<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 8, 1996
PEGASUS COMMUNICATIONS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 0-21389 51-0374669
- --------------- ------------ -------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
c/o Pegasus Communications Management Company, 100 Matsonford Road,
5 Radnor Corporate Center, Suite 454, Radnor, Pennsylvania 19087
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-341-1801
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On May 30, 1996, the Company's parent, Pegasus Communications Holdings,
Inc. ("PCH"), entered into a definitive agreement with Harron Communications
Corp. ("Harron") with respect to the Company's acquisition of rights as an
exclusive provider of DIRECTV services in certain rural areas of Texas and
Michigan and assets related thereto (the "Assets").
On October 8, 1996, concurrently with the initial public offering (the
"Public Offering") of the Company's Class A Common Stock (the "Class A Shares"),
Harron contributed the Assets to the Company in exchange for 852,110 Class A
Shares (representing $11,929,546 of Class A Shares at the initial public
offering price of $14.00 per share in the Public Offering) and $17,894,319 in
cash. The cash portion of the consideration is subject to certain post-closing
adjustments. The acquisition was financed through net proceeds received by the
Company in the Public Offering.
At the completion of the Public Offering, Harron was deemed to own
approximately 19.1% of the outstanding Class A Shares and 9.4% of the combined
outstanding Class A and Class B Shares. In connection with the acquisition, PCH
agreed to nominate a designee of Harron as a member of the Company's Board of
Directors. Effective October 8, 1996, the Company elected such designee, James
J. McEntee, III, to the Board of Directors of the Company. Harron's right to
designate one director to the Board of Directors expires on October 8, 1998, the
second anniversary from the acquisition of the Assets.
The Assets consist of properties, rights and other assets used by
Harron in the DIRECTV distribution business in certain areas of Texas and
Michigan. The exclusive territory includes approximately 391,000 television
households and 20,000 business locations in nine counties in the Flint, Saginaw
and thumb regions of Michigan and seven counties approximately 45 miles south of
the Dallas/Fort Worth metroplex. As of August 1996, there were approximately
9,700 DIRECTV subscribers in the exclusive areas. The exclusive rights acquired
by the Company were granted to Harron through two distribution agreements among
Harron and the National Rural Telecommunications Cooperative, pursuant to which
Harron was granted the right to distribute DIRECTV programming offered by
DIRECTV, Inc. in the exclusive areas. The Company plans to continue to use the
Assets in its DBS business.
In connection with the acquisition of the Assets, the Company entered
into a stockholders' agreement with Harron (the "Stockholders' Agreement") which
provides Harron certain piggyback registration rights until such time as the
Class A Shares received by Harron (i) have been effectively registered under the
Securities Act of 1933, or amended (the "Securities Act") or (ii) may be sold to
the public pursuant to Rule 144 under the Securities Act. The Stockholders'
Agreement also provides the Company a right of first offer until October 8, 1998
if Harron desires to sell or transfer any Class A Shares in a private
transaction exempt from the Securities Act or state securities laws.
Item 7. Financial Statements, Pro Forma Financial
Information, and Exhibits
------------------------------------------
(a) Financial Statements of Business Acquired
------------------------------------------
Independent Auditor's Report F-1
Combined Balance Sheets as of December 31, F-2
1994 and 1995, and as of June 30, 1996
-2-
<PAGE>
Combined Statements of Operations for the years F-3
ended December 31, 1994 and 1995, and the six
months ended June 30, 1995 and 1996
Combined Statements of Cash Flows for the years ended F-4
December 31, 1994 and 1995, and the six months ended
June 30, 1995 and 1996
Notes to Combined Financial Statements F-5 - F-8
-3-
<PAGE>
(b) Pro Forma Financial Information.
Pro Forma Combined Balance Sheet as of June 30, 1996 F-9
Pro Forma Combined Statements of Operations for the year
ended December 31, 1995 and for the six months ended June 30,
1996 F-10
(c) Exhibits
1. Contribution and Exchange Agreement dated May 30, 1996 by and
between Pegasus Communications Holdings, Inc. and Harron
Communications Corp. (which is incorporated by reference to
Exhibit 2.2 of the Company's Form S-1 filed on June 3, 1996 (SEC
File No. 333-05057) (schedules and exhibits described in the
agreement are omitted, but will be furnished supplementally to the
Commission upon request).
2. Amendment No. 1 to Exhibit 1.
3. Amendment No. 2 to Exhibit 1 dated September 3, 1996 (which is
incorporated by reference to Exhibit 2.5 to Amendment No. 2 of the
Company's Form S-1 filed on October 3, 1996).
4. Amendment No. 3 to Exhibit 3.
5. Joinder Agreement by and among Pegasus Communications Holdings,
Inc., Pegasus Communications Corporation and Harron Communications
Corp. dated as of October 8, 1996.
6. Stockholders' Agreement by and among Pegasus Communications
Holdings, Inc., Pegasus Communications Corporation and Harron
Communications Corp. dated as of October 8, 1996.
7. Non-Competition Agreement by and among Pegasus Communications
Holdings, Inc., Pegasus Communications Corporation and Harron
Communications Corp. dated October 8, 1996.
-4-
<PAGE>
SIGNATURE
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.
PEGASUS COMMUNICATIONS CORPORATION
By /s/ Robert N. Verdecchio
-------------------------------------
Robert N. Verdecchio,
Senior Vice President, Chief Financial
Officer and Assistant Secretary
October 22, 1996
-5-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Harron Communications Corp.
We have audited the accompanying combined balance sheets of the DBS
Operations of Harron Communications Corp. (operating divisions of Harron
Communications Corp., as more fully described in Note 1 to financial
statements) (the "Divisions") as of December 31, 1995 and 1994, and the
related combined statements of operations, and cash flows for the years then
ended. These financial statements are the responsibility of the Divisions'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the DBS Operations of Harron
Communications Corp. at December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements may not necessarily be indicative of
the conditions that would have existed or the results of operations had the
Divisions been unaffiliated with Harron Communications Corp. As discussed in
Notes 1 and 8 to the combined financial statements, Harron Communications
Corp. provides financing and certain legal, treasury, accounting, tax, risk
management and other corporate services to the Divisions.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
April 26, 1996, except for
Note 9 as to which the
date is September 3, 1996
F-1
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995, AND JUNE 30, 1996
<TABLE>
<CAPTION>
December 31,
------------------------------ June 30,
1994 1995 1996
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ........................................... $ 140,311 $ 452,016 $ 313,923
Accounts Receivable, net of allowance for
doubtful accounts of $64,100 in 1995 and 1996 71,818 485,803 323,659
Inventory ...................................... 766,945 304,335 31,079
------------- ------------- -------------
Total current assets ................... 979,074 1,242,154 668,661
------------- ------------- -------------
PROPERTY AND EQUIPMENT ........................... 14,270 71,777 71,777
Accumulated depreciation ....................... (1,000) (9,565) (17,132)
------------- ------------- -------------
Property and equipment, net ............ 13,270 62,212 54,645
------------- ------------- -------------
FRANCHISE COSTS .................................. 5,399,321 5,590,167 5,590,167
Accumulated amortization ....................... (224,877) (775,423) (1,058,599)
------------- ------------- -------------
Franchise costs, net ................... 5,174,444 4,814,744 4,531,568
------------- ------------- -------------
TOTAL ............................................ $6,166,788 $ 6,119,110 $ 5,254,874
============= ============= =============
LIABILITIES AND DIVISION DEFICIENCY
CURRENT LIABILITIES:
Accounts payable ............................... $ 272,340 $ 49,290 $ 22,987
Accrued expenses (Note 4) ..................... 121,085 504,339 651,127
------------- ------------- -------------
Total current liabilities .............. 393,425 553,629 674,114
------------- ------------- -------------
DUE TO AFFILIATE (Note 8) ........................ 6,708,407 8,399,809 7,997,900
------------- ------------- -------------
Total liabilities ............................ 7,101,832 8,953,438 8,672,014
COMMITMENTS AND CONTINGENCIES
DIVISION DEFICIENCY .............................. (935,044) (2,834,328) (3,417,140)
------------- ------------- -------------
TOTAL ............................................ $6,166,788 $ 6,119,110 $ 5,254,874
============= ============= =============
</TABLE>
See notes to combined financial statements.
F-2
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1995, AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
-------------------------------- -----------------------------
1994 1995 1995 1996
------------- --------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Programming ................ $ 95,488 $ 1,677,581 $ 576,032 $1,606,878
Equipment and other ........ 279,430 835,379 147,175 289,708
------------- --------------- ------------ -------------
374,918 2,512,960 723,207 1,896,586
------------- --------------- ------------ -------------
COST OF SALES:
Programming ................ 42,464 707,880 245,717 798,796
Equipment and other ........ 233,778 901,420 135,386 288,284
------------- --------------- ------------ -------------
276,242 1,609,300 381,103 1,087,080
------------- --------------- ------------ -------------
GROSS PROFIT ................. 98,676 903,660 342,104 809,506
------------- --------------- ------------ -------------
OPERATING EXPENSES:
Selling .................... 17,382 463,425 85,806 87,241
General and administrative . 199,683 1,009,633 341,657 594,479
Corporate allocation ....... 103,200 139,700 69,800 76,393
Depreciation and
amortization ............ 225,877 559,111 274,661 290,743
------------- --------------- ------------ -------------
546,142 2,171,869 771,924 1,048,856
------------- --------------- ------------ -------------
LOSS FROM OPERATIONS ......... (447,466) (1,268,209) (429,820) (239,350)
INTEREST EXPENSE ............. 487,578 631,075 307,843 343,462
------------- --------------- ------------ -------------
NET LOSS ..................... $(935,044) $ 1,899,284) $(737,663) $ (582,812)
============= =============== ============ =============
</TABLE>
See notes to combined financial statements.
F-3
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995, AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
-------------------------------- ------------------------------
1994 1995 1995 1996
------------- --------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss .................................. $ (935,044) $(1,899,284) $ (737,663) $(582,812)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization .......... 225,877 559,111 274,661 290,743
Changes in assets and liabilities:
Accounts receivable .................. (71,818) (413,985) (35,256) 162,144
Inventory ............................ (766,945) 462,610 (169,343) 273,256
Accounts payable ..................... 272,340 (223,050) (165,084) (26,303)
Accrued expenses ..................... 121,085 383,254 66,048 146,788
------------- --------------- ------------- -------------
Net cash provided by (used in)
operating activities ............ (1,154,505) (1,131,344) (766,637) 263,816
------------- --------------- ------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment ........ (14,270) (57,507) (48,217) --
Purchase of franchise rights and other .... (190,846) (189,690) --
------------- --------------- ------------- -------------
Net cash used in investing
activities ...................... (14,270) (248,353) (237,907) --
------------- --------------- ------------- -------------
FINANCING ACTIVITIES -- Advances from (to)
affiliate, net ............................ 1,309,086 1,691,402 1,006,890 (401,909)
------------- --------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH ............. 140,311 311,705 2,346 (138,093)
CASH, BEGINNING OF YEAR ..................... 140,311 140,311 452,016
------------- --------------- ------------- -------------
CASH, END OF YEAR ........................... $ 140,311 $ 452,016 $ 142,657 $ 313,923
============= =============== ============= =============
</TABLE>
See notes to combined financial statements.
F-4
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
1. PRESENTATION AND NATURE OF BUSINESS
Basis of Presentation -- The DBS Operations of Harron Communications Corp.
(the "Divisions") are comprised of the assets and liabilities of two
operating divisions of Harron Communications Corp. ("Harron") that provide
direct broadcast satellite ("DBS") services. Harron intends to sell these
assets pursuant to an agreement with Pegasus Communications Holdings, Inc.
(see Note 9). These divisions have no separate legal existence apart from
Harron.
The historical combined financial statements of the DBS Operations of
Harron Communications Corp. do not necessarily reflect the results of
operations or financial position that would have existed if the component DBS
operating divisions were independent companies. Harron provides certain
legal, treasury, accounting, tax, risk management and other corporate
services to the Divisions (see Note 8). There are no significant intercompany
transactions or balances between the component divisions.
Nature of Business -- The Divisions provide direct broadcast satellite
television distribution services and sell the related equipment in rural
territories located in Michigan and Texas franchised by the National Rural
Telecommunications Cooperative ("NRTC") and DIRECTV. While these franchises
are exclusive as they relate to programming provided by DIRECTV, other
programming providers may offer DBS services within the Divisions' markets.
In 1993, the Divisions purchased their initial franchises with a potential
subscriber base of 343,174 homes for approximately $5,395,000. In July 1994,
the Divisions added their first DBS subscriber. In 1995, the Divisions
purchased an additional franchise with a potential subscriber base of 7,695
homes for approximately $190,000. Total subscribers at December 31, 1995 and
1994 were 6,573 and 1,737 homes, respectively.
Under the franchise agreements, DIRECTV operates a satellite through which
programming is transmitted. The NRTC provides certain billing and collection
services to the Divisions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable -- Accounts receivable consist of amounts due from
customers for programming services and equipment purchases and installation.
In 1995, the Divisions sold equipment and related installation to
approximately 50 customers under contracts with repayment terms of up to 48
months. The Divisions have provided a reserve for estimated uncollectible
amounts of $64,100 at December 31, 1995. Bad debt expense in 1994 and 1995
was $0 and $87,400, respectively.
Inventory -- Inventory, consisting of DBS systems (primarily, satellite
dishes and converter boxes) and related parts and supplies, is stated at the
lower of cost (first in - first out method) or market. Because of the nature
of the technology involved, the value of inventory held by the Divisions is
subject to changing market conditions. Accordingly, inventory has been
written down to its estimated net realizable value, and results of operations
in 1995 include a corresponding charge of approximately $105,000.
In 1995, the Divisions provided demonstration units to certain dealers and
others. The cost of demonstration units is expensed when such units are
placed in service. In 1995, demonstration units amounting to approximately
$32,000 were placed in service.
Property and Equipment -- Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets.
Franchise Costs -- Franchise acquisition costs are capitalized and are
being amortized using the straight-line method over the remaining minimum
franchise period (originally 10 years) which approximates the estimated
useful life of the satellite operated by DIRECTV.
F-5
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1994 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
The Divisions evaluate the carrying value of long-term assets, including
franchise acquisition costs, based upon current anticipated undiscounted cash
flows, and recognizes impairment when it is probable that such estimated cash
flows will be less than the carrying value of the asset. Measurement of the
amount of the impairment, if any, is based upon the difference between the
carrying value and the estimated fair value.
Revenue Recognition -- Revenue in connection with programming services and
associated costs are recognized when such services are provided. Amounts
received in advance of the services being provided are recorded as unearned
revenue. Revenue in connection with the sale of equipment and installation
and associated costs are recognized when the equipment is installed.
Income Taxes -- The Divisions are included in the consolidated tax return
of Harron. Accordingly, income taxes have been presented in these combined
financial statements as though the Divisions filed a separate combined
federal income tax return and separate state tax returns.
The Divisions account for income taxes under the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes (See Note 5).
Use of 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 and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Unaudited Data -- The combined balance sheet as of June 30, 1996 and the
combined statements of operations and cash flows for the three months ended
June 30, 1995 and 1996 have been prepared by the Divisions and have not been
audited. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the combined
financial position, results of operations and cash flows of the Divisions as
of June 30, 1996 and for the six months ended June 30, 1995 and 1996 have
been made. The combined results of operations for the six months ended June
30, 1996 are not necessarily indicative of operating results for the full
year.
Disclosures About Fair Value of Financial Instruments -- The following
disclosure of the estimated fair value of financial instruments is made in
accordance with SFAS No. 107, Disclosures About Fair Value of Financial
Instruments.
Cash, Accounts Receivable, Accounts Payable, and Accrued Expenses --
The carrying amounts of these items approximate their fair values as of
December 31, 1994 and 1995 because of their short maturity.
Due to Affiliates -- A reasonable estimate of fair value is not
practicable to obtain because of the related party nature of this item.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Estimated December 31,
Years --------------------------
Useful Life 1994 1995
------------- --------- ---------
Furniture and fixtures . 10 $ 8,550 $19,435
Computer equipment ..... 5 5,720 25,839
Automobiles ............ 3 21,005
Other .................. 3 5,498
--------- ---------
14,270 71,777
Accumulated depreciation . (1,000) (9,565)
--------- ---------
$13,270 $62,212
========= =========
F-6
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1994 AND 1995
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
--------------------------------------
1994 1995
---------- ----------
Programming ......... $ 33,038 $200,300
Commissions ......... 5,618 84,676
Salaries and benefits 25,000 16,019
Unearned revenue .... 47,339 165,496
Other ............... 10,090 37,848
---------- ----------
$121,085 $504,339
========== ==========
5. INCOME TAXES
The Divisions account for income taxes under the provisions of SFAS No.
109, Accounting for Income Taxes, which requires an asset and liability
approach for financial accounting and reporting of income taxes. Under this
approach, deferred taxes are recognized for the estimated taxes ultimately
payable or recoverable based on enacted tax law. Changes in enacted tax law
will be reflected in the tax provision as they occur. Deferred income taxes
reflect the net tax effects of (a) temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and (b) operating loss carryforwards.
For each year presented, there is no provision or benefit for income taxes
due to net losses incurred and the effect of recording a 100% valuation
allowance on net deferred tax assets.
Significant items comprising the Divisions' deferred tax assets and
liabilities at December 31, are as follows:
1994 1995
----------- -------------
Differences between book and tax basis:
Intangible assets ................... $ 17,000 $ 85,000
Inventory ........................... 52,000
Other ............................... 24,000
Net operating carryforwards ........... 342,000 978,000
----------- -------------
Net deferred tax asset ...... 359,000 1,139,000
Valuation allowance ................... (359,000) (1,139,000)
----------- -------------
Net deferred tax balance .............. $ 0 $ 0
=========== =============
The Divisions have recorded a valuation allowance of $359,000 and
$1,139,000 at December 31, 1994 and 1995, respectively, against deferred tax
assets, reducing these assets to amounts which are more likely than not to be
realized. The increase in the valuation allowance of $780,000 from December
31, 1994 is primarily attributable to the increase in the tax benefits
associated with the Divisions' net operating loss carryforwards. The benefits
of these net operating loss carryforwards are not transferable pursuant to
the transaction described in Note 9.
F-7
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1994 AND 1995
6. DIVISION DEFICIENCY
Changes in division deficiency for the years ended December 31, 1994 and
1995 are as follows:
Balance, January 1, 1994 ................................ $ 0
1994 Net Loss .......................................... (935,044)
-------------
Balance, December 31, 1994 ................................ (935,044)
1995 Net loss .......................................... (1,899,284)
-------------
Balance, December 31, 1995 ................................ $(2,834,328)
=============
7. EMPLOYEE SAVINGS PLAN
Employees of the Divisions who have completed one year of service, as
defined, may contribute from 1% to 15% of their earnings to a 401(k) plan
administered by Harron for its employees. The Divisions will match 50% of the
employee contributions up to 6% of earnings. The Divisions' expense related
to the savings plan was $0 and $1,280 in 1994 and 1995, respectively.
8. RELATED PARTY TRANSACTIONS
Amounts due to affiliate represent cash advances for franchise
acquisitions, capital expenditures and working capital deficiencies. Interest
expense of approximately $488,000 and $631,000 was charged in 1994 and 1995,
respectively, and was added to the outstanding balance. The rate of interest
is determined by Harron based on its cost of borrowed funds. At December 31,
1995, this rate was approximately 8.3%. Although these advances have no
stated repayment terms, Harron has agreed not to seek repayment through March
1997.
Approximately $103,200 and $139,700 of Harron's corporate expenses has
been charged to the Divisions in 1994 and 1995, respectively. In addition,
approximately $26,000 and $143,000 has been charged to the Divisions for
Harron's regional support of the Divisions' operations in 1994 and 1995,
respectively, and are included in general and administrative expenses. These
costs include legal, treasury, accounting, tax, risk management, advertising
and building rent and are charged to the Divisions based on management's
estimate of the Divisions' allocable share of such costs. Management believes
that its allocation method is reasonable.
The Divisions' assets have been pledged as collateral for certain loans of
Harron that have outstanding balances of approximately $188,000,000 at
December 31, 1995.
9. SUBSEQUENT EVENT
On April 4, 1996, Harron entered into a letter of intent with Pegasus
Communications Holdings, Inc. ("Pegasus"). The terms of this letter are
subject to change pursuant to ongoing negotiations between Pegasus and
Harron. Under the present understanding of terms as of September 3, 1996,
Pegasus and Harron would simultaneously contribute assets into a newly-formed
Delaware Corporation ("Newco"). Newco would simultaneously undertake an
initial public offering of common stock ("Public Stock"). At the closing of
the transaction, Harron would contribute its DBS operations to Newco in
exchange for (a) cash in the amount of $17.9 million and (b) the number of
shares of Newco common stock that could be purchased for $11.9 million at the
price at which the Public Stock is first offered to the public. Although the
Divisions believe that this transaction will be consummated, there can be no
assurances that it will occur at all or on the terms described above.
F-8
<PAGE>
Pegasus Communications Corporation
Pro Forma Combined Balance Sheet
June 30, 1996
<TABLE>
<CAPTION>
Portland Dom's Credit
Actual (a) TeleCable (b) Facility (c)
------------- ------------- -------------- ------------
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $3,199 ($3,550) ($22,200) $21,645
Restricted cash 4,869
Accounts receivable, net 6,825
Inventory 460
Prepaid exp. & other current assets 1,729
Property and equipment, net 24,472 1,865
Intangibles, net 60,757 4,100 21,708 941
Other assets 1,936
--------- -------- --------- ---------
Total assets $104,247 $550 $1,373 $22,586
========= ======== ========= =========
LIABILITIES AND TOTAL EQUITY
Current liabilities $5,913 (600) 1,373
Notes payable 54
Accrued interest 5,322
Current portion of long-term debt 364
Current portion of program rights payable 1,356
Long-term debt, net 94,445 22,800
Program rights payable 1,161
Other long term liabilities 115
Class A Common Stock 2 1
Class B Common Stock
Additional paid in capital 7,881 1,149
Retained earnings (474) (214)
Partners deficit (11,892)
--------- -------- --------- ---------
Total liabilities and equity $104,247 $550 $1,373 $22,586
========= ======== ========= =========
</TABLE>
<PAGE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
Stock
Offering (d) Sub-total Harron Pro Forma
-------------- ------------- -------------- -------------
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $32,266 $31,360 ($17,894) $13,466
Restricted cash 4,869 4,869
Accounts receivable, net 6,825 6,825
Inventory 460 460
Prepaid exp. & other current assets 1,729 1,729
Property and equipment, net 26,337 26,337
Intangibles, net 87,506 29,824 117,330
Other assets 1,936 1,936
--------- --------- --------- ---------
Total assets $32,266 $161,022 $11,930 $172,952
========= ========= ========= =========
LIABILITIES AND TOTAL EQUITY
Current liabilities $6,686 $6,686
Notes payable 54 54
Accrued interest 5,322 5,322
Current portion of long-term debt 364 364
Current portion of program rights payable 1,356 1,356
Long-term debt, net (3,000) 114,245 114,245
Program rights payable 1,161 1,161
Other long term liabilities 115 115
Class A Common Stock 35 38 8 46
Class B Common Stock 46 46 46
Additional paid in capital 35,185 44,215 11,922 56,137
Retained earnings (688) (688)
Partners deficit (11,892) (11,892)
--------- --------- --------- ---------
Total liabilities and equity $32,266 $161,022 $11,930 $172,952
========= ========= ========= =========
</TABLE>
(a) To record acquisition of WPXT's license and Fox Affiliation Agreement.
(b) To record acquisition of the assets of Dom's TeleCable.
(c) To record the Companies New Credit Facility and associated costs.
(d) To record the net proceeds from the issuance of Class A Common Stock.
F-9
<PAGE>
Pegasus Communications Corporation
Pro Forma Combined Statements of Operations
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Portland Dom's The
Actual Broadcasting WTLH, Inc TeleCable Offering Adjustments
-----------------------------------------------------------------------------------------
(Dollars in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Television $19,973 $4,409 $2,784 $139
DBS 1,469
Cable 10,606 $5,777
Other 100
-----------------------------------------------------------------------------------------
Total net revenues 32,148 4,409 2,784 5,777 139
-----------------------------------------------------------------------------------------
Operating expenses:
Television 13,933 3,441 2,133 (297)
DBS 1,379
Cable 5,791 3,485 (332)
Other 38
Incentive compensation 528
Corporate expenses 1,364 147 40 181
Depreciation and amortization 8,751 212 107 501 129 2,086
-----------------------------------------------------------------------------------------
Income (loss) from operations 364 609 504 1,791 (129) (1,499)
Interest expense (8,817) (1,138) (163) (850) 2,919 (1,670)
Interest income 370
Other income (expenses), net (44) (542) (64) 50 606
Provision (benefit) for income taxes 30 105 (189) 189
-----------------------------------------------------------------------------------------
Income (loss) before
extraordinary item (8,157) (1,071) 172 1,180 2,790 (2,752)
Extraordinary gain from
extinguishment of debt, net 10,210
-----------------------------------------------------------------------------------------
Net Income $2,053 ($1,071) $172 $1,180 $2,790 ($2,752)
=========================================================================================
Income (loss) per share:
Loss before extraordinary items ($0.88) ($0.12) $0.02 $0.13 $0.30 ($0.30)
Extraordinary gain 1.10
-----------------------------------------------------------------------------------------
Net income $0.22 ($0.12) $0.02 $0.13 $0.30 ($0.30)
=========================================================================================
Weighted average shares o/s 9,245,129 9,245,129 9,245,129 9,245,129 9,245,129 9,245,129
=========================================================================================
</TABLE>
<PAGE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
Pro
Sub-total Harron Adjustments Forma
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Revenues:
Television $27,305 $27,305
DBS 1,469 $2,513 3,982
Cable 16,383 16,383
Other 100 100
--------------------------------------------------------------
Total net revenues 45,257 2,513 47,770
--------------------------------------------------------------
Operating expenses:
Television 19,210 19,210
DBS 1,379 3,083 (280) (a) 4,182
Cable 8,944 8,944
Other 38 38
Incentive compensation 528 528
Corporate expenses 1,732 139 (139) (b) 1,732
Depreciation and amortization 11,786 559 2,441 (c) 14,786
--------------------------------------------------------------
Income (loss) from operations 1,640 (1,268) (2,022) (1,650)
Interest expense (9,719) (631) (257) (d) (10,607)
Interest income 370 370
Other income (expenses), net 6 6
Provision (benefit) for income taxes 135 135
--------------------------------------------------------------
Income (loss) before
extraordinary item (7,838) (1,899) (2,279) (12,016)
Extraordinary gain from
extinguishment of debt, net 10,210 10,210
--------------------------------------------------------------
Net Income $2,372 ($1,899) ($2,279) ($1,806)
==============================================================
Income (loss) per share:
Loss before extraordinary items ($0.85) ($0.21) ($0.25) ($1.31)
Extraordinary gain 1.10 1.10
--------------------------------------------------------------
Net income $0.25 ($0.21) ($0.25) ($0.21)
==============================================================
Weighted average shares o/s 9,245,129 9,245,129 9,245,129 9,245,129
==============================================================
</TABLE>
F-10
<PAGE>
Pegasus Communications Corporation
Pro Forma Combined Statements of Operations
Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Portland Dom's The
Actual Broadcasting WTLH, Inc TeleCable Offering Adjustments
--------------------------------------------------------------------------------------
(Dollars in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Television $11,932 $247 $404 $17
DBS 1,568
Cable 5,626 $3,190
Other 56
--------------------------------------------------------------------------------------
Total net revenues 19,182 247 404 3,190 17
--------------------------------------------------------------------------------------
Operating expenses:
Television 8,271 294 243 (43)
DBS 1,261
Cable 3,087 1,811 (166)
Other 9
Incentive compensation 430
Corporate expenses 709 12 21
Depreciation and amortization 4,905 6 11 201 64 731
--------------------------------------------------------------------------------------
Income (loss) from operations 510 (65) 129 1,178 (64) (505)
Interest expense (5,570) (565) (20) (413) 1,460 (281)
Interest income 151
Other income (expenses), net (62) 20 (17)
Provision (benefit) for income taxes (133) 35 333 (368)
--------------------------------------------------------------------------------------
Income (loss) before
extraordinary item (4,838) (610) 57 432 1,396 (418)
Extraordinary gain from
extinguishment of debt, net
--------------------------------------------------------------------------------------
Net Income ($4,838) ($610) $57 $432 $1,396 ($418)
======================================================================================
Income (loss) per share:
Loss before extraordinary items ($0.52) ($0.07) $0.01 $0.05 $0.15 ($0.05)
Extraordinary gain
--------------------------------------------------------------------------------------
Net income ($0.53) ($0.07) $0.01 $0.05 $0.15 ($0.05)
======================================================================================
Weighted average shares o/s 9,245,129 9,245,129 9,245,129 9,245,129 9,245,129 9,245,129
======================================================================================
</TABLE>
<PAGE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
Sub-total Harron Adjustments Total
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Revenues:
Television $12,600 $12,600
DBS 1,568 $1,896 3,464
Cable 8,816 8,816
Other 56 56
-----------------------------------------------------------------
Total net revenues 23,040 1,896 24,936
-----------------------------------------------------------------
Operating expenses:
Television 8,765 8,765
DBS 1,261 1,769 (168) (a) 2,862
Cable 4,732 4,732
Other 9 9
Incentive compensation 430 430
Corporate expenses 742 76 (76) (b) 742
Depreciation and amortization 5,918 291 959 (c) 7,168
-----------------------------------------------------------------
Income (loss) from operations 1,183 (240) (715) 228
Interest expense (5,389) (343) (101) (d) (5,833)
Interest income 151 151
Other income (expenses), net (59) (59)
Provision (benefit) for income taxes (133) (133)
-----------------------------------------------------------------
Income (loss) before
extraordinary item (3,981) (583) (816) (5,380)
Extraordinary gain from
extinguishment of debt, net
-----------------------------------------------------------------
Net Income ($3,981) ($583) ($816) ($5,380)
=================================================================
Income (loss) per share:
Loss before extraordinary items ($0.43) ($0.06) ($0.09) ($0.58)
Extraordinary gain
-----------------------------------------------------------------
Net income ($0.43) ($0.06) ($0.09) ($0.58)
=================================================================
Weighted average shares o/s 9,245,129 9,245,129 9,245,129 9,245,129
=================================================================
</TABLE>
F-11
<PAGE>
Pegasus Communications Corporation
Pro Forma Footnotes
(a) To eliminate rent and overhead expenses incurred by the prior owner that
will not be incurred by the Company.
(b) To eliminate corporate expenses charged by the prior owner.
(c) To adjust depreciation and amortization for the assets recorded by the
Company in connection with the acquisition of Harron's Michigan and Texas
DBS properties.
(d) To remove interest expense from Harron and record interest expense on the
cash portion of the Harron purchase price.
F-12
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
1. Contribution and Exchange Agreement dated May 30, 1996 by and between
Pegasus Communications Holdings, Inc. and Harron Communications Corp.
(which is incorporated by reference to Exhibit 2.2 of the Company's Form
S-1 filed on June 3, 1996 (SEC File No. 333-05057) (schedules and exhibits
described in the agreement are omitted, but will be furnished
supplementally to the Commission upon request).
2. Amendment No. 1 to Exhibit 1.
3. Amendment No. 2 to Exhibit 1 dated September 3, 1996 (which is
incorporated by reference to Exhibit 2.5 to Amendment No. 2 to the
Company's Registration Statement on Form S-1 filed on October 3, 1996
(SEC File No. 333-05057).
4. Amendment No. 3 to Exhibit 1.
5. Joinder Agreement by and among Pegasus Communications Holdings, Inc.,
Pegasus Communications Corporation and Harron Communications Corp. dated
as of October 8, 1996.
6. Stockholders' Agreement by and among Pegasus Communications Holdings, Inc.,
Pegasus Communications Corporation and Harron Communications Corp. dated
as of October 8, 1996.
7. Non-Competition Agreement by and among Pegasus Communications Holdings,
Inc., Pegasus Communications Corporation and Harron Communications Corp.
dated October 8, 1996.
<PAGE>
AMENDMENT NO. 1 TO
CONTRIBUTION AND EXCHANGE AGREEMENT
This AMENDMENT NO. 1 ("Amendment") made and entered into as
of the 19th day of August, 1996, by and between PEGASUS
COMMUNICATIONS HOLDINGS, INC. ("Pegasus"), a Delaware
corporation, and HARRON COMMUNICATIONS CORP. ("Harron"), a New
York corporation. Pegasus and Harron are collectively referred
to herein as the Parties.
RECITALS:
WHEREAS, the Parties have entered into that certain Contribution and
Exchange Agreement dated as of May 30, 1996 ("Agreement"); and
WHEREAS, the Parties wish to amend the Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual
promises made herein and in the Agreement, and in consideration of the
representations, warranties and covenants contained herein and in the Agreement,
and intending to be legally bound hereby, the Parties agree that the term
"Termination Date" defined in Section 1.1 of the Agreement shall be amended in
its entirety to read as follows:
"Termination Date" means November 15, 1996, or a mutually
agreeable earlier date.
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS HOLDINGS, INC.
By:/s/ Ted S. Lodge
---------------------------------
Ted S. Lodge
Senior Vice President
HARRON COMMUNICATIONS CORP.
By:/s/ John F. Quigley, III
---------------------------------
John F. Quigley, III
Vice President and Chief
Financial Officer
<PAGE>
AMENDMENT NO. 3
TO CONTRIBUTION AND EXCHANGE AGREEMENT
This AMENDMENT NO. 3 ("Amendment") made and entered into as of the 8th
day of October, 1996, by and between Pegasus Communications Holdings, Inc.
("Pegasus"), a Delaware corporation, and Harron Communications Corp. ("Harron"),
a New York corporation. Pegasus and Harron are collectively referred to herein
as the "Parties."
R E C I T A L S :
WHEREAS, the Parties have entered into that certain Contribution and
Exchange Agreement dated as of May 30, 1996, as amended by Amendment No. 1 dated
as of August 19, 1996 and Amendment No. 2 dated as of September 3, 1996
("Agreement"); and
WHEREAS, the Parties wish to amend the Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and mutual promises
made herein and in the Agreement, and in consideration of the representations,
warranties and covenants contained herein and in the Agreement, and intending to
be legally bound hereby, the Parties agree as follows:
1. The definition of "NRTC Patronage Capital" set forth in
Section 1.1 of the Agreement shall be amended in its entirety
to read as follows:
"NRTC Patronage Capital" means any equity interest in
NRTC allocated to Harron, or if such equity interest is not
transferrable to Pegasus at Closing, the right to receive any
distributions on account of such equity interest.
2. The following clause shall be added to Section 9.4 of the
Agreement:
(c) Harron shall have an ongoing obligation after
Closing to make or pay to Pegasus any distributions on account
of NRTC Patronage Capital.
3. The following clause shall be added to the beginning of the
last sentence of Section 11.1: "Except as otherwise provided
in this Agreement,".
This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the Parties have duly executed this Amendment as of
the day and year first above written.
PEGASUS COMMUNICATIONS HOLDINGS, INC.
By: /s/ Ted S. Lodge
--------------------------
HARRON COMMUNICATIONS CORP.
By: /s/ John F. Quigley, III
--------------------------
<PAGE>
JOINDER AGREEMENT
by and among
PEGASUS COMMUNICATIONS HOLDINGS, INC.
PEGASUS COMMUNICATIONS CORPORATION
and
HARRON COMMUNICATIONS CORP.
----------------------------------
Dated as of October 8, 1996
----------------------------------
<PAGE>
JOINDER AGREEMENT
This JOINDER AGREEMENT ("Agreement") is made as of the 8th day of
October, 1996, by and among Pegasus Communications Holdings, Inc. ("Pegasus"), a
Delaware corporation, and its subsidiary, Pegasus Communications Corporation
("PCC"), a Delaware corporation, and Harron Communications Corp. ("Harron"), a
New York corporation.
RECITALS:
WHEREAS, Pegasus and Harron have entered into that certain Contribution
and Exchange Agreement dated as of the 30th day of May, 1996, as amended by
Amendment No. 1 dated as of August 19, 1996, Amendment No. 2 dated as of
September 3, 1996 and Amendment No. 3 dated as of even date herewith
("Contribution Agreement"); and
WHEREAS, the Contribution Agreement provides that Pegasus and Harron
shall, and Pegasus shall cause PCC to, execute and deliver this Agreement
pursuant to which PCC will become a party to the Contribution Agreement on and
subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, mutual promises,
representations, warranties, covenants and agreements contained herein and in
the Contribution Agreement, and intending to be legally bound hereby, Pegasus,
PCC and Harron agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms in Contribution Agreement. Capitalized terms used
herein and not defined in Section 1.2 or elsewhere in this Agreement shall have
the respective meanings assigned to them in the Contribution Agreement.
<PAGE>
1.2 Additional Defined Terms.
(a) The following terms shall, when used in this Agreement,
have the following meanings:
"Class A Common Stock" has the meaning assigned to it in PCC's
Charter.
"Class B Common Stock" has the meaning assigned to it in PCC's
Charter.
"Preferred Stock" has the meaning assigned to it in PCC's
Charter.
(b) The following terms shall, when used in this Agreement,
have the meanings assigned to such terms in the Sections indicated:
Terms Section
----- -------
"Contribution Agreement"..............................................Recitals
"Harron"..............................................................Preamble
"PCC".................................................................Preamble
"PCC's By-Laws".........................................................3.1(b)
"PCC's Charter".........................................................3.1(b)
"Pegasus".............................................................Preamble
ARTICLE II
JOINDER
Except as specifically provided in this Article II and in Article III
of this Agreement, PCC hereby agrees to become a party to the Contribution
Agreement and to be bound by all the terms and conditions of the Contribution
Agreement as though it were an original party thereto and were included in the
definition of "Pegasus" as used thereunder; provided, however, that any
undertaking of Pegasus in the Contribution Agreement to "cause PCC" to take any
action shall be construed to mean that Pegasus shall "cause PCC to, and PCC
shall" undertake such action.
2
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Article IV of the Contribution Agreement shall not be construed to
include PCC in the definition of "Pegasus" as used in that Article IV. Rather,
PCC hereby makes the following separate and distinct representations and
warranties to Harron as of the Closing Date, which representations and
warranties of PCC shall be deemed to supplement and amend the Contribution
Agreement as of the Closing Date.
3.1 Organization and Qualification.
(a) PCC is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with all requisite
power and authority to own, lease and use its assets and to conduct its business
as it is currently conducted. PCC is duly qualified or licensed to do business
in and is in good standing in each jurisdiction in which the character of the
properties owned, leased or used by it or the nature of the activities conducted
by it makes such qualification necessary, except any such jurisdiction where the
failure to be so qualified or licensed and in good standing would not have a
material adverse effect on PCC or on the validity, binding effect or
enforceability of this Agreement.
(b) Attached hereto as Exhibit 1 is a complete and correct
copy of PCC's Certificate of Incorporation as amended ("PCC's Charter") and
attached hereto as Exhibit 2 is a complete and correct copy of PCC's By-Laws
("PCC's By-Laws").
3.2 Authority and Validity. PCC has all requisite power and authority
to execute and deliver, to perform its obligations under, and to consummate the
transactions contemplated by, the Collateral Agreements. The execution and
delivery by PCC of, the performance by PCC of its obligations under, and the
consummation by PCC of the transactions contemplated by, the Collateral
3
<PAGE>
Agreements have been duly authorized by all requisite corporate action of PCC.
The Collateral Agreements have been duly executed and delivered by PCC and are
the legal, valid and binding obligations of PCC, enforceable against PCC in
accordance with their respective terms.
3.3 Outstanding Capital Stock.
(a) The authorized capital stock of PCC consists of the
following:
i. 30,000,000 shares of Class A Common Stock,
4,663,220 shares of which are issued and outstanding, assuming completion of the
Transactions (as that term is defined in the Registration Statement).
ii. 15,000,000 shares of Class B Common Stock,
4,581,900 shares of which are issued and outstanding, assuming completion of the
Transactions (as that term is defined in the Registration Statement).
iii. 5,000,000 shares of Preferred Stock, no shares
of which are issued and outstanding.
(b) The Stock Consideration is validly issued, fully paid and
non-assessable.
(c) Except as described in the Registration Statement, there
is no outstanding right, subscription, warrant, call, preemptive right, option
or other agreement to purchase or otherwise receive from Pegasus or PCC any of
the outstanding, authorized and unissued or treasury shares of the capital stock
of PCC.
3.4 Subsidiaries. PCC owns of record all of the PM&C Stock, free and
clear of all Encumbrances, with no defects of title, except for the pledge of
PM&C Stock pursuant to the terms of the New Credit Facility (as that term is
defined in the Registration Statement).
3.5 No Breach or Violation. Subject to obtaining the consents,
approvals, authorizations, and orders of, and making the registrations or
filings with, or giving notices to Governmental
4
<PAGE>
Authorities and Persons recited in the exception to Section 3.6, the execution,
delivery and performance by PCC of the Collateral Agreements do not conflict
with, constitute a violation or breach of, constitute a default or give rise to
any right of termination or acceleration of any right or obligation of PCC
under, or result in the creation or imposition of any Encumbrance upon the
property of PCC by reason of the terms of (i) PCC's Charter, PCC's By-Laws or
any other organizational document of PCC, (ii) any material contract, agreement,
lease, indenture or other instrument to which PCC is a party or by or to which
PCC or its property may be bound or subject, (iii) any order, judgment,
injunction, award or decree of any arbitrator or Governmental Authority or any
statute, law, rule or regulation applicable to PCC or (iv) any Permit of PCC,
which in the case of (ii), (iii) or (iv) above would have a material adverse
effect on the business or financial condition of PCC as a whole or the ability
of PCC to perform its obligations under any Collateral Agreement.
3.6 Consents and Approvals. Except (i) as required under the HSR Act,
(ii) as required under the NRTC Distribution Agreement, (iii) as required under
the Securities Act and the Exchange Act, and (iv) as set forth in Schedule 4.4
of the Contribution Agreement, no consent, approval, authorization or order of,
registration or filing with, or notice to, any Governmental Authority or any
other Person is necessary to be obtained, made or given by PCC in connection
with the execution, delivery and/or performance by PCC of any Collateral
Agreements.
3.7 Legal Proceedings. There is no action, suit, proceeding or
investigation, judicial, administrative or otherwise, that is pending or, to the
best knowledge of PCC, threatened against PCC and that challenges the validity
or propriety of, or may prevent or delay, any of the transactions contemplated
by the Contribution Agreement and the Collateral Agreements.
3.8 Finders and Brokers. Except as otherwise disclosed in writing by
Pegasus to Harron on or before the date hereof, no broker or finder has acted
directly or indirectly for PCC in
5
<PAGE>
connection with the transactions contemplated by the Contribution Agreement and
the Collateral Agreements, and PCC has incurred no obligation to pay any
brokerage or finder's fee or other commission in connection therewith.
3.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, all of which together
shall constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS HOLDINGS, INC.
By: /s/ Ted S. Lodge
------------------------------------
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Ted S. Lodge
------------------------------------
HARRON COMMUNICATIONS CORP.
By: /s/ John F. Quigley, III
------------------------------------
7
<PAGE>
STOCKHOLDERS' AGREEMENT
by and among
PEGASUS COMMUNICATIONS HOLDINGS, INC.
PEGASUS COMMUNICATIONS CORPORATION
and
HARRON COMMUNICATIONS CORP.
----------------------------------
Dated as of October 8, 1996
----------------------------------
<PAGE>
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT ("Agreement") is made as of the 8th day of
October, 1996, by and among Pegasus Communications Holdings, Inc. ("Pegasus"), a
Delaware corporation, Pegasus Communications Corporation ("PCC"), a Delaware
corporation, and Harron Communications Corp. ("Harron"), a New York corporation.
Pegasus, PCC and Harron are collectively referred to herein as the "Parties."
RECITALS:
WHEREAS, Harron is receiving shares of Class A Common Stock, par value
$.01 per share, of PCC ("Shares") in partial exchange for its contribution of
certain assets to PCC pursuant to the terms and conditions of that certain
Contribution and Exchange Agreement dated as of May 30, 1996 between Pegasus and
Harron and that certain Joinder Agreement dated as of even date herewith among
the Parties (the Contribution and Exchange Agreement together with the Joinder
Agreement being referred to herein as the "Contribution Agreement"); and
WHEREAS, it is a condition precedent to the obligations of the Parties
under the Contribution Agreement that the Parties shall have entered into this
Agreement.
NOW, THEREFORE, in consideration of the premises, mutual promises,
representations, warranties, covenants and agreements contained herein and in
the Contribution Agreement, and intending to be legally bound hereby, the
Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. The following terms shall, when used in this
Agreement, have the following meanings:
<PAGE>
"Affiliate" means, with respect to any Person: (i) any Person
directly or indirectly owning, controlling, or holding with power to vote 10% or
more of the outstanding voting securities of such other Person; (ii) any Person
10% or more of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote, by such other Person; (iii) any
Person directly or indirectly controlling, controlled by, or under common
control with such other Person; and (iv) any officer, director or partner of
such other Person. "Control" for the foregoing purposes shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or voting interests, by contract or otherwise.
"Class A Common Stock" means the Class A Common Stock of PCC.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Class A and Class B Common Stock of
PCC.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Holder" means Harron or any subsequent holder of Registrable
Securities.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Prospectus" shall mean the Prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
2
<PAGE>
"Registrable Securities" mean the Shares, but with respect to
any Share, only until such time as such Share (i) has been effectively
registered under the Securities Act and disposed of in accordance with the
Registration Statement covering it or (ii) may be sold to the public pursuant to
Rule 144 under the Securities Act (or any similar provision then in force) and
the legend referred to in Section 5.2 has been removed or the Company has
authorized the removal thereof from the certificate representing such Share.
"Registration Statement" means any registration statement of
PCC filed pursuant to the Securities Act and which covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus amendments and supplements to such Registration Statement, including
post-effective amendments, and all exhibits and all material incorporated by
reference in such Registration Statement.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Subject Securities" mean Class A Common Stock or securities
convertible into or exchangeable for, or options to purchase, Class A Common
Stock.
"Subsidiary" means any corporation, limited liability company
or partnership whose voting interests are, directly or indirectly, 80 percent or
more owned by Harron.
1.2 Other Definitions. The following terms shall, when used in this
Agreement, have the meanings assigned such terms in the Sections indicated:
Term Section
---- -------
"Agreement".............................................................Preamble
"Contribution Agreement" ...............................................Recitals
"First Offer Acceptance Period"........................................Article V
3
<PAGE>
"First Offer Notice"...................................................Article V
"First Offer Sale Price"...............................................Article V
"First Offer Shares"...................................................Article V
"Harron"................................................................Preamble
"Harron Nominee"......................................................Article II
"PCC"...................................................................Preamble
"Pegasus"...............................................................Preamble
"Registration"...............................................................3.1
"Shares"................................................................Recitals
ARTICLE II
GOVERNANCE
Immediately upon Closing and thereafter at each annual meeting of
stockholders until the later to occur of the second anniversary of the date
hereof or the date that Harron and its Subsidiaries own less than 10 percent (on
a fully diluted basis) of the outstanding shares of Common Stock, Pegasus shall
cause PCC to elect one director designated by Harron ("Harron Nominee") for
election to PCC's Board of Directors, provided that such Harron Nominee shall be
reasonably acceptable to Pegasus.
ARTICLE III
PIGGYBACK REGISTRATION RIGHTS
3.1 Right to Piggyback. Whenever PCC proposes to register any Subject
Securities under the Securities Act and the registration form to be used may be
used for the registration of the Registrable Securities (other than a
registration statement on form S-4 or S-8 or any similar successor forms)
("Registration"), PCC shall give written notice to all Holders at least 20 days
prior
4
<PAGE>
to the anticipated filing date, of its intention to effect such a Registration,
which notice will specify (to the extent known to PCC) the proposed offering
price, the kind and number of securities proposed to be registered, the
distribution arrangements and such other information that at the time would be
appropriate to include in such notice, and shall, subject to Section 3.2,
include in such Registration, all Registrable Securities with respect to which
PCC has received written requests for inclusion therein within 10 days after the
effectiveness of the PCC's notice; provided, however, that if, at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the Registration Statement filed in connection with such
securities, PCC shall determine for any reason not to register or to delay
registration of such securities, PCC may, at its election, give written notice
of such determination to each Holder and, thereupon, (i) in the case of a
determination not to register, PCC shall be relieved of its obligation to
register any Registrable Securities under this Section 3.1 in connection with
such Registration and (ii) in the case of a determination to delay Registration,
PCC shall be permitted to delay registering any Registrable Securities under
this Section 3.1 during the period that the Registration of such other
securities is delayed. PCC further agrees to supplement or amend a Registration
Statement if required by applicable laws, rules or regulations or by the
instructions applicable to the registration form used by PCC for such
Registration Statement. Except as may otherwise be provided in this Agreement,
Registrable Securities with respect to which such request for registration has
been received shall be registered by PCC and offered to the public in a
Registration pursuant to this Article III on the terms and conditions at least
as favorable as those applicable to the registration of Subject Securities to be
sold by PCC.
3.2 Priority of Registrations. If the managing underwriter or
underwriters, if any, advise the Holders in writing that in its or their
reasonable opinion or, in the case of a Registration not being
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<PAGE>
underwritten, PCC shall reasonably determine (and notify the Holders requesting
registration of such determination) that the number or kind of securities
proposed to be sold in such Registration (including Registrable Securities to be
included pursuant to Section 3.1 above) will adversely affect the success of
such offering or will affect the price at which the securities of PCC will be
sold therein, PCC shall include in such Registration only the number of
securities, if any, which, in the opinion of such underwriter or underwriters,
or PCC, as the case may be, can be sold, in the following order of priority: (i)
first, the shares of Subject Securities PCC proposes to sell and (ii) second,
the Registrable Securities requested to be included in such registration by the
Holders or any other Person or entity granted similar registration rights before
or after the date hereof. To the extent that the privilege of including
Registrable Securities in any Registration must be allocated pursuant to this
Section 3.2, the allocation shall be made pro rata based on the number of
securities that each such participant shall have requested to be included
therein.
3.3 Registration Procedures. With respect to any Registration, PCC
shall, subject to Section 3.2 above, as expeditiously as practicable:
(a) prepare and file with the Commission a Registration
Statement or Registration Statements relating to the applicable Registration on
any appropriate form under the Securities Act, which form shall be available for
the sale of the Registrable Securities in accordance with the intended method or
methods of distribution thereof;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep each Registration Statement effective for the applicable period of
distribution contemplated in the Registration Statement, or such shorter period
which will terminate when all Registrable Securities covered by such
Registration Statement have been sold; cause each Prospectus to be supplemented
by any required Prospectus
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<PAGE>
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(c) notify the Holders of Registrable Securities included in
the Registration promptly, and (if requested by any such person or entity)
confirm such advice in writing, (i) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by PCC of any notification with respect to
the suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation or threat of any proceeding for such purpose;
and (v) of the happening of any event which makes any statement made in the
Registration Statement, the Prospectus or any document incorporated therein by
reference untrue or which requires the making of any changes in the Registration
Statement, the Prospectus or any document incorporated therein by reference in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(d) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement;
7
<PAGE>
(e) furnish to each selling Holder of Registrable Securities,
without charge, at least one copy of the Registration Statement and any
amendment thereto, including financial statements and schedules, and all
documents incorporated therein by reference;
(f) deliver to each selling Holder of Registrable Securities
as many copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such selling Holder of Registrable Securities
may reasonably request;
(g) prior to any public offering of Registrable Securities,
register or qualify such Registrable Securities for offer and sale under the
securities or "blue sky" laws of such jurisdictions as the selling Holders of
Registrable Securities reasonably request in writing, considering the amount of
Registrable Securities proposed to be sold in each such jurisdiction, and do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the Registration
Statement; provided, however, that the Registrant shall not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject;
(h) use its best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof, if any, to consummate the disposition
of such Registrable Securities;
(i) upon the occurrence of any event contemplated by Section
3.3(c)(v), prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document; provided that PCC may elect to
suspend or abandon the Registration in such event;
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<PAGE>
(j) cause all Registrable Securities covered by any
Registration Statement to be listed on each securities exchange on which similar
securities issued by PCC are then listed; and
(k) provide a CUSIP number for all Registrable Securities, not
later than the effective date of the applicable Registration Statement.
PCC may require that each selling Holder of Registrable Securities
furnish to PCC such information regarding the proposed distribution of such
securities as PCC may from time to time reasonably request in writing.
Each selling Holder of Registrable Securities agrees that upon receipt
of any notice from PCC of the happening of any event of the kind described in
Section 3.3(c)(v), such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement until such
Holder's receipt of copies of the supplemented or amended Prospectus, as
contemplated by Section 3.3(i), or until it is advised in writing by PCC that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus, and, if so directed by PCC, such Holder will deliver to PCC all
copies, other than permanent file copies then in such Holder's possession, of
the Prospectus covering such Registrable Securities current at the time of
receipt of such notice.
3.4 Selection of Underwriters. If any Registration is an underwritten
offering, PCC shall have the right to select the underwriters and managing
underwriters(s) of the offering.
3.5 Restrictions on Public Sale. To the extent not inconsistent with
applicable law and unless otherwise advised by PCC or the underwriter(s) for the
Registrable Securities, each Holder whose Registrable Securities are included in
a Registration Statement hereunder agrees not to effect any public sale or
distribution of Registrable Securities, including a sale pursuant to Rule 144,
during
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<PAGE>
the 15 business days prior to, and during the 90-day period beginning on the
effective date of a Registration Statement pursuant to the Registration.
3.6 Registration Expenses. All expenses incident and specifically
attributable to PCC's performance of or compliance with Article III of this
Agreement shall be borne by the selling Holders of Registrable Securities on a
pro rata basis, including, without limitation, all registration and filing fees,
the fees and expenses of the counsel and accountants for PCC (including the
expenses of any "comfort" letters and special audits), as well as the fees and
expenses of the counsel and accountants to the selling Holders of Registrable
Securities, all other costs and expenses of PCC incident to the preparation,
printing and filing under the Securities Act of the Registration Statement (and
all amendments and supplements thereto) and furnishing copies thereof and of the
Prospectus included therein, the costs and expenses incurred by PCC in
connection with the qualification of the Registrable Securities under the state
securities or "blue sky" laws of various jurisdictions, the costs and expenses
associated with filings required to be made with the NASD (including, if
applicable, the fees and expenses of any "qualified independent underwriter" and
its counsel as may be required by the rules and regulations of the NASD), the
costs and expenses of listing the Registrable Securities for trading on a
national securities exchange or authorizing them for trading on the Nasdaq
National Market, underwriters' commissions, brokerage fees, transfer taxes and
all other costs and expenses incurred by PCC in connection with the inclusion of
Registrable Securities in any Registration hereunder.
3.7 Indemnification.
(a) PCC agrees to indemnify and hold harmless each selling
Holder, each of its directors and officers and each person who controls such
Holder within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, against any losses, claims, damages or
10
<PAGE>
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act or the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon:
i. any untrue statement or alleged untrue statement
of any material fact contained in (A) any Registration Statement or Prospectus
or any amendment or supplement thereto or (B) any application or other document,
or any amendment or supplement thereto, executed by PCC or based upon written
information furnished by or on behalf of PCC filed in any jurisdiction in order
to qualify Registrable Securities under the securities or blue sky laws thereof
or filed with the Commission or any securities association or securities
exchange (each an "Application"); or
ii. the omission or alleged omission to state in any
Registration Statement or Prospectus or any amendment or supplement thereto or
any Application a material fact required to be stated therein or necessary to
make the statements therein not misleading,
and shall reimburse each indemnified person for any legal or
other expenses reasonably incurred by each indemnified person in connection with
investigating and defending against any such loss, claim, damage, liability or
action; provided, however, that PCC shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such Registration Statement or Prospectus or any amendment or
supplement thereto or any Application in reliance upon and in conformity with
information relating to such Holder that was furnished to PCC by such Holder
specifically for use therein. PCC shall not, without the prior written consent
of any such Person, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder, unless such settlement,
compromise or consent includes a release of such
11
<PAGE>
Person and such directors, officers or controlling persons from all liability
arising out of such claim, action, suit or proceeding.
(b) Each Holder whose Registrable Securities are included in a
Registration agrees to indemnify and hold harmless PCC, each of its directors
and officers and each person who controls PCC within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities to which PCC or any such director or officer or
controlling person may become subject under the Securities Act or the Exchange
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement or Prospectus or any amendment or supplement thereto, or
any Application or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in any Registration Statement or Prospectus
or any amendment or supplement thereto, or any Application necessary to make the
statements therein not misleading, in each case to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with information relating to such Holder that
was furnished to PCC by such Holder; and will reimburse any legal or other
expenses reasonably incurred by PCC or any such director, officer or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or any action in respect thereof.
(c) Promptly after receipt by an indemnified party under this
Section 3.7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 3.7, notify the indemnifying party of the commencement
thereof. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party shall be
12
<PAGE>
entitled to participate therein and assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, that if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
based on the advice of counsel that there may be one or more legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying party
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action the
indemnifying party will not be liable to such indemnified party under this
Section 3.7 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately preceding
sentence or (ii) the indemnifying party does not promptly retain counsel
reasonably satisfactory to the indemnified party or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying party
to such indemnified party, the indemnifying party shall not be liable for the
costs and expenses of any settlement of such action effected by such indemnified
party without the consent of the indemnifying party.
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<PAGE>
ARTICLE IV
RULE 144
PCC agrees that at all times after a Registration Statement pursuant to
the requirements of the Securities Act relating to any class of equity
securities of PCC has become effective, it shall file in a timely manner all
reports required to be filed by it pursuant to the Securities Act and the
Exchange Act and shall take such further action as any Holder may reasonably
request in order that such Holder may effect sales of Registrable Securities
pursuant to Rule 144 under the Securities Act. At any reasonable time and upon
request of a Holder, PCC shall furnish such Holder and others with such
information as may be necessary to enable the Holder to effect sales of
Registrable Securities pursuant to Rule 144 and shall deliver to such Holder a
written statement as to whether PCC has complied with such requirements.
Notwithstanding the foregoing, PCC may deregister any class of its equity
securities under Section 12 of the Exchange Act or suspend its duty to file
reports with respect to any class of its securities under Section 12 of the
Exchange Act or suspend its duty to file reports with respect to any class of
its securities pursuant to Section 15(d) of the Exchange Act if it is then
permitted to do so pursuant to the Exchange Act.
ARTICLE V
TRANSFER RESTRICTIONS
5.1 Right of First Offer. Whenever, during the period up to and
including the second anniversary hereof, Harron or any of its Affiliates desires
to sell or transfer any Registrable Securities in a private transaction exempt
from registration under the Securities Act and applicable "blue sky" laws, such
Holder shall give notice ("First Offer Notice") to PCC to the foregoing effect
specifying the number of shares of Registrable Securities that the Holder
desires to sell or transfer ("First Offer Shares") and the desired sale price
therefor ("First Offer Sale Price"). Within 45 days
14
<PAGE>
after receipt of the First Offer Notice by PCC ("First Offer Acceptance
Period"), PCC shall have the right to purchase the First Offer Shares for the
First Offer Sale Price. In the event that PCC does not timely respond to the
offer or does not agree to purchase the First Offer Shares at the First Offer
Sale Price during the First Offer Acceptance Period, the transferring Holder
may, during the 120 day period following the expiration of the First Offer
Acceptance Period, sell or transfer all (but not less than all) of the First
Offer Shares at a price equal to or greater than the First Offer Sale Price;
provided that no transferee of the First Offer Shares shall be entitled to any
rights thereunder, unless and until the transferring Holder shall have (i)
informed PCC in writing of the identity of the transferee, the number of shares
of Registrable Securities transferred, and the price paid by the transferee
therefor, (ii) certified that such transfer has been made in compliance with
this Agreement, and (iii) provided to PCC an opinion of counsel satisfactory to
PCC that registration of such Registrable Securities under the Securities Act
and applicable "blue sky" laws is not required in connection with such transfer.
This Section 5.1 shall not apply to transfers to Persons who are Harron
shareholders as of the date hereof or to Subsidiaries of Harron.
5.2 Change of Harron Control. During the period that Harron or any
Affiliate of Harron is a Holder of Registrable Securities, Harron shall
immediately notify Pegasus of any change of control of Harron or any such
Affiliate. For purposes of this Section 5.2, "control" has the same meaning
assigned to it in the definition of "Affiliate" set forth in Section 1.1.
5.3 Legends. The Parties agree that each certificate representing
Shares shall bear the following legend until such time as the same is no longer
applicable:
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<PAGE>
"THE SHARES OF CLASS A COMMON STOCK REPRESENTED BY THIS
CERTIFICATE WERE ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
THE SHARES EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. THE SHARES EVIDENCED HEREBY
ARE SUBJECT TO THE TERMS OF, AND ARE ENTITLED TO THE BENEFITS
SET FORTH IN, A STOCKHOLDERS' AGREEMENT DATED AS OF OCTOBER 8,
1996, A COPY OF WHICH IS ON FILE AT THE OFFICE OF PEGASUS
COMMUNICATIONS CORPORATION. PEGASUS COMMUNICATIONS CORPORATION
WILL FURNISH A COPY OF SUCH STOCKHOLDERS' AGREEMENT TO THE
RECORD HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST TO
PEGASUS COMMUNICATIONS CORPORATION AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE."
ARTICLE VI
MISCELLANEOUS
6.1 Notices. Any notices and other communications required or permitted
hereunder shall be in writing and shall be effective upon delivery by hand or
upon receipt if sent by certified or registered mail (postage prepaid and return
receipt requested) or by a nationally recognized overnight courier service
(appropriately marked for overnight delivery) or upon transmission if sent by
telex or facsimile (with request for immediate confirmation of receipt in a
manner customary for communications of such respective type and with physical
delivery of the communication being made by one or the other means specified in
this Section 6.1 as promptly as practicable thereafter). Notices shall be
addressed as follows:
16
<PAGE>
(a) If to Pegasus or PCC to:
Pegasus Communications Holdings, Inc.
Pegasus Communications and Media Corporation
5 Radnor Corporate Center
100 Matsonford Road, Suite 454
Radnor, PA 19087
Attn: Mr. Marshall W. Pagon
(with a copy to Ted S. Lodge at the same address)
(b) If to Harron, to it at:
Harron Communications Corp.
70 East Lancaster Avenue
P.O. Box 3022
Frazer, PA 19355
Attn: John F. Quigley, III
with a copy to:
Lamb Windle & McErlane, P.C.
24 East Market Street
Box 565
West Chester, PA 19381-0565
Attn: James J. McEntee, III, Esquire
(c) If to Holders of Registrable Securities (other than
Harron), to their respective addresses appearing on
the stock transfer agent's register.
Any Party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section 6.1.
6.2 FCC Compliance. Notwithstanding anything to the contrary contained
herein, the Parties recognize that a Holder may be restricted from the exercise
of certain rights contained herein, including, but not limited to, the right to
transfer the Shares if such exercise would constitute a violation of, or cause
PCC to not be in compliance with, the Communications Act of 1934, as amended, or
applicable Federal Communications Commission rules, regulations or policies,
17
<PAGE>
including, but not limited to, those restricting alien ownership (the "FCC
Rules"), and accordingly, the Parties shall act hereunder in compliance with FCC
Rules.
6.3 Amendments and Waivers. The provisions of this Agreement may only
be amended, modified or supplemented, and waivers of or consents to departures
from the provisions hereof may only be given if approved by the Parties in
writing. No action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any Party, shall be deemed to
constitute a waiver by the Party taking such action. The waiver by any Party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
any Party to exercise any right or privilege hereunder shall be deemed a waiver
of such Party's rights or privileges hereunder or shall be deemed a waiver of
such Party's rights to exercise the same at any subsequent time or times
hereunder.
6.4 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Parties and their respective successors and assigns,
including, without limitation, subsequent holders of Shares.
6.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
6.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not affect the meaning of any provision of this
Agreement.
6.7 Governing Law. The validity, performance, construction and effect
of this Agreement shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania applicable to agreements made and to be
performed therein. The parties hereto
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<PAGE>
agree to submit to the jurisdiction of the courts of the Commonwealth of
Pennsylvania in any action or proceeding arising out of or relating to this
Agreement.
6.8 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
6.9 Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings other than those set forth or referred to herein with
respect to the governance and registration rights granted by PCC to Holders or
with respect restrictions on transferability of Registrable Securities. This
Agreement supersedes all prior agreements and understandings between the Parties
with respect to such subject matter.
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IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS HOLDINGS, INC.
By: /s/ Ted S. Lodge
------------------------------------
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Ted S. Lodge
-------------------------------------
HARRON COMMUNICATIONS CORP.
By: /s/ John F. Quigley, III
-------------------------------------
20
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NONCOMPETITION AGREEMENT
by and among
PEGASUS COMMUNICATIONS HOLDINGS, INC.
PEGASUS COMMUNICATIONS CORPORATION
and
HARRON COMMUNICATIONS CORP.
----------------------------------
Dated as of October 8, 1996
----------------------------------
<PAGE>
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT ("Agreement") is made as of the 8th day
of October, 1996, by and among Pegasus Communications Holdings, Inc.
("Pegasus"), a Delaware corporation, and its subsidiary, Pegasus Communications
Corporation ("PCC"), a Delaware corporation, and Harron Communications Corp.
("Harron"), a New York corporation. Pegasus, PCC and Harron are collectively
referred to herein as the "Parties."
RECITALS:
WHEREAS, Pegasus and Harron have entered into that certain Contribution
and Exchange Agreement dated as of May 30, 1996, and the Parties have entered
into that certain Joinder Agreement dated as of even date herewith (the
Contribution and Exchange Agreement together with the Joinder Agreement being
referred to herein as "Contribution Agreement"); and
WHEREAS, the Contribution Agreement requires that Harron execute and
deliver this Agreement as a condition precedent to the obligations of Pegasus
and PCC under the Contribution Agreement.
NOW, THEREFORE, in consideration of the premises, mutual promises,
covenants, agreements, representations and warranties contained herein and in
the Contribution Agreement, and intending to be legally bound hereby, the
Parties agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
shall have the respective meanings assigned to them in the Contribution
Agreement.
2. Acknowledgements by Harron. Harron acknowledges that: (i) Pegasus
and PCC have required that Harron make the covenants set forth in Section 3 of
this Agreement as a condition to Pegasus and PCC consummating the transactions
contemplated by the Contribution Agreement;
<PAGE>
(ii) the provisions of Section 3 of this Agreement are reasonable and necessary
because of Harron's access to confidential and proprietary information of
Pegasus, PCC and their Affiliates; and (iii) PCC would be irreparably damaged if
Harron were to breach the covenants set forth in Section 3 of this Agreement.
3. Noncompetition. Harron hereby agrees, for a period of five years
("Noncompetition Period"), that:
(a) Neither Harron nor its Subsidiaries shall engage in, own,
manage, operate or control any communications business involved in the
direct-to-home satellite delivery or multichannel multipoint distribution
("MMDS") of data, audio or video signals to residences, businesses or other
users in the Service Areas. Harron agrees that this covenant is reasonable with
respect to its duration, geographical area and scope.
(b) Harron shall not, directly or indirectly, either for
itself or any other Person, induce or attempt to induce any employee of PCC or
its subsidiaries to leave the employ of such company, or employ, or otherwise
engage as an employee, independent contractor or otherwise, any employee of PCC
or its subsidiaries.
(c) Harron shall not, directly or indirectly, either for
itself or any other Person, solicit the business of any Person that is a
Subscriber at Closing.
4. Remedies. If Harron breaches the covenants set forth in Section 3 of
this Agreement, Pegasus and PCC shall be entitled to (i) damages from Harron,
and (ii) the right to injunctive or other equitable relief to restrain any
breach or threatened breach or otherwise to specifically enforce the provisions
of Section 3 of this Agreement, it being agreed by the Parties that money
damages alone would be inadequate to compensate Pegasus and PCC for such breach
and that damages would be an inadequate remedy for such breach.
2
<PAGE>
5. General.
(a) This Agreement shall be binding upon the Parties and shall
inure to the benefit of their affiliates and successors.
(b) The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
Party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(i) no claim or right arising out of this Agreement can be discharged by one
Party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other Parties; (ii) no waiver that may be given
by a Party will be applicable except in the specific instance for which it is
given; and (iii) no notice to or demand on one Party will be deemed to be a
waiver of any obligation of such Party or of the right of the Party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement.
(c) This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania without regard to conflicts of laws principles.
(d) Whenever possible, each provision and term of this
Agreement shall be interpreted in a manner to be effective and valid, but if any
provision or term of this Agreement is held to be prohibited by law or invalid,
then such provision or term shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement. If any of the covenants set forth in Section 3 of
this Agreement is held to be invalid or unenforceable
3
<PAGE>
due to its scope, breadth or duration, then it shall be modified to the scope,
breadth or duration permitted by law and shall be fully enforceable as so
modified.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original copy of this
Agreement and all of which, when taken together, shall be deemed to constitute
one and the same agreement.
(f) The headings of Sections in this Agreement are provided
for convenience only and shall not affect its construction or interpretation.
All references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement shall be construed to be of such gender or number as the circumstances
require.
(g) This Agreement and the Contribution Agreement constitute
the entire agreement between the parties with respect to the subject matter of
this Agreement and supersede all prior written and oral agreements and
understandings with respect to the subject matter of this Agreement. This
Agreement may not be amended except by a written agreement executed by the
Parties.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS HOLDINGS, INC.
By: /s/ Ted S. Lodge
------------------------------------
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Ted S. Lodge
------------------------------------
HARRON COMMUNICATIONS CORP.
By: /s/ John F. Quigley, III
------------------------------------
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