<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12
PEGASUS COMMUNICATIONS CORPORATION
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
PEGASUS
COMMUNICATIONS
--------------
PEGASUS COMMUNICATIONS CORPORATION
c/o PEGASUS COMMUNICATIONS MANAGEMENT COMPANY
SUITE 200
255 CITY LINE AVENUE
BALA CYNWYD, PENNSYLVANIA 19004
--------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------
TIME 12:30 p.m. on Friday, June 2, 2000
PLACE The Westin Resort
Two Grasslawn Avenue
Hilton Head Island, SC 29928
843-681-4000
ITEMS OF BUSINESS 1. To elect ten directors to hold office as
specified in the proxy statement.
2. To ratify the appointment of
PricewaterhouseCoopers LLP as independent
accountants for Pegasus for the current
fiscal year.
3. To act upon any other matters properly coming
before the meeting or any adjournment
thereof.
RECORD DATE The close of business on April 6, 2000 has been fixed
as the record date for the meeting. All stockholders
of record at that time are entitled to notice of, and
all such holders of Class A common stock and Class B
common stock are entitled to vote at the meeting and
any adjournment or postponement thereof.
ANNUAL REPORT Pegasus' Annual Report, including consolidated
financial statements for the year ended December 31,
1999, on which no action will be requested at the
annual meeting, is included herewith. It is not to be
considered part of the proxy solicitation materials.
IMPORTANT In order to avoid additional soliciting expense to
Pegasus, please MARK, SIGN, DATE and MAIL your proxy
PROMPTLY in the return envelope provided, even if you
plan to attend the meeting. If you attend the meeting
and wish to vote your shares in person, arrangements
will be made for you to do so.
By order of the board of directors,
TED S. LODGE
Secretary
May 10, 2000
<PAGE>
PEGASUS
COMMUNICATIONS
PEGASUS COMMUNICATIONS CORPORATION
c/o PEGASUS COMMUNICATIONS MANAGEMENT COMPANY
SUITE 200
255 CITY LINE AVENUE
BALA CYNWYD, PENNSYLVANIA 19004
----------------------------
PROXY STATEMENT
----------------------------
May 10, 2000
This Proxy Statement, which is being sent to stockholders on or about
May 10, 2000, is furnished in connection with the solicitation of proxies by the
board of directors of Pegasus Communications Corporation for use at the
forthcoming Annual Meeting of Stockholders to be held on Friday, June 2, 2000
(the "Meeting"), and at any adjournment or postponement thereof.
The close of business on April 6, 2000 has been fixed as the record
date for the Meeting (the "Record Date"). All stockholders of record at that
time are entitled to notice of, and all holders of record of Pegasus' Class A
common stock and Class B common stock (together, the "common stock") are
entitled to vote at the Meeting and any adjournment or postponement thereof. On
the Record Date, there were outstanding 15,972,289 shares of Class A common
stock and 4,581,900 shares of Class B common stock, which constituted the only
outstanding securities of Pegasus entitled to vote.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
VOTING AND REVOCABILITY OF PROXIES...............................................................................1
PROPOSAL 1. ELECTION OF DIRECTORS...............................................................................2
PROPOSAL 2. RATIFICATION OF APPOINTMENT OF AUDITORS.............................................................6
PROPOSAL 3. OTHER MATTERS.......................................................................................7
ADDITIONAL INFORMATION...........................................................................................8
Compliance with Section 16(a) of the Exchange Act................................................................8
Executive Compensation...........................................................................................8
Compensation Committee Interlocks and Insider Participation.....................................................10
Compensation Committee Report on Executive Compensation.........................................................11
Performance Graph...............................................................................................14
Principal Stockholders..........................................................................................15
Certain Relationships and Related Transactions..................................................................19
Stockholder Proposals...........................................................................................23
Miscellaneous...................................................................................................24
</TABLE>
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<PAGE>
PROPOSAL 1. ELECTION OF DIRECTORS
The board of directors has nominated ten persons for election as
directors whose terms will expire at the 2001 Annual Meeting of Stockholders, or
when their successors are duly elected and qualified. The nominees are Marshall
W. Pagon, Ted S. Lodge, Robert F. Benbow, William P. Collatos, Harry F. Hopper
III, James J. McEntee, III, Mary C. Metzger, William P. Phoenix, Riordon B.
Smith, and Robert N. Verdecchio, all of whom are currently directors of Pegasus.
In 1998, when Pegasus acquired Digital Television Services, it entered
into a voting agreement with Digital Television Services' principal
stockholders, including Fleet Venture Resources, Inc. and its affiliates. Under
the original voting agreement, Fleet had the right to designate one director on
a nine-member board of directors. When Pegasus acquired Golden Sky Holdings,
Inc. on May 5, 2000, that voting agreement was amended to include two of the
principal Golden Sky stockholder groups, Alta Communications VI, L.P. and two of
its affiliates, and Spectrum Equity Investors L.P. and one of its affiliates.
The amended voting agreement provides for a board of directors of eleven
members, unless the size of the board is increased or reduced as provided in the
agreement. Of those directors: Mr. Pagon will designate four; Alta will
designate one; Spectrum will designate one; Fleet will designate one; and all
other directors will be independent directors, as defined in the voting
agreement. If any of Alta, Spectrum, or Fleet ceases to be entitled to designate
a director, such person's designee will be required to resign at Mr. Pagon's
request, and Pegasus' board of directors, excluding such person's designee, will
determine whether or not to eliminate the directorship held by such person's
designee. Under the terms of the amended voting agreement, each party to the
voting agreement will be required to vote all of its covered shares for such
persons' election as directors. For more information about the voting agreement,
see "ADDITIONAL INFORMATION -- Certain Relationships and Related Transactions --
Voting Agreement." As of the Record Date, the shares covered by the voting
agreement (which does not give effect to the acquisition of Golden Sky and the
related amendment to the voting agreement entered into at the closing of the
acquisition of Golden Sky) represented 46,647,058 of the votes or approximately
75.2% of the voting power entitled to vote at the Meeting. As a consequence, the
parties to the voting agreement have sufficient power to vote for the election
of all of the nominees nominated by the board of directors without the vote of
any other stockholders.
If any nominee should be unable to serve as a director, an event not
now anticipated, it is intended that the shares represented by proxies will be
voted for the election of such substitute as the board of directors may
nominate. Set forth below is certain information with respect to the persons
nominated as directors of Pegasus.
Marshall W. Pagon has served as President, Chief Executive Officer and
Chairman of the Board of Pegasus since its incorporation and served as Treasurer
of Pegasus from its incorporation to June 1997. From 1991 to October 1994, when
the assets of various affiliates of Pegasus, principally limited partnerships
that owned and operated Pegasus' television and cable operations, were
transferred to subsidiaries of Pegasus Media & Communications, Inc. ("PM&C," a
subsidiary of Pegasus), entities controlled by Mr. Pagon served as the general
partner of these partnerships and conducted the business of Pegasus. Mr. Pagon's
background includes over 19 years of experience in the media and communications
industry. Mr. Pagon is one of his own designees to the board of directors
pursuant to the voting agreement. Mr. Pagon is 44 years old.
Ted S. Lodge was elected a director of Pegasus as one of Mr. Pagon's
designees on May 5, 2000 at the closing of the acquisition of Golden Sky. He has
served as Senior Vice President, Chief Administrative Officer, General Counsel
and Assistant Secretary of Pegasus since July 1, 1996. In June 1997, Mr. Lodge
became Pegasus' Secretary. From June 1992 through June 1996, Mr. Lodge practiced
law with the law firm of Lodge & Company. During that period, Mr. Lodge was
engaged by Pegasus as its outside legal counsel in connection with various
matters. Mr. Lodge is 43 years old.
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<PAGE>
Robert F. Benbow was designated as a director by Alta Communications on
May 5, 2000 under the amended voting agreement. Mr. Benbow has been a director
of Golden Sky and its predecessors since February 1997. He is a Vice President
of Burr, Egan, Deleage & Co., a private venture capital firm, and a managing
general partner of Alta Communications, Inc., a private venture capital firm.
Prior to joining Burr, Egan, Deleage & Co. in 1990, Mr. Benbow spent 22 years
with the Bank of New England N.A., where he was a Senior Vice President
responsible for special industries lending in the areas of media, project
finance and energy. Additionally, he serves as a director of Diginet Americas,
Inc., a fixed wireless local loop service provider throughout South America, of
Advanced Telcom Group, Inc., a competitive local exchange carrier, and of
Preferred Networks, Inc., a public paging company. Mr. Benbow is 64 years old.
William P. Collatos was designated as a director by Spectrum Equity
Investors on May 5, 2000 under the amended voting agreement. Mr. Collatos has
been a director of Golden Sky and its predecessors since March 1997. He is a
managing general partner of Spectrum Equity Investors, a private equity
investment firm focused on the communications services, networking
infrastructure, electronic commerce and media industries, which he founded in
1993. He serves as director of Galaxy Telecom, GP, the general partner of Galaxy
Telecom, L.P., which owns, operates and develops cable television systems, ITXC
Corp., a global provider of Internet-based voice, fax and voice-enabled
services, and JazzTel, a competitive local exchange provider based in Madrid,
Spain. Mr. Collatos is 46 years old.
Harry F. Hopper III has been a director of Pegasus since April 27,
1998. From June 1996 until April 27, 1998, Mr. Hopper had been a director of
Digital Television Services, or a manager of its predecessor limited liability
company. Mr. Hopper is a Managing Director of Columbia Capital Corporation and
Columbia Capital LLC, which he joined in January 1994. Columbia Capital is a
venture capital firm with an investment focus on communications services,
network infrastructure and technologies and electronic commerce. Mr. Hopper is
also a director of eBiz.Net, Inc., a web-hosting company, Pacific Internet
Exchange Corporation, an Internet peering and data center company, Xemod, Inc.,
a producer of next-generation linear power amplifiers, Singleshop.com, Inc., a
business-to-business, outsourced Internet shopping platform, and Broadslate
Networks, Inc., a digital subscriber line service provider. Mr. Hopper is
currently serving as a director of Pegasus designated by Columbia Capital
Corporation pursuant to the original voting agreement. He is proposed to be
elected at the Meeting as one of Mr. Pagon's designees to the board of
directors. Mr. Hopper is 46 years old.
James J. McEntee, III has been a director of Pegasus since October 8,
1996. Mr. McEntee is of counsel to the law firm of Lamb, Windle & McErlane, P.C.
and had been a principal of that law firm and Chairman of its Business
Department from 1995 through March 1, 2000. He is also a principal in Harron
Capital, L.P., a venture capital firm focused on new and traditional media
ventures, and he is a Chairman of the Board of Directors and interim Chief
Financial Officer of Around Campus, Inc. a company in the business of publishing
college student directories and creating and fostering internet based college
communities. He is a director of efoodpantries.com, an internet company in the
business of selling and marketing specialty food products and a director of
several other private companies. Mr. McEntee is one of the directors designated
as an independent director under the voting agreement. Mr. McEntee is 42 years
old.
Mary C. Metzger has been a director of Pegasus since November 14, 1996.
Ms. Metzger has been Chairman of Personalized Media Communications L.L.C. and
its predecessor company, Personalized Media Communications Corp., since February
1989. Ms. Metzger has also been Managing Director of Video Technologies
International, Inc. since June 1986. Ms. Metzger is one of the directors
designated as an independent director under the voting agreement. She is also a
designee of Personalized Media Communications under an agreement between Pegasus
and Personalized Media. See "ADDITIONAL INFORMATION - Certain Relationships and
Related Transactions - Investment in Personalized Media Communications, LLC and
Licensing of Patents." Ms. Metzger is 54 years old.
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<PAGE>
William P. Phoenix has been a director of Pegasus since June 17, 1998.
He is a Managing Director of CIBC World Markets Corp. and co-head of its Credit
Capital Markets Group. Mr. Phoenix is also a member of CIBC World Markets
Corp.'s credit investment and risk committees. Prior to joining CIBC World
Markets Corp. in 1995, Mr. Phoenix had been a Managing Director of Canadian
Imperial Bank of Commerce with management responsibilities for the bank's
acquisition finance, mezzanine finance and loan workout and restructuring
businesses. Mr. Phoenix joined Canadian Imperial Bank of Commerce in 1982. Mr.
Phoenix is one of the directors designated as an independent director under the
voting agreement. Mr. Phoenix is 42 years old.
Riordon B. Smith has been a director of Pegasus since April 27, 1998.
From February 1997 until April 27, 1998, Mr. Smith had been a director of
Digital Television Services, or a manager of its predecessor limited liability
company. Mr. Smith is a Senior Vice President of Fleet Private Equity Co., Inc.,
which he joined in 1990. Fleet Private Equity Co., Inc. is a private equity fund
with an investment focus in media and information, telecommunications services,
healthcare services, industrial manufacturing and business services. Mr. Smith
also serves as a director of FreeRide.com LLC, a provider of online loyalty
programs and direct marketing services, The MVL Group, Inc., a provider of
custom market research and data collection services, HASCO International, Inc.,
a direct marketer of in-hospital infant portraits, and Root Communications
Group, L.P., an operator of radio stations in the Southeast. Mr. Smith is
serving as a director of Pegasus as Fleet's designee to the board of directors.
Mr. Smith is 39 years old.
Robert N. Verdecchio has been a director of Pegasus since December 18,
1997. He served as Pegasus' Senior Vice President, Chief Financial Officer and
Assistant Secretary from its inception and as Treasurer from June 1997 until
March 22, 2000. He has also performed similar functions for PM&C's affiliates
and predecessors in interest from 1990 until March 22, 2000. Mr. Verdecchio is a
certified public accountant and has over 14 years of experience in the media and
communications industry. He is a private investor. Mr. Verdecchio is serving as
a director of Pegasus as one of Mr. Pagon's designees to the board of directors.
Mr. Verdecchio is 43 years old.
Information Concerning Meetings and Certain Committees
The board of directors held nine meetings during 1999. Pegasus has a
standing audit committee, a standing compensation committee and a standing
nominating committee of its board of directors.
The audit committee reviews (i) the scope of Pegasus' audit, (ii) the
corporate accounting practices and policies with Pegasus' independent
accountants and recommends to whom reports should be submitted within Pegasus,
(iii) the final report of Pegasus' independent accountants, and (iv) overall
accounting and financial controls with internal and independent accountants. The
audit committee is also available to the independent accountants during the year
for consultation purposes. Ms. Metzger, Mr. Smith and Mr. Weber (who is not
standing for election at the Meeting) are current members of the audit
committee. During 1999, the audit committee met twice.
The compensation committee establishes the salaries of executive
officers and makes recommendations to the board of directors regarding the
adoption, extension, amendment and termination of compensation plans in which
officers or directors may participate. Messrs. Hopper, McEntee and Weber are the
current members of the compensation committee. The compensation committee met
once during 1999.
The nominating committee nominates all persons (other than the
designees of Mr. Pagon, Fleet, Alta and Spectrum pursuant to the amended voting
agreement) to serve as directors of Pegasus. The nominating committee will not
consider nominees recommended by Pegasus' stockholders. Mr. Pagon, Ms. Metzger,
and Michael C. Brooks (who has resigned from the board of directors upon the
closing of the Golden Sky acquisition and is not standing for election at the
Meeting) constituted the nominating committee during 1999. The nominating
committee met once in 1999.
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<PAGE>
During 1999, all incumbent directors attended in person or by
conference telephone at least 75% of the total number of meetings of the board
of directors and committees of the board on which they served during their
incumbency.
Compensation of Directors
Under Pegasus' by-laws, each director is entitled to receive such
compensation, if any, as may from time to time be fixed by the board of
directors. Pegasus currently pays its directors who are not employees or
officers of Pegasus an annual retainer of $10,000 plus $750 for each board
meeting attended in person, $375 for each meeting of a committee of the board
and $375 for each board meeting held by telephone. The annual retainer is
payable, at each director's option, in cash or in the form of options to
purchase Pegasus' Class A common stock. Pegasus also reimburses each director
for all reasonable expenses incurred in traveling to and from the place of each
meeting of the board or committee of the board.
On May 5, 1999, Michael C. Brooks, Harry F. Hopper III, James J.
McEntee, III, Mary C. Metzger, William P. Phoenix, Riordon B. Smith, and Donald
W. Weber, who were then all of Pegasus' non-employee directors, each received
options to purchase 5,000 shares of Class A common stock under Pegasus' Stock
Option Plan. Each option vests in annual installments of 2,500 shares, was
issued at an exercise price of $39.50 per share, the closing price of the Class
A common stock at the time of the grant, and is exercisable until the tenth
anniversary from the date of grant. On December 17, 1999, the same directors
referred to above, who were then all of Pegasus' nonemployee directors, each
received options to purchase 5,000 shares of Class A common stock under Pegasus'
stock option plan. Each option vests in annual installments of 2,500 shares, was
issued at an exercise price of $80.875 per share -the closing price of the Class
A common stock at the time of the grant -- and is exercisable until the tenth
anniversary from the date of grant.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ELECTION OF EACH OF
THE NOMINEES FOR DIRECTOR.
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<PAGE>
PROPOSAL 2. RATIFICATION OF APPOINTMENT OF AUDITORS
The firm of PricewaterhouseCoopers LLP served as Pegasus' independent
accountants for 1998 and 1999 and has been selected by the board of directors to
serve in the same capacity for 2000. The stockholders will be asked to ratify
this appointment at the Meeting. The ratification of independent accountants by
the stockholders is not required by law or Pegasus' bylaws. Pegasus has
submitted this matter to the stockholders because it believes it to be good
practice to do so. The affirmative vote of holders of outstanding shares of
common stock with a majority of the votes present, in person or by proxy, at the
Meeting and entitled to vote is required to ratify the appointment of
PricewaterhouseCoopers LLP. If a majority of the votes cast on this matter are
not cast in favor of the ratification of PricewaterhouseCoopers LLP, Pegasus
will appoint other independent accountants as soon as practicable and before the
close of the year 2000.
A representative of PricewaterhouseCoopers LLP is expected to be
present at the Meeting and will be available to respond to appropriate
questions. The representative will also have the opportunity to make a statement
if he or she so desires.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS PEGASUS' INDEPENDENT ACCOUNTANTS
FOR 2000.
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PROPOSAL 3. OTHER MATTERS
The board of directors knows of no matters to be presented for action
at the Meeting other than those set forth in the attached notice and customary
procedural matters. However, if any other matters should properly come before
the Meeting or any adjournment or postponement thereof, the proxies solicited
hereby will be voted on such matters, to the extent permitted by the rules and
regulations of the Commission, in accordance with the judgment of the persons
voting such proxies.
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<PAGE>
ADDITIONAL INFORMATION
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires Pegasus' directors and executive officers, as well as
persons beneficially owning more than ten percent of a registered class of
Pegasus' equity securities (collectively, the "Covered Persons"), to file
reports of ownership and changes in ownership with the Commission and to furnish
Pegasus with copies of such reports.
Based on Pegasus' review of the copies of these reports received by it,
and written representations, if any, received from reporting persons with
respect to the filing of reports on Forms 3, 4 and 5, Pegasus believes that all
filings required to be made by the Covered Persons for 1999 were made on a
timely basis, with the following exception: Form 4 for Nicholas A. Pagon, an
executive officer of Pegasus, reporting the grant in December 1998 of options to
purchase 40,000 shares of Class A common stock was filed in April 1999. That
grant should have been reported either on a Form 4 filed in January 1999 or a
Form 5 filed in February 1999.
Executive Compensation
The following table sets forth certain information for Pegasus' last
three fiscal years concerning the compensation paid to the Chief Executive
Officer and to each of Pegasus' most highly compensated officers. The most
highly compensated officers are those whose total annual salary and bonus for
the fiscal year ended December 31, 1998 exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation Awards
---------------------
Securities
Principal Other Annual Restricted Underlying All Other
Name Position Year Salary Compensation(2) Stock Award(3) Options Compensation (4)
---- -------- ---- ------ --------------- ------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Marshall W. Pagon.... President and 1999 $274,743 -- $124,978 190,000 $60,096(5)
Chief 1998 $200,000 -- $77,161 85,000 $67,274(5)
Executive 1997 $200,000 -- $100,558 85,000 $63,228(5)
Officer
Robert N. Verdecchio (1) Senior VP and 1999 $188,717 $50,000 $49,967 70,000 $ 6,380
Chief 1998 $150,000 -- $38,580 40,000 $12,720
Financial 1997 $150,000 -- $50,279 40,000 $ 9,500
Officer
Ted S. Lodge......... Senior VP, 1999 $164,647 $50,000 $54,068 85,000 $ 3,600
Chief 1998 $150,000 -- $30,864 60,000 $ 9,263
Administrative 1997 $150,000 -- $40,223 40,000 $ 1,800
Officer and
General
Counsel
Howard E. Verlin..... VP, Satellite 1999 $155,974 $45,000 $99,974 95,000 $ 1,620
and Cable 1998 $135,000 -- $110,125 40,000 $ 5,480
Television 1997 $135,000 -- $100,558 40,000 $ 1,685
Nicholas A. Pagon.... Vice President 1999 $133,442 -- -- 45,000 --
1998 $13,666(6) -- -- 40,000 --
</TABLE>
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<PAGE>
(1) Mr. Verdecchio resigned as Senior Vice President and Chief Financial
Officer on March 22, 2000.
(2) Pursuant to Pegasus' restricted stock plan, an executive officer may
elect to receive a portion of the award in the form of cash. The
amounts listed in this column reflect the cash portion of discretionary
awards granted under the restricted stock plan.
(3) During fiscal 1999, an aggregate of 3,164, 2,531, 2,685 and 3,670
shares were granted to Messrs. Marshall Pagon, Verdecchio, Lodge and
Verlin, respectively. Based upon the closing price of the Class A
common stock on December 31, 1999 of $97.75 per share, the shares
awarded to Messrs. Marshall Pagon, Verdecchio, Lodge and Verlin during
fiscal 1999 had a value of $309,281, $247,405, $262,459, and $358,743,
respectively, on December 31, 1999. All awards made during fiscal 1999
were fully vested on the date of grant. Generally, awards made under
Pegasus' restricted stock plan were based upon years of service with
Pegasus from date of initial employment. As a consequence, all awards
made to Messrs. Marshall Pagon, Verdecchio and Verlin were fully vested
in 1997 and 1998 on the date of grant. During 1997, 9,090, 4,545, and
9,090 shares issued to Messrs. Marshall Pagon, Verdecchio, and Verlin
were fully vested on March 21, 1997, the date they were granted. During
1998, 3,609, 1,804 and 5,152 shares issued to Messrs. Marshall Pagon,
Verdecchio and Verlin were fully vested on February 17, 1998, the date
they were granted. Mr. Lodge's employment with Pegasus began on July 1,
1996. Mr. Lodge's awards granted in fiscal 1998 were vested as to 34%
on July 1, 1998, an additional 33% on July 1, 1999 and the remaining
33% on July 1, 2000.
(4) Unless otherwise indicated, the amounts listed represent Pegasus'
contributions under its 401(k) plans.
(5) Of the amounts listed for Marshall W. Pagon in each of the years of
1999, 1998 and 1997, $53,728, represents the actuarial benefit to Mr.
Pagon of premiums paid by Pegasus in connection with the split dollar
agreement entered into by Pegasus with the trustees of insurance trust
established by Mr. Pagon. See ADDITIONAL INFORMATION - Certain
Relationships and Related Transactions - Split Dollar Agreement. The
remainder represents Pegasus' contributions under its 401(k) plans.
(6) Nicholas A. Pagon became an employee of Pegasus on November 5, 1998.
Pegasus granted options to employees to purchase a total of 727,346
shares during 1999. The amounts set forth below in the columns entitled "5%" and
"10%" represent hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. The gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from the
date the respective options were granted to their expiration date.
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<PAGE>
Option Grants in 1999
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
----------------------------------------------------------------- ---------------------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise Price Expiration
Name Options Granted Fiscal Year Per Share Date 5% 10%
- ---- --------------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Marshall W. Pagon..... 95,000 13.1% $39.500 5/4/2009 $2,359,927 $5,980,519
95,000 13.1% $80.875 12/17/2009 $4,831,876 $12,244,923
Robert N. Verdecchio.. 45,000 6.2% $39.500 5/4/2009 $1,117,860 $2,832,877
25,000 3.4% $80.875 12/17/2009 $1,271,546 $3,222,348
Howard E. Verlin...... 45,000 6.2% $39.500 5/4/2009 $1,117,860 $2,832,877
50,000 6.9% $80.875 12/17/2009 $2,543,093 $6,444,696
Ted S. Lodge.......... 45,000 6.2% $39.500 5/4/2009 $1,117,860 $2,832,877
40,000 5.5% $80.875 12/17/2009 $2,034,474 $5,155,757
Nicholas A. Pagon..... 20,000 2.7% $39.500 5/4/2009 $ 496,827 $1,259,057
25,000 3.4% $80.875 12/17/2009 $1,271,546 $3,222,348
</TABLE>
The table below shows aggregated stock option exercises by the named
executive officers in 1999 and 1999 year-end values. In-the-money options, which
are listed in the last two columns, are those in which the fair market value of
the underlying securities exceeds the exercise price of the option. The closing
price of Pegasus' Class A common stock on December 31, 1999 was $97.75 per
share.
Aggregated Option Exercises in 1999 and 1999 Year-End Option Values
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Option Term
Individual Grants
-------------------------------------------------------------------- -----------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marshall W. Pagon..... 0 -- 76,500 283,500 $6,200,750 $14,812,375
Robert N. Verdecchio.. 0 -- 38,180 11,820 $3,107,115 $ 6,466,010
Howard E. Verlin...... 0 -- 38,180 136,820 $3,107,115 $ 6,887,885
Ted S. Lodge.......... 0 -- 48,180 136,820 $3,872,115 $ 7,484,135
Nicholas A. Pagon..... 0 -- 8,000 77,000 $581,000 $ 3,910,875
</TABLE>
Compensation Committee Interlocks and Insider Participation
During 1999, the board of directors generally made decisions concerning
executive compensation of executive officers. The board included Marshall W.
Pagon, the President and Chief Executive Officer of Pegasus, and Robert N.
Verdecchio, Pegasus' former Senior Vice President and Chief Financial Officer
and current director. A special stock option committee, however, made certain
decisions regarding option grants under the stock option plan.
-10-
<PAGE>
Compensation Committee Report
on Executive Compensation
Introduction
Pursuant to rules established by the Securities and Exchange
Commission, Pegasus is required to provide certain information with respect to
compensation provided to Pegasus' Chief Executive Officer and its other
executive officers. In fulfillment of this requirement, the compensation
committee of the board of directors has prepared the following report addressing
Pegasus' executive compensation policies for the fiscal year ended December 31,
1999 for inclusion in the proxy statement.
The compensation committee reviews and recommends to the board of
directors salaries and other matters relating to compensation of Pegasus'
executive officers, including certain incentive compensation and other forms of
compensation and benefits. The compensation committee of Pegasus' board of
directors consists entirely of non-employee directors, and the voting agreement
described elsewhere in this proxy statement provides that the compensation
committee shall consist of one independent director (within the meaning of the
voting agreement), one director to be designated by Marshall W. Pagon and one
director to be designated by a majority of the directors designated by Fleet,
Alta and Spectrum). During 1999, the compensation committee consisted of Harry
F. Hopper III, James J. McEntee, III and Donald W. Weber. The compensation
committee met once in 1999.
Compensation Policies
Pegasus seeks to achieve the following goals with its executive
compensation programs: attract and retain employees and motivate them to
exercise their best efforts on behalf of Pegasus, and promote growth in
stockholder value by providing employees restricted stock awards under the
Restricted Stock Plan and grants of options to purchase Class A common stock of
Pegasus under the Stock Option Plan. The compensation committee considers a
number of factors when making specific executive compensation recommendations,
including Pegasus' performance and the contribution of executive officers to
Pegasus' performance.
Base Compensation
Pegasus' executive compensation philosophy has always placed a high
degree of emphasis on incentive compensation in the form of equity-based plans.
As a result, in the opinion of the compensation committee, based upon
information available to the committee on competitive salaries, the base
compensation paid to Pegasus' executive officers in 1999 fell at the lower end
of the range of salaries for similar positions in comparable media and
communications companies. The compensation committee has engaged William W.
Mercer, Incorporated, to help evaluate Pegasus' policy on cash compensation,
including base compensation.
-11-
<PAGE>
Equity Incentive Plans
Pegasus provides equity incentive compensation to its
executive officers and employees primarily through its Restricted Stock Plan and
Stock Option Plan.
Restricted Stock Plan. Awards under this plan, other than
excess and discretionary awards, are in proportion to annual increases in
Pegasus' or a business unit's location cash flow. Pegasus believes that location
cash flow is accepted within the media and communications industry as a
generally recognized measure of performance and is used by analysts who report
publicly on the performance of companies operating in this industry. Pegasus
believes that compensation in the form of grants made under the Restricted Stock
Plan, together with its other equity incentive plans, will result in greater
increases in stockholder value than conventional stock option programs, because
these plans create a clear cause and effect relationship between initiatives
taken to increase location cash flow and the amount of incentive compensation
that results therefrom.
The Restricted Stock Plan provides for four types of
restricted stock awards that are made in the form of the Pegasus' Class A common
stock: (i) profit sharing awards to general managers, department managers and
corporate managers (other than executive officers); (ii) special recognition
awards for consistency (team award), initiative (a team or individual award),
problem solving (a team or individual award) and individual excellence; (iii)
excess awards that are made to the extent that an employee does not receive a
matching contribution under Pegasus' U.S. 401(k) Plan or Puerto Rico 401(k) Plan
because of restrictions imposed by the Internal Revenue Code of 1986, as
amended, or the Puerto Rico Internal Revenue Code, respectively; and (iv)
discretionary restricted stock awards. An employee may elect to receive all or
any portion of a discretionary award and/or a profit sharing award in the form
of an option to purchase Pegasus' Class A common stock (and such options are
generally granted as incentive stock options). An executive officer may also
elect to have any discretionary award made on or after April 23, 1999 paid in
cash, provided that the cash may not exceed one-third of the executive officer's
base salary. Executive officers are eligible to receive awards under the
Restricted Stock Plan consisting of (i) special recognition awards, (ii) excess
awards, and (iii) discretionary awards determined by a committee of not fewer
than two non-employee directors of Pegasus or the entire board of directors of
Pegasus. In 1999, Pegasus issued 45,247 shares of its Class A common stock and
options to purchase 33,946 shares of its Class A common stock under the
Restricted Stock Plan. Pegasus has made and intends to make additional grants to
employees under the Restricted Stock Plan.
Stock Option Plan. Employees are eligible to receive incentive
stock options and nonqualified stock options under the Stock Option Plan subject
to certain limits. Non-employee directors are eligible to receive nonqualified
stock options under the Stock Option Plan. Currently five executive officers and
eight non-employee directors are eligible to receive options under the Stock
Option Plan. Among the 763,400 options granted under the Plan in 1999, an
aggregate of 555,000 options were granted to executive officers and directors,
152,500 options were granted to non-executive officers, and options to purchase
55,900 shares were granted to full-time employees and to non-executive officers
in the form of an option to purchase 100 shares. Pegasus intends to make future
grants under the Stock Option Plan to a broad-based group of employees,
including executive officers, senior managers, directors and other key
employees.
-12-
<PAGE>
Chief Executive Officer Compensation
The compensation committee uses the same factors in
determining the compensation of the Chief Executive Officer as it does for the
other executive officers. The salary received by the Chief Executive Officer in
1999 was based on the compensation policies discussed above.
May 10, 2000 THE COMPENSATION COMMITTEE
Harry F. Hopper III
James J. McEntee, III
Donald W. Weber
-13-
<PAGE>
Performance Graph
The first graph set forth below compares the cumulative total return to
holders of Class A common stock of Pegasus with the cumulative total return of
the Nasdaq Stock Market-U.S. Index and the cumulative total return to holders of
common stock (unless otherwise noted) of the Peer Group that Pegasus has
constructed, for the period beginning October 4, 1996, the date trading first
began in Pegasus' Class A common stock on the Nasdaq National Market, through
December 31, 1999. Pegasus has determined that the choice of Nasdaq
Telecommunications Index, the industry index used in previous years, is not the
best indicator of stockholder return among Pegasus' peers. Pegasus has instead
selected the Peer Group to be composed of Adelphia Communications Corporation
(Class A common stock), Comcast Corporation (Class A common stock), EchoStar
Communications Corporation (Class A common stock), Gilat Satellite Networks
Ltd., Globalstar Telecommunications Limited, Hughes Electronics Corporation, a
wholly-owned subsidiary of General Motors Corporation (Class H Common Stock),
Liberty Media Group, a wholly-owned subsidiary of AT&T Corp. (Class A Common
Tracking Stock), News Corporation Limited, Sirius Satellite Radio, Inc. and XM
Satellite Radio Holdings Inc. (Class A common stock). The total return to
holders of Class A common stock as reflected in the Nasdaq Telecommunications
Index is represented on the second graph below because the Commission requires
both the new and old index to be shown, if the graph uses a different index from
that used for the graph in the preceding year's proxy statement. The graph
assumes that the value of the investment in the relevant stock or index was $100
at October 4, 1996 and that all dividends were reinvested. Total returns are
calculated based on a fiscal year ending December 31. The closing market price
of Pegasus' Class A common stock on December 31, 1999 was $97.75.
Comparison of Cumulative Total Return for the Period from October 4, 1996
Through December 31, 1999 Among Pegasus Communications Corporation,
The NASDAQ Stock Market (U.S.) Index and the Peer Group
Cumulative Total Return
(Dollars)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
10/4/96 12/96 12/97 12/98 12/99
<S> <C> <C> <C> <C> <C>
Pegasus Communications Corporation 100 98 148 179 698
NASDAQ Stock Market (U.S.) 100 103 126 178 330
Peer Group 100 96 108 141 260
</TABLE>
-14-
<PAGE>
Comparison of Cumulative Total Return for the Period from October 4, 1996
Through December 31, 1999 Among Pegasus Communications Corporation,
The NASDAQ Stock Market (U.S.) Index and The NASDAQ Telecommunications Index
Cumulative Total Return
(Dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
10/4/96 12/96 12/97 12/98 12/99
<S> <C> <C> <C> <C> <C>
Pegasus Communications Corporation 100 98 148 179 698
NASDAQ Stock Market (U.S.) 100 103 126 178 330
NASDAQ Telecommunications 100 100 145 240 426
</TABLE>
Principal Stockholders
The following table sets forth share information as of April 12, 2000
regarding the beneficial ownership of the Class A common stock and Class B
common stock by (a) each stockholder known to Pegasus to be the beneficial
owner, as defined in Rule 13d-3 under the Exchange Act, of more than 5% of the
Class A common stock and Class B common stock, based upon Company records or the
records of the Commission, (b) each director of Pegasus, (c) each of the Named
Officers, and (d) all executive officers and directors of Pegasus as a group.
This table does not reflect the issuance of approximately 6.44 million shares of
Class A common stock and stock options on May 5, 2000 in connection with the
acquisition of Golden Sky. Each share of Class B common stock is currently
convertible at the discretion of the holders into an equal number of shares of
Class A common stock. Each of the stockholders named below has sole voting power
and sole investment power with respect to the shares indicated as beneficially
owned, unless otherwise indicated.
-15-
<PAGE>
<TABLE>
<CAPTION>
Name and address of Pegasus Class A Common Pegasus Class B Common Stock Voting
Beneficial Owner Stock Beneficially Owned Beneficially Owned Power
---------------- ------------------------ ------------------ -----
Shares % Shares % %
------ - ------ - -
<S> <C> <C> <C> <C> <C> <C> <C>
Marshall W. Pagon(1) (2).................... 5,409,958 (3)(4)(5) 26.1 4,581,900(4) 100 75.2
Robert N. Verdecchio........................ 245,052 (5)(6)(7) 1.5 - - *
Howard E. Verlin............................ 123,198 (6)(8) * - - *
Ted S. Lodge................................ 116,699 (9) * - - *
Nicholas A. Pagon........................... 23,941 (10) * - - *
James J. McEntee, III....................... 18,670 (11) * - - *
Mary C. Metzger............................. 213,000 (12) 1.3 - - *
Donald W. Weber............................. 175,922 (13) 1.1 - - *
William P. Phoenix.......................... 2,670 (14) * - - *
Harry F. Hopper, III........................ 198,688 (15) 1.2 - - *
Michael C. Brooks........................... 33,716 (16) * - - *
Riordon B. Smith............................ 5,409,958(4) (17) 26.1 4,581,900(4) 100 75.2
Fleet Venture Resources, Inc. and related
entities(18).............................. 5,409,958 (4) 26.1 4,581,900(4) 100 75.2
Harron Communications Corp.(19)............. 852,110 5.3 - - 1.4
PAR Capital Management, Inc.(20)............ 950,000 6.0 - - 1.5
T. Rowe Price Associates, Inc. and related
entities(21).............................. 1,400,000 8.8 - - 2.3
Wellington Management Company,
LLP(22)................................... 1,600,000 10.0 - - 2.6
Directors and executive officers as a
group(23) (consists of 13 persons)........ 6,441,583 30.5 4,581,900 100 76.5
</TABLE>
- ---------
* Represents less than 1% of the outstanding shares of Class A common stock
or less than 1% of the voting power, as applicable.
(1) The address of this person is c/o Pegasus Communications Management
Company, 255 City Line Avenue, Suite 200, Bala Cynwyd, Pennsylvania 19004.
(2) Pegasus Capital, L.P. holds 1,217,348 shares of Class B common stock. Mr.
Pagon is the sole shareholder of the general partner of Pegasus Capital,
L.P. and is deemed to be the beneficial owner of these shares. All of the
3,364,552 remaining shares of Class B common stock are owned by Pegasus
Communications Holdings, Inc. and two of its subsidiaries. All the capital
stock of Pegasus Communications Holdings, Inc. are held by Pegasus
Communications Limited Partnership. Mr. Pagon controls Pegasus
Communications Limited Partnership by reason of his ownership of all the
outstanding voting stock of the sole general partner of a limited
partnership that is, in turn, the sole general partner in Pegasus
Communications Limited Partnership. Therefore, apart from the voting
agreement described in note 4 below, Mr. Pagon is the beneficial owner of
100% of Class B common stock with sole voting and investment power over all
such shares.
(3) Includes 4,581,900 shares of Class B common stock, which are convertible
into shares of Class A common stock on a one-for-one basis, and 202,774
shares of Class A common stock which are issuable upon the exercise of the
vested portion of outstanding stock options.
(4) As a consequence of being parties to the voting agreement (described
elsewhere herein), each of these parties is deemed to have shared voting
power over certain shares beneficially owned by them in the aggregate for
the purposes specified in the voting agreement. Therefore, the parties to
the voting agreement will each be deemed to be the beneficial owner with
respect to 4,581,900 shares of Class B common stock and 5,394,095 shares of
Class A common stock, including 4,581,900 shares of Class A common stock
issuable upon conversion of the all outstanding shares of Class B common
stock. Because information in this table is supplied as of April 12, 2000,
the table does not give effect to the issuance of approximately 6.44
million shares of Class A common stock issued on May 5, 2000 at the closing
of the acquisition of Golden Sky or the related amendment to the voting
agreement.
-16-
<PAGE>
(5) This includes 120,009 shares of Class A common stock held in Pegasus'
401(k) plan, over which Messrs. Pagon and Verdecchio share voting power in
their capacities as co-trustees.
(6) On March 26, 1997, the SEC declared effective a registration statement
filed by Pegasus which would permit Messrs. Verdecchio and Verlin to sell
certain shares of their Class A common stock subject to certain vesting and
other restrictions. Messrs. Verdecchio and Verlin have sole voting and
investment power over their shares, subject to certain vesting
restrictions.
(7) This includes 88,770 shares of Class A common stock which are issuable upon
the exercises of the vested portion of outstanding stock options.
(8) This includes 71,500 shares of Class A common stock which are issuable upon
the exercises of the vested portion of outstanding stock options.
(9) This includes 1,500 shares of Class A common stock owned by Mr. Lodge's
wife, of which Mr. Lodge disclaims beneficial ownership, and 109,770 shares
of Class A common stock which are issuable upon the exercise of the vested
portion of outstanding stock options.
(10) This includes 18,000 shares of Class A common stock which are issuable upon
the exercise of the vested portion of outstanding stock options.
(11) This includes 12,670 shares of Class A common stock which are issuable upon
the exercise of the vested portion of outstanding stock options and 1,000
shares held beneficially by Mr. McEntee's wife, of which Mr. McEntee
disclaims beneficial ownership.
(12) This includes 200,000 shares of Class A common stock received in the
investment by Pegasus in Personalized Media & Communications, LLC of which
Ms. Metzger is Chairman. This table does not give effect to warrants for
1,000,000 shares of Class A common stock exercisable by Personalized Media
Communications, LLC issued on May 8, 2000 under the same agreement. Also
includes 9,500 shares of Class A common stock, which are issuable upon the
exercise of the vested portion of outstanding stock options.
(13) This includes 15,885 shares of Class A common stock issuable upon the
exercise of the vested portion of outstanding stock options.
(14) This consists of 2,670 shares of Class A common stock issuable upon the
exercise of the vested portion of outstanding stock options.
(15) This includes 2,670 shares of Class A common stock issuable upon the
exercise of the vested portion of outstanding stock options, and 4,750
shares held by the Hopper Family Foundation, of which Mr. Hopper is the
trustee and officer. The address of this person is c/o Columbia Capital
Corporation, 201 N. Union Street, Suite 300, Alexandria, Virginia
22314-2642.
(16) This includes 2,670 shares of Class A common stock issuable upon the
exercise of the vested portion of outstanding stock options. The address of
this person is 177 Broad Street, Stamford, Connecticut 06901.
(17) The information for Mr. Smith includes all shares of Class A common stock
held by Fleet Venture Resources, Inc. and its related entities, as
described below in note 18. Mr. Smith is a Senior Vice President of each of
the managing general partners of Fleet Equity Partners VI, a Senior Vice
President of Fleet Venture Resources, a Senior Vice President of the
corporation that is the general partner of the partnership that is the
general partner of Chisholm Partners III, and a partner of Kennedy Plaza
Partners. As a Senior Vice President of Fleet Growth Resources II, Inc. and
Silverado IV Corp., the two general partners of Fleet Equity Partners, and
as a Senior Vice President of Fleet Venture Resources and Silverado III
Corp., the general partner of the partnership Silverado III, L.P., which is
the general partner of Chisholm Partners III, and as a partner of Kennedy
Plaza Partners, Mr. Smith disclaims beneficial ownership for all shares
held directly by those entities, except for his pecuniary interest therein.
The address of this person is 50 Kennedy Plaza, RI MO F12C, Providence,
Rhode Island 02903.
-17-
<PAGE>
(18) This includes the following number of shares of Class A common stock held
by the designated entity: Fleet Venture Resources, Inc. (276,853); Fleet
Equity Partners VI, L.P. (118,593); Chisholm Partners III, L.P. (109,584);
and Kennedy Plaza Partners (6,745). The address of each of these entities
is 50 Kennedy Plaza, RI MO F12C, Providence, Rhode Island 02903.
(19) The address of Harron Communications Corp. is 70 East Lancaster Avenue,
Frazer, Pennsylvania 19355.
(20) The address of this entity is Suite 1600, One Financial Center, Boston,
Massachusetts 02111.
(21) The address of T. Rowe Price Associates is 100 East Pratt St., Baltimore,
Maryland 21202.
(22) The address of Wellington Management Company is 75 State Street, Boston,
Massachusetts 02109.
(23) This includes 527,479 shares of Class A common stock which are issuable
upon the vested portion of outstanding stock options.
-18-
<PAGE>
Certain Relationships and Related Transactions
Split Dollar Agreement
In December 1996, Pegasus entered into a split dollar agreement with
the trustees of an insurance trust established by Marshall W. Pagon. Under the
split dollar agreement, Pegasus agreed to pay a portion of the premiums for
certain life insurance policies covering Mr. Pagon owned by the insurance trust.
The agreement provides that Pegasus will be repaid for all amounts it expends
for such premiums, either from the cash surrender value or the proceeds of the
insurance policies. The actuarial benefit to Mr. Pagon of premiums paid by
Pegasus amounted to $53,728 in each of the years of 1997, 1998 and 1999.
Relationship with W.W. Keen Butcher and Affiliated Entities
Pegasus entered into an arrangement in 1998 with W.W. Keen Butcher, the
stepfather of Marshall W. Pagon and Nicholas A. Pagon, certain entities
controlled by him and the owner of a minority interest in one of the entities.
Under this agreement, Pegasus agreed to provide and maintain collateral for up
to $4.0 million in principal amount of bank loans to Mr. Butcher and the
minority owner. Mr. Butcher and the minority owner must lend or contribute the
proceeds of those bank loans to one or more of the entities owned by Mr. Butcher
for the acquisition of television broadcast stations to be programmed by Pegasus
pursuant to local marketing agreements.
Pegasus amended its agreement with Mr. Butcher and his affiliated
entities in the fourth quarter of 1999 to increase the amount of collateral that
Pegasus will maintain for bank loans to Mr. Butcher and the affiliated entities.
Under the amendment, Pegasus will maintain collateral for up to $8.0 million in
principal amount such bank loans. Mr. Butcher and the affiliated entities must
continue to contribute the proceeds from these bank loans to one or more
entities owned by Mr. Butcher for acquisition of television broadcast stations
to be programmed by Pegasus pursuant to local marketing agreements.
Under this arrangement, on November 10, 1998, Pegasus sold to one of
the Butcher companies the FCC license for the television station then known as
WOLF for $500,000 and leased certain related assets to the Butcher company,
including leases and subleases for studio, office, tower and transmitter space
and equipment, for ongoing rental payments of approximately $18,000 per year
plus operating expenses. WOLF is now known as WSWB and is one of the television
stations serving the northeastern Pennsylvania designated television market area
that is programmed by Pegasus. Mr. Butcher and the minority owner borrowed the
$500,000 under the loan collateral arrangement described above. Concurrently
with the closing under the agreement described above, one of the Butcher
companies assumed a local marketing agreement, under which Pegasus provides
programming to WSWB and retains all revenues generated from advertising in
exchange for payments to the Butcher company of $4,000 per month plus
reimbursement of certain expenses. The term of the local marketing agreement is
three years, with two three-year automatic renewals. The Butcher company also
granted Pegasus an option to purchase the station license and assets if it
becomes legal to do so for the costs incurred by the Butcher company relating to
the station, plus compound interest at 12% per year.
On July 2, 1998, Pegasus assigned to one of the Butcher companies its
option to acquire the FCC license for television station WFXU, which
rebroadcasts WTLH pursuant to a local marketing agreement with Pegasus. The
Butcher company paid Pegasus $50,000 for the option. In May 1999, the Butcher
company purchased the station and assumed the obligations under the local
marketing agreement with Pegasus. The Butcher company borrowed the $50,000 under
the loan collateral arrangement, and granted Pegasus an option to purchase the
station on essentially the same terms described above for WOLF. The local
marketing agreement provides for a reimbursement of expenses by Pegasus and a
term of five years, with one automatic five-year renewal.
-19-
<PAGE>
Pegasus currently provides programming under a local marketing
agreement to television station WPME. Under the local marketing agreement,
Pegasus also holds an option to purchase WPME. One of the Butcher companies
expects to acquire WPME and the FCC license from the current owner in the near
future. The Butcher company would continue the local marketing agreement with
Pegasus and Pegasus would retain its option to acquire WPME. Pegasus believes
that the WOLF and WFXU transactions were done at fair value and that any future
transactions that may be entered into with the Butcher companies or similar
entities, including the WPME transaction as described, will also be done at fair
value.
Acquisition of Golden Sky Holdings, Inc.
On May 5, 2000, Pegasus acquired Golden Sky Holdings, Inc. through the
merger of a subsidiary of Pegasus into Golden Sky. Prior to the merger, Golden
Sky was the second largest independent provider of DIRECTV. Golden Sky operated
in 23 states and its territories included approximately 1.8 million households
and 345,000 subscribers.
In connection with the merger Pegasus issued approximately 6.44 million
shares of its Class A common stock, including stock options, to stockholders and
former employees of Golden Sky. Pegasus also granted registration rights to
certain of Golden Sky's stockholders, including Alta and its affiliates and
Spectrum and its affiliates. As a result of the Golden Sky merger and the
amended voting agreement described below, Robert F. Benbow and William P.
Collatos were elected to Pegasus' board of directors.
Voting Agreement
On April 27, 1998, Pegasus acquired Digital Television Services, Inc.
through the merger of a subsidiary of Pegasus into Digital Television Services.
Prior to the merger, Digital Television Services was the second largest
independent distributor of DIRECTV(R) services serving 140,000 subscribers in 11
states.
In connection with the merger, Pegasus issued approximately 5.5 million
shares of its Class A common stock to the stockholders of Digital Television
Services. Pegasus also granted registration rights to certain of Digital
Television Service's stockholders, including Columbia Capital Corporation,
Columbia DBS, Inc., Whitney Equity Partners, L.P., Fleet Venture Resources, Inc.
and its affiliates and Harry F. Hopper III. Mr. Hopper received shares of Class
A common stock in the Digital Television Services merger and has an ownership
interest in Columbia Capital Corporation, which received 429,812 shares.
Pegasus, Mr. Pagon and the principal stockholder groups of Digital Television
Services also entered into a voting agreement. As a result of these
transactions, Harry F. Hopper III and Riordon B. Smith were elected to Pegasus'
board of directors.
On May 5, 2000, in connection with the acquisition of Golden Sky, the
1998 voting agreement was amended to include two of the principal Golden Sky
stockholder groups, Alta and two of its affiliates, and Spectrum and one of its
affiliates. The amended voting agreement covers all shares of Pegasus' common
stock held by Marshall W. Pagon and entities he controls, all shares of Pegasus'
Class A common stock received in the merger by Alta and Spectrum, and all shares
of Pegasus' Class A common stock received in the 1998 acquisition of Digital
Television Services, and still held, by Fleet Equity Partners and its
affiliates. The original voting agreement also covered Pegasus' Class A common
-20-
<PAGE>
stock acquired by an affiliate of J.H. Whitney & Co. in the acquisition of
Digital Television Services. That Whitney affiliate disposed of those shares,
however, and no longer has rights under the voting agreement. The original
voting agreement also covered Pegasus' Class A common stock acquired by Columbia
Capital Corporation and one of its subsidiaries and their respective owners.
These persons have sold more than one-half of the shares originally received by
them. Columbia Capital Corporation has therefore lost its right to designate a
director under the voting agreement.
The amended voting agreement requires that holders of shares covered by
the amended voting agreement vote their respective shares in the manner
specified in the agreement. In particular, the amended voting agreement
establishes that Pegasus' board of directors will consist of eleven members,
unless the size of the board is increased or reduced as provided in the
agreement, and that the board of directors will initially consist of four
directors designated by Mr. Pagon and one director to be designated by each of
Alta, Spectrum and Fleet, with the remainder to be "independent directors" as
defined in the agreement. The amended voting agreement also specifies that the
committees of the board of directors will consist of an audit committee, a
compensation committee and a nominating committee. Each committee will consist
of one independent director, one director designated by Mr. Pagon and one
director designated by a majority of the directors designated by Alta, Spectrum
and Fleet. As a result of the amended voting agreement, the parties to the
agreement have sufficient voting power without the need for the vote of any
other shareholder, to elect the entire board of directors. James J. McEntee,
III, Mary C. Metzger , William P. Phoenix and Donald W. Weber are currently
serving as independent directors of Pegasus. Marshall W. Pagon, Robert N.
Verdecchio, Ted S. Lodge and Harry F. Hopper III are serving as directors of
Pegasus as designees of Mr. Pagon. Robert F. Benbow is serving as a director of
Pegasus as designee of Alta; William P. Collatos is serving as a director of
Pegasus as designee of Spectrum; and Riordon B. Smith is serving as a director
of Pegasus as a designee of Fleet. Mr. Weber has informed Pegasus that he does
not intend to stand for election at the Meeting. The board of directors has not
decided whether to fill that vacancy. The amended voting agreement requires that
any person who fills the vacancy be an independent director.
The amended voting agreement terminates with respect to any covered
share upon the sale or transfer of any such share to any person other than a
permitted transferee. In addition, the right of Alta, Spectrum and Fleet to
designate a director terminates when the when that entity or various persons
related to such entity cease owning one-half of the shares originally received
by each of them in the acquisition of Digital Television Services or of Golden
Sky, as the case may be.
Communications License Re-Auction
Pegasus PCS Partners, L.P., a partnership owned and controlled by
Marshall W. Pagon, holds personal communications system licenses in Puerto Rico.
Pegasus has made an investment of approximately $4.8 million in Pegasus PCS
Partners. Pegasus itself did not meet the qualification criteria for the FCC's
re-auction in which Pegasus PCS Partners acquired certain of its licenses.
CIBC World Markets Corp. and Affiliates
William P. Phoenix is a Managing Director of CIBC World Markets Corp.
CIBC World Markets and its affiliates have provided various services to Pegasus
and its subsidiaries since the beginning of 1997. CIBC World Markets has
historically performed a number of services for Pegasus, including serving as
one of the initial purchasers in Pegasus' January 2000 Rule 144A offering of
$300.0 million in aggregate liquidation preference of Series C convertible
preferred stock. In this capacity, CIBC World Markets received customary
underwriting discounts and commissions.
-21-
<PAGE>
CIBC World Markets has also performed the following services for
Pegasus:
o provided a fair market value appraisal in connection with the
merger of Digital Television Services, Inc. into a wholly-owned
subsidiary of Pegasus and the designation of Digital Television
Services as a restricted subsidiary;
o acted as a dealer manager in connection with an offer by Pegasus
to exchange its 12 1/2% Series A senior notes due 2007 for senior
subordinated notes of Digital Television Services and DTS
Capital, Inc. and a related consent solicitation;
o issued letters of credit in connection with bridge financing
obtained by Pegasus;
o provided fairness opinions to Pegasus and/or its affiliates in
connection with certain intercompany loans and other intercompany
transactions;
o acted as lender in connection with the Pegasus Media &
Communications credit facility;
o provided a fairness opinion in connection with the Golden Sky
merger;
o acted as Administrative Agent in connection with a credit
facility of Digital Television Services; and
o acted as underwriter in Pegasus' 1999 equity offering.
In addition, CIBC World Markets has agreed to purchase, subject to
definitive documentation, any and all Golden Sky notes tendered in response to
Golden Sky's offer to purchase such notes. CIBC World Markets will receive fees
of approximately $1.0 million under this arrangement.
In the first quarter of 2000 and during 1999, for services rendered,
Pegasus or its subsidiaries paid to CIBC World Markets an aggregate of $3.8
million and $940,000, respectively, in fees. Pegasus believes that all fees paid
to CIBC World Markets in connection with the transactions described above were
customary. Pegasus anticipates that it or its subsidiaries may engage the
services of CIBC World Markets in the future, although no such engagement is
currently contemplated.
Investment in Personalized Media Communications, LLC and Licensing of Patents
On January 13, 2000, Pegasus made an investment in Personalized Media
Communications, LLC. Personalized Media is an advanced communications technology
company that owns as intellectual property portfolio consisting of seven issued
U.S. patents and over 10,000 claims submitted in several hundred pending U.S.
patent applications. A majority of pending claims are based on a 1981 filing
date, with the remainder based on a 1987 filing date. Mary C. Metzger, Chairman
of Personalized Media and a member of Pegasus' board of directors, and John C.
Harvey, Managing Member of Personalized Media and Ms. Metzger's husband, own a
majority of and control Personalized Media as general partners of the Harvey
Family Limited Partnership.
A subsidiary of Personalized Media granted Pegasus an exclusive license
for the distribution of satellite based services using Ku band BSS frequencies
at the 101(degree), 110(degree) and 119(degree) West Longitude orbital locations
and Ka band FSS frequencies at the 99(degree), 101(degree), 103(degree) and
125(degree) West Longitude orbital locations, which frequencies have been
licensed by the FCC to affiliates of Hughes Electronics Corporation. In
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addition, Personalized Media granted to Pegasus the right to license on an
exclusive basis and on favorable terms the patent portfolio of Personalized
Media in connection with other frequencies that may be licensed to Pegasus in
the future.
The license granted by Personalized Media's subsidiary provides rights
to all claims covered by Personalized Media's patent portfolio, including
functionality for automating the insertion of programming at a direct broadcast
satellite uplink, the enabling of pay-per-view buying, the authorization of
receivers, the assembly of records of product and service selections made by
viewers including the communication of this information to billing and
fulfillment operations, the customizing of interactive program guide features
and functions made by viewers and the downloading of software to receivers by
broadcasters. Pegasus will pay license fees to Personalized Media of $100,000
per year for three years.
Pegasus acquired preferred interests of Personalized Media for
approximately $14.3 million in cash, 200,000 shares of Pegasus' Class A common
stock and Pegasus' agreement to issue warrants to purchase 1.0 million shares of
Pegasus' Class A common stock at an exercise price of $90.00 per share and with
a term of ten years. After certain periods of time, Personalized Media may
redeem the preferred interests, and Pegasus may require the redemption of
preferred interests, in consideration for Personalized Media's transfer to
Pegasus of Personalized Media's ownership interest in its wholly-owned
subsidiary that holds the exclusive license from Personalized Media for the
rights that are licensed to Pegasus. Pegasus may also be required to make an
additional payment to Personalized Media if certain contingencies occur that
Pegasus believes are unlikely to occur. Because of the speculative nature of the
contingencies, it is not possible to estimate the amount of any such additional
payments, but in some cases it could be material. As part of the transaction,
Personalized Media will be entitled to designate one nominee to serve on
Pegasus' board of directors. Mary C. Metzger is currently serving as
Personalized Media's designee.
Other Transactions
In 1999, Pegasus loaned $199,999 to Nicholas A. Pagon, Pegasus' Vice
President of Broadcast Operations, bearing interest at the rate of 6% per annum,
with the principal amount due on the fifth anniversary of the date of the
promissory note. Mr. Pagon is required to use half of the proceeds of the loan
to purchase shares of Class A common stock, and the loan is collateralized by
those shares. The balance of the loan proceeds may be used at Mr. Pagon's
discretion.
Stockholder Proposals
In order to be eligible for inclusion in Pegasus' proxy materials for
the 2001 Annual Meeting of Stockholders, stockholders' proposals to take action
at such meeting must comply with applicable Commission rules and regulations,
must be directed to the Secretary of Pegasus at its offices set forth on page
one of this Proxy Statement and must be received by Pegasus not later than
January 10, 2001.
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Miscellaneous
A copy of Pegasus' Annual Report is included herewith but is not to be
regarded as proxy solicitation material.
Pegasus, upon request, will furnish to record and beneficial holders of
its Common Stock, free of charge, a copy of its Annual Report on Form 10-K
(without exhibits) for fiscal 1999. Copies of exhibits to the Form 10-K also
will be furnished upon request and the payment of a reasonable fee. All requests
should be directed to the Vice President of Corporate Communications, at the
offices of Pegasus set forth on page one of this Proxy Statement.
By Order of the board of directors,
TED S. LODGE
May 10, 2000 Secretary
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PEGASUS COMMUNICATIONS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE TO:
PEGASUS COMMUNICATIONS CORPORATION
C/O FIRST UNION NATIONAL BANK
PROXY TABULATION
P.O. BOX 217950
CHARLOTTE, NC 28254-3555
FOLD AND DETACH HERE
................................................................................
The undersigned, revoking all prior proxies, hereby appoints Marshall W. Pagon,
Ted S. Lodge and Kasin Smith, or any of them, with full power of substitution,
as the undersigned's proxies to vote all the shares of Class A Common Stock of
Pegasus Communications Corporation ("Pegasus") held of record by the undersigned
on April 06, 2000, at the Annual Meeting of Stockholders of Pegasus to be held
on June 02, 2000 and at any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2.
1. ELECTION OF DIRECTORS
Nominees: Marshall W. Pagon, Robert F. Benbow, William P. Collatos,
Harry F. Hopper III, Ted S. Lodge, James J. McEntee, III, Mary C. Metzger,
William P. Phoenix Riordon B. Smith, Robert N. Verdecchio and
Donald W. Weber.
/ / FOR / / WITHHOLD AUTHORITY / / ABSTAIN
All nominees listed To vote for all nominees listed
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below)
- --------------------------------------------------------------------------------
(Continued on reverse side)
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE TO:
PEGASUS COMMUNICATIONS CORPORATION
C/O FIRST UNION NATIONAL BANK
PROXY TABULATION
P.O. BOX 217950
CHARLOTTE, NC 28254-3555
FOLD AND DETACH HERE
................................................................................
2. Ratification of the appointment of PricewaterhouseCoopers LLP as independent
public accountants for Pegasus for the year ending December 31, 2000.
/ / FOR / / AGAINST / / ABSTAIN
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
You are urged to sign and return this proxy so that you may be sure that your
shares will be voted.
Dated:_____________________, 1999
_____________________________________________
Signature of Stockholder
_____________________________________________
Signature of Stockholder
Please sign exactly as your name appears
hereon, date and return promptly. When shares
are held by joint tenants, both should sign.
Executors, administrators, trustees and other
fiduciaries should indicate their capacity
when signing.
