally otherwise due and payable,
for a period of two
<PAGE>
Christopher Sophinos
April 9, 1999
Page 4
(2) years after the termination of your employment, in which case PRIMESTAR,
Inc. shall continue to provide you with health benefits for the shorter of one
(1) year or such period of time as PRIMESTAR maintains its health benefit plans.
Under this scenario, PRIMESTAR, Inc. will pay the Target Bonus Severance on or
before January 31 of each of the two years following your termination date.
To the extent you hold PRIMESTAR, Inc. stock options, stock appreciation
rights or restricted shares under any stock incentive plan or non-qualified
stock option agreement, your vesting and any exercise rights shall be treated
pursuant to the applicable stock option, stock appreciation or restricted share
agreement and stock incentive plans.
If the Company terminates you without cause or you resign for good reason,
the Company will provide you with senior executive outplacement services with
Lee Hecht Harrison or a comparable provider for nine months.
This Agreement will terminate upon your death or total disability (as
defined in the PRIMESTAR, Inc. long-term disability plan). In the event of such
termination, PRIMESTAR, Inc. shall pay you (or your estate, if appropriate) all
compensation due hereunder but not yet paid prior to such termination, including
the Base Salary Severance and the Target Bonus Severance if your employment was
terminated prior to your death or total disability and such payments are
otherwise due and payable pursuant to the terms of this Agreement. Additionally,
if termination is due to your death, PRIMESTAR, Inc. will continue to provide
health benefits to your family for the shorter of one (1) full year or such
period of time as PRIMESTAR maintains its health benefit plans.
6. Indemnification.
---------------
Provided that you perform your duties for the Company in good faith and in
a manner believed by you to be in the best interests of the Company and not in
contravention of the terms of this Agreement, the Company agrees to indemnify
you to the fullest extent permitted by applicable law against all reasonably
paid expenses (including reasonable attorneys' fees), judgments, and amounts
paid in settlement to which Company has consented in writing, in connection with
any threatened, pending or completed investigation, claim, action, suit or
proceeding arising out of the performance by you of services to the Company
under this Agreement, provided that you cooperate with the Company in connection
therewith. You shall provide Company with prompt notice of the commencement of
any such investigation or litigation. The provisions of this Section 6 shall
survive termination of this Agreement with respect to events that occurred
during your employment with the Company.
<PAGE>
Christopher Sophinos
April 9, 1999
Page 5
7. Confidentiality and Non-Competition Obligations.
-----------------------------------------------
As a condition of your employment with PRIMESTAR, Inc. you will be
obligated to execute the non-competition and confidentiality agreement attached
hereto as Exhibit A.
---------
8. General.
-------
a. This Agreement sets forth the entire agreement and understanding of the
parties hereto, and, effective on the commencement date hereof,
supersedes all prior agreements, arrangements, and understandings. No
representation, promise or inducement has been made by either party
that is not embodied in this Agreement.
b. Nothing herein contained shall be construed so as to require the
commission of any act contrary to law. Whenever there is any conflict
between any provision of this Agreement and any present or further
statute, law, ordinance or regulation, the latter shall prevail, but in
such event, the provision of this Agreement affected shall be curtailed
and limited only to the extent necessary to bring it within legal
requirements.
c. The section headings contained herein are for reference purposes only
and shall not in any way affect the meaning or interpretation of this
Agreement.
d. This Agreement may be amended, and any terms of it waived only by a
written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure or
waiver of either party at any time(s) to require performance of any
provision hereof shall in no manner affect the right at a later time to
enforce the same or any other provision.
e. This Agreement shall be governed and construed in accordance with the
laws of Colorado applicable to contracts entered into and fully
performed in Colorado without regard to principles of conflict of laws.
Any controversy or claim arising out of or relating to this Agreement,
its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions,
or arising out of or relating in any way to your employment or
termination thereof, shall be submitted to arbitration, to be held in
Colorado, before the American Bar Association, Denver, Colorado for
resolution in accordance with the rules and procedures of the American
Bar Association, with the power to grant equitable relief, including
injunctions and temporary restraining orders. The parties irrevocably
agree to be bound by any decision rendered by the American Bar
Association. Notwithstanding the foregoing, PRIMESTAR, Inc. shall have
the right to obtain injunctive, relief against you from an appropriate
court if you
<PAGE>
Christopher Sophinos
April 9, 1999
Page 6
threaten or attempt to: (i) seek, negotiate or obtain employment other
than with PRIMESTAR, Inc. except as permitted by this Agreement; or
(ii) make unauthorized disclosure of confidential information to a
third party.
f. Neither party may assign any provision hereof, directly or indirectly,
without the prior consent of the other party hereto.
g. You have read this Agreement, fully understand its contents and terms,
and have had the opportunity to raise any questions, concerns or issues
you may have in connection with the Agreement or the terms of the
Agreement. You also have had the opportunity, and taken it to the
extent you choose, to consult legal counsel or any other advisers of
your choice in connection with this Agreement.
Very truly yours,
PRIMESTAR, Inc.
By:
----------------------------------
Carl E. Vogel
Chief Executive Officer
AGREED:
- ------------------------------
Christopher Sophinos
<PAGE>
Exhibit 10.4
April 13, 1999
Kenneth G. Carroll
3197 East Otero Circle
Littleton, Colorado 80122
Dear Mr. Carroll:
This letter agreement and its exhibits ("Agreement") will confirm the
understanding between PRIMESTAR, Inc. and Kenneth G. Carroll ("you") regarding
your employment with PRIMESTAR, Inc. PRIMESTAR, Inc. and you have agreed as
follows:
1. Employment and Services.
-----------------------
PRIMESTAR, Inc., the new privately held corporate entity created as a
result of the restructuring (as defined in the TCI Satellite Entertainment, Inc.
("TSAT") Definitive Proxy Statement/Prospectus dated February 9, 1998 (the
"Roll-up Transaction")), will employ you as Senior Vice President, Chief
Financial Officer, commencing on the first day following the closing of the
Roll-up Transaction, and you have agreed to perform your exclusive and full-time
services in that capacity for PRIMESTAR, Inc. upon the terms and conditions
herein set forth. At all times during your employ hereunder, you agree that you
are subject to and will comply with the personnel policies and procedures of
PRIMESTAR, Inc. currently in effect and as may be modified from time to time by
PRIMESTAR, Inc., except to the extent any such policy or procedure specifically
conflicts with the express terms of this Agreement. This Agreement replaces and
supercedes any other employment agreement or offer letter from TSAT, Primestar
Partners, L.P. or PRIMESTAR, Inc., if any, that may be currently in effect.
2. Term.
----
The term of this Agreement shall commence as of the first day following the
closing of the Roll-up Transaction and will continue for a period of three (3)
years (the "Initial Term").
3. Compensation.
------------
As full compensation for your services rendered under this Agreement, you
will receive the following:
a. Initial base salary, ("Base Salary") at the annual rate of (i)
$247,500.00 during the period from April 1, 1998 to December 31, 1998;
and (ii) $264,825.00 commencing January 1, 1999 and continuing
thereafter with increases at the discretion of the Compensation
Committee of the Board of Directors of PRIMESTAR, Inc. (the "Board");
and
<PAGE>
Kenneth G. Carroll
April 13, 1999
Page 2
b. A target cash bonus of 45% of annual Base Salary, dependent upon
meeting certain defined goals as determined from time to time by
PRIMESTAR, Inc.; and
c. In addition to the foregoing, officers at your level of management will
be eligible for a long-term incentive plan to be developed and approved
by the Board. This long-term incentive plan may be formulated as a
PRIMESTAR, Inc. stock option incentive plan or a cash incentive as
outlined below.
Long-Term Stock Incentive Plan Alternative
------------------------------------------
You will be eligible for an initial grant of PRIMESTAR, Inc. Class A
common share options in an amount equal to the product of five times
your annual base salary, divided by a predetermined strike price. The
vesting period for this initial grant of options will be three (3)
years, with 1/3 vesting on each of the one year, two year and three
year anniversary dates of the initial option grant. Should PRIMESTAR,
Inc. become a publicly-traded company, shares which are the subject of
these options will become publicly tradable.
Although no assurances can be given, should the initial stock options
be granted as outlined above, it is also anticipated that officers at
your level of management (subject to meeting certain individual and
PRIMESTAR, Inc. performance targets) will be eligible in the future to
receive annual options of PRIMESTAR, Inc. Class A common shares under a
PRIMESTAR, Inc. long-term Stock Incentive Plan to be approved by the
Board.
In the event that PRIMESTAR, Inc. does not become a publicly-traded
company, stock options granted during such period shall be granted with
tandem stock appreciation rights ("SARs"), which will be exercisable
exclusively for cash at any time that the Company's common stock is not
publicly traded.
The timing, availability, other eligibility requirements and other
terms and conditions of the cash bonus program and the long-term
incentive plan will be determined by the Board.
4. Benefits.
--------
During the term of this Agreement, you will be entitled to four (4) weeks
vacation per year, sick leave, reimbursement for your reasonable and necessary
business expenses as provided by PRIMESTAR, Inc. generally to employees at your
level, and all other employee benefits as specified in the current PRIMESTAR,
Inc. Employee Handbook as may be modified from time to time by PRIMESTAR, Inc.
in its discretion.
<PAGE>
Kenneth G. Carroll
April 13, 1999
Page 3
5. Termination.
-----------
Notwithstanding Paragraph 2 hereof, PRIMESTAR, Inc. may terminate your
services with or without cause. PRIMESTAR, Inc. may terminate your services for
cause in the event of:
a. Your willful and continuing refusal without proper cause to perform
your material obligations under this Agreement;
b. Your willful, material and continuing breach of the Non-Competition and
Confidentiality Agreement set forth in Exhibit A; or
---------
c. Your conviction of (or nolo contendere plea to) any felony(whether or
---------------
not any right to appeal has been or may be exercised).
Such termination for cause shall be effected by written notice thereof
delivered by the Company to you and shall be effective as of the date of such
notice; provided, however, that the termination shall not be effective if (i)
such termination is pursuant to paragraph 5(b) above; and (ii) such notice is
the first such notice of termination delivered by the Company to you hereunder;
and (iii) within thirty (30) days following the date of such notice you shall
cure the breach. In the event of termination by the Company for cause in
accordance with the foregoing procedures, without prejudice to any other rights
or remedies that the Company may have at law or equity, the Company shall have
no further obligations to you other than to pay Base Salary as accrued through
the effective date of termination, together with all accrued vacation pay.
In the event that you are terminated without cause (in which event the
Company will provide you with thirty (30) days notice) or you resign for "good
reason" (which shall mean, PRIMESTAR, Inc.'s breach of any material provision of
this Agreement, any demotion without cause, your being required by PRIMESTAR,
Inc. to maintain your office other than in the Denver metropolitan region or
your resignation following the termination or voluntary resignation of Carl
Vogel from the position of Chief Executive Officer), in either case, subject to
your execution of a Severance and Release Agreement that is not materially
different from the form attached hereto as Exhibit B, you shall be eligible to
---------
receive severance payments equal to two (2) years of your base annual salary at
the time of termination of your employment ("Base Salary Severance") plus two
----
years of your target cash bonus equal to 45% of your base annual salary at the
time of termination of your employment ("Target Bonus Severance") without regard
to whether the Company has met its goals. You may elect to take your Base
Salary Severance plus the first year Target Bonus Severance in a lump sum up
front to be paid after all applicable waiting periods set forth in the Severance
and Release Agreement have run. Under this scenario, your second year Target
Bonus Severance would be paid on or before January 31 of the second January
following your termination date. Alternatively, you may elect to take your Base
Salary Severance, on a biweekly basis when normally otherwise due and payable,
for a period of two
<PAGE>
Kenneth G. Carroll
April 13, 1999
Page 4
(2) years after the termination of your employment, in which case PRIMESTAR,
Inc. shall continue to provide you with health benefits for the shorter of one
(1) year or such period of time as PRIMESTAR maintains its health benefit plans.
Under this scenario, PRIMESTAR, Inc. will pay the Target Bonus Severance on or
before January 31 of each of the two years following your termination date.
To the extent you hold PRIMESTAR, Inc. stock options, stock appreciation
rights or restricted shares under any stock incentive plan or non-qualified
stock option agreement, your vesting and any exercise rights shall be treated
pursuant to the applicable stock option, stock appreciation or restricted share
agreement and stock incentive plans.
If the Company terminates you without cause or you resign for good reason,
the Company will provide you with senior executive outplacement services with
Lee Hecht Harrison or a comparable provider for nine months.
This Agreement will terminate upon your death or total disability (as
defined in the PRIMESTAR, Inc. long-term disability plan). In the event of such
termination, PRIMESTAR, Inc. shall pay you (or your estate, if appropriate) all
compensation due hereunder but not yet paid prior to such termination, including
the Base Salary Severance and the Target Bonus Severance if your employment was
terminated prior to your death or total disability and such payments are
otherwise due and payable pursuant to the terms of this Agreement. Additionally,
if termination is due to your death, PRIMESTAR, Inc. will continue to provide
health benefits to your family for the shorter of one (1) full year or such
period of time as PRIMESTAR maintains its health benefit plans.
6. Indemnification.
---------------
Provided that you perform your duties for the Company in good faith and in
a manner believed by you to be in the best interests of the Company and not in
contravention of the terms of this Agreement, the Company agrees to indemnify
you to the fullest extent permitted by applicable law against all reasonably
paid expenses (including reasonable attorneys' fees), judgments, and amounts
paid in settlement to which Company has consented in writing, in connection with
any threatened, pending or completed investigation, claim, action, suit or
proceeding arising out of the performance by you of services to the Company
under this Agreement, provided that you cooperate with the Company in connection
therewith. You shall provide Company with prompt notice of the commencement of
any such investigation or litigation. The provisions of this Section 6 shall
survive termination of this Agreement with respect to events that occurred
during your employment with the Company.
<PAGE>
Kenneth G. Carroll
April 13, 1999
Page 5
7. Confidentiality and Non-Competition Obligations.
-----------------------------------------------
As a condition of your employment with PRIMESTAR, Inc. you will be
obligated to execute the non-competition and confidentiality agreement attached
hereto as Exhibit A.
---------
8. General.
-------
a. This Agreement sets forth the entire agreement and understanding of the
parties hereto, and, effective on the commencement date hereof,
supersedes all prior agreements, arrangements, and understandings. No
representation, promise or inducement has been made by either party
that is not embodied in this Agreement.
b. Nothing herein contained shall be construed so as to require the
commission of any act contrary to law. Whenever there is any conflict
between any provision of this Agreement and any present or further
statute, law, ordinance or regulation, the latter shall prevail, but in
such event, the provision of this Agreement affected shall be curtailed
and limited only to the extent necessary to bring it within legal
requirements.
c. The section headings contained herein are for reference purposes only
and shall not in any way affect the meaning or interpretation of this
Agreement.
d. This Agreement may be amended, and any terms of it waived only by a
written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure or
waiver of either party at any time(s) to require performance of any
provision hereof shall in no manner affect the right at a later time to
enforce the same or any other provision.
e. This Agreement shall be governed and construed in accordance with the
laws of Colorado applicable to contracts entered into and fully
performed in Colorado without regard to principles of conflict of laws.
Any controversy or claim arising out of or relating to this Agreement,
its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions,
or arising out of or relating in any way to your employment or
termination thereof, shall be submitted to arbitration, to be held in
Colorado, before the American Bar Association, Denver, Colorado for
resolution in accordance with the rules and procedures of the American
Bar Association, with the power to grant equitable relief, including
injunctions and temporary restraining orders. The parties irrevocably
agree to be bound by any decision rendered by the American Bar
Association. Notwithstanding the foregoing, PRIMESTAR, Inc. shall have
the right to obtain injunctive, relief against you from an appropriate
court if you
<PAGE>
Kenneth G. Carroll
April 13, 1999
Page 6
threaten or attempt to: (i) seek, negotiate or obtain employment other
than with PRIMESTAR, Inc. except as permitted by this Agreement; or
(ii) make unauthorized disclosure of confidential information to a
third party.
f. Neither party may assign any provision hereof, directly or indirectly,
without the prior consent of the other party hereto.
g. You have read this Agreement, fully understand its contents and terms,
and have had the opportunity to raise any questions, concerns or issues
you may have in connection with the Agreement or the terms of the
Agreement. You also have had the opportunity, and taken it to the
extent you choose, to consult legal counsel or any other advisers of
your choice in connection with this Agreement.
Very truly yours,
PRIMESTAR, Inc.
By:
-----------------------------------
Carl E. Vogel
Chief Executive Officer
AGREED:
- --------------------------
Kenneth G. Carroll
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PHOENIXSTAR,
INC.'S (FORMERLY PRIMESTAR, INC.) QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 170,380
<SECURITIES> 0
<RECEIVABLES> 101,574
<ALLOWANCES> 8,804
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,606,512
<DEPRECIATION> 456,915
<TOTAL-ASSETS> 2,065,477
<CURRENT-LIABILITIES> 0
<BONDS> 1,860,717
0
0
<COMMON> 2,009
<OTHER-SE> (370,508)
<TOTAL-LIABILITY-AND-EQUITY> 2,065,477
<SALES> 0
<TOTAL-REVENUES> 393,864
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<INCOME-PRETAX> (91,996)
<INCOME-TAX> (8,271)
<INCOME-CONTINUING> (83,725)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83,725)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
