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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
PEGASUS COMMUNICATIONS CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
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[GRAPHIC OMITTED]
PEGASUS COMMUNICATIONS CORPORATION
c/o PEGASUS COMMUNICATIONS MANAGEMENT COMPANY
SUITE 200
255 CITY LINE AVENUE
BALA CYNWYD, PENNSYLVANIA 19004
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TIME 1:00 p.m. on Thursday, June 10, 1999
PLACE Boca Raton Resort & Club
501 East Camino Real
Boca Raton, Florida 33431-08025
ITEMS OF BUSINESS 1. To elect nine directors to hold office as
specified in the proxy statement.
2. To approve an amendment to Pegasus' Stock
Option Plan.
3. To approve an amendment to Pegasus' Restricted
Stock Plan.
4. To increase the number of authorized shares of
Pegasus' Class A Common Stock from 30,000,000
to 50,000,000 and to provide that any future
increase or decrease in the authorized number of
shares of Class A Common Stock can be approved
without a separate class vote of the Class A
Common Stock.
5. To authorize a new class of Non-Voting Common
Stock, par value $0.01 per share, consisting
of 20,000,000 shares.
6. To ratify the appointment of
PricewaterhouseCoopers LLP as independent
accountants for Pegasus for the current
fiscal year.
7. To act upon any other matters properly
coming before the meeting or any adjournment
thereof.
RECORD DATE The close of business on April 20, 1999 has
been fixed as the record date for the meeting. All
stockholders of record at that time are entitled
to notice of, and all such holders of Class A
Common Stock and Class B Common Stock are entitled
to vote at, the meeting and any adjournment or
postponement thereof.
ANNUAL REPORT Pegasus' Annual Report, including consolidated
financial statements for the year ended December
31, 1998, on which no action will be requested at
the annual meeting, is included herewith. It is
not to be considered part of the proxy
solicitation materials.
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IMPORTANT In order to avoid additional soliciting expense to
Pegasus, please MARK, SIGN, DATE and MAIL your
proxy PROMPTLY in the return envelope provided,
even if you plan to attend the meeting. If you
attend the meeting and wish to vote your shares in
person, arrangements will be made for you to do so.
By order of the Board of Directors,
TED S. LODGE
Secretary
May ___, 1999
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[Graphic Omitted]
PEGASUS COMMUNICATIONS CORPORATION
c/o PEGASUS COMMUNICATIONS MANAGEMENT COMPANY
SUITE 200
255 CITY LINE AVENUE
BALA CYNWYD, PENNSYLVANIA 19004
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PROXY STATEMENT
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May ___, 1999
This Proxy Statement, which is being sent to stockholders on or about May
___, 1999, is furnished in connection with the solicitation of proxies by the
Board of Directors of Pegasus Communications Corporation ("Pegasus") for use at
the forthcoming Annual Meeting of Stockholders to be held on Thursday, June 10,
1999 (the "Meeting"), and at any adjournment or postponement thereof.
The close of business on April 20, 1999 has been fixed as the record date
for the Meeting (the "Record Date"). All stockholders of record at that time are
entitled to notice of, and all holders of record of Pegasus' Class A Common
Stock ("Class A Common Stock") and Class B Common Stock ("Class B Common Stock"
and together with the Class A Common Stock, the "Common Stock") are entitled to
vote at the Meeting and any adjournment or postponement thereof. On the Record
Date, there were outstanding 14,958,739 shares of Class A Common Stock and
4,581,900 shares of Class B Common Stock, which constituted the only outstanding
securities of Pegasus entitled to vote.
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TABLE OF CONTENTS
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VOTING AND REVOCABILITY OF PROXIES...............................................................................1
PROPOSAL 1. ELECTION OF DIRECTORS...............................................................................2
PROPOSAL 2. AMENDMENT TO STOCK OPTION PLAN......................................................................5
PROPOSAL 3. AMENDMENT TO RESTRICTED STOCK PLAN..................................................................8
PROPOSAL 4. AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
CLASS A COMMON STOCK FROM 30,000,000 TO 50,000,000 SHARES AND TO ELIMINATE CLASS VOTING ON
FUTURE INCREASES OR DECREASES IN THE CLASS A COMMON STOCK..............................................11
PROPOSAL 5. AMENDMENT TO CERTIFICATE OF INCORPORATION TO AUTHORIZE THE ISSUANCE OF UP TO 20,000,000
SHARES OF NON-VOTING COMMON STOCK......................................................................13
PROPOSAL 6. RATIFICATION OF APPOINTMENT OF AUDITORS............................................................16
PROPOSAL 7. OTHER MATTERS......................................................................................17
ADDITIONAL INFORMATION..........................................................................................17
Compliance with Section 16(a) of the Exchange Act......................................................17
Executive Compensation.................................................................................17
Compensation Committee Interlocks and Insider Participation............................................19
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.........................................................20
Performance Graph......................................................................................22
Principal Stockholders.................................................................................23
Certain Relationships and Related Transactions.........................................................26
Stockholder Proposals..................................................................................29
Miscellaneous..........................................................................................29
Appendix A Pegasus Communications 1996 Stock Option Plan........................................................A-1
Appendix B Pegasus Communications Restricted Stock Plan.........................................................B-1
Appendix C Proposed Amendment to Certificate of Incorporation to Increase Authorized Class A Common Stock
and to Eliminate Class Voting on Future Increases or Decreases in the Class A Common Stock.............C-1
Appendix D Amended and Restated Certificate of Incorporation of Pegasus Communications Corporation..............D-1
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VOTING AND REVOCABILITY OF PROXIES
On each matter voted upon, except Proposal 4, at the Meeting and any
adjournment or postponement thereof, holders of Class A Common Stock and Class B
Common Stock will vote together as a single class. Holders of Class A Common
Stock and Class B Common Stock will vote separately by class on Proposal 4. Each
record holder of Class A Common Stock will be entitled to one vote per share,
and each record holder of Class B Common Stock will be entitled to ten votes per
share.
Directors are to be elected by a plurality of the votes of the shares whose
holders are present, in person or by proxy, at the Meeting and entitled to vote.
Cumulative voting in the election of directors is not permitted. Approval of
Proposals 2, 3, and 6 requires the affirmative vote of a majority of the votes
of the shares whose holders are present, in person or by proxy, at the Meeting
and entitled to vote. The affirmative vote of holders of a majority of the
outstanding shares of Class A Common Stock and a majority of the outstanding
shares of Class B Common Stock, voting as separate classes, is required to
approve Proposal 4. Proposal 5 requires the affirmative vote of holders of
outstanding shares of Class A Common Stock and Class B Common Stock with a
majority of the votes represented by those classes, voting together and not as
separate classes. If a proxy is marked as "Withhold Authority" or "Abstain" on
any matter, or if specific instructions are given that no vote be cast on any
specific matter (a "Specified Non-Vote"), the shares represented by such proxy
will not be voted on such matter. Abstentions will be included within the number
of shares present at the Meeting and entitled to vote for purposes of
determining whether such matter has been authorized, but nominee and other
Specified Non-Votes will not be so included.
Shares may be voted at the Meeting in person or by proxy. All valid proxies
received prior to the Meeting will be voted. Unless marked to the contrary, such
proxies will be voted "FOR" the election of all nominees for director named
herein, "FOR" the approval of the amendment to Pegasus' Stock Option Plan, "FOR"
the approval of the amendment to Pegasus' Restricted Stock Plan, "FOR" the
amendment increasing the authorized number of shares of Class A Common Stock,
"FOR" the amendment authorizing a new class of Non-Voting Common Stock, and
"FOR" the ratification of the appointment of PricewaterhouseCoopers LLP as
Pegasus' independent accountants for 1999. If any other business is brought
before the Meeting, the proxies will be voted, to the extent permitted by the
rules and regulations of the Securities and Exchange Commission (the
"Commission"), in accordance with the judgment of the persons voting the
proxies. A stockholder who has given a proxy may revoke it at any time prior to
such proxy being voted at the Meeting by filing with the Secretary of Pegasus an
instrument revoking it or a duly executed proxy bearing a later date, or by
attending the Meeting and giving notice of such revocation. Attendance at the
Meeting does not by itself constitute revocation of a proxy.
In addition to the use of the mails, proxies may be solicited by the
directors, officers and employees of Pegasus, without additional compensation,
by personal interview, telephone, telegram, or otherwise. Corporate Investor
Communications, Inc. is being engaged to provide mailing and other proxy
solicitation services for fees of approximately $5,000. Arrangements also may be
made with brokerage houses and other custodians, nominees and for the forwarding
of solicitation material to the beneficial owners of stock held of record by
such persons, and Pegasus may reimburse them for their reasonable out-of-pocket
and clerical expenses.
As a result of the voting agreement discussed below, Marshall W. Pagon,
Pegasus' President and Chief Executive Officer and Chairman of the Board, and
the other parties to the agreement have sufficient voting power without the need
for a vote of any other Stockholder to elect the entire Board of Directors. In
addition, Mr. Pagon controls the vote of the Class B Common Stock and, because
the Class B Common Stock has 10 votes per share, controls a majority of the
voting power of the Class A Common Stock and Class B Common Stock. Mr. Pagon has
informed Pegasus that he intends to vote his shares of Class A Common Stock and
Class B Common Stock in favor of Proposals 2, 3, 5 and 6, meaning these
Proposals will be approved regardless of the votes of Pegasus' other
stockholders.
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PROPOSAL 1. ELECTION OF DIRECTORS
Nine persons have been nominated by the Board of Directors for election as
directors whose terms will expire at the 2000 Annual Meeting of Stockholders, or
when their successors are duly elected and qualified. The nominees are Marshall
W. Pagon, Robert N. Verdecchio, Michael C. Brooks, Harry F. Hopper, III, James
J. McEntee, III, Mary C. Metzger, William P. Phoenix, Riordon B. Smith, and
Donald W. Weber, all of whom are currently directors of Pegasus.
Pursuant to the voting agreement entered into in connection with the merger
of Digital Television Services, Inc. ("DTS") with a subsidiary of Pegasus (the
"DTS Merger"), Mr. Pagon, certain affiliates of Mr. Pagon who hold all of the
Class B Common Stock, and certain former stockholders of DTS (with respect to
shares of Class A Common Stock received by them in the DTS Merger) agreed during
the term of the voting agreement for a Board of Directors consisting of at least
nine members, subject to reduction in certain circumstances, with at least three
independent directors, three directors to be designated by Mr. Pagon and one
director to be designated by each of Chisholm Partners III, L.P. ("Chisholm"),
Columbia Capital Corporation ("Columbia") and Whitney Equity Partners, L.P.
("Whitney"). Under the terms of the voting agreement, the parties to the voting
agreement are obligated to vote for the election of each of the nine nominated
directors. For more information about the voting agreement, see "ADDITIONAL
INFORMATION -- Certain Relationships and Related Transactions -- Voting
Agreement." As of the Record Date, the shares covered by the voting agreement
represent 47,613,300 of the votes or approximately 78.3% of the voting power
entitled to vote at the Meeting. As a consequence, the parties to the voting
agreement have sufficient power to vote for the election of all of the nominees
nominated by the Board of Directors or the Nominating Committee without the vote
of any other stockholders.
If any nominee should be unable to serve as a director, an event not now
anticipated, it is intended that the shares represented by proxies will be voted
for the election of such substitute as the Board of Directors may nominate. Set
forth below is certain information with respect to the persons nominated as
directors of Pegasus.
MARSHALL W. PAGON has served as President, Chief Executive Officer and
Chairman of the Board of Pegasus since its incorporation and served as Treasurer
of Pegasus from its incorporation to June 1997. From 1991 to October 1994, when
the assets of various affiliates of Pegasus, principally limited partnerships
that owned and operated Pegasus' television and cable operations, were
transferred to subsidiaries of Pegasus Media & Communications, Inc. ("PM&C," a
subsidiary of Pegasus), entities controlled by Mr. Pagon served as the general
partner of these partnerships and conducted the business of Pegasus. Mr. Pagon's
background includes over 18 years of experience in the media and communications
industry. Mr. Pagon is one of his own designees to the Board of Directors
pursuant to the voting agreement. Mr. Pagon is 43 years old.
ROBERT N. VERDECCHIO has served as Pegasus' Senior Vice President, Chief
Financial Officer and Assistant Secretary since its inception and as Treasurer
since June 1997. He has also served similar functions for PM&C's affiliates and
predecessors in interest since 1990. Mr. Verdecchio has been a director of
Pegasus since December 18, 1997. Mr. Verdecchio is a certified public accountant
and has over 13 years of experience in the media and communications industry.
Mr. Verdecchio is serving as a director of Pegasus as one of Mr. Pagon's
designees to the Board of Directors. Mr. Verdecchio is 42 years old.
MICHAEL C. BROOKS has been a director of Pegasus since April 27, 1998. From
February 1997 until April 27, 1998, Mr. Brooks had been a director of DTS. He
has been a general partner of J.H. Whitney &
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Co., a venture capital firm, since January 1985 and currently serves as Senior
Partner. Mr. Brooks is also a director of SunGard Data Systems Inc., Nitinol
Medical Technologies, Inc. and several private companies. Mr. Brooks is serving
as a director of Pegasus as Whitney's designee to the Board of Directors. Mr.
Brooks is 54 years old.
HARRY F. HOPPER III has been a director of Pegasus since April 27, 1998.
From June 1996 until April 27, 1998, Mr. Hopper had been a director of DTS, or a
manager of its predecessor limited liability company. Mr. Hopper is a Managing
Director of Columbia, which he joined in January 1994. Mr. Hopper is serving as
a director of Pegasus as Columbia's designee to the Board of Directors. Mr.
Hopper is 45 years old.
JAMES J. MCENTEE, III has been a director of Pegasus since October 8, 1996.
Mr. McEntee has been a member of the law firm of Lamb, Windle & McErlane, P.C.
for the past six years and a principal of that law firm for the past five years.
Mr. McEntee is one of the directors designated as an independent director under
the voting agreement. Mr. McEntee is 41 years old.
MARY C. METZGER has been a director of Pegasus since November 14, 1996. Ms.
Metzger has been Chairman of Personalized Media Communications L.L.C. and its
predecessor company, Personalized Media Communications Corp., since February
1989. Ms. Metzger has also been Managing Director of Video Technologies
International, Inc. since June 1986. Ms. Metzger is one of the directors
designated as an independent director under the voting agreement. Ms. Metzger is
53 years old.
WILLIAM P. PHOENIX has been a director of Pegasus since June 17, 1998. He
is a Managing Director of CIBC Oppenheimer Corp. and co-head of its Credit
Capital Markets Group. Mr. Phoenix is also a member of CIBC Oppenheimer Corp.'s
credit investment and risk committees. Prior to joining CIBC Oppenheimer Corp.
in 1995, Mr. Phoenix had been a Managing Director of Canadian Imperial Bank of
Commerce with management responsibilities for the bank's acquisition finance,
mezzanine finance and loan workout and restructuring businesses. Mr. Phoenix
joined Canadian Imperial Bank of Commerce in 1982. Mr. Phoenix is one of Mr.
Pagon's designees to the Board of Directors pursuant to the voting agreement.
Mr. Phoenix is 42 years old.
RIORDON B. SMITH has been a director of Pegasus since April 27, 1998. From
February 1997 until April 27, 1998, Mr. Smith had been a director of DTS, or a
manager of its predecessor limited liability company. Mr. Smith is a Senior Vice
President of Fleet Private Equity Co., Inc. which he joined in 1990. Fleet
Private Equity Co., Inc. is a private equity fund with an investment focus in
media and information, telecommunications services, healthcare services,
industrial manufacturing, business services and consumer products and services.
Mr. Smith is serving as a director of Pegasus as Chisholm's designee to the
Board of Directors. Mr. Smith is 38 years old.
DONALD W. WEBER has been a director of Pegasus since its incorporation.
Until its acquisition by Pegasus in November 1997, Mr. Weber had been the
President and Chief Executive Officer of ViewStar Entertainment Services, Inc.,
a National Rural Telecommunications Cooperative associate which distributed
DIRECTV(R) services in North Georgia from August 1993 to November 1997. Mr.
Weber is currently a member of the boards of directors of Powertel, Inc. and
Healthdyne Information Enterprises, Inc., which are publicly traded companies.
Mr. Weber is one of the directors designated as an independent director under
the voting agreement. Mr. Weber is 62 years old.
INFORMATION CONCERNING MEETINGS AND CERTAIN COMMITTEES
The Board of Directors held ten meetings during 1998. Pegasus has a
standing Audit Committee, a standing Compensation Committee and a standing
Nominating Committee of its Board of Directors.
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The Audit Committee reviews (i) the scope of Pegasus' audit, (ii) the
corporate accounting practices and policies with Pegasus' independent
accountants and recommends to whom reports should be submitted within Pegasus,
(iii) the final report of Pegasus' independent accountants, and (iv) overall
accounting and financial controls with internal and independent accountants. The
Audit Committee is also available to the independent accountants during the year
for consultation purposes. Ms. Metzger, Mr. Smith and Mr. Weber are members of
the Audit Committee. During 1998, the Audit Committee met once.
The Compensation Committee establishes the salaries of executive officers
and makes recommendations to the Board of Directors regarding the adoption,
extension, amendment and termination of compensation plans in which officers or
directors may participate. Messrs. Hopper, McEntee and Weber are members of the
Compensation Committee. The Compensation Committee met twice during 1998.
The Nominating Committee nominates all persons (other than the designees of
Mr. Pagon, Chisholm, Columbia and Whitney pursuant to the voting agreement) to
serve as directors of Pegasus. The Nominating Committee will not consider
nominees recommended by Pegasus' stockholders. Messrs. Brooks and Pagon and Ms.
Metzger are members of the Nominating Committee. The Nominating Committee, which
was formed in December 1997, did not meet during 1998.
During 1998, all incumbent directors attended in person or by conference
telephone at least 75% of the total number of meetings of the Board of Directors
and committees of the Board on which they served during their incumbency.
COMPENSATION OF DIRECTORS
Under Pegasus' by-laws, each director is entitled to receive such
compensation, if any, as may from time to time be fixed by the Board of
Directors. Pegasus currently pays its directors who are not employees or
officers of Pegasus an annual retainer of $10,000 (which a director may elect to
take as an option to purchase Class A Common Stock under Pegasus' Stock Option
Plan) plus $750 for each Board meeting attended in person, $375 for each meeting
of a committee of the Board and $375 for each Board meeting held by telephone.
Pegasus also reimburses each director for all reasonable expenses incurred in
traveling to and from the place of each meeting of the Board or committee of the
Board.
On February 17, 1998, James J. McEntee, III, Mary C. Metzger, and Donald W.
Weber, who were then all of Pegasus' non-employee directors, each received
options to purchase 5,000 shares of Class A Common Stock under the Pegasus
Communications Stock Option Plan. Each option vests in annual installments of
2,500 shares, was issued at an exercise price of $21.375 per share, the closing
price of the Class A Common Stock at the time of the grant, and is exercisable
until the tenth anniversary from the date of grant. On April 23, 1999, each of
the non-employee directors of Pegasus was granted an option under the Pegasus
Communications Stock Option Plan to purchase 5,000 shares of Class A Common
Stock at an exercise price of $41.00 per share. The options vest in annual
installments of 2,500 shares on the first and second anniversary date of the
option grants.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ELECTION OF EACH OF THE
NOMINEES FOR DIRECTOR.
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PROPOSAL 2. AMENDMENT TO STOCK OPTION PLAN
The Stock Option Plan, which was adopted in September 1996, provides for
the grant of options on Class A Common Stock to certain eligible employees and
directors. The Stock Option Plan is intended to further the growth and success
of Pegasus by providing an incentive to eligible employees and directors which
increases their direct involvement in the future success of Pegasus.
The Board of Directors is proposing that the Stock Option Plan be amended
to expand the group of employees who are eligible to receive options, and to
increase the number of shares of Class A Common Stock available under the Plan
from 970,000 to 1,300,000. Under the proposed amendment all employees of Pegasus
will be eligible to receive options under the Stock Option Plan. The amendment
was authorized by the Board of Directors on December 18, 1998 (to expand the
eligible employees), and April 23, 1999 (to increase the number of available
shares). However, any incentive stock option granted to an employee who is not
an executive officer is subject to stockholder approval of the amendment. Also,
the increase in the number of available shares is subject to stockholder
approval. The Board of Directors believes that expanding the group of employees
eligible to receive options and increasing the number of available shares will
further assist Pegasus in attracting capable employees and motivating them,
through stock ownership, to promote the best interests of Pegasus and its
stockholders.
The affirmative vote of holders of outstanding shares of Common Stock with
a majority of the votes present, in person or by proxy, at the Meeting and
entitled to vote is required to approve the amendment to the Stock Option Plan
for which stockholder approval is being sought.
The amendment made other changes to the Stock Option Plan for which
stockholder approval is not required and is not being sought. For example, the
amendment provides for a one-time grant of an option to purchase 100 shares of
Class A Common Stock to each current and future full-time employee who is not an
executive officer. All such 100-share options which have been granted to date
are nonqualified stock options not subject to shareholder approval.
The Stock Option Plan, as amended and restated effective April 23, 1999, is
attached as Appendix A to this proxy statement. The following description of the
Stock Option Plan, as amended, is intended merely as a summary of its principal
features and is qualified in its entirety by reference to the provisions of the
Stock Option Plan.
STOCK OPTION PLAN
Employees of Pegasus are eligible to receive incentive stock options (as
described in section 422 of the Internal Revenue Code) and nonqualified stock
options under the Stock Option Plan. Incentive stock options offer employees
certain tax advantages (discussed below) which are not available under
nonqualified stock options. Employees are eligible to receive discretionary
option grants (determined at the discretion of a committee) and 100-share
formula options under the Stock Option Plan. Nonemployee directors are eligible
to receive discretionary nonqualified stock options under the Stock Option Plan.
There are currently seven non-employee directors and approximately 793 employees
eligible to receive options under the Stock Option Plan.
Class A Common Stock Available. Options may be granted under the Stock
Option Plan to purchase up to 1,300,000 shares of Class A Common Stock. However,
no employee may be granted options covering more than 550,000 shares of Class A
Common Stock under the Stock Option Plan. Both of these limits are subject to
adjustment for certain changes in Pegasus' structure or capitalization
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(such as stock splits, combinations, etc.). As of _________ __, 1999, the
closing sale price of the Class A Common Stock on the Nasdaq National Market was
$_____.
Administration. The Stock Option Plan is administered by a committee
("Committee") which comprises at least two directors of Pegasus, if the grantee
is an executive officer or a non-employee director. For an employee who is not
an executive officer, the Committee comprises members of management who are
appointed by the Board of Pegasus. Employees and non-employee directors selected
by the Committee are eligible to receive discretionary options based on an
employee's or non-employee director's contribution to the achievement of
Pegasus' objectives and other relevant matters.
Terms and Conditions of Discretionary Options. When an option is granted at
the discretion of the Committee, the Committee determines the terms of the
option, including the number of shares of Class A Common Stock subject to the
option, the exercise price, vesting schedule and term. However, the option term
may not exceed ten years, and the per share exercise price may not be less than
the fair market value of a share of Class A Common Stock on the date the option
is granted. Options automatically become exercisable upon a Change of Control
(as defined in the Stock Option Plan).
The Committee may also provide that the term of a discretionary option will
be shorter than it otherwise would have been if an optionee terminates
employment or Board membership (for any reason, including death or disability).
However, an incentive stock option will expire no later than (i) three months
after termination of employment for a reason other than death or disability, or
(ii) one year after termination of employment on account of disability. Also, no
discretionary option may be exercised more than three years after an optionee's
death.
The exercise price and tax withholding obligations on exercise may be paid
in various methods, including a cash payment and/or surrendering previously
acquired shares of Class A Common Stock.
Terms and Conditions of Formula Options. Each full-time employee who is not
an executive officer automatically receives an option to purchase 100 shares of
Class A Common Stock on the later of December 18, 1998, or the date he or she
first becomes a full-time employee. Each 100-share option granted prior to
stockholder approval of the amendment is a nonqualified stock option, and each
100-share option granted after stockholder approval of the amendment generally
will be an incentive stock option.
Each 100-share option has a per share exercise price of 100% of the fair
market value of a share of Class A Common Stock on the date of grant (110% in
the case of an incentive stock option granted to a more-than-10% shareholder),
and a term of ten years from the date of grant (five years in the case of an
incentive stock option granted to a more-than-10% shareholder). However, each
100-share option will terminate no later than one year after the optionee's
termination of employment on account of death or disability, or three months
after the optionee's termination of employment for a reason other than death or
disability.
Each 100-share option becomes fully vested on the earlier of the date the
optionee completes one year of service, or the first anniversary of the date the
option is granted. However, a 100-share option granted before April 23, 1999
will not become fully vested until April 23, 1999 at the earliest, if the
optionee had fewer than four years of service. A 100-share option will also
become fully vested upon a Change of Control (as defined in the Stock Option
Plan), or upon the optionee's death or disability while employed by Pegasus.
The exercise price and tax withholding obligations may be paid in various
methods, including a cash payment and/or surrendering previously held Class A
Common Stock.
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Duration and Amendment of Stock Option Plan. The Stock Option Plan will
terminate in September 2006 (ten years after it was adopted by the Board of
Directors). The Board of Directors may amend, suspend or terminate the Stock
Option Plan, and the Committee may amend any outstanding options, at any time.
Nevertheless, certain amendments listed in the Stock Option Plan require
stockholder approval. Examples of amendments which require stockholder approval
include an amendment increasing the number of shares which may be subject to
options, an amendment increasing the limit on shares subject to options granted
to employees and an amendment changing the class of employees eligible to
receive incentive stock options. Further, an optionee must approve any
suspension, discontinuance or amendment, if such action would materially impair
the rights of the optionee under any option previously granted to him or her.
Transferability. Options granted under the Stock Option Plan generally are
not transferable, except by will or under the laws of descent and distribution.
However, the Committee has the authority to permit an optionee to transfer his
or her discretionary nonqualified stock option (for no consideration) to his or
her immediate family members or a trust or partnership for the benefit of
immediate family members.
Federal Income Tax Treatment of Options. Pegasus has been advised that the
federal income tax consequences of granting and exercising stock options under
the Stock Option Plan are as follows (based on April 1, 1999 federal tax laws
and regulations). If the requirements of Section 422 of the Internal Revenue
Code are met, an optionee recognizes no income upon the grant or exercise of an
incentive stock option (unless the alternative minimum tax rules apply), and
Pegasus is not entitled to a deduction. An optionee recognizes no income at the
time a nonqualified stock option is granted. Upon exercise of the nonqualified
stock option, the optionee recognizes ordinary income for federal income tax
purposes in an amount generally measured as the excess of the then fair market
value of Class A Common Stock over the exercise price. Subject to Section 162(m)
of the Internal Revenue Code, Pegasus will be entitled to a tax deduction in the
amount and at the time that an optionee recognizes ordinary income with respect
to a nonqualified stock option.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVAL OF THE AMENDMENT TO
THE STOCK OPTION PLAN.
-7-
<PAGE>
PROPOSAL 3. AMENDMENT TO RESTRICTED STOCK PLAN
The Restricted Stock Plan, which was adopted in September 1996, provides
for the grant of restricted stock awards to eligible employees. The Restricted
Stock Plan was adopted to further the growth and success of Pegasus by providing
an incentive to eligible employees which increases their direct involvement in
the future success of Pegasus and which generally rewards these employees in
proportion to increases in Location Cash Flow as defined in the Restricted Stock
Plan.
The Board of Directors is proposing that the Restricted Stock Plan be
amended to permit a grantee to elect to receive all or any part of a
discretionary restricted stock award or a profit sharing award in the form of an
option in lieu of restricted stock. The amendment was authorized by the Board of
Directors on December 18, 1998. However, any incentive stock option granted in
lieu of restricted stock, and any option granted to an executive officer in lieu
of restricted stock, is subject stockholder approval of the amendment.
The affirmative vote of holders of outstanding shares of Common Stock with
a majority of the votes present, in person or by proxy, at the Meeting and
entitled to vote is required to approve the amendment to the Restricted Stock
Plan for which stockholder approval is being sought.
The amendment made other changes to the Restricted Stock Plan for which
stockholder approval is not required and is not being sought. For example, the
amendment permits an employee who is not an executive officer to elect to
receive a discretionary restricted stock award or a profit sharing award in the
form of a nonqualified stock option in lieu of restricted stock.
The Restricted Stock Plan, as amended and restated effective December 18,
1998, is attached as Appendix B to this proxy statement. The following
description of the Restricted Stock Plan, as amended, is intended merely as a
summary of its principal features and is qualified in its entirety by reference
to the provisions of the Restricted Stock Plan.
RESTRICTED STOCK PLAN
The Restricted Stock Plan provides for four types of restricted stock
awards that are made in the form of Class A Common Stock: (1) profit sharing
awards to general managers, department managers and corporate managers (other
than executive officers); (2) special recognition awards for consistency (team
award), initiative (a team or individual award), problem solving (a team or
individual award) and individual excellence; (3) excess awards that are made to
the extent that an employee does not receive a matching contribution under
Pegasus' U.S. 401(k) Plan or Puerto Rico 401(k) Plan because of restrictions of
the United States Internal Revenue Code or the Puerto Rico Internal Revenue
Code, respectively; and (4) discretionary restricted stock awards which are
awarded at the discretion of a committee.
An employee may elect to receive all or any portion of a profit sharing
award or discretionary award made after December 31, 1998 in the form of an
option in lieu of restricted stock. The number of shares of Class A Common Stock
subject to such an option is based on the number of shares that would have been
payable in the form of restricted stock. An executive officer may elect to
receive a discretionary award made on or after April 23, 1999 in the form of
restricted stock, an option, cash or any combination of the foregoing. However,
the cash component of a discretionary award may not exceed 33 1/3% of the
executive officer's base salary for the year in which the award is made, and is
paid as soon as practicable after the award is made.
Awards under the Restricted Stock Plan (other than excess and discretionary
awards) are in proportion to annual increases in Location Cash Flow. For this
purpose Location Cash Flow is automatically adjusted for acquisitions such that,
for the purpose of calculating the annual increase in Location Cash Flow, the
Location Cash Flow of the acquired properties is included as if it had been a
part of Pegasus' financial results for the comparable period of the prior year.
-8-
<PAGE>
Pegasus believes that the Restricted Stock Plan results in greater
increases in stockholder value than results from a conventional stock option
program because it creates a clear cause and effect relationship between
initiatives taken to increase Location Cash Flow and the amount of incentive
compensation that results therefrom.
The table below lists the specific maximum components of the Restricted
Stock Plan (other than excess and discretionary awards) in terms of a $1
increase in annual Location Cash Flow.
<TABLE>
<CAPTION>
COMPONENT AMOUNT
--------- ------
<S> <C>
Restricted Stock grants to general managers based on the increase in
annual Location Cash Flow of individual business units......................... 6(cents)
Restricted Stock grants to department managers based on the increase in
annual Location Cash Flow of individual business units......................... 6
Restricted Stock grants to corporate managers (other than executive
officers) based on the Company-wide increase in annual Location
Cash Flow...................................................................... 3
Restricted Stock grants to employees selected for special recognition............ 5
---
Total.................................................................. 20(cents)
</TABLE>
As of April 23, 1999, Pegasus had 8 general managers, 37 department
managers and 9 corporate managers. A total of approximately 1,008 employees are
currently eligible to receive awards under the Restricted Stock Plan.
Administration. The Restricted Stock Plan is administered by committees
that are authorized by the Board of Directors. With respect to awards made to
executive officers, the Restricted Stock Plan is administered by a committee of
not fewer than two directors of Pegasus. With respect to awards made to
employees who are not executive officers, the Restricted Stock Plan is
administered by a management committee.
Class A Common Stock Available. Under the Restricted Stock Plan, 350,000
shares of Class A Common Stock are available for the granting of awards
(including options granted in lieu of restricted stock). This limit is subject
to adjustment for certain changes in Pegasus' structure or capitalization (such
as stock splits, combinations, etc.). As of ______ __, 1999, the closing sale
price of the Class A Common Stock on the Nasdaq National Market was $_____.
Vesting of Awards Paid in the Form of Restricted Stock. Special recognition
awards are fully vested on the date of grant. Restricted stock awards other than
special recognition awards vest on the following schedule: 34% after two years
of service with Pegasus (including years before the Restricted Stock Plan was
established), 67% after three years of service and 100% after four years of
service. However, the committee has the authority to accelerate the vesting of
any award when granted, and at any time thereafter. A grantee also becomes fully
vested in his outstanding restricted stock award(s) upon death or disability. If
a grantee's employment is terminated for a reason other than death or disability
before completing four years of service, his unvested restricted stock awards
will be forfeited. Restricted stock is held by Pegasus prior to becoming vested.
The grantee will, however, be entitled to vote the restricted stock and receive
any dividends of record prior to vesting.
-9-
<PAGE>
Terms and Conditions of Options Granted In Lieu of Restricted Stock. Any
option granted in lieu of restricted stock generally will be a nonqualified
stock option if granted prior to stockholder approval of the amendment, and an
incentive stock option if granted after stockholder approval of the amendment.
The number of shares covered by an option granted in lieu of restricted stock
will be determined by multiplying the number of shares which would have been
subject to the restricted stock award (had no election to receive other than
stock been made) by a conversion factor determined under a valuation formula
established by the committee, or its delegate. However, no employee may be
granted options under the Restricted Stock Plan covering more than 50,000 shares
of Class A Common Stock in any calendar year (subject to adjustment for certain
changes in Pegasus' structure or capitalization).
All options granted under the Restricted Stock Plan have a per share
exercise price of 100% of the fair market value of a share of Class A Common
Stock on the date of grant (110% in the case of an incentive stock option
granted to a more-than-10% shareholder). Options granted under the Restricted
Stock Plan have a term of up to 10 years from the date of grant (up to five
years in the case of an incentive stock option granted to a more-than-10%
shareholder). However, an option granted under the Restricted Stock Plan will
terminate no later than one year after the optionee's termination of employment
on account of death or disability, or three months after the optionee's
termination of employment for a reason other than death or disability. Each
option granted under the Restricted Stock Plan vests on the same schedule as the
restricted stock award to which the option relates, which may be accelerated by
the committee at the time of grant and at any time thereafter. The exercise
price and tax withholding obligations may be paid in various methods, including
surrendering previously held Class A Common Stock.
Duration and Amendment of Restricted Stock Plan. The Restricted Stock Plan
will terminate in September 2006. The Board of Directors may amend, suspend or
terminate the Restricted Stock Plan, and the Restricted Stock Plan administrator
may amend any outstanding restricted stock awards, at any time. Nevertheless,
certain amendments listed in the Restricted Stock Plan require stockholder
approval. Examples of amendments which require stockholder approval include an
increase in the number of shares authorized under the Restricted Stock Plan, and
a change in the class of employees eligible to receive incentive stock options
under the Restricted Stock Plan. A grantee must approve any suspension,
discontinuance or amendment, if such action would materially impair the rights
of the grantee under any restricted stock award or stock option previously
granted to him.
Federal Income Tax Treatment of Options. Please refer to the federal tax
consequences described in Proposal 2, above.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVAL OF THE AMENDMENT TO
THE RESTRICTED STOCK PLAN.
-10-
<PAGE>
PROPOSAL 4. AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF CLASS A COMMON STOCK FROM 30,000,000 TO 50,000,000 SHARES
AND TO ELIMINATE CLASS VOTING ON FUTURE INCREASES OR DECREASES IN THE CLASS A
COMMON STOCK
On April 23, 1999, the Board of Directors adopted, subject to stockholder
approval, an amendment to Article Fourth of Pegasus' Certificate of
Incorporation, as amended:
o increasing the number of authorized shares of Class A Common Stock,
par value $0.01 per share, from 30,000,000 to 50,000,000 shares; and
o clarifying that future increases or decreases in the authorized number
of shares of Class A Common Stock can be approved by a majority of the
votes of the Class A Common Stock and the Class B Common Stock, voting
together as a single class.
The amendment, which stockholders will be asked to approve at the Meeting,
makes no change in the authorized number of shares of Class B Common Stock
(15,000,000) or Preferred Stock (5,000,000). The text of the proposed amendment
is attached as Appendix C to this Proxy Statement.
The affirmative vote of holders of a majority of the outstanding shares of
Class A Common Stock and a majority of the outstanding shares of Class B Common
Stock, voting as separate classes, is required to approve the amendment to the
Certificate of Incorporation.
As of April 20, 1999, 14,958,729 shares of Class A Common Stock were
outstanding. Of the approximately 15,000,000 shares available for issuance, over
6,000,000 shares have been reserved for issuance, including shares to be issued
in connection with Pegasus' employee benefit plans, upon conversion of the
outstanding shares of Class B Common Stock and upon exercise of outstanding
warrants and options issued in acquisitions.
The Board of Directors believes that the proposed additional 20,000,000
shares of authorized Class A Common Stock will provide Pegasus with needed
flexibility to issue Class A Common Stock for proper corporate purposes which
may be identified in the future, such as to raise equity capital or issue
convertible debt, to make acquisitions through the issuance of Class A Common
Stock, to adopt additional employee benefit plans or reserve additional shares
for issuance under such plans and to effect a stock split or stock dividend of
Class A Common Stock. Although Pegasus continually evaluates alternatives for
raising capital and acquisition opportunities and conducts preliminary
discussions, Pegasus has no present agreements, arrangements or commitments with
respect to any financing or acquisition that are dependent on increasing the
currently authorized number of shares of Class A Common Stock. The authorization
of the additional shares will enable Pegasus to continue to consider such
alternatives and opportunities and to act promptly if appropriate circumstances
arise which require the issuance of such shares.
The authorization of additional shares of Class A Common Stock of Pegasus
will not, by itself, have any effect on the rights of holders of existing stock.
Depending on the circumstances, any issuance of additional shares of Class A
Common Stock could affect the existing holders of shares of Class A Common Stock
by diluting the per share earnings, book value per share, and the voting power
of the outstanding shares of Class A Common Stock. Under Pegasus' Certificate of
Incorporation, Pegasus' stockholders do not have preemptive rights to acquire
capital stock which may be issued by Pegasus.
-11-
<PAGE>
Although Pegasus' Certificate of Incorporation and By-laws do not have
specific provisions designed to discourage certain transactions involving a
change in control of Pegasus, its capital structure could prevent a change of
control of Pegasus. Under Pegasus' current capital structure, Mr. Pagon
beneficially owns all of the Class B Common Stock. The Class B Common Stock is
entitled to 10 votes per share. Therefore, Mr. Pagon controls the majority of
Pegasus' voting power and has the ability to prevent any reasonably foreseeable
attempt to acquire Pegasus through a merger, consolidation, sale of assets or
successful tender offer. Although the effect of future issuances of Class A
Common Stock will be to dilute Mr. Pagon's voting power, he will still have
majority voting power even if all of the additional shares of Class A Common
Stock are issued.
Although the Board of Directors is not proposing the authorization of the
additional shares of Class A Common Stock as an "anti-takeover" device, it is
possible that such additional shares could be used to discourage or impede a
tender offer or other attempt to gain control of Pegasus. For example, in the
event of a hostile attempt to take over control of Pegasus, it may be possible
for Pegasus to impede the attempt by issuing shares of the Class A Common Stock,
thereby diluting the voting power of the other outstanding shares and increasing
the potential cost to acquire control of Pegasus. Alternatively, the stock could
be privately placed with purchasers who would support the Board in opposing a
hostile takeover attempt. Such devices could deter certain types of transactions
that might be proposed, whether or not such transactions were favored by the
majority of the stockholders, and could enhance the ability of Pegasus' officers
and directors to retain their positions.
If the 20,000,000 additional shares of Class A Common Stock are authorized,
no further action or authorization by Pegasus's stockholders will be necessary
prior to the issuance of such shares of Class A Common Stock, except as might be
required for a particular transaction by applicable law or by agreements with or
policies of any exchange or market on which Pegasus' securities are listed or
traded. The Board of Directors has no present plans with respect to the issuance
of any of the additional shares of Class A Common Stock proposed to be
authorized.
The Delaware General Corporation law provides that the holders of Class A
Common Stock are entitled to vote as a separate class on any proposal to
increase or decrease the number of authorized shares of Class A Common Stock
unless Pegasus' Certificate of Incorporation provides otherwise. Pegasus'
Certificate of Incorporation provides in general terms that the holders of the
Class A Common Stock and Class B Common Stock will vote together as a single
class on all matters, including any amendment to the Certificate of
Incorporation, unless otherwise required by law.
Pegasus has been advised by counsel that under these provisions it is more
likely than not that the number of authorized shares of Class A Common Stock can
be increased by a vote of the holders of the Class A Common Stock and the Class
B Common Stock, voting together as a single class, but that this conclusion is
not free from doubt. Pegasus believes that the general provision of its
Certificate of Incorporation on the absence of class voting rights was intended
to deny class voting rights to the fullest extent permitted by law. Accordingly,
the proposed amendment would make clear that any future amendment to the
Certificate of Incorporation increasing or decreasing the number of shares of
Class A Common Stock can be approved by a majority of the votes represented by
the Class A Common Stock and the Class B Common Stock, voting as a single class.
The effect of this is that Mr. Pagon would control the outcome of any such
future vote as long as his holdings of Class B Common Stock constitute a
majority of the votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
CLASS A COMMON STOCK FROM 30,000,000 TO 50,000,000 SHARES.
-12-
<PAGE>
PROPOSAL 5. AMENDMENT TO CERTIFICATE OF INCORPORATION TO AUTHORIZE THE ISSUANCE
OF UP TO 20,000,000 SHARES OF NON-VOTING COMMON STOCK
On April 23, 1999 the Board of Directors adopted, subject to stockholder
approval, an amendment to Pegasus' Certificate of Incorporation, as amended, to
authorize the issuance of up to 20,000,000 shares of non-voting common stock,
par value $0.01 per share (the "Non-Voting Common Stock"). The Non-Voting Common
Stock will have dividend and distribution rights and rights on dissolution of
Pegasus that are identical to those of Pegasus' existing Class A Common Stock
and Class B Common Stock, par value $0.01 per share. The currently issued and
outstanding Class A Common Stock of Pegasus will not be affected by the
amendment except for the potential indirect effects described below and will
remain issued and outstanding despite approval of the amendment.
The affirmative vote of holders of outstanding shares of Class A Common
Stock and Class B Common Stock with a majority of the votes represented by both
of those classes is required to approve the amendment to the Certificate of
Incorporation. The holders of Class A Common Stock and Class B Common Stock vote
together, and not as separate classes, on the amendment.
If the amendment to authorize the Non-Voting Common Stock is approved by
the stockholders, the Board of Directors intends to cause to be prepared and
filed an Amended and Restated Certificate of Incorporation incorporating the
Non-Voting Common Stock amendment (and the amendment to the Certificate of
Incorporation described in Proposal 4, if approved by the stockholders), which
will become effective immediately upon acceptance of the filing by the Secretary
of State of Delaware.
The full text of the Certificate of Incorporation as proposed to be amended
is set forth as Appendix D to this Proxy Statement. (Appendix D assumes that
both the proposed amendment to increase the number of authorized shares of Class
A Common Stock and the proposed Non-Voting Common Stock amendment are approved.)
The following summary should be read in conjunction with, and is qualified in
its entirety by reference to, Appendix D.
The Board of Directors believes that the authorization of the Non-Voting
Common Stock will provide Pegasus with increased flexibility to issue in the
future common equity in connection with acquisitions and to raise equity capital
or to issue convertible debt as a means to finance future growth without
diluting the voting power of Pegasus' existing stockholders, including Mr.
Pagon. The Non-Voting Common Stock may also be used, rather than voting Common
Stock, for Pegasus' stock benefit plans in the event they are amended to include
the Non-Voting Common Stock. Pegasus does not currently have any definite plans
or commitments that would require the issuance of any Non-Voting Common Stock.
Adoption of the amendment, however, would afford Pegasus the flexibility to do
so upon such conditions and for such consideration as the Board of Directors may
determine. Except as otherwise required by law or by the applicable rules of the
Nasdaq National Market or any other exchange or trading system on which Pegasus'
shares may be listed, holders of Class A Common Stock will have no right to
participate in any future decision to issue any shares of Non-Voting Common
Stock.
While the Board of Directors has determined that this amendment is in the
best interest of Pegasus and its stockholders, the Board of Directors recognizes
that this amendment and any subsequent issuance of the Non-Voting Common Stock
authorized thereby may have certain perceived disadvantages, as discussed below.
Under the current capital structure of Pegasus, Mr. Pagon controls the
majority of the voting power of Pegasus and has the ability to prevent any
reasonably foreseeable attempt to acquire Pegasus
-13-
<PAGE>
through a merger, consolidation, sale of assets or successful tender offer. The
Non-Voting Common Stock amendment will not change this circumstance nor will it
increase the voting power of the majority owner of Pegasus. It will, however,
permit Pegasus in the future to make further issuances of shares of common
equity without diluting Mr. Pagon's voting power or that of any other existing
stockholder of Pegasus. Therefore the Non-Voting Common Stock amendment, in
combination with any such future issuances, will make it less likely that a
merger proposal, an unfriendly tender offer, a proxy contest, or the removal of
incumbent directors or management would take place. Consequently, the amendment
and such future issuances, if they take place, might have the effect of reducing
the possibility that the stockholders of Pegasus would have an opportunity to
sell their shares at a premium over then prevailing market prices. Please refer
to the description of Proposal 4 for a discussion of the other aspects of
Pegasus' Certificate of Incorporation which could reduce the possibility of a
change of control.
Mr. Pagon has an interest in the adoption of this amendment because the
issuance of Non-Voting Common Stock instead of Class A Common Stock could
preserve his voting control over Pegasus.
It is possible that the Class A Common Stock would trade at a premium
compared to the Non-Voting Common Stock. If the Class A Common Stock were to
trade at a premium to the Non-Voting Common Stock, any issuances of Non-Voting
Common Stock, instead of Common Stock, in connection with a public or private
offering, an acquisition or other transaction could have a greater dilutive
effect on stockholders because such an acquisition or transaction would require
more shares to deliver the same aggregate value. To minimize dilution of voting
power to existing stockholders, Pegasus may be more likely to issue shares of
Non-Voting Common Stock then Class A Common Stock in the future to raise equity,
finance acquisitions or fund employee benefit plans.
In making any future decision to issue Non-Voting Common Stock, Pegasus
will have to consider the effect of any tax, regulatory and accounting issues
which may affect the capacity to utilize Non-Voting Common Stock as opposed to
Class A Common Stock in any particular transaction. These considerations will
include the fact that certain tax-free reorganizations can only be accomplished
when the sole consideration is voting stock of the issuer; the fact that pooling
of interests accounting treatment is only available in the event that the
acquiring entity utilizes common voting stock in carrying out the transaction;
and the fact that certain state securities laws limit the exemptions available
for the issuance of non-voting stock where such stock is not listed on a
national securities exchange and impose restrictions on registration of
securities where the issuer has a class of non-voting stock.
DESCRIPTION OF THE NON-VOTING COMMON STOCK
The rights, powers and limitations of the Non-Voting Common Stock are set
forth in full in Pegasus' Amended and Restated Certificate of Incorporation and
the summary set forth below should be read in conjunction with and is qualified
in its entirety by reference to Appendix D to this Proxy Statement.
Voting. Except as otherwise provided by law, the holders of Non-Voting
Common Stock shall have no voting rights, including voting rights in the
election of directors or on any amendment to Pegasus' Certificate of
Incorporation (whether any such amendment increases or decreases the number of
shares of Non-Voting Common Stock, or otherwise). The amendment provides that
where holders of Non-Voting Common Stock are entitled to a vote by law, they are
entitled to one vote per share and that they will vote together as a single
class with the holders of the Class A Common Stock and the Class B Common Stock
(unless the law requires a separate class vote).
-14-
<PAGE>
Dividends and Distributions. Each share of Class A Common Stock, Class B
Common Stock and Non-Voting Common Stock will be equal in respect to dividends
and other distributions of cash, stock or property, including distribution in
connection with any liquidation, winding up or dissolution of Pegasus, except
that dividends or other distributions payable in shares of capital stock must be
made in shares of Class A Common Stock to the holders of Class A Common Stock,
in shares of Class B Common Stock to holders of Class B Common Stock and in
shares of Non-Voting Common Stock to the holders of Non-Voting Common Stock.
Mergers and Consolidations. Each holder of Class A Common Stock, Class B
Common Stock and Non-Voting Common Stock will be entitled to receive the same
per share consideration in the event of a merger or consolidation, except that
the voting and other differences among the three classes may be preserved in a
merger.
Transferability; Trading Market. Like the existing Class A Common Stock,
the Non-Voting Common Stock will be freely transferable, and except for federal
and state securities law restrictions on directors, officers and other
affiliates of the Company and on persons holding "restricted" stock,
stockholders will not be restricted in their ability to sell or transfer shares
of Non-Voting Common Stock. In the event that shares of Non-Voting Common Stock
are issued in the future, Pegasus would decide at that time whether to apply for
listing of such shares on the NASDAQ National Market or some other exchange or
trading system.
Stockholder Information. Pegasus will deliver to the holders of Non-Voting
Common Stock the same proxy statements (without proxies except as required by
law), and annual reports and other information and reports as it delivers to
holders of Class A Common Stock to the extent required by law or the market in
which Pegasus' stock is traded.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO AUTHORIZE THE ISSUANCE
OF UP TO 20,000,000 SHARES OF NON-VOTING COMMON STOCK.
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<PAGE>
PROPOSAL 6. RATIFICATION OF APPOINTMENT OF AUDITORS
The firm of PricewaterhouseCoopers LLP served as Pegasus' independent
accountants for 1998 and has been selected by the Board of Directors to serve in
the same capacity for 1999. The stockholders will be asked to ratify this
appointment at the Meeting. The ratification of independent accountants by the
stockholders is not required by law or Pegasus' bylaws. Pegasus has submitted
this matter to the stockholders because it believes it to be good practice to do
so. The affirmative vote of holders of outstanding shares of Common Stock with a
majority of the votes present, in person or by proxy, at the Meeting and
entitled to vote is required to ratify the appointment of PricewaterhouseCoopers
LLP. If a majority of the votes cast on this matter are not cast in favor of the
ratification of PricewaterhouseCoopers LLP, Pegasus will appoint other
independent accountants as soon as practicable and before the close of the 1999
year.
A representative of PricewaterhouseCoopers LLP is expected to be present at
the Meeting and will be available to respond to appropriate questions. The
representative will also have the opportunity to make a statement if he or she
so desires.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS PEGASUS' INDEPENDENT ACCOUNTANTS
FOR 1999.
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<PAGE>
PROPOSAL 7. OTHER MATTERS
The Board of Directors knows of no matters to be presented for action at
the Meeting other than those set forth in the attached notice and customary
procedural matters. However, if any other matters should properly come before
the Meeting or any adjournment or postponement thereof, the proxies solicited
hereby will be voted on such matters, to the extent permitted by the rules and
regulations of the Commission, in accordance with the judgment of the persons
voting such proxies.
ADDITIONAL INFORMATION
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires Pegasus' directors and executive officers, as well as
persons beneficially owning more than ten percent of a registered class of
Pegasus' equity securities (collectively, the "Covered Persons"), to file
reports of ownership and changes in ownership with the Commission and to furnish
Pegasus with copies of such reports.
Based on Pegasus' review of the copies of these reports received by it, and
written representations, if any, received from reporting persons with respect to
the filing of reports on Forms 3, 4 and 5, Pegasus believes that all filings
required to be made by the Covered Persons for 1998 were made on a timely basis,
except that a Form 4 for Nicholas A. Pagon, an executive officer of Pegasus,
reporting the grant in December 1998 of options to purchase 40,000 shares of
Class A Common Stock was filed in April 1999. That grant should have been
reported either on a Form 4 filed in January 1999 or a Form 5 filed in February
1999.
EXECUTIVE COMPENSATION
The following table sets forth certain information for Pegasus' last three
fiscal years concerning the compensation paid to the Chief Executive Officer and
to each of Pegasus' most highly compensated officers. The most highly
compensated officers are those whose total annual salary and bonus for the
fiscal year ended December 31, 1998 exceeded $100,000.
Prior to the consummation of Pegasus' initial public offering of Common
Stock in October 1996, Pegasus' executive officers never received any salary
or bonus compensation from Pegasus. The salary amounts presented below under
"Annual Compensation" for January 1, 1996 through October 8, 1996 were paid by
an affiliate of Pegasus. After October 8, 1996, Pegasus' executive officers'
salaries were paid by Pegasus. There are no employment agreements between
Pegasus and its executive officers.
Upon Pegasus' initial public offering in October 1996, certain shares of
Class B Common Stock were exchanged for shares of Class A Common Stock and
distributed to certain members of management, including 38,807 shares of Class A
Common Stock that were distributed to Mr. Verdecchio. This information is set
forth under the column "Restricted Stock" below.
Unless otherwise indicated, the amounts listed under the column "All Other
Compensation" represent Pegasus' contributions under its 401(k) plans.
-17-
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long -Term
Annual Compensation
Compensation Awards
------------ ------------
Compensation Restricted Securities
------------ Stock Underlying All Other
Name Principal Position Year Salary Award Options Compensation
---- ------------------ ---- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Marshall W. Pagon.............. President and 1998 $200,000 $ 77,161 85,000 $67,274(1)
Chief Executive 1997 $200,000 $100,558 85,000 $63,228(1)
Officer 1996 $150,000 -- -- $62,253(1)
Robert N. Verdecchio........... Senior Vice 1998 $150,000 $ 38,580 40,000 $12,720
President and 1997 $150,000 $ 50,279 40,000 $ 9,500
Chief Financial 1996 $125,000 $555,940 -- $ 6,875
Officer
Ted S. Lodge................... Senior Vice 1998 $150,000 $ 30,864 60,000 $ 9,263
President, Chief 1997 $150,000 $ 40,223 40,000 $ 1,800
Administrative 1996 $ 75,000(2) -- -- --
Officer and
General Counsel
Howard E. Verlin............... Vice President, 1998 $135,000 $110,125 40,000 $ 5,480
Satellite and 1997 135,000 $100,558 40,000 $ 1,685
Cable Television 1996 135,000 -- -- $ 1,100
</TABLE>
(1) Of the amounts listed for Mr. Pagon for 1998, 1997 and 1996, $53,728,
$53,728 and $53,728, respectively, represent the actuarial benefit to Mr.
Pagon of premiums paid by Pegasus in connection with the split dollar
agreement entered into by Pegasus with the trustees of insurance trust
established by Mr. Pagon. See Certain Relationships and Related Transactions
- Split Dollar Agreement. The remainder represents Company's contributions
under its 401(k) plans.
(2) Mr. Lodge became an employee of Pegasus on July 1, 1996.
-18-
<PAGE>
Pegasus granted options to employees to purchase a total of 336,800
shares during 1998. The amounts set forth below in the columns entitled "5%" and
"10%" represent hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from the
date the respective options were granted to their expiration date.
Option Grants in 1998
Potential Realizable Value
<TABLE>
<CAPTION>
% of Total
Options
Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year Per Share Date 5% 10%
---- ------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Marshall W. Pagon............ 85,000 25.24% $21.375 2-16-08 $1,142,623 $2,895,631
Robert N. Verdecchio......... 40,000 11.88% $21.375 2-16-08 $537,705 $1,362,650
Ted S. Lodge................. 60,000 17.81% $21.375 2-16-08 $806,557 $2,043,975
Howard E. Verlin............. 40,000 11.88% $21.375 2-16-08 $537,705 $1,362,650
</TABLE>
The table below shows aggregated stock option exercises by the named
executive officers in 1998 and 1998 year-end values. In-the-money options,
which are listed in the last two columns, are those in which the fair market
value of the underlying securities exceeds the exercise price of the option. The
closing price of Pegasus' Class A Common Stock on December 31, 1998 was $25.06
per share.
Aggregated Option Exercises in 1998 and
1998 Year-End Option Values
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised
Shares Options at Fiscal In-the-Money Options
Acquired Year End at Fiscal Year End
On Value ----------------- --------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marshall W. Pagon............ -- -- 17,000 153,000 $239,020 $1,259,305
Robert N. Verdecchio......... -- -- 9,090 70,910 $127,805 $ 581,995
Ted S. Lodge................. -- -- 9,090 90,910 $127,805 $ 655,695
Howard E. Verlin............. -- -- 9,090 70,910 $127,805 $ 581,995
</TABLE>
Compensation Committee Interlocks and Insider Participation
During 1998, the Board of Directors generally made decisions concerning
executive compensation of executive officers. The Board included Marshall W.
Pagon, the President and Chief Executive Officer of Pegasus, and Robert N.
Verdecchio, Pegasus' Senior Vice President and Chief Financial Officer. A
special stock option committee, however, made certain decisions regarding option
grants under the stock option plan.
-19-
<PAGE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Introduction
Pursuant to rules established by the Securities and Exchange Commission,
Pegasus is required to provide certain information with respect to compensation
provided to Pegasus' Chief Executive Officer and its other executive officers.
In fulfillment of this requirement, the Compensation Committee of the Board of
Directors has prepared the following report addressing Pegasus' executive
compensation policies for the fiscal year ended December 31, 1998 for inclusion
in the Proxy Statement.
The Compensation Committee reviews and approves salaries and other matters
relating to compensation of Pegasus' executive officers, including certain
incentive compensation and other forms of compensation and benefits. In 1998,
Pegasus' Board of Directors administered the Restricted Stock Plan (with respect
to executive officers and discretionary awards to all employees) and the Stock
Option Plan (except for the option granted to Nicholas A. Pagon which was
granted by a special stock option committee of the Board). The Compensation
Committee of Pegasus' Board of Directors consists entirely of non-employee
directors, and the April 27, 1998 voting agreement provides that the
Compensation Committee shall consist of one independent director (within the
meaning of the voting agreement), one director to be designated by Marshall W.
Pagon and one director to be designated by a majority of the directors
designated by Chisholm, Columbia and Whitney. The Compensation Committee
currently consists of two independent directors (within the meaning of the
voting agreement) and one director designated by a majority of the directors
designated by Chisholm, Columbia and Whitney. During 1998, the Compensation
Committee consisted of Harry F. Hopper III, James J. McEntee, III and Donald W.
Weber. The Compensation Committee met twice in 1998.
Compensation Policies
Pegasus seeks to achieve the following goals with Pegasus' executive
compensation programs: attract and retain key employees and non-employee
directors and motivate them to exercise their best efforts on behalf of Pegasus,
and promote growth in stockholder value by providing employees restricted stock
awards under the Restricted Stock Plan and grants of options to purchase Class A
Common Stock of Pegasus under the Stock Option Plan. The Compensation Committee
considers a number of factors when making specific executive compensation
recommendations, including Pegasus' performance and the contribution of
executive officers to Pegasus' performance. The Board of Directors has recently
retained William W. Mercer Incorporated ("Mercer"), a nationally recognized
compensation consultant, to assist the Compensation Committee in evaluating
Pegasus' executive compensation programs.
Base Compensation
Pegasus' executive compensation philosophy has always placed a high degree
of emphasis on incentive compensation in the form of equity-based plans. As a
result, in the opinion of the Compensation Committee, based upon information
available to the Committee on competitive salaries, the base compensation paid
to Pegasus' executive officers in 1998 fell at the lower end of the range of
salaries for similar positions in comparable media and communications companies.
Based upon a preliminary report of Mercer, the Compensation Committee
recommended to the Board that cash compensation, including base compensation,
should more closely reflect the median for comparable companies without
sacrificing the benefits of Pegasus' emphasis on incentive compensation.
Accordingly, the Board has approved for 1999 moderate increases in base
compensation.
Equity Incentive Plans
Pegasus provides equity incentive compensation to its executive
officers and key employees primarily through its Restricted Stock Plan and Stock
Option Plan.
-20-
<PAGE>
Restricted Stock Plan. Awards under this plan, other than excess and
discretionary awards, are in proportion to annual increases in Pegasus' or a
business unit's location cash flow. Pegasus believes that location cash flow is
accepted within the media and communications industry as a generally recognized
measure of performance and is used by analysts who report publicly on the
performance of companies operating in this industry. Pegasus believes that
compensation in the form of grants made under the Restricted Stock Plan,
together with its other equity incentive plans, will result in greater increases
in stockholder value than conventional stock option programs, because these
plans create a clear cause and effect relationship between initiatives taken to
increase location cash flow and the amount of incentive compensation that
results therefrom.
The Restricted Stock Plan provides for four types of restricted stock
awards that are made in the form of Pegasus' Class A Common Stock: (i) profit
sharing awards to general managers, department managers and corporate managers
(other than executive officers); (ii) special recognition awards for consistency
(team award), initiative (a team or individual award), problem solving (a team
or individual award) and individual excellence; (iii) excess awards that are
made to the extent that an employee does not receive a matching contribution
under Pegasus' U.S. 401(k) Plan or Puerto Rico 401(k) Plan because of
restrictions imposed by the Internal Revenue Code of 1986, as amended, or the
Puerto Rico Internal Revenue Code, respectively; and (iv) discretionary
restricted stock awards. An employee may elect to receive profit sharing awards
and discretionary awards made after December 31, 1998 in the form of an option
to purchase Pegasus' Class A Common Stock (and if approved by Pegasus'
stockholders at the Meeting, such options may be granted as incentive stock
options). An executive officer may also elect to have any discretionary award
made on or after April 23, 1999 paid in full or in part in cash. However, the
amount of the award to be paid in cash may not exceed one-third of the executive
officer's base salary. Executive officers are eligible to receive awards under
the Restricted Stock Plan consisting of (i) special recognition awards, (ii)
excess awards, and (iii) discretionary awards determined by a committee of not
fewer than two non-employee directors of Pegasus or the entire Board of
Directors of Pegasus. In 1998, Pegasus issued a total of 67,367 shares of its
Class A Common Stock under the Restricted Stock Plan. Pegasus has made and
intends to make additional grants to key employees under the Restricted Stock
Plan.
Stock Option Plan. Executive officers, who are not eligible to receive
profit sharing awards under the Restricted Stock Plan, are eligible to receive
incentive stock options and nonqualified stock options under the Stock Option
Plan subject to certain limits. Non-employee directors are eligible to receive
nonqualified stock options under the Stock Option Plan. Currently five executive
officers and seven non-employee directors are eligible to receive options under
the Stock Option Plan. Among the 336,800 options granted under the Plan in 1998,
an aggregate of 280,000 options were granted to executive officers and directors
and options to purchase 56,800 shares were granted to each full-time employee in
the form of an option to purchase 100 shares. Pegasus intends to make future
grants under the Stock Option Plan to a broad-based group of employees,
including executive officers, senior managers, directors and other key
employees.
Chief Executive Officer Compensation
The Compensation Committee uses the same factors in determining the
compensation of the Chief Executive Officer as it does for the other executive
officers. The salary received by the Chief Executive Officer in 1998 was based
on the compensation policies discussed above.
April 23, 1999 THE COMPENSATION COMMITTEE
Harry F. Hopper III
James J. McEntee, III
Donald W. Weber
-21-
<PAGE>
Performance Graph
The graph set forth below compares the cumulative total returns to
holders of Class A Common Stock of Pegasus with the cumulative total return of
the Nasdaq Stock Market-U.S. Index and the Nasdaq Telecommunications Index for
the period beginning October 4, 1996, the date trading first began in Pegasus'
Class A Common Stock on the Nasdaq National Market. The graph assumes that the
value of the investment in the relevant stock or index was $100 at October 4,
1996 and that all dividends were reinvested. Total returns are calculated based
on a fiscal year ending December 31. The closing market price of Pegasus' Class
A Common Stock on December 31, 1998 was $25.06.
COMPARISON OF 26 MONTH CUMULATIVE TOTAL RETURN*
AMONG PEGASUS COMMUNICATIONS CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX
300|---------------------------------------------------------------------------|
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| * |
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| # * |
100|--*#@--------@-------------------------------------------------------------|
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10/4/96 12/96 3/97 6/97 9/97 12/97 3/98 6/98 9/98 12/98
Pegasus Communications Corp. (PGTV)
<TABLE>
<CAPTION>
Cumulative Total Return
-------------------------------------------------------------------------
10/4/96 12/96 3/97 6/97 9/97 12/97 3/98 6/98 9/98 12/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PEGASUS COMMUNICATIONS CORPORATION * 100 98 79 79 154 148 164 150 114 179
NASDAQ STOCK MARKET (U.S.) # 100 103 98 115 135 126 148 152 138 178
NASDAQ TELECOMMUNICATIONS @ 100 100 93 117 136 148 188 199 176 243
</TABLE>
-22-
<PAGE>
Principal Stockholders
The following table sets forth share information as of April 20, 1999
regarding the beneficial ownership of the Class A Common Stock and Class B
Common Stock by (a) each stockholder known to Pegasus to be the beneficial
owner, as defined in Rule 13d-3 under the Exchange Act, of more than 5% of the
Class A Common Stock and Class B Common Stock, based upon Company records or the
records of the Commission, (b) each director of Pegasus, (c) each of the Named
Officers, and (d) all executive officers and directors of Pegasus as a group.
Each share of Class B Common Stock is currently convertible at the discretion of
the holders into an equal amount of shares of Class A Common Stock. Each of the
stockholders named below has sole voting power and sole investment power with
respect to the shares indicated as beneficially owned, unless otherwise
indicated.
<TABLE>
<CAPTION>
Pegasus Class A Pegasus Class B
Common Stock Shares Common Stock Shares
Beneficially Owned Beneficially Owned
----------------------------- --------------------------
Shares % Shares %
----------------- ----- ------------ -----
<S> <C> <C> <C> <C>
Marshall W. Pagon(1)(2)...... 6,452,700(3)(4)(5) 32.9 4,581,900(4) 100.0
Robert N. Verdecchio......... 281,296(5)(6)(7) 1.9 -- --
Howard E. Verlin............. 73,243(6)(7) * -- --
Ted S. Lodge................. 63,849(8) * -- --
Michael C. Brooks(9)......... 6,452,700(3)(4) 32.9 4,581,900(4) 100.0
Harry F. Hopper III.......... 195,998 1.3 -- --
James J. McEntee, III........ 8,000(10) * -- --
Mary C. Metzger.............. 8,000(10) * -- --
William P. Phoenix........... -- -- -- --
Riordon B. Smith(11)......... 6,452,700(3)(4) 32.9 4,581,900(4) 100.0
Donald W. Weber.............. 295,920(12) 2.0 -- --
Harron Communications Corp... 852,110 5.7 -- --
Columbia Capital Corporation(13) 6,452,700(3)(4) 32.9 4,581,900(4) 100.0
Whitney Equity Partners, L.P.(14) 6,452,700(3)(4) 32.9 4,581,900(4) 100.0
Fleet Entities(15)........... 6,452,700(3)(4) 32.9 4,581,900(4) 100.0
T. Rowe Price Associates, Inc.(16) 1,326,100 8.9 -- --
Wellington Management Company,
LLP(17)................... 1,647,990 11.0 -- --
Directors and Executive Officers as a
Group (12 persons)(18).... 7,288,175 36.9 4,581,900 100.0
</TABLE>
- - - - - - - - - - - - - ---------------
* Represents less than 1% of the outstanding shares of Class A Common Stock.
(1) The address of this person is c/o Pegasus Communications Management
Company, 255 City Line Avenue, Suite 200, Bala Cynwyd, Pennsylvania 19004.
(2) Pegasus Capital, L.P. holds 1,217,348 shares of Class B Common Stock. Mr.
Pagon is the sole shareholder of the general partner of Pegasus Capital,
L.P. and is deemed to be the beneficial owner of these shares. All of the
3,364,552 remaining shares of Class B Common Stock are owned by Pegasus
Communications Holdings, Inc. and two of its subsidiaries. All the capital
stock of Pegasus Communications Holdings, Inc. is held by Pegasus
Communications Limited Partnership. Mr. Pagon controls Pegasus
Communications Limited Partnership by reason of his ownership of all the
outstanding voting stock of the sole general partner of a limited
partnership that is, in turn, the sole general partner in Pegasus
Communications Limited Partnership. Therefore, apart from the voting
agreement described in note 4 below, Mr. Pagon is the beneficial owner of
100% of Class B Common Stock with sole voting and investment power over all
such shares.
-23-
<PAGE>
(3) Includes 4,581,900 shares of Class B Common Stock, which are convertible
into shares of Class A Common Stock on a one-for-one basis and 76,500
shares of Class A Common Stock which are issuable upon the exercise of the
vested portion of outstanding stock options.
(4) Mr. Pagon, Pegasus, Pegasus Capital, L.P., Pegasus Communications Holdings,
Inc., Pegasus Northwest Officer Corp, Pegasus Scranton Offer Corp,
Columbia, Whitney and the Fleet entities, which are discussed in notes 13,
14 and 15 below, have entered into the voting agreement, which provides
that these parties vote all shares held by them in the manner specified in
the voting agreement. As a consequence of being parties to the voting
agreement, each of these parties is deemed to have shared voting power over
certain shares beneficially owned by them in the aggregate for the purposes
specified in the voting agreement. Therefore, the parties to the voting
agreement are each deemed to be the beneficial owner with respect to
4,581,900 shares of Class B Common Stock and 6,452,700 shares of Class A
Common Stock, including 4,581,900 shares of Class A Common Stock issuable
upon conversion of all the outstanding shares of Class B Common Stock. See
Certain Relationships and Related Transactions - Voting Agreement.
(5) Includes 96,772 shares of Class A Common Stock held in Pegasus' 401(k)
plan, over which Messrs. Pagon and Verdecchio share voting power in their
capacities as co-trustees.
(6) On March 26, 1997, the SEC declared effective a registration statement
filed by Pegasus which would permit Messrs. Verdecchio and Verlin to sell
shares of Class A Common Stock subject to certain vesting and other
restrictions. As of the date of this prospectus, Mr. Verdecchio is
permitted to sell 150,000 shares and Mr. Verlin 29,321 shares of Class A
Common Stock pursuant to the registration statement. Messrs. Verdecchio and
Verlin have sole voting and investment power over their shares, subject to
certain vesting restrictions.
(7) Includes 38,180 shares of Class A Common Stock which are issuable upon the
exercise of the vested portion of outstanding stock options.
(8) Includes 1,500 shares of Class A Common Stock owned by Mr. Lodge's wife, of
which Mr. Lodge disclaims beneficial ownership, 5,079 shares of Class A
Common Stock issued to Mr. Lodge and his wife, subject to certain vesting
restrictions, and 48,150 shares of Class A Common Stock which are issuable
upon the exercise of the vested portion of outstanding stock options.
(9) The information for Mr. Brooks includes 959,473 shares of Class A Common
Stock held by Whitney and the shares of Class A Common Stock covered by the
voting agreement. Mr. Brooks has shared voting and investment power over
such shares of Class A Common Stock with the managing members of the
general partner of Whitney and disclaims beneficial ownership of such
shares of Class A Common Stock. The address of this person is 177 Broad
Street, Stamford, Connecticut 06901.
(10) Includes 7,500 shares of Class A Common Stock which are issuable upon the
exercise of the vested portion of outstanding stock options.
(11) The information for Mr. Smith includes the shares of Class A Common Stock
held by the Fleet entities and the shares of Class A Common Stock covered
by the voting agreement. Mr. Smith is a Senior Vice President of each of
the managing general partners of Fleet Equity Partners VI, a Senior Vice
President of Fleet Venture Resources, a Senior Vice President of the
corporation that is the general partner of the partnership that is the
general partner of Chisholm and a partner of Kennedy Plaza Partners. He is
a Senior Vice President of Fleet Growth Resources II, Inc. and Silverado IV
Corp., the two general partners of Fleet Equity Partners, and Senior Vice
President of Fleet Venture Resources and Silverado III Corp., the general
partner of the partnership Silverado III, L.P., which is the general
partner of Chisholm. Mr. Smith disclaims beneficial ownership for all
shares held directly by Fleet Venture Resources and all shares held
directly by Fleet Equity Partners, Chisholm and Kennedy Plaza Partners,
except for his pecuniary interest therein. The address of this person is 50
Kennedy Plaza, RI MO F12C, Providence, Rhode Island 02903.
-24-
<PAGE>
(12) Includes 10,885 shares of Class A Common Stock issuable upon the exercise
of the vested portion of outstanding stock options.
(13) Columbia does not own any shares of Class A Common Stock. Its beneficial
ownership of the shares shown in the table is the result of shared voting
power over them because of the voting agreement described in note 4. The
address of Columbia is 201 N. Union Street, Suite 300, Alexandria, Virginia
22314-2642.
(14) Includes 959,473 shares of Class A Common Stock held directly by Whitney
over which it has, with the exception of matters covered by the voting
agreement, sole voting and investment power. The shares of Class A Common
Stock held directly by Whitney represent 6.4% of the shares of Class A
Common Stock. Its beneficial ownership of the balance of the shares shown
in the table is the result of shared voting power of them because of the
voting agreement. The address of Whitney is 177 Broad Street, Stamford,
Connecticut 06901.
(15) The Fleet entities consist of Fleet Venture Resources, Inc., Fleet Equity
Partners VI, L.P., Chisholm and Kennedy Plaza Partners. Each Fleet entity
holds the following number of shares of Class A Common Stock: Fleet Venture
Resources (406,186); Fleet Equity Partners (174,079); Chisholm (147,611);
and Kennedy Plaza Partners (10,179). Their beneficial ownership of the
balance of the shares shown in the table is the result of shared voting
power over them because of the voting agreement. The address of each of the
Fleet entities is 50 Kennedy Plaza, RI MO F12C, Providence, Rhode Island
02903.
(16) These shares are owned by various individual and institutional investors
for which T. Rowe Price Associates, Inc. serves as investment adviser. T.
Rowe Price Associates has sole investment power with respect to all of
these shares and sole voting power with respect to 301,300 shares. T. Rowe
Price Associates disclaims beneficial of these shares. The address of T.
Rowe Price Associates is 100 East Pratt Street, Baltimore, Maryland 21202.
(17) These shares are owned by various individual and institutional investors
for which Wellington Management Company, LLP serves as investment adviser.
Wellington has shared investment power with respect to all these shares and
shared voting power with respect to 1,105,890 shares.
(18) See the notes above for information about the holdings of the directors and
named executive officers.
-25-
<PAGE>
Certain Relationships and Related Transactions
Split Dollar Agreement
In December 1996, Pegasus entered into a split dollar agreement with
the trustees of an insurance trust established by Marshall W. Pagon. Under the
split dollar agreement, Pegasus agreed to pay a portion of the premiums for
certain life insurance policies covering Mr. Pagon owned by the insurance trust.
The agreement provides that Pegasus will be repaid for all amounts it expends
for such premiums, either from the cash surrender value or the proceeds of the
insurance policies. The actuarial benefit to Mr. Pagon of premiums paid by
Pegasus amounted to $53,728 in 1996, $53,728 in 1997 and $53,728 in 1998.
Relationship with W.W. Keen Butcher and Affiliated Entities
Pegasus entered into an arrangement in 1998 with W.W. Keen Butcher, the
stepfather of Marshall W. Pagon and Nicholas A. Pagon (a Vice President of the
Company), certain entities controlled by him and the owner of a minority
interest in one of the entities. Under this agreement, Pegasus agreed to provide
and maintain collateral for up to $4.0 million in principal amount of bank loans
to Mr. Butcher and the minority owner. Mr. Butcher and the minority owner must
lend or contribute the proceeds of those bank loans to one or more of the
entities owned by Mr. Butcher for the acquisition of television broadcast
stations to be operated by Pegasus pursuant to local marketing agreements.
Under this arrangement, on November 10, 1998, Pegasus sold to one of
the Butcher companies the FCC license for the television station then known as
WOLF for $500,000 and leased certain related assets to the Butcher company,
including leases and subleases for studio, office, tower and transmitter space
and equipment for ongoing rental payments of approximately $18,000 per year plus
operating expenses. WOLF is now known as WSWB and is one of Pegasus' television
stations serving the northeastern Pennsylvania designated television market
area. Mr. Butcher and the minority owner borrowed the $500,000 under the loan
collateral arrangement described above. Concurrently with the closing under the
agreement described above, one of the Butcher companies assumed a local
marketing agreement, under which Pegasus provides programming to WSWB and
retains all revenues generated from advertising in exchange for payments to the
Butcher company of $4,000 per month plus reimbursement of certain expenses. The
term of the local marketing agreement is three years, with two three-year
automatic renewals. The Butcher company also granted Pegasus an option to
purchase the station license and assets if it becomes legal to do so for the
costs incurred by the Butcher company relating to the station, plus compound
interest at 12% per year.
On July 2, 1998, Pegasus assigned to one of the Butcher companies its
option to acquire the FCC authorization for television station WFXU, which
rebroadcasts WTLH pursuant to a local marketing agreement. The Butcher company
will pay to Pegasus $50,000 for the option upon the FCC's approval of the
authorization's transfer to the Butcher company, and will assume the obligations
of the authorization's former owner under the local marketing agreement with
Pegasus. The Butcher company will borrow the $50,000 under the loan collateral
arrangement, and Pegasus will grant to Pegasus an option to purchase the station
on essentially the same terms described above for WOLF. The local marketing
agreement provides for a reimbursement of expenses by Pegasus and a term of five
years, with one automatic five-year renewal.
Pegasus believes that the WOLF and WFXU transactions were done at fair
value and that any future transactions that may be entered into with the Butcher
companies or similar entities will also be done at fair value.
-26-
<PAGE>
Acquisition of Digital Television Services, Inc.
On April 27, 1998, Pegasus acquired DTS. through the merger of a
subsidiary of Pegasus into DTS. Prior to the merger, DTS was the second largest
independent distributor of DIRECTV services serving 140,000 subscribers in 11
states.
In connection with the merger, Pegasus issued approximately 5.5 million
shares of its Class A Common Stock to the stockholders of DTS and assumed
approximately $159 million of liabilities. Pegasus also granted registration
rights to certain of DTS' stockholders, including Columbia, Columbia DBS, Inc.,
Whitney and Fleet Venture Resources, Inc. and its affiliates and Harry F. Hopper
III. Mr. Hopper received shares of Class A Common Stock in the DTS and has an
ownership interest in Columbia Capital Corporation, which received 429,812
shares. As a result of the DTS merger and the voting agreement described below,
Michael C. Brooks, Harry F. Hopper III and Riordon B. Smith were elected to
Pegasus' Board of Directors.
Voting Agreement
On April 27, 1998, in connection with the DTS merger, Pegasus, Marshall
W. Pagon and a number of partnerships and corporations controlled by him, and
Fleet Venture Resources, Fleet Equity Partners, Chisholm, Kennedy Plaza
Partners, Whitney, Columbia and Columbia DBS, Inc. entered into a voting
agreement. The voting agreement covers all shares of Class B Common Stock and
other voting securities of Pegasus held at any time by Mr. Pagon and his
controlled entities and shares of Class A Common Stock received in the DTS
Merger by Chisholm, Columbia, Whitney and the other former stockholders of DTS.
It provides that holders of such shares vote their respective shares in the
manner specified in the voting agreement. In particular, the voting agreement
establishes that the Board of Directors of Pegasus will consist initially of
nine members: three independent directors, three directors designated by Mr.
Pagon and one director to be designated by each of Chisholm, Columbia and
Whitney. The voting agreement also provides that the committees of the Board of
Directors will consist of an audit committee, a compensation committee and a
nominating committee. Each committee shall consist of one independent director,
one director designated by Mr. Pagon and one director designated by a majority
of the directors designated by Chisholm, Columbia and Whitney. As a result of
the voting agreement, the parties to the agreement have sufficient voting power
without the need for the vote of any other shareholder, to elect the entire
Board of Directors. James J. McEntee, III, Mary Metzger and Donald W. Weber are
serving as independent directors of Pegasus. Marshall W. Pagon, Robert N.
Verdecchio and William P. Phoenix are serving as directors of Pegasus as
designees of Mr. Pagon. Harry F. Hopper III is serving as a director of Pegasus
as a designee of Columbia; Michael C. Brooks is serving as a director of Pegasus
as a designee of Whitney; and Riordon B. Smith is serving as a director of
Pegasus as a designee of Chisholm.
The voting agreement terminates with respect to any covered share upon
the sale or transfer of any such share to any person other than a permitted
transferee. In addition, the right of Chisholm, Columbia and Whitney Equity
Partners to designate a director terminates when the Fleet entities, various
persons related to Columbia Capital Corporation and Whitney, respectively, cease
owning one-half of the shares originally received by each of them in the DTS
merger or in certain other circumstances.
Communications License Re-Auction
Pegasus PCS Partners, L.P., a limited partnership owned and controlled
by Marshall W. Pagon, currently holds a personal communications system license
in Puerto Rico and was the winning bidder in the FCC's recent re-auction of
another PCS license for the portion of Puerto Rico that includes Mayaguez.
Pegasus itself did not qualify to participate in this re-auction. Pegasus has
advanced approximately $3.4 million, with interest at 10% per year, to Pegasus
PCS Partners to enable Pegasus PCS Partners to fund its participation in this
re-auction. Pegasus is currently evaluating an investment in or contractual
relationship with Pegasus PCS Partners as a result of Pegasus PCS Partners'
successful bid for the additional license.
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CIBC Oppenheimer and Affiliates
William P. Phoenix is a managing director of CIBC Oppenheimer Corp.
CIBC Oppenheimer and its affiliates have provided various services to Pegasus
and its subsidiaries, including DTS, since the beginning of 1997. Services to
DTS described below include services provided prior to DTS becoming a subsidiary
of Pegasus on April 27, 1998.
CIBC Oppenheimer Corp. has historically performed a number of services
for Pegasus, including serving as one of the initial purchasers in Pegasus'
November 1998 Rule 144A Senior Notes offering. In this capacity, CIBC
Oppenheimer received customary underwriting discounts and commissions.
CIBC Oppenheimer has also performed the following services for Pegasus:
o provided a fair market value appraisal in connection with the
contribution to Pegasus of certain assets between related parties.
o provided fairness opinions to Pegasus and/or its affiliates in
connection with certain intercompany loans and other intercompany
transactions.
o provided fairness opinions to Pegasus in connection with the
acquisition of ViewStar Entertainment Services, Inc. from Donald W.
Weber, a director of Pegasus.
o acted as a standby purchaser in connection with DTS' offer to
repurchase its senior subordinated notes as a result of the change
in control arising by Pegasus' acquisition of DTS.
In 1998, for services rendered, Pegasus or its subsidiaries, including
DTS, paid to CIBC Oppenheimer an aggregate of $3.3 million in fees. Pegasus
believes that all fees paid to CIBC Oppenheimer in connection with the
transactions described above were customary. Pegasus anticipates that it or its
subsidiaries may engage the services of CIBC Oppenheimer in the future, although
no such engagement is currently contemplated.
Other Transactions
In March 1999, Pegasus lent $199,999 to Nicholas A. Pagon, Pegasus'
Vice President of Broadcast Operations and the brother of Marshall W. Pagon,
bearing interest at the rate of 6% per annum, with the principal amount due on
the fifth anniversary of the date of the promissory note. Mr. Pagon used
approximately half of the proceeds of the loan to purchase shares of Class A
Common Stock, and the loan is collateralized by those shares.
The balance of the loan proceeds may be used at Mr. Pagon's discretion.
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Stockholder Proposals
In order to be eligible for inclusion in Pegasus' proxy materials for
the 2000 Annual Meeting of Stockholders, stockholders' proposals to take action
at such meeting must comply with applicable Commission rules and regulations,
must be directed to the Secretary of Pegasus at its offices set forth on page
one of this Proxy Statement and must be received by Pegasus not later than
January __, 2000.
Miscellaneous
A copy of Pegasus' Annual Report, including consolidated financial
statements for the year ended December 31, 1998 is included herewith to
stockholders but is not to be regarded as proxy solicitation material.
Pegasus, upon request, will furnish to record and beneficial holders of
its Common Stock, free of charge, a copy of its Annual Report on Form 10-K
(including financial statements but without exhibits and schedules) for fiscal
1998. Copies of exhibits to the Form 10-K also will be furnished upon request
and the payment of a reasonable fee. All requests should be directed to the
Director of Communications, at the offices of Pegasus set forth on page one of
this Proxy Statement.
By Order of the Board of Directors,
TED S. LODGE
May ___, 1999 Secretary
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APPENDIX A
PEGASUS COMMUNICATIONS 1996
STOCK OPTION PLAN
(As Amended and Restated Effective As of April 23, 1999)
--------------------------------
WHEREAS, PEGASUS COMMUNICATIONS CORPORATION AMENDED AND
RESTATED THE PEGASUS COMMUNICATIONS 1996 STOCK OPTION PLAN EFFECTIVE DECEMBER
18, 1998;
WHEREAS, Pegasus Communications Corporation, IN ACCORDANCE
WITH RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS ON APRIL 23, 1999, desires to
AMEND AND RESTATE THE PLAN (I) TO INCREASE THE NUMBER OF SHARES OF CLASS A
COMMON STOCK AVAILABLE THEREUNDER TO 1,300,000, (II) TO PROVIDE THAT OPTIONS MAY
BE GRANTED TO EMPLOYEES who are not EXECUTIVE officers BY A MANAGEMENT
COMMITTEE, AND (III) TO CHANGE CERTAIN PROVISIONS REGARDING 100-SHARE OPTIONS
GRANTED (OR TO BE GRANTED) TO FULL-TIME EMPLOYEES;
NOW THEREFORE, effective AS OF APRIL 23, 1999, the Pegasus
Communications 1996 Stock Option Plan is hereby AMENDED AND RESTATED TO READ AS
FOLLOWS:
1. PURPOSE. This Pegasus Communications 1996 Stock Option Plan (the
"Plan") is intended to provide a means whereby Pegasus Communications
Corporation (the "Company") may, through the grant of incentive stock options
and nonqualified stock options (collectively, the "Options") to Employees and
Non-employee Directors (as defined in Section 3), attract and retain such
INDIVIDUALS and motivate them to exercise their best efforts on behalf of the
Company and of any Related Company. A "Related Company" shall mean either a
"subsidiary corporation" of the Company, as defined in section 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code"), or the "parent
corporation" of the Company, as defined in section 424(e) of the Code.
Further, as used in the Plan, (i) the term "ISO" shall mean an
option which, at the time such option is granted, qualifies as an incentive
stock option within the meaning of section 422 of the Code and is designated as
an ISO in the "Option Agreement" (as defined in Section
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20); and (ii) the term "NQSO" shall mean an option which, at the time such
option is granted, does not MEET THE DEFINITION OF ISO, WHETHER OR NOT IT is
designated as a nonqualified stock option in the Option Agreement.
2. ADMINISTRATION. The Plan shall be administered AS FOLLOWS:
(A) EXECUTIVE OFFICERS AND NON-EMPLOYEE DIRECTORS. WITH
RESPECT TO OPTIONS GRANTED TO EXECUTIVE OFFICERS OF PEGASUS AND NON-EMPLOYEE
DIRECTORS OF THE COMPANY, THE PLAN SHALL BE ADMINISTERED:
(1) By a committee, which shall consist SOLELY of not
fewer than two directors of the Company who shall be appointed by, and shall
serve at the pleasure of, the Board of Directors of the Company (the "Board");
TAKING INTO CONSIDERATION THE RULES UNDER SECTION 16(B) OF THE SECURITIES
EXCHANGE ACT OF 1934, as amended (THE "EXCHANGE ACT"), AND THE REQUIREMENTS OF
SECTION 162(M) OF THE CODE; OR
(2) In the event a committee has not been established
in accordance with SECTION 2(a)(1), or cannot be constituted to vote on the
grant of an Option by the entire Board;
provided, however, that a member of the Board shall not participate in a vote
approving the grant of an Option to himself or herself to the extent provided
under the laws of the State of Delaware governing corporate self-dealing.
(B) EMPLOYEES WHO ARE NOT EXECUTIVE OFFICERS. WITH RESPECT TO
OPTIONS GRANTED TO EMPLOYEES (AS DEFINED IN SECTION 3) WHO ARE NOT EXECUTIVE
OFFICERS, THE PLAN SHALL BE ADMINISTERED BY A MANAGEMENT COMMITTEE, THE MEMBERS
OF WHICH SHALL BE APPOINTED BY, AND SHALL SERVE AT THE PLEASURE OF, THE BOARD.
(C) IN GENERAL. The administrator of the Plan, WHETHER IT BE
THE COMMITTEE UNDER SECTION 2(A) OR THE COMMITTEE UNDER SECTION 2(B), shall
hereinafter be referred to as the "Committee," WITH RESPECT TO THE ELIGIBLE
INDIVIDUALS FOR WHICH THE PARTICULAR COMMITTEE SERVES AS ADMINISTRATOR. Each
member of the Committee, while serving as such, shall be deemed to be acting in
his capacity as a director OR EMPLOYEE of the Company. EXCEPT AS PROVIDED IN
SECTION 8 (REGARDING FORMULA GRANTS TO EMPLOYEES OTHER THAN EXECUTIVE OFFICERS),
THE Committee shall have full authority, subject to the terms of the Plan,
to select the Employees and Non-employee Directors to be granted Options
under the Plan, to grant Options on behalf of the Company, and to set the date
of grant and the other terms of such Options; provided, however, that A
Non-employee DIRECTOR shall not be eligible to receive AN ISO
under the Plan. The Committee may correct any defect, supply any omission and
reconcile any inconsistency in this Plan and in any Option granted hereunder in
the manner and to the extent it deems desirable. The Committee also shall have
the authority to establish such rules and regulations, not inconsistent with the
provisions of the Plan, for the
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proper administration of the Plan, to amend, modify, or rescind any such rules
and regulations, and to make such determinations, and interpretations under, or
in connection with, the Plan, as it deems necessary or advisable. All such
rules, regulations, determinations, and interpretations shall be binding and
conclusive upon the Company, its shareholders and all Employees and
Non-employee Directors, upon their respective legal representatives,
beneficiaries, successors, and assigns, and upon all other persons claiming
under or through any of them.
No member of the Board or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
Option granted under it.
3. ELIGIBILITY. ALL employees OF THE COMPANY OR A RELATED COMPANY
(INCLUDING ANY DIRECTORS WHO ALSO ARE OFFICERS) ("EMPLOYEES") shall be eligible
to receive Options under the Plan. Directors of the Company or a Related Company
who are not employees ("Non-employee Directors") shall be eligible to receive
NQSOs (and not ISOs) under the Plan. More than one Option may be granted to AN
Employee or a Non-employee Director under the Plan. AN Employee or Non-employee
Director who has been granted an Option under the Plan shall hereinafter be
referred to as an "Optionee."
4. STOCK. Options may be granted under the Plan to purchase up to a
maximum of 1,300,000 shares of Class A common stock of the Company ("Common
Stock"); provided, however, that no Employee shall receive Options for more than
550,000 shares of the Company's Common Stock over the life of the Plan. However,
both limits in the preceding sentence shall be subject to adjustment as provided
IN SECTION 9. Shares issuable under the Plan may be authorized but unissued
shares or reacquired shares, and the Company may purchase shares required for
this purpose, from time to time, if it deems such purchase to be advisable.
If any Option granted under the Plan expires or otherwise
terminates for any reason whatsoever (including, without limitation, the
Optionee's surrender thereof) without having been exercised, the shares subject
to the unexercised portion of the Option shall continue to be available for the
granting of Options under the Plan as fully as if the shares had never been
subject to an Option; provided, however, that (i) if an Option is cancelled, the
shares of Common Stock covered by the cancelled Option shall be counted against
the maximum number of shares specified above for which Options may be granted to
a single Employee, and (ii) if the exercise price of an Option is reduced
after the date of grant, the transaction shall be treated as a cancellation of
the original Option and the grant of a new Option for purposes of such maximum.
5. ANNUAL LIMIT. The aggregate fair market value (determined under
Section 7(b)) of the Common Stock with respect to which ISOs are exercisable for
the first time by AN Employee during any calendar year (counting ISOs under this
Plan and incentive stock options under any other stock option plan of the
Company or a Related Company) shall not exceed $100,000. If an Option intended
as an ISO is granted to AN Employee and the Option may not be treated in whole
or in part as an ISO pursuant to the $100,000 limitation, the Option shall be
treated as an ISO to the extent
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it may be so treated under the limitation and as an NQSO as to the remainder.
For purposes of determining whether an ISO would cause the limitation to be
exceeded, ISOs shall be taken into account in the order granted. THE ANNUAL
LIMITS SET FORTH ABOVE FOR ISOS SHALL NOT APPLY TO NQSOS.
6. GRANTING OF DISCRETIONARY OPTIONS. From time to time until the
expiration or earlier suspension or discontinuance of the Plan, the Committee
may, on behalf of the Company, grant to Employees and Non-employee Directors
under the Plan such Options as it determines are warranted; provided, however,
that grants of ISOs and NQSOs shall be separate and not in tandem, and further
provided that Non-employee Directors shall not be eligible to receive ISOs under
the Plan. In making any determination as to whether AN Employee or a
Non-employee Director shall be granted an Option, the type of Option to be
granted to AN Employee, the number of shares to be covered by the Option, and
other terms of the Option, the Committee shall take into account the duties of
the Employee or the Non-employee Director, his present and potential
contributions to the success of the Company or a Related Company, the tax
implications to the Company and the Employee of any Option granted, and such
other factors as the Committee shall deem relevant in accomplishing the purposes
of the Plan. Moreover, the Committee may provide in the Option that said Option
may be exercised only if certain conditions, as determined by the Committee, are
fulfilled.
7. TERMS AND CONDITIONS OF DISCRETIONARY OPTIONS. Options granted
pursuant to SECTION 6 shall include expressly or by reference the following
terms and conditions, as well as such other provisions not inconsistent with the
provisions of this Plan and, for ISOs granted under this Plan, the provisions of
section 422(b) of the Code, as the Committee shall deem desirable --
(a) Number of Shares. The Option shall state the number of
shares of Common Stock to which the Option pertains.
(b) Price. EACH Option GRANTED UNDER SECTION 6 shall state the
Option price which shall be determined and fixed by the Committee in its
discretion but shall not be less than the higher of 100 percent (110 percent in
the case of an ISO granted to a more-than-10-percent shareholder, as provided in
SECTION 7(I)) of the fair market value of the optioned shares of Common Stock or
the par value thereof.
The fair market value of a share of Common Stock shall be the
closing price of the Common Stock on a registered securities exchange or on an
over-the-counter market on the last business day prior to the date of grant on
which the Common Stock traded.
(c) Term.
(1) ISOs. Subject to earlier termination as provided
in SECTION 7(E), (f), and (g) and in SECTION 10, the term of each ISO
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GRANTED UNDER SECTION 6 shall be not more than TEN years (five years in the case
of a more-than-10-percent shareholder, as discussed in SECTION 7(I)) from the
date of grant.
(2) NQSOs. Subject to earlier termination as provided
in SECTION 7(E), (f), and (g) and in SECTION 10, the term of each NQSO GRANTED
UNDER SECTION 6 shall be not more than ten years from the date of grant.
(d) Exercise. Options GRANTED UNDER SECTION 6 shall be
exercisable in such installments and on such dates, as the Committee may
specify. The Committee may accelerate the exercise date of any outstanding
OPTION, in its discretion, if it deems such acceleration to be
desirable.
ANY EXERCISABLE OPTIONS MAY BE EXERCISED AT ANY TIME UP TO THE EXPIRATION OR
TERMINATION OF THE OPTION. EXERCISABLE OPTIONS MAY BE EXERCISED, IN WHOLE OR IN
PART AND FROM TIME TO TIME, BY GIVING WRITTEN NOTICE OF EXERCISE TO THE COMPANY
AT ITS PRINCIPAL OFFICE, SPECIFYING THE NUMBER OF SHARES TO BE PURCHASED AND
ACCOMPANIED BY PAYMENT IN FULL OF THE AGGREGATE OPTION EXERCISE PRICE FOR SUCH
SHARES (OR PAYMENT AS SOON AS PRACTICABLE AFTER THE EXERCISE, IN THE CASE OF AN
EXERCISE ARRANGEMENT APPROVED BY THE COMMITTEE AND DESCRIBED IN PARAGRAPH (2)(C)
BELOW). ONLY FULL SHARES SHALL BE ISSUED UNDER THE PLAN, AND ANY FRACTIONAL
SHARE WHICH MIGHT OTHERWISE BE ISSUABLE UPON EXERCISE OF AN OPTION GRANTED
HEREUNDER SHALL BE FORFEITED.
The Option price shall be payable --
(1) in cash or its equivalent;
(2) in the case of an ISO, if the Committee in its
discretion causes the Option Agreement so to provide, and in the case of an
NQSO, if the Committee in its discretion so determines at or prior to the time
of exercise, then --
(A) in shares of Common Stock previously
acquired by the Optionee; provided that (I) if such shares of Common Stock were
acquired through the exercise of an ISO and are used to pay the Option price for
ISOs, such shares have been held by the Employee for a period of not less
than the holding period described in section 422(a)(1) of the Code on THE DATE
OF EXERCISE, (II) IF SUCH SHARES OF COMMON STOCK WERE ACQUIRED THROUGH THE
EXERCISE OF AN NQSO (AND ARE USED TO PAY THE OPTION PRICE OF AN ISO OR NQSO) OR
ACQUIRED THROUGH THE EXERCISE OF AN ISO (AND ARE USED TO PAY THE OPTION PRICE OF
AN NQSO), SUCH SHARES HAVE BEEN HELD BY THE OPTIONEE FOR A PERIOD OF NOT LESS
THAN SIX MONTHS ON THE DATE OF EXERCISE, AND (III) IF SUCH SHARES OF COMMON
STOCK WERE ACQUIRED THROUGH THE VESTING OF A RESTRICTED STOCK AWARD, SUCH SHARES
SHALL HAVE VESTED IN THE OPTIONEE AT LEAST SIX MONTHS PRIOR to the date of
exercise;
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(B) in Company Common Stock newly acquired
by the Optionee upon exercise of such Option (which shall constitute a
disqualifying disposition in the case of an Option which is an ISO);
(C) by delivering a properly executed notice
of exercise of the Option to the Company and a broker, with irrevocable
instructions to the broker promptly to deliver to the Company the amount of sale
or loan proceeds necessary to pay the exercise price of the Option;
(D) if the Optionee is designated as an
"eligible participant," and if the Optionee thereafter so requests, (i) the
Company will loan the Optionee the money required to pay the exercise price of
the Option; (ii) any such loan to an Optionee shall be made only at the time the
Option is exercised; and (iii) the loan will be made on the Optionee's personal
negotiable demand promissory note, bearing interest at the lowest rate which
will avoid imputation of interest under section 7872 of the Code, and including
such other terms as the Committee prescribes; or
(E) in any combination of (1),
(2)(A), (2)(B), (2)(C) and (2)(D) above.
In the event the Option price is paid, in whole or in part,
with shares of Common Stock, the portion of the Option price so paid shall be
equal to the aggregate fair market value (determined under SECTION 7(B), WITH
REFERENCE TO the date of exercise of the Option, rather than the date of grant)
of the Common Stock so surrendered in payment of the Option price.
(e) Termination of Employment or Board Membership. If AN
Employee's employment by the Company (and Related Companies) or a Non-employee
Director's membership on the Board is terminated by either party prior to the
expiration date fixed for his Option for any reason other than death or
disability, such Option may be exercised, to the extent of the number of shares
with respect to which the Optionee could have exercised it on the date of such
termination, or to any greater extent permitted by the Committee, by the
Optionee at any time prior to the earlier of (i) the expiration date specified
in such Option, or (ii) an accelerated expiration date determined by the
Committee, in its discretion, and set forth in the Option Agreement; except
that, subject to Section 10 hereof, such accelerated expiration date shall not
be earlier than the date of the termination of the Employee's employment or the
Non-employee Director's Board membership, and in the case of ISOs, such
accelerated expiration date shall not be later than three months after such
termination of employment.
(f) Exercise upon Disability of Optionee. If an Optionee
becomes disabled (within the meaning of section 22(e)(3) of the Code) during his
employment or membership on the Board and, prior to the expiration date fixed
for his Option, his employment or membership on the Board is terminated as a
consequence of such disability, such Option may be exercised, to the extent of
the number of shares with respect to which the Optionee could have exercised it
on the date of such termination, or to any greater extent permitted by the
Committee, by the Optionee at any time prior to the earlier of (i) the
expiration date specified in such Option, or (ii)
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an accelerated termination date determined by the Committee, in its discretion,
and set forth in the Option Agreement; except that, subject to Section 10
hereof, such accelerated termination date shall not be earlier than the date of
the Optionee's termination of employment or Board MEMBERSHIP by
reason of disability, and in the case of ISOs, such accelerated termination date
shall not be later than one year after such termination of employment. In the
event of the Optionee's legal disability, such Option may be exercised by the
Optionee's legal representative.
(g) Exercise upon Death of Optionee. If an Optionee dies
during his employment or Board MEMBERSHIP, and prior to the expiration date
fixed for his Option, or if an Optionee whose employment or Board membership is
terminated for any reason, dies following his termination of employment or Board
membership but prior to the earliest of (i) the expiration date fixed for his
Option, (ii) the expiration of the period determined under paragraphs (e) and
(f) above, or (iii) in the case of an ISO, three months following termination of
employment, such Option may be exercised, to the extent of the number of shares
with respect to which the Optionee could have exercised it on the date of his
death, or to any greater extent permitted by the Committee, by the Optionee's
estate, personal representative or beneficiary who acquired the right to
exercise such Option by bequest or inheritance or by reason of the death of the
Optionee. Such post-death exercise may occur at any time prior to the earlier of
(i) the expiration date specified in such Option or (ii) an accelerated
termination date determined by the Committee, in its discretion, and set forth
in the Option Agreement; except that, subject to Section 10 hereof, such
accelerated termination date shall not be later than three years after the date
of death.
(h) Non-Transferability. No ISO GRANTED UNDER SECTION 6 shall
be assignable or transferable by the Optionee other than by will or by the laws
of descent and distribution, DURING the lifetime of the Optionee, AN ISO shall
be exercisable only by THE OPTIONEE, OR IN THE EVENT OF THE OPTIONEE'S LEGAL
DISABILITY, BY THE OPTIONEE'S guardian or legal representative. EXCEPT AS
PROVIDED IN AN OPTIONEE'S OPTION AGREEMENT, SUCH LIMITS ON ASSIGNMENT, TRANSFER
AND EXERCISE SHALL ALSO APPLY TO NQSOS. If the Optionee is married at the time
of exercise and if the Optionee so requests at the time of exercise, the
certificate or certificates shall be registered in the name of the Optionee and
the Optionee's spouse, jointly, with right of survivorship.
(I) Ten Percent Shareholder. If the Employee owns more than 10
percent of the total combined voting power of all shares of stock of the Company
or of a Related Company at the time an ISO is granted to him (TAKING INTO
ACCOUNT THE ATTRIBUTION RULES OF SECTION 424(D) OF THE CODE), the Option price
for the ISO shall be not less than 110 percent of the fair market value (as
determined under SECTION 7(B)) of the optioned shares of Common Stock on the
date the ISO is granted, and such ISO, by its terms, shall not be
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exercisable after the expiration of five years from the date the ISO is granted.
The conditions set forth in this paragraph shall not apply to NQSOs.
(J) Withholding and Use of Shares to Satisfy Tax Obligations.
The obligation of the Company to deliver shares of Common Stock upon the
exercise of any Option shall be subject to applicable federal, state and local
tax withholding requirements. If the exercise of any Option GRANTED UNDER
SECTION 6 is subject to the withholding requirements of applicable federal tax
law, the Committee, in its discretion, may permit or require the Employee to
satisfy the federal, state and local withholding tax, in whole or in part, by
electing to have the Company withhold shares of Common Stock subject to the
exercise (or by returning previously acquired shares of Common Stock to the
Company). The Company may not withhold shares in excess of the number necessary
to satisfy the minimum federal, state and local tax withholding requirements.
Shares of Common Stock shall be valued, for purposes of this paragraph, at their
fair market value DETERMINED UNDER SECTION 7(B), WITH REFERENCE TO the date the
amount attributable to the exercise of the Option is includable in income by the
Employee under section 83 of the Code (the "Determination Date"), RATHER THAN
THE DATE OF GRANT.
If shares of Common Stock acquired by the exercise of an ISO
are used to satisfy the withholding requirement described above, such shares of
Common Stock must have been held by the Employee for a period of not less
than the holding period described in section 422(a)(1) of the Code as of the
Determination Date.
The Committee shall adopt such withholding rules as it deems
necessary to carry out the provisions of this paragraph.
(K) Loans. If an Optionee WHO IS GRANTED AN OPTION UNDER
SECTION 6 is designated as an "eligible participant" by the Committee at the
date of grant in the case of an ISO, or at or after the date of grant in the
case of an NQSO, and if the Optionee thereafter so requests, the Company will
loan the Optionee the money required to satisfy any regular income tax
obligations (as opposed to alternative minimum tax obligations) resulting from
the exercise of any Options. Any loan or loans to an Optionee shall be made only
at the time any such tax resulting from such exercise is due. The Committee, in
its discretion, may require an affidavit from the Optionee specifying the amount
of the tax required to be paid and the date when such tax must be paid. The loan
will be made on the Optionee's personal, negotiable, demand promissory note,
bearing interest at the lowest rate which will avoid imputation of interest
under section 7872 of the Code, and including such other terms as the Committee
prescribes.
8. FORMULA GRANTS TO FULL-TIME EMPLOYEES WHO ARE NOT EXECUTIVE
OFFICERS.
(A) GRANT. EACH FULL-TIME EMPLOYEE WHO IS NOT AN EXECUTIVE
OFFICER
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of the Company. OR A RELATED COMPANY SHALL BE GRANTED AN OPTION TO PURCHASE 100
SHARES OF COMMON STOCK AS PROVIDED IN THIS SECTION 8. SUCH OPTION SHALL BE
GRANTED ON THE LATER OF (I) DECEMBER 18, 1998, OR (II) THE DATE THE EMPLOYEE
BECOMES A FULL-TIME EMPLOYEE (AS A RESULT OF HIRE OR A CHANGE IN STATUS FROM
PART-TIME TO FULL-TIME EMPLOYEE). NO EMPLOYEE SHALL RECEIVE MORE THAN ONE OPTION
GRANT UNDER THIS SECTION 8.
(B) TYPE OF OPTION. EACH OPTION GRANTED UNDER THIS SECTION 8
ON DECEMBER 18, 1998 SHALL BE AN NQSO. EACH OPTION GRANTED UNDER THIS SECTION 8
AFTER DECEMBER 18, 1998 SHALL, UNLESS THE CODE OTHERWISE REQUIRES OR THE
COMMITTEE OTHERWISE DETERMINES, BE AN ISO.
(C) TERMS AND CONDITIONS OF FORMULA OPTIONS. OPTIONS GRANTED
UNDER THIS SECTION 8 SHALL INCLUDE EXPRESSLY OR BY REFERENCE THE FOLLOWING TERMS
AND CONDITIONS --
(1) NUMBER OF SHARES. THE OPTION SHALL STATE
the number of shares OF COMMON STOCK TO WHICH THE OPTION
PERTAINS.
(2) PRICE. THE OPTION PRICE OF EACH OPTION GRANTED
UNDER THIS SECTION 8 SHALL BE THE HIGHER OF 100 PERCENT (110 PERCENT IN THE
CASE OF AN ISO GRANTED TO A MORE-THAN-10-PERCENT SHAREHOLDER, AS PROVIDED IN
SECTION 7(I)) OF THE FAIR MARKET VALUE (AS DEFINED IN SECTION 7(B)) OF THE
OPTIONED SHARES OF COMMON STOCK, OR THE PAR VALUE THEREOF.
(3) TERM. SUBJECT TO EARLIER TERMINATION AS
PROVIDED IN SECTION 8(C)(5), (6) AND (7) AND IN SECTION 10 HEREOF, THE TERM OF
EACH OPTION GRANTED UNDER THIS SECTION 8 SHALL BE TEN YEARS (FIVE YEARS IN THE
CASE OF AN ISO GRANTED TO A MORE-THAN-TEN-PERCENT SHAREHOLDER, AS DISCUSSED IN
SECTION 7(I) ABOVE) FROM THE DATE OF GRANT.
(4) EXERCISE. EFFECTIVE APRIL 23, 1999, EACH
OPTION GRANTED UNDER THIS SECTION 8 SHALL BECOME FULLY EXERCISABLE ON THE
EARLIEST OF (I) THE DATE THE OPTIONEE COMPLETES ONE YEAR OF SERVICE, (II) THE
FIRST ANNIVERSARY OF THE DATE THE OPTION IS GRANTED IF THE OPTIONEE IS THEN IN
THE EMPLOY OF THE COMPANY OR A RELATED COMPANY, OR (III) ON THE OPTIONEE'S DEATH
OR DISABILITY (AS DEFINED IN SECTION 22(E)(3) OF THE CODE) WHILE IN THE EMPLOY
OF THE COMPANY OR A RELATED COMPANY. IN ADDITION, THE COMMITTEE MAY ACCELERATE
THE EXERCISE DATE OF ANY OUTSTANDING OPTION, IN ITS DISCRETION, IF IT DEEMS SUCH
ACCELERATION TO BE DESIRABLE. FOR PURPOSES OF THIS SECTION 8(C)(4), YEAR OF
VESTING SERVICE SHALL HAVE THE MEANING SET FORTH IN ARTICLE I OF (I) THE PEGASUS
COMMUNICATIONS SAVINGS PLAN, AS IT MAY BE AMENDED FROM TIME TO TIME, IF THE
EMPLOYEE IS AN ELIGIBLE EMPLOYEE THEREUNDER OR (II) THE
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PEGASUS COMMUNICATIONS PUERTO RICO SAVINGS PLAN, AS IT MAY BE AMENDED FROM TIME
TO TIME, IF THE EMPLOYEE IS AN ELIGIBLE EMPLOYEE THEREUNDER; PROVIDED, HOWEVER,
THAT AN EMPLOYEE SHALL NOT COMPLETE A YEAR OF VESTING SERVICE FOR PURPOSES OF
THIS PLAN UNTIL THE LAST DAY OF THE 12-MONTH COMPUTATION PERIOD IN WHICH SUCH
YEAR IS BEING MEASURED.
Any exercisable Options may be exercised at any time
up to the expiration or termination of the Option. Exercisable Options may be
exercised, in whole or in part and from time to time, by giving written notice
of exercise to the Company at its principal office, specifying the number of
shares to be purchased and accompanied by payment in full of the aggregate
Option exercise price for such shares (OR PAYMENT AS SOON AS PRACTICABLE AFTER
THE EXERCISE, IN THE CASE OF AN EXERCISE ARRANGEMENT DESCRIBED IN PARAGRAPH (C)
BELOW). Only full shares shall be issued under the Plan, and any fractional
share which might otherwise be issuable upon exercise of an Option granted
hereunder shall be forfeited.
THE OPTION PRICE SHALL BE PAYABLE --
(A) IN CASH OR ITS EQUIVALENT;
(B) IN SHARES OF COMMON STOCK PREVIOUSLY
ACQUIRED BY THE OPTIONEE; PROVIDED THAT (I) IF SUCH SHARES OF COMMON STOCK WERE
ACQUIRED THROUGH THE EXERCISE OF AN ISO AND ARE USED TO PAY THE OPTION PRICE FOR
ISOS, SUCH SHARES HAVE BEEN HELD BY THE EMPLOYEE FOR A PERIOD OF NOT LESS THAN
THE HOLDING PERIOD DESCRIBED IN SECTION 422(A)(1) OF THE CODE ON THE DATE OF
EXERCISE, (II) IF SUCH SHARES OF COMMON STOCK WERE ACQUIRED THROUGH THE EXERCISE
OF AN NQSO (AND USED TO PAY THE OPTION PRICE FOR ISOS OR NQSOS) OR ACQUIRED
THROUGH THE EXERCISE OF AN ISO (AND USED TO PAY THE OPTION PRICE FOR NQSOS),
SUCH SHARES HAVE BEEN HELD BY THE OPTIONEE FOR A PERIOD OF NOT LESS THAN SIX
MONTHS ON THE DATE OF EXERCISE, AND (III) IF SUCH SHARES OF COMMON STOCK WERE
ACQUIRED THROUGH THE VESTING OF A RESTRICTED STOCK AWARD, SUCH SHARES SHALL HAVE
VESTED IN THE OPTIONEE AT LEAST SIX MONTHS PRIOR TO THE DATE OF EXERCISE;
(C) BY DELIVERING A PROPERLY EXECUTED NOTICE
OF EXERCISE OF THE OPTION TO THE COMPANY AND A BROKER, WITH IRREVOCABLE
INSTRUCTIONS TO THE BROKER PROMPTLY TO DELIVER TO THE COMPANY THE AMOUNT OF SALE
OR LOAN PROCEEDS NECESSARY TO PAY THE EXERCISE PRICE OF THE OPTION; OR
(D) IN ANY COMBINATION OF (A), (B) AND (C)
ABOVE.
IN THE EVENT THE OPTION PRICE IS PAID, IN WHOLE OR IN
PART, WITH SHARES OF COMMON STOCK, THE PORTION OF THE OPTION PRICE SO PAID SHALL
BE EQUAL TO THE AGGREGATE FAIR MARKET VALUE (DETERMINED UNDER SECTION 7(B), WITH
REFERENCE TO THE DATE OF EXERCISE OF THE OPTION, RATHER THAN THE DATE OF GRANT)
OF THE COMMON STOCK SO SURRENDERED IN PAYMENT OF THE OPTION PRICE.
(5) TERMINATION OF EMPLOYMENT. IF AN EMPLOYEE'S
EMPLOYMENT BY THE COMPANY (AND RELATED COMPANIES) IS TERMINATED BY EITHER PARTY
PRIOR TO THE EXPIRATION DATE FIXED FOR HIS OPTION FOR ANY REASON OTHER THAN
DEATH OR DISABILITY, SUCH
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OPTION MAY BE EXERCISED, TO THE EXTENT OF THE NUMBER OF SHARES WITH RESPECT TO
WHICH THE OPTIONEE COULD HAVE EXERCISED IT ON THE DATE OF SUCH TERMINATION, BY
THE OPTIONEE AT ANY TIME PRIOR TO THE EARLIEST OF (I) THE EXPIRATION DATE
SPECIFIED IN SUCH OPTION, (II) THREE MONTHS AFTER SUCH TERMINATION OF
EMPLOYMENT, OR (III) TERMINATION OF SUCH OPTION UNDER SECTION 10.
(6) EXERCISE UPON DISABILITY OF OPTIONEE. IF AN
OPTIONEE BECOMES DISABLED (WITHIN
THE MEANING OF SECTION 22(E)(3) OF THE CODE) DURING HIS EMPLOYMENT AND PRIOR TO
THE EXPIRATION DATE FIXED FOR HIS OPTION, SUCH OPTION MAY BE EXERCISED, TO THE
EXTENT OF THE NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTIONEE COULD HAVE
EXERCISED IT ON THE DATE OF SUCH TERMINATION BY THE OPTIONEE AT ANY TIME PRIOR
TO THE EARLIEST OF (I) THE EXPIRATION DATE SPECIFIED IN SUCH OPTION, (II) ONE
YEAR AFTER SUCH TERMINATION OF EMPLOYMENT, OR (III) TERMINATION OF SUCH OPTION
UNDER SECTION 10. IN THE EVENT OF THE OPTIONEE'S LEGAL DISABILITY, SUCH OPTION
MAY BE EXERCISED BY THE OPTIONEE'S LEGAL REPRESENTATIVE.
(7) EXERCISE UPON DEATH OF OPTIONEE. IF AN OPTIONEE
DIES DURING HIS EMPLOYMENT, AND PRIOR TO THE EXPIRATION DATE FIXED FOR HIS
OPTION, OR IF AN OPTIONEE WHOSE EMPLOYMENT IS TERMINATED FOR ANY REASON, DIES
FOLLOWING HIS TERMINATION OF EMPLOYMENT BUT PRIOR TO THE EARLIEST OF (A) THE
EXPIRATION DATE FIXED FOR HIS OPTION, (B) THE EXPIRATION OF THE PERIOD
DETERMINED UNDER PARAGRAPHS (5) AND (6) ABOVE, OR (C) IN THE CASE OF AN ISO,
THREE MONTHS FOLLOWING TERMINATION OF EMPLOYMENT, SUCH OPTION MAY BE EXERCISED,
TO THE EXTENT OF THE NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTIONEE COULD
HAVE EXERCISED IT ON THE DATE OF HIS DEATH, BY THE OPTIONEE'S ESTATE, PERSONAL
REPRESENTATIVE OR BENEFICIARY WHO ACQUIRED THE RIGHT TO EXERCISE SUCH OPTION BY
BEQUEST OR INHERITANCE OR BY REASON OF THE DEATH OF THE OPTIONEE. SUCH
POST-DEATH EXERCISE MAY OCCUR AT ANY TIME PRIOR TO THE EARLIEST OF (I) THE
EXPIRATION DATE SPECIFIED IN SUCH OPTION, (II) ONE YEAR AFTER THE DATE OF DEATH,
OR (III) TERMINATION OF SUCH OPTION UNDER SECTION 10.
(8) NON-TRANSFERABILITY. NO OPTION GRANTED UNDER
THIS SECTION 8 SHALL BE ASSIGNABLE OR TRANSFERABLE BY THE OPTIONEE OTHER
THAN BY WILL OR BY THE LAWS OF DESCENT AND DISTRIBUTION. DURING THE LIFETIME OF
THE OPTIONEE, ALL OPTIONS GRANTED UNDER THIS SECTION 8 SHALL BE EXERCISABLE ONLY
BY THE OPTIONEE, OR, IN THE EVENT OF THE OPTIONEE'S LEGAL DISABILITY, BY THE
OPTIONEE'S GUARDIAN OR LEGAL REPRESENTATIVE. IF THE OPTIONEE IS MARRIED AT THE
TIME OF EXERCISE AND IF THE OPTIONEE SO REQUESTS AT THE TIME OF EXERCISE, THE
CERTIFICATE OR CERTIFICATES SHALL BE REGISTERED IN THE NAME OF THE OPTIONEE AND
THE OPTIONEE'S SPOUSE, JOINTLY, WITH RIGHT OF SURVIVORSHIP.
(9) WITHHOLDING AND USE OF SHARES TO SATISFY TAX
OBLIGATIONS. THE OBLIGATION OF THE COMPANY TO DELIVER SHARES OF COMMON STOCK
UPON THE EXERCISE OF ANY OPTION SHALL BE SUBJECT TO APPLICABLE FEDERAL, STATE
AND LOCAL TAX WITHHOLDING REQUIREMENTS. IF THE EXERCISE OF ANY OPTION GRANTED
UNDER THIS SECTION 8 IS SUBJECT TO THE WITHHOLDING REQUIREMENTS OF APPLICABLE
FEDERAL TAX LAW, THE EMPLOYEE MAY SATISFY THE FEDERAL, STATE AND LOCAL
WITHHOLDING TAX, IN WHOLE OR IN PART, BY ELECTING TO HAVE THE COMPANY WITHHOLD
SHARES OF COMMON STOCK SUBJECT TO THE EXERCISE (OR BY RETURNING PREVIOUSLY
ACQUIRED SHARES OF COMMON STOCK TO THE COMPANY). THE COMPANY MAY NOT WITHHOLD
SHARES IN EXCESS OF THE
Note: Text within brackets has been deleted
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NUMBER NECESSARY TO SATISFY THE MINIMUM FEDERAL, STATE AND LOCAL TAX WITHHOLDING
REQUIREMENTS. SHARES OF COMMON STOCK SHALL BE VALUED, FOR PURPOSES OF THIS
PARAGRAPH, AT THEIR FAIR MARKET VALUE DETERMINED UNDER SECTION 7(B), WITH
REFERENCE TO THE DETERMINATION DATE (AS DEFINED IN SECTION 7(j)), RATHER THAN
THE DATE OF GRANT.
IF SHARES OF COMMON STOCK ACQUIRED BY THE EXERCISE OF
AN ISO ARE USED TO SATISFY THE WITHHOLDING REQUIREMENT DESCRIBED ABOVE, SUCH
SHARES OF COMMON STOCK MUST HAVE BEEN HELD BY THE EMPLOYEE FOR A PERIOD OF NOT
LESS THAN THE HOLDING PERIOD DESCRIBED IN SECTION 422(A)(1) OF THE CODE AS OF
THE DETERMINATION DATE.
THE COMMITTEE SHALL ADOPT SUCH WITHHOLDING RULES AS
IT DEEMS NECESSARY TO CARRY OUT THE PROVISIONS OF THIS PARAGRAPH.
9. CAPITAL ADJUSTMENTS. THE NUMBER OF SHARES WHICH MAY BE ISSUED UNDER
THE PLAN, THE MAXIMUM NUMBER OF SHARES WITH RESPECT TO WHICH OPTIONS MAY BE
GRANTED TO ANY EMPLOYEE UNDER THE PLAN (AS STATED IN SECTION 4 HEREOF), THE
NUMBER OF SHARES SUBJECT TO AN OPTION TO BE GRANTED UNDER SECTION 8, AND THE
NUMBER OF SHARES ISSUABLE UPON EXERCISE OF OUTSTANDING OPTIONS UNDER THE PLAN
(AS WELL AS THE OPTION PRICE PER SHARE UNDER SUCH OUTSTANDING OPTIONS) SHALL BE
ADJUSTED, AS MAY BE DEEMED APPROPRIATE BY THE COMMITTEE, TO REFLECT ANY STOCK
DIVIDEND, STOCK SPLIT, SPIN-OFF, SHARE COMBINATION, OR SIMILAR CHANGE IN THE
CAPITALIZATION OF THE COMPANY; PROVIDED, HOWEVER, THAT NO SUCH ADJUSTMENT SHALL
BE MADE TO AN OUTSTANDING ISO IF SUCH ADJUSTMENT WOULD CONSTITUTE A MODIFICATION
UNDER SECTION 424(H) OF THE CODE, UNLESS THE OPTIONEE CONSENTS TO SUCH
ADJUSTMENT. IN THE EVENT ANY SUCH CHANGE IN CAPITALIZATION CANNOT BE REFLECTED
IN A STRAIGHT MATHEMATICAL ADJUSTMENT OF THE NUMBER OF SHARES ISSUABLE UPON THE
EXERCISE OF OUTSTANDING OPTIONS (AND A STRAIGHT MATHEMATICAL ADJUSTMENT OF THE
EXERCISE PRICE THEREOF), THE COMMITTEE SHALL MAKE SUCH ADJUSTMENTS AS ARE
APPROPRIATE TO REFLECT MOST NEARLY SUCH STRAIGHT MATHEMATICAL ADJUSTMENT. SUCH
ADJUSTMENTS SHALL BE MADE ONLY AS NECESSARY TO MAINTAIN THE PROPORTIONATE
INTEREST OF OPTIONEES, AND PRESERVE, WITHOUT EXCEEDING, THE VALUE OF OPTIONS.
10. CERTAIN CORPORATE TRANSACTIONS. In the event of a corporate
transaction (as that term is described in section 424(a) of the Code and the
Treasury Regulations issued thereunder as, for example, a merger, consolidation,
acquisition of property or stock, separation, reorganization, or liquidation),
the surviving or successor corporation SHALL ASSUME EACH OUTSTANDING OPTION OR
SUBSTITUTE A NEW OPTION FOR EACH OUTSTANDING OPTION; provided, however, that, in
the event of a proposed corporate transaction, the Committee may terminate all
or a portion of the outstanding Options if it determines that such termination
is in the best interests of the Company. If the Committee decides to terminate
outstanding Options, the Committee shall give each Optionee holding an Option to
be terminated not less than seven days' notice prior to any such termination,
and any Option which is to be so terminated may be exercised (if and only to the
extent that it is then exercisable) up to, and including the date immediately
preceding such termination. Further, as provided in Section 7(d) AND SECTION
8(C)(4), the Committee, in its discretion, may accelerate, in whole or in part,
the date on which any or all Options become exercisable.
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The Committee also may, in its discretion, change the terms of
any outstanding Option to reflect any such corporate transaction, provided that,
in the case of ISOs, such change DOES not constitute a "modification"
under section 424(h) of the Code, unless the Option holder consents to the
change.
11. CHANGE IN CONTROL.
(a) Full Vesting. Notwithstanding any other provision of this
Plan, all outstanding Options shall become fully vested and exercisable upon a
Change in Control.
(b) Definitions. The following definitions shall apply for
purposes of this Section --
(1) "Change in Control" means the occurrence of any
of the following: (i) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company to any
"person" (as such term is used in section 13(d)(3) of the Exchange Act) other
than the Principal or his Related Parties, (ii) the adoption of a plan relating
to the liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above) becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise), of more of the voting stock of the Company than is
"beneficially owned" (as defined above) at such time by the Principal and his
Related Parties, or (iv) the first day on which a majority of the members of the
Board are not Continuing Directors.
(2) "Continuing Directors" means, as of any date of
determination, any member of the Board who (i) was a member of the Board on
September 30, 1996, or (ii) was nominated for election or elected to the Board
with approval of a majority of the Continuing Directors who were members of the
Board at the time of such nomination or election.
(3) "Person" shall have the meaning set forth in the
indenture dated July 7, 1995, by and among Pegasus Media & Communications, Inc.,
certain of its subsidiaries, and First Union National Bank and Trustee.
(4) "Principal" means Marshall W. Pagon.
(5) "Related Party" means (A) any immediate family
member of the Principal or (B) any trust, corporation, partnership or other
entity, more than 50% of the voting equity interests of which are owned directly
or indirectly by, and which is controlled by, the Principal and/or such other
Persons referred to in the immediately preceding clause (A). For purposes of
this definition, (i) "immediate family member" means spouse, parent,
step-parent, child, sibling or step-sibling, and (ii) "control," as used with
respect to any Person, means the
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possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control. In addition, the Principal's estate shall be deemed to
be a Related Party until such time as such estate is distributed in accordance
with the Principal's will or applicable state law.
12. AMENDMENT OR TERMINATION OF THE PLAN.
(a) In General. The Board, pursuant to a written resolution,
from time to time may suspend or terminate the Plan or amend it, and the
Committee may amend any outstanding Options in any respect whatsoever; except
that, without the approval of the shareholders (given in the manner set forth in
paragraph (b) below) --
(1) the class of employees eligible to receive ISOs
shall not be changed;
(2) the maximum number of shares of Common Stock with
respect to which Options may be granted under the Plan shall not be increased,
except as permitted under Section 9 hereof;
(3) the duration of the Plan under SECTION 18 hereof
with respect to any ISOs granted hereunder shall not be extended; and
(4) no amendment requiring shareholder approval
pursuant to Treas. Reg.ss. 1.162-27(e)(4)(vi) or any successor thereto may be
made (TO THE EXTENT COMPLIANCE WITH SECTION 162(M) OF THE CODE IS DESIRED).
Notwithstanding the foregoing, no such suspension,
discontinuance or amendment shall materially impair the rights of any holder of
an outstanding Option without the consent of such holder.
(b) Manner of Shareholder Approval. The approval of
shareholders must be effected --
(1) By a method and in a degree that would be treated
as adequate under applicable state law in the case of an action requiring
shareholder approval (i.e., an action on which shareholders would be entitled to
vote if the action were taken at a duly held shareholders' meeting); or
(2) By a majority of the votes cast at a duly held
shareholders' meeting at which a quorum representing a majority of all
outstanding voting stock is, either in person or by proxy, present and voting on
the Plan.
13. ABSENCE OF RIGHTS. Neither the adoption of the Plan nor any action
of the Board or the Committee shall be deemed to give any individual any right
to be granted an Option, or
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any other right hereunder, unless and until the Committee shall have granted
such individual an Option (OR UNLESS AND UNTIL SUCH OPTION SHALL HAVE BEEN
GRANTED UNDER SECTION 8), and then his rights shall be only such as are provided
by the Option Agreement.
Any Option under the Plan shall not entitle the holder thereof
to any rights as a stockholder of the Company prior to the exercise of such
Option and the issuance of the shares pursuant thereto. Further, notwithstanding
any provisions of the Plan or the Option Agreement with AN Employee, the Company
and any Related Company shall have the right, in its discretion but subject to
any employment contract entered into with the Employee, to retire the Employee
at any time pursuant to its retirement rules or otherwise to terminate his
employment at any time for any reason whatsoever.
14. INDEMNIFICATION OF BOARD AND COMMITTEE. Without limiting any other
rights of indemnification which they may have from the Company and any Related
Company, the members of the Board and the members of the Committee shall be
indemnified by the Company against all costs and expenses reasonably incurred by
them in connection with any claim, action, suit, or proceeding to which they or
any of them may be a party by reason of any action taken or failure to act
under, or in connection with, the Plan, or any Option granted thereunder, and
against all amounts paid by them in settlement thereof (provided such settlement
is approved by legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit, or proceeding, except a
judgment based upon a finding of willful misconduct or recklessness on their
part. Upon the making or institution of any such claim, action, suit, or
proceeding, the Board or Committee member shall notify the Company in writing,
giving the Company an opportunity, at its own expense, to handle and defend the
same before such Board or Committee member undertakes to handle it on his own
behalf. The provisions of this Section shall not give members of the Board or
the Committee greater rights than they would have under the Company's by-laws or
Delaware law.
15. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Options granted under the Plan shall be used
for general corporate purposes. Any cash received in payment for shares upon
exercise of an Option shall be added to the general funds of the Company and
shall be used for its corporate purposes. Any Common Stock received in payment
for shares upon exercise of an Option shall become treasury stock.
16. SHAREHOLDER APPROVAL. This AMENDED AND RESTATED Plan shall become
effective on APRIL 22, 1999; provided, however, that if shareholders, DO NOT
APPROVE (in the manner described in Section 12(b) hereof, THE EXPANSION OF THE
CLASS OF EMPLOYEES WHO ARE ELIGIBLE TO RECEIVE ISOS HEREUNDER, ON OR BEFORE
DECEMBER 17, 1999, ANY ISOs granted hereunder TO EMPLOYEES WHO ARE NOT EXECUTIVE
OFFICERS OF THE COMPANY OR A RELATED COMPANY shall be null and void and no
additional ISO shall be granted hereunder TO AN EMPLOYEE WHO IS NOT AN EXECUTIVE
OFFICER OF THE COMPANY OR RELATED COMPANY.
17. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option shall
impose no obligation upon an Optionee to exercise such Option.
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18. TERMINATION OF PLAN. Unless earlier terminated as provided in the
Plan, the Plan and all authority granted hereunder shall terminate absolutely at
12:00 midnight on SEPTEMBER 29, 2006, which date is within 10 years after the
date the Plan was adopted by the Board, or the date the Plan was approved by the
shareholders of the Company, whichever is earlier, and no Options hereunder
shall be granted thereafter. Nothing contained in this Section, however, shall
terminate or affect the continued existence of rights created under Options
issued hereunder, and outstanding on the date set forth in the preceding
sentence, which by their terms extend beyond such date.
19. GOVERNING LAW. The Plan shall be governed by the applicable Code
provisions to the maximum extent possible. Otherwise, the laws of the State of
Delaware shall govern the operation of, and the rights of Employees and
Non-employee Directors under, the Plan and Options granted thereunder.
20. OPTION AGREEMENTS -- OTHER PROVISIONS. Options granted under the
Plan shall be evidenced by written documents ("Option Agreements") in such form
as the Committee shall from time to time approve, and containing such provisions
not inconsistent with the provisions of the Plan (and, for ISOs granted pursuant
to the Plan, not inconsistent with section 422(b) of the Code), as the Committee
shall deem advisable. The Option Agreements shall specify whether the Option is
an ISO or NQSO. Each Optionee shall enter into, and be bound by, an Option
Agreement as soon as practicable after the grant of an Option.
21. LISTING AND REGISTRATION OF SHARES. Each Option shall be subject to
the requirement that, if at any time the Committee shall determine, in its
discretion, that the listing, registration, or qualification of the shares of
Common Stock covered thereby upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such Option or the purchase of shares of Common Stock thereunder, or that action
by the Company or by the Optionee should be taken in order to obtain an
exemption from any such requirement, no such Option may be exercised, in whole
or in part, unless and until such listing, registration, qualification, consent,
approval, or action shall have been effected, obtained, or taken under
conditions acceptable to the Committee. Without limiting the generality of the
foregoing, each Optionee or his legal representative or beneficiary may also be
required to give satisfactory assurance that shares purchased upon exercise of
an Option are being purchased for investment and not with a view to
distribution, and certificates representing such shares may be legended
accordingly.
22. SPECIAL PROVISIONS REGARDING DIGITAL TELEVISION SERVICES, INC.
Digital Television Services, Inc. ("DTS") became a wholly-owned subsidiary of
the Company by means of the merger (the "Merger") of a wholly-owned subsidiary
of the Company into DTS pursuant to the Agreement and Plan of Merger dated
January 8, 1998 (the "Merger Agreement") among the Company, DTS, Pegasus DTS
Merger Sub, Inc. and certain stockholders of the Company and DTS. Section 2.12
of the Merger Agreement provides that the Company will assume certain
outstanding DTS options specified therein. Section 2.12 of the Merger Agreement
also provides that such DTS options will be replaced with options (the
"Replacement Options") to purchase the
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number of shares of Common Stock equal to the "conversion ratio" (as defined in
the Merger Agreement) times the number of shares of DTS common stock issuable
upon the exercise of such options, for an exercise price equal to the exercise
price applicable to such options divided by the "conversion ratio."
Each Replacement Option shall be exercisable under the Plan in
accordance with the terms of the agreement entered into between the Company and
the holder of the Replacement Option (the "Replacement Agreement"), the terms of
which shall govern in the event of any conflict with the provisions of the Plan.
The following provisions of the Plan shall not apply to the Replacement
Options:
(i) Section 11 ("Change in Control");
(ii) Section 7(d)(2)(D) (regarding payment of exercise price with the
proceeds of a loan from the Company); and
(iii) SECTION 7(K) (regarding payment of income tax obligations with
the proceeds of a loan from the Company).
In addition, any provision of the Plan that would provide an additional
benefit (within the meaning of section 424(a)(2) of the Code and Treasury
Regulations thereunder) shall not apply to the Replacement Options.
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APPENDIX B
PEGASUS COMMUNICATIONS
RESTRICTED STOCK PLAN
(AS AMENDED AND RESTATED GENERALLY EFFECTIVE AS OF DECEMBER 18, 1998)
SECTION 1
PURPOSE
This Pegasus Communications Restricted Stock Plan is intended
to provide a means whereby PCC may, through the grant of COMMON STOCK subject to
vesting requirements to employees of Pegasus, attract and retain such
individuals and motivate them to exercise their best efforts on behalf of
Pegasus. WITH RESPECT TO DISCRETIONARY AWARDS AND PROFIT SHARING AWARDS MADE
AFTER DECEMBER 31, 1998, A GRANTEE MAY ELECT TO RECEIVE AN OPTION IN LIEU OF ALL
OR ANY PART OF A GRANT OF COMMON STOCK SUBJECT TO VESTING REQUIREMENTS. With
respect to Discretionary Awards made on or after April 23, 1999, an Officer may
elect to receive cash or an Option to purchase Common Stock in lieu of all or
any part of a grant of Common Stock subject to vesting requirements.
SECTION 2
DEFINITIONS
Whenever the following terms are used in this Plan, they shall
have the meanings specified below, unless the context clearly indicates to the
contrary:
(a) "AWARDS" shall mean Special Recognition Awards,
Profit-Sharing Awards, Excess Awards and Discretionary Awards.
(b) "AWARD AGREEMENT" shall mean the written document
described in Section 13(C) evidencing Awards made pursuant to the Plan.
(c) "BOARD" shall mean the Board of Directors of PCC.
(d) "BUSINESS UNIT LOCATION CASH FLOW" shall mean income from
the business unit's operations before management fees, depreciation,
amortization (other than amortization of film contracts), and incentive
compensation (including contributions under the Plan and the Savings Plan).
(e) "CODE" shall mean, as applicable, the Internal Revenue
Code of 1986, as amended, or the Puerto Rico Internal Revenue Code of 1994, as
amended.
(f) "COMMITTEE" shall mean the administrator of the Plan with
respect to Special Recognition Awards and Discretionary Awards TO OFFICERS,
which shall be a committee of the Board or the Board, in accordance with Section
3(a).
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(g) "COMMON STOCK" shall mean the Class A common stock of PCC.
(h) "COMPANY MATCHING CONTRIBUTIONS" shall have the meaning
set forth in Article I of the Savings Plan.
(i) "COMPANY-WIDE LOCATION CASH FLOW" shall mean income from
Pegasus operations before management fees, depreciation, amortization (other
than amortization of film contracts), and incentive compensation (including
contributions under the Plan and the Savings Plan).
(j) "DISABILITY" shall have the meaning set forth in Article I
of the Savings Plan.
(k) "DISCRETIONARY AWARDS" shall mean the discretionary awards
described in Section 6(d).
(l) "EXCESS AWARDS" shall mean the formula awards described in
Section 6(c).
(m) "FAIR MARKET VALUE" shall mean the closing price of the
Common Stock on a registered securities exchange or on an over-the-counter
market on the last business day prior to the date of grant on which Common Stock
traded.
(n) "GRANTEE" shall mean an individual who has received an
Award under the Plan.
(o) "ISO" SHALL MEAN AN OPTION WHICH, AT THE TIME SUCH OPTION
IS GRANTED, QUALIFIES AS AN INCENTIVE STOCK OPTION WITHIN THE MEANING OF SECTION
422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND WHICH IS DESIGNATED AS
AN ISO IN THE AWARD AGREEMENT.
(p) "MANAGEMENT COMMITTEE" shall mean the committee authorized
by the Board to administer the Plan with respect to all Awards other than
Special Recognition Awards and Discretionary Awards TO OFFICERS.
(q) "NQSO" SHALL MEAN AN OPTION WHICH, AT THE TIME SUCH OPTION
IS GRANTED, DOES NOT MEET THE DEFINITION OF AN ISO, WHETHER OR NOT IT IS
DESIGNATED AS AN NQSO IN THE AWARD AGREEMENT.
(r) "OFFICERS" shall mean employees who are officers, within
the meaning of Rule 16a-1(f) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any successor thereto.
(s) "OPTION" SHALL MEAN AN ISO OR AN NQSO GRANTED TO AN
EMPLOYEE IN LIEU OF COMMON STOCK SUBJECT TO A VESTING SCHEDULE, PURSUANT TO THE
EMPLOYEE'S ELECTION UNDER SECTION 8(A).
(t) "PCC" shall mean Pegasus Communications Corporation.
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(U) "PEGASUS" shall mean Pegasus Communications Holdings, Inc.
and its direct and indirect subsidiaries, whether in corporate, partnership or
any other form.
(V) "PLAN" shall mean the Pegasus Communications Restricted
Stock Plan, as set forth in this document and as it may be amended from time to
time.
(W) "PLAN ADMINISTRATOR" shall mean -
(1) With respect to Special Recognition Awards and
Discretionary Awards TO OFFICERS, the Committee; and
(2) With respect to all other Awards, the Management
Committee.
(X) "PROFIT-SHARING AWARDS" shall mean the formula awards
described in Section 6(b).
(Y) "ROLLOVER MATCHING CONTRIBUTIONS" shall have the meaning
set forth in Article I of the Savings Plan.
(Z) "SALARY" shall have the meaning set forth in Article I of
the Savings Plan.
(AA) "SAVINGS PLAN" shall mean, as applicable, the Pegasus
Communications Savings Plan, effective January 1, 1996, and as it may be amended
from time to time, or the Pegasus Communications Puerto Rico Savings Plan,
effective October 1, 1996, and as it may be amended from time to time.
(BB) "SPECIAL RECOGNITION AWARDS" shall mean the
awards described in Section 6(a).
(cc) "YEAR OVER YEAR INCREASE IN BUSINESS UNIT LOCATION CASH
FLOW" shall mean, with respect to any year, the excess of the Business Unit
Location Cash Flow for such year over the Business Unit Location Cash Flow for
the preceding year, determined on a pro forma basis by the Board or a committee
thereof. For purposes of determining the excess of the Business Unit Location
Cash Flow in the first calendar year in which a business unit becomes a business
unit of Pegasus ("Year 1") over the Business Unit Location Cash Flow for the
preceding year ("Year 0"), the Business Unit Location Cash Flow attributable to
the period in Year 1 during which the business unit was a business unit of
Pegasus shall be compared to the business unit's income -- before management
fees, depreciation, amortization (other than amortization of film contracts),
and incentive compensation (including contributions under any qualified or
nonqualified plan) -- from non-Pegasus operations during the same period in Year
0. For purposes of determining the excess of the Business Unit Location Cash
Flow for the succeeding year ("Year 2") over the Business Unit Location Cash
Flow for Year 1, the Business Unit Location Cash Flow attributable to the period
in Year 1 during which the business unit was a business unit of Pegasus shall be
compared to the Business Unit Location Cash Flow during the same period in Year
2.
(DD) "YEAR OVER YEAR INCREASE IN COMPANY-WIDE LOCATION CASH
FLOW" shall have the meaning set forth in Article I of the Savings Plan.
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(EE) "YEARS OF VESTING SERVICE" shall have the meaning set
forth in Article I of the Savings Plan; PROVIDED, HOWEVER, THAT A GRANTEE SHALL
NOT COMPLETE A YEAR OF VESTING SERVICE FOR PURPOSES OF THIS PLAN UNTIL THE LAST
DAY OF THE 12-MONTH COMPUTATION PERIOD IN WHICH SUCH YEAR IS BEING MEASURED.
SECTION 3
ADMINISTRATION
The Plan shall be administered as follows:
(a) SPECIAL RECOGNITION AWARDS AND DISCRETIONARY AWARDS TO
OFFICERS. With respect to Special Recognition Awards and Discretionary Awards TO
OFFICERS, the Plan shall be administered:
(1) By a committee, which shall consist SOLELY of not
fewer than two directors of PCC who shall be appointed by, and shall
serve at the pleasure of, the Board, TAKING INTO CONSIDERATION THE
RULES UNDER SECTION 16(B) OF THE EXCHANGE ACT AND THE REQUIREMENTS OF
SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED; or
(2) In the event a committee has not been established
in accordance with paragraph 1, by the entire Board;
provided, however, that a member of the Board shall not participate in a vote
approving an Award to himself or herself to the extent provided under the laws
of the State of Delaware governing corporate self-dealing. The Plan
Administrator with respect to Special Recognition Awards and Discretionary
Awards TO OFFICERS shall hereinafter be referred to as the "Committee." Each
member of the Committee, while serving as such, shall be deemed to be acting in
his capacity as a director of PCC.
The Committee shall have full authority, upon consideration of
recommendations by the Management Committee and subject to the terms of the
Plan, to select the Officers to be granted Special Recognition Awards AND
DISCRETIONARY AWARDS under the Plan, to grant Special Recognition Awards and
Discretionary Awards to OFFICERS on behalf of PCC, and to set the date of grant
and the other terms of such Awards. THE COMMITTEE SHALL ALSO HAVE FULL AUTHORITY
TO MAKE CERTAIN DETERMINATIONS WITH RESPECT TO AN OPTION GRANTED PURSUANT TO AN
OFFICER'S ELECTION, AS DESCRIBED IN SECTION 8.
(b) ALL OTHER AWARDS. With respect to all Awards other than
Special Recognition Awards and Discretionary Awards TO OFFICERS, the Plan shall
be administered by the Management Committee. With respect to Special Recognition
Awards AND DISCRETIONARY AWARDS to employees who are not Officers, the
Management Committee shall have full authority, subject to the terms of the
Plan, to select the employees to be granted SUCH Awards under the Plan, to grant
SUCH Awards on behalf of PCC, and to set the date of grant and the other terms
of such Awards. THE MANAGEMENT
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COMMITTEE SHALL ALSO HAVE FULL AUTHORITY TO MAKE CERTAIN DETERMINATIONS WITH
RESPECT TO AN OPTION GRANTED PURSUANT TO THE ELECTION OF AN EMPLOYEE WHO IS NOT
AN OFFICER, AS DESCRIBED IN SECTION 8.
The terms and conditions of Profit-Sharing Awards and Excess
Awards are intended to be fixed in advance. Consequently, Profit-Sharing Awards
and Excess Awards shall be as set forth in Sections 6(b) and 6(c), respectively,
of the Plan, and the Management Committee shall not have any discretionary
authority with respect thereto, EXCEPT AS PROVIDED IN SECTION 8 (REGARDING
OPTIONS).
(c) IN GENERAL. The Plan Administrator may correct any defect,
supply any omission and reconcile any inconsistency in the Plan and in any Award
granted hereunder to the extent it shall deem desirable. The Plan Administrator
also shall have the authority to establish such rules and regulations, not
inconsistent with the provisions of the Plan, for the proper administration of
the Plan, and to amend, modify, or rescind any such rules and regulations, and
to make such determinations, and interpretations under, or in connection with,
the Plan, as it deems necessary or advisable. All such rules, regulations,
determinations, and interpretations shall be binding and conclusive upon PCC,
its stockholders and all employees, and upon their respective legal
representatives, beneficiaries, successors, and assigns and upon all other
persons claiming under or through any of them.
No member of the Board, the Committee or the Management
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Award granted under it.
SECTION 4
ELIGIBILITY
More than one Award may be granted to an employee who is
eligible to receive an Award under the Plan. Employees shall be eligible to
receive Awards as follows:
(a) SPECIAL RECOGNITION AWARDS. All employees of Pegasus
shall be eligible to receive Special Recognition Awards.
(b) PROFIT-SHARING AWARDS. A General Manager, Department
Manager or Corporate Manager shall be eligible to receive a Profit-Sharing Award
with respect to a year if:
(1) He is not an Officer on the date the Award is
made; and
(2) He is employed by Pegasus as a Manager on:
(A) June 30 of the year for which the
Profit-Sharing Award is made; and
(B) The date the Profit-Sharing Award is
made.
(c) EXCESS AWARDS. A Participant in the Savings Plan shall be
eligible to receive an Excess Award if contributions on his behalf under the
Savings Plan are limited by certain limitations
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imposed by the Code, as described in Section 6(c), and he is employed by Pegasus
on the date the Excess Award is made.
(d) DISCRETIONARY AWARDS. All employees of Pegasus shall be
eligible to receive Discretionary Awards.
Special Recognition Awards and Profit-Sharing Awards shall be
made as soon as practicable after the financial information necessary for
determining the amount of the Award is available (absent extraordinary
circumstances, on or before the March 31 following the year for which the Award
is made). Excess Awards shall be made as soon as practicable after the
availability of the information required to determine whether contributions
under the Savings Plan on behalf of a Participant with respect to a year are
limited (absent extraordinary circumstances, on or before the March 15 following
the Savings Plan year for which such contribution is limited).
SECTION 5
STOCK
The number of shares of Common Stock that may be subject to
Awards under the Plan shall be 350,000 shares, subject to adjustment as
hereinafter provided. Common Stock issuable under the Plan may be authorized but
unissued shares or reacquired shares, and PCC may purchase shares required for
this purpose, from time to time, if it deems such purchase to be advisable.
Any Common Stock subject to an Award which is forfeited shall
continue to be available for the granting of Awards under the Plan.
SECTION 6
AMOUNT OF AWARD
(a) SPECIAL RECOGNITION AWARDS. The Plan Administrator, in its
sole discretion, shall determine the amount of the annual Special Recognition
Award, if any, to be made on behalf of an eligible employee described in Section
4(a); provided, however, that the Fair Market Value of the Common Stock covered
by the annual Special Recognition Awards for any year to all employees in the
aggregate, determined as of the date the Awards are granted, shall not exceed
the sum of (1) five percent of the Year Over Year Increase in Company-Wide
Location Cash Flow, plus (2) the Year Over Year Increase in Company-Wide
Location Cash Flow which could have been awarded as a Special Recognition Award
in the preceding year, and was not. Special Recognition Awards may be granted
for consistency (awarded to a team of employees), initiative (a team or
individual award), problem solving (a team or individual award), and individual
excellence.
(b) PROFIT-SHARING AWARDS. An annual Profit-Sharing Award of
Common Stock shall be made to each eligible employee described in Section 4(b).
EXCEPT AS PROVIDED IN SECTION 8(C), THE number of shares of Common Stock covered
by an annual Profit-Sharing Award shall be determined as follows --
(1) GENERAL MANAGERS. The number of shares of Common
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Stock covered by the annual Profit-Sharing Award to each eligible
employee who is a General Manager shall equal the quotient of (A) six
percent of the Year Over Year Increase in Business Unit Location Cash
Flow of the General Manager's business unit, divided by (B) the Fair
Market Value of a share of Common Stock.
(2) DEPARTMENT MANAGERS. The number of shares of
Common Stock covered by an annual Profit-Sharing Award to Department
Managers in a business unit in the aggregate shall equal the quotient
of (A) six percent of the Year Over Year Increase in Business Unit
Location Cash Flow of the Department Manager's business unit, divided
by (B) the Fair Market Value of a share of Common Stock. Such shares
shall be allocated, per capita, to each eligible employee who is a
Department Manager in the business unit; provided, however, that the
shares allocated to any Department Manager pursuant to an annual
Profit-Sharing Award shall not exceed the shares that would have been
allocated to the Department Manager if all Department Manager positions
in the business unit were filled on June 30 of the year for which the
Profit-Sharing Award is being made and the date the Profit-Sharing
Award is made. Any shares that may not be allocated on account of the
limitation set forth in the previous sentence shall not be subject to
the annual Profit-Sharing Award for the year in which such limitation
applies.
(3) CORPORATE MANAGERS. The number of shares of
Common Stock covered by an annual Profit-Sharing Award to eligible
employees who are Corporate Managers in the aggregate shall equal the
quotient of (A) three percent of the Year Over Year Increase in
Company-Wide Location Cash Flow, divided by (B) the Fair Market Value
of a share of Common Stock. Such shares shall be allocated to each
eligible employee who is a Corporate Manager in the same proportion
that such Corporate Manager's Salary for such year bears to the total
Salary of all Corporate Managers entitled to a Profit-Sharing Award for
such year.
(c) EXCESS AWARDS. The number of shares of Common Stock
covered by an Excess Award made on behalf of an eligible employee described in
Section 4(c) with respect to any year shall equal the quotient of --
(1) The sum of --
(A) Company Matching Contributions which
were not contributed to the Savings Plan on the eligible
employee's behalf for such year because of any Code provision
that limits such contributions, plus
(B) Rollover Matching Contributions which
were not contributed to the Savings Plan on the eligible
employee's behalf for such year because of any Code provision
that limits such contributions; divided by
(2) The Fair Market Value of a share of Common Stock.
(d) DISCRETIONARY AWARDS. The PLAN ADMINISTRATOR, in its sole
discretion, shall determine the amount of the Discretionary Award, if any, to be
made on behalf of an eligible employee described in Section 4(d). Discretionary
Awards granted after December 31, 1998 shall be payable in Common Stock subject
to vesting requirements or, to the extent elected by the Grantee under Section
8(a), in the form of an Option. Effective with respect to Discretionary Awards
granted to an Officer on or after April 23, 1999, the Officer may elect, before
the date of grant and in accordance with procedures established by the Plan
Administrator or its delegate, to receive such an Award in the form of (i)
Common Stock subject to vesting requirements, (ii) an Option described in
Section 8, (iii) cash, or (iv) in any combination of the foregoing; provided,
however, that the amount of cash payable under a Discretionary Award shall not
exceed 33-1/3% of the Officer's base salary for the year in which the
Discretionary Award is made. The Officer's vesting percentage under Section 7
shall be applied to the portions of the Discretionary Award payable in the form
of an Option and Common Stock, but not to the portion of the Discretionary Award
payable in cash. Any cash payable pursuant to such an election shall be payable
as soon as practicable after the Discretionary Award is made.
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SECTION 7
VESTING
(a) SPECIAL RECOGNITION AWARDS. A Grantee shall be 100% vested
in a Special Recognition Award made on or after April 30, 1998 on the date such
Award is made. A Grantee shall be 100% vested in a Special Recognition Award
made before April 30, 1998 on April 30, 1998 to the extent such Award has not
been forfeited or become fully vested prior to April 30, 1998.
(b) AWARDS OTHER THAN SPECIAL RECOGNITION AWARDS.
(1) DEATH, DISABILITY. A Grantee shall be 100%
vested in his Profit-Sharing Awards, Excess Awards and Discretionary
Awards under the Plan when he --
(A) Incurs a Disability; or
(B) Dies.
(2) VESTING SCHEDULE. Except as otherwise provided in
paragraph (1), a Grantee shall be 100% vested in his Profit-Sharing
Awards, Excess Awards and Discretionary Awards under the Plan in
accordance with the following schedule --
Percentage of Shares
Subject to Awards
Years of Vesting Service That Are 100% Vested
------------------------ --------------------
Fewer than 2 0
2 but fewer than 3 34
3 but fewer than 4 67
4 or more 100
Notwithstanding the foregoing, (A) an Officer shall be 100%
vested in any portion of his Disretionary Awards that is payable in cash, and
(B) the Plan Administrator may accelerate the vesting of an Award when granted
or at any time thereafter, in its discretion, if it deems such acceleration to
be desirable.
(c) FORFEITURE. Any shares of Common Stock covered by a
Grantee's Awards that are not vested pursuant to subsection (a) or subsection
(b) shall be immediately forfeited upon the Grantee's voluntary or involuntary
termination of employment by Pegasus.
SECTION 8
ELECTION TO RECEIVE OPTION IN LIEU OF COMMON STOCK SUBJECT
TO VESTING REQUIREMENTS
(A) ELECTION. AN EMPLOYEE MAY ELECT TO RECEIVE ALL OR ANY
PORTION OF A DISCRETIONARY AWARD AND/OR PROFIT-SHARING AWARD GRANTED AFTER
DECEMBER 31, 1998 IN THE FORM OF AN OPTION DESCRIBED IN THIS SECTION 8 IN LIEU
OF COMMON STOCK SUBJECT TO VESTING REQUIREMENTS. SUCH AN ELECTION SHALL BE MADE
BEFORE THE DATE OF GRANT IN ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE PLAN
ADMINISTRATOR OR ITS DELEGATE. IN NO EVENT, HOWEVER, MAY AN EMPLOYEE ELECT TO
RECEIVE OPTIONS FOR MORE THAN 50,000 SHARES OF COMMON STOCK (AS ADJUSTED
PURSUANT TO SECTION 9) UNDER THIS SECTION 8 IN ANY CALENDAR YEAR. IF AN OPTION
IS CANCELLED, THE SHARES OF COMMON STOCK COVERED BY THE CANCELLED OPTION SHALL
BE COUNTED AGAINST THE MAXIMUM NUMBER OF SHARES FOR WHICH OPTIONS MAY BE GRANTED
TO A SINGLE EMPLOYEE.
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(B) DATE OF GRANT. THE DATE OF GRANT FOR AN OPTION GRANTED
PURSUANT TO A GRANTEE'S ELECTION UNDER SECTION 8(A) SHALL BE THE DATE SUCH AWARD
WOULD HAVE BEEN MADE UNDER SECTION 4 ABSENT SUCH AN ELECTION.
(C) NUMBER OF SHARES SUBJECT TO OPTION. THE NUMBER OF SHARES
OF COMMON STOCK SUBJECT TO AN OPTION GRANTED PURSUANT TO A GRANTEE'S ELECTION
UNDER SECTION 8(A) SHALL BE EQUAL TO THE TOTAL NUMBER OF SHARES OF COMMON STOCK
WHICH WOULD HAVE BEEN COVERED BY THE GRANTEE'S AWARD (DETERMINED PURSUANT TO
SECTION 6(B) OR (D), AS APPLICABLE) WITHOUT GIVING EFFECT TO ANY ELECTION TO
RECEIVE THE AWARD IN A FORM OTHER THAN COMMON STOCK SUBJECT TO VESTING
REQUIREMENTS, MULTIPLIED BY (I) THE PERCENTAGE OF THE AWARD THE GRANTEE HAS
ELECTED TO HAVE PAID IN THE FORM OF AN OPTION, AND (II) A CONVERSION FACTOR. THE
CONVERSION FACTOR SHALL BE DETERMINED PURSUANT TO A VALUATION FORMULA
ESTABLISHED BY THE PLAN ADMINISTRATOR OR ITS DELEGATE.
(D) TYPE OF OPTION. EACH OPTION GRANTED UNDER THIS SECTION 8
SHALL, UNLESS THE CODE OTHERWISE REQUIRES OR THE PLAN ADMINISTRATOR OTHERWISE
DETERMINES, BE AN ISO, PROVIDED SHAREHOLDER APPROVAL OF THE PLAN (AS AMENDED AND
RESTATED) IS OBTAINED WITHIN 12 MONTHS AFTER DECEMBER 18, 1998. THE AGGREGATE
FAIR MARKET VALUE OF THE COMMON STOCK WITH RESPECT TO WHICH ISOS ARE EXERCISABLE
FOR THE FIRST TIME BY AN EMPLOYEE DURING ANY CALENDAR YEAR (COUNTING ISOS UNDER
THIS PLAN AND INCENTIVE STOCK OPTIONS UNDER ANY STOCK OPTION PLAN OF PEGASUS)
SHALL NOT EXCEED $100,000. IF AN OPTION INTENDED AS AN ISO IS GRANTED TO AN
EMPLOYEE AND THE OPTION MAY NOT BE TREATED IN WHOLE OR IN PART AS AN ISO
PURSUANT TO THE $100,000 LIMITATION, THE OPTION SHALL BE TREATED AS AN ISO TO
THE EXTENT IT MAY BE SO TREATED UNDER THE LIMITATION AND AS AN NQSO AS TO THE
REMAINDER. FOR PURPOSES OF DETERMINING WHETHER AN ISO WOULD CAUSE THE LIMITATION
TO BE EXCEEDED, ISOS SHALL BE TAKEN INTO ACCOUNT IN THE ORDER GRANTED. THE
ANNUAL LIMITS SET FORTH ABOVE FOR ISOS SHALL NOT APPLY TO NQSOS.
(E) TERMS AND CONDITIONS OF OPTIONS. OPTIONS GRANTED UNDER
THIS SECTION 8 IN LIEU OF COMMON STOCK SUBJECT TO VESTING REQUIREMENTS SHALL
INCLUDE EXPRESSLY OR BY REFERENCE THE FOLLOWING TERMS AND CONDITIONS --
(1) NUMBER OF SHARES. THE OPTION SHALL STATE THE
NUMBER OF SHARES OF COMMON STOCK TO WHICH THE OPTION PERTAINS.
(2) PRICE. THE OPTION PRICE OF EACH OPTION GRANTED
UNDER THIS SECTION 8 SHALL BE THE HIGHER OF 100 PERCENT (110 PERCENT IN
THE CASE OF AN ISO GRANTED TO A MORE-THAN-10-PERCENT SHAREHOLDER, AS
PROVIDED IN SECTION 8(E)(10)) OF THE FAIR MARKET VALUE OF THE OPTIONED
SHARES OF COMMON STOCK, OR THE PAR VALUE THEREOF.
(3) TERM. SUBJECT TO EARLIER TERMINATION AS PROVIDED
IN SECTION 8(E)(5), (6) AND (7) AND IN SECTION 9 HEREOF, THE TERM OF
EACH OPTION GRANTED UNDER THIS SECTION 8 SHALL BE TEN YEARS (FIVE YEARS
IN THE CASE OF AN ISO GRANTED TO A MORE-THAN-TEN-PERCENT SHAREHOLDER,
AS DISCUSSED IN SECTION 8(E)(10)) FROM THE DATE OF GRANT, OR SUCH
LESSER TERM AS THE PLAN ADMINISTRATOR, IN ITS SOLE DISCRETION, SHALL
PERMIT THE GRANTEE TO ELECT ON OR BEFORE THE DATE OF GRANT.
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(4) EXERCISE. EACH OPTION GRANTED UNDER THIS SECTION
8 SHALL BECOME EXERCISABLE IN ACCORDANCE WITH THE FOLLOWING SCHEDULE:
PERCENTAGE OF SHARES SUBJECT
YEARS OF VESTING SERVICE TO OPTION THAT ARE EXERCISABLE
FEWER THAN 2 0
2 BUT FEWER THAN 3 34%
3 BUT FEWER THAN 4 AN ADDITIONAL 33%
4 OR MORE AN ADDITIONAL 33%
IF THE GRANTEE HAS COMPLETED FOUR OR MORE YEARS OF VESTING SERVICE ON
THE DATE OF GRANT, THE OPTION SHALL BE FULLY EXERCISABLE ON THE DATE OF
GRANT.
NOTWITHSTANDING THE FOREGOING, AN OPTION GRANTED
UNDER THIS SECTION 8 SHALL BECOME FULLY EXERCISABLE UPON THE GRANTEE'S
DEATH OR DISABILITY WHILE IN THE EMPLOY OF PEGASUS. IN ADDITION, THE
PLAN ADMINISTRATOR MAY ACCELERATE THE EXERCISE DATE OF ANY OPTION WHEN
GRANTED OR AT ANY TIME THEREAFTER, IN ITS DISCRETION, IF IT DEEMS SUCH
ACCELERATION TO BE DESIRABLE.
ANY EXERCISABLE OPTIONS MAY BE EXERCISED AT ANY TIME
UP TO THE EXPIRATION OR TERMINATION OF THE OPTION. EXERCISABLE OPTIONS
MAY BE EXERCISED, IN WHOLE OR IN PART AND FROM TIME TO TIME, BY GIVING
WRITTEN NOTICE OF EXERCISE TO PEGASUS AT ITS PRINCIPAL OFFICE,
SPECIFYING THE NUMBER OF SHARES TO BE PURCHASED AND ACCOMPANIED BY
PAYMENT IN FULL OF THE AGGREGATE OPTION EXERCISE PRICE FOR SUCH SHARES
(OR PAYMENT AS SOON AS PRACTICABLE AFTER THE EXERCISE, IN THE CASE OF
AN EXERCISE ARRANGEMENT DESCRIBED IN PARAGRAPH (C) BELOW). ONLY FULL
SHARES SHALL BE ISSUED UNDER THE PLAN, AND ANY FRACTIONAL SHARE WHICH
MIGHT OTHERWISE BE ISSUABLE UPON EXERCISE OF AN OPTION GRANTED
HEREUNDER SHALL BE FORFEITED.
THE OPTION PRICE SHALL BE PAYABLE --
(A) IN CASH OR ITS EQUIVALENT;
(B) IN SHARES OF COMMON STOCK PREVIOUSLY
ACQUIRED BY THE GRANTEE; PROVIDED THAT (I) IF SUCH SHARES OF
COMMON STOCK WERE ACQUIRED THROUGH THE EXERCISE OF AN ISO AND
ARE USED TO PAY THE OPTION PRICE FOR AN ISO, SUCH SHARES HAVE
BEEN HELD BY THE GRANTEE FOR A PERIOD OF NOT LESS THAN THE
HOLDING PERIOD DESCRIBED IN SECTION 422(A)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED ON THE DATE OF EXERCISE, (II)
IF SUCH SHARES OF COMMON STOCK WERE ACQUIRED THROUGH THE
EXERCISE OF AN NQSO (AND ARE USED TO PAY THE OPTION PRICE FOR
AN ISO OR AN NQSO) OR ACQUIRED THROUGH THE EXERCISE OF AN ISO
(AND ARE USED TO PAY THE OPTION PRICE FOR AN NQSO), SUCH
SHARES HAVE BEEN HELD BY THE GRANTEE FOR A PERIOD OF NOT LESS
THAN SIX MONTHS ON THE DATE OF EXERCISE, AND (III) IF SUCH
SHARES OF COMMON STOCK WERE ACQUIRED THROUGH THE VESTING OF A
RESTRICTED STOCK AWARD, SUCH SHARES SHALL HAVE VESTED IN THE
GRANTEE AT LEAST SIX MONTHS PRIOR TO THE DATE OF EXERCISE;
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(C) BY DELIVERING A PROPERLY EXECUTED NOTICE
OF EXERCISE OF THE OPTION TO PEGASUS AND A BROKER, WITH
IRREVOCABLE INSTRUCTIONS TO THE BROKER PROMPTLY TO DELIVER TO
PEGASUS THE AMOUNT OF SALE OR LOAN PROCEEDS NECESSARY TO PAY
THE EXERCISE PRICE OF THE OPTION; OR
(D) IN ANY COMBINATION OF (A), (B) AND (C)
ABOVE.
IN THE EVENT THE OPTION PRICE IS PAID, IN
WHOLE OR IN PART, WITH SHARES OF COMMON STOCK, THE PORTION OF
THE OPTION PRICE SO PAID SHALL BE EQUAL TO THE AGGREGATE FAIR
MARKET VALUE (DETERMINED UNDER SECTION 2(M), WITH REFERENCE TO
THE DATE OF EXERCISE OF THE OPTION, RATHER THAN THE DATE OF
GRANT) OF THE COMMON STOCK SO SURRENDERED IN PAYMENT OF THE
OPTION PRICE.
(5) TERMINATION OF EMPLOYMENT. IF A GRANTEE'S
EMPLOYMENT BY PEGASUS IS TERMINATED BY EITHER PARTY PRIOR TO THE
EXPIRATION DATE FIXED FOR HIS OPTION FOR ANY REASON OTHER THAN DEATH OR
DISABILITY, SUCH OPTION MAY BE EXERCISED, TO THE EXTENT OF THE NUMBER
OF SHARES WITH RESPECT TO WHICH THE GRANTEE COULD HAVE EXERCISED IT ON
THE DATE OF SUCH TERMINATION, BY THE GRANTEE ANY TIME PRIOR TO THE
EARLIEST OF (I) THE EXPIRATION DATE SPECIFIED IN SUCH OPTION, (II)
THREE MONTHS AFTER SUCH TERMINATION OF EMPLOYMENT, OR (III) TERMINATION
OF SUCH OPTION UNDER SECTION 9.
(6) EXERCISE UPON DISABILITY OF GRANTEE. IF A GRANTEE
BECOMES DISABLED DURING HIS EMPLOYMENT AND PRIOR TO THE EXPIRATION DATE
FIXED FOR HIS OPTION, SUCH OPTION MAY BE EXERCISED, TO THE EXTENT OF
THE NUMBER OF SHARES WITH RESPECT TO WHICH THE GRANTEE COULD HAVE
EXERCISED IT ON THE DATE OF SUCH TERMINATION BY THE GRANTEE AT ANY TIME
PRIOR TO THE EARLIEST OF (I) THE EXPIRATION DATE SPECIFIED IN SUCH
OPTION, (II) ONE YEAR AFTER SUCH TERMINATION OF EMPLOYMENT, OR (III)
TERMINATION OF SUCH OPTION UNDER SECTION 9. IN THE EVENT OF THE
GRANTEE'S LEGAL DISABILITY, SUCH OPTION MAY BE EXERCISED BY THE
GRANTEE'S LEGAL REPRESENTATIVE.
(7) EXERCISE UPON DEATH OF GRANTEE. IF A GRANTEE DIES
DURING HIS EMPLOYMENT, AND PRIOR TO THE EXPIRATION DATE FIXED FOR HIS
OPTION, OR IF A GRANTEE WHOSE EMPLOYMENT IS TERMINATED FOR ANY REASON,
DIES FOLLOWING HIS TERMINATION OF EMPLOYMENT BUT PRIOR TO THE EARLIEST
OF (A) THE EXPIRATION DATE FIXED FOR HIS OPTION, (B) THE EXPIRATION OF
THE PERIOD DETERMINED UNDER PARAGRAPHS (5) AND (6) ABOVE, OR (C) IN THE
CASE OF AN ISO, THREE MONTHS FOLLOWING TERMINATION OF EMPLOYMENT, SUCH
OPTION MAY BE EXERCISED, TO THE EXTENT OF THE NUMBER OF SHARES WITH
RESPECT TO WHICH THE GRANTEE COULD HAVE EXERCISED IT ON THE DATE OF HIS
DEATH, BY THE GRANTEE'S ESTATE, PERSONAL REPRESENTATIVE OR BENEFICIARY
WHO ACQUIRED THE RIGHT TO EXERCISE SUCH OPTION BY BEQUEST OR
INHERITANCE OR BY REASON OF THE DEATH OF THE GRANTEE. SUCH POST-DEATH
EXERCISE MAY OCCUR AT ANY TIME PRIOR TO THE EARLIEST OF (I) THE
EXPIRATION DATE SPECIFIED IN SUCH OPTION, (II) ONE YEAR AFTER THE DATE
OF DEATH, OR (III) TERMINATION OF SUCH OPTION UNDER SECTION 9.
(8) NON-TRANSFERABILITY. NO OPTION GRANTED UNDER THIS
SECTION 8 SHALL BE ASSIGNABLE OR TRANSFERABLE BY THE GRANTEE OTHER THAN
BY WILL OR BY THE LAWS OF DESCENT AND DISTRIBUTION. DURING THE LIFETIME
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OF THE GRANTEE, ALL OPTIONS GRANTED UNDER THIS SECTION 8 SHALL BE
EXERCISABLE ONLY BY THE GRANTEE, OR, IN THE EVENT OF THE GRANTEE'S
LEGAL DISABILITY, BY THE GRANTEE'S GUARDIAN OR LEGAL REPRESENTATIVE. IF
THE GRANTEE IS MARRIED AT THE TIME OF EXERCISE AND IF THE GRANTEE SO
REQUESTS AT THE TIME OF EXERCISE, THE CERTIFICATE OR CERTIFICATES SHALL
BE REGISTERED IN THE NAME OF THE GRANTEE AND THE GRANTEE'S SPOUSE,
JOINTLY, WITH RIGHT OF SURVIVORSHIP.
(9) WITHHOLDING AND USE OF SHARES TO SATISFY TAX
OBLIGATIONS. THE OBLIGATION OF PCC TO DELIVER SHARES OF COMMON STOCK
UPON THE EXERCISE OF ANY OPTION SHALL BE SUBJECT TO APPLICABLE FEDERAL,
STATE AND LOCAL TAX WITHHOLDING REQUIREMENTS. IF THE EXERCISE OF ANY
OPTION GRANTED UNDER THIS SECTION 8 IS SUBJECT TO THE WITHHOLDING
REQUIREMENTS OF APPLICABLE FEDERAL TAX LAW, THE GRANTEE MAY SATISFY THE
FEDERAL, STATE AND LOCAL WITHHOLDING TAX, IN WHOLE OR IN PART, BY
ELECTING TO HAVE PCC WITHHOLD SHARES OF COMMON STOCK SUBJECT TO THE
EXERCISE (OR BY RETURNING PREVIOUSLY ACQUIRED SHARES OF COMMON STOCK TO
PCC). PCC MAY NOT WITHHOLD SHARES IN EXCESS OF THE NUMBER NECESSARY TO
SATISFY THE MINIMUM FEDERAL, STATE AND LOCAL TAX WITHHOLDING
REQUIREMENTS. SHARES OF COMMON STOCK SHALL BE VALUED, FOR PURPOSES OF
THIS PARAGRAPH, AT THEIR FAIR MARKET VALUE DETERMINED UNDER SECTION
2(M), WITH REFERENCE TO THE DATE THE AMOUNT ATTRIBUTABLE TO THE
EXERCISE OF THE OPTION IS INCLUDABLE IN INCOME BY THE GRANTEE UNDER THE
CODE (THE "DETERMINATION DATE"), RATHER THAN THE DATE OF GRANT.
IF SHARES OF COMMON STOCK ACQUIRED BY THE EXERCISE OF
AN ISO ARE USED TO SATISFY THE WITHHOLDING REQUIREMENT DESCRIBED ABOVE,
SUCH SHARES OF COMMON STOCK MUST HAVE BEEN HELD BY THE GRANTEE FOR A
PERIOD OF NOT LESS THAN THE HOLDING PERIOD DESCRIBED IN SECTION
422(A)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AS OF THE
DETERMINATION DATE.
The Plan Administrator shall adopt such withholding
rules as it deems necessary to carry out the provisions of this
paragraph.
(10) TEN PERCENT SHAREHOLDER. IF AN EMPLOYEE OWNS
MORE THAN TEN PERCENT OF THE TOTAL COMBINED VOTING POWER OF ALL CLASSES
OF STOCK OF PCC OR OF ITS PARENT OR SUBSIDIARY CORPORATION AT THE TIME
AN ISO IS GRANTED TO HIM (TAKING INTO ACCOUNT THE ATTRIBUTION RULES OF
SECTION 424(D) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED), THE
OPTION PRICE FOR THE ISO SHALL BE 110 PERCENT OF THE FAIR MARKET VALUE
OF THE OPTIONED SHARES OF COMMON STOCK ON THE DATE THE ISO IS GRANTED,
AND SUCH ISO, BY ITS TERMS, SHALL NOT BE EXERCISABLE AFTER THE
EXPIRATION OF FIVE YEARS FROM THE DATE THE ISO IS GRANTED. THE
CONDITIONS SET FORTH IN THIS PARAGRAPH SHALL NOT APPLY TO NQSOS.
(F) APPLICATION OF FUNDS. THE PROCEEDS RECEIVED FROM THE SALE
OF COMMON STOCK PURSUANT TO OPTIONS GRANTED UNDER THE PLAN SHALL BE USED FOR
GENERAL CORPORATE PURPOSES. ANY CASH RECEIVED IN PAYMENT FOR SHARES UPON
EXERCISE OF AN OPTION SHALL BE ADDED TO THE GENERAL FUNDS OF PCC AND SHALL BE
USED FOR ITS CORPORATE PURPOSES. ANY COMMON STOCK RECEIVED IN PAYMENT FOR SHARES
UPON EXERCISE OF AN OPTION SHALL BECOME TREASURY STOCK.
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SECTION 8
CAPITAL ADJUSTMENTS
The number of shares which may be issued under the Plan, and
the number of shares of Common Stock issuable upon the vesting of outstanding
Awards shall, be adjusted, to reflect any stock dividend, stock split, share
combination, or similar change in the capitalization of PCC. THE MAXIMUM NUMBER
OF SHARES WITH RESPECT TO WHICH OPTIONS MAY BE GRANTED TO ANY EMPLOYEE IN ANY
CALENDAR YEAR (AS STATED IN SECTION 8(A)) AND the number of shares issuable UPON
EXERCISE OF OUTSTANDING OPTIONS UNDER THE PLAN (AS WELL AS THE OPTION PRICE PER
SHARE UNDER SUCH OUTSTANDING OPTIONS) SHALL BE ADJUSTED, AS MAY BE DEEMED
APPROPRIATE BY THE PLAN ADMINISTRATOR, TO REFLECT ANY STOCK DIVIDEND, STOCK
SPLIT, SPIN-OFF, SHARE COMBINATION, OR SIMILAR CHANGE IN THE CAPITALIZATION OF
PCC; PROVIDED, HOWEVER, THAT NO SUCH ADJUSTMENT SHALL BE MADE TO AN OUTSTANDING
ISO IF SUCH ADJUSTMENT WOULD CONSTITUTE A MODIFICATION UNDER SECTION 424(H) OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, UNLESS THE GRANTEE CONSENTS TO
SUCH ADJUSTMENT. IN THE EVENT ANY SUCH CHANGE IN CAPITALIZATION CANNOT BE
REFLECTED IN A STRAIGHT MATHEMATICAL ADJUSTMENT OF THE NUMBER OF SHARES ISSUABLE
UPON the vesting of outstanding Awards OR THE EXERCISE OF OUTSTANDING OPTIONS
(AS WELL AS THE OPTION PRICE), the Plan Administrator shall make such
adjustments as are appropriate to reflect most nearly such straight mathematical
adjustment. Such adjustments shall be made only as necessary to maintain the
proportionate interests of Grantees and preserve, without exceeding, the value
of Awards.
In the event of a corporate transaction (as that term is
described in section 424(a) of the Internal Revenue Code of 1986, as amended,
and the Treasury Regulations issued thereunder as, for example, a merger,
consolidation, acquisition of property or stock, separation, reorganization, or
liquidation), each outstanding Award shall be assumed by the surviving or
successor corporation; PROVIDED, HOWEVER, THAT, IN THE EVENT OF A PROPOSED
CORPORATE TRANSACTION, THE PLAN ADMINISTRATOR MAY TERMINATE ALL OR A PORTION OF
THE OUTSTANDING OPTIONS IF IT DETERMINES THAT SUCH TERMINATION IS IN THE BEST
INTERESTS OF PCC. IF THE PLAN ADMINISTRATOR DESIRES TO TERMINATE OUTSTANDING
OPTIONS, THE PLAN ADMINISTRATOR SHALL GIVE EACH OPTIONEE HOLDING AN OPTION TO BE
TERMINATED NOT LESS THAN SEVEN DAYS' NOTICE PRIOR TO ANY SUCH TERMINATION, AND
ANY OPTION WHICH IS TO BE SO TERMINATED MAY BE EXERCISED (IF AND ONLY TO THE
EXTENT THAT IT IS THEN EXERCISABLE) UP TO, AND INCLUDING THE DATE IMMEDIATELY
PRECEDING SUCH TERMINATION. FURTHER AS PROVIDED IN SECTION 8(E), THE PLAN
ADMINISTRATOR, IN ITS DISCRETION, MAY ACCELERATE, IN WHOLE OR IN PART, THE DATE
ON WHICH ANY OR ALL OPTIONS BECOME EXERCISABLE.
THE PLAN ADMINISTRATOR ALSO MAY, IN ITS DISCRETION CHANGE THE
TERMS OF ANY OUTSTANDING OPTION TO REFLECT ANY SUCH CORPORATE TRANSACTION,
PROVIDED THAT, IN THE CASE OF ISOS, SUCH CHANGE DOES NOT CONSTITUTE A
"MODIFICATION" UNDER SECTION 424(H) OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, UNLESS THE OPTION HOLDER CONSENTS TO THE CHANGE.
SECTION 10
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AMENDMENT OR DISCONTINUANCE OF THE PLAN
At any time and from time to time, the Board may suspend or
terminate the Plan or amend it, and the Plan Administrator may amend any
outstanding Awards, in any respect whatsoever, except that the following
amendments shall require the approval of shareholders:
(a) Any amendment which would increase the number of shares of
Common Stock authorized under the Plan;
(b) Any amendment for which shareholder approval is required
under the rules of an exchange or market on which Common Stock is listed.
(C) ANY AMENDMENT WHICH WOULD CHANGE THE CLASS OF EMPLOYEES
ELIGIBLE TO RECEIVE ISOS; AND
(D) ANY AMENDMENT REQUIRING SHAREHOLDER APPROVAL PURSUANT TO
TREAS. REG. SS.1.162-27(E)(4)(IV) OR ANY SUCCESSOR THERETO (TO THE EXTENT
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED,
IS DESIRED).
Notwithstanding the foregoing, no such suspension,
discontinuance or amendment shall materially impair the rights of any holder of
an outstanding Award without the consent of such holder.
The approval of shareholders must be (i) by A METHOD AND IN A
DEGREE THAT WOULD BE TREATED AS ADEQUATE UNDER APPLICABLE STATE LAW IN THE CASE
OF AN ACTION REQUIRING SHAREHOLDER APPROVAL (I.E., AN ACTION ON WHICH
SHAREHOLDERS WOULD BE entitled to vote IF THE ACTION WERE TAKEN AT A DULY HELD
SHAREHOLDERS' MEETING), or (ii) by a majority of the VOTES CAST at a duly held
SHAREHOLDERS' meeting AT WHICH A QUORUM REPRESENTING A MAJORITY OF ALL
OUTSTANDING VOTING STOCK IS, EITHER IN PERSON OR BY PROXY, PRESENT AND VOTING ON
THE PLAN.
SECTION 11
TERMINATION OF PLAN
Unless earlier terminated as provided in the Plan, the Plan
and all authority granted hereunder shall terminate absolutely at 12:00 midnight
on September 29, 2006, and no Awards hereunder shall be granted thereafter.
Nothing contained in this Section 11, however, shall terminate or affect the
continued existence of rights created under Awards issued hereunder and
outstanding on September 29, 2006 which by their terms extend beyond such date.
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SECTION 12
EFFECTIVE DATE
This Plan became effective on September 30, 1996 (the date the
Plan was adopted by the Board). As amended and restated, this Plan shall become
effective as of DECEMBER 18, 1998.
SECTION 13
MISCELLANEOUS
(a) ISSUANCE AND DELIVERY OF CERTIFICATES. THIS SECTION 13(A)
SHALL NOT APPLY TO THE PORTION OF ANY AWARD WITH RESPECT TO WHICH THE GRANTEE
HAS MADE AN ELECTION TO RECEIVE AN OPTION PURSUANT TO SECTION 8(A). Upon the
granting of an Award, (i) PCC shall issue certificates in the name of the
Grantee (or the Grantee and the Grantee's spouse -- see subsection (f))
representing the Common Stock subject to the Award. Any shares of Common Stock
in which the Grantee is not vested on the date the Award is granted shall bear a
legend indicating that they are subject to the terms of the Plan and the Award
Agreement and that they may not be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of except in accordance with the terms of the
Plan and the Award Agreement. Upon issuance of such certificates, the Grantee
shall immediately execute a stock power or other instrument of transfer,
appropriately endorsed in blank, to be held with the certificates by PCC
pursuant to the terms of the Plan and the Award Agreement with respect to shares
of Common Stock in which the Grantee is not vested on the date the Award is
granted. Only full shares shall be issued, and any fractional shares which might
otherwise be issuable pursuant to an Award shall be forfeited.
(b) RIGHTS AS A SHAREHOLDER. With respect to any shares of
Common Stock in which the Grantee is not vested on the date an Award is granted
(OTHER THAN SHARES FOR WHICH THE GRANTEE HAS MADE AN ELECTION PURSUANT TO
SECTION 8(A) TO RECEIVE AN OPTION), the Grantee shall be entitled to receive
dividends paid on such shares, shall have the right to vote such shares, and
shall have all other shareholder's rights with respect to such shares, except
that (i) the Grantee will not be entitled to delivery of the stock certificate,
(ii) PCC will retain custody of the Common Stock, and (iii) the shares subject
to Awards will revert to PCC in accordance with Section 7(c) to the extent not
vested on the Grantee's voluntary or involuntary termination of employment by
Pegasus.
WITH RESPECT TO THE PORTION OF ANY AWARD FOR WHICH THE GRANTEE
HAS MADE AN ELECTION UNDER SECTION 8(A), THE OPTION ISSUED PURSUANT THERETO
SHALL NOT ENTITLE THE HOLDER THEREOF TO ANY RIGHTS AS A STOCKHOLDER OF PCC PRIOR
TO THE EXERCISE OF SUCH OPTION AND THE ISSUANCE OF THE SHARES PURSUANT THERETO.
(c) AWARD AGREEMENT. Awards under the Plan shall be evidenced
by written documents in such form as the Plan Administrator shall, from time to
time, approve, which Award Agreements shall contain such provisions, not
inconsistent with the provisions of the Plan, as the Plan Administrator shall
deem advisable. Each Grantee shall enter into, and be bound by the terms of, the
Award Agreement.
(d) GOVERNING LAW. The Plan, and the Award Agreements entered
into and Awards granted thereunder, shall be governed by the Code provisions to
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the extent applicable. Otherwise, the operation of, and the rights of eligible
individuals under, the Plan, the Award Agreements, and the Awards shall be
governed by applicable federal law and otherwise by the laws of the State of
Delaware.
(e) RIGHTS. Neither the adoption of the Plan nor any action of
the Board or the Plan Administrator shall be deemed to give any individual any
right to be granted an Award, or any other right hereunder, unless and until the
Plan Administrator shall have granted such individual an Award, and then his
rights shall be only such as are provided by the Plan and the Award Agreement.
Further, notwithstanding any provisions of the Plan or any
Award Agreement with a Grantee, but subject to any employment agreement, Pegasus
shall have the right, in its discretion, to retire an employee at any time
pursuant to its retirement rules or otherwise to terminate his employment at any
time for any reason whatsoever.
(f) NON-TRANSFERABILITY. THIS SECTION 13(F) SHALL NOT APPLY TO
THE PORTION OF AN AWARD WITH RESPECT TO WHICH THE GRANTEE HAS MADE AN ELECTION
TO RECEIVE AN OPTION PURSUANT TO SECTION 8(A). Except as otherwise provided in
any Award Agreement, Awards which have not vested shall not be assignable or
transferable by the Grantee otherwise than by will or by the laws of descent and
distribution. If a Grantee is married on the date an Award is granted, and if
the Grantee so requests, the certificate or certificates issued shall be
registered in the name of the Grantee and the Grantee's spouse, jointly, with
right of survivorship.
(g) LISTING AND REGISTRATION OF SHARES. Each Award shall be
subject to the requirement that, if at any time the Plan Administrator shall
determine, in its discretion, that the listing, registration, or qualification
of the Common Stock covered thereby upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with, the
granting of such Award or the vesting of Common Stock thereunder, or that action
by PCC or by the Grantee should be taken in order to obtain an exemption from
any such requirement, no shares of Common Stock shall be received pursuant to an
Award, unless and until such listing, registration, qualification, consent,
approval, or action shall have been effected, obtained, or taken under
conditions acceptable to the Plan Administrator. Without limiting the generality
of the foregoing, each Grantee or his legal representative or beneficiary may
also be required to give satisfactory assurance that shares received pursuant to
an Award will be held as an investment and not with a view to distribution, and
certificates representing such shares may be legended accordingly.
(h) WITHHOLDING AND USE OF SHARES TO SATISFY TAX OBLIGATIONS.
THIS SECTION 13(H) SHALL NOT APPLY TO THE PORTION OF AN AWARD WITH RESPECT TO
WHICH THE GRANTEE MADE AN ELECTION TO RECEIVE AN OPTION PURSUANT TO SECTION
8(A). The obligation of PCC to deliver Common Stock pursuant to any Award shall
be subject to applicable federal, state and local tax withholding requirements.
If the vesting of any Award is subject to the withholding requirements of
applicable federal tax law, the Plan Administrator, in its discretion, may
permit or require the Grantee to satisfy the federal, state and local
withholding tax, in whole or in part, by electing to have PCC withhold shares of
Common Stock subject to the Award (or by returning previously acquired shares of
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Common Stock to PCC). PCC may not withhold shares in excess of the number
necessary to satisfy the minimum federal, state and local income tax withholding
requirements. Shares of Common Stock shall be valued, for purposes of this
paragraph, at their FAIR MARKET VALUE, DETERMINED UNDER SECTION 2(M), WITH
REFERENCE TO the date the amount attributable to the vesting of the Award is
includable in income by the Grantee under the Code (the "Vesting Date"). If
shares of Common Stock acquired by the exercise of an ISO are used to satisfy
the withholding requirement described above, such shares of Common Stock must
have been held by the Grantee for a period of not less than the holding period
described in section 422(a)(1) of the Internal Revenue Code of 1986, as amended,
as of the Vesting Date. THE PLAN ADMINISTRATOR SHALL ADOPT SUCH WITHHOLDING
RULES AS IT DEEMS NECESSARY TO CARRY OUT THE PROVISIONS OF THIS PARAGRAPH.
(i) INDEMNIFICATION OF BOARD AND PLAN ADMINISTRATOR. Without
limiting any other rights of indemnification which they may have from Pegasus,
the members of the Board, the Committee and the Management Committee shall be
indemnified by PCC against all costs and expenses reasonably incurred by them in
connection with any claim, action, suit, or proceeding to which they or any of
them may be a party by reason of any action taken or failure to act under, or in
connection with, the Plan, or any Award granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by legal counsel selected by PCC) or paid by them in satisfaction of a judgment
in any such action, suit, or proceeding, except a judgment based upon a finding
of willful misconduct or recklessness on their part. Upon the making or
institution of any such claim, action, suit, or proceeding, the Board, Committee
or Management Committee member shall notify PCC in writing, giving PCC an
opportunity, at its own expense, to handle and defend the same before such
Board, Committee or Management Committee member undertakes to handle it on his
own behalf.
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APPENDIX C
PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION TO
INCREASE AUTHORIZED CLASS A COMMON STOCK
RESOLVED, that the amendment of the first paragraph and of Section 2(b)
of Part II of Article FOURTH of the Company's Certificate of Incorporation to
read in their entirety as follows (the "Amendment") is hereby proposed and
declared to be advisable and in the best interests of the Company:
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 70,000,000 shares, divided into
50,000,000 shares of Class A Common Stock, par value $0.01 per share,
15,000,000 shares of Class B Common Stock, par value $0.01 per share,
and 5,000,000 shares of Preferred Stock, par value $0.01 per share.
* * * * *
(b) Except as may be otherwise required by law or by Section
2(c) of this Part II, the holders of Class A Common Stock and Class B
Common Stock shall vote together as a single class on all matters with
respect to which a vote of the stockholders of the Corporation is
required or permitted under applicable law, including, without
limitation, any amendment of this Certificate of Incorporation (whether
any such amendment increases or decreases the number of authorized
shares of Class A Common Stock, or otherwise), subject to any voting
rights that may be granted to holders of Preferred Stock.
FURTHER RESOLVED, that the Amendment be submitted for action to the
stockholders of the Company.
FURTHER RESOLVED, that upon stockholder approval of the Amendment, each
of the President, any Vice President, the Chief Financial Officer, the Secretary
and any Assistant Secretary or any of them (herein the "Designated Officers,"
which shall refer to any or all of them) is hereby severally authorized to
execute and file on behalf of the Company such certificate or certificates as
are required to effectuate the Amendment under Delaware law and to take such
other actions as such Designated Officer deems necessary or appropriate to carry
out the foregoing resolutions; and the execution by any Designated Officer of
any such documents or the performance of any Designated Officer of any such act
in connection with the foregoing resolutions shall conclusively establish the
Designated Officer's authority therefor from the Company and approval and
ratification by the Company of the documents so executed and the actions so
taken.
Note: Text within brackets has been deleted
C-1
<PAGE>
APPENDIX D
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PEGASUS COMMUNICATIONS CORPORATION*
Ted S. Lodge, being a duly elected Senior Vice President of Pegasus
Communications Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Delaware Secretary of State on May 30, 1996 (the "Certificate").
2. The original name of the Corporation was Pegasus Communications and
Media Corporation.
3. The Board of Directors and the Stockholders of the Corporation,
pursuant to Sections 242 and 245 of the General Corporation Law of the State of
Delaware, adopted resolutions authorizing the Corporation to amend, integrate
and restate the Corporation's Certificate in its entirety to read as follows.
FIRST: The name of the Corporation is PEGASUS COMMUNICATIONS
CORPORATION (the "Corporation").
SECOND: The address of the Corporation's registered office in
the State of Delaware is 103 Springer Building, 3411 Silverside Road,
Wilmington, Delaware, 19810. The name of the Corporation's registered
agent at such address is Organization Services, Inc., in the County of
New Castle.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under
the Delaware General Corporation Law.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is [50,000,000] 90,000,000
shares, divided into [30,000,000] 50,000,000 shares of Class A Common
Stock, par value $0.01 per share, 15,000,000 shares of Class B Common
Stock, par value $0.01 per share, 20,000,000 SHARES OF NON-VOTING
COMMON STOCK, PAR VALUE $0.01 PER SHARE, and 5,000,000 shares of
Preferred Stock, par value $0.01 per share.
- - - - - - - - - - - - - ----------
*The changes reflected herein assume approval of the increase in the number of
authorized shares (Proposal 4) and approval of a new class of Non-Voting Common
Stock (Proposal 5). If Proposals 4 and 5 are not approved, a total of 50
million shares of stock will be authorized of which 30 million shares will be
Class A Common Stock, 15 million shares will be Class B Common Stock and 5
million shares will be Preferred Stock.
Note: Text within brackets has been deleted
D-1
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No stockholder shall have any preemptive right to subscribe to
or purchase any issue of stock or other securities of the Corporation,
or any treasury stock or other treasury securities.
The powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights are as follows:
I. PREFERRED STOCK
1. General. The Board of Directors shall have authority, by
resolution, to divide any or all of the shares of Preferred Stock into,
and to authorize the issue of, one or more series, and with respect to
each such series to establish and, prior to the issue thereof, to fix
and determine:
(a) a distinguishing designation for such series and
the number of shares comprised by such series, which number
may (except as otherwise provided by the Board of Directors in
creating such series) be increased or decreased from time to
time (but not below the number of shares then outstanding) by
action of the Board of Directors;
(b) the rate and times at which and the other
conditions on which dividends, if any, on the shares may be
declared and paid or set aside for payment; whether the shares
shall be entitled to any participating or other dividends in
addition to dividends at the rate so determined and, if so, on
what terms; and whether dividends shall be cumulative and, if
so, from what date or dates and on what terms;
(c) whether or not the shares shall have voting
rights, in addition to the voting rights provided by law and,
if so, the terms and conditions thereof;
(d) whether the shares shall be convertible or
exchangeable, at the option of either the holder or the
Corporation or upon the happening of a specified event, and,
if so, the terms and conditions of such conversion or
exchange, including provisions for any adjustment of the
conversion or exchange rate;
(e) whether or not the shares shall be redeemable
and, if so, the terms and conditions, if any, upon which they
may be redeemed, including the date or dates or event or
events upon or after which they shall be redeemable, the cash,
property or rights (including securities of the Corporation
and of a corporation or corporations other than the
Corporation) for which they may be redeemed, whether they
shall be redeemable at the option of the holder or the
Corporation, or both, or upon the happening of a specified
event or events and the amount or rate of cash, property or
rights (including securities of the Corporation and of a
corporation or corporations other than the Corporation) per
share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates,
including provisions for any adjustment of the redemption
prices or rates;
Note: Text within brackets has been deleted
D-2
<PAGE>
(f) whether any shares shall be redeemed through
sinking fund payments and, if so, on what terms;
(g) the amounts payable upon shares in the event of
voluntary or involuntary liquidation, dissolution, winding up
or distribution of the assets of the Corporation; and
(h) the subject to the provisions of the next
succeeding paragraph of this Section 1 of Part I, any other
relative powers, preferences and rights and qualifications,
limitations and restrictions of such series.
In the resolution establishing a new series of Preferred
Stock, the Board of Directors may provide for such additional rights,
and with respect to rights as to dividends, redemption and liquidation,
such relative preferences between shares of different series, as are
not inconsistent with the rights of any outstanding shares of
previously established series, and not inconsistent with any other
provision of this Article FOURTH, but in the resolution creating a new
series of Preferred Stock the Board of Directors may provide that such
series shall have a preference over outstanding shares of any
previously created series of Preferred Stock with respect to rights as
to dividends, redemption and liquidation only to the extent that the
resolutions of the Board of Directors authorizing such previously
created series expressly so permit.
All shares of Preferred Stock of all series shall be identical
except as to the above mentioned rights and preferences which the Board
of Directors is authorized as aforesaid to fix and determine. Except to
the extent that the resolution of the Board of Directors establishing a
particular series shall otherwise provide: (i) in case the stated
dividends are not paid in full, all shares of Preferred Stock of all
series shall participate ratably in the payment of dividends, including
accumulated but unpaid dividends, in accordance with the sums which
would be payable thereon if all dividends thereon were declared and
paid in full, and (ii) in case amounts payable upon liquidation of all
series are not paid in full, all shares of Preferred Stock of all
series having a liquidation preference on a parity with one another
shall participate ratably in any distribution of assets other than by
way of dividends, in accordance with the sums which would be payable on
such distribution if all sums payable thereon to holders of all shares
of Preferred Stock were discharged in full.
Note: Text within brackets has been deleted
D-3
<PAGE>
2. Dividends. When and as declared by the Board of Directors,
in its discretion or upon the occurrence of conditions specified in the
resolution of the Board of Directors authorizing a particular series of
Preferred Stock (including, without limitation, the sole specified
condition that funds for the payment of any dividend be legally
available for the payment of dividends under the laws of the State of
Delaware as in effect at the time any periodic dividend is declared or
payable, in which event the Board of Directors, in considering the
payment of a dividend on such a series of Preferred Stock, shall not
exercise any element of discretion which it might otherwise exercise in
determining whether a dividend should be declared and paid), the
holders of the shares of Preferred Stock shall be entitled to receive
out of any funds of the Corporation lawfully available for dividends
under the laws of the State of Delaware, dividends at such fixed rate,
if any (or, if participating, such participating rate and such fixed
rate, if any), per share for each particular series, and no more,
payable with such frequency and on such dates, and payable in cash, in
property or in rights (including securities of the Corporation or of
one or more corporations or other legal entities other than the
Corporation), or a combination thereof, in each case as the Board of
Directors may determine in fixing and determining the rights and
preferences of such series as above provided. Except to the extent that
the resolution of the Board of Directors establishing a particular
series shall provide that dividends on shares of such series shall not
be cumulative or shall otherwise provide, such dividends on the
Preferred Stock shall be cumulative from the dates as follows:
(a) in the case of shares issued prior to the record
date for the initial dividend on shares of the series of which
such shares shall constitute a part, then from the date of
issuance of such shares;
(b) in the case of shares issued during the period
commencing immediately after the record date for a dividend on
shares of such series and terminating at the close of the
payment date for such dividend, then from such dividend
payment date; and
(c) otherwise, from the dividend payment date next
preceding the date of issuance of such shares.
Accrued but undeclared or unpaid dividends on any shares of
Preferred Stock shall not bear interest.
Further restrictions with respect to dividends and
distributions on, and acquisitions for value of, shares of Preferred
Stock and shares of Class A Common Stock [and], Class B COMMON STOCK
AND NON-VOTING Common Stock are set forth in Section 6 of this Part 1.
Note: Text within brackets has been deleted
D-4
<PAGE>
3. Redemption of Preferred Stock. Except as otherwise provided
in Section 6 of this Part 1, and except to the extent that the
resolution of the Board of Directors establishing a particular series
shall provide that shares of such series (a) shall not be redeemable by
the Corporation or (b) shall be redeemable by the Corporation only
after a specified date or period or subject to any other condition or
conditions or (c) shall be redeemable in another manner, the
Corporation may redeem all or any of the outstanding shares of
Preferred Stock, or all or any shares of any series thereof, at any
time or from time to time, upon payment in respect of the shares so
redeemed of the amount payable upon redemption thereof fixed as
aforesaid by the Board of Directors in respect of the series of which
such shares shall constitute a part, together in each case, to the
extent that such shares have cumulative dividend rights, with an amount
equal to all accumulated and unpaid dividends accrued thereon to the
date of redemption, whether or not such dividends shall have been
earned or declared (such price, including such amount equal to such
accumulated and unpaid dividends, and whether payable in cash, property
or rights or a combination thereof, as hereinafter provided, being
hereinafter called the "redemption price"). In fixing the redemption
price for shares of Preferred Stock of a particular series as
aforesaid, the Board of Directors shall specify whether such redemption
price shall be paid in cash, in property or in rights (including
securities of the Corporation or of one or more legal entities other
than the Corporation), or a combination thereof. If the redemption
price of shares of a particular series may be paid in whole or in part
in property or rights, the resolution fixing the redemption price shall
specify the method to be followed in valuing the property or rights
which may be used to make such payment.
Any redemption by the Corporation shall be in such amount, at
such place and in such manner as the Board of Directors shall
determine. Except to the extent that the resolution of the Board of
Directors authorizing a particular series of Preferred Stock shall
otherwise provide, in the case of a redemption by the Corporation of
less than all the outstanding shares of Preferred Stock of any series,
the particular shares to be redeemed shall be selected by lot in such
manner as the Board of Directors shall determine. Unless otherwise
waived in writing by the holder thereof, notice of every redemption
shall be mailed at least 30 days (or such shorter period as shall be
specified in the resolutions of the Board of Directors establishing the
particular series) prior to the date fixed for such redemption to the
holders of record of the shares so to be redeemed at their respective
addresses as the same shall appear on the books of the Corporation.
From and after the date fixed in any such notice as the date
of redemption by the Corporation, unless default shall be made by the
Corporation in providing the redemption price at the time and place
specified for the payment thereof pursuant to said notice, all
dividends on the shares of Preferred Stock thereby called for
redemption shall cease to accrue and all rights of the holders thereof
as stockholders in the Corporation, except the right to receive the
redemption price upon surrender of their share certificates, shall
cease and terminate, and such shares shall not be deemed outstanding
for any purpose.
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D-5
<PAGE>
The Corporation may, however, give or irrevocably authorize
the Depositary hereinafter mentioned forthwith to give written notice
(in the manner as the notice of redemption is required to be given as
aforesaid) to the holders of all the shares of Preferred Stock selected
for redemption by the Corporation that the redemption price has been or
will on a date specified be deposited with a designated bank, bank and
trust company, or private bank, which shall have an office in
Wilmington, Delaware, Philadelphia, Pennsylvania, or New York, New
York, and shall have a capital and surplus of not less than $25,000,000
(hereinafter called the "Depositary"), in trust for the account of the
holders of such shares of Preferred Stock, and that such holders may
receive the redemption price of such shares of Preferred Stock from
such Depositary on or after the date of such deposit upon the surrender
of their share certificates without awaiting the date fixed for
redemption. In such event, if the redemption price shall have been so
deposited by the Corporation with such Depositary, all rights as
stockholders in the Corporation of the holders of the shares so called,
except the right to receive the redemption price from such Depositary
upon such surrender, shall cease and terminate upon the date of such
deposit or the date of the giving of such notice or authority,
whichever be later, and such shares of Preferred Stock shall thereafter
not be deemed to be outstanding for any purpose; but if any shares so
called for redemption shall at that time be convertible, the conversion
privilege may be exercised in accordance with its terms, but not later
than the close of business on the day prior to the date fixed for
redemption. Any portion of the redemption price so deposited which
represents the redemption price of convertible shares which are
actually converted shall promptly be repaid by the Depository to the
Corporation. Any remaining portion of the redemption price so deposited
which shall remain unclaimed by the holders of such shares of Preferred
Stock at the end of two years after the date so fixed for redemption
shall be paid by such Depositary to the Corporation, after which the
holders of such shares of Preferred Stock shall look only to the
Corporation for payment of the redemption price thereof.
Shares of Preferred Stock of any series redeemed, purchased or
otherwise acquired may be cancelled by the Board of Directors and
thereupon restored to the status of authorized but unissued shares of
Preferred Stock undesignated as to series.
4. Liquidation or Dissolution. Except to the extent that the
resolution of the Board of Directors establishing a particular series,
shall otherwise provide with respect to shares of such series, on any
voluntary or involuntary liquidation or dissolution of the Corporation,
before any payment or distribution shall be made to the holders of any
Common Stock, the holders of the shares of Preferred Stock shall be
entitled to be paid the amounts, if any, respectively fixed therefor as
aforesaid by the Board of Directors in respect of each outstanding
series of Preferred Stock, together in each case, to the extent such
shares have cumulative dividend rights, with an amount equal to all
accumulated and unpaid dividends thereon to the date of such payment,
whether or not such dividends shall have been earned or declared.
After such payment shall have been made in full to the holders
of shares of Preferred Stock, they shall be entitled to no further
payment or distribution, and the holders of CLASS A COMMON STOCK, CLASS
B Common Stock and [Class A] NON-VOTING Common Stock shall be entitled
to share ratably in all remaining assets of the Corporation.
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D-6
<PAGE>
A consolidation with or merger with or into any other
corporation or corporations shall not be deemed a liquidation or
dissolution of the Corporation within the meaning of this Section 4 of
Part I.
5. Voting Rights. Except to the extent that the resolution of
the Board of Directors establishing a particular series shall otherwise
provide, and except as otherwise provided herein or by law, at each
meeting of stockholders of the Corporation, each holder of shares of
Preferred Stock shall be entitled to one vote for each such share
standing in his or her name on the books of the Corporation on each
matter to come before the meeting.
The resolution of the Board of Directors establishing a
particular series may confer on holders of the shares of such series,
voting separately or with holders of shares of Preferred Stock of other
series, the right to elect a member or members of the Board of
Directors at any time or from time to time.
6. Restrictions on Dividends and Purchase of Shares of
Preferred and Common Stock.
(a) So long as any shares of Preferred Stock shall be
outstanding, no dividend (other than dividends payable in shares of
Class A Common Stock [or], Class B COMMON STOCK OR NON-VOTING Common
Stock) shall be paid or distribution shall be made on the shares of
CLASS A COMMON STOCK, Class [A] B Common Stock or [Class B] NON-VOTING
Common Stock, nor shall any shares of Class A Common Stock [or], Class
B COMMON STOCK OR NON-VOTING Common Stock be purchased, retired or
otherwise acquired by the Corporation, unless in each such case:
(1) all accumulated and unpaid dividends, if any, on
all outstanding shares of Preferred Stock for all past
dividend periods shall have been paid and full dividends, if
any, on all shares of Preferred Stock for the then current
dividend period declared and a sum sufficient for the payment
thereof set apart; and
(2) the Corporation shall not be in arrears in
respect of any sinking fund obligation or obligations of a
similar nature in respect of any series of Preferred Stock.
(b) The resolutions of the Board of Directors establishing a
particular series of Preferred Stock may provide that the payment of
any dividend or the making of any distribution on, or the redemption,
purchase or other acquisition (for sinking fund purposes or otherwise)
by the Corporation of, shares of that series or any other series of
Preferred Stock (but, in the case of any other series established
before the series in question, only if the resolution of the Board of
Directors establishing such other series so permits) shall be
conditioned on:
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D-7
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(1) the payment of all accumulated and unpaid
dividends, if any, on all outstanding shares of Preferred
Stock of one or more specified series and the declaration of
full dividends, if any, on all shares of Preferred Stock of
one or more specified series for the then current dividend
period and the setting apart of a sum sufficient for the
payments thereof;
(2) the absence of any arrearage in respect of any
sinking fund obligation or obligations of a similar mature in
respect of one or more specified series of Preferred Stock; or
(3) any other condition specified in such resolution.
7. Certain Matters Requiring Consent of Holders of Two-Thirds
of Preferred Stock. So long as any shares of Preferred Stock shall be
outstanding, and subject to the provisions of the last sentence of this
Section 7 of Part I, the Corporation shall not, without the consent of
the holders of at least two-thirds of the shares of Preferred Stock at
the time outstanding, voting as a single class and not separately by
series, given in person or by proxy, either in writing or at a meeting
called for the purpose:
(a) adopt or effect any amendment to the
Corporation's Certificate of Incorporation, including any
amendment to the terms of any previously created series of
Preferred Stock, other than an amendment of the nature
described under Section 8 of this Part I, which would
adversely affect the powers, preferences or special rights of
the Preferred Stock; but if any such amendment shall adversely
affect the powers, preferences or special rights of one or
more, but not all, of the several series of Preferred Stock at
the time outstanding, the consent of the holders of at least
two-thirds of the shares then outstanding of those series
adversely affected, voting together and not by series, shall
be required in lieu of the consent of the holders of
two-thirds of the Preferred Stock; or
(b) authorize any new class of stock which is senior
to the Preferred Stock with respect to the payment of
dividends or distributions on liquidation or dissolution.
Notwithstanding the foregoing provisions, the resolution of the Board
of Directors creating a particular series may provide that the consent
of the holders of the outstanding shares of such series shall not be
required with respect to some or all of the foregoing matters and, to
the extent so provided, such shares shall not be deemed outstanding for
the purpose of applying the provisions of this Section 7 of Part I.
8. Certain Matters Requiring Consent of Holders of Majority of
All Outstanding Shares. The Corporation may increase the authorized
number of shares of Preferred Stock, or authorize any new class of
stock which is on a parity with the Preferred Stock with respect to the
payment of dividends or distributions on liquidation or dissolution, by
obtaining the affirmative vote, given in person or by proxy, of the
holders of at least a majority of the then outstanding Class A Common
Stock, Class B Common Stock and Preferred Stock, voting together and
not by class.
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D-8
<PAGE>
II. CLASS A COMMON STOCK [AND], CLASS B COMMON STOCK
AND NON-VOTING COMMON STOCK
1. Dividends.
(a) Subject to the rights of the holders of Preferred Stock,
and subject to any other provisions of this Certificate of
Incorporation, as amended from time to time, the holders of Class A
Common Stock [and], the holders of Class B COMMON STOCK AND THE HOLDERS
OF NON-VOTING Common Stock shall be entitled to receive such dividends
and other distributions in cash or property of the Corporation, or,
subject to subsection (b), securities or obligations of the
Corporation, as may be declared thereon by the Board of Directors from
time to time out of assets or funds of the Corporation legally
available therefor; but except as provided in subsection (b), a
dividend may be declared and paid on shares of either the Class A
Common Stock [or], the Class B Common Stock OR THE NON-VOTING COMMON
STOCK only if an identical dividend shall be simultaneously declared
and paid on each share of [the] EACH other class.
(b) In the case of dividends or other distributions payable on
the Class A Common Stock[or], the Class B Common Stock OR THE
NON-VOTING COMMON STOCK, including distributions pursuant to stock
splits or divisions of the Class A Common Stock [or], the Class B
Common Stock OR THE NON-VOTING COMMON STOCK, (1) only Class A Common
Stock shall be paid or distributed on the Class A Common Stock, [and]
only Class B Common Stock shall be paid or distributed on the Class B
Common Stock, and ONLY NON-VOTING COMMON STOCK SHALL BE PAID OR
DISTRIBUTED ON THE NON-VOTING COMMON STOCK, AND (2) any such payment or
distribution on [either] ANY class may be made only if parallel action
is simultaneously taken in respect of [the] EACH other class, so that
the number of shares of each class outstanding immediately following
such stock dividend, stock split or stock division shall bear the same
relationship to each other as the number of shares of each class
outstanding immediately before such stock dividend, stock split or
stock division.
(c) In the case of any decrease in the number of outstanding
shares of the Class A Common Stock [or], the Class B Common Stock OR
THE NON-VOTING COMMON STOCK resulting from a combination or
consolidation of shares or other capital reclassification, parallel
action shall be simultaneously taken in respect of [the] EACH other
class so that the number of shares of each class outstanding
immediately following such combination, consolidation or capital
reclassification shall bear the same relationship to each other as the
number of shares of each class outstanding immediately before such
combination, consolidation or capital reclassification.
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D-9
<PAGE>
2. Voting.
(a) At every meeting of stockholders and in respect of each
action by consent in writing of the holders, every holder of Class A
Common Stock shall be entitled to one (1) vote in person or by proxy
for each share of Class A Common Stock standing in his or her name on
the transfer books of the Corporation, and every holder of Class B
Common Stock shall be entitled to ten (10) votes in person or by proxy
for each share of Class B Common Stock standing in his or her name on
the transfer books of the Corporation.
(b) Except as may be otherwise required by law or by Section
2(c) of this Part II, the holders of Class A Common Stock and Class B
Common Stock shall vote together as a single class on all matters with
respect to which a vote of the stockholders of the Corporation is
required or permitted under applicable law, including, without
limitation, any amendment of this Certificate of Incorporation (WHETHER
ANY SUCH AMENDMENT INCREASES OR DECREASES THE NUMBER OF AUTHORIZED
SHARES OF CLASS A COMMON STOCK, OR OTHERWISE), subject to any voting
rights that may be granted to holders of Preferred Stock.
(c) Notwithstanding Section 2(b) of this Part II, but subject
to any voting rights that may be granted to holders of Preferred Stock,
the following matters may be authorized only by the vote of the holders
of a majority of the outstanding shares of the Class A Common Stock and
a majority of the outstanding shares of the Class B Common Stock,
voting as separate classes:
(i) the authorization or issuance (other than
issuances that comply with Section 1(b)(2) of this Part II) of
additional shares of Class B Common Stock after the closing
date of the Corporation's initial public offering of shares of
Class A Common Stock registered under the Securities Act of
1933; and
(ii) any amendment to this certificate of
incorporation that has any of the following effects:
(1) any decrease in the voting rights per
share of the Class A Common Stock or any increase in
the voting rights per share of the Class B Common
Stock;
(2) any increase in the number of shares of
Class A Common Stock into which shares of Class B
Common Stock are convertible, as provided herein;
(3) any relaxation on the restrictions on
transfer of the Class B Common Stock, as provided
herein; or
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D-10
<PAGE>
(4) any change in the powers, preferences or
special rights of the Class A Common Stock or the
Class B Common Stock adversely affecting the holders
of the Class A Common Stock.
(D) EXCEPT AS MAY OTHERWISE BE REQUIRED BY LAW, THE HOLDERS OF
THE NON-VOTING COMMON STOCK SHALL HAVE NO VOTING RIGHTS, INCLUDING,
WITHOUT LIMITATION, ON ANY AMENDMENT TO THIS CERTIFICATE OF
INCORPORATION (WHETHER ANY SUCH AMENDMENT INCREASES OR DECREASES THE
NUMBER OF AUTHORIZED SHARES OF NON-VOTING COMMON STOCK, OR OTHERWISE).
IN ANY CASE IN WHICH THE HOLDERS OF THE NON-VOTING COMMON STOCK HAVE
VOTING RIGHTS REQUIRED BY LAW, INCLUDING, WITHOUT LIMITATION, ON ANY
AMENDMENT OF THIS CERTIFICATE OF INCORPORATION, (1) EVERY HOLDER OF
NON-VOTING COMMON STOCK SHALL BE ENTITLED TO ONE (1) VOTE IN PERSON OR
BY PROXY FOR EACH SHARE OF NON-VOTING COMMON STOCK STANDING IN HIS OR
HER NAME ON THE TRANSFER BOOKS OF THE CORPORATION, AND (2) THE HOLDERS
OF THE NON-VOTING COMMON STOCK SHALL VOTE TOGETHER WITH THE HOLDERS OF
THE CLASS A COMMON STOCK AND THE CLASS B COMMON STOCK AND NOT AS A
SEPARATE CLASS UNLESS OTHERWISE REQUIRED BY LAW.
3. Transfer.
(a) No person holding shares of Class B Common Stock of record
(hereinafter called "Class B Holder") may transfer, and the Corporation
shall not register the transfer of, such shares of Class B Common
Stock, whether by sale, assignment, gift, bequest, appointment,
operation of law or otherwise, except to a Permitted Transferee.
"Permitted Transferee" means:
(1) Marshall W. Pagon or any immediate family member
of his; or
(2) any trust (including a voting trust),
corporation, partnership or other entity, more than 50% of the voting
equity interests of which are owned directly or indirectly by (or, in
the case of a trust not having voting equity interests, which is more
than 50% for the benefit of) and which is controlled by, one or more
persons referred to in Section 3(a)(1) of this Part II; or
(3) the estate of any person referred to in Section
3(a)(1) of this Part II until such time as the property of such estate
is distributed in accordance with his will or applicable law.
For purposes of the definition of "Permitted Transferee": (A)
"immediate family member" means (i) the spouse or any parent of
Marshall W. Pagon, (ii) any lineal descendant of a parent of Marshall
W. Pagon, and (iii) the spouse of any such lineal descendant (parentage
and descent in each case to include adoptive and step relationships);
and (B) "control" of a trust, corporation or other entity means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the trust, corporation or
other entity, whether through the ownership of voting securities, by
agreement or otherwise.
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D-11
<PAGE>
(b) Notwithstanding anything to the contrary set forth herein,
any Class B Holder may pledge such Holder's shares of Class B Common
Stock to a pledgee pursuant to a bona fide pledge of such shares as
collateral security for indebtedness due to the pledgee, provided that
such shares shall not be transferred to or registered in the name of
the pledgee and shall remain subject to the provisions of this Section
3. In the event of foreclosure or other similar action by the pledgee,
such pledged shares of Class B Common Stock may be transferred only to
a Permitted Transferee or may be converted into shares of Class A
Common Stock, as the pledgee may elect.
(c) The following events shall result in the conversion of the
applicable shares of Class B Common Stock into shares of Class A Common
Stock:
(1) a Class B Holder shall transfer Class B Common
Stock to a person or entity not a Permitted Transferee;
(2) a Class B Holder shall transfer to any person or
entity not a Permitted Transferee, including, without
limitation, a pledgee, the right to vote any Class B Common
Stock, whether by agreement, voting trust or otherwise; or
(3) a trust, corporation, partnership or other entity
holding Class B Common Stock ceases to meet the description
contained in Section 3(a)(2) of this Part II.
If any of the foregoing events shall occur, all shares of Class B
Common Stock subject to such transfer or then held by such trust,
corporation, partnership or other entity, whichever is applicable,
shall, without further act on anyone's part, be converted into shares
of Class A Common Stock effective upon the date such event occurs, and
stock certificates formerly representing such shares of Class B Common
Stock shall thereupon and thereafter be deemed to represent the like
number of shares of Class A Common Stock. The Corporation may, in
connection with preparing a list of stockholders entitled to vote at
any meeting of stockholders, or as a condition to the transfer or the
registration of shares of Class B Common Stock on the Corporation's
books, require the furnishing of such affidavits, documents or other
proof as it deems necessary to establish that any person is a Permitted
Transferee or to ascertain that none of the events described in this
subsection (c) has occurred.
(d) Shares of Class B Common Stock shall be registered in the
names of a beneficial owner thereof and not in "street" or "nominee"
name. For this purpose, a "beneficial owner" of any shares of Class B
Common Stock means a person or entity that possesses the power, either
singly or jointly, to direct the voting or disposition of such shares.
The Corporation shall note on the certificates for shares of Class B
Common Stock the existence of the restrictions on transfer imposed by
this Section 3.
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D-12
<PAGE>
4. Conversion Rights.
(a) Subject to the terms and conditions of this Section 4,
each share of Class B Common Stock shall be convertible at any time or
from time to time, at the option of the respective holder thereof, at
the office of any transfer agent for Class B Common Stock, and at such
other place or places, if any, as the Board of Directors may designate,
or, if the Board of Directors shall fail so to designate, at the
principal office of the Corporation, into one (1) fully paid and
nonassessable share of Class A Common Stock. Upon conversion, the
Corporation shall make no payment or adjustment on account of dividends
accrued or in arrears on Class B Common Stock surrendered for
conversion or on account of any dividends on the Class A Common Stock
issuable on such conversion. Before any holder of Class B Common Stock
shall be entitled to convert the same into Class A Common Stock, he
shall surrender the certificate or certificates for such Class B Common
Stock at the office of said transfer agent (or other place as provided
above), which certificate or certificates, if the Corporation shall so
request, shall be duly endorsed to the Corporation in blank or be
accompanied by proper instruments of transfer to the Corporation in
blank (such endorsements or instruments of transfer to be in form
satisfactory to the Corporation), and shall give written notice to the
Corporation at said office that he elects so to convert said Class B
Common Stock in accordance with the terms of this Section 4 and shall
state in writing therein the name or names in which he wishes the
certificate or certificates for Class A Common Stock to be issued. The
Corporation will as soon as practicable after such deposit of a
certificate or certificates for Class B Common Stock, accompanied by
the written notice and the statement above prescribed, issue and
deliver at the office of said transfer agent (or other place as
provided above) to the person for whose account such Class B Common
Stock was so surrendered, or to his nominee or nominees, a certificate
or certificates for the number of full shares of Class A Common Stock
to which he or she shall be entitled as aforesaid. Subject to the
provisions of subsection (c) of this Section 4, such conversion shall
be deemed to have been made as of the date of such surrender of the
Class B Common Stock to be converted; and the person or persons
entitled to receive the Class A Common Stock issuable upon conversion
of such Class B Common Stock shall be treated for all purposes as the
record holder of holder of such Class A Common Stock on such date.
(b) The issuance of certificates for shares of Class A Common
Stock upon conversion of shares of Class B Common Stock shall be made
without charge for any stamp or other similar tax in respect of such
issuance. However, if any such certificate is to be issued in a name
other than that of the holder of the share or shares of Class B Common
Stock converted, the person or persons requesting the issuance thereof
shall pay to the Corporation the amount of any tax which may be payable
in respect of any transfer involved in such issuance or shall establish
to the satisfaction of the Corporation that such tax has been paid.
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D-13
<PAGE>
(c) The Corporation shall not be required to convert Class B
Common Stock, and no surrender of Class B Common Stock shall be
effective for that purpose, while the stock transfer books of Class A
Common Stock or Class B Common Stock are closed for any purpose; but
the surrender of Class B Common Stock for conversion during any period
while such books are so closed shall become effective for conversion
immediately upon the reopening of such books, as if the conversion had
been made on the date such Class B Common Stock was surrendered.
(d) The Corporation covenants that it will at all times
reserve and keep available, solely for the purpose of issuance upon
conversion of the outstanding shares of Class B Common Stock, such
number of shares of Class A Common Stock as shall be issuable upon the
conversion of all such outstanding shares, but nothing contained herein
shall be construed to preclude the Corporation from satisfying its
obligations in respect of the conversion of the outstanding shares of
Class B Common Stock by delivery of shares of Class A Common Stock held
in the treasury of the Corporation. The Corporation covenants that if
any shares of Class A Common Stock, required to be reserved for
purposes of conversion hereunder, require registration with or approval
of any governmental authority under any federal or state law before
such shares of Class A Common Stock may be issued upon conversion, the
Corporation will use its best efforts to cause such shares to be duly
registered or approved, as the case may be. The Corporation will
endeavor to list the shares of Class A Common Stock required to be
delivered upon conversion prior to such delivery upon each national
securities exchange, if any, upon which the outstanding Class A Common
Stock is listed at the time of such delivery. The Corporation covenants
that all shares of Class A Common Stock which shall be issued upon
conversion of the shares of Class B Common Stock, will, upon issuance,
be fully paid and nonassessable and not entitled to an preemptive
rights.
(e) Shares of Class A Common Stock, including shares
originally issued upon conversion of Class B Common Stock, shall not be
convertible into Class B Common Stock or any other class of stock.
5. Subscription and Related Rights; Mergers and Other
Transactions. In the event that rights to subscribe to Class A Common
Stock, options or warrants to purchase Class A Common Stock, or any
securities convertible into Class A Common Stock are offered or granted
to all holders of Class A Common Stock [or], Class B COMMON STOCK OR
NON-VOTING Common Stock, parallel action shall be simultaneously taken
in respect of [the] EACH other class, so that the number of shares of
each class that would be outstanding immediately after the exercise in
full of such rights, options or warrants or the conversion of such
convertible securities shall bear the same relationship to each other
as the number of shares of each class outstanding immediately before
the offer or grant of such rights, options, warrants or convertible
securities. Except as provided in the following sentence, if there
should be any merger, consolidation, purchase or acquisition of
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D-14
<PAGE>
property or stock, separation, reorganization or liquidation of the
Corporation, the holders of Class A Common Stock [and], the holders of
Class B COMMON STOCK AND THE HOLDERS OF NON-VOTING Common Stock shall
receive the shares of stock, securities or other assets as would be
issuable or payable upon such merger, consolidation, purchase or
acquisition of such property or stock, separation, reorganization or
liquidation as if the Class A Common Stock [and], the Class B COMMON
STOCK AND THE NON-VOTING Common Stock were one and the same class of
stock. Notwithstanding the foregoing, in the event of a merger or
consolidation which, by its terms, contemplates that the holders of
CLASS A COMMON STOCK, Class B COMMON STOCK AND NON-VOTING Common Stock
will receive, in exchange for their CLASS A COMMON STOCK, Class B
COMMON STOCK AND NON-VOTING Common Stock, capital stock of the
surviving corporation, the holders of CLASS A COMMON STOCK, Class B
COMMON STOCK AND NON-VOTING Common Stock shall be entitled (to the
extent provided for in the terms of such merger or consolidation) to
receive, in exchange for their Class [B] A Common Stock, CLASS B COMMON
STOCK AND NON-VOTING COMMON STOCK, RESPECTIVELY, shares of stock of the
surviving corporation having substantially similar relative
designations, preferences, qualification, privileges, limitations,
restrictions (including, without limitation, restrictions on
transferability [)] IN THE CASE OF CLASS B COMMON STOCK) and rights as
the relative designations, preferences, qualifications, privileges,
limitations, restrictions and rights of the CLASS A COMMON STOCK, Class
B COMMON STOCK AND NON-VOTING Common Stock.
6. Liquidation Rights. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, whether
voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, and after payment in
full of amounts, if any, required to be paid to the holders of shares
of stock having preferential liquidation rights, including without
limitation the holders of Preferred Stock, the remaining assets of the
Corporation shall be divided among and distributed ratably to the
holders of Class A Common Stock [and], Class B Common Stock (including
those persons who shall become holders of Class A Common Stock by
reason of converting their shares of Class B Common Stock) AND
NON-VOTING COMMON STOCK, with no distinction between the Class A Common
Stock [and], the Class B COMMON STOCK AND THE NON-VOTING Common Stock.
A merger or consolidation of the Corporation with or into any
corporation or other entity or a sale of all or any part of the assets
of the Corporation (which shall not in fact result in the liquidation
of the Corporation and the distribution of its assets to stockholders)
shall not be deemed to be a dissolution, liquidation or winding up of
the affairs of the Corporation within the meaning of this Section 6.
7. Other Rights. Except as expressly set forth in this Article
FOURTH, each share of Class A Common Stock AND NON-VOTING COMMON STOCK
shall entitle the holder thereof to rights that are in all respects
identical to the rights of a holder of Class B Common Stock.
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D-15
<PAGE>
FIFTH[: The name and mailing address of the incorporator is as
follows:]
[Name Mailing Address]
[Michael B. Jordan Drinker Biddle & Reath LLP]
[Philadelphia National Bank Building]
[1345 Chestnut Street]
[Philadelphia, PA 19107-3496]
[SIXTH]: In furtherance and not in limitation of the general powers
conferred by the laws of the State of Delaware, the Board of Directors
is expressly authorized to make, alter or repeal the bylaws of the
Corporation, except as specifically otherwise provided therein.
[SEVENTH] SIXTH: A director of the Corporation shall have no
personal liability to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director except to the extent
that Section 102(b)(7) (or any successor provision) of the Delaware
General Corporation Law, as amended from time to time, expressly
provides that the liability of a director may not be eliminated or
limited. No amendment or repeal of this Article [SEVENTH] SIXTH shall
apply to or affect the liability or alleged liability of any director
of the Corporation for or in respect of any act or omission of such
director occurring before such amendment or repeal.
IN WITNESS WHEREOF, the undersigned, for the purpose of amending and
restating the Certificate, affirms that this is the act and deed of the
Corporation and the facts stated herein are true, and accordingly has hereunto
signed this Amended and Restated Certificate of Incorporation this ____ day of
____________, 1999.
By: _____________________________________
Ted S. Lodge,
Senior Vice President
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D-16
<PAGE>
FORM OF PROXY
PEGASUS COMMUNICATIONS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
The undersigned, revoking all prior proxies, hereby appoints Marshall W. Pagon,
Robert N. Verdecchio and Ted S. Lodge, or any of them, with full power of
substitution, as the undersigned's proxies to vote all the shares of Class A
Common Stock of Pegasus Communications Corporation (the "Company") held of
record by the undersigned on April 20, 1999, at the Annual Meeting of
Stockholders of Pegasus to be held on June 10, 1999 and at any adjournment
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4, 5 AND 6.
1. ELECTION OF DIRECTORS
Nominees: Marshall W. Pagon, Michael C. Brooks, Harry F. Hopper, III, James
J. McEntee, III, Mary C. Metzger, William P. Phoenix, Riordon B.
Smith, Robert N. Verdecchio and Donald W. Weber.
[ ] FOR [ ] WITHHOLD AUTHORITY [ ] ABSTAIN
All nominees listed To vote for all nominees listed
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below)
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2. To approve the amendment to Pegasus' Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the amendment to Pegasus' Restricted Stock Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To increase the number of authorizes shares of Pegasus' Class A Common Stock
from 30,000,000 to 50,000,000 and to clarify that future increases or
decreases in the authorized number of shares of Class A Common Stock can be
approved by a majority of the votes of the Class A Common Stock and Class B
Common Stock, voting together as a single class.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To authorize a new class of Non-Voting Common Stock par value $0.01 per
share, consisting of 20,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Ratification of the appointment of PricewaterhouseCoopers LLP as independent
public accountants for Pegasus for the year ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
You are urged to sign and return this proxy so that you may be sure that your
shares will be voted.
Dated:_____________________, 1999
_________________________________
Signature of Stockholder
_________________________________
Signature of Stockholder
Please sign exactly as your name appears hereon, date and return promptly. When
shares are held by joint tenants, both should sign. Executors, administrators,
trustees and other fiduciaries should indicate their capacity when signing.
