<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 1999
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from__________ to __________
Commission File Number 0-21389
PEGASUS COMMUNICATIONS CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 51-0374669
------------------------------ ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
c/o Pegasus Communications Management Company;
225 City Line Avenue, Suite 200, Bala Cynwyd, PA 19004
------------------------------------------------ ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (888) 438-7488
--------------
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes_X_ No___
Number of shares of each class of the Registrant's common stock
outstanding as of August 6, 1999:
Class A, Common Stock, $0.01 par value 15,138,806
Class B, Common Stock, $0.01 par value 4,581,900
Non-Voting, Common Stock, $0.01 par value _
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
Form 10-Q
Table of Contents
For the Quarterly Period Ended June 30, 1999
Page
----
Part I. Financial Information
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1998 and June 30, 1999 3
Consolidated Statements of Operations
Three months ended June 30, 1998 and 1999 4
Consolidated Statements of Operations
Six months ended June 30, 1998 and 1999 5
Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 22
Part II. Other Information
Item 2 Changes in Securities and Use of Proceeds 23
Item 4 Submission of Matters to a Vote of Security Holders 23
Item 5 Other Information 24
Item 6 Exhibits and Reports on Form 8-K 24
Signature 25
2
<PAGE>
Pegasus Communications Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 54,505,473 $ 16,679,995
Restricted cash 21,479,305 11,162,225
Accounts receivable, less allowance for doubtful
accounts of $567,000 and $776,000, respectively 20,882,260 20,991,123
Inventory 5,426,348 6,345,912
Program rights 3,156,715 5,853,382
Deferred taxes 2,602,453 2,759,933
Prepaid expenses and other 1,207,312 4,084,438
------------ ------------
Total current assets 109,259,866 67,877,008
Property and equipment, net 34,066,502 37,962,255
Intangible assets, net 729,405,657 780,240,030
Program rights 3,428,382 5,847,465
Deferred taxes 9,277,280 5,215,582
Deposits and other 872,386 6,117,796
------------ ------------
Total assets $886,310,073 $903,260,136
============ ============
LIABILITIES AND TOTAL EQUITY
Current liabilities:
Current portion of long-term debt $ 14,399,046 $ 13,700,367
Accounts payable 4,794,809 6,027,207
Accrued interest 17,465,493 17,190,917
Accrued satellite programming, fees and commissions 22,680,595 26,831,766
Accrued expenses 9,599,049 10,392,780
Current portion of program rights payable 2,431,515 6,050,097
------------ ------------
Total current liabilities 71,370,507 80,193,134
Long-term debt 544,629,706 564,252,844
Program rights payable 2,472,367 4,252,781
Deferred taxes 80,671,714 75,723,467
------------ ------------
Total liabilities 699,144,294 724,422,226
------------ ------------
Commitments and contingent liabilities - -
Minority interest 3,000,000 3,000,000
Preferred Stock; $0.01 par value; 5.0 million shares authorized - -
Series A Preferred Stock; $0.01 par value; 135,073 shares
authorized; 119,369 and 126,978 issued and outstanding 126,027,871 134,122,747
Common stockholders' equity:
Class A Common Stock; $0.01 par value; 50.0 million shares
authorized; 11,315,809 and 15,121,415 issued and outstanding 113,158 151,214
Class B Common Stock; $0.01 par value; 15.0 million shares
authorized; 4,581,900 issued and outstanding 45,819 45,819
Non-Voting Common Stock; $0.01 par value; 20.0 million shares
authorized - -
Additional paid-in capital 173,870,633 243,911,590
Deficit (115,891,702) (202,393,460)
------------ ------------
Total common stockholders' equity 58,137,908 41,715,163
------------ ------------
Total liabilities and stockholders' equity $886,310,073 $903,260,136
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Pegasus Communications Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------
1998 1999
----------- -----------
(unaudited)
<S> <C> <C>
Net revenues:
DBS $33,463,072 $64,118,278
Broadcast 8,699,298 9,621,626
Cable 4,576,987 5,577,427
----------- -----------
Total net revenues 46,739,357 79,317,331
Operating expenses:
DBS
Programming, technical, general and administrative 22,757,040 43,845,952
Marketing and selling 6,687,419 28,743,398
Incentive compensation 473,919 400,000
Depreciation and amortization 13,620,571 20,481,579
Broadcast
Programming, technical, general and administrative 4,189,013 5,211,453
Marketing and selling 1,576,725 1,612,197
Incentive compensation 32,053 46,867
Depreciation and amortization 1,197,999 1,292,802
Cable
Programming, technical, general and administrative 2,242,756 2,748,010
Marketing and selling 79,655 176,460
Incentive compensation 114,400 37,853
Depreciation and amortization 1,385,713 1,938,350
Corporate expenses 796,176 1,483,003
Corporate depreciation and amortization 463,362 739,629
----------- -----------
Loss from operations (8,877,444) (29,440,222)
Interest expense (10,339,353) (15,603,721)
Interest income 374,543 314,921
Other expense, net (334,665) (468,147)
----------- -----------
Loss before income taxes (19,176,919) (45,197,169)
Provision (benefit) for income taxes 50,000 (572,500)
----------- -----------
Net loss (19,226,919) (44,624,669)
Preferred stock dividends 3,576,853 4,047,438
----------- -----------
Net loss applicable to common shares ($22,803,772) ($48,672,107)
=========== ===========
Basic and diluted earnings per common share:
Net loss ($1.59) ($2.48)
=========== ===========
Weighted average shares outstanding 14,310,075 19,626,873
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
Pegasus Communications Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------
1998 1999
----------- ------------
(unaudited)
<S> <C> <C>
Net revenues:
DBS $50,927,234 $122,454,051
Broadcast 15,624,317 17,571,156
Cable 8,971,498 8,648,411
----------- ------------
Total net revenues 75,523,049 148,673,618
Operating expenses:
DBS
Programming, technical, general and administrative 34,951,427 84,365,509
Marketing and selling 10,886,825 49,889,670
Incentive compensation 833,919 790,000
Depreciation and amortization 20,264,698 41,933,132
Broadcast
Programming, technical, general and administrative 8,066,811 10,154,002
Marketing and selling 2,961,526 3,078,806
Incentive compensation 32,053 202,409
Depreciation and amortization 2,527,418 2,481,946
Cable
Programming, technical, general and administrative 4,540,097 4,413,978
Marketing and selling 186,721 285,338
Incentive compensation 163,605 60,788
Depreciation and amortization 2,928,091 3,022,930
Corporate expenses 1,481,442 2,723,246
Corporate depreciation and amortization 878,022 1,450,219
----------- ------------
Loss from operations (15,179,606) (56,178,355)
Interest expense (16,315,091) (31,294,861)
Interest income 720,290 775,486
Other expense, net (687,119) (819,028)
----------- ------------
Loss before income taxes (31,461,526) (87,516,758)
Provision (benefit) for income taxes 125,000 (1,015,000)
----------- ------------
Net loss (31,586,526) (86,501,758)
Preferred stock dividends 7,153,706 8,094,876
----------- ------------
Net loss applicable to common shares ($38,740,232) ($94,596,634)
=========== ============
Basic and diluted earnings per common share:
Net loss ($3.14) ($5.26)
=========== ============
Weighted average shares outstanding 12,332,244 17,998,636
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
Pegasus Communications Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------
1998 1999
----------- -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($31,586,526) ($86,501,758)
Adjustments to reconcile net loss
to net cash provided (used) by operating activities:
Depreciation and amortization 26,598,229 48,888,227
Program rights amortization 1,251,490 1,539,347
Accretion on discount of bonds and seller notes 535,955 745,586
Stock incentive compensation 1,029,577 1,053,197
Gain on disposal of assets - (35,343)
Bad debt expense 794,882 2,555,136
Change in assets and liabilities:
Accounts receivable (1,005,976) (2,214,960)
Inventory (161,357) (748,564)
Prepaid expenses and other (424,267) (2,802,718)
Accounts payable and accrued expenses 3,753,613 4,664,836
Accrued interest 3,777,383 (274,576)
Deposits and other - (5,240,970)
----------- -----------
Net cash provided (used) by operating activities 4,563,003 (38,372,560)
----------- -----------
Cash flows from investing activities:
Acquisitions (42,252,899) (91,930,212)
Cash acquired from acquisitions 3,112,482 5,486
Capital expenditures (3,647,790) (4,120,756)
Purchase of intangible assets (7,608,821) (2,851,948)
Payments for programming rights (1,224,220) (1,256,101)
Proceeds from sale of assets - 508,988
----------- -----------
Net cash used for investing activities (51,621,248) (99,644,543)
----------- -----------
Cash flows from financing activities:
Repayments of long-term debt (5,404,660) (13,314,602)
Borrowings on bank credit facilities 46,000,000 77,500,000
Repayments of bank credit facilities - (50,400,000)
Restricted cash (121,176) 10,317,080
Capital lease repayments (246,583) (96,525)
Proceeds from issuance of common stock - 80,843,070
Underwriting and common stock offering costs - (4,657,398)
----------- -----------
Net cash provided by financing activities 40,227,581 100,191,625
----------- -----------
Net decrease in cash and cash equivalents (6,830,664) (37,825,478)
Cash and cash equivalents, beginning of year 44,049,097 54,505,473
----------- -----------
Cash and cash equivalents, end of period $37,218,433 $16,679,995
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company:
Pegasus Communications Corporation ("Pegasus" or together with its
subsidiaries, the "Company") operates in growing segments of the media industry
and is a direct subsidiary of Pegasus Communications Holdings, Inc. ("PCH" or
the "Parent"). Pegasus' significant direct operating subsidiaries are Pegasus
Media & Communications, Inc. ("PM&C") and Digital Television Services, Inc.
("DTS").
PM&C's subsidiaries provide direct broadcast satellite television
("DBS") services to customers in certain rural areas of the United States; own
and/or program broadcast television ("Broadcast" or "TV") stations affiliated
with the Fox Broadcasting Company ("Fox"), United Paramount Network ("UPN") and
The WB Television Network ("WB"); and own and operate cable television ("Cable")
systems that provide service to individual and commercial subscribers in Puerto
Rico. DTS and its subsidiaries provide DBS services to customers in certain
rural areas of the United States.
2. Basis of Presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The financial statements include the accounts of Pegasus
and all of its subsidiaries. All intercompany transactions and balances have
been eliminated. Certain amounts for 1998 have been reclassified for comparative
purposes.
The unaudited consolidated financial statements reflect all adjustments
consisting of normal recurring items which are, in the opinion of management,
necessary for a fair presentation, in all material respects, of the financial
position of the Company and the results of its operations and its cash flows for
the interim period. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended December 31, 1998 included
in the Company's Annual Report on Form 10-K for the year then ended.
3. Common Stock:
In March 1999, Pegasus completed a secondary public offering in which
it sold approximately 3.6 million shares of its Class A Common Stock to the
public at a price of $22 per share, resulting in net proceeds to the Company of
$74.9 million.
On June 21, 1999, the Company amended Pegasus' Certificate of
Incorporation, increasing the number of authorized shares of Class A Common
Stock from 30.0 million to 50.0 million and authorizing 20.0 million shares of
Non-Voting Common Stock, par value $0.01 per share.
As of June 30, 1999, the Company had three classes of Common Stock:
Class A Common Stock, Class B Common Stock and Non-Voting Common Stock. Holders
of Class A Common Stock and Class B Common Stock are entitled to one vote per
share and ten votes per share, respectively.
The Company's ability to pay dividends on its Common Stock is subject
to certain restrictions.
4. Preferred Stock:
As of December 31, 1998 and June 30, 1999, the Company had 5.0 million
shares of Preferred Stock authorized of which 135,073 shares have been
designated as 12.75% Series A Cumulative Exchangeable Preferred Stock (the
"Series A Preferred Stock").
The Company had approximately 119,369 and 126,978 shares of Series A
Preferred Stock issued and outstanding at December 31, 1998 and June 30, 1999,
respectively. On June 11, 1999, the Board of Directors declared a dividend on
the Series A Preferred Stock of approximately 8,095 shares in the aggregate of
Series A Preferred Stock, payable on July 1, 1999 to stockholders of record on
June 15, 1999.
7
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Preferred Stock: - (Continued)
The carrying amount of the Series A Preferred Stock is periodically
increased by amounts representing dividends not currently declared or paid but
which will be payable under the mandatory redemption features. The increase in
carrying amount is effected by charges against retained earnings, or in the
absence of retained earnings, by charges against paid-in capital.
Under the terms of the Series A Preferred Stock, Pegasus' ability to
pay dividends on its Common Stock is subject to certain restrictions.
5. Long-Term Debt:
<TABLE>
<CAPTION>
Long-term debt consists of the following : December 31, June 30,
1998 1999
------------ ------------
<S> <C> <C> <C> <C>
Series B Senior Notes payable by Pegasus, due 2005,
interest at 9.625%, payable semi-annually in arrears on
April 15 and October 15....................................... $115,000,000 $115,000,000
Series B Senior Notes payable by Pegasus, due 2006,
interest at 9.75%, payable semi-annually in arrears on
June 1 and December 1......................................... 100,000,000 100,000,000
Senior six-year $180.0 million revolving credit facility,
payable by PM&C, interest at PM&C's option at either the
bank's base rate plus an applicable margin or LIBOR plus
an applicable margin.......................................... 27,500,000 48,000,000
Senior six-year $70.0 million revolving credit facility,
payable by DTS, interest at DTS' option at either the
bank's base rate or the Eurodollar Rate....................... 26,800,000 33,800,000
Senior six-year $20.0 million term loan facility, payable by
DTS, interest at DTS' option at either the bank's base rate
or the Eurodollar Rate........................................ 19,600,000 19,200,000
Series B Notes payable by PM&C, due 2005, interest at 12.5%,
payable semi-annually in arrears on January 1 and July 1,
net of unamortized discount of $2,621,878 and $2,423,099 as
of December 31, 1998 and June 30, 1999, respectively.......... 82,378,122 82,576,901
Series B Notes payable by DTS, due 2007, interest at 12.5%,
payable semi-annually in arrears on February 1 and August 1,
net of unamortized discount of $1,784,844 and $1,648,957 as
of December 31, 1998 and June 30, 1999, respectively.......... 153,215,156 153,351,043
Mortgage payable, due 2000, interest at 8.75%..................... 454,965 442,866
Sellers' notes, due 1999 to 2005, interest at 3% to 8%............ 33,537,788 25,136,205
Capital leases and other.......................................... 542,721 446,196
------------ ------------
559,028,752 577,953,211
Less current maturities........................................... 14,399,046 13,700,367
------------ ------------
Long-term debt.................................................... $544,629,706 $564,252,844
============ ============
</TABLE>
8
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Long-Term Debt: - (Continued)
DTS maintains a $70.0 million senior revolving credit facility and a
$20.0 million senior term credit facility (collectively, the "DTS Credit
Facility") which expires in 2003 and is collateralized by substantially all of
the assets of DTS and its subsidiaries. The DTS Credit Facility is subject to
certain financial covenants as defined in the loan agreement, including a debt
to adjusted cash flow covenant. As of June 30, 1999, $18.5 million of stand-by
letters of credit were issued pursuant to the DTS Credit Facility, including
$10.7 million collateralizing certain of the Company's outstanding sellers'
notes.
PM&C maintains a $180.0 million senior revolving credit facility (the
"PM&C Credit Facility") which expires in 2003 and is collateralized by
substantially all of the assets of PM&C and its subsidiaries. The PM&C Credit
Facility is subject to certain financial covenants as defined in the loan
agreement, including a debt to adjusted cash flow covenant. As of June 30, 1999,
$28.6 million of stand-by letters of credit were issued pursuant to the PM&C
Credit Facility, including $14.5 million collateralizing certain of the
Company's outstanding sellers' notes.
Certain of the Company's notes may be redeemed, at the option of the
Company, in whole or in part, at various points in time after July 1, 2000 at
the redemption prices specified in the indentures governing the respective
notes, plus accrued and unpaid interest thereon.
The Company's indebtedness contain certain financial and operating
covenants, including restrictions on the Company's ability to incur additional
indebtedness, create liens and pay dividends.
6. Earnings Per Common Share:
Calculation of basic and diluted earnings per common share:
The following table sets forth the computation of the number of shares
used in the computation of basic and diluted earnings per common share:
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net loss applicable to common shares ($22,803,772) ($48,672,107)
----------- -----------
Weighted average common shares outstanding 14,310,075 19,626,873
----------- -----------
Total shares used for calculation of basic earnings per common share 14,310,075 19,626,873
Stock options and warrants - -
----------- -----------
Total shares used for calculation of diluted earnings per common share 14,310,075 19,626,873
=========== ===========
</TABLE>
9
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Earnings Per Common Share: - (Continued)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Net loss applicable to common shares ($38,740,232) ($94,596,634)
------------ ------------
Weighted average common shares outstanding 12,332,244 17,998,636
------------ ------------
Total shares used for calculation of basic earnings per common share 12,332,244 17,998,636
Stock options and warrants - -
------------ ------------
Total shares used for calculation of diluted earnings per common share 12,332,244 17,998,636
============ ============
</TABLE>
Basic earnings per common share amounts are based on net income, after
deducting preferred stock dividend requirements, divided by the weighted average
number of shares of Class A, Class B and Non-Voting Common Stock outstanding
during the year. The total shares used for the calculation of diluted earnings
per common share were not adjusted for securities that have not been issued as
they are antidilutive.
For the three and six months ended June 30, 1998 and 1999, net loss per
common share was determined by dividing net loss, as adjusted by the aggregate
amount of dividends on the Company's Series A Preferred Stock, approximately
$3.6 million, $7.2 million, $4.0 million and $8.1 million, respectively, by
applicable shares outstanding.
7. Acquisitions:
In the first half of 1999, the Company acquired, from ten independent
DIRECTV(R) ("DIRECTV") providers, the rights to provide DIRECTV programming in
certain rural areas of Colorado, Illinois, Indiana, Minnesota, Nebraska, North
Dakota, Ohio and Texas and the related assets in exchange for total
consideration of approximately $55.1 million, which consisted of $49.6 million
in cash, warrants to purchase a total of 25,000 shares of the Company's Class A
Common Stock (amounting to $814,000 at the time of issuance), $4.5 million in
promissory notes and $129,000 in assumed net liabilities.
Effective March 31, 1999, the Company purchased a cable system serving
Aguadilla, Puerto Rico and neighboring communities for a purchase price of
approximately $42.1 million in cash. At March 31, 1999, the Aguadilla cable
system served approximately 21,000 subscribers and passed approximately 81,000
of the 90,000 homes in the franchise area. The Aguadilla cable system is
contiguous to the Company's other Puerto Rico cable system and the Company
intends to consolidate the Aguadilla cable system with its existing cable
system.
8. Supplemental Cash Flow Information:
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1998 1999
---------- ----------
<S> <C> <C>
Barter revenue and related expense.............................................. $3,246,700 $3,648,102
Acquisition of program rights and assumption of related program payables........ - 6,655,097
Acquisition of plant under capital leases....................................... 36,500 -
Capital contribution and related acquisition of intangibles..................... 123,162,284 813,735
Notes payable and related acquisition of intangibles............................ 209,143,311 4,490,000
Series A Preferred Stock dividend and reduction of paid-in capital.............. 7,153,706 8,094,876
Deferred taxes, net and related acquisition of intangibles...................... 82,934,179 29,029
</TABLE>
10
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Supplemental Cash Flow Information: - (Continued)
For the six months ended June 30, 1998 and 1999, the Company paid cash
for interest in the amount of $7.6 million and $31.6 million, respectively. The
Company paid no federal income taxes for the six months ended June 30, 1998 and
1999.
9. Commitments and Contingent Liabilities:
Legal Matters:
In connection with the pending license renewal application of one of
the Company's television stations, it has come to the attention of the Company
that, at that station, there were violations of the FCC's rules establishing
limits on the amount of commercial material in programs directed to children.
The Company has been sued in Indiana for allegedly charging DBS
subscribers excessive fees for late payments. The plaintiffs, who purport to
represent a class consisting of residential DIRECTV customers in Indiana, seek
unspecified damages for the purported class and modification of the Company's
late-fee policy. The Company is advised that similar suits have been brought
against DIRECTV and various cable operators in other parts of the United States.
From time to time the Company is involved with claims that arise in the
normal course of business.
In the opinion of management, the ultimate liability with respect to
these claims and matters will not have a material adverse effect on the
consolidated operations, liquidity, cash flows or financial position of the
Company.
10. Industry Segments:
The Company operates in growing segments of the media industry: DBS,
Broadcast and Cable. DBS consists of providing direct broadcast satellite
television services to customers in certain rural areas of 36 states. Broadcast
consists of nine television stations affiliated with Fox, UPN and the WB and two
transmitting towers, all located in the eastern United States. Cable consists of
providing cable television services to individual and commercial subscribers in
Puerto Rico.
All of the Company's revenues are derived from external customers.
Capital expenditures for the Company's DBS segment were $255,000 and $966,000
for the six months ended June 30, 1998 and 1999, respectively. Capital
expenditures for the Company's Broadcast segment were $2.2 million and $494,000
for the six months ended June 30, 1998 and 1999, respectively. Capital
expenditures for the Company's Cable segment were $1.0 million and $2.4 million
for the six months ended June 30, 1998 and 1999, respectively. Identifiable
total assets for the Company's DBS segment were $715.6 million and $702.4
million as of December 31, 1998 and June 30, 1999, respectively. Identifiable
total assets for the Company's Broadcast segment were $67.1 million and $72.0
million as of December 31, 1998 and June 30, 1999, respectively. Identifiable
total assets for the Company's Cable segment were $47.0 million and $87.5
million as of December 31, 1998 and June 30, 1999, respectively.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report contains certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) and
information relating to us that are based on the beliefs of our management, as
well as assumptions made by and information currently available to our
management. When used in this Report, the words "estimate," "project,"
"believe," "anticipate," "intend," "expect" and similar expressions are intended
to identify forward-looking statements. Such statements reflect our current
views with respect to future events and are subject to unknown risks,
uncertainties and other factors that may cause actual results to differ
materially from those contemplated in such forward-looking statements. Such
factors include, among other things, the following: general economic and
business conditions, both nationally, internationally and in the regions in
which we operate; relationships with and events affecting third parties like
DIRECTV, Inc.; demographic changes; existing government regulations and changes
in, or the failure to comply with government regulations; competition; the loss
of any significant numbers of subscribers or viewers; changes in business
strategy or development plans; technological developments and difficulties
(including any associated with the year 2000); the ability to attract and retain
qualified personnel; our significant indebtedness; the availability and terms of
capital to fund the expansion of our businesses; and other factors referenced in
this Report and in reports and registration statements filed from time to time
with the Securities and Exchange Commission. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as the date
hereof. We do not undertake any obligation to publicly release any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
The following discussion of the financial condition and results of
operations of Pegasus should be read in conjunction with the consolidated
financial statements and related notes which are included on pages 3-11 herein.
General
Pegasus Communications Corporation is:
o The largest independent provider of DIRECTV with 566,000
subscribers at July 31, 1999. We have the exclusive right to
distribute DIRECTV digital broadcast satellite services to 4.8
million rural households in 36 states. We distribute DIRECTV
through the Pegasus retail network, a network in excess of 2,000
independent retailers.
o The owner or programmer of nine TV stations affiliated with either
Fox, UPN or the WB and the owner of a large cable system in Puerto
Rico serving approximately 53,000 subscribers.
DBS revenues are principally derived from monthly customer
subscriptions and pay-per-view services. Broadcast revenues are derived from the
sale of broadcast airtime to local and national advertisers. Cable revenues are
derived from monthly customer subscriptions, pay-per-view services, subscriber
equipment rentals and installation charges.
In this section we use the terms pre-marketing cash flow and location
cash flow. Pre-marketing cash flow is calculated by taking our earnings and
adding back the following expenses:
o interest;
o income taxes;
o depreciation and amortization;
o non-cash charges;
o corporate overhead; and
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o DBS subscriber acquisition costs, which are sales and marketing
expenses incurred to acquire new DBS subscribers.
Location cash flow is pre-marketing cash flow less DBS subscriber
acquisition costs.
Pre-marketing cash flow and location cash flow are not, and should not
be considered, alternatives to income from operations, net income, net cash
provided by operating activities or any other measure for determining our
operating performance or liquidity, as determined under generally accepted
accounting principles. Pre-marketing cash flow and location cash flow also do
not necessarily indicate whether our cash flow will be sufficient to fund
working capital, capital expenditures, or to react to changes in Pegasus'
industry or the economy generally. We believe that pre-marketing cash flow and
location cash flow are important, however, for the following reasons:
o those who follow our industry frequently use them as measures of
financial performance and ability to pay debt service; and
o they are measures that our lenders, investors and we use to
monitor our financial performance and debt leverage.
Pegasus generally does not require new DBS customers to sign
programming contracts and, as a result, subscriber acquisition costs are
currently being charged to operations in the period incurred.
Results of Operations
Three months ended June 30, 1999 compared to three months ended June 30, 1998
Total net revenues for the three months ended June 30, 1999 were $79.3
million, an increase of $32.6 million, or 70%, compared to total net revenues of
$46.7 million for the same period in 1998. The increase in total net revenues
for the three months ended June 30, 1999 is primarily due to an increase in DBS
revenues of $30.7 million attributable to acquisitions and internal growth in
Pegasus' DBS subscriber base. Total operating expenses for the three months
ended June 30, 1999 were $108.8 million, an increase of $53.1 million, or 96%,
compared to total operating expenses of $55.6 million for the same period in
1998. The increase is primarily due to an increase of $49.9 million in operating
expenses attributable to the growth in Pegasus' DBS business.
Total corporate expenses, including corporate depreciation and
amortization, were $2.2 million for the three months ended June 30, 1999, an
increase of $963,000, or 76%, compared to $1.3 million for the same period in
1998. The increase in corporate expenses is attributable to the growth in
Pegasus' business. The increase in corporate depreciation and amortization is
primarily due to amortization of deferred financing costs associated with the
issuance of $100.0 million of senior notes in November 1998.
Interest expense was $15.6 million for the three months ended June 30,
1999, an increase of $5.3 million, or 51%, compared to interest expense of $10.3
million for the same period in 1998. The increase in interest expense is
primarily due to interest on Pegasus' $100.0 million senior notes issued in
November 1998, Digital Television Service, Inc.'s $155.0 million senior notes,
which were assumed by Pegasus in April 1998, and an increase in bank borrowings
and sellers' notes associated with Pegasus' DBS acquisitions. Interest income
was $315,000 for the three months ended June 30, 1999, a decrease of $60,000, or
16%, compared to interest income of $375,000 for the same period in 1998. The
decrease in interest income is due to lower average cash balances for the three
months ended June 30, 1999 compared to the same period in 1998.
Other expenses were $468,000 for the three months ended June 30, 1999,
an increase of $133,000, or 40%, compared to other expenses of $335,000 for the
same period in 1998. The increase is primarily due to increased investor
relation activities and other non-operating expenses.
The provision for income taxes declined by approximately $623,000
primarily as a result of the amortization of the deferred tax liability that
originated from the acquisition of Digital Television Services, Inc.
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Preferred stock dividends were $4.0 million for the three months ended
June 30, 1999, an increase of $471,000, or 13%, compared to $3.6 million in
preferred stock dividends for the same period in 1998. The increase is
attributable to a greater number of shares of Pegasus' preferred stock
outstanding during the second quarter of 1999 compared to the second quarter of
1998 as the result of payment of dividends in kind.
DBS
Pegasus' DBS business has experienced significant growth. During the
last twelve months, Pegasus acquired approximately 69,000 subscribers and the
exclusive DIRECTV distribution rights to approximately 557,000 households in
rural areas of the United States. On April 27, 1998, Pegasus acquired
approximately 145,000 subscribers and 1.8 million households as a result of the
merger with Digital Television Services, Inc. At June 30, 1999, Pegasus had
exclusive DIRECTV distribution rights to 4.8 million households and 540,000
subscribers as compared to 4.2 million households and 329,000 subscribers at
June 30, 1998. Pegasus had 4.9 million households and 553,000 subscribers at
June 30, 1999, including pending acquisitions. At June 30, 1998, subscribers
would have been 402,000, including pending and completed acquisitions.
Subscriber penetration increased from 8.1% at June 30, 1998 to 11.2% at June 30,
1999, including pending and completed acquisitions.
Total DBS net revenues were $64.1 million for the three months ended
June 30, 1999, an increase of $30.7 million, or 92%, compared to DBS net
revenues of $33.5 million for the same period in 1998. The increase is primarily
due to an increase in the average number of subscribers in the second quarter of
1999 compared to the second quarter of 1998. The average monthly revenue per
subscriber was $41.89 for the three months ended June 30, 1999 compared to
$42.02 for the same period in 1998. Pro forma DBS net revenues, including
pending acquisitions at June 30, 1999, were $67.5 million, an increase of $18.0
million, or 36%, compared to pro forma DBS net revenues of $49.6 million for the
same period in 1998.
Programming, technical, and general and administrative expenses were
$43.8 million for the three months ended June 30, 1999, an increase of $21.1
million, or 93%, compared to $22.8 million for the same period in 1998. The
increase is attributable to significant growth in subscribers and territory
during the last twelve months. As a percentage of revenue, programming,
technical, and general and administrative expenses were 68.4% for the three
months ended June 30, 1999 compared to 68.0% for the same period in 1998.
Subscriber acquisition costs were $28.7 million for the three months
ended June 30, 1999, an increase of $22.1 million compared to $6.7 million for
the same period in 1998. Gross subscriber additions were 76,000 for the three
months ended June 30, 1999 compared to 24,200 for the same period in 1998. The
total subscriber acquisition costs per gross subscriber addition were $378 for
the three months ended June 30, 1999 compared to $276 for the same period in
1998. The increase is due to an increase in promotional programming and
commissions.
Incentive compensation, which is calculated based on increases in pro
forma location cash flow, was $400,000 for the three months ended June 30, 1999,
a decrease of $74,000, or 16%, compared to $474,000 for the same period in 1998.
The decrease resulted from a lower gain in pro forma location cash flow during
the second quarter of 1999 as compared to the second quarter of 1998.
Depreciation and amortization was $20.5 million for the three months
ended June 30, 1999, an increase of $6.9 million, or 50%, compared to $13.6
million for the same period in 1998. The increase in depreciation and
amortization is primarily due to an increase in the fixed and intangible asset
base as the result of DBS acquisitions that occurred during the last two years.
Broadcast
During the three months ended June 30, 1999, Pegasus owned or
programmed nine broadcast television stations in six markets. Two new stations
were launched during the second half of 1998. Total net broadcast revenues for
the three months ended June 30, 1999 were $9.6 million, an increase of $922,000,
or 11%, compared to net broadcast revenues of $8.7 million for the same period
in 1998. The increase is primarily attributable to an increase of $400,000 in
net broadcast revenues from the four stations launched in 1997 and 1998, a
$179,000 increase in barter revenue and an increase in local and national
advertising sales.
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Programming, technical, and general and administrative expenses were
$5.2 million for the three months ended June 30, 1999, an increase of $1.0
million, or 24%, compared to $4.2 million for the same period in 1998. The
increase is primarily due to an increase in expenses from the two new stations
launched in 1998 and an increase in news related expenses associated with the
launch of self-produced news in our Portland, Maine and Chattanooga, Tennessee
markets.
Marketing and selling expenses were $1.6 million for the three months
ended June 30, 1999, an increase of $35,000, or 2%, compared to $1.6 million for
the same period in 1998. The increase in marketing and selling expenses is due
to an increase in promotional costs associated with the launch of the new
stations and news programs.
Incentive compensation, which is calculated based on increases in pro
forma location cash flow, was $47,000 for the three months ended June 30, 1999,
an increase of $15,000, or 46% compared to $32,000 for the same period in 1998.
The increase resulted from a larger gain in pro forma location cash flow during
the second quarter of 1999 as compared to the second quarter of 1998.
Depreciation and amortization was $1.3 million for the three months
ended June 30, 1999, an increase of $95,000, or 8%, compared to $1.2 million for
the same period in 1998. The increase is due to capital expenditures associated
with the launch of the new stations and our news initiative.
Cable
Total net cable revenues were $5.6 million for the three months ended
June 30, 1999, an increase of $1.0 million, or 22%, compared to net cable
revenues of $4.6 million for the same period in 1998. The increase is primarily
attributable to the acquisition of the Aguadilla, Puerto Rico cable system
effective March 31, 1999, partially offset by the sale of Pegasus' New England
cable systems effective July 1, 1998. Net cable revenues from the New England
Cable systems were $1.7 million for the three months ended June 30, 1998. The
net revenues derived from Pegasus' existing Puerto Rico cable system were $3.3
million for the three months ended June 30, 1999, an increase of $397,000, or
14%, compared to net cable revenues of $2.9 million for the same period in 1998.
The Aguadilla, Puerto Rico cable system generated net revenues of $2.3 million
for the three months ended June 30, 1999. The average monthly revenue per
subscriber was $36.15 for the three months ended June 30, 1999 compared to
$34.11 for the same period in 1998. On a pro forma basis, including the
completed acquisition of the Aguadilla, Puerto Rico cable system and the
disposition of the New England cable systems, there were 52,700 subscribers as
of June 30, 1999 compared to 50,200 subscribers as of June 30, 1998.
Programming, technical, and general and administrative expenses were
$2.7 million for the three months ended June 30, 1999, an increase of $505,000,
or 23%, compared to $2.2 million for the same period in 1998. The increase is
primarily attributable to the acquisition of the Aguadilla, Puerto Rico cable
system effective March 31, 1999, partially offset by the sale of Pegasus' New
England cable systems effective July 1, 1998.
Marketing and selling expenses were $176,000 for the three months ended
June 30, 1999, an increase of $97,000, or 122%, compared to $80,000 for the same
period in 1998. The increase is a result of the acquisition of the Aguadilla,
Puerto Rico cable system.
Incentive compensation, which is calculated based on increases in pro
forma location cash flow, was $38,000 for the three months ended June 30, 1999,
a decrease of $77,000, or 67%, compared to $114,000 for the same period in 1998.
The decrease resulted from a lower gain in pro forma location cash flow during
the second quarter of 1999 as compared to the second quarter of 1998.
Depreciation and amortization was $1.9 million for the three months
ended June 30, 1999, an increase of $553,000, or 40%, compared to $1.4 million
for the same period in 1998. The increase in depreciation and amortization is
primarily due to the acquisition of the Aguadilla, Puerto Rico cable system.
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Six months ended June 30, 1999 compared to six months ended June 30, 1998
Total net revenues for the six months ended June 30, 1999 were $148.7
million, an increase of $73.2 million, or 97%, compared to total net revenues of
$75.5 million for the same period in 1998. The increase in total net revenues
for the six months ended June 30, 1999 is primarily due to an increase in DBS
revenues of $71.5 million attributable to acquisitions and internal growth in
Pegasus' DBS subscriber base. Total operating expenses for the six months ended
June 30, 1999 were $204.9 million, an increase of $114.1 million, or 126%,
compared to total operating expenses of $90.7 million for the same period in
1998. The increase is primarily due to an increase of $110.0 million in
operating expenses attributable to the growth in Pegasus' DBS business.
Total corporate expenses, including corporate depreciation and
amortization, were $4.2 million for the six months ended June 30, 1999, an
increase of $1.8 million, or 77%, compared to $2.4 million for the same period
in 1998. The increase in corporate expenses is attributable to the growth in
Pegasus' business. The increase in corporate depreciation and amortization is
primarily due to amortization of deferred financing costs associated with the
issuance of $100.0 million of senior notes in November 1998.
Interest expense was $31.3 million for the six months ended June 30,
1999, an increase of $15.0 million, or 92%, compared to interest expense of
$16.3 million for the same period in 1998. The increase in interest expense is
primarily due to interest on Pegasus' $100.0 million senior notes issued in
November 1998, Digital Television Service, Inc.'s $155.0 million senior notes,
which were assumed by Pegasus in April 1998, and an increase in bank borrowings
and sellers' notes associated with Pegasus' DBS acquisitions. Interest income
was $775,000 for the six months ended June 30, 1999, an increase of $55,000, or
8%, compared to interest income of $720,000 for the same period in 1998. The
increase in interest income is due to greater average cash balances for the six
months ended June 30, 1999 compared to the same period in 1998.
Other expenses were $819,000 for the six months ended June 30, 1999, an
increase of $132,000, or 19%, compared to other expenses of $687,000 for the
same period in 1998. The increase is primarily due to increased investor
relation activities and other non-operating expenses.
The provision for income taxes declined by approximately $1.1 million
primarily as a result of the amortization of the deferred tax liability that
originated from the acquisition of Digital Television Services, Inc.
Preferred stock dividends were $8.1 million for the six months ended
June 30, 1999, an increase of $941,000, or 13%, compared to $7.2 million in
preferred stock dividends for the same period in 1998. The increase is
attributable to a greater number of shares of Pegasus' preferred stock
outstanding during the first half of 1999 compared to the first half of 1998 as
the result of payment of dividends in kind.
DBS
Total DBS net revenues were $122.5 million for the six months ended
June 30, 1999, an increase of $71.5 million, or 140%, compared to DBS net
revenues of $50.9 million for the same period in 1998. The increase is primarily
due to an increase in the average number of subscribers in the first half of
1999 compared to the first half of 1998. The average monthly revenue per
subscriber was $42.47 for the six months ended June 30, 1999 compared to $41.98
for the same period in 1998. Pro forma DBS net revenues, including pending
acquisitions at June 30, 1999, were $130.5 million, an increase of $34.4
million, or 36%, compared to pro forma DBS net revenues of $96.1 million for the
same period in 1998.
Programming, technical, and general and administrative expenses were
$84.4 million for the six months ended June 30, 1999, an increase of $49.4
million, or 141%, compared to $35.0 million for the same period in 1998. The
increase is attributable to significant growth in subscribers and territory
during the last twelve months. As a percentage of revenue, programming,
technical, and general and administrative expenses were 68.9% for the six months
ended June 30, 1999 compared to 68.6% for the same period in 1998.
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Subscriber acquisition costs were $49.9 million for the six months
ended June 30, 1999, an increase of $39.0 million compared to $10.9 million for
the same period in 1998. Gross subscriber additions were 127,700 for the six
months ended June 30, 1999 compared to 39,000 for the same period in 1998. The
total subscriber acquisition costs per gross subscriber addition were $391 for
the six months ended June 30, 1999 compared to $279 for the same period in 1998.
The increase is due to an increase in promotional programming and commissions.
Incentive compensation, which is calculated based on increases in pro
forma location cash flow, was $790,000 for the six months ended June 30, 1999, a
decrease of $44,000, or 5%, compared to $834,000 for the same period in 1998.
The decrease resulted from a lower gain in pro forma location cash flow during
the first half of 1999 as compared to the first half of 1998.
Depreciation and amortization was $41.9 million for the six months
ended June 30, 1999, an increase of $21.7 million, or 107%, compared to $20.3
million for the same period in 1998. The increase in depreciation and
amortization is primarily due to an increase in the fixed and intangible asset
base as the result of DBS acquisitions that occurred during the last two years.
Broadcast
During the six months ended June 30, 1999, Pegasus owned or programmed
nine broadcast television stations in six markets. Two new stations were
launched during the second half of 1998. Total net broadcast revenues for the
six months ended June 30, 1999 were $17.6 million, an increase of $1.9 million,
or 12%, compared to net broadcast revenues of $15.6 million for the same period
in 1998. The increase is primarily attributable to an increase of $740,000 in
net broadcast revenues from the four stations launched in 1997 and 1998, a
$401,000 increase in barter revenue and an increase in local and national
advertising sales.
Programming, technical, and general and administrative expenses were
$10.2 million for the six months ended June 30, 1999, an increase of $2.1
million, or 26%, compared to $8.1 million for the same period in 1998. The
increase is primarily due to an increase in expenses from the two new stations
launched in 1998 and an increase in news related expenses associated with the
launch of self-produced news in our Portland, Maine and Chattanooga, Tennessee
markets.
Marketing and selling expenses were $3.1 million for the six months
ended June 30, 1999, an increase of $117,000, or 4%, compared to $3.0 million
for the same period in 1998. The increase in marketing and selling expenses is
due to an increase in promotional costs associated with the launch of the new
stations and news programs.
Incentive compensation, which is calculated based on increases in pro
forma location cash flow, was $202,000 for the six months ended June 30, 1999,
an increase of $170,000, or 532% compared to $32,000 for the same period in
1998. The increase resulted from a larger gain in pro forma location cash flow
during the first half of 1999 as compared to the first half of 1998.
Depreciation and amortization was $2.5 million for the six months ended
June 30, 1999, a decrease of $45,000, or 2%, compared to $2.5 million for the
same period in 1998.
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Cable
Total net cable revenues were $8.6 million for the six months ended
June 30, 1999, a decrease of $323,000, or 4%, compared to net cable revenues of
$9.0 million for the same period in 1998. The decrease is primarily due to the
sale of Pegasus' New England cable systems effective July 1, 1998, partially
offset by the acquisition of the Aguadilla, Puerto Rico cable system effective
March 31, 1999. Net cable revenues from the New England Cable systems were $3.3
million for the six months ended June 30, 1998. The net revenues derived from
Pegasus' existing Puerto Rico cable system were $6.4 million for the six months
ended June 30, 1999, an increase of $673,000, or 12%, compared to net cable
revenues of $5.7 million for the same period in 1998. The Aguadilla, Puerto Rico
cable system generated net revenues of $2.3 million for the six months ended
June 30, 1999. The average monthly revenue per subscriber was $35.79 for the six
months ended June 30, 1999 compared to $33.91 for the same period in 1998. On a
pro forma basis, including the completed acquisition of the Aguadilla, Puerto
Rico cable system and the disposition of the New England cable systems, there
were 52,700 subscribers as of June 30, 1999 compared to 50,200 subscribers as of
June 30, 1998.
Programming, technical, and general and administrative expenses were
$4.4 million for the six months ended June 30, 1999, a decrease of $126,000, or
3%, compared to $4.5 million for the same period in 1998. The decrease is
primarily attributable to the sale of Pegasus' New England cable systems,
partially offset by the acquisition of the Aguadilla, Puerto Rico cable system.
Marketing and selling expenses were $285,000 for the six months ended
June 30, 1999, an increase of $99,000, or 53%, compared to $187,000 for the same
period in 1998. The increase is a result of the acquisition of the Aguadilla,
Puerto Rico cable system.
Incentive compensation, which is calculated based on increases in pro
forma location cash flow, was $61,000 for the six months ended June 30, 1999, a
decrease of $103,000, or 63%, compared to $164,000 for the same period in 1998.
The decrease resulted from a lower gain in pro forma location cash flow during
the first half of 1999 as compared to the first half of 1998.
Depreciation and amortization was $3.0 million for the six months ended
June 30, 1999, an increase of $95,000, or 3%, compared to $2.9 million for the
same period in 1998. The increase in depreciation and amortization is primarily
due to the acquisition of the Aguadilla, Puerto Rico cable system.
Liquidity and Capital Resources
Pegasus' primary sources of liquidity have been the net cash provided
by its DBS, broadcast and cable operations, credit available under its credit
facilities and proceeds from public and private offerings. Pegasus' principal
uses of its cash has been to fund acquisitions, meet debt service obligations,
fund DBS subscriber acquisition costs and fund investments in its broadcast and
cable technical facilities.
Pre-marketing cash flow increased by approximately $9.8 million, or
62%, for the three months ended June 30, 1999 as compared to the same period in
1998. The increase in pre-marketing cash flow for the three months ended June
30, 1999 is primarily due to an increase in DBS pre-marketing cash flow of $9.6
million, or 89%, attributable to acquisitions and internal growth in Pegasus'
DBS subscriber base.
Pre-marketing cash flow increased by approximately $21.6 million, or
87%, for the six months ended June 30, 1999 as compared to the same period in
1998. The increase in pre-marketing cash flow for the six months ended June 30,
1999 is primarily due to an increase in DBS pre-marketing cash flow of $22.1
million, or 138%, attributable to acquisitions and internal growth in Pegasus'
DBS subscriber base.
During the six months ended June 30, 1999, $54.5 million of cash on
hand at the beginning of the year, together with $100.2 million of net cash
provided by Pegasus' financing activities, was used to fund operating activities
of approximately $38.4 million and investing activities of $99.6 million.
Investing activities consisted of:
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o the purchase of a cable system serving Aguadilla, Puerto Rico and
neighboring communities for approximately $42.1 million;
o the acquisition of DBS assets from ten independent DIRECTV
providers during the first half of 1999 for approximately $49.6
million;
o broadcast expenditures associated with the launch of self-produced
news in our Portland, Maine and Chattanooga, Tennessee markets
totaling $630,000;
o DBS facility upgrades of $951,000;
o the expansion and enhancements of the Puerto Rico cable system
amounting to $1.7 million, including $213,000 related to hurricane
damage;
o payments of programming rights amounting to $1.3 million;
o capitalized costs relating to Pegasus' financing of approximately
$1.5 million;
o proceeds from the sale of DBS assets to an independent DIRECTV
provider for $509,000; and
o maintenance and other capital expenditures and intangibles
totaling $2.4 million.
Financing activities consisted of:
o the issuance of approximately 3.8 million shares of Class A common
stock resulting in net proceeds to Pegasus of approximately $76.2
million;
o net borrowings on bank credit facilities totaling $27.1 million;
o the repayment of approximately $13.4 million of long-term debt,
primarily sellers' notes and capital leases; and
o net restricted cash draws of approximately $9.3 million for
interest payments and $1.0 million in connection with the
acquisition of the Aguadilla, Puerto Rico cable system.
As of June 30, 1999, cash on hand amounted to $16.7 million plus
restricted cash of $11.2 million.
Pegasus Media & Communications maintains a $180.0 million senior,
reducing revolving credit facility. Borrowings under the credit facility are
available for acquisitions, subject to the approval of the lenders in certain
circumstances, working capital, capital expenditures and for general corporate
purposes. As of June 30, 1999, $48.0 million was outstanding and stand-by
letters of credit amounting to $28.6 million were issued under its $180.0
million credit facility. The credit facility expires in December 2003.
Digital Television Services maintains a $70.0 million senior, reducing
revolving credit facility and a $20.0 million senior term credit facility.
Borrowings under the credit facilities are available to refinance certain
indebtedness and for acquisitions, subject to the approval of the lenders in
certain circumstances, working capital, capital expenditures and for general
corporate purposes. As of June 30, 1999, $53.0 million was outstanding and
stand-by letters of credit amounting to $18.5 million were issued under its
$90.0 million credit facilities. The credit facilities expire in July 2003.
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In March 1999, Pegasus completed its secondary public offering in which
it sold approximately 3.6 million shares of its Class A Common Stock to the
public at a price of $22.00 per share, resulting in net proceeds to Pegasus of
approximately $74.9 million. Pegasus applied $49.9 million of the net proceeds
to pay down indebtedness under the Pegasus Media & Communications credit
facility and $25.0 million towards the acquisition of the cable system serving
Aguadilla, Puerto Rico and neighboring communities.
As defined in the Certificate of Designation governing Pegasus' Series
A Preferred Stock and the indentures governing Pegasus' senior notes, Pegasus is
required to provide Adjusted Operating Cash Flow data for Pegasus and its
Restricted Subsidiaries on a consolidated basis where Adjusted Operating Cash
Flow is defined as "for the four most recent fiscal quarters for which internal
financial statements are available, Operating Cash Flow of such Person and its
Restricted Subsidiaries less DBS Cash Flow for the most recent four-quarter
period plus DBS Cash Flow for the most recent quarterly period, multiplied by
four." Operating Cash Flow is income from operations before income taxes,
depreciation and amortization, interest expense, extraordinary items and
non-cash charges. Although Adjusted Operating Cash Flow is not a measure of
performance under generally accepted accounting principles, we believe that
Location Cash Flow, Operating Cash Flow and Adjusted Operating Cash Flow are
accepted within our business segments as generally recognized measures of
performance and are used by analysts who report publicly on the performance of
companies operating in such segments. Restricted Subsidiaries carries the same
meaning as in the Certificate of Designation. Digital Television Services, Inc.,
among certain other Pegasus' subsidiaries, are not included in the definition of
Restricted Subsidiaries and, accordingly, their operating results are not
included in the Adjusted Operating Cash Flow data provided below. Pro forma for
the acquisition of the Aguadilla, Puerto Rico cable system, the four completed
DBS acquisitions occurring in the second quarter of 1999 and the sale of our New
England cable systems, as if such acquisitions/disposition occurred on July 1,
1998, Adjusted Operating Cash Flow would have been approximately $62.1 million
as follows:
<TABLE>
<CAPTION>
Four Quarters Ended
(in thousands) June 30,1999
-------------------
<S> <C>
Revenues ................................................................ $199,147
Direct operating expenses, excluding depreciation, amortization and other
non-cash charges ...................................................... 132,866
--------
Income from operations before incentive compensation, corporate
expenses, depreciation and amortization and other non-cash charges .... 66,281
Corporate expenses ...................................................... 4,162
--------
Adjusted operating cash flow ............................................ $ 62,119
========
</TABLE>
Pegasus believes that it has adequate resources to meet its working
capital, maintenance capital expenditure and debt service obligations for at
least the next twelve months. However, Pegasus is highly leveraged and our
ability in the future to repay our existing indebtedness will depend upon the
success of our business strategy, prevailing economic conditions, regulatory
matters, levels of interest rates and financial, business and other factors that
are beyond our control. We cannot assure you that we will be able to generate
the substantial increases in cash flow from operations that we will need to meet
the obligations under our indebtedness. Furthermore, our agreements with respect
to our indebtedness contain numerous covenants that, among other things:
o restrict our ability to pay dividends and make certain other
payments and investments;
o borrow additional funds;
o create liens; and
o to sell our assets.
Failure to make debt payments or comply with our covenants could result in an
event of default which if not cured or waived could have a material adverse
effect on us.
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Pegasus closely monitors conditions in the capital markets to identify
opportunities for the effective use of financial leverage. In financing its
future expansion and acquisition requirements, Pegasus would expect to avail
itself of such opportunities and thereby increase its indebtedness. This could
result in increased debt service requirements. We cannot assure you that such
debt financing can be completed on terms satisfactory to Pegasus or at all.
Pegasus may also issue additional equity to fund its future expansion and
acquisition requirements.
Year 2000
The year 2000 issue is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other equipment as the year 2000
approaches and is reached. These problems generally arise from the fact that
most computer hardware and software have historically used only two digits to
identify the year in a date, often resulting in the computer failing to
distinguish dates in the 2000s from dates in the 1900s. These problems may also
arise from additional sources, such as the use of special codes and conventions
in software utilizing the date field.
Pegasus has reviewed its critical systems as to the year 2000 issue.
Pegasus' primary focus has been on its own internal systems. Pegasus has in the
past three years replaced or upgraded its TV traffic systems, cable billing
systems and corporate accounting systems. However, if any additional necessary
changes are not made or completed in a timely fashion or unanticipated problems
arise, the year 2000 issue may take longer for Pegasus to address and may have a
material adverse impact on Pegasus' financial condition and its results of
operations.
Pegasus relies on outside vendors for the operation of its DBS
satellite control and billing systems, including DIRECTV, the National Rural
Telecommunications Cooperative and their respective vendors. Pegasus has
established a policy to ensure that these vendors are currently in compliance
with the year 2000 issue or have a plan in place to be in compliance with the
year 2000 issue. In addition, Pegasus has had initial communications with
certain of its other significant suppliers, distributors, financial institutions
and parties with which it conducts business to evaluate their year 2000
compliance plans and state of readiness and to determine the extent to which
Pegasus' systems may be affected by the failure of others to remediate their own
year 2000 issues. To date, however, Pegasus has received only preliminary
feedback from such parties and has not independently confirmed any information
received from other parties with respect to the year 2000 issue. As such, we
cannot assure you that these other parties will complete their year 2000
conversion in a timely fashion or will not suffer a year 2000 business
disruption that may adversely affect Pegasus' financial condition and its
results of operations.
Because Pegasus' year 2000 conversion is expected to be completed prior
to any potential disruption to Pegasus' business, Pegasus has not yet completed
the development of a year 2000-specific contingency plan. If Pegasus determines
that its business or a segment thereof is at material risk of disruption due to
the year 2000 issue or anticipates that its year 2000 conversion will not be
completed in a timely fashion, it will work to enhance its contingency plan.
Costs to date relating to the year 2000 issue amounted to approximately
$250,000. Costs to be incurred beyond June 30, 1999, relating to the year 2000
issue are expected to be approximately $100,000.
Dividend Policy
As a holding company, Pegasus' ability to pay dividends is dependent
upon the receipt of dividends from its direct and indirect subsidiaries. Credit
facilities and publicly held debt securities of Pegasus' principal subsidiaries
restrict them from paying dividends to Pegasus. In addition, Pegasus' ability to
pay dividends and Pegasus' and its subsidiaries' ability to incur indebtedness
are subject to certain restrictions contained in Pegasus' and its subsidiaries'
credit facilities and publicly held debt securities and in the terms of Pegasus'
Series A preferred stock.
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Seasonality
Pegasus' revenues vary throughout the year. As is typical in the
broadcast television industry, Pegasus' first quarter generally produces the
lowest revenues for the year and the fourth quarter generally produces the
highest revenues for the year. Pegasus' operating results in any period may be
affected by the incurrence of advertising and promotion expenses that do not
necessarily produce commensurate revenues in the short-term until the impact of
such advertising and promotion is realized in future periods.
Inflation
Pegasus believes that inflation has not been a material factor
affecting its business. In general, Pegasus' revenues and expenses are impacted
to the same extent by inflation. A majority of Pegasus' indebtedness bears
interest at a fixed rate.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). As a result of the
subsequent issuance of SFAS No. 137, SFAS No. 133 is now effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Company does not expect that the adoption of SFAS No. 133 will have a material
effect on our business, financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the second quarter of 1999, Pegasus issued an aggregate of
62,689 shares of its Class A Common Stock upon the exercise of various warrants
previously issued in connection with acquisitions. These shares were issued to
holders who elected to surrender warrants to purchase 96,896 shares of Class A
Common Stock in the aggregate in lieu of paying the exercise price. In issuing
these shares, Pegasus relied upon the exemption from registration set forth in
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 10, 1999, Pegasus held its annual meeting of stockholders. At
this meeting, Marshall W. Pagon, Michael C. Brooks, Harry F. Hopper, III, James
J. McEntee, III, Mary C. Metzger, William P. Phoenix, Riordan B. Smith, Robert
N. Verdecchio and Donald W. Weber were reelected to Pegasus' Board of Directors.
In such election, 59,166,796 votes were cast for each director, 575 votes were
withheld with respect to each director and no votes were cast against any
director nor were any votes held in abstention with respect to any director. At
the meeting, the following proposals were considered:
Amendment to Pegasus' Stock Option Plan. Pegasus Communications 1996
Stock Option Plan was 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. At the meeting, 57,701,043
votes were cast for ratification of the plan, 1,466,163 votes were cast against
ratification and 165 were held in abstention.
Amendment to Pegasus Communications Restricted Stock Plan. Pegasus
Communications Restricted Stock Plan was 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. In
connection with this proposal, 57,237,622 shares were voted in favor of the
amendment, 1,531,740 votes were cast against and 365 votes were held in
abstention.
Increase in Authorized Shares of Class A Common Stock. At the meeting,
approval was given to amend Pegasus' Certification of Incorporation to increase
the number of authorized shares of Class A Common Stock from 30,000,000 to
50,000,000. Approval of this amendment required the vote of holders of the Class
A Common Stock, as a separate class, and the vote of holders of the Class A and
Class B Common Stock voting together. With respect to the holders of the Class A
Common Stock voting as a separate class, 13,216,794 votes were cast in favor of
the proposal, 135,481 votes were cast against and 165 votes were abstained. With
respect to the vote of holders of the Class A and Class B Common Stock voting
together, 59,031,725 votes were cast for the amendment, 135,481 votes were cast
against and 165 votes were held in abstention.
Amendment to Certificate of Incorporation to Eliminate Class Voting on
Changes in the Number of Authorized Shares of Class A Common Stock. At the
meeting, approval was given to amend Pegasus' Certificate of Incorporation 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 the Class B Common Stock voting together as a single class.
Approval of this amendment required the vote of holders of the Class A Common
Stock, as a separate class, and the vote of holders of the Class A and Class B
Common Stock voting together. With respect to the vote of holders of the Class A
Common Stock, 11,458,462 votes were cast in favor of the amendment, 1,492,000
votes were cast against and 165 were abstained. With respect to the vote of
holders of the Class A and Class B Common Stock voting together, 57,277,462
votes were cast for the amendment, 1,492,000 votes were cast against and 165
votes were held in abstention.
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Amendment to Certificate of Incorporation to Authorize 20,000,000
Shares of Non-Voting Common Stock. Approval was given at the meeting to amend
Pegasus' Certificate of Incorporation to authorize the issuance of up to
20,000,000 shares of Non-Voting Common Stock. With respect to this amendment,
56,216,704 votes were cast for this amendment, 2,549,738 votes were cast against
and 3,285 votes were held in abstention.
Ratification of Appointment of Auditors. Stockholders voted to ratify
the appointment of PricewaterhouseCoopers LLP as independent accountants for
Pegasus for the current fiscal year. With respect to this proposal, 59,078,259
votes were cast in favor, 85,947 votes were cast against ratification and 3,165
votes were held in abstention.
ITEM 5. OTHER INFORMATION
On June 3, 1999, National Rural Telecommunications Cooperative ("NRTC")
filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc.
(together, "DIRECTV") seeking a court order enforcing NRTC's contractual rights
to obtain from DIRECTV certain premium programming formerly distributed by
United States Satellite Broadcasting Company, Inc. ("Premiums") for exclusive
distribution by NRTC's members and affiliates in their rural markets. On July
22, 1999, DIRECTV responded to NRTC's lawsuit by rejecting NRTC's claims to such
exclusive distribution rights and by filing a counterclaim seeking judicial
clarification of certain provisions of DIRECTV's contract with NRTC. In
particular, DIRECTV contends in its counterclaim that the term of DIRECTV's
contract with NRTC is measured by the life of DBS-1 only and not the lives of
the other satellites at the 101 W orbital location; and that NRTC's right of
first refusal does not provide for certain programming and other rights
comparable to those now provided for in the contract. We understand that NRTC
intends to pursue vigorously its claim relating to the Premiums. NRTC has not
yet filed a response to DIRECTV's counterclaim, but we also understand that NRTC
intends to contest vigorously DIRECTV's interpretations of the end of term and
right of first refusal provisions. While the Company is not a party to the
pending litigation between NRTC and DIRECTV, the Company has an interest in the
outcome of the litigation because it is an associate of the NRTC with contract
rights that are affected by the contractual relationship between DIRECTV and
NRTC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1 Amended and Restated Certificate of Incorporation of Pegasus
Communications Corporation.
Exhibit 10.1 Pegasus Communications 1996 Stock Option Plan (as amended and
restated effective as of April 23, 1999).
Exhibit 10.2 Pegasus Communications Restricted Stock Plan (as amended and
restated, generally effective as of December 18, 1998).
Exhibit 27.1 Financial Data Schedule.
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the quarter
ended June 30, 1999.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Pegasus Communications Corporation has duly caused this Report to
be signed on its behalf by the undersigned thereunto duly authorized.
Pegasus Communications Corporation
Date August 12, 1999 By /s/ Robert N. Verdecchio
- --------------------- -------------------------------------------
Robert N. Verdecchio
Senior Vice President, Chief Financial Officer,
Assistant Secretary and Director
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit 3.1 Amended and Restated Certificate of Incorporation of
Pegasus Communications Corporation.
Exhibit 10.1 Pegasus Communications 1996 Stock Option Plan (as
amended and restated effective as of April 23, 1999).
Exhibit 10.2 Pegasus Communications Restricted Stock Plan (as
amended and restated, generally effective as of
December 18, 1998).
Exhibit 27.1 Financial Data Schedule.
<PAGE>
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 90,000,000 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, 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.
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:
<PAGE>
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;
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(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.
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:
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(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, Class B Common Stock and
Non-Voting Common Stock are set forth in Section 6 of this Part I.
3. Redemption of Preferred Stock. Except as otherwise provided
in Section 6 of this Part I, 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.
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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.
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.
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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 Non-Voting Common Stock shall be entitled to share
ratably in all remaining assets of the Corporation.
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.
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<PAGE>
6. Restrictions on Dividends and Purchase of Shares of
Preferred, Class A Common Stock, Class B Common Stock and Non-Voting
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, 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 B Common Stock or Non-Voting Common Stock, nor
shall any shares of Class A Common Stock, 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:
(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:
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(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.
II. CLASS A COMMON STOCK, 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, 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, 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 each other
class.
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(b) In the case of dividends or other distributions payable on
the Class A Common Stock, 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, 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, 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 any class may
be made only if parallel action is simultaneously taken in respect of
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, 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 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.
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, and not separately
by designated classes, 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.
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(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
(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.
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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.
(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;
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<PAGE>
(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.
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.
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<PAGE>
(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.
(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.
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(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, Class B Common Stock or
Non-Voting Common Stock, parallel action shall be simultaneously taken
in respect of 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
property or stock, separation, reorganization or liquidation of the
Corporation, the holders of Class A Common Stock, 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, 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 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, 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, 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.
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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.
FIFTH: 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.
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 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.
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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 18th day of
June, 1999.
By: /s/ Ted S. Lodge
----------------------------------
Ted S. Lodge,
Senior Vice President
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PEGASUS COMMUNICATIONS 1996
STOCK OPTION PLAN
(As Amended and Restated Effective As of April 23, 1999)
<PAGE>
- -
Table of Contents
1. Purpose................................................................ 1
2. Administration......................................................... 1
3. Eligibility............................................................ 2
4. Stock.................................................................. 3
5. Annual Limit........................................................... 3
6. Granting of Discretionary Options...................................... 3
7. Terms and Conditions of Discretionary Options.......................... 4
8. Formula Grants to Full-Time Employees Who Are Not Executive Officers... 8
9. Capital Adjustments....................................................11
10. Certain Corporate Transactions.........................................11
11. Change in Control......................................................12
12. Amendment or Termination of the Plan...................................13
13. Absence of Rights......................................................13
14. Indemnification of Board and Committee.................................14
15. Application of Funds...................................................14
16. Stockholder Approval...................................................14
17. No Obligation to Exercise Option.......................................14
18. Termination of Plan....................................................14
19. Governing Law..........................................................15
20. Option Agreements -- Other Provisions..................................15
21. Listing and Registration of Shares.....................................15
22. Special Provisions Regarding Digital Television Services, Inc..........15
<PAGE>
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 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:
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(a) Executive Officers and Non-employee Directors. With
respect to options granted to executive officers 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
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 stockholders 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.
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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 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.
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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 stockholder, 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
granted under Section 6 shall be not more than ten years (five years in
the case of a more-than-10-percent stockholder, 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.
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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;
(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.
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(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) 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.
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(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 Stockholder. 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
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.
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(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 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 stockholder, 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 stockholder, 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 Vesting 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 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.
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<PAGE>
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 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.
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<PAGE>
(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 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.
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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.
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.
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<PAGE>
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 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.
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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 stockholders (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 stockholder 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 Stockholder Approval. The approval of stockholders 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
stockholder approval (i.e., an action on which stockholders would be entitled to
vote if the action were taken at a duly held stockholders' meeting); or
(2) By a majority of the votes cast at a duly held
stockholders' 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 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.
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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. Stockholder Approval. This amended and restated Plan shall become
effective on April 23, 1999; provided, however, that if stockholders 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.
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
stockholders 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.
14
<PAGE>
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 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."
15
<PAGE>
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.
16
<PAGE>
PEGASUS COMMUNICATIONS
RESTRICTED STOCK PLAN
(As Amended and Restated, Generally Effective As of December 18, 1998)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 Purpose........................................................................................1
SECTION 2 Definitions....................................................................................1
(a) "Awards".......................................................................................1
(b) "Award Agreement"..............................................................................1
(c) "Board"........................................................................................1
(d) "Business Unit Location Cash Flow".............................................................1
(e) "Code".........................................................................................1
(f) "Committee"....................................................................................1
(g) "Common Stock".................................................................................1
(h) "Company Matching Contributions"...............................................................2
(i) "Company-Wide Location Cash Flow"..............................................................2
(j) "Disability"...................................................................................2
(k) "Discretionary Awards".........................................................................2
(l) "Excess Awards"................................................................................2
(m) "Fair Market Value"............................................................................2
(n) "Grantee"......................................................................................2
(o) "ISO"..........................................................................................2
(p) "Management Committee".........................................................................2
(q) "NQSO".........................................................................................2
(r) "Officers".....................................................................................2
(s) "Option".......................................................................................2
(t) "PCC"..........................................................................................2
(u) "Pegasus"......................................................................................2
(v) "Plan".........................................................................................3
(w) "Plan Administrator"...........................................................................3
(x) "Profit-Sharing Awards"........................................................................3
(y) "Rollover Matching Contributions"..............................................................3
(z) "Salary".......................................................................................3
(aa) "Savings Plan".................................................................................3
(bb) "Special Recognition Awards"...................................................................3
(cc) "Year Over Year Increase in Business Unit Location Cash Flow"..................................3
(dd) "Year Over Year Increase in Company-Wide Location Cash Flow"...................................3
(ee) "Years of Vesting Service".....................................................................4
SECTION 3 Administration.................................................................................4
(a) Special Recognition Awards and Discretionary Awards to Officers................................4
(b) All Other Awards...............................................................................4
(c) In General.....................................................................................5
SECTION 4 Eligibility....................................................................................5
(a) Special Recognition Awards.....................................................................5
(b) Profit-Sharing Awards..........................................................................5
(c) Excess Awards..................................................................................6
(d) Discretionary Awards...........................................................................6
SECTION 5 Stock..........................................................................................6
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 6 Amount of Award................................................................................6
(a) Special Recognition Awards.....................................................................6
(b) Profit-Sharing Awards..........................................................................6
(c) Excess Awards..................................................................................7
(d) Discretionary Awards...........................................................................8
SECTION 7 Vesting........................................................................................8
(a) Special Recognition Awards.....................................................................8
(b) Awards Other than Special Recognition Awards...................................................8
(c) Forfeiture.....................................................................................9
SECTION 8 Election To Receive Option in Lieu of Common Stock Subject to Vesting
Requirements...................................................................................9
(a) Election.......................................................................................9
(b) Date of Grant..................................................................................9
(c) Number of Shares Subject to Option.............................................................9
(d) Type of Option.................................................................................9
(e) Terms and Conditions of Options...............................................................10
(f) Application of Funds..........................................................................13
SECTION 9 Capital Adjustments...........................................................................13
SECTION 10 Amendment or Discontinuance of the Plan.......................................................14
SECTION 11 Termination of Plan...........................................................................15
SECTION 12 Effective Date................................................................................15
SECTION 13 Miscellaneous.................................................................................15
(a) Issuance and Delivery of Certificates.........................................................15
(b) Rights as a Stockholder.......................................................................16
(c) Award Agreement...............................................................................16
(d) Governing Law.................................................................................16
(e) Rights........................................................................................16
(f) Non-Transferability...........................................................................16
(g) Listing and Registration of Shares............................................................17
(h) Withholding and Use of Shares to Satisfy Tax Obligations......................................17
(i) Indemnification of Board and Plan Administrator...............................................17
</TABLE>
ii
<PAGE>
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).
(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.
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(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.
(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 -
2
<PAGE>
(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.
(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.
3
<PAGE>
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 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).
4
<PAGE>
(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 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).
5
<PAGE>
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 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.
6
<PAGE>
(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.
7
<PAGE>
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 Discretionary Award 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.
8
<PAGE>
(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 stockholder 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 stockholder, as provided in
Section 8(e)(10)) of the Fair Market Value of the optioned shares of
Common Stock, or the par value thereof.
9
<PAGE>
(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 stockholder, 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.
(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;
10
<PAGE>
(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 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.
11
<PAGE>
(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 Stockholder. 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.
12
<PAGE>
SECTION 9
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.
13
<PAGE>
SECTION 10
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 stockholders:
(a) Any amendment which would increase the number of shares of
Common Stock authorized under the Plan;
(b) Any amendment for which stockholder 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 stockholder 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 stockholders 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 stockholder approval (i.e., an action on which
stockholders would be entitled to vote if the action were taken at a duly held
stockholders' meeting), or (ii) by a majority of the votes cast at a duly held
stockholders' 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.
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.
14
<PAGE>
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 Stockholder. 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
stockholder'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 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.
15
<PAGE>
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 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.
16
<PAGE>
(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.
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Pegasus Communication Corporation as of June 30,
1999 (uaudited) and the related consolidated statements of operations and cash
flows for the three and six months ended June 30, 1999 (unaudited). This
information is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUN-30-1999 JUN-30-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 16,679,995 16,679,995
<SECURITIES> 0 0
<RECEIVABLES> 21,767,123 21,767,123
<ALLOWANCES> 776,000 776,000
<INVENTORY> 6,345,912 6,345,912
<CURRENT-ASSETS> 67,877,008 67,877,008
<PP&E> 66,154,560 66,154,560
<DEPRECIATION> 28,192,305 28,192,305
<TOTAL-ASSETS> 903,260,136 903,260,136
<CURRENT-LIABILITIES> 80,193,134 80,193,134
<BONDS> 450,927,944 450,927,944
134,122,747 134,122,747
3,000,000 3,000,000
<COMMON> 197,033 197,033
<OTHER-SE> 41,518,130 41,518,130
<TOTAL-LIABILITY-AND-EQUITY> 903,260,136 903,260,136
<SALES> 79,317,331 148,673,618
<TOTAL-REVENUES> 79,317,331 148,673,618
<CGS> 0 0
<TOTAL-COSTS> 108,757,553 204,851,973
<OTHER-EXPENSES> 153,226 43,542
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15,603,721 31,294,861
<INCOME-PRETAX> (45,197,169) (87,516,758)
<INCOME-TAX> (572,500) (1,015,000)
<INCOME-CONTINUING> (44,624,669) (86,501,758)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (44,624,669) (86,501,758)
<EPS-BASIC> (2.48) (5.26)
<EPS-DILUTED> (2.48) (5.26)
</TABLE>
