-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jop5GNmpRVvrIgL+OqsphkFyJ+p6SZ05TW85LdAmR/iWi5uleSOCykWL31tRiRa/ SEfSDPzULInRAMiuCaqpXg== 0000950109-99-001861.txt : 19990517 0000950109-99-001861.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950109-99-001861 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOENIXSTAR INC CENTRAL INDEX KEY: 0001054666 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 841441684 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23883 FILM NUMBER: 99624379 BUSINESS ADDRESS: STREET 1: 8085 S CHESTER STREET 2: STE 300 CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037124600 MAIL ADDRESS: STREET 1: 8085 S CHESTER STREET 2: STE 300 CITY: ENGLEWOOD STATE: CO ZIP: 80112 FORMER COMPANY: FORMER CONFORMED NAME: PRIMESTAR INC DATE OF NAME CHANGE: 19980205 10-Q 1 FORM 10-Q 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. PHOENIXSTAR, INC. AND SUBSIDIARIES (formerly PRIMESTAR, Inc.) Consolidated Balance Sheets (unaudited)
March 31, December 31, 1999 1998 --------------------- --------------------- amounts in thousands 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 ========== =========
(continued) I-1 PHOENIXSTAR, INC. AND SUBSIDIARIES (formerly PRIMESTAR, Inc.) Consolidated Balance Sheets, continued (unaudited)
March 31, December 31, 1999 1998 ------------------------ ----------------------- amounts in thousands 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 =========== ==========
See accompanying notes to consolidated financial statements. I-2 PHOENIXSTAR, INC. AND SUBSIDIARIES (formerly PRIMESTAR, Inc.) Consolidated Statements of Operations (unaudited)
Three months ended March 31, ------------------------------------------------ 1999 1998 ----------------------- ----------------------- amounts in thousands, except per share amounts 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) ======== =======
See accompanying notes to consolidated financial statements. I-3 PHOENIXSTAR, INC. AND SUBSIDIARIES (formerly PRIMESTAR, Inc.) Consolidated Statement of Stockholders' Deficit Three months ended March 31, 1999 (unaudited)
Common stock Additional Total ------------------------------------------------- paid-in Accumulated stockholders' Class A Class B Class C Class D capital deficit deficit ------------ ------- ----------- ------------- ---------- ----------- ------------ amounts in thousands 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) ============ ======= =========== ============= ========== ========== ========
See accompanying notes to consolidated financial statements. I-4 PHOENIXSTAR, INC. AND SUBSIDIARIES (formerly PRIMESTAR, Inc.) Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, ---------------------------------------- 1999 1998 ------------------- ------------------- amounts in thousands (see note 6) 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 -- ========= =======
See accompanying notes to consolidated financial statements. I-5 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 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 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 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 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:
Ownership Name of Beneficial Owner Percentage ------------------------ ---------- TSAT 37.23% TWE and Newhouse (collectively) 30.02% Comcast 9.50% MediaOne 9.69% Cox 9.43% GE Americom 4.13%
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 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 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:
March 31, December 31, 1999 1998 ------------------- ------------------- amounts in thousands 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 ========== =========
(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 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 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 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 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):
Three months ended March 31, ------------------------------------------------------------------------------ 1999 1998 -------------------------------------- -------------------------------------- Percentage Percentage of total of total Amount revenue Amount revenue ------------------ ------------------ ------------------ ------------------ 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)% ========= ==== ======== ====
I-16 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 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 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 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 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 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.
Expected Maturity Date ---------------------- 1999 2000 2001 2002 2003 Thereafter ---- ---- ---- ---- ---- ---------- dollar amounts in thousands 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%
I-22 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 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 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 EX-3.1 2 CERTIFICATE OF AMEND. TO RESTATED CERT. OF INCORP. 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 EX-10.1 3 EMPLOYMENT AGREEMENT W/CARL VOGEL 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-10.2 4 EMPLOYMENT AGREEMENT W/DANIEL O'BRIEN 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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; -13- 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 -14- 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. ------- 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. -15- 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- 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- IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. PRIMESTAR, Inc. By_______________________________ _________________________________ Daniel O'Brien -18- EX-10.3 5 EMPLOYMENT AGREEMENT W/CHRIS SOPHINOS 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 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. 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 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. 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 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 EX-10.4 6 EMPLOYMENT AGREEMENT W/KEN CARROLL 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 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. 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 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. 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 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 EX-27 7 FINANCIAL DATA SCHEDULE
5 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. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 170,380 0 101,574 8,804 0 0 1,606,512 456,915 2,065,477 0 1,860,717 0 0 2,009 (370,508) 2,065,477 0 393,864 0 199,664 138,836 0 42,428 (91,996) (8,271) (83,725) 0 0 0 (83,725) (.42) (.42)
-----END PRIVACY-ENHANCED MESSAGE-----