As filed with the Securities and Exchange Commission on June 24, 1998
Registration Statement No. 333-56227
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PANAMSAT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
----------------
Delaware 4899 95-4607698
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification
Incorporation or Code Number) Number)
Organization)
----------------
One Pickwick Plaza
Greenwich, Connecticut 06830
(Telephone: 203-622-6664)
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
----------------
James W. Cuminale, Esq.
Senior Vice President, General Counsel and Secretary
PanAmSat Corporation
One Pickwick Plaza
Greenwich, Connecticut 06830
(Telephone: 203-622-6664)
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
----------------
Copies of Communications to:
Dennis J. Friedman, Esq.
David M. Wilf, Esq.
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
(Telephone: 212-408-5100)
----------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
----------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. /_/
----------------
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
==============================================================================
<PAGE>
Subject To Completion, Dated June 24, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
PROSPECTUS
PANAMSAT CORPORATION
OFFER TO EXCHANGE
6% Notes due 2003 for any and all outstanding 6% Notes due 2003
6-1/8% Notes due 2005 for any and all outstanding 6-1/8% Notes due 2005
6-3/8% Notes due 2008 for any and all outstanding 6-3/8% Notes due 2008
6-7/8% Debentures due 2028 for any and all outstanding
6-7/8% Debentures due 2028
---------------
The Exchange Offer will expire at 5:00 p.m., New York City time on ____ __, 1998
unless extended.
PANAMSAT CORPORATION, a Delaware corporation ("PanAmSat" or the
"Company"), is hereby offering (the "Exchange Offer"), upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal (the "Letter of Transmittal"), to exchange its 6% Notes
due January 15, 2003 (the "Exchange 2003 Notes"), 6-1/8% Notes due January 15,
2005 (the "Exchange 2005 Notes"), 6-3/8% Notes due January 15, 2008 (the
"Exchange 2008 Notes"), and 6-7/8% Debentures due January 15, 2028 (the
"Exchange 2028 Debentures" and, together with the Exchange 2003 Notes, Exchange
2005 Notes, and Exchange 2008 Notes, the "Exchange Securities") for,
respectively, an equal principal amount of the Company's outstanding 6% Notes
due January 15, 2003 (the "Private 2003 Notes" and collectively with the
Exchange 2003 Notes, the "2003 Notes"), 6-1/8% Notes due January 15, 2005 (the
"Private 2005 Notes" and collectively with the Exchange 2005 Notes, the "2005
Notes"), 6-3/8% Notes due January 15, 2008 (the "Private 2008 Notes" and
collectively with the Exchange 2008 Notes, the "2008 Notes"), and 6-7/8%
Debentures due January 15, 2028 (the "Private 2028 Debentures" and collectively
with the Exchange 2028 Debentures, the "2028 Debentures"). The Private 2028
Debentures, Private 2003 Notes, Private 2005 Notes, and Private 2008 Notes are
collectively referred to herein as the "Private Securities". As of the date of
this Prospectus, there were outstanding $200 million principal amount of Private
2003 Notes, $275 million principal amount of Private 2005 Notes, $150 million
principal amount of Private 2008 Notes, and $125 million principal amount of
Private 2028 Debentures. The Exchange Securities and the Private Securities are
sometimes collectively referred to herein as the "Securities."
The form and terms of the Exchange Securities are identical in all
material respects to those of the Private Securities to be exchanged therefor,
except for certain transfer restrictions and registration rights relating to the
Private Securities and except for certain interest provisions relating to such
registration rights. The Exchange Securities will evidence the same indebtedness
as the Private Securities which they replace and will be entitled to the
benefits of an Indenture, dated as of January 16, 1998, governing the Private
Securities and the Exchange Securities (the "Indenture"). The Exchange 2003
Notes will bear interest at the rate of 6% per annum, the Exchange 2005 Notes
will bear interest at the rate of 6-1/8% per annum, the Exchange 2008 Notes will
bear interest at the rate of 6-3/8% per annum, and the Exchange 2028 Debentures
will bear interest at the rate of 6-7/8% per annum, payable semi-annually on
each January 15 and July 15 commencing July 15, 1998, to the persons in whose
names the Exchange Securities are registered at the close of business on the
January 1 or July 1, as the case may be, preceding such January 15 or July 15.
The Exchange 2003 Notes will mature on January 15, 2003, the Exchange 2005 Notes
will mature on January 15, 2005, the Exchange 2008 Notes will mature on January
15, 2008, and the Exchange 2028 Debentures will mature on January 15, 2028. The
Exchange Securities will be unsecured and will rank pari passu with all other
unsecured and unsubordinated indebtedness of the Company. See "The Exchange
Offer" and "Description of the Securities."
Each series of the Exchange Securities will be redeemable as a
whole or in part at the option of the Company at any time, at a redemption price
equal to the greater of (i) 100% of the principal amount of such Securities or
(ii) the sum of the present values of the remaining scheduled payments of
principal and interest thereon discounted to the date of redemption on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at
the Treasury Rate (as defined herein) plus 10 basis points in the case of the
Exchange 2003 Notes, 15 basis points in the case of the Exchange 2005 Notes, 20
basis points in the case of the Exchange 2008 Notes and 20 basis points in the
case of the Exchange 2028 Debentures, plus, in each case, accrued interest
thereon to the date of redemption. The Exchange Securities shall not be subject
to any sinking fund. See "Description of the Securities--Redemption."
<PAGE>
The Company will accept for exchange any and all validly tendered
Private Securities not withdrawn prior to 5:00 p.m., New York City time, on
____________, 1998, unless the Exchange Offer is extended by the Company in its
sole discretion (the "Expiration Date"). Tenders of Private Securities may be
withdrawn at any time prior to the Expiration Date. Private Securities may be
tendered only in integral multiples of $1,000 principal amount. The Exchange
Offer is subject to certain customary conditions. See "The Exchange Offer."
The Exchange Securities are being offered hereunder in order to
satisfy certain obligations of the Company under the Registration Rights
Agreement, dated as of January 16, 1998 (the "Registration Rights Agreement"),
between the Company and the Initial Purchasers (as defined herein). The Company
believes that the Exchange Securities issued pursuant to the Exchange Offer in
exchange for the Private Securities may be offered for resale, resold and
otherwise transferred by a holder thereof (other than (i) a broker-dealer who
purchased such Private Securities directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act of 1933,
as amended (the "Securities Act") or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act; provided, that the holder is acquiring Exchange Securities in
the ordinary course of its business and is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Securities. Holders of Private
Securities wishing to accept the Exchange Offer must represent to the Company
that such conditions have been met. Each broker-dealer that receives Exchange
Securities for its own account in exchange for Private Securities, where such
Private Securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The Company has agreed that it will make this
prospectus available to any broker-dealer for use in connection with any such
resales. See "Plan of Distribution." The Company believes that none of the
registered holders of the Private Securities is an affiliate (as such term is
defined in Rule 405 under the Securities Act) of the Company.
Holders of Private Securities whose Private Securities are not
tendered and accepted in the Exchange Offer will continue to hold such Private
Securities and will be entitled to all the rights and preferences and will be
subject to the limitations applicable thereto under the Indenture. Following
consummation of the Exchange Offer, the holders of Private Securities will
continue to be subject to the existing restrictions upon transfer thereof and
the Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the Private Securities held by them.
The Company will not receive any proceeds from, and has agreed to
bear all registration expenses of, the Exchange Offer. No underwriter is being
used in connection with the Exchange Offer. See "The Exchange Offer--Resale of
the Exchange Securities."
---------------
SEE "RISK FACTORS," BEGINNING ON PAGE ___, FOR A DISCUSSION OF CERTAIN
FACTORS THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE
EXCHANGE OFFER AND AN INVESTMENT IN THE EXCHANGE SECURITIES.
---------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
This Prospectus is dated June 24, 1998
No dealer, salesperson or other individual has been authorized to
give any information or to make any representations other than those contained
in this Prospectus or any accompanying Prospectus Supplement and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus or any such
Prospectus Supplement nor any resale made thereunder shall, under any
circumstance, create an implication that there has been no change in the affairs
of the Company since the date hereof or thereof. This Prospectus and any such
related Prospectus Supplement do not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). These statements are
based on management's beliefs and assumptions, based on information currently
available to management and are subject to risks and uncertainties. Discussions
containing such forward-looking statements may be found in "Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as within this Prospectus generally. In
addition, when used in this Prospectus, the words "believes," "expects,"
"anticipates," "intends" "plans," "estimates" and similar expressions are
intended to identify forward-looking statements.
Forward-looking statements are not guarantees of performance. The
future results of the Company may differ materially from those expressed in such
forward-looking statements. Many of the factors that will determine these
results are beyond the ability of the Company to control or predict. Prospective
holders of the Exchange Securities are cautioned not to put undue reliance on
any forward looking statements.
Prospective holders of the Exchange Securities should understand
that the following important factors, in addition to those discussed herein,
could affect the future results of the Company and could cause results to differ
materially from those expressed in such forward-looking statements: (i) risks
associated with technology, (ii) regulatory risks, and (iii) litigation.
Further, the Company operates in an industry sector where securities values may
be volatile and may be influenced by economic and other factors beyond the
Company's control.
-------------------------------------------------
This Prospectus constitutes a part of an exchange offer
registration Statement on Form S-4 filed by the Company with the Securities and
Exchange Commission (the "SEC" or "Commission") under the Securities Act with
respect to the Exchange Securities. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is made to such Registration Statement and to the exhibits relating
thereto for further information with respect to the Company and the Exchange
Securities. Any statements contained herein concerning the provisions of certain
documents are not necessarily complete, and in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
for a more complete description of the matter involved. Each such statement is
qualified in its entirety by such reference.
The Company's Common Stock is listed on the NASDAQ National Market
and reports, proxy statements and other information concerning the Company can
be inspected and copied at the Library of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. 20006-1500.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Exchange Act and, in accordance therewith, files periodic reports, proxy
statements and other information with the Commission. Reports, proxy statements
and other information filed by the Company with the SEC can be inspected,
without charge, and copied at the public reference facilities maintained by the
SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
SEC's regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois and 7 World Trade Center, Suite 1300, New York, New York
10048. The SEC also maintains a site on the Internet at http://www.sec.gov that
contains reports, proxies and other information regarding registrants that file
electronically with the SEC, and certain filings by the Company are available at
such web site. Copies of such materials also can be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates.
-------------------------------------------------
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should
be read in conjunction with, the more detailed information and financial data,
including the Company's consolidated financial statements and notes thereto
included elsewhere in this Prospectus. The Company's executive offices are
located in Greenwich, Connecticut. Its mailing address is One Pickwick Plaza,
Greenwich, Connecticut 06830, and its telephone number is (203) 622-6664. Unless
the context otherwise requires, the terms "Company" and "PanAmSat" refer to
PanAmSat Corporation and the subsidiaries through which its various businesses
are actually conducted.
BUSINESS
Overview
PanAmSat is the world's largest commercial provider of global
satellite-based communications services. The Company is a leading provider of
satellite capacity for television program distribution to network, cable and
other redistribution sources in the United States, Latin America, Africa, south
Asia and the Asia-Pacific region. PanAmSat's global network of 16 satellites
provides state-of-the-art video distribution and telecommunications services for
customers worldwide. Currently, an aggregate of more than 120 million households
worldwide are capable of receiving television programming carried by PanAmSat
satellites. PanAmSat satellites also serve as the transmission platforms for
seven planned or operational direct-to-home ("DTH") services worldwide. The
Company also provides satellite services and related technical support for live
transmissions for news and special events coverage.
In addition, PanAmSat provides satellite services to
telecommunications carriers, corporations and Internet service providers
("ISPs") for the provision of satellite-based communications networks, including
private corporate networks employing very small aperture terminals ("VSATs") and
international access to the U.S. Internet backbone. Currently, more than 100,000
VSATs worldwide relay communications over PanAmSat satellites, and ISPs in 30
countries access the U.S. Internet backbone via PanAmSat satellites.
The Merger
The Company commenced operations on May 16, 1997 upon the merger
(the "Merger") of PanAmSat International Systems, Inc. (then operating under its
previous name, PanAmSat Corporation) ("PanAmSat International") and the Galaxy
Satellite Services division ("Galaxy") of Hughes Communications, Inc.
("Hughes"). Hughes is a wholly-owned subsidiary of Hughes Electronics
Corporation ("Hughes Electronics"). The Merger was the result of an Agreement
and Plan of Reorganization dated September 20, 1996 (as amended April 4, 1997)
(the "Reorganization Agreement") entered into among Hughes, Hughes
Communications Galaxy, Inc. ("HCG"), Hughes Communications Satellite Services,
Inc., Hughes Communications Services, Inc., Hughes Communications Carrier
Services, Inc., Hughes Communications Japan, Inc., PanAmSat International and
the Company. In addition, an Agreement and Plan of Merger dated April 4, 1997
(the "Merger Agreement") was entered into among PanAmSat International, PanAmSat
and PAS Merger Corp., a subsidiary of PanAmSat ("PAS Merger Corp.").
As a result of the transactions contemplated by the Reorganization
Agreement and the Merger Agreement, on May 16, 1997, among other things, PAS
Merger Corp. merged with and into PanAmSat International and Galaxy was
contributed to PanAmSat, with the result that PanAmSat International became a
wholly-owned subsidiary of PanAmSat. The aggregate consideration paid to
PanAmSat International stockholders consisted of approximately $1.5 billion in
cash and approximately 42.5 million shares of the Common Stock, par value $.01
per share, of PanAmSat (the "PanAmSat Common Stock") having an approximate value
of $1.3 billion based upon a per share price of $30.
Prior to the Merger, PanAmSat International operated the world's
first privately owned global (excluding domestic U.S.) satellite communications
system, consisting of four satellites serving Latin America, the Caribbean,
Europe, Asia, the Middle East and Africa. Galaxy was the leading provider of
commercial satellite services in the United States, with a fleet consisting of
nine satellites.
Recent Developments
On May 1, 1998, Hughes increased its ownership of PanAmSat Common
Stock to approximately 81% of the outstanding shares. See "Certain Relationships
and Related Transactions--Hughes Purchase of PanAmSat Common Stock from Televisa
and Founding Shareholders."
On May 19, 1998, all customer services on the Company's Galaxy IV
satellite were permanently lost when an anomaly occurred on the on-board
spacecraft control processor which caused the satellite to rotate and lose its
fixed orientation. See "Risk Factors--Risks Associated with Technology."
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer
The Exchange Offer.......... The Company is hereby offering to exchange up to
to $200 million aggregate principal amount of its
Exchange 2003 Notes, up to $275 million aggregate
principal amount of its Exchange 2005 Notes, up to
$150 million aggregate principal amount of its
Exchange 2008 Notes, and up to $125 million
aggregate principal amount of its Exchange 2028
Debentures for, respectively, up to $200 million
aggregate principal amount of its outstanding
Private 2003 Notes, up to $275 million aggregate
principal amount of its outstanding Private 2005
Notes, up to $150 million aggregate principal
amount of its outstanding Private 2008 Notes, and
up to $125 million aggregate principal amount of
its outstanding Private 2028 Debentures.
The Company will issue Exchange Securities on or
as promptly as practicable after the Expiration
Date. As of the date hereof, there are outstanding
$200 million principal amount of Private 2003
Notes, $275 million principal amount of Private
2005 Notes, $150 million principal amount of
Private 2008 Notes, and $125 million principal
amount of Private 2028 Debentures. See "The
Exchange Offer."
Based on interpretations by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that the
Exchange Securities issued pursuant to the
Exchange Offer in exchange for Private Securities
may be offered for resale, resold and otherwise
transferred by a holder thereof without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that
the holder is acquiring Exchange Securities in the
ordinary course of its business, is not
participating, does not intend to participate and
has no arrangement or understanding with any
person to participate in the distribution of the
Exchange Securities and is not an "affiliate" of
the Company within the meaning of Rule 405 under
the Securities Act. Each broker-dealer who holds
Private Securities acquired for its own account as
a result of market-making or other trading
activities and who receives Exchange Securities
pursuant to the Exchange Offer for its own account
in exchange therefor must acknowledge that it will
deliver a prospectus in connection with any resale
of such Exchange Securities.
This Prospectus, as it may be amended or
supplemented from time to time, may be used by a
broker-dealer in connection with resales of
Exchange Securities received in exchange for
Private Securities acquired by such broker-dealer
as a result of market-making activities or other
trading activities. The Letter of Transmittal that
accompanies this Prospectus states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. Any holder of Private Securities
who tenders in the Exchange Offer with the
intention to participate in a distribution of the
Exchange Securities could not rely on the
above-referenced position of the staff of the
Commission and, in the absence of an exemption
under the Securities Act, would have to comply
with the registration and prospectus delivery
requirements therein in connection with any resale
transaction. Failure to comply with such
requirements in such instance could result in such
holder incurring liability under the Securities
Act for which the holder is not indemnified by the
Company. See "The Exchange Offer--Resale of the
Exchange Securities."
Registration Rights.......... The Private Securities were sold by the Company on
January 16, 1998 (the "Closing Date") to Morgan
Stanley & Co., Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Salomon Brothers
Inc, Citicorp Securities, Inc., BancAmerica
Robertson Stephens and J.P. Morgan Securities Inc.
(together, the "Initial Purchasers") pursuant to a
Purchase Agreement (the "Purchase Agreement"),
dated as of January 13, 1998, between the Company
and the Initial Purchasers. Pursuant to the
Purchase Agreement, the Company entered into the
Registration Rights Agreement with the Initial
Purchasers, which agreement grants the holders of
Private Securities certain exchange and
registration rights. The Exchange Offer is
intended to satisfy, as to all Private Securities,
such rights, which will terminate upon the
consummation of the Exchange Offer. The holders of
the Exchange Securities will not be entitled to
any exchange or registration rights with respect
to the Exchange Securities. Holders of Private
Securities who do not participate in the Exchange
Offer may thereafter hold a less liquid security.
See "The Exchange Offer--Termination of Certain
Rights." The Company will not receive any proceeds
from and has agreed to bear the expenses of the
Exchange Offer.
Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on __________, 1998, unless the
Exchange Offer is extended by the Company in its
sole discretion, in which case the term
"Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. See
"The Exchange Offer--Expiration Date; Extensions;
Amendments."
Procedures for Tendering
Private Securities........ Each holder of Private Securities wishing to
accept the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Private
Securities and any other required documentation,
to The Chase Manhattan Bank, as Exchange Agent
(the "Exchange Agent"), at the address set forth
herein. By executing the Letter of Transmittal,
the holder will represent to and agree with the
Company that, among other things, (i) the Exchange
Securities to be acquired by such holder of
Private Securities in connection with the Exchange
Offer are being acquired by such holder in the
ordinary course of its business, (ii) such holder
is not participating, does not intend to
participate and has no arrangement or
understanding with any person to participate in a
distribution of the Exchange Securities, and (iii)
such holder is not an "affiliate," as defined in
Rule 405 under the Securities Act, of the Company.
If the holder is a broker-dealer that will receive
Exchange Securities for its own account in
exchange for Private Securities that were acquired
as a result of market-making or other trading
activities, such holder will be required to
acknowledge in the Letter of Transmittal that such
holder will deliver a prospectus in connection
with any resale of such Exchange Securities;
however, by so acknowledging and by delivering a
prospectus, such holder will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. See "The Exchange
Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners....... Any beneficial owner whose Private Securities are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Private Securities
in the Exchange Offer should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter
of Transmittal and delivering such owner's Private
Securities, either make appropriate arrangements
to register ownership of the Private Securities in
such owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date. See "The
Exchange Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures............. Holders of Private Securities who wish to tender
their Private Securities and whose Private
Securities are not immediately available or who
cannot deliver their Private Securities, the
Letter of Transmittal or any other documentation
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date must
tender their Private Securities according to the
guaranteed delivery procedures set forth under
"The Exchange Offer--Guaranteed Delivery
Procedures."
Acceptance of the Private
Securities and Delivery
of the Exchange Securities.. Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company will
accept for exchange any and all Private Securities
that are properly tendered in the Exchange Offer
prior to the Expiration Date. The Exchange
Securities issued pursuant to the Exchange Offer
will be delivered on the earliest practicable date
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Withdrawal Rights.......... Tenders of Private Securities may be withdrawn
at any time prior to the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders."
Certain Tax Considerations.. For a discussion of certain tax considerations
relating to the Exchange Securities, see "Certain
U.S. Federal Income Tax Considerations."
Exchange Agent.............. The Chase Manhattan Bank is serving as the
Exchange Agent in connection with the Exchange
Offer. The Chase Manhattan Bank also serves as
trustee (the "Trustee") under the Indenture.
<PAGE>
The Securities
The Exchange Offer applies to $750 million aggregate principal
amount of Private Securities. The form and terms of the Exchange Securities are
identical in all material respects to the form and terms of the Private
Securities to be exchanged therefor except that the Exchange Securities will not
bear legends restricting the transfer thereof and holders of the Exchange
Securities will not be entitled to any of the registration rights of holders of
the Private Securities under the Registration Rights Agreement, which rights
will terminate upon consummation of the Exchange Offer. The Exchange Securities
will evidence the same indebtedness as the Private Securities which they replace
and will be issued under, and be entitled to the benefits of, the Indenture. For
further information and for definitions of certain capitalized terms, see
"Description of the Securities."
Issuer.................. PanAmSat Corporation.
Securities.............. Up to $200 million principal amount of 2003 Notes,
up to $275 million principal amount of 2005 Notes,
up to $150 million principal amount of 2008 Notes,
and up to $125 million principal amount of 2028
Debentures.
Maturity Dates.......... The 2003 Notes will mature on January 15, 2003,
the 2005 Notes will mature on January 15, 2005, the
2008 Notes will mature on January 15, 2008, and the
2028 Debentures will mature on January 15, 2028.
Interest Rate........... The 2003 Notes will bear interest at the rate of
6% per annum, the 2005 Notes will bear interest at
the rate of 6-1/8% per annum, the 2008 Notes will
bear interest at the rate of 6-3/8% per annum, and
the 2028 Debentures will bear interest at the rate
of 6-7/8% per annum, in each case, from January 16,
1998 or from the most recent interest payment date
to which interest has been paid or duly provided
for, payable semi-annually on each January 15 and
July 15 commencing July 15, 1998, to the persons in
whose names such Securities are registered at the
close of business on the January 1 or July 1, as
the case may be, preceding such January 15 or July
15.
Optional Redemption..... Each series of the Securities will be redeemable
as a whole or in part at the option of the Company
at any time, at a redemption price equal to the
greater of (i) 100% of the principal amount of such
Securities or (ii) the sum of the present values of
the remaining scheduled payments of principal and
interest thereon discounted to the date of
redemption on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at
the Treasury Rate (as defined under "Description of
the Securities") plus 10 basis points in the case
of the 2003 Notes, 15 basis points in the case of
the 2005 Notes, 20 basis points in the case of the
2008 Notes and 20 basis points in the case of the
2028 Debentures, plus, in each case, accrued
interest thereon to the date of redemption. The
Securities shall not be subject to any sinking
fund.
Mandatory Redemption.... None.
Ranking................. The Securities will be unsecured indebtedness of
the Company and will rank pari passu in right of
payment with all other unsubordinated and unsecured
indebtedness of the Company.
Certain Covenants....... The Indenture contains certain covenants for the
benefit of the holders of the Securities (the
"Holders") which, among other things, restrict the
ability of the Company to create liens, engage in
sale-leaseback transactions, or effect a
consolidation or merger. These limitations will,
however, be subject to important qualifications and
exceptions. See "Description of the Securities--
Covenants."
Book-Entry, Delivery
and Form............... It is expected that delivery of the Exchange
Securities will be made in book-entry or
certificated form. The Company expects that
Exchange Securities exchanged for Private
Securities currently represented by Global
Securities (as defined under "Description of the
Securities") deposited with, or on behalf of The
Depository Trust Company (the "Depository" or
"DTC") and registered in the name of Cede & Co.,
its nominee, will be represented by Global
Securities and deposited upon issuance with the
Depository and registered in its name or the name
of its nominee. Beneficial interests in Global
Securities representing the Securities will be
shown on, and transfers thereof will be effected
through, records maintained by the Depository and
its participants.
For additional information regarding the Securities, see
"Description of the Securities" and "Certain U.S. Federal Income Tax
Considerations."
<PAGE>
RISK FACTORS
Risks Associated with Technology
Satellites are subject to significant risks related to delayed and
failed launches and in-orbit failures. Of the 25 satellite launches by PanAmSat
or its predecessors since 1983, the Company has experienced three launch
failures: on December 1, 1994, the original PAS-3 was destroyed upon launch as a
result of a malfunction of an Ariane IV launch vehicle; on August 22, 1992, the
Company's original Galaxy I-R satellite was destroyed upon launch as a result of
an Atlas launch vehicle malfunction; and the Company's Leasat 4, which was
launched on August 27, 1985, was not placed in service after launch due to the
failure of its communications payload. Each of the foregoing satellites was
insured in an amount sufficient to substantially recover the Company's
investment therein, and each was subsequently replaced with a satellite that was
successfully launched.
Certain launch vehicles present special risks to the Company.
Certain launch vehicles scheduled to be used by PanAmSat have unproven track
records and are susceptible to certain risks associated with new launch
vehicles. For example, Sea Launch and Delta III are two launchers that are
scheduled to be used by PanAmSat to launch satellites within the next year.
These launchers have no commercial launch history, which poses heightened risks,
including potential launch delays and failures.
The Company expects to launch Galaxy X on a Delta III launch
vehicle, Galaxy XI on a Sea Launch launch vehicle, PAS-7, PAS-6B and PAS-1R on
Ariane launch vehicles, and PAS-8 and PAS-9 on Proton launch vehicles. The
Company has contracts directly with Arianespace S.A. ("Arianespace") and with
International Launch Services (formerly known as Lockheed-Khrunichev-Energia
International, Inc.) ("ILS") for the Ariane and Proton launches, respectively.
The Company has a contract with Hughes Space and Communications International,
Inc. ("HSCI") for one Delta III launch and one Sea Launch launch, such launch
services to be provided by The Boeing Company ("Boeing") and Sea Launch LP,
respectively, under contracts between HSCI and such providers.
The Company's contract with ILS provides for launch services on
the Proton launch vehicle. The Proton is built in Russia and launched in
Kazakhstan. ILS suffered a launch failure of a Proton launch vehicle in December
1997 due to a defect in the fourth stage; ILS resumed launches of the Proton in
April 1998. In addition, there were two Proton launch failures in 1996. Under
the Company's contract with ILS, if the Proton is unavailable due to technical,
regulatory or other factors, ILS would provide launch services for at least one
launch using an alternative launch vehicle. The contract provides for the launch
of three PanAmSat satellites using Proton launch vehicles. PAS-5 was launched on
a Proton in August 1997 and it is anticipated that PAS-8 will be launched on a
Proton in the third or fourth quarter of 1998.
The Company is scheduled to launch Galaxy X in July 1998 from Cape
Canaveral, Florida, aboard a Delta III launch vehicle manufactured by Boeing.
This launch will be the first commercial launch of the Delta III, the latest
generation based in part on the Delta II launch vehicle. A Delta II launch
vehicle carrying an Air Force satellite suffered a launch failure in January
1997.
The Company is scheduled to launch Galaxy XI in the fourth quarter
of 1998 using a Sea Launch launch vehicle. Sea Launch is a joint venture among
Boeing, Kvaerner A.S., RSC-Energia and the NPO-Yuzhnoye space concern. This
launch will be the first commercial launch of the Sea Launch service, which will
utilize a three-stage launch vehicle launched from a new semi-submersible launch
platform in the Pacific Ocean near the equator. The first two stages of the Sea
Launch vehicle will be based upon prior generations of NPO-Yuzhnoye's Zenit
launch vehicle, and the third stage will be based upon prior generations of the
fourth stage of RSC Energia's Proton launch vehicle.
There can be no assurance that PanAmSat's planned launches on
Delta III or Proton launch vehicles or using the Sea Launch platform will be
successful or on schedule.
Galaxy XI, PAS-1R and PAS-9 are scheduled to be
Hughes-manufactured HS-702 model spacecraft. The HS-702 model has an unproven
track record and may be susceptible to certain risks related to its new
technology. There can be no assurance that PanAmSat's planned use of HS-702
model spacecraft will be successful. An amendment to the Company's contract with
ILS for the launch of PAS-9 will also be required to accommodate the launch of
HS-702 model spacecraft on a Proton launch vehicle. There can be no assurance
that the Company will be successful in negotiating such a contract amendment.
A significant delay in the delivery or launch of any future
satellite would adversely affect the Company's marketing plan for such
satellite. Delays can result from the construction of satellites and launch
vehicles, launch failures, the periodic unavailability of reliable launch
opportunities and possible delays in obtaining regulatory approvals. If
satellite construction schedules are not met, there can be no assurance that a
launch opportunity will be available at the time a satellite is ready to be
launched. The occurrence of a launch failure results in a significant delay in
the deployment of a particular satellite because of the need both to construct a
replacement satellite and obtain another launch opportunity. A significant delay
in the launch of any of PanAmSat's satellites could enable customers who
pre-purchased or agreed to lease capacity of such satellite to terminate their
contracts.
Satellites are also subject to risks after they have been properly
deployed and put into operation. The likelihood of in-orbit failure may be
heightened by PanAmSat's use on certain of its satellites of new technology.
Following the launch of PAS-6, an anomaly was detected in its
solar arrays. The satellite has experienced several circuit failures in its
solar arrays and may experience additional failures in the future. The circuit
failures will require the Company to forego the use of some transponders
initially and to turn off additional transponders in later years. However, the
ability of transponders to provide transmission power for DTH signal reception
using 60-centimeter dishes is not affected. In November 1997, the Company
negotiated an extension of the launch insurance policy for PAS-6 to extend the
period of coverage from 181 days from the launch date to one year plus 181 days
from the launch date. In February 1998, the Company filed a proof of loss
totaling approximately $29 million with its launch insurance underwriters based
on certain anomalies discovered in the solar panels on PAS-6 prior to February
5, 1998. The Company received payment from the insurers pursuant to the proof of
loss in the second quarter of 1998. In connection with the extension of the
launch insurance policy for PAS-6, the Company has agreed to forego any further
claims for partial loss due to subsequent anomalies involving the spacecraft's
solar panels but the endorsement to PAS-6's launch insurance policy does not
otherwise affect the Company's ability to claim a total constructive launch
failure of the spacecraft for any reason (other than normal policy exclusions).
In March 1998 the Company entered into agreements with Hughes
Space and Communications Company ("HSC") and Arianespace for the construction
and launch of a new satellite to be designated as PAS-6B. In connection with
these agreements, the Company entered into an amendment to its agreements with
its customers on PAS-6. Under these agreements, PanAmSat will acquire a new
Hughes HS-601HP satellite that is scheduled to be launched on an Ariane IV
launch vehicle in the fourth quarter of 1998. The Company is exploring its
options for the deployment and use of the original PAS-6 satellite and
anticipates either using that satellite as a backup for PAS-6B or moving it to
another orbital location for other purposes. Management believes that it will be
able to generate sufficient future revenues on PAS-6 to enable it to recover the
carrying value of its investment in the satellite.
Subsequent to March 1998, the Company became aware of certain
anomalies and their effects relative to its Galaxy IV spacecraft which serves
the domestic U.S. marketplace. These anomalies were expected to shorten
substantially the useful life of the satellite and to affect services to some of
the C-band transponder customers on the satellite. On May 19, 1998, all customer
services on Galaxy IV were permanently lost when an anomaly occurred on the
on-board spacecraft control processor which caused the satellite to rotate and
lose its fixed orientation. The spare control processor was unavailable due to
earlier unrelated damage that had not previously been detected. The Company
restored service to most of its Galaxy IV customers through the use of
alternative capacity on the Company's other satellites, principally Galaxy III-R
and Galaxy VI. Galaxy VI was the designated back-up satellite for certain
customers on the Company's domestic U.S. satellites. All of the Company's
customers on Galaxy VI had previously agreed that their service was subject to
preemption if Galaxy VI was required to be used to fulfill back-up obligations
on certain other satellites, including Galaxy IV.
Management has evaluated the financial statement impact of the
loss of Galaxy IV in accordance with its stated accounting policies. As a result
of the loss of Galaxy IV, the Company expects that its 1998 revenues will be
reduced by approximately $10 million, due principally to the loss of available
capacity on the satellites used to backup Galaxy IV capacity. Net income for the
year will be reduced by an immaterial amount, after adjusting for the effects of
the revenue reductions and the elimination of costs that will not be incurred as
a result of the loss of the satellite, most notably depreciation expense. The
Company anticipates that it will recover approximately $168 million from its
insurance coverage and the reversal of accrued insurance liabilities which will
offset the net book value of the Galaxy IV satellite, the net investment in
sales-type leases on the satellite and the payment of warranty costs related to
Galaxy IV transponders that were sold outright in prior years. The Company
intends to procure a replacement satellite on an accelerated basis.
On June 13, 1998, there was a brief shut-down of a portion of the
C-band capacity on the Company's Galaxy VII satellite that was accompanied by
the failure of the primary on-board spacecraft control processor. Control of the
satellite was automatically switched to the spare control processor and the
spacecraft is currently operating normally. The Company and the satellite
manufacturer are investigating whether there is a risk of loss of the Galaxy VII
satellite. The Company is working with all of its Galaxy VII customers to
provide for back-up capacity and to develop solutions to provide for their needs
in the event such a loss were to occur.
In addition to the Company's plans for the replacement of the
Galaxy IV satellite and its activities relating to Galaxy VII described above,
management of the Company is actively developing a comprehensive long-term
service restoration and satellite sparing strategy.
An anomoly has been detected in the batteries on the Company's
PAS-5 satellite. During periods of peak solar eclipse, which occur twice a year,
the Company will be required to shut off a portion of the satellite's payload
for an insignificant time. At the present time, this condition will not have any
adverse impact on the Company's existing full-time transponder customers or its
ability to utilize the affected capacity on the satellite. PanAmSat is
investigating this condition with the satellite manufacturer.
Regulatory Risks
The satellite industry is highly regulated both in the United
States and internationally. PanAmSat is subject to the regulatory authority of
the U.S. government (primarily the Federal Communications Commission (the
"FCC")) and the national communications authorities of the countries in which it
operates. The business prospects of PanAmSat could be adversely affected by the
adoption of new laws, policies, regulations, or changes in the interpretation or
application of existing laws, policies or regulations, that modify the present
regulatory environment. While PanAmSat has generally been successful in
obtaining necessary licenses, there can be no assurance that PanAmSat will
obtain all requisite regulatory approvals for the construction, launch and
operation of any of PanAmSat's future satellites and for the orbital slots
planned for these satellites or, if obtained, that such licenses will not impose
operational restrictions on PanAmSat. Nor can there be any assurance that
PanAmSat will succeed in coordinating any or all of its future satellites
internationally.
Regulatory schemes in countries in which PanAmSat operates may
impose impediments to the Company's operations. PanAmSat, its customers or
companies with which PanAmSat does business must have authority from each
country in which PanAmSat provides services or its customers use its satellites.
Although PanAmSat believes that it, its customers and/or companies with which it
does business presently hold the requisite licenses and approvals for the
countries in which it currently provides services, the regulatory schemes in
each country are different and thus there may be instances of noncompliance of
which PanAmSat is not aware. In addition, portions of PanAmSat's present and
future satellites are designed to provide service to countries in which
regulatory impediments exist. Although PanAmSat believes these regulatory
schemes will not prevent it from pursuing its business plan, there can be no
assurance that any current regulatory approvals held by PanAmSat are, or will
remain, sufficient in the view of foreign regulatory authorities, or that any
additional necessary approvals will be granted on a timely basis, or at all, in
all jurisdictions in which the Company wishes to operate its new satellites or
that restrictions applicable thereto will not be unduly burdensome.
Certain of the frequencies that are intended to be used to uplink
to PAS-7, PAS-6 and Galaxy VIII-i must be coordinated with the U.S. government
on an earth-station-by-earth-station basis to ensure that harmful interference
to government operations is minimized. PanAmSat has undertaken such coordination
and believes that it will either be able to coordinate successfully with federal
government users or to institute operational solutions that will mitigate the
problem, but there can be no assurance that PanAmSat's efforts will be
successful.
PanAmSat has received conditional regulatory approval for the
orbital slot of 72(degree) E.L. from the FCC, which approval is subject to a
full financial showing and demonstration of consultation with Intelsat, an
international treaty organization of 142 member nations ("Intelsat"). In
addition, PanAmSat has requested approval to co-locate a satellite with PAS-4 at
68.5(degree) E.L. PanAmSat intends to locate PAS-7 at the 68.5(degree) E.L.
orbital location if its application for such orbital location is granted, in
which case the 72(degree) E.L. orbital slot could be used for another satellite.
If PAS-7 is to be co-located with PAS-4, it is unlikely that PAS-7 will be
permitted to operate its C-band transponders for transmitting to or from Russia
until certain coordination issues are resolved with the Russian Federation.
PanAmSat tentatively plans to locate PAS-8 at 166(degree) E.L. and has an
application for that orbital slot pending with the FCC. The Company has not yet
filed an application with the FCC for PAS-1R. The FCC gives a "replacement
expectancy" with respect to the use of the same orbital location at the same
frequencies for replacement satellites. This replacement expectancy may increase
the likelihood that PanAmSat will be able to expand the frequencies or coverages
employed by PAS-1 at 45(degree) W.L.; however, no assurance can be given that
the Company will be successful at expanding such frequencies and coverages.
SBS-4's FCC license expired in 1994, and the satellite is operated pursuant to
grants of special temporary authority that are renewed periodically. PanAmSat
has filed an application with the FCC for Galaxy II (H) (to be known as Galaxy
XI), a hybrid satellite that will replace Galaxy VI (a C-band satellite) and
SBS-6 (a Ku-band satellite) at 74(degree) W.L. Following the failure of Galaxy
IV (see "--Risks Associated with Technology"), the FCC granted the Company
special temporary authority to relocate Galaxy VI from 74(degree) W.L. to
99(degree) W.L. to provide replacement C-band capacity. The Company intends to
procure a replacement satellite for Galaxy IV on an accelerated basis.
Currently, the Company has not identified any future orbital locations for
Galaxy VI and SBS-6. Once slots have been identified, the Company plans to apply
for temporary authority to operate at such slots until other satellites are
authorized for, and commence operations at, such slots.
Litigation
See "Legal Proceedings."
Lack of Public Market
The Exchange Securities are new securities for which there is
currently no active trading market. The Company does not intend to apply for
listing of the Exchange Securities on any national securities exchange or to
seek the admission thereof to trading in the Nasdaq National Market System and
there can be no assurance as to the development of any market or liquidity of
any market that may develop for the Exchange Securities. If a market for the
Exchange Securities does develop, the price of such Exchange Securities may
fluctuate and liquidity may be limited. If a market for the Exchange Securities
does not develop, purchasers may be unable to resell such Exchange Securities
for an extended period of time, if at all.
Failure to Exchange Private Securities
The Exchange Securities will be issued in exchange for Private
Securities only after timely receipt by the Exchange Agent of such Private
Securities, a properly completed and duly executed Letter of Transmittal and all
other required documentation. Therefore, holders of Private Securities desiring
to tender such Private Securities in exchange for Exchange Securities should
allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor
the Company is under any duty to give notification of defects or irregularities
with respect to tenders of Private Securities for exchange. Private Securities
that are not tendered or are tendered but not accepted will, following
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof. In addition, any holder of Private
Securities who tenders in the Exchange Offer for the purpose of participating in
a distribution of the Exchange Securities will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer who holds Private
Securities acquired for its own account as a result of market making or other
trading activities and which receives Exchange Securities for its own account in
exchange for such Private Securities pursuant to the Exchange Offer, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Securities. To the extent that Private Securities are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Private Securities could be adversely affected due to the limited
amount, or "float," of the Private Securities that are expected to remain
outstanding following the Exchange Offer. Generally, a lower "float" of a
security could result in less demand to purchase such security and could,
therefore, result in lower prices for such security. For the same reason, to the
extent that a large amount of Private Securities are not tendered or are
tendered and not accepted in the Exchange Offer, the trading market for the
Exchange Securities could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
<PAGE>
THE EXCHANGE OFFER
Purpose of the Exchange Offer
The Private Securities were sold by the Company on the Closing
Date to the Initial Purchasers pursuant to the Purchase Agreement. As a
condition to the sale of the Private Securities, the Company and the Initial
Purchasers entered into the Registration Rights Agreement on January 16, 1998.
Pursuant to the Registration Rights Agreement, the Company agreed (i) that it
would use its reasonable best efforts to cause to be filed with the Commission
within 180 days after the Closing Date an exchange offer registration statement
under the Securities Act with respect to the Exchange Securities and (ii) to
cause such Registration Statement to remain effective under the Securities Act
until the closing of the Exchange Offer. The Company agreed to issue and
exchange Exchange Securities for all Private Securities validly tendered and not
withdrawn before the Expiration Date of the Exchange Offer. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Registration Statement is
intended to satisfy the Company's obligations under the Registration Rights
Agreement.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and all
Private Securities validly tendered and not withdrawn prior to the Expiration
Date.
The Company will issue Exchange Securities in exchange for an
equal aggregate principal amount of outstanding Private Securities validly
tendered pursuant to the Exchange Offer and not withdrawn prior to the
Expiration Date. Private Securities may be tendered only in integral multiples
of $1,000 principal amount.
The form and terms of the Exchange Securities are the same as the
form and terms of the Private Securities except that (i) the Exchange Securities
will be registered under the Securities Act and, therefore, the Exchange
Securities will not bear legends restricting the transfer thereof and (ii)
holders of the Exchange Securities will not be entitled to any of the
registration rights of holders of Private Securities under the Registration
Rights Agreement, which rights will terminate upon the consummation of the
Exchange Offer. The Exchange Securities will evidence the same indebtedness as
the Private Securities which they replace and will be issued under, and be
entitled to the benefits of, the Indenture, which also authorized the issuance
of the Private Securities.
As of the date of this Prospectus, there were outstanding
approximately $200 million principal amount of Private 2003 Notes, $275 million
principal amount of Private 2005 Notes, $150 million principal amount of Private
2008 Notes, and $125 million principal amount of Private 2028 Debentures. Only a
registered holder of the Private Securities (or such holder's legal
representative or attorney-in-fact), as reflected on the records of the Trustee
under the Indenture may participate in the Exchange Offer. Solely for reasons of
administration, the Company has fixed the close of business on , 1998 as the
record date for the Exchange Offer for purposes of determining the persons to
whom this Prospectus and the Letter of Transmittal will be mailed initially.
There will be no fixed record date for determining registered holders of the
Private Securities entitled to participate in the Exchange Offer.
Holders of the Private Securities do not have any appraisal or
dissenters' rights under the Delaware General Corporation Law or the Indenture
in connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the provisions of the Registration Rights
Agreement and the applicable requirements of the Securities Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered
Private Securities when, and if, the Company has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders of Private Securities for the purposes of receiving the
Exchange Securities from the Company.
Holders who tender Private Securities in the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Private Securities pursuant to the Exchange Offer. The Company will
pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City
time on __________, 1998, unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by oral or written notice and mail to the
registered holders of Private Securities an announcement thereof, each prior to
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to
delay accepting any Private Securities, (ii) to extend the Exchange Offer or
(iii) if, in the opinion of counsel for the Company, the consummation of the
Exchange Offer would violate any applicable law, rule or regulation or any
applicable interpretation of the staff of the Commission, to terminate or amend
the Exchange Offer by giving oral or written notice of such delay, extension,
termination or amendment to the Exchange Agent. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the registered holders. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of
Private Securities, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the amendment
and the manner of disclosure to the registered holders, if the Exchange Offer
would otherwise expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to
make a public announcement of any delay, extension, amendment or termination of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
Interest on the Exchange Securities
The Exchange 2003 Notes will bear interest at the rate of 6% per
annum, the Exchange 2005 Notes will bear interest at the rate of 6-1/8% per
annum, the Exchange 2008 Notes will bear interest at the rate of 6-3/8% per
annum, and the Exchange 2028 Debentures will bear interest at the rate of 6-7/8%
per annum, in each case, from January 16, 1998 or from the most recent interest
payment date to which interest has been paid or duly provided for, payable
semi-annually on each January 15 and July 15 commencing July 15, 1998, to the
persons in whose names such Securities are registered at the close of business
on the January 1 or July 1, as the case may be, preceding such January 15 or
July 15.
Resale of the Exchange Securities
With respect to the Exchange Securities, based upon
interpretations by the staff of the Commission set forth in certain no-action
letters issued to third parties, the Company believes that a holder who
exchanges Private Securities for Exchange Securities in the ordinary course of
business, who is not participating, does not intend to participate, and has no
arrangement with any person to participate in a distribution of the Exchange
Securities, and who is not an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act, will be allowed to resell Exchange Securities
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Securities a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if any
holder acquires Exchange Securities in the Exchange Offer for the purpose of
distributing or participating in the distribution of the Exchange Securities,
such holder cannot rely on the position of the staff of the Commission
enumerated in such no-action letters issued to third parties and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Each broker-dealer that receives Exchange Securities for
its own account in exchange for Private Securities acquired by such
broker-dealer as a result of market-making or other trading activities must
acknowledge that it will deliver a prospectus in connection with any resale of
Exchange Securities. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of any Exchange Securities
received in exchange for Private Securities acquired by such broker-dealer as a
result of market-making or other trading activities. Pursuant to the
Registration Rights Agreement, the Company has agreed to make this Prospectus,
as it may be amended or supplemented from time to time, available to any such
broker-dealer that requests copies of such Prospectus in the Letter of
Transmittal for use in connection with any such resale for a period not to
exceed 180 days after the closing of the Exchange Offer. See "Plan of
Distribution."
Procedures for Tendering
Only a registered holder of Private Securities may tender such
Private Securities in the Exchange Offer. To tender in the Exchange Offer, a
holder of Private Securities must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver such Letter
of Transmittal or such facsimile to the Exchange Agent at the address set forth
below under "--Exchange Agent" for receipt prior to the Expiration Date. In
addition, either (i) certificates for such Private Securities must be received
by the Exchange Agent along with the Letter of Transmittal, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Private Securities, if such procedure is available, into the Exchange Agent's
account at the Depository pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the Expiration
Date or (iii) the holder must comply with the guaranteed delivery procedures
described below.
The tender by a holder that is not withdrawn prior to the
Expiration Date will constitute an agreement between such holder and the Company
in accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE SECURITIES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED
THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. DO NOT SEND THE LETTER OF TRANSMITTAL OR ANY
PRIVATE SECURITIES TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Securities whose Private
Securities are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wish(es) to tender should contact the
registered holder promptly and instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing and executing the
Letter of Transmittal and delivering such owner's Private Securities, either
make appropriate arrangements to register ownership of the Private Securities in
such owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal
described below (see "--Withdrawal of Tenders"), as the case may be, must be
guaranteed by an Eligible Institution (as defined below) unless the Private
Securities tendered pursuant thereto are tendered (i) by a registered holder who
has not completed the box titled "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible guarantor
institution" (within the meaning of Rule 17Ad-15 under the Exchange Act) (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Private Securities listed therein, such Private
Securities must be endorsed or accompanied by a properly completed bond power,
signed by such registered holder exactly as such registered holder's name
appears on such Private Securities.
If the Letter of Transmittal or any Private Securities are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
THE EXCHANGE AGENT AND THE DEPOSITORY HAVE CONFIRMED THAT ANY
FINANCIAL INSTITUTION THAT IS A PARTICIPANT IN THE DEPOSITORY'S SYSTEM MAY
UTILIZE THE DEPOSITORY'S AUTOMATED TENDER OFFER PROGRAM ("ATOP") TO TENDER
PRIVATE SECURITIES. TO EFFECT A TENDER PURSUANT TO THE ATOP SYSTEM, HOLDERS
SHOULD TRANSMIT THEIR ACCEPTANCE TO DTC THROUGH ATOP BY CAUSING DTC TO TRANSFER
SECURITIES TO THE EXCHANGE AGENT IN ACCORDANCE WITH ATOP'S PROCEDURES FOR
TRANSFER. DTC WILL THEN SEND AN AGENT'S MESSAGE TO THE EXCHANGE AGENT. THE TERM
"AGENT'S MESSAGE" MEANS A MESSAGE TRANSMITTED BY DTC TO, AND RECEIVED BY, THE
EXCHANGE AGENT AND FORMING A PART OF THE BOOK-ENTRY CONFIRMATION, WHICH STATES
THAT DTC HAS RECEIVED AN EXPRESS ACKNOWLEDGMENT FROM THE PARTICIPANT IN DTC
TENDERING THE SECURITIES REFERRED TO IN SUCH AGENT'S MESSAGE, THAT SUCH
PARTICIPANT HAS RECEIVED THE LETTER OF TRANSMITTAL AND AGREES TO BE BOUND BY THE
TERMS OF THE LETTER OF TRANSMITTAL AND THAT THE COMPANY MAY ENFORCE SUCH
AGREEMENT AGAINST SUCH PARTICIPANT.
All questions as to the validity, form, eligibility (including
time of receipt), acceptance and withdrawal of tendered Private Securities will
be determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Private Securities not properly tendered or any Private Securities the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Private Securities. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Securities must be cured within such time as
the Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Private Securities, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Private Securities will not be
deemed to have been made until such defects or irregularities have been cured or
waived.
While the Company has no present plan to acquire any Private
Securities that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any Private Securities that are not tendered
pursuant to the Exchange Offer, the Company reserves the right in its sole
discretion to purchase or make offers for any Private Securities that remain
outstanding subsequent to the Expiration Date and, to the extent permitted by
applicable law, purchase Private Securities in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
By tendering, each holder of Private Securities will represent to
the Company that, among other things, (i) the Exchange Securities to be acquired
by such holder of Private Securities in connection with the Exchange Offer are
being acquired by such holder in the ordinary course of business of such holder,
(ii) such holder has no arrangement or understanding with any person to
participate in the distribution of the Exchange Securities, (iii) such holder
acknowledges and agrees that any person who is participating in the Exchange
Offer for the purposes of distributing the Exchange Securities must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Exchange Securities
acquired by such person and cannot rely on the position of the staff of the
Commission set forth in certain no-action letters, (iv) such holder understands
that a secondary resale transaction described in clause (iii) above and any
resales of Exchange Securities obtained by such holder in exchange for Private
Securities acquired by such holder directly from the Company should be covered
by an effective registration statement containing the selling security holder
information required by Item 507 or Item 508, as applicable, of Regulation S-K
of the Commission and (v) such holder is not an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. If the holder is a broker-dealer
that will receive Exchange Securities for such holder's own account in exchange
for Private Securities that were acquired as a result of market-making
activities or other trading activities, such holder will be required to
acknowledge in the Letter of Transmittal that such holder will deliver a
prospectus in connection with any resale of such Exchange Securities; however,
by so acknowledging and by delivering a prospectus, such holder will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
Return of Private Securities
If any tendered Private Securities are not accepted for any reason
set forth in the terms and conditions of the Exchange Offer or if Private
Securities are withdrawn, such unaccepted, withdrawn or non-exchanged Private
Securities will be returned without expense to the tendering holder thereof (or,
in the case of Private Securities tendered by book-entry transfer into the
Exchange Agent's account at the Depository pursuant to the book-entry transfer
procedures described below, such Private Securities will be credited to an
account maintained with the Depository) as promptly as practicable.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account
with respect to the Private Securities with the Depository for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Depository's system may
make book-entry delivery of Private Securities by causing the Depository to
transfer such Private Securities into the Exchange Agent's account at the
Depository in accordance with the Depository's procedures for transfer. However,
although delivery of Private Securities may be effected through book-entry
transfer at the Depository, the Letter of Transmittal or facsimile thereof, with
any required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address set
forth below under "--Exchange Agent" on or prior to the Expiration Date or
pursuant to the guaranteed delivery procedures described below.
Guaranteed Delivery Procedures
Holders who wish to tender their Private Securities and (i) whose
Private Securities are not immediately available or (ii) who cannot deliver
their Private Securities, the Letter of Transmittal or any other required
documents to the Exchange Agent prior to the Expiration Date, may effect a
tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder and the certificate number(s) of such Private Securities,
stating that the tender is being made thereby and guaranteeing that, within
three business days after the Expiration Date, the Letter of Transmittal (or a
facsimile thereof), together with the certificate(s) representing the Private
Securities in proper form for transfer or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or
facsimile thereof) as well as the certificate(s) representing all tendered
Private Securities in proper form for transfer and all other documents required
by the Letter of Transmittal are received by the Exchange Agent within three
business days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed
Delivery will be sent to holders who wish to tender their Private Securities
according to the guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Private Securities
may be withdrawn at any time prior to the Expiration Date. To withdraw a tender
of Private Securities in the Exchange Offer, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having deposited the Private Securities to be
withdrawn, (ii) identify the Private Securities to be withdrawn (including the
certificate number or numbers) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Securities were tendered (including any required signature guarantees).
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, in its sole
discretion, whose determination shall be final and binding on all parties. Any
Private Securities so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer, and no Exchange Securities will be issued
with respect thereto unless the Private Securities so withdrawn are validly
retendered. Properly withdrawn Private Securities may be retendered by following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the Expiration Date.
Termination of Certain Rights
All registration rights under the Registration Rights Agreement
accorded to holders of the Private Securities (and all rights to receive
additional interest on the Securities to the extent and in the circumstances
specified therein) will terminate upon consummation of the Exchange Offer except
with respect to the Company's duty to keep the Registration Statement effective
until the closing of the Exchange Offer and, for a period of 180 days after the
closing of the Exchange Offer, to provide copies of the latest version of the
Prospectus to any broker-dealer that requests copies of such Prospectus in the
Letter of Transmittal for use in connection with any resale by such
broker-dealer of Exchange Securities received for its own account pursuant to
the Exchange Offer in exchange for Private Securities acquired for its own
account as a result of market-making or other trading activities.
Exchange Agent
The Chase Manhattan Bank has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Mail or Hand/Overnight Delivery: By Facsimile Transmission:
The Chase Manhattan Bank (For Eligible Institutions Only)
450 West 33rd Street, 15th Floor (212) 946-8161
New York, NY 10001
Attention: Global Trust Services, Confirm by Telephone:
Mr. Sheik Wiltshire (212) 946-3082
The Chase Manhattan Bank also serves as Trustee under the Indenture.
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company.
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, facsimile transmission, telephone or in
person by officers and regular employees of the Company and their affiliates.
The Company has not retained any dealer-manager in connection with
the Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable, out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Private Securities pursuant to the Exchange Offer. If, however, a
transfer tax is imposed for any reason other than the exchange of the Private
Securities pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
Consequence of Failure to Exchange
Participation in the Exchange Offer is voluntary. Holders of the
Private Securities are urged to consult their financial and tax advisors in
making their own decisions on what action to take.
Private Securities that are not exchanged for the Exchange
Securities pursuant to the Exchange Offer will remain "restricted securities"
within the meaning of Rule 144(a)(3)(iv) of the Securities Act. Accordingly,
such Private Securities may not be offered, sold, pledged or otherwise
transferred except (i) to a person whom the seller reasonably believes is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act purchasing for its own account or for the account of a qualified
institutional buyer in a transaction meeting the requirements of Rule 144A, (ii)
in an offshore transaction complying with Rule 903 or Rule 904 of Regulation S
under the Securities Act, (iii) pursuant to an exemption from registration under
the Securities Act provided by Rule 144 thereunder (if available), (iv) pursuant
to an effective registration statement under the Securities Act or (v) to
institutional accredited investors in a transaction exempt from the registration
requirements of the Securities Act, and, in each case, in accordance with all
other applicable securities laws and the transfer restrictions set forth in the
Indenture.
Accounting Treatment
For accounting purposes, the Company will recognize no gain or
loss as a result of the Exchange Offer. The expenses of the Exchange Offer will
be amortized over the remaining term of the Securities.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PanAmSat PanAmSat
Historical Galaxy Historical Data Historical
Data (As Predecessor) Data
----------------------- -------------------------------------------- ------------
As adjusted Actual 3 Months
1997(1) 1997 1996 1995 1994 1993 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Income before taxes, minority
interest and extraordinary item 264,996 263,616 239,719 165,378 103,590 81,832 62,668
------- ------- ------- ------- ------- ------ ------
Fixed Charges
Interest including amortization of
debt issuance costs............... 57,593 58,973 4,903 5,828 6,826 5,848 23,200
Interest capitalized.............. 59,957 80,468 14,613 10,147 5,100 1,600 16,977
Interest portion of rent
expense (2)..................... 34,891 34,891 33,795 21,222 21,195 21,170 7,809
Preferred stock dividends......... - 24,650 - - - - -
-------------------------------------------------------------------------------------------
Total fixed charges.............. 152,441 198,982 53,311 37,197 33,121 28,618 47,986
-------------------------------------------------------------------------------------------
Adjustments to fixed charges
Capitalized interest.............. (59,957) (80,468) (14,613) (10,147) (5,100) (1,600) (16,977)
Preferred stock dividends on
subsidiary preferred stock...... - (24,650) - - - - -
-------------------------------------------------------------------------------------------
Total adjustments to fixed
charges......................... (59,957) (105,118) (14,613) (10,147) (5,100) (1,600) (16,977)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Earnings............................. 357,480 357,480 278,417 192,428 131,611 108,850 93,677
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges... 2.35 1.80 5.22 5.17 3.97 3.80 1.95
-------------------------------------------------------------------------------------------
</TABLE>
(1) As adjusted amounts assume the proceeds from the sale of the Private
Securities were used to retire certain indebtedness of PanAmSat
International that was assumed by the Company as a result of the Merger.
(2) One-third of rent expense was deemed to be interest and includes leaseback
expense.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain obligations of
the Company under the Registration Rights Agreement. The Company will not
receive any proceeds from the issuance of the Exchange Securities offered hereby
and has agreed to pay the expenses of the Exchange Offer. In consideration for
issuing the Exchange Securities as contemplated in this Prospectus, the Company
will receive, in exchange, Private Securities representing an equal aggregate
principal amount for which they are exchanged. The form and terms of the
Exchange Securities are identical in all material respects to the form and terms
of the Private Securities for which they are exchanged, except as otherwise
described herein under "The Exchange Offer--Terms of the Exchange Offer." The
Private Securities surrendered in the exchange for Exchange Securities will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Securities will not result in any increase in the outstanding debt of
the Company.
CAPITALIZATION
The following table sets forth the actual unaudited historical
capitalization of PanAmSat as of March 31, 1998. The capitalization of PanAmSat
should be read in conjunction with PanAmSat's consolidated financial statements
and related notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
As of March 31, 1998 (Actual)
(Dollars in millions)
<S> <C>
Current portion of long-term debt......................................... $ 16.3
=====================
Long-Term debt:
6% Notes due 2003.................................................... $ 200.0
6-1/8% Notes due 2005................................................ 275.0
6-3/8% Notes due 2008................................................ 150.0
6-7/8% Debentures due 2028........................................... 125.0
Subordinated Merger debt (a)......................................... 1,725.0
Other indebtedness................................................... 112.8
---------------------
Total long-term debt...................................................... 2,587.8
Stockholders' equity...................................................... 2,596.5
---------------------
Total capitalization...................................................... $5,184.3
=====================
</TABLE>
(a) Reflects the subordinated loan of $1.725 billion made by Hughes
Electronics to the Company in connection with the Merger.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following selected financial data of Galaxy (as predecessor)
as of December 31, 1996, 1995 and 1994 and for each year of the three-year
period ended December 31, 1996 have been derived from the audited financial
statements of Galaxy. The selected financial data set forth below as of December
31, 1993 and as of March 31, 1998 and 1997 and for the year ended December 31,
1993 and for the three months ended March 31, 1998 and 1997 have been derived
from the unaudited financial statements of Galaxy and PanAmSat (as applicable)
which, in the opinion of management, include all adjustments necessary
(consisting only of normal recurring adjustments) for a fair and consistent
presentation of such information. The selected financial data as of and for the
year ended December 31, 1997 have been derived from, and should be read in
conjunction with, the audited consolidated financial statements of PanAmSat and
the related notes thereto included elsewhere in this Prospectus. See
"Capitalization," "Consolidated Financial Statements," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<PAGE>
<TABLE>
<CAPTION>
PanAmSat PanAmSat Galaxy
Historical Galaxy Historical Data Historical Historical
Data(1) (As Predecessor) Data Data
-----------------------------------------------------------------------------------------------
Year Ended Three Months Ended
December 31, Year Ended December 31, March 31,
1997 1996 1995 1994 1993 1998 1997
-----------------------------------------------------------------------------------------------
(Dollars in Thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Total Revenues.................. $ 629,939 $ 482,770 $ 386,126 $ 328,243 $220,247 $ 193,025 $ 127,553
------------ ----------- ---------- --------- -------- ---------- ----------
Costs and expenses
Costs of outright sales and
sales-type leases............ 20,476 52,969 49,616 45,747 34,530 -- 16,422
Leaseback expense, net of
deferred gain................ 61,907 59,927 36,597 36,617 36,576 13,762 15,417
Depreciation and amortization... 149,592 58,523 76,522 54,126 52,025 58,002 14,585
Direct operating costs.......... 61,199 34,794 29,931 33,627 35,034 22,321 8,158
Selling, general & administrative
42,561 34,119 30,146 51,595 19,278 14,064 5,460
------------ ----------- ---------- --------- -------- ---------- ----------
Operating income................ 294,204 242,438 163,314 106,531 42,804 84,876 67,511
Interest expense, net(2)........ (30,973) (4,903) (5,828) (6,826) (5,848) (22,208) (1,778)
Other income.................... 385 2,184 7,892 3,885 44,876 -- 1,232
------------ ----------- ---------- --------- -------- ---------- ----------
Income before taxes, minority
interest and extraordinary
item......................... 263,616 239,719 165,378 103,590 81,832 62,668 66,965
Income tax expense.............. 117,325 89,895 62,017 38,846 30,687 27,320 25,112
Minority interest 12,819 -- -- -- -- -- --
Extraordinary item(3)........... 20,643 -- -- -- -- -- --
------------ ----------- ---------- --------- -------- ---------- ----------
Net income...................... $ 112,829 $ 149,824 $ 103,361 $ 64,744 $ 51,145 $ 35,348 $ 41,853
============ =========== ========== ========= ======== ========== ==========
Other Financial Data:
EBITDA(4)....................... $ 444,181 $ 303,145 $ 247,728 $ 164,542 $139,705 $ 142,878 $ 83,328
EBITDA margin................... 71% 63% 64% 50% 63% 74% 65%
Net cash provided by (used in)
operating activities......... $ 61,726 $ 151,238 $ 83,690 $ 110,490 N/A $ 46,299 $ (8,029)
Net cash used in investing
activities................... (1,639,972) (42,122) (270,396) (109,560) N/A (235,255) (349,471)
Net cash provided by (used in)
financing activities......... 1,669,956 (109,122) 186,720 (1,126) N/A 145,786 357,503
Capital expenditures............ 541,879 294,122 270,396 114,660 111,104 138,681 349,471
Total assets.................... 5,682,434 1,275,516 1,137,978 868,408 850,640 5,795,660 1,627.326
Total long-term obligations..... 3,016,680 394,187 290,963 319,620 342,070 3,105,463 326,698
Total stockholders' equity/
Hughes Electronics investment 2,560,836 802,093 761,391 471,310 N/A 2,596,539 1,201,449
</TABLE>
- ----------------
(1) Includes financial data for PanAmSat International from May 16, 1997 (the
effective date of the Merger).
(2) Net of capitalized interest of $80.5 million, $14.6 million, $10.1
million, $5.1 million and $1.6 million for the years ended December 31,
1997, 1996, 1995, 1994 and 1993, respectively, and $17.0 million and $5.3
million for the three months ended March 31, 1998 and 1997, respectively,
and net of interest income of $28.0 million for the year ended December
31, 1997.
(3) Represents loss on early extinguishment of debt, net of tax.
(4) Represents earnings before net interest expense, income tax expense,
depreciation and amortization. EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA should not be considered as
a measure of profitability or liquidity as determined in accordance
with generally accepted accounting principles in the statements of
income and cash flows.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto and the pro forma financial information appearing elsewhere in this
Prospectus.
The Company commenced operations on May 16, 1997 upon the Merger.
Prior to the Merger, the Company was an inactive corporation formed solely for
the purpose of consummating the Merger, and each of PanAmSat International and
Galaxy was primarily engaged in the business of providing satellite-based
communication services.
Results of Operations
The Company's results of operations as reported incorporate
PanAmSat International's activity commencing May 16,1997, the effective date of
the Merger. Since this represents only seven and one-half months of activity for
PanAmSat International in 1997, management has determined that for comparative
purposes, it would be more meaningful to present the information shown below on
a "pro forma" basis reflecting the Merger as though it had occurred at the
beginning of the respective periods presented (excluding the impact of PanAmSat
International's $225 million gain on the sale of its direct-to-home television
rights in certain foreign markets to an affiliate concurrent with the Merger, as
well as certain professional and advisory fees and other expenses incurred in
connection with the Merger totaling $31.6 million, both of which are
nonrecurring items that are not indicative of the Company's ordinary course of
business). The pro forma results are not necessarily indicative of the combined
results that would have occurred had the Merger actually occurred at the
beginning of 1996.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma As Reported Pro Forma
(unaudited) As Reported (unaudited) (unaudited)
---------------------- ----------------------------------- ------------- -----------
Year Year Year Year Year Three Months Ended
Ended Ended Ended Ended Ended March 31,
1997 1996 1997 1996 1995 1998 1997
--------- ---------- --------- -------- ------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Operating leases, satellite
services and other.......... $684,663 $566,027 $558,622 $319,084 $236,382 $181,788 $161,066
Outright sales and sales-type
leases...................... 71,317 163,686 71,317 163,686 149,744 11,237 41,026
--------- -------- --------- -------- -------- -------- --------
Total revenue............. 755,980 729,713 629,939 482,770 386,126 193,025 202,092
--------- -------- --------- -------- -------- -------- --------
Costs and Expenses
Cost of outright sales and
sales-type leases........... 20,476 52,969 20,476 52,969 49,616 -- 16,422
Leaseback expense, net of
deferred gain............... 61,907 59,927 61,907 59,927 36,597 13,762 15,417
Direct operating and SG&A costs
130,076 136,116 l03,760 68,913 60,077 36,385 32,539
Depreciation and
amortization................ 197,116 181,100 149,592 58,523 76,522 58,002 46,313
--------- -------- --------- -------- -------- -------- --------
Total..................... 409,575 430,112 335,735 240,332 222,812 108,149 110,691
--------- -------- --------- -------- -------- -------- --------
Income from operations......... 346,405 299,601 294,204 242,438 163,314 84,876 91,401
Interest expense, net.......... 68,981 125,308 30,973 4,903 5,828 22,208 30,993
Other income................... (385) (2,184) (385) (2,184) (7,892) -- (1,232)
--------- -------- --------- -------- -------- -------- --------
Income before income taxes,
minority interest and
extraordinary item.......... 277,809 176,477 263,616 239,719 165,378 62,668 61,640
Income tax expense............. 134,343 92,549 117,325 89,895 62,017 27,320 29,673
--------- -------- --------- -------- -------- -------- --------
Income before minority
interest and extraordinary
item........................ 143,466 83,928 146,291 149,824 103,361 35,348 31,967
Minority interest, subsidiary
preferred stock dividend.... 24,838 28,474 12,819 -- -- -- 7,892
--------- -------- --------- -------- -------- -------- --------
Income before extraordinary
item........................ 118,628 55,454 133,472 149,824 l03,361 35,348 24,075
Extraordinary item: loss on
extinguishment of debt, net
of tax...................... 20,643 -- 20,643 -- -- -- --
--------- -------- --------- -------- -------- -------- --------
Net income..................... $ 97,985 $ 55,454 $112,829 $149,824 $103,361 $ 35,348 $ 24,075
--------- -------- --------- -------- -------- -------- --------
Net income per share--basic and
diluted..................... $ 0.66 $ 0.37 N/A N/A N/A $ 0.24 $ 0.16
</TABLE>
<PAGE>
Consolidated Results
Three Months Ended March 31, 1998 (As Reported) Compared to Three Months
Ended March 31, 1997 (Pro Forma)
Revenues. Revenues decreased $9.1 million, or 4%, to $193.0
million for the three months ended March 31, 1998 from $202.1 million for the
same pro forma period in 1997. Video services revenues were $143.1 million for
the three months ended March 31, 1998, a decrease of 16% from the same pro forma
period in 1997. The decrease was primarily due to less sales and sales-type
lease activity as compared to the first quarter of 1997. Telecommunications
services revenues were $37.5 million for the three months ended March 31, 1998,
an increase of 17% from the same pro forma period in 1997. The increase was due
primarily to the start of several new carrier and Internet-related service
agreements during the quarter.
Revenue results can also be analyzed based on the type of
agreement. Revenues from sales and sales-type leases decreased to $11.2 million
for the three months ended March 31, 1998, from $41.0 million for the same pro
forma period in 1997. The decrease is attributable to a lower volume in 1998
relative to 1997 of outright sales and sales-type leases. Revenues from
operating leases of transponders, satellite services and other increased $20.7
million, or 13%, to $181.8 million for the three months ended March 31, 1998,
from $161.1 million for the same pro forma period in 1997 due primarily to
increased service agreements associated with available transponder capacity and
the provision of short-term, special events services.
Cost of Outright Sales And Sales-Type Leases of Transponders. The
Company recorded no cost of outright sales and sales-type leases of transponders
for the three months ended March 31, 1998, as compared to $16.4 million for the
same pro forma period in 1997. The pro forma cost of outright sales and
sales-type leases of transponders for the three months ended March 31, 1997 are
related to several outright sales and sales-type leases executed during that
period.
Leaseback Expense, Net of Deferred Gain. Leaseback expense, net of
deferred gain, decreased $1.6 million, or 10%, to $13.8 million for the three
months ended March 31, 1998. from $15.4 million for the same pro forma period in
1997. The decrease is primarily attributable to the exercise by the Company of
an early buy out opportunity on one of its sale-leaseback arrangements during
the first quarter of 1998.
Direct Operating and Selling, General and Administrative Costs.
Direct operating and selling, general and administrative costs increased $3.9
million, or 12%, to $36.4 million for the three months ended March 31, 1998 from
$32.5 million for the same pro forma period in 1997. The increase is due
primarily to additional costs associated with satellites launched since the
first quarter of 1997.
Depreciation and Amortization. Depreciation and amortization
increased $11.7 million, or 25%, to $58.0 million for the three months ended
March 31, 1998 from $46.3 million for the same pro forma period in 1997, due
primarily to depreciation expense associated with additional satellites placed
in service.
Income from Operations. Income from operations decreased $6.5
million, or 7%, to $84.9 million for the three months ended March 31, 1998 from
$91.4 million for the same pro forma period in 1997, due primarily to the
decrease in total revenues.
Interest Expense, Net. Interest expense, net decreased $8.8
million, or 28%, to $22.2 million for the three months ended March 31, 1998 from
$31.0 million for the same pro forma period in 1997. The decrease was due
primarily to the reduction in the Company's overall blended interest rate as a
result of the debt tender offer and restructuring program for certain debt
securities of PanAmSat's subsidiaries which was consummated in January 1998.
Income Tax Expense. Income tax expense decreased $2.4 million, or
8%, to $27.3 million for the three months ended March 31, 1998 from $29.7
million for the same pro forma period in 1997. The decrease was due to a lower
effective tax rate in 1998 as a result of foreign sales corporation tax
benefits.
Minority Interest. Minority interest, representing preferred stock
dividends of PanAmSat International, were $0 for the three months ended March
31, 1998 as compared to $7.9 million for the same pro forma period in 1997. The
decrease was due to the conversion of PanAmSat International's 12 3/4%
Mandatorily Exchangeable Senior Redeemable Preferred Stock due 2005 into 12 3/4%
Senior Subordinated Notes due 2005 in the third quarter of 1997 and the related
termination of dividend payment obligations. Approximately 99% of the 12 3/4%
Senior Subordinated Notes were subsequently retired in connection with the
tender offer and restructuring program described above.
1997 Compared to 1996 (Pro Forma and As Reported)
The following discussion of 1997 versus 1996 performance is
primarily based on pro forma results. Pro forma results for 1997 and 1996 and as
reported results since the Merger date reflect the impact of the acquisition of
PanAmSat International, including the use of purchase accounting. Comparisons of
as reported results reflect significant increases in amortization of intangible
assets, interest expense, the effective income tax rate and shares outstanding
arising from the Merger.
Revenues. Pro forma revenues increased $26.3 million, or 4%, to
$756.0 million in 1997 from $729.7 million in 1996. Pro forma video services
revenues increased $88.4 million, or 17%, to $607.6 million in 1997 from $519.2
million in 1996, principally as a result of increased service agreements
associated with available transponder capacity, increased ad hoc revenue
associated with significant international news events and increased revenues
associated with DTH services. Pro forma telecommunications services revenues
decreased $43.1 million, or 26%, to $123.2 million in 1997 from $166.3 million
in 1996. The decrease was primarily due to less outright sales and sales-type
lease activity during 1997. Pro forma satellite services and other revenues
decreased $19.0 million, or 43%, to $25.2 million in 1997 from $44.2 million in
1996 principally due to a decrease in ground services sales.
The pro forma revenue increase can also be analyzed based on the
type of agreement. Pro forma revenues from sales and sales-type leases decreased
to $71.3 million in 1997 from $163.7 million in 1996. The decrease was
attributable to a lower volume in 1997 relative to 1996 of outright sales and
sales-type leases. Pro forma revenues from operating leases of transponders,
satellite services and other increased $118.7 million, or 21%, to $684.7 million
in 1997 from $566.0 million in 1996, due primarily to additional transponder
capacity placed in service.
As reported revenues increased $147.1 million, or 30%, to $629.9
million in 1997 from $482.8 million in 1996, primarily due to the impact of the
Merger, and also due to increased service agreements associated with available
transponder capacity.
Cost of Outright Sales and Sales-Type Leases of Transponders. Pro
forma cost of outright sales and sales-type leases of transponders decreased
$32.5 million, or 61%, to $20.5 million in 1997 from $53.0 million in 1996, due
to the decrease in outright sales and sales-type leases.
Leaseback Expense, Net of Deferred Gain. Pro forma leaseback
expense, net of deferred gain, increased $2.0 million, or 3%, to $61.9 million
in 1997 from $59.9 million in 1996.
Direct Operating and Selling, General and Administrative Costs.
Pro forma direct operating and selling, general and administrative costs
decreased $6.0 million, or 4%, to $130.1 million in 1997 from $136.1 million in
1996.
Depreciation and Amortization. Pro forma depreciation and
amortization increased $16.0 million, or 9%, to $197.1 million in 1997, from
$181.1 million in 1996, due primarily to depreciation expense associated with
additional transponder capacity placed in service.
As reported depreciation and amortization increased $91.1 million,
or 156%, to $149.6 million in 1997, from $58.5 million in 1996. In addition to
the impact of the Merger, the increase was a result of depreciation expense
associated with additional transponder capacity placed in service.
Income from Operations. Pro forma income from operations increased
$46.8 million, or 16%, to $346.4 million in 1997, from $299.6 million in 1996.
The increase was primarily due to the increase in revenues and the decrease in
cost of outright sales and sales-type leases.
Interest Expense, Net. Pro forma interest expense, net decreased
$56.3 million, or 45%, to $69.0 million in 1997, from $125.3 million in 1996.
The decrease in pro forma interest expense, net was due to increased interest
income earned on marketable securities coupled with reduced interest expense
reflecting larger amounts of interest capitalized on satellites under
construction which are expected to be launched in 1998 and 1999.
Income Tax Expense. Pro forma income tax expense increased $41.8
million, or 45%, to $134.3 million in 1997, from $92.5 million in 1996. The
increase in pro forma income tax expense was principally due to the increase in
taxable income. The pro forma tax rates for 1997 and 1996 of 48% and 52%,
respectively, are higher than the statutory rate due to the fact that goodwill
amortization attributable to the Merger is not deductible for tax purposes.
Minority Interest. Pro forma minority interest, representing
preferred stock dividends of PanAmSat International, decreased $3.7 million to
$24.8 million in 1997 from $28.5 million in 1996. The decrease was due to the
conversion of PanAmSat International's 12 3/4% Mandatorily Exchangeable Senior
Redeemable Preferred Stock due 2005 into 12 3/4% Senior Subordinated Notes due
2005 in the third quarter of 1997 and the related termination of dividend
payment obligations.
Extraordinary Item. The Company recorded an extraordinary charge
of $20.6 million ($34.3 million before taxes) during 1997 related to the early
extinguishment of certain indebtedness of PanAmSat's subsidiaries. The charge
principally represented the excess of the price paid for the debt over its
carrying value, net of any deferred financing costs and fair value adjustments
recognized in connection with the Merger.
1996 Compared to 1995 (As Reported)
Revenues. Revenues increased $96.7 million, or 25%, to $482.8
million in 1996 from $386.1 million in 1995. Video services revenues increased
$78.5 million, or 33%, to $314.4 million in 1996 from $235.9 million in 1995,
principally as a result of additional transponder capacity with the successful
launches of Galaxy III-R and Galaxy IX. Telecommunications services revenues
increased $28.0 million, or 28%, to $126.4 million in 1996 from $98.4 million in
1995. The increase was primarily due to an increase in the full and occasional
use of SBS 6, Galaxy IV and Galaxy VII Ku-band transponders. Satellite services
and other revenues decreased $9.8 million, or 19%, to $42.0 million in 1996 from
$51.8 million in 1995 principally due to a decrease in ground service sales.
The revenue increase can also be analyzed based on the type of
agreement. Revenues from sales and sales-type leases increased to $163.7 million
in 1996 from $149.7 million in 1995. The increase was attributable to higher
interest income on sales-type leases offset by a lower volume in 1996 relative
to l995 of outright sales and sales-type leases of transponders previously
placed in service. The lower volume of outright sales and sales-type leases in
1996 primarily reflected a decrease in available in-orbit C-band transponder
capacity, which is typically purchased outright or via sales-type leases by
cable video providers. Revenues from operating leases of transponders, satellite
services and other increased $82.7 million, or 35%, to $319.1 million in 1996
from $236.4 million in 1995, due primarily to additional transponder capacity
placed in service with the launches of Galaxy III-R and Galaxy IX in 1996,
including revenues received from a related party for certain Galaxy III-R
transponder leases.
Cost of Outright Sales and Sales-Type Leases of Transponders. Cost
of outright sales and sales-type leases of transponders increased $3.4 million,
or 7%, to $53.0 million in 1996 from $49.6 million in 1995, reflecting
relatively constant margins on transponder sales and sales-type leases.
Leaseback Expense, Net of Deferred Gain. Leaseback expense, net of
deferred gain, increased $23.3 million, or 64%, to $59.9 million in 1996 from
$36.6 million in 1995. This increase in leaseback expense, net of deferred gain,
was due to the sale-leaseback of Galaxy III-R in 1996.
Direct Operating and Selling, General and Administrative Costs.
Direct operating and selling, general and administrative costs increased $8.8
million, or 15%, to $68.9 million in 1996 from $60.1 million in 1995 principally
due to an increase in telemetry, tracking and control ("TT&C") costs related to
Galaxy III-R and Galaxy IX which were launched in 1996 and an increase in the
provision for doubtful accounts.
Depreciation and Amortization. Depreciation decreased $18.0
million, or 24%, to $58.5 million in 1996, from $76.5 million in 1995, due
primarily to accelerated depreciation in 1995 attributable to a reduction in the
expected useful lifetime of one noncommercial satellite resulting from a
customer's decision not to exercise a lease renewal option, partially offset by
additional depreciation associated with the launch and placement in service of
Galaxy III-R.
Income from Operations. Income from operations increased $79.1
million, or 48%, to $242.4 million in 1996, from $163.3 million in l995. The
increase is primarily due to the increase in revenues offset by an increase in
leaseback expense, net of deferred gain.
Other Income. Other income decreased $5.7 million to $2.2 million
in 1996 from $7.9 million in 1995, primarily due to non-recurring revenue earned
in 1995 for providing services to General Motors Corporation.
Income Tax Expense. The effective tax rate for each of 1996 and
1995 was 38%, reflecting the U.S. federal, state and local income taxes reduced
for foreign sales corporation benefits.
Liquidity and Capital Resources
Pursuant to the Merger, aggregate consideration paid to PanAmSat
International stockholders consisted of approximately $1.5 billion in cash and
approximately 42.5 million shares of PanAmSat Common Stock. In connection with
the Merger, the Company obtained a term loan in the amount of $1.725 billion
from Hughes Electronics, an affiliate of the Company. In addition to the $1.725
billion loan, at March 31, 1998 the Company also had long-term indebtedness of
$862.9 million (comprised primarily of $750 million of the Private Securities
and $76.2 million due to affiliates).
The significant cash outlays for the Company will continue to be
primarily capital expenditures related to the construction and launch of
satellites, debt service costs and potential acquisitions. With the commencement
of construction of PAS-6B, the Company now has seven satellites under various
stages of development for which the Company has budgeted capital expenditures.
See "Risk Factors." The Company will require approximately $900 million to
complete the construction, insurance and launch of PAS-6B, PAS-7, PAS-8, Galaxy
X, Galaxy XI, PAS-9, and PAS-1R, together with related equipment. This amount is
expected to be funded from cash flow from operations, vendor financing and
borrowings under the Credit Agreement (as defined below). In addition to funding
the construction and launch of new satellites, the Company also expects to
exercise its remaining early buy-out options under certain satellite
sale-leaseback transactions entered into in prior years which will require the
Company to fund outlays of approximately $152 million in 1998 (for which an
early buy-out option for $96.6 million relating to 11 transponders on SBS-6 was
exercised by the Company in January 1998) and approximately $366 million in
1999. Such additional outlays are expected to be funded from cash flow from
operations and borrowings under the Credit Agreement.
On January 16, 1998, PanAmSat completed a private placement
pursuant to Rule 144A under the Securities Act of $750 million aggregate
principal amount of Private Securities (the "Offering"). The net proceeds from
the Offering were used to repay bank loans incurred partially to finance a
tender offer for certain debt securities of PanAmSat's subsidiaries, as well as
for general corporate purposes.
In connection with the Offering, the Company executed a Credit
Agreement (the "Credit Agreement") with certain lenders and Citicorp USA, Inc.
as administrative agent. The Credit Agreement amends and restates the credit
agreement among the parties dated December 24, 1997 (the "Original Credit
Agreement"). The Original Credit Agreement provided the Company with up to $500
million of revolving credit loans (the "Revolving Credit Loans") for five years,
and up to $300 million in short-term loans maturing on April 30, 1998 (the "Term
Loans"). The Credit Agreement amended the Original Credit Agreement to terminate
the Term Loan facility. The Company currently has $500 million of Revolving
Credit Loans available to it under the Credit Agreement.
PanAmSat believes that the Credit Agreement, vendor financing,
future cash flow from operations (assuming satellites in development are
successfully launched and commence service on the schedule currently
contemplated) and cash on hand will be sufficient to fund PanAmSat's operations,
anticipated exercise of early buy-out options on certain satellite
sale-leaseback transactions and its remaining costs for the construction and
launch of the satellites currently in development for the next twelve months. If
the Company consummates corporate acquisitions, it may be required to seek
additional financing. There can be no assurance, however, that PanAmSat's
assumptions with respect to future construction and launch costs will be
correct, or that additional vendor financing, PanAmSat's future cash flow from
operations and borrowings under the Credit Agreement will be sufficient to cover
any shortfall in funding for future launches caused by launch failures, cost
overruns, delays or other unanticipated expenses. If circumstances required
PanAmSat to incur additional indebtedness, the ability of PanAmSat to incur any
such additional indebtedness would be subject to the terms of PanAmSat's
outstanding indebtedness. The failure to obtain such financing could have a
material adverse effect on PanAmSat's operations and its ability to accomplish
its business plan.
Net cash provided by (used in) operating activities increased to
$46.3 million for the three months ended March 31, 1998 from $(8.0) million for
the three months ended March 31, 1997. The increase was primarily attributable
to larger adjustments related to amounts of depreciation and amortization and
deferred income taxes as a result of the Merger. Net cash provided by operating
activities decreased to $61.7 million for the year ended December 31, 1997, from
$151.2 million for the year ended December 31, 1996, an increase from $83.7
million for the year ended December 31, 1995. The decrease in 1997 was primarily
attributable to payments of various liabilities acquired in the Merger, offset
by larger adjustments related to amounts of depreciation and amortization as a
result of the Merger. The increase in 1996 was primarily attributable to
increased cash receipts from customers on additional transponders committed
under sales-type and operating leases.
Net cash used in investing activities decreased to $235.3 million
for the three months ended March 31, 1998, from $349.5 million for the three
months ended March 31, 1997. The decrease in 1998 was primarily attributable to
fewer capital expenditures for satellite systems under development as compared
to the same period in 1997. Net cash used in investing activities increased to
$1,640.0 million for the year ended December 31, 1997, from $42.1 million for
the year ended December 31, 1996, a decrease from $270.4 million for the year
ended December 31, 1995. The increase in 1997 was primarily attributable to the
net cash paid in connection with the Merger and additional capital expenditures
for satellite systems under development, offset by proceeds from the sale of
marketable securities. The decrease in 1996 was primarily due to proceeds from
the sale and leaseback of Galaxy III-R.
Net cash provided by financing activities decreased to $145.8
million for the three months ended March 31, 1998 from $357.5 million for the
three months ended March 31, 1997. The decrease in 1998 was primarily due to new
borrowings in connection with the Offering, the proceeds of which were used to
repay bank loans incurred to finance a tender offer for certain debt securities
and for general corporate purposes. Net cash provided by (used in) financing
activities increased to $1,670.0 million for the year ended December 31, 1997,
from $(109.1) million for the year ended December 31, 1996, a decrease from
$186.7 million for the year ended December 31, 1995. The increase in 1997 was
primarily due to new borrowings (including $1.725 billion of Merger-related
borrowings), offset by repayments of long-term debt in connection with the
tender offer for certain debt securities of the Company's subsidiaries. The
decrease in 1996 (representing distributions by Galaxy to its parent company)
was primarily a result of proceeds from the sale and leaseback of Galaxy III-R
and increased cash collections from customers.
Market Risks
From time to time the Company is exposed to market risks relating
to interest rate changes. The Company does not enter into derivatives or other
financial instruments for trading or speculative purposes. At December 31, 1997,
in connection with its debt refinancing activities, the Company entered into
certain U.S. Treasury rate lock contracts to reduce its exposure to fluctuations
in interest rates. The aggregate nominal value of these contracts was $375
million and these contracts were accounted for as hedges because they were
applied to a specific refinancing plan that was consummated shortly after
December 31, 1997. The counterparties are major financial institutions. The fair
value of these financial instruments at December 31, 1997 approximated their
contract value. The cost to unwind these instruments in 1998 will be amortized
to expense over the term of the debt securities to which such hedges were
applied.
Year 2000 Matters
Many of the world's computer systems currently record years in a
two-digit format. Such computer systems will be unable to properly interpret
dates beyond the year 1999, which could lead to disruption in the U.S. and
internationally. PanAmSat has begun an evaluation of its major business and
operations software systems for Year 2000 compliance and expects to complete
that evaluation in 1998. As a part of that process, the Company is identifying
any applications software which may require further analysis and updating. The
Company's most significant assets, the satellites themselves, do not utilize
year-specific code in their processing systems and hence are not subject to
spontaneous events at the change in year.
Nearly all of the PanAmSat satellites are less than 10 years old,
and the ground-based satellite control software systems were also largely
developed in the last 10 years, with many new software systems and enhancements
added in the last 5 years. Instances where date corrections may be necessary are
anticipated to be far fewer than in the older Cobol-based systems which have
been highlighted in other industries as requiring significant re-coding.
Further, in all cases the satellite control activities are subject to real-time
confirmation by human operators, and any unforeseen software problems can be
potentially identified and bypassed before any actions are taken which would
adversely affect a satellite.
Based upon the facts and circumstances described above, PanAmSat
does not believe that the Year 2000 software issue presents any material risk to
the business or assets of PanAmSat or to the Company's ability to perform its
obligations under its agreements to provide satellite services. As indicated
above, PanAmSat will continue to conduct analysis and take appropriate remedial
action when required with respect to its critical systems. The total cost to the
Company of Year 2000 compliance activities has not been and is not anticipated
to have a material adverse effect on its financial position or results of
operations.
<PAGE>
BUSINESS
Overview
PanAmSat is the world's largest commercial provider of global
satellite-based communications services. The Company commenced operations on May
16, 1997 upon the Merger. Unless the context otherwise requires, the terms
"Company" and "PanAmSat" are used to refer collectively to the parent company
and the subsidiaries through which its various businesses are actually
conducted, including PanAmSat International.
The Company is a leading provider of satellite capacity for
television program distribution to network, cable and other redistribution
sources in the United States, Latin America, Africa, south Asia and the
Asia-Pacific region. PanAmSat's global network of 16 satellites provides
state-of-the-art video distribution and telecommunications services for
customers worldwide. Currently, an aggregate of more than 120 million households
worldwide are capable of receiving television programming carried by PanAmSat
satellites. PanAmSat satellites also serve as the transmission platforms for
seven planned or operational DTH services worldwide. The Company also provides
satellite services and related technical support for live transmissions for news
and special events coverage.
In addition, PanAmSat provides satellite services to
telecommunications carriers, corporations and ISPs for the provision of
satellite-based communications networks, including private corporate networks
employing VSATs and international access to the U.S. Internet backbone.
Currently, more than 100,000 VSATs worldwide relay communications over PanAmSat
satellites, and ISPs in 30 countries access the U.S. Internet backbone via
PanAmSat satellites.
The Company provides global satellite services in three areas:
Video Services, Telecommunications Services and Other Services.
The Merger
As a result of the transactions contemplated by the Reorganization
Agreement and the Merger Agreement, on May 16, 1997, among other things, PAS
Merger Corp. merged with and into PanAmSat International and Galaxy was
contributed to PanAmSat, with the result that PanAmSat International became a
wholly-owned subsidiary of PanAmSat. The aggregate consideration paid to
PanAmSat International stockholders consisted of approximately $1.5 billion in
cash and approximately 42.5 million shares of PanAmSat Common Stock having an
approximate value of $1.3 billion based upon a per share price of $30. Following
the Merger, the shares of PanAmSat Common Stock owned by Hughes constituted
approximately 71.5% of the outstanding shares of PanAmSat Common Stock. On May
1, 1998, Hughes increased its ownership of PanAmSat Common Stock to
approximately 81% of the outstanding shares. See "Certain Relationships and
Related Transactions--Hughes Purchase of PanAmSat Common Stock from Televisa and
Founding Stockholders."
Prior to the Merger, PanAmSat International operated the world's
first privately owned global (excluding domestic U.S.) satellite communications
system, consisting of four satellites serving Latin America, the Caribbean,
Europe, Asia, the Middle East and Africa. Galaxy was the leading provider of
commercial satellite services in the United States, with a fleet consisting of
nine satellites.
The Satellites
PanAmSat operates the world's largest commercial network of
geostationary communications satellites. The Company operates 16 satellites and
is scheduled to launch seven additional satellites by the end of 1999.
PanAmSat's fleet covers 99% of the world's population. The Company's satellite
coverage falls into four regional categories -- U.S. domestic, Atlantic Ocean
Region, Pacific Ocean Region and Indian Ocean Region -- that comprise its global
satellite network. Complete geographic coverage and a comprehensive offering of
end-to-end services including satellite capacity, teleport services and network
services enable the Company to offer one-stop-shopping for global communications
customers.
General
Each of the Company's satellites is custom-designed to provide
high transmission power and comprehensive coverage over specific geographic
areas. The Company's satellites under development are designed to provide
greater power and carry larger payloads, including the ability to offer hybrid
services in both the C and Ku-bands. C-band is a range of relatively low
frequencies used for commercial satellite services. In the United States, C-band
is used primarily for analog cable and broadcast distributions and in other
regions of the world also is used for broadband networks and telecommunications.
C-band requires the use of relatively large receive antennas on the ground.
Ku-band is a range of relatively high frequencies used for commercial satellite
communications. Ku-band is widely used for distribution of digital broadcast
television and DTH services, as well as business communications, and allows the
use of relatively small receive antennas.
Each of the Company's satellites has been constructed with a
design life ranging from 12-15 years, although there can be no assurance that
the contractual design life of any individual satellite will be met. See "Risk
Factors - Risks Associated with Technology." The Company's launch and
construction strategy is to replace existing satellites as they exceed their
useful lives or encounter other reductions to their useful lives, with
technologically advanced satellites that meet customer needs. In addition, the
Company seeks to expand the Company's global coverage, capacity and service
offerings by deploying satellites into new orbital locations. In most instances,
a "retired" satellite should be capable of continuing to offer services beyond
the time that its replacement is deployed. In such case, the Company intends to
either co-locate the retired satellite with the new satellite or to move the
retired satellite to an interim location, in each case subject to applicable
approvals. The exact location and intended use of each of PanAmSat's satellites
is subject to various U.S. and non-U.S. governmental approvals, coordination
issues and other regulatory risks. See "Risk Factors - Regulatory Risks."
U.S. Focused Fleet
PanAmSat is the leading provider of video satellite services in
the United States. The Company's U.S. fleet provides cable and television
broadcasting, business communications, and DTH capacity, including video, data
and audio communications applications. PanAmSat's current U.S. fleet consists of
nine satellites. Four of these satellites are dedicated to the cable sector,
carrying most of the major television networks and full-time cable programming
in the United States. PanAmSat's U.S. fleet includes SBS-4, SBS-6, Galaxy V,
Galaxy I-R and Galaxy IX, which provide solely C-band video services. SBS-4 has
exceeded its design life and continues to provide services from an inclined
orbit. SBS-5 provides solely Ku-band data services, and Galaxy VII is a hybrid
satellite capable of providing both video and data services. Galaxy III-R is
capable of providing video and DTH services. Galaxy VI provides C-band video and
data services and currently serves as an in-orbit backup satellite for Galaxy
IV, which suffered a total loss in May 1998. For a discussion of recent
developments involving Galaxy IV and Galaxy VI, see "Risk Factors--Risks
Associated with Technology." With global coverage, PanAmSat can offer its large
U.S. customers the ability to meet their geographically diverse programming
needs. See "Risk Factors--Risks Associated with Technology."
PanAmSat's first satellite, Galaxy I, was launched in 1983,
becoming the first satellite to be dedicated solely to cable television
programming distribution. The Company pioneered the "cable neighborhood" concept
in the satellite services industry. The Company secured key cable programming
for Galaxy I, which prompted cable operators to invest in ground equipment
focused on Galaxy I's orbital position. Once a core group of cable operators had
aligned their dishes with the satellite, Galaxy's incremental capacity could be
sold off at higher rates to new programmers that wanted to enter the market.
This "cable neighborhood" concept continues to be a major business strategy for
the Company, and PanAmSat has created cable neighborhoods on its other U.S.
satellites, Galaxy I-R, Galaxy V, Galaxy VII and Galaxy IX. "Risk Factors--Risks
Associated with Technology."
PanAmSat's U.S. fleet also delivers telecommunications services
for private business networks and Internet applications. Carriers and network
operators use PanAmSat's U.S. satellites as transmission pipelines for their
customers' communications networks. The Company's single largest
telecommunications customer is Hughes Network Systems, Inc. ("HNS") an affiliate
of the Company. See "Certain Relationships and Related Transactions."
International Fleet
Outside of the United States, PanAmSat primarily provides
satellite services in the video and telecommunications markets and, to a lesser
extent, the long-distance telephony market. PanAmSat's current international
fleet consists of PAS-1, PAS-3, PAS-5, PAS-6 and Galaxy VIII-i which provide
coverage of the Atlantic Ocean Region. PAS-2 provides coverage of the Pacific
Ocean Region. PAS-4 provides coverage of the Indian Ocean Region. PanAmSat has
Ku-band DTH capacity on most of its non-U.S. satellites.
The Company's international satellites contain C-band and Ku-band
transponders, with the exception of PAS-6 and Galaxy VIII-i, which are all
Ku-band satellites dedicated to DTH services in Latin America. The Company has
created cable neighborhoods on PAS-1, PAS-3 and PAS-5 for Latin America, PAS-2
for the Asia-Pacific region and PAS-4 for south Asia. The Company's
international satellites also serve as platforms for current and planned DTH
services in Latin America, the Middle East, South Africa and India. In addition,
the Company's international satellites are used to provide carrier services to
more than 35 countries and international Internet access in 30 countries. The
coverage areas of the non-U.S. satellites are determined by the shape of the
satellite beams and are not alterable after launch. However, certain
transponders on certain satellites may be transferred from one beam to another
if market conditions warrant, and PAS-5 has a moveable beam that can be focused
over different regions.
Planned Satellites
The Company plans to launch the following satellites by the end of
1999, each of which, with the exception of PAS-6B, is expected to be a hybrid
satellite capable of offering both C-band and Ku-band services:
PAS-6B - The Company expects that PAS-6B will be an HSC-built
HS-601HP model spacecraft designed to serve as a companion or replacement
satellite for PAS-6, which is the South American platform for the DTH service
offered by Sky Latin America and Net Sat Servicos Ltda. PAS-6B is scheduled to
be launched in 1998 on an Ariane IV launch vehicle. See "Certain Relationships
and Related Transactions."
PAS-7 - PAS-7 will be a Loral-built SS/L FS-1300 model spacecraft
designed to cover the Indian Ocean Region. It is scheduled to be launched in
1998.
PAS-8 - PAS-8 will also be an SS/L FS-1300 model spacecraft,
designed to cover the Pacific Ocean Region. It is scheduled to be launched in
1998.
PAS-1R - PAS-1R will be an HS-702 spacecraft. The HS-702 has not
yet been used by any commercial satellite operator. The Company plans to use
PAS-1R in the U.S. market. It is scheduled for launch in 1999.
Galaxy IV-R - The Company has solicited proposals from satellite
manufacturers to construct a replacement for Galaxy IV. No agreements have been
executed, but the Company desires to launch a replacement on an accelerated
basis. See "Risk Factors - Risks Associated with Technology."
Galaxy X - The Company expects that Galaxy X will be an HS-601
model spacecraft, designed to cover the United States. It is scheduled to occupy
an orbital position located at 123(degree) W.L. and will be capable of offering
both C and Ku-band services. It will occupy the location currently occupied by
SBS-5, which offers only Ku-band services. It is scheduled to be launched in
1998 on a Delta III launch vehicle, which has not been used by any commercial
satellite operator. Galaxy IX (a C-band satellite) is an expansion satellite
that is authorized to operate at 127(degree) degrees W.L. The FCC has authorized
Galaxy IX to operate temporarily at the proposed location for Galaxy X until
Galaxy X is launched and occupies that orbital position. The decision granting
the Galaxy IX application was conditioned upon relinquishing any right to the
continued operation of SBS-5 once Galaxy X begins commercial operations. The
Company is considering filing a request that the FCC grant PanAmSat special
temporary authority to move SBS-5 to 77(degree) W.L., as a replacement for
SBS-4, when Galaxy IX relocates to 127(degree) W.L. There can be no assurance
that the FCC will grant PanAmSat's request to relocate SBS-5 to 77(degree) W.L.
on such basis.
Galaxy XI - The Company expects that Galaxy XI will be an
HSC-built HS-702 model spacecraft, designed to serve both the U.S. market as
well as Latin America and Brazil. It will occupy the location currently occupied
by Galaxy VI and SBS-6. It is scheduled to be launched in 1998 from a Sea Launch
platform, which also has not been used by any commercial satellite operator.
PAS-9 - PAS-9 will also be an HS-702 spacecraft. The Company plans
to use PAS-9 in the Indian Ocean Region. It is scheduled for launch in 1999.
For a discussion of the technological and regulatory risks
associated with the Company's planned satellites, please see "Risk
Factors--Risks Associated with Technology; --Regulatory Risks."
Services
In the year ended December 31,1997, PanAmSat's pro forma revenues
of $756.0 million were derived from the following service areas:
Services 1997 Revenues
---------- ----------------
Video Services............................ 80%
Telecommunications Services............... 16%
Other Services............................ 4%
---------
Total........................................ 100%
See "Management's Discussion and Analysis of Financial Condition
and Results of Operation--Results of Operations."
Video Services
PanAmSat's Video Services provide long-term, part-time and
occasional satellite services for the transmission of news, sports,
entertainment and education programming worldwide. PanAmSat's Video Services are
comprised of four categories: (i) video distribution services, (ii) DTH
services, (iii) special events services and (iv) contribution services.
Video Distribution Services. PanAmSat's primary video distribution
service is the full-time transmission of television programming to cable
systems, network affiliates and other redistribution systems. Certain PanAmSat
satellites contain broad C-band beams that deliver dozens of television channels
to these redistribution systems. PanAmSat generally provides video distribution
services under long-term contracts for full or partial transponder usage and
digital channels. The Company also offers bundled, valued-added services that
include satellite capacity, digital encoding of video channels and, if required,
uplinking and downlinking services to PanAmSat satellites from the Company's
teleport facilities.
PanAmSat currently operates satellites for the distribution of
television programming to cable and other redistribution systems in the United
States, Latin America, Africa, south Asia and the Asia-Pacific region. The
Company creates "video neighborhoods" on these satellites with dozens of popular
television channels. Cable and other redistribution systems then install
antennas to access the popular channels for their subscribers. Several of the
Company's Galaxy satellites deliver television programming to virtually all of
the United States' 11,000 cable systems, consisting of approximately 70 million
cable television households, as well as nearly two million households using
C-band backyard dishes. The Ku-band beams on several of the Company's U.S. and
international satellites are also used for video distribution to cable systems
and network affiliates. PanAmSat customers for full-time video distribution
services include Arab Radio and Television, the BBC, Disney, Doordarshan
(India), China Central Television, Cisneros Group (Venezuela), ESPN, NBC, 20th
Century Fox, Sony, Tele-Communications, Inc., Turner Broadcasting and Viacom.
DTH Services. PanAmSat creates high-power Ku-band transmission
beams on several satellites that serve as platforms for the delivery of multiple
television channels for household reception using 60-90 centimeter antennas.
PanAmSat believes there is significant demand for digital DTH services because
of limited available terrestrial television channels or cable television service
in many international markets, and in the United States, limited ethnic or niche
programming. PanAmSat's customers for DTH services include DIRECTV, the Galaxy
Latin America partnership, MultiChoice/Orbicom, the Sky Latin America
partnership, South African Broadcasting Corp./Sentech, Star TV (News
Corporation) and Viacom.
PanAmSat has arrangements with customers to operate platforms on
five satellites for seven current or planned DTH services in Latin America,
South Africa, the Middle East, India and the United States. PanAmSat also
designs many of these platforms to facilitate DTH service expansion through the
launch of multiple satellites in the same orbital location.
Special Events Services. PanAmSat provides broadcasters with
satellite transmission services for the timely broadcast of news, sports and
events coverage on a short-term basis. This service is designed to enable
broadcasters to conduct on-the-scene transmissions using small, portable
antennas and to receive the transmissions at their broadcast centers or
affiliate stations. PanAmSat conducted approximately 58,000 hours of total
special events transmissions in 1997. In early 1998, the Company transmitted
hundreds of hours of coverage and more than 500 video feeds of the Winter
Olympic Games in Nagano, Japan, for more than 30 broadcasters and news agencies.
The Company offered C-band and Ku-band satellite capacity worldwide and access
to a state-of-the-art production and transmission facility in Nagano for
compressed digital video and other transmission services. PanAmSat customers
during the Olympics included CBS, CNN, ESPN, Organizacion de la Television
Iberoamericana (the Latin American broadcast union representing more than 20
countries), Premier Sports Australia, Reuters and Televisa (Mexico). In addition
to short-term services for special events coverage, PanAmSat has long-term
transponder service agreements with certain satellite brokers in the United
States. These customers package domestic U.S. transponder capacity for their
broadcast, business, educational and government users.
Contribution Services. PanAmSat provides broadcasters with
satellite transmission services for the full-time transmission of news, sports
and entertainment segments to their network affiliates or broadcast centers
within the United States or around the world. PanAmSat's full-time contribution
service customers include Australian Broadcasting Corporation, CBS, CNN, NBC and
NHK (Japan).
Telecommunications Services
PanAmSat's Telecommunications Services support satellite-based
networks that relay voice, video and data communications within individual
countries, throughout regions and around the world. PanAmSat has designed
virtually all of its satellites for high-power, bandwidth-intensive applications
that relay large amounts of digital information among multiple sites using
small, cost-effective antennas. PanAmSat's Telecommunications Services are
comprised of four categories: (i) carrier services, (ii) private business
networks, (iii) Internet access and (iv) telephony.
Carrier Services. PanAmSat provides satellite services to
telecommunications carriers licensed by one or more countries to provide voice,
video and data communications networks for businesses, governments and other
users. The Company's high-power satellites, which facilitate high information
throughput and the ability to use VSATs on the ground, have enabled emerging
carriers to introduce competitive new telecommunications services in Latin
America, Africa and Asia. In addition, PanAmSat offers value-added satellite
services for telecommunications customers that include satellite capacity and
teleport services that connect customers to U.S. terrestrial networks.
PanAmSat's carrier service customers include ImpSat, MCI, Microspace, Pagenet,
Sprint and Telstra (Australia).
Private Business Networks. PanAmSat provides satellite services
directly to network suppliers and businesses for the development and operation
of private business networks in the United States, Latin America, Europe, Africa
and Asia. These rooftop-to-rooftop VSAT networks provide dedicated, proprietary
one-way and two-way communications links among multiple business sites. VSAT
network customers include retail chains for rapid credit card authorization and
inventory control, banks for the connection of automated teller machines with
processing computers and news agencies for the timely dissemination of news and
financial information. More than 100,000 VSAT antennas worldwide currently relay
communications over PanAmSat satellites. The Company's largest single
telecommunications customer is HNS, an affiliate of the Company, which uses the
equivalent of more than 20 U.S. domestic satellite transponders to create and
operate VSAT networks for its business customers. Other PanAmSat private
business network customers include the Associated Press, Citicorp, GMAC, IBM,
Reuters, the University of Southern California, Walgreens and WalMart.
In addition, PanAmSat provides satellite services directly to
businesses. These include value-added satellite communications services, such as
the purchase and installation of on-site antennas and the design, integration,
management, operation and maintenance of business networks. These services are
provided via PanAmSat's teleports in the United States or through
subcontractors.
Internet Access. PanAmSat provides satellite services for the
full-time delivery of Internet information from the United States and other
countries to various locations around the world. PanAmSat's customers consist of
educational organizations, ISPs and companies providing direct-to-consumer
Internet applications. PanAmSat believes that its high-power domestic U.S. and
international satellites are well-suited for Internet service because of the
tremendous demand for reliable, high-speed access to the U.S. Internet backbone,
where approximately 80 percent of all Internet data currently resides. In many
cases, PanAmSat's satellites are capable of delivering Internet data
internationally at nearly 20 times the speed of traditional telephone links.
PanAmSat currently provides Internet services in 30 countries. PanAmSat's
Internet services customers include Bekkoame (Japan), Direct Internet Corp.
(Japan), HNS, Microcom Systems (Nigeria) and OurWorld Global Networks
(Australia).
PanAmSat also provides SPOTbytes(SM), a value-added, bundled
Internet service, that offers an integrated package of services including
international satellite capacity, uplinking services from a PanAmSat teleport
and dedicated links from the teleport to the U.S. Internet backbone.
Telephony. The Company provides domestic and international
satellite services for public switched telephone network ("PSTN") transmissions.
PanAmSat's ability to provide domestic and international PSTN
services is restricted by various telecommunications regulations in most
countries. See "--Government Regulation." The Company believes competition for
long-distance services and significant deregulation in several countries could
create new service opportunities for the Company. In addition, the Company
believes that its international satellites are particularly well-suited for
thin-route PSTN applications in developing countries or remote areas where
fiber-optic telephone systems are not feasible or cost-effective.
Other Services
Telemetry, Tracking and Control. PanAmSat provides TT&C services
for 21 satellites owned by PanAmSat and other satellite operators. PanAmSat
personnel maintain proper orbital location and attitude, monitor on-board
housekeeping systems, adjust transponder levels and remotely "rewire"
satellites, if necessary, to bring backup systems on-line in the event of a
subsystem failure. The necessary TT&C satellite commands are initiated from
PanAmSat's operations control center in Long Beach, California and are
transmitted to the satellites from PanAmSat Teleport facilities located in New
York, Florida, Georgia, Colorado and California.
Galaxy Backup Capacity. As part of its video distribution service
on certain Galaxy satellites, PanAmSat offered its customers a premium service
that included backup C-band capacity on the Galaxy VI satellite. Generally,
subject to the terms of individual contracts, these customers were entitled to
replacement capacity on Galaxy VI if a transponder failure occurred and no spare
amplifier or reserved transponder capacity were available on their current
satellite. As a result of the failure of Galaxy IV, certain customers on that
satellite became entitled to the use of Galaxy VI as a backup satellite. Shortly
after the failure of Galaxy IV, the Company obtained special temporary authority
from the FCC to move Galaxy VI from its original location to 99(degree) W.L.,
the former location of Galaxy IV. Galaxy VI now provides C-band transponder
capacity to customers that previously used Galaxy IV. Galaxy VI served as an
in-orbit spare because the previous Galaxy VI customers were subject to
preemption if their capacity was required to serve as a backup transponder. In
connection with the failure of Galaxy IV, all of the Company's existing
customers on Galaxy VI were preempted. In addition, PanAmSat customers that had
contracted for backup capacity on Galaxy VI are not required to pay for the
premium service until a new backup satellite becomes available. For a discussion
of the recent developments affecting Galaxy IV and Galaxy VI, see "Risk
Factors--Risks Associated with Technology."
Strategy
PanAmSat's business strategy is based on more than 15 years of
experience providing satellite-based communications services and the Company's
ongoing analysis of expected worldwide market demand for its services.
PanAmSat's strategy is based on five key elements:
A global satellite network;
One-stop-shopping;
Value-added services;
Satellite broadcasting and telecommunications franchises; and
Long-term customer relationships.
Global Satellite Network
PanAmSat has created a global satellite communications network
that provides broadcast and telecommunications services worldwide. The network
currently consists of 16 satellites, seven teleport or TT&C facilities and more
than 475 PanAmSat professionals on five continents. In addition, teleports
operated by third parties in Europe, Latin America, the United States and Asia
also provide access to PanAmSat satellites. PanAmSat's global satellite network
is focused on the point-to-multipoint communications market, which includes the
distribution of television channels to cable and other redistribution systems,
DTH and private business networks.
PanAmSat's core resource is its growing fleet of satellites. The
Company has designed many of its satellites to provide high-power transmissions
that reflect specific market demographics and customer service requirements. The
Company intends to launch eight additional satellites by late 1999 that employ
the most advanced satellite technology commercially available. These new
satellites are designed to provide additional transmission capacity, higher
power, expanded coverage and/or extended operational life. Satellites are
subject to significant risks related to delayed and failed launches and in-orbit
failures. See "Risk Factors--Risks Associated With Technology."
PanAmSat's geostationary C-band and/or Ku-band satellites each
provide coverage over specific geographic areas, such as in the United States or
across ocean regions. To facilitate continued network expansion, PanAmSat has
received authorization from the FCC to use additional orbital slots for C-band
and/or Ku-band satellites and nine slots for Ka-band satellites. The Company
also has requested authorization for 11 V-band slots and six additional Ka-band
slots. See "Risk Factors--Regulatory Risks."
The Company may seek to expand its global service offerings
through corporate acquisitions, joint ventures and other strategic transactions.
Programmers and broadcasters that use PanAmSat satellites for
their global transmission requirements include the BBC, China Central
Television, Discovery Communications, NHK, Time Warner and Viacom.
One-Stop Shopping
While PanAmSat has designed each satellite to reflect specific
market requirements, its global satellite network serves as a single resource
for a customer's worldwide transmission requirements. PanAmSat customers can
send their information to virtually any populated area on the planet using
solely PanAmSat satellites. PanAmSat is the only commercial company that offers
global satellite services on a one-stop-shopping basis.
Value-Added Services
The Company employs its satellites, teleports and professional
staff to provide value-added services that are market driven and responsive to
customer needs. In addition to satellite transmission capacity, PanAmSat's
service offerings include:
Network design and systems engineering;
Transmission of video channels and management of private business
network traffic from PanAmSat teleports;
The provision of broadcast studios for video preparation and
transmission to PanAmSat satellites during major sporting and
special events sites; and
Development of new service applications.
PanAmSat's value-added services also include bundled packages of
PanAmSat resources. In an effort to provide cost-effective digital video
services particularly for smaller programmers, for instance, PanAmSat offers a
multi-channel per carrier service in which several television channels are
digitally encoded and transmitted from a PanAmSat teleport to a specific cable
television market. In addition, the Company's SPOTbytesSM bundled Internet
service offers international satellite transmission capacity and uplinking
services from a PanAmSat teleport and dedicated links from the teleport to the
U.S. Internet backbone.
Satellite Broadcasting and Telecommunications Franchises
A key element of PanAmSat's strategy is the creation of service
franchises that enable the Company to maintain and build its customer base. The
franchises attract large numbers of ground antennas that depend on the PanAmSat
satellite for the delivery of their television programming or communications
traffic. The resulting infrastructure of ground antennas creates a premium value
for satellite transmission capacity and also hinders migration of the service to
an alternative satellite.
PanAmSat franchises include the distribution of premier television
channels to cable systems and network affiliates; DTH television services to
subscriber households; and private business networks to multiple corporate
sites. PanAmSat initially enters into service agreements with several key
programmers that serve as anchor tenants offering popular television channels on
the satellite's cable television "neighborhood." These anchor broadcasters seed
the ground infrastructure accessing the programming and also attract additional
programmers that want to join the programming neighborhood.
Long-Term Customer Relationships
PanAmSat builds long-term relationships with its customers by
understanding their business objectives and providing long-term solutions to
their satellite transmission needs. Most of PanAmSat's revenues result from
long-term contracts with its customers. In many cases, programmers, corporations
and ISPs have incrementally increased usage of PanAmSat satellites based on
their service experience.
Satellite Procurement, Launch and Insurance
Satellite Procurement
The Company currently has eight satellites under construction and
development. The Company has agreements with HSC, an affiliate of the Company,
for construction of Galaxy X, Galaxy XI, PAS-lR, PAS-6B and PAS-9, and with
Space Systems/Loral, Inc. ("SS/Loral") for the construction of PAS-7 and PAS-8.
The Company anticipates that it will enter into a contract for the construction
of Galaxy IV-R on an expedited basis. These agreements generally require the
Company to pay the majority of the total contract price for each satellite
during the period of the satellite's construction, with the remainder of such
contract price to be paid in the form of incentive payments based on orbital
performance over the design life of the satellite following launch. The
contracts also provide for price reductions or liquidated damage payments in the
event of late delivery due to the fault of the manufacturer. Each contract
provides for a limited pre-launch warranty that a satellite will be free from
any defects and conform to technical specifications. The satellite construction
contracts contain provisions that would enable the Company to terminate such
contracts both with and without cause. If terminated without cause, the Company
would be subject to substantial termination liabilities that escalate with the
passage of time. If terminated for cause, the Company would be entitled to
recover any payments it made under the contracts and certain liquidated damages
as specified in such contracts. See "Management's Discussion and Analysis of
Financial Condition and Risk Factors--Risks Associated with Technology."
Launch Arrangements
The Company has entered into launch contracts for the launch of
both specified and unspecified future satellites. Each of the Company's launch
contracts provide that the Company may terminate such contract at its option,
subject to payment by the Company of a specified termination liability that
increases in magnitude as the applicable launch date approaches. In addition, in
the event of the failure of any launch, the Company may exercise the right to
obtain a replacement launch within a specified period following the Company's
request for relaunch. See "Risk Factors--Risks Associated with Technology."
Control of Satellites After Launch
Once a satellite is placed at its orbital location, ground
stations control it until the end of its in-orbit lifetime. PanAmSat generally
provides TT&C services for its own satellites, as well as for certain satellites
owned or operated by others.
Insurance
Launch Insurance. Under PanAmSat's satellite construction
contracts, the contractor generally bears the risk of loss of a satellite during
the construction phase up to delivery, at which time risk of loss passes to
PanAmSat and launch insurance coverage begins. PanAmSat generally maintains
launch insurance with respect to its satellites in an amount approximately equal
to the unamortized construction, launch and launch insurance costs for each of
such satellites at the initial date of coverage.
Coverage under PanAmSat's launch insurance includes claims arising
from occurrences up to three years after launch, except for PAS-6. Such coverage
includes not only catastrophic loss of a satellite during launch, but also the
failure of a satellite to obtain proper orbit, or to perform in accordance with
design specifications once in orbit. The terms of the policies generally provide
for payment of the full insured amount if 50% or more of a satellite's
communications capacity is lost within such three-year period, and, subject to
certain deductibles, partial payment for losses of less than 50% of the
satellite's communications capacity within such period. Such insurance policies
include standard commercial launch insurance provisions and customary exclusions
including (i) military or similar actions, (ii) laser, directed-energy or
nuclear anti-satellite devices, (iii) insurrection and similar acts or
governmental action to prevent such acts, (iv) governmental confiscation, (v)
nuclear reaction or radiation contamination, (vi) willful or intentional acts of
PanAmSat or its contractors, (vii) loss of market, loss of revenue, extra
expenses, incidental and consequential damages, and (viii) third-party claims
against PanAmSat. See "Risk Factors--Risks Associated with Technology" for a
description of certain insurance arrangements with respect to PAS-6.
In-orbit Insurance. PanAmSat typically obtains in-orbit insurance
in advance of the expiration of the relevant launch insurance policy, and
coverage thereunder commences upon expiration of such launch insurance policy.
PanAmSat generally obtains in-orbit insurance with respect to its satellites in
an initial amount approximately equal to the construction, launch and insurance
costs for each of such satellites. The amount of in-orbit insurance in force
with respect to each of PanAmSat's satellites generally decreases over time,
usually on straight line basis over the estimated useful life of such satellite.
PanAmSat generally does not insure against lost revenues in the
event of a total or partial loss of the communications capacity of a satellite.
The Company does, however, purchase insurance to cover revenues from a satellite
when revenues have been recognized in connection with an outright sale,
sales-type lease or other arrangement with performance warranty provisions.
Coverage under PanAmSat's in-orbit insurance policies includes
claims arising from occurrences after the expiration of the relevant launch
insurance policy. The insurance coverage includes the failure of a satellite to
continue to perform in accordance with design specifications. Payments in
respect of losses of communications capacity are calculated in the same manner
as under the launch insurance policies.
PanAmSat's in-orbit policies typically include customary
commercial satellite insurance exclusions, including, among other things, damage
or loss caused by military actions or acts of war, anti-satellite devices,
government action, frequency interference or nuclear reaction.
Sale-Leaseback Arrangements
The Company entered into sale-leaseback arrangements with respect
to certain transponders on SBS-6, Galaxy VII and Galaxy III-R in December 1991,
September 1993 and February 1996, respectively. Pursuant to such arrangements,
Galaxy sold 19 Ku-band transponders on SBS-6, 16 Ku-band and 14 C-band
transponders on Galaxy VII and 24 Ku-band transponders on Galaxy III-R.
Concurrently with such sales, Galaxy agreed to lease back such transponders on
terms that required it to make scheduled semi-annual lease payments and operate
and maintain such transponders and the applicable satellites for terms of 11.2
years, 11 years and 6.9 years, respectively. As a result of the Merger, PanAmSat
succeeded to these arrangements. At the end of each lease's initial term, the
Company has the option to renew such lease through the end of the applicable
satellite's useful life. The Company's obligations under each sale-leaseback
arrangement are guaranteed by General Motors Acceptance Corporation (as
successor in interest to Hughes Electronics) ("GMAC"). In connection with the
Merger, the Company agreed to pay and indemnify GMAC for performing any of its
obligations under such guarantees.
The Company has an option under the sale leaseback arrangements to
repurchase the transponders prior to the end of the respective lease terms as
follows: approximately $152 million in 1998 (for which an early buy-out option
for $96.6 million relating to 11 transponders on SBS-6 was exercised by the
Company in January 1998) and $366 million in 1999. The Company will exercise its
option to buy-out the remaining eight transponders on SBS-6 in June 1998.
Each of the sale-leaseback arrangements imposes limits on the
Company's ability to move the applicable satellite to a different orbital
location other than in certain specified situations and imposes limitations on
the Company's ability to consolidate or merge with another entity unless certain
circumstances are satisfied. The Company is also required under the terms of
each such lease to maintain in-orbit insurance on the applicable satellite. In
addition, upon the loss of one or more transponders, the Company is required
either to pay a specified loss amount or provide replacement transponder
capacity to the relevant lessor.
Sales and Marketing
PanAmSat's sales and marketing activities are separated into three
general service areas: full-time program distribution; part-time and ad hoc
broadcast; and business communications and long-distance telephony.
PanAmSat's Greenwich headquarters has a sales and marketing
department for each service area. PanAmSat also has sales and marketing offices
in Long Beach, California, Coral Gables, Florida, Sydney, Australia, London,
England, Tokyo, Japan and Johannesburg, South Africa, which provide integrated
sales and marketing for all three service areas in their respective regions. The
senior executive officers of PanAmSat have been directly involved in marketing
to key broadcasting and business communications customers.
Competition
PanAmSat primarily competes with companies and organizations that
own or utilize satellite or terrestrial transmission facilities.
Other Satellite Operators
PanAmSat's satellite competitors are divided among three
categories: (i) global competitors; (ii) companies that intend to create global
satellite systems; and (iii) regional or domestic satellite operators.
PanAmSat's only global competitor is Intelsat, an international
treaty organization of 142 member nations based in Washington, D.C. that
provides global satellite capacity primarily through its members called
signatories. Comsat Corporation ("Comsat") is the U.S. signatory and is the only
company permitted to provide Intelsat satellite capacity in the United States.
Intelsat's mandate is to provide international satellite capacity
on a non-discriminatory basis to countries around the world. Since its formation
in 1964, Intelsat's primary business has been the provision of satellite
capacity for long-distance telephony circuits. According to Intelsat's 1996
annual report, video services comprised 26 percent of Intelsat's operating
revenue. Intelsat generally provides capacity directly to its signatories which
then market such capacity to their customers.
In recent years, Intelsat has launched higher-powered satellites
that are capable of providing video distribution, DTH and private business
network services. In addition, many countries now permit companies other than
the Intelsat signatory to market Intelsat satellite capacity in that country. In
March 1998 Intelsat approved the creation of an affiliate company that will own
and operate high-power satellites designed for DTH and other high-growth
services, and that will directly market those services to end users. In
addition, Intelsat will transfer to the affiliate the frequency registrations
associated with two Ka-band orbital locations. The affiliate effectively will be
controlled by the current Intelsat signatories.
In May 1998, the FCC granted in part and denied in part a request
by Comsat to be regulated as a non-dominant carrier. The FCC reclassified Comsat
as non-dominant in the provision of full time video and earth station services.
The FCC determined, however, that Comsat retains market power and should
continue to be regulated as dominant in the provision of switched voice and
private line service to 63 countries and in the provision of occasional-use
video services to 142 markets.
On May 5, 1998, the U.S. House of Representatives passed H.R.
1872, the Communications Satellite Competition and Privatization Act of 1997.
The legislation, sponsored by Reps. Thomas Bliley (R-VA) and Edward Markey
(D-MA), sets specific parameters and timetables to ensure the pro-competitive
privatization of Intelsat and deregulation of Comsat. The legislation was
supported by PanAmSat as part of the Company's belief that the pro-competitive
privatization of Intelsat would benefit the satellite industry. While the bill
may benefit the Company by opening certain markets, it is not an essential
component of the Company's successful implementation of its business plan. There
can be no assurance that similar legislation will be passed by the U.S. Senate
or a final bill, if approved by House and Senate, will be signed into law by
President Clinton.
In addition to Intelsat, PanAmSat experiences competition from
companies that have announced plans to create global satellite systems,
primarily through acquisitions, partnerships or equity interests in domestic or
regional satellite systems. These companies include Loral Space and
Communications Ltd. ("Loral"), GE American Communications, Inc. and Lockheed
Martin Corp. For instance, in 1997 Loral acquired AT&T Skynet (a domestic U.S.
satellite operator), in 1998 acquired Orion Network Systems (a transatlantic
satellite operator with plans to launch additional international satellites in
other regions) and entered into a strategic partnership to own and operate
Satelites Mexicanos, S.A. de C.V. (a Mexican satellite system that provides
satellite capacity in Latin America).
PanAmSat also experiences competition from numerous companies
and/or governments that operate domestic or regional satellite systems in the
United States, Latin America, Europe, the Middle East, Africa and Asia.
Competition from these satellite operators is limited to service within one
country or region, depending on the operator's satellite coverage and market
activities. In the United States, GE American, Loral and Comsat all currently
provide fixed satellite services on a regional or domestic basis, and are the
Company's primary competitors in such market.
Proposed Satellite Systems
Other companies have announced plans to operate regional or
transoceanic satellite systems. Entry into the international satellite
communication industry can be expensive and difficult. The construction and
launch of a satellite comparable to PanAmSat's new satellites usually takes
approximately three or more years and costs approximately $200 million to $250
million. In addition, there are a limited number of orbital slots. The operation
of an international satellite communications system also requires approvals from
national telecommunications authorities and Intelsat and, in certain cases, from
regional satellite authorities. See "--Government Regulation." While the trend
around the world is to liberalize these regulatory requirements, at present
obtaining the necessary licenses involves significant time, expense and
expertise.
The Company believes that non-geostationary systems under
development, such as Globalstar and Iridium, are not competitors of PanAmSat.
These non-geostationary systems are designed primarily for mobile telephony and
data services and are not expected to serve the fixed point-to-multipoint video
and telecommunications markets. Certain other non-geostationary systems under
development, such as Celestri, Skybridge and Teledesic are also not expected to
be competitors of PanAmSat. However, because these systems are designed to offer
fixed satellite services such as data and Internet access, they may compete with
services offered or planned to be offered by the Company.
Skybridge, Celestri, and other proposed non-geostationary systems
are designed to use frequencies that are already in use by geostationary
satellites, including PanAmSat's satellites. Although the proponents of these
systems claim that they will not interfere with geostationary systems, the
interference issue is under review by the FCC and the International
Telecommunications Union (the "ITU"), and there can be no assurance that the
standards for sharing frequencies that ultimately are adopted will adequately
protect geostationary operations such as PanAmSat's.
Service Providers
In some cases, PanAmSat experiences competition for its
value-added satellite services from companies that also provide value-added
services. These companies typically lease large amounts of satellite capacity
from satellite operators and then use that capacity to provide value-added
communications networks for their customers. For instance, several carriers
operate VSAT networks for businesses that PanAmSat also could provide as a
value-added service. In addition, brokers in the United States provide
value-added special events services to broadcasters, businesses and educational
institutions that also could be provided by PanAmSat. Many of these value-added
service providers and brokers are PanAmSat customers for their satellite
capacity.
Optical Fiber Cables
Optical fiber cables generally do not compete with PanAmSat's
services. The primary use of optical fiber cables is to carry high-volume
telephony communications on a point-to-point basis. Transcontinental optical
fiber cables currently carry video traffic, but this service is largely for
point-to-point traffic (e.g., New York to London). Optical fiber cables are not
readily usable for point-to-multipoint broadcast applications or for the
transmission of ad hoc events which require transportable uplink earth stations.
Government Regulation
As an operator of a privately-owned global satellite system,
PanAmSat is subject to: (i) the regulatory authority of the U.S. government;
(ii) the regulatory authority of other countries in which PanAmSat operates;
(iii) the Intelsat consultation process; and (iv) the frequency coordination
process of the ITU.
U.S. Regulation
The ownership and operation of PanAmSat's satellite system is
regulated by the FCC. PanAmSat is subject to the FCC's jurisdiction primarily
for: (i) the licensing of satellites and earth stations; (ii) avoidance of
interference with other radio stations; and (iii) compliance with FCC rules
governing U.S.-licensed satellite systems. Violations of the FCC's rules can
result in various sanctions including fines, loss of authorizations, or the
denial of applications for new authorizations or to renew existing
authorizations. PanAmSat is not regulated as a common carrier and, therefore, is
not subject to rate regulation or the obligation not to discriminate among
customers, and operates with minimal governmental scrutiny of its business
decisions. PanAmSat must pay FCC filing fees in connection with its space
station and earth station applications; must pay annual regulatory fees that are
intended to defray the FCC's regulatory expenses; and, to the extent PanAmSat is
deemed to be providing interstate telecommunications, must contribute to funds
used to support universal service.
Authorization to Construct, Launch, and Operate Satellites. The
FCC grants authorizations to satellite operators who meet its legal, technical
and financial qualification requirements. Under the FCC's financial
qualification rules, an applicant must demonstrate that it has sufficient funds
to construct, launch, and operate for one year each requested satellite.
Licenses are issued for an initial ten-year term, and may be extended by the
FCC, although it may not be possible for satellites operating beyond their
initial ten-year term to remain in the same orbital location or even, in some
cases, to be provided a new orbital location. The FCC's rules and policies limit
the number of expansion satellite authorizations that may be granted for the
same frequency band at one time.
PanAmSat has final FCC authorization for seventeen satellites
operating in the C-band, the Ku-band, or both bands. In addition, PanAmSat has a
final authorization to operate nine satellites in the Ka-band (one Atlantic
Ocean Region ("AOR"), to be located at 58(degree) W.L.; two Pacific Ocean Region
("POR"), to be located at 149(degree) E.L. and 173(degree) E.L.; four Indian
Ocean Region ("IOR"), to be located at 36(degree) E.L., 40(degree) E.L.,
48(degree) E.L., and 124.5(degree) E.L.; and two U.S., to be located at
l03(degree) W.L. and 125(degree) W.L.). PanAmSat has requested authority also to
operate five of these satellites in the BSS band, and to operate three other
satellites exclusively in the BSS band, but FCC processing of PanAmSat's
requests must await the resolution of issues concerning the ITU's BSS band plan.
In addition to the above final authorizations, PanAmSat has a
conditional authorization for an IOR satellite, to be located at 72(degree) E.L.
In order to finalize this authorization, PanAmSat must make a full financial
showing and complete its consultation with Intelsat for the satellite.
None of PanAmSat's final or conditional authorizations is subject
to further administrative or judicial reconsideration or review. The FCC
reserves the right to require a satellite to be relocated to a different orbital
location if it determines that such a change is in the public interest, but the
FCC has rarely used this authority.
PanAmSat operates two additional satellites under interim or
special temporary authority. The first of these satellites, Brasilsat Al, is
providing U.S. domestic service from 79(degree) W.L. under an interim
authorization that expired on December 31, 1997. PanAmSat has requested, but has
not yet received, an extension of this authority. The second satellite, SBS-4,
exceeded its regular license term in 1994 and, since that time, has operated at
77(degree) W.L. under successive grants of special temporary authority. Both
Brasilsat A1 and SBS-4 must be relocated once the U.S. satellites assigned to
79(degree) W.L. and 77(degree) W.L., respectively, are launched. Although
PanAmSat has requested authority to relocate SBS-4 to 79(degree) W.L., there can
be no assurance that either of the satellites will be authorized to operate at
another orbital location. PanAmSat also has requested a license modification or
special temporary authority to continue operating PAS-1 beyond the conclusion of
its license term. In addition, following the loss of Galaxy IV, the FCC granted
the Company special temporary authority to relocate Galaxy VI from 74(degree)
W.L. to 99(degree) W.L., to provide replacement C-band capacity. See "Risk
Factors--Risks Associated with Technology."
PanAmSat has filed the following applications for additional or
replacement satellites in the C-band and/or the Ku-band: (1) applications for
two hybrid C/Ku-band satellites (one POR and one U.S.), and one Ku-band
satellite (U.S.), that are now ripe for FCC action; (2) applications for two
hybrid C/Ku-band satellites (one IOR and one U.S.); and (3) an application for a
hybrid C/Ku-band satellite to replace its separate C-band and Ku-band satellites
at 74(degree) W.L. In order to grant two of the U.S. additional satellite
applications, the FCC would have to assign different orbital locations than
those requested by PanAmSat (79(degree) W.L. and 93(degree) W.L.) because, after
PanAmSat's applications were filed, the FCC assigned these orbital locations to
other entities. PanAmSat has requested that the 79(degree) W.L. application be
associated with the 81(degree) W.L. orbital location.
In 1996, the FCC modified its rules for processing international
satellite system applications. Under the new rules, FCC action on one IOR
application and one U.S. application would be substantially delayed. PanAmSat
has requested a waiver of these rules.
PanAmSat has filed applications for six additional Ka-band
satellites (two AOR; two POR; and two IOR), which will be processed in the
second Ka-band satellite processing round. Finally, PanAmSat has applied for
twelve V-band satellites (two AOR, six IOR, and four U.S.), but the FCC has not
yet accepted these applications for filing.
Under the FCC's rules, unless an applicant has received an
authorization to launch and operate, it must notify the FCC in writing prior to
commencing satellite construction, and any construction engaged in is at the
applicant's own risk. While PanAmSat therefore may proceed with the construction
of planned satellites without prior FCC approval, it must accept the risk that
the FCC may not grant the application, may not assign the satellite to its
proposed orbital location, or otherwise may act in a manner that limits or
eliminates some or all of the value of the construction previously done on the
satellite.
Other FCC Authorizations. Under the FCC's rules, an entity that
provides international telecommunications services on a common carrier basis
must first receive authorization, pursuant to Section 214 of the Communications
Act of 1934, as amended, to provide such services. The FCC has granted PanAmSat
Carrier Services, Inc. ("PCSI") and PanAmSat Communications Carrier Services,
Inc. ("PCCS"), wholly owned subsidiaries of the Company, Section 214 authority
to provide international private line and public switched services. As common
carriers, PCSI and PCCS are subject to rate regulation, tariffing and
nondiscrimination requirements.
Other Authorizations. PanAmSat Asia Carrier Services, Inc.
("PACS"), a wholly owned subsidiary of the Company, holds a common carrier
license in Australia. Under such license PACS is subject to rate regulation,
tariffing and other requirements.
Scope of Services Authorized. In 1996, the FCC eliminated the
regulatory distinction between U.S. domestic satellites and U.S.-licensed
international satellites. As a result, each of PanAmSat's satellites may be
used, to the extent technically feasible, to provide both U.S. domestic and
international services. Due to a restriction in the FCC's rules, however, the
transponders on PAS-5 that operate in the 10.7-11.7 GHz and 12.75-13.25 GHz
frequency bands may be used solely for international service. PanAmSat has
requested a waiver of this restriction.
Coordination Requirements. Orion Satellite Corporation ("Orion")
has an FCC authorization for the orbital location adjacent to PAS-1. Orion has
taken the position that PanAmSat must accept interference from Orion's satellite
because PAS-1 does not have "full frequency reuse," while PanAmSat has disputed
this position. The FCC has suggested that Orion's position is incorrect, but
stated that it will not rule definitively on the issue unless the parties are
unable to resolve their differences by frequency coordination. Orion announced
in 1993 that it had canceled its contract for construction of the satellite
which was intended for this orbital slot but reaffirmed its intention to build
such satellite at an unspecified later date.
See "Risk Factors--Regulatory Risks" generally and for a
description of certain frequency coordination issues affecting PAS-6 and PAS-7.
Regulation by Non-U.S. National Telecommunications Authorities
Foreign laws and regulatory practices governing the provision of
satellite services to licensed entities and directly to end users vary
substantially. Most countries in which PanAmSat operates are signatories of
Intelsat and, as a result, may require PanAmSat to confirm that it has
successfully completed technical consolidation with Intelsat before providing
services on a given satellite. See "--Intelsat Consultation." In addition,
PanAmSat may be subject to national communications and/or broadcasting laws with
respect to its provision of international satellite service. While these vary
from country to country, national telecommunications authorities, with limited
exceptions, typically have not required satellite operators to obtain licenses
or regulatory authorizations in order to provide space segment capacity to
licensed entities.
Many countries--particularly in Latin America and, increasingly,
in Europe, Africa and Asia--have liberalized their regulations to permit
multiple entities to seek licenses to provide voice, data or video services for
their own use or for third-party use; to own and operate private earth station
equipment; and to choose a provider of satellite capacity. This trend should
accelerate with the commitments by many World Trade Organization ("WTO")
members, in the context of the WTO Agreement on Basic Telecommunications
Services, to open their satellite markets to competition. Many countries allow
licensed radio and television broadcasters and cable television providers to own
their own transmission broadcast facilities and purchase satellite capacity
without restriction. In such environments, customer access to PanAmSat's
services can be a relatively simple procedure. Other countries, however, have
maintained strict monopoly regimes. In such markets, a single entity (often the
government-owned Posts, Telephone and Telegraph authority) may hold a monopoly
on the ownership and operation of facilities or on the provision of
communications and/or broadcasting services to, from, and within the country,
including via satellite, rendering the provision of service from PanAmSat and
other U.S.-licensed satellites more complicated.
Many countries also permit satellite carriers to provide services
directly to end users. In others, however, a license is required. PanAmSat has
obtained licenses in Argentina, Australia, Columbia, Ecuador, France, Germany,
Japan, Pakistan and the United Kingdom to provide certain services directly to
end users.
Notwithstanding the wide variety of regulatory regimes extant in
the countries in which PanAmSat provides service, PanAmSat believes that it and
its customers are in compliance in all material respects with all applicable
laws and regulations.
Intelsat Consultation. In connection with its international
satellite services, PanAmSat must complete a consultation process with Intelsat
under Article XIV of the Intelsat Agreement to assure that use of any new
satellite will not cause Intelsat technical harm. To provide domestic satellite
services in any country, PanAmSat must complete a technical consultation.
The FCC is responsible for ensuring that PanAmSat has undergone
the necessary consultations and that it operates in accordance with the
technical parameters forming the basis for each Article XIV consultation. If
PanAmSat changes the terms (either technical or service) of its operation in a
significant way, it may need to reconsult with Intelsat.
The ITU Frequency Coordination Process. Each ITU member nation is
required to register its proposed use of orbital slots with the ITU's Radio
Regulations Board. Other nations then may give notice of any use or intended use
of the radio spectrum that would conflict with the proposal. The nations then
are obligated to seek to coordinate the proposed uses and resolve interference
concerns. If all disputes are resolved, the ITU "notifies" the proposed use
which, at least theoretically, protects it from subsequent or nonconforming
interfering uses. The ITU Radio Regulations Board has no dispute resolution or
enforcement mechanisms, however, and international law provides no clear
remedies if this voluntary process fails.
While the right to use most frequencies is determined on a
"first-come, first-served" basis, the ITU has "planned" the use of certain
frequency bands in a manner that effectively reserves for various countries the
right to use those frequencies in accordance with certain technical parameters
at a given orbital location. PanAmSat's proposed use of BSS frequencies on
eleven satellites is subject to unresolved issues concerning the ITU's BSS band
plan.
All of the registrations for PanAmSat's satellites are or will be
subject to the ITU coordination process. Certain entities have filed notices of
intended use with respect to certain orbital slots which conflict with
PanAmSat's registered orbital slots for PAS-2, PAS-4, PAS-7 and PAS-8. Such
filings may delay the receipt of final registration of such orbital slots with
the ITU Radio Regulations Board.
See "Risk Factors--Regulatory Risks."
Employees
At May 5, 1998, PanAmSat had approximately 475 full-time
employees. PanAmSat believes that its relations with its employees are good.
Properties
PanAmSat's executive offices are located in Greenwich,
Connecticut. PanAmSat leases its executive offices pursuant to a lease that will
expire on March 31, 2003. PanAmSat currently operates seven teleports and
operations centers in conjunction with its global satellite network. PanAmSat
operates its primary teleport in Ellenwood, Georgia and operates regional
teleports in Castle Rock, Colorado; Fillmore, California; Homestead, Florida;
Long Beach, California; Napa, California; and Spring Creek, New York. PanAmSat's
operations centers located in Ellenwood and Long Beach provide other services,
such as customer service support, in addition to teleport operations. PanAmSat
owns its Ellenwood, Georgia; Homestead, Florida; Spring Creek, New York; Napa,
California; and Fillmore, California teleports. PanAmSat leases its Castle Rock
and Colorado teleports. The Company owns its teleport in Long Beach, California
and leases offices in Long Beach where its network operations center is located.
The Company plans to move its network operations center to the owned facility in
Long Beach in 1998.
PanAmSat also leases office space for its sales and marketing
offices in Washington, D.C.; Coral Gables, Florida; Sydney, Australia;
Johannesburg, South Africa; London, England; and Tokyo, Japan. PanAmSat's leases
for its foreign offices have been entered into upon terms that PanAmSat deems to
be reasonable and customary.
LEGAL PROCEEDINGS
On or about October 25, 1996, an action was commenced by Comsat
against the Company, News Corporation, Ltd. ("News") and Grupo Televisa, S.A.,
("Televisa") in the United States District Court for the Central District of
California. The complaint alleges that News wrongfully terminated an agreement
with Comsat for the lease of transponders on an Intelsat satellite over the term
of a five year lease, breached certain alleged promises related to such
agreement, and breached its alleged obligations under a tariff filed by Comsat
with the FCC. As to the Company, the complaint alleges that the Company, alone
and in conspiracy with Televisa, intentionally interfered with the alleged
agreement and with Comsat's economic relationship with News. The complaint in
the present action seeks actual and consequential damages, and punitive or
exemplary damages, in an amount to be determined at trial. On December 11, 1996
the Company, News and Televisa filed motions to dismiss the action on various
grounds, including that the FCC has primary jurisdiction over the dispute, that
Federal law preempts the claims asserted against the Company and Televisa, that
the claims asserted against Televisa and the Company are not recognized by
Federal law, that the claims against the Company and Televisa fail to state a
cause of action and that because the claims against the Company and Televisa
depend upon the existence of enforceable rights under the tariff Comsat filed
with the FCC, the claims fail if the FCC determines that Comsat has no such
rights. In this regard, in April 1996, News filed a complaint with the FCC
challenging Comsat's tariff. By order adopted September 15, 1997, the FCC
dismissed that complaint without prejudice. On January 27, 1997, the court
denied defendants' motions to dismiss the action. The trial is scheduled to
begin on November 17, 1998. The Company believes this action is without merit
and intends to vigorously contest this matter, although there can be no
assurance that PanAmSat will prevail. If PanAmSat were not to prevail, the
amounts involved could be material to the Company.
On May 21, 1998, a class action was commenced by Ullman Electric
Company and others similarly situated against Paging Network, Inc., Paging
Network of Ohio, Inc. (the "Paging Companies") and the Company in the Court of
Common Pleas for Cuyahoga County, Ohio. The complaint alleges breach of contract
against the Paging Companies relating to a disruption of paging services
provided by the Paging Companies to the plaintiffs. As to the Company, the
complaint alleges that PanAmSat was negligent as to the plaintiffs in its
operation of the Galaxy IV satellite, which provided satellite capacity to the
Paging Companies. For a discussion of recent developments involving Galaxy IV,
see "Risk Factors--Risks Associated with Technology." The complaint seeks
compensatory damages in an amount not to exceed $70,000 per plaintiff. Also on
May 21, 1998, a class action was commenced by John Withers, Jr. and others
similarly situated against PageMart Wireless, Inc. ("PageMart Wireless"), Paging
Networks, Inc. ("PageNet") and the Company in the District Court for Dallas
County, Texas. The complaint alleges breach of contract against PageMart and
PageNet relating to a disruption of paging services provided by these defendants
to the plaintiffs. As to the Company and the other defendants, the complaint
alleges that the Company and the other defendants committed a deceptive trade
practice under the Texas Deceptive Trades-Consumer Protection Act as a result of
a disruption of pager services associated with the loss of the Company's Galaxy
IV satellite. The complaint seeks damages to be determined at trial, including
actual damages not to exceed $1,000 per plaintiff. The Company believes that
both of the foregoing actions are frivolous and without merit, and PanAmSat
intends to vigorously contest these matters although there can be no assurance
that PanAmSat will prevail.
<PAGE>
MANAGEMENT
Directors
The directors of the Company are set forth below:
Name Age*
- ---- ----
Michael T. Smith, Chairman of the Board...................... 54
Roxanne S. Austin............................................ 37
Patrick J. Costello.......................................... 41
Steven D. Dorfman............................................ 62
Dennis F. Hightower.......................................... 56
James M. Hoak................................................ 54
Frederick A. Landman......................................... 50
Charles H. Noski............................................. 45
Joseph R. Wright, Jr......................................... 59
* As of April 17, 1998
Michael T. Smith is Chairman of the Company. In addition, he is
Chairman of the Board and Chief Executive Officer of Hughes Electronics, which
positions he has held since October 1997. Mr. Smith was Chairman of Hughes
Aircraft Company from 1992 to October 1997. Mr. Smith is Chairman of the
Aerospace Industries Association (an industry trade organization) and is a
member of the board of directors of the Los Angeles World Affairs Council (an
industry trade organization).
Roxanne S. Austin is presently a director of the Company. In
addition, she is presently Senior Vice President and Chief Financial Officer of
Hughes Electronics, which positions she has held since August 1997. She was
Senior Vice President, Treasurer and Controller of Hughes Electronics from
December 1996 to July 1997 and was Vice President, Treasurer and Controller of
Hughes Electronics from July 1996 to December 1996. Ms. Austin was Vice
President and Controller of Hughes Electronics from July 1993 to July 1996 and
was a partner at Deloitte & Touche prior thereto.
Patrick J. Costello is presently a director of the Company. In
addition, he is the Chief Financial Officer of Northway Management Company, LLC
(a private investment company), which position he has held since May 1997. Mr.
Costello was the Chief Financial Officer of PanAmSat International from May 1992
to May 1997 and was elected a director of PanAmSat International in October
1996. Mr. Costello continued as a transitional consultant of the Company
following the Merger and assisted in the transition following the Merger from
May 1997 to November 1997 during which time he performed such services as
requested by the Chief Executive Officer of the Company.
Steven D. Dorfman is presently a director of the Company. In
addition, he is Vice Chairman of Hughes Electronics and a member of that
company's board of directors and executive committee, which positions he has
held since October 1997. Mr. Dorfman was Chairman of the Hughes
Telecommunications and Space Company ("HTS") from April 1993 to December 1997.
Mr. Dorfman was President and Chief Executive Officer of HSC from 1991 to 1993.
Hughes Electronics and Hughes are parent corporations and affiliates of the
Company; HTS and HSC are affiliates of the Company. Mr. Dorfman is a member of
the National Academy of Engineering and has served on many government advisory
boards, most recently the Presidential Advisory Committee on High Performance
Computing and Communications. He is also a member of the board of directors of
Raytheon Company. Mr. Dorfman is also a trustee of the Boys and Girls Club of
America.
Dennis F. Hightower is presently a director of the Company. In
addition, he is a Professor of Management at the Harvard University Graduate
School of Business Administration, which position he has held since July 1996.
He was a senior executive with The Walt Disney Company (a diversified worldwide
entertainment company) from June 1987 to June 1996. He was named President of
Walt Disney Television & Telecommunications (a diversified worldwide
entertainment company) in March 1995. Mr. Hightower was President of Disney
Consumer Products, Europe, Middle East and Africa (a publishing, character
merchandise and children's music company) from June 1987 to February 1995. He is
a member of the board of directors of Northwest Airlines Corporation, The
Phillips-Van Heusen Corporation, The Price Waterhouse Chairman's Advisory
Council, The TJX Companies, Inc. and the Howard University Board of Trustees.
James M. Hoak is presently a director of the Company. In addition,
he is Chairman and a Principal of Hoak Capital Corporation (a private equity
investment company), which position he has held since September 1991, and
Chairman of HBW Holdings, Inc. (an investment bank), which position he has held
since July 1996. He served as Chairman of Heritage Media Corporation (a
broadcasting and marketing services firm) from its inception in August 1987 to
its sale in August 1997. Mr. Hoak was Chief Executive Officer of Crown Media,
Inc. (a cable television company) from February 1991 to January 1995. Mr. Hoak
is a member of the board of directors of Dynamex Inc., Pier 1 Imports, Inc. and
Texas Industries, Inc.
Frederick A. Landman is presently a director of the Company. In
addition, he is President and Chief Executive Officer of the Company. He was
President and Chief Executive Officer of PanAmSat International from September
1995 to May 1997 and was a director of PanAmSat International from October 1994
to May 1997. Mr. Landman has been associated with the Company, PanAmSat
International or its predecessors since the inception of the PanAmSat business
in 1984.
Charles H. Noski is presently a director of the Company. In
addition, he is President of Hughes Electronics and a member of that company's
board of directors and executive committee, which positions he has held since
October 1997. Mr. Noski was Executive Vice President and Chief Financial Officer
of United Technologies Corporation (a manufacturer of aircraft engines and
engine parts, elevators and escalators, heating and air conditioning systems and
automotive systems) from August 1997 to October 1997. He was Vice Chairman and
Chief Financial Officer of Hughes Electronics from September 1996 to October
1997. Mr. Noski was Senior Vice President and Chief Financial Officer of Hughes
Electronics from August 1992 to October 1996. Mr. Noski is a director of the
Private Sector Council and is on the board of directors of the California State
University, Northridge Foundation.
Joseph R. Wright, Jr. is presently a director of the Company. In
addition, he is the Chairman and a director of GRC International, Inc. (a
research and technical support provider to government and private entities),
which position he has held since 1997, Vice Chairman of The Jefferson Group,
Inc. (a consulting and public relations firm), which position he has held since
1996, Chairman, Chief Executive Officer and a director of AmTec, Inc. (a U.S.
company which develops and finances telecommunications projects in the People's
Republic of China), which positions he has held since 1995, and Co-Chairman and
a director of Baker & Taylor Holdings, Inc. (an international book and video
distribution company), which positions he had held since 1995. Mr. Wright was
Vice Chairman, Executive Vice President and a director of W.R. Grace & Company
(a packaging and specialty chemicals company) from 1989 to 1994. He was Director
of the Federal Office of Management and Budget during the Reagan Administration
from 1988 to 1989 and Deputy Director from 1982 to 1988. Mr. Wright serves on
the board of directors of Travelers Group and on the Board of Trustees for
Hampton University.
Director Compensation
Each non-employee director receives an annual fee of $16,000,
payable quarterly, for services as a director plus $1,500 for attendance at each
meeting of the full Board and $1,000 for attendance at each meeting of a
Committee of the Board. Non-employee directors are eligible to participate in
the Long-Term Stock Incentive Plan and commencing in the fourth quarter of 1997,
all fees payable after December 5, 1997 were paid in restricted stock of the
Company, rounded-up to the next whole share. In addition, the Company reimburses
the directors for travel expenses incurred in connection with their duties as
directors of the Company. Patrick J. Costello did not receive a director's fee
during the time that he was serving as a transitional consultant to the Company.
Executive Officers
Set forth below is certain information concerning each of the
current executive officers of the Company. Further information concerning Mr.
Landman is presented under the caption "Directors," above.
<TABLE>
<CAPTION>
Name Age* Position
<S> <C> <C>
Frederick A. Landman................................. 50 President, Chief Executive Officer and Director
Lourdes Saralegui.................................... 36 Executive Vice President
Carl A. Brown........................................ 49 Executive Vice President
Kenneth N. Heintz.................................... 51 Executive Vice President and Chief Financial Officer
James W. Cuminale.................................... 45 Senior Vice President, General Counsel and Secretary
Robert A. Bednarek................................... 40 Senior Vice President and Chief Technology Officer
</TABLE>
* As of April 17, 1998
Frederick A. Landman has been the President and Chief Executive
Officer and a director of the Company since May 1997. Mr. Landman has been the
President and Chief Executive Officer of PanAmSat International, a subsidiary of
the Company, since September 1995. Prior thereto, Mr. Landman served as
President and Chief Operating Officer of various predecessor companies to
PanAmSat International. Mr. Landman has been associated with the Company,
PanAmSat International or its predecessors since the inception of the PanAmSat
business in 1984. Prior to 1984, Mr. Landman was Executive Vice President of
Galavision, Inc., the pay cable television service of Spanish International
Network, Inc. (now known as Univision) ("Spanish International Network"). As
Executive Vice President of Spanish International Network, Mr. Landman
supervised the successful transition from terrestrial to satellite delivery of
Spanish International Network's television programming. Spanish International
Network was the first U.S. commercial network to utilize satellite distribution
for all of its programming.
Lourdes Saralegui has been an Executive Vice President of the
Company since May 1997. She has been an Executive Vice President of PanAmSat
International since October 1994. Prior to becoming an Executive Vice President
of the Company, Ms. Saralegui served as Assistant to the Chairman, Director of
Development Broadcast Transponder Sales and Fixed International Broadcast
Services, and Vice President. Ms. Saralegui has been associated with the
Company, PanAmSat International or its predecessors since the inception of the
PanAmSat business in 1984.
Carl A. Brown has been an Executive Vice President of the Company
since May 1997. He was Senior Vice President of Hughes, an affiliate of the
Company, from May 1989 until May 1997. From March 1991 to May 1994, Mr. Brown
served as Vice President of Hughes.
Kenneth N. Heintz has been Executive Vice President and Chief
Financial Officer of the Company since May 1997. He was Corporate Vice President
of Hughes Electronics, which position he held from September 1994 through April
1998. Mr. Heintz was formerly a partner in the international accounting firm of
Deloitte & Touche, where he was employed from 1967 until joining Hughes
Electronics in September 1994. While at Deloitte & Touche, Mr. Heintz provided
services to Hughes Electronics at various times during the period from 1974 to
1994.
James W. Cuminale has been Senior Vice President, General Counsel
and Secretary of the Company since May 1997. He has been Senior Vice President
and General Counsel of PanAmSat International since January 1996 and was General
Counsel of PanAmSat International from March 1995 to December 1995. From 1983 to
1995, Mr. Cuminale was a partner in the law firm of Ivey, Barnum & O'Mara. As a
partner at Ivey, Barnum & O'Mara, Mr. Cuminale provided legal services to
PanAmSat International from 1991 to 1995.
Robert A. Bednarek has been Senior Vice President and Chief
Technology Officer of the Company since May 1997. He was Senior Vice President,
Engineering and Operations of PanAmSat International from January 1996 through
May 1997. From 1990, the year in which he joined PanAmSat International, to
1995, Mr. Bednarek was a Vice President of PanAmSat International.
Executive officers and other officers are elected or appointed by,
and serve at the pleasure of, the Board of Directors. The Company has entered
into an employment agreement with Mr. Landman and severance agreements with Ms.
Saralegui, Mr. Bednarek and Mr. Cuminale. See "--Executive Compensation and
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements."
Executive Compensation
The following table provides certain summary information
concerning compensation earned by the Company's Chief Executive Officer and the
five other most highly compensated executive officers of the Company (the "Named
Executive Officers") for services rendered in all capacities to the Company for
the year ended December 31, 1997:
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
---------------------------------------------- ------------------------------------------
Awards Payouts
--------------- ---------
Other Securities LTIP
Fiscal Annual Underlying Payout All Other
Name and Principal Position Year Salary ($) Bonus ($)(1) Compensation($) Options(#) ($) Compensation
- ---------------------------- ------ ---------- ------------ --------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frederick A. Landman....... 1997 600,000 464,000 -- 93,750 -- 8,589(2)
President and Chief
Executive Officer
- -
Lourdes Saralegui.......... 1997 375,000 350,000 -- 31,250 -- 2,417(3)
Executive Vice President
Carl A. Brown.............. 1997 250,000 250,000 -- 31,250 -- 135,938(4)
Executive Vice President
Kenneth N. Heintz(5)....... 1997 280,000 185,000 -- 25,000 36,121(6) 1,010,164(7)
Executive Vice President
and Chief Financial
Officer
James W. Cuminale.......... 1997 225,000 115,000 -- 12,500 -- 5,148(8)
Senior Vice President,
General Counsel and
Secretary
Robert A. Bednarek......... 1997 220,000 115,000 -- 12,815 -- 362(8)
Senior Vice President and
Chief Technology Officer
</TABLE>
- ---------
(1) Bonuses for 1997 were paid in February 1998.
(2) This amount represents contributions by the Company to the PanAmSat
Corporation Retirement Savings Plan (the "401(k) Plan") of $4,765 and
contributions to the Restoration and Deferred Compensation Plan of
$3,824.
(3) This amount represents contributions by the Company to the
PanAmSat Restoration and Deferred Compensation Plan.
(4) This amount represents moving expenses of $86,706 incurred by Mr.
Brown when he relocated to Connecticut in connection with the Merger, a
reimbursement of the amount of income tax Mr. Brown would have been
required to pay on such moving expenses and related incentive payments
of $47,618 and contributions by the Company to the Restoration and
Deferred Compensation Plan of $1,614.
(5) Pursuant to an agreement between the Company and Hughes Electronics,
Mr. Heintz was employed by Hughes Electronics and from May 16, 1997
through April 30, 1998 was assigned on a full-time basis to the Company
to serve as its Executive Vice President and Chief Financial Officer.
Mr. Heintz participated in the benefits programs of Hughes Electronics.
The Company reimbursed Hughes Electronics for the cost of Mr. Heintz'
salary, bonus and benefits, including the amount contributed by Hughes
Electronics into any retirement savings plan for Mr. Heintz' benefit as
a match against his contributions to such plan.
(6) This amount represents a pro-rated portion of a payout under the Hughes
Electronics Corporation Long-Term Achievement Plan for the performance
period January 1, 1995 through December 31, 1997.
(7) This amount includes (i) $144,164 in moving expenses incurred by Mr.
Heintz when he relocated to Connecticut in connection with the Merger;
(ii) a supplemental relocation allowance of $295,000 relating to a loss
on the sale of Mr. Heintz's residence in California; (iii) a relocation
incentive payment of $100,000; (iv) a reimbursement of the amount of
income tax Mr. Heintz would have been required to pay on such moving
expenses and related supplemental relocation payments of $434,494; and
(v) contributions by Hughes Electronics to the Hughes Electronics
Corporation Salaried Employees Thrift and Savings Plan of $21,072 and
to the Hughes Electronics Corporation Excess Benefit Plan of $15,434.
(8) This amount represents contributions by the Company to the 401(k) Plan.
The following table sets forth additional information concerning
the grants of stock options to the Named Executive Officers during the fiscal
year ended December 31, 1997. All stock options indicated on the table below
were granted pursuant to the Long-Term Stock Incentive Plan.
<TABLE>
<CAPTION>
Option Grants In Fiscal Year Ended December 31, 1997
Individual Grants
% of Total
Number of Options
Securities Granted to Grant
Underlying Employees in Exercise or Date
Options Fiscal Base Price Expiration Present Value
Name Granted(1) Year ($/Sh)(2) Date ($)(3)
----
<S> <C> <C> <C> <C> <C>
Frederick A. Landman..................... 93,750 16.23 29.00 5/16/07 1,571,250
Lourdes Saralegui........................ 31,250 5.41 29.00 5/16/07 523,750
Carl A. Brown............................ 31,250 5.41 29.00 5/16/07 523,750
Kenneth N. Heintz........................ 25,000 4.33 29.00 5/16/07 419,000
17,314 GMH(4) -- 31.30 5/01/02 382,985
47,614 GMH(4) -- 31.16 5/01/02 1,055,602
James W. Cuminale........................ 12,500 2.16 29.00 5/16/07 209,500
Robert A. Bednarek....................... 12,815 2.22 29.00 5/16/07 214,779
</TABLE>
----------
(1) The options will become exercisable in equal annual installments
over a three-year period commencing on May 16, 1998.
(2) The exercise price per share of each option was equal to the fair
market value of the stock on the date of grant.
(3) Grant Date Present Value for PanAmSat options is determined using
the Black-Scholes option pricing model based on the following
assumptions: (a) an expected option term of ten years; (b) a risk-free
rate of return of 6.7%; (c) stock price volatility of 30%; and (d) a
dividend yield of 0%. The Grant Date Present Values set forth in the
table are only theoretical values and may not accurately determine
present value. The actual value, if any, to be realized by an optionee
will depend on the excess of the market value of the PanAmSat Common
Stock over the exercise price on the date the option is exercised.
(4) Mr. Heintz was granted options for shares of Class H stock of General
Motors Corporation ("GMH Common Stock" or "GMH") under the Hughes
Electronics Corporation Incentive Compensation Plan. The Grant Date
Present Value is determined using the Black-Scholes option pricing
model based on the following assumptions: (a) an expected option term
of seven years; (b) a risk-free rate of return of 5.87%; (c) stock
price volatility of 32.5%; and (d) a dividend yield of 0%. The Grant
Date Present Values set forth in the table are only theoretical values
and may not accurately determine present value. The actual value, if
any, to be realized by an optionee will depend on the excess of the
market value of the GMH Common Stock over the exercise price on the
date the option is exercised.
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of
Securities
Underlying Value of Unexercised
Unexercised In-The-Money
Shares Options Options at
Acquired on at FY-End (#) FY-End ($)
Exercise Value Exercisable/ Exercisable/
Name (#) Realized ($) Unexercisable Unexercisable
---- ----------- ------------ --------------- ----------------------
<S> <C> <C> <C> <C>
Frederick A. Landman................ 0 0 0/93,750 0/1,324,219
Lourdes Saralegui................... 0 0 0/31,250 0/441,406
Carl A. Brown....................... 0 0 0/31,250 0/441,406
4,120 GMH 111,463 1,645/1,645 2,477/2,477
Kenneth N. Heintz................... 0 0 0/25,000 0/353,125
12,000 GMH 285,720 6,060/70,987 9,256/381,953
James W. Cuminale................... 0 0 0/12,500 0/176,563
Robert A. Bednarek.................. 0 0 0/12,815 0/181,012
</TABLE>
<TABLE>
<CAPTION>
Long-Term Stock Incentive Plan--Awards in Last Fiscal Year
Performance or
Number of Shares, Other Period Until Estimated Future Payouts Under
Units or Other Maturation or Non-Stock Price-Based Plans
Name Rights (#) Payout Threshold (#) Target (#) Maximum (#)
------ ---------------- ------------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Frederick A. Landman............. -- -- -- -- --
Lourdes Saralegui................ -- -- -- -- --
Carl A. Brown.................... -- -- -- -- --
Kenneth N. Heintz(1)............. 2,870 GMH 12/31/99 1,148 2,870 5,023
598 GM 12/31/99 239 598 1,047
James W. Cuminale................ -- -- -- -- --
Robert A. Bednarek............... -- -- -- -- --
</TABLE>
- ----------
(1) Performance share awards were granted to Mr. Heintz under the Hughes
Electronics Corporation Long-Term Achievement Plan for the performance
period January 1, 1997 through December 31, 1999. These figures
represent the number of shares of GMH Common Stock and GM Common Stock
that will be awarded upon the attainment by Hughes Electronics of the
sales margin and net asset turnover targets for the performance period
January 1, 1997 through December 31, 1997, and revenue growth and
relative total shareholder return targets for the performance period
January 1, 1998 through December 31, 1999. The target number of shares
will be earned if 100% of the specified targets are achieved and an
additional amount will be paid if the targeted goals are exceeded, but
the maximum number of shares paid will not exceed 175% of the target
amount. The threshold amount will be earned upon the achievement of 80%
of the specified targets.
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements
PanAmSat Corporation's Severance Pay Plan
The Company's Severance Pay Plan (the "Plan") provides severance
pay to eligible employees upon separation of employment. Each regular full-time
employee of the Company is a participant in the Plan. An employee terminated for
any reason other than for cause (as defined in the Plan) who signs and delivers
to the Company a release of all claims which the employee may have by reason of
the employee's employment with the Company or the termination thereof shall be
eligible to receive severance benefits pursuant to the Plan. Severance benefits
are calculated as follows: (i) one week of salary for every year of service up
to five years, (ii) two weeks salary for every year of service over five years
and (iii) a minimum of four weeks salary and a maximum of 52 weeks salary for
executive employees, a minimum of three weeks salary and a maximum of 29 weeks
salary for exempt employees, and a minimum of two weeks salary and a maximum of
29 weeks salary for non-exempt employees. The severance benefit is paid in a
lump sum, as soon as practicable after termination, less applicable deductions
and withholdings.
Under the terms of the Plan, the Chief Executive Officer or his
designee has the power to determine all questions arising under the Plan, and
any decision regarding any matter within the discretion of the Chief Executive
Officer and made by him in good faith is binding on all persons. The Company has
reserved the right through its Board of Directors to amend the Plan and to
terminate the Plan at any time without prior notice, provided that the Plan
shall not be terminated with respect to any Terminated Employee (as defined in
the Plan) or amended in a way that is adverse to the interests of any Terminated
Employee.
Under the Plan, the Named Executive Officers would receive a
minimum of four weeks salary and a maximum of 52 weeks salary as severance,
depending upon years of service.
Change of Control Involuntary Separation Pay Plan
The Company's Change of Control Involuntary Separation Pay Plan
(the "Change of Control Plan") provides that any person who was a full-time
employee of PanAmSat International prior to the Merger who is terminated for any
reason other than for cause (as defined in the Change of Control Plan) by the
Company, or any such employee who resigns rather than accept continued
employment that is not Comparable Employment after a Material Change (as such
terms are defined in the Change of Control Plan) is entitled to benefits in
addition to those benefits provided under the Company's general Severance Pay
Plan described above. Under the Change of Control Plan, any such employee who is
terminated without cause by the Company or resigns rather than accept continued
employment after the Merger that is not Comparable Employment is entitled to
receive, in addition to the benefits covered by the Company's general Severance
Pay Plan, six months continuation of such employee's: (i) base salary and annual
cash bonus (which would be prorated for such period), (ii) medical and dental
insurance benefits, (iii) long-term disability insurance benefits and (iv) life
and accidental death and dismemberment insurance benefits. The Change of Control
Plan does not apply to any employee who is otherwise covered by a severance
agreement (as described below). The Change of Control Plan is in effect until
April 30, 1998 and will not be extended thereafter.
Severance Pay Program
The Company has an executive severance pay program which covers
approximately 50 senior officers and key employees ("Covered Executives"),
including the Named Executive Officers (whose agreements are described
separately below). The program consists of individual severance agreements (the
"Severance Agreements") for the Covered Executives. The Severance Agreements,
which were entered into by PanAmSat International and the individual employees
in May 1996, became binding upon and enforceable against the Company pursuant to
the Merger.
Termination payments to the Covered Executives under the Severance
Agreements would be triggered if, within two years following a Material Change
(as defined in the Severance Agreements), (i) such person's employment is
terminated without cause, (ii) such person's responsibilities are materially
reduced, (iii) such person's responsibilities are changed such that they are
inconsistent with such person's former responsibilities, (iv) such person's
employment location is moved more than 35 miles from such person's current
employment location, unless such person is moved to New York City from the
Company's Greenwich, Connecticut offices, or (v) the Company reduces or fails to
pay such person any base salary, bonus or other amount payable when due. The
Merger constituted a Material Change under the terms of the Severance
Agreements.
The Severance Agreements provide that termination payments would
be triggered if the Covered Executive does not receive an annual base salary,
paid at a monthly rate at least equal to twelve times the highest monthly base
salary paid during the period between the initial public disclosure of the
Material Change and the month in which the Material Change occurred. Thereafter,
base salaries are required to be reviewed at intervals no less frequent than
customary for such Covered Executive prior to the Material Change. Once a
Material Change occurs, base salaries may not be reduced after any increase
during the term of the Severance Agreements. Termination payments would also be
due in the event the Covered Executive did not receive an unconditional bonus
for each year employed with the Company in an amount not less than the higher of
the annual bonus awarded for the fiscal year preceding the fiscal year of the
Material Change and the annual bonus awarded for the fiscal year in which the
Material Change occurred.
The termination payments payable to a Covered Executive under the
terms of the Severance Agreement are determined by multiplying the Covered
Executive's base salary and any applicable bonus by 1.5. Covered Executives
would also be entitled to continuation of certain employee welfare benefits
until the earlier of 18 months after termination or the obtaining of similar
benefits from a subsequent employer.
Each of the Severance Agreements is for a period of three years
and will terminate on May 1, 1999, provided that obligations and benefits
arising prior to such termination shall continue until fully satisfied.
The Severance Agreements restrict the ability of the Covered
Executives to compete with the Company for twelve months following termination
of employment with the Company.
Employment Agreement with Frederick A. Landman
The Company has an employment agreement with Frederick A. Landman
(the "Landman Employment Agreement"). Under the Landman Employment Agreement,
Mr. Landman serves as the Company's President and Chief Executive Officer and as
a director of the Company devoting his full business attention, skill and energy
to the business of the Company. The Landman Employment Agreement is in effect
until May 16, 2000.
Under the Landman Employment Agreement, Mr. Landman's base salary,
which was $600,000 in 1997, is reviewed on an annual basis by the Board of
Directors and may be adjusted upward, in the Board's discretion, to reflect his
performance and the scope and success of the Company. Mr. Landman may also
receive incentive bonuses on an annual basis, based on meeting set financial
performance criteria with respect to growth, cash flow and other financial
criteria for the Company. The annual bonus is based on a target dollar amount
which was $400,000 in 1997. To the extent that the Company exceeds the financial
and business goals by up to 25%, the Board of Directors will increase the target
dollar amount by 50% and if the Company fails to meet the financial and business
goals by no more than 20%, the Board of Directors may reduce the target dollar
amount to an amount no lower than 80% of such target dollar amount. If more than
two of the financial and business goals are missed by more than 20%, the Company
shall not be required to pay any bonus award. Pursuant to the Landman Employment
Agreement, Mr. Landman was also granted an option to purchase 93,750 shares of
PanAmSat Common Stock with one-third of this option vesting on May 16, 1998;
one-third vesting on May 16, 1999; and one-third vesting on May 16, 2000, if Mr.
Landman is still employed with the Company on each of such dates. Mr. Landman is
also eligible for additional stock options as may be granted to executive
employees of the Company from time to time.
The Landman Employment Agreement terminates upon Mr. Landman's
death, disability or resignation. If the Landman Employment Agreement is
terminated as a result of Mr. Landman's death or disability, the Company will
pay Mr. Landman, or his estate, his base salary and any benefits for twelve
months from the date of termination of employment. The Landman Employment
Agreement is also subject to termination at the discretion of the Board of
Directors. If the Board of Directors elects to terminate the Landman Employment
Agreement for a reason other than a material breach by Mr. Landman, he will be
entitled to a termination payment amounting to three years of salary and
applicable bonuses as defined therein. Mr. Landman is also entitled to such
termination payment if he resigns before November 15, 1998 for any reason or if
he resigns for "good cause" thereafter. Mr. Landman and his dependents would
also be entitled to participate, until the earlier of three years after
termination or his obtaining similar benefits from a subsequent employer, in all
employee welfare benefit plans and to receive or participate in all other
benefit arrangements, policies or practices of the Company to which and in which
active executive employees are or shall be entitled to receive or participate in
other than qualified pension or profit sharing plans in which he would not
legally be entitled to participate.
In the event that a termination payment or any other amount
payable to Mr. Landman under the Landman Employment Agreement should become
subject to the excise tax imposed under Section 4999 of the Code or any other
similar tax or assessment, the Company will pay Mr. Landman the amount necessary
to fully reimburse him for the taxes. Additionally, Mr. Landman is entitled to
reimbursement by the Company for attorneys' fees or any other costs necessary to
enforce or defend his rights under the Landman Employment Agreement.
The Landman Employment Agreement contains a covenant not to
compete with the Company for a period of three years after the termination of
Mr. Landman's employment. Mr. Landman also agrees, pursuant to the Landman
Employment Agreement, not to disclose at any time any confidential information
obtained by him while employed with the Company.
Severance Agreements with Named Executive Officers
The Company has an agreement with Lourdes Saralegui, Executive
Vice President of the Company (the "Saralegui Severance Agreement"). The
Saralegui Severance Agreement is for a period of three years and will terminate
on May 1, 1999, provided that obligations and benefits arising prior to such
termination shall continue until fully satisfied. Termination payments under the
Saralegui Severance Agreement would be triggered if, within two years following
a Material Change (as defined therein), (i) Ms. Saralegui terminates her
services to the Company for any reason or (ii) the Company terminates her
services for any reason. The Merger constituted a Material Change under the
terms of the Saralegui Severance Agreement. As a result, if prior to May 16,
1999, Ms. Saralegui chooses to terminate her services or if the Company
terminates her services, Ms. Saralegui is entitled to a termination payment in
an amount equal to three years of base salary plus applicable bonuses as defined
in the Saralegui Severance Agreement. Ms. Saralegui and her dependents would be
entitled to participate, until the earlier of three years after termination or
her obtaining similar benefits from a subsequent employer, in all employee
welfare benefit plans and to receive or participate in all other benefit
arrangements, policies or practices to which and in which active executive
employees of the Company shall become entitled to receive or participate in.
In the event that a termination payment or any other amount
payable to Ms. Saralegui under the Saralegui Severance Agreement should become
subject to the excise tax imposed under Section 4999 of the Code or any other
similar tax or assessment, the Company will pay Ms. Saralegui the amount
necessary to fully reimburse her for such taxes. Additionally, Ms. Saralegui is
entitled to reimbursement from the Company for attorneys' fees or any other
costs necessary to enforce or defend her rights under the Saralegui Severance
Agreement.
The Saralegui Severance Agreement contains a covenant not to
compete with the Company for a period of 18 months after the termination of Ms.
Saralegui's employment, which restricts her from becoming employed by or
rendering personal services to any corporation, firm, or other entity which
directly competes with the Company.
The Company has agreements (the "Executive Severance Agreements")
with Robert A. Bednarek, Senior Vice President and Chief Technology Officer of
the Company and James W. Cuminale, Senior Vice President, General Counsel and
Secretary of the Company (each of Messrs. Bednarek and Cuminale are hereinafter
referred to as a "covered officer"). The Executive Severance Agreements are for
a period of three years and will terminate on May 1, 1999, provided that
obligations and benefits arising prior to such termination shall continue until
fully satisfied.
Termination payments under the Executive Severance Agreements
would be triggered if (i) the covered officer terminates his services with the
Company during the thirty day period following the one year anniversary of a
Material Change (as defined therein), (ii) the Company terminates the covered
officer for any reason other than for cause (as defined therein) within two
years following a Material Change, (iii) the Company fails to continue the
covered officer in the same executive position and does not cure this failure
within ten days of notice of the failure, for two years following a Material
Change, and (iv) if the Company reduces or fails to pay or award when due any
amount of the base salary, bonus or other amounts payable, or reduces or fails
to provide them with any benefits to which the covered officer is entitled. The
Merger constituted a Material Change under the terms of the Executive Severance
Agreements. As a result, if a termination payment is required, the covered
officer would be entitled to a termination payment in an amount equal to three
years of base salary plus applicable bonuses as defined in the Executive
Severance Agreements. The covered officer and his dependents would be entitled
to participate, until the earlier of two years after termination or his
obtaining similar benefits from a subsequent employer, in all employee welfare
benefit plans and to receive or participate in all other benefit arrangements,
policies or practices to which and in which active executive employees of the
Company shall become entitled to receive or participate in.
The Executive Severance Agreements provide that termination
payments would be triggered if such covered officer does not receive an annual
base salary, paid at a monthly rate at least equal to twelve times the highest
monthly base salary paid during the period between the initial public disclosure
of the Material Change and the month in which the Material Change occurred.
Thereafter, the covered officer's base salary is required to be reviewed at
intervals no less frequent than customary for such officer prior to the Material
Change. Once a Material Change occurs, the base salary may not be reduced after
any such increase during the term of the Executive Severance Agreements.
Termination payments would also be due in the event such covered officer did not
receive an unconditional bonus for each year employed with the Company in an
amount not less than the higher of the annual bonus awarded for the fiscal year
preceding the fiscal year of the Material Change and the annual bonus awarded
for the fiscal year in which the Material Change occurred.
In the event that a termination payment or any other amount
payable to a covered officer under the Executive Severance Agreements should
become subject to the excise tax imposed under Section 4999 of the Code or any
other similar tax or assessment, the Company will pay the covered officer the
amount necessary to fully reimburse him for such taxes. Additionally, the
covered officer is entitled to reimbursement from the Company for attorneys'
fees or any other costs necessary to enforce or defend his rights under the
Executive Severance Agreements.
The Executive Severance Agreements contain a covenant not to
compete with the Company for a period of 18 months after the termination of the
covered officer's employment, which restricts the covered officer from becoming
employed by or rendering personal services to any corporation, firm, or other
entity which directly competes with the Company.
Compensation Committee Interlocks and Insider Participation
The PanAmSat Compensation Committee (the "Compensation Committee")
was formed in May 1997 in connection with the Merger. From the time of its
formation through October 9, 1997, the Compensation Committee was composed of
Ted G. Westerman, Mr. Noski and Mr. Wright. From October 10, 1997 through
December 31, 1997, the Compensation Committee was composed of Mr. Westerman, Mr.
Smith and Mr. Wright. Mr. Westerman did not stand for re-election to the Board
in 1998. There were no compensation committee interlocks between any of the
members of the Compensation Committee during 1997 and any other entity. Messrs.
Smith and Noski are executive officers of Hughes Electronics, a parent
corporation and an affiliate of the Company under the rules and regulations of
the SEC. Mr. Westerman was formerly an executive officer of Hughes Electronics.
During the last fiscal year Hughes Electronics and certain of its subsidiaries
engaged in certain transactions with the Company which are described in "Certain
Relationships and Related Transactions" below.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
shares of PanAmSat Common Stock beneficially owned as of May 1, 1998 by (i) each
person who or entity that, insofar as the Company has been able to ascertain,
beneficially owned as of such date more than 5% of the PanAmSat Common Stock,
(ii) each of the directors of the Company, (iii) the Named Executive Officers
and (iv) all executive officers and directors of the Company as a group (14
persons).
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership of Percent of
Name of Beneficial Owner(1) Shares of PanAmSat Common PanAmSat Common
--------------------------- Stock Stock
------------------------- ---------------
<S> <C> <C>
General Motors Corporation(2).............................................. 109,572,581 81.00%
Mary Anselmo(3)(4)(5)...................................................... 11,418,473 7.70%
Article VII Trust Created Under the Rene Anselmo Revocable
Trust Dated June 10, 1994(3)(4)(5)...................................... 10,718,588 7.20%
Michael T. Smith........................................................... 300 *
Charles H. Noski(7)........................................................ 500 *
Frederick A. Landman(3)(4)(6)(8)........................................... 2,100,594 1.40%
Patrick J. Costello(9)..................................................... 1,432 *
Roxanne S. Austin.......................................................... 0 *
Steven D. Dorfman.......................................................... 2,000 *
Dennis F. Hightower........................................................ 1,322 *
James M. Hoak.............................................................. 1,376 *
Joseph R. Wright, Jr....................................................... 1,401 *
Lourdes Saralegui(3)(4)(6)(10)............................................. 166,987 *
Carl A. Brown(6)........................................................... 10,797 *
Kenneth N. Heintz(6)....................................................... 8,333 *
James W. Cuminale(6)....................................................... 6,562 *
Robert A. Bednarek(6)...................................................... 6,045 *
All executive officers and directors as a group (14 persons)(4)............ 2,307,649 1.55%
</TABLE>
- ----------------------------
* Less than 1%
(1) For purposes of this table, beneficial ownership of securities is defined
in accordance with the rules of the Commission and means generally the
power to vote or exercise investment discretion with respect to
securities, regardless of any economic interests therein. Except as
otherwise indicated, the beneficial owners of shares of PanAmSat Common
Stock listed above have sole investment and voting power with respect to
such shares, subject to community property laws where applicable. In
addition, for purposes of this table, a person or group is deemed to have
"beneficial ownership" of any shares which such person has the right to
acquire by June 30, 1998. For purposes of calculating the percentage of
outstanding shares held by each person listed above, any shares which
such person has the right to acquire by June 30, 1998 are deemed to be
outstanding, but not for the purpose of calculating the percentage
ownership of any other person.
(2) The address of such entity is 3044 West Grand Boulevard, Detroit,
Michigan 48202-3091. All of such shares are owned of record by Hughes, a
wholly-owned subsidiary of Hughes Electronics, which entity is a
wholly-owned subsidiary of General Motors Corporation ("GM").
(3) The address of such entity or person is c/o PanAmSat Corporation,
One Pickwick Plaza, Greenwich, Connecticut 06830.
(4) Mary Anselmo, Reverge Anselmo, Frederick A. Landman and Lourdes Saralegui
are joint trustees under the Article VII Trust, which was created by Rene
Anselmo (the founder and former Chairman of the Board and Chief Executive
Officer of PanAmSat International), and succeeded to all of the stock
owned by Rene Anselmo on the date of his death. A majority of the joint
trustees have power to vote all of the Common Stock held by the Article
VII Trust and Mrs. Anselmo, as joint trustee, has the sole power to
require or prohibit the sale of such shares. Each joint trustee, in his
or her capacity as such, may be deemed to be the beneficial owner of all
the shares of PanAmSat Common Stock that are held by the Article VII
Trust, but each joint trustee other than Mrs. Anselmo disclaims
beneficial ownership of such shares. On May 1, 1998, Mary Anselmo, the
Article VII Trust, Frederick A. Landman and Lourdes Saralegui sold a
portion of their shares of PanAmSat Common Stock. Separately, Mary
Anselmo and the Article VII Trust announced their intention to diversify
their holdings by selling all or a portion of their remaining PanAmSat
Common Stock.
(5) Includes 10,718,588 shares owned by the Article VII Trust for which Mrs.
Anselmo is a joint trustee, has sole power to require or prohibit the
sale of, is the principal beneficiary of and for which Mrs. Anselmo
claims beneficial ownership.
(6) The number of shares of PanAmSat Common Stock of which Mr. Landman, Ms.
Saralegui, Mr. Brown, Mr. Heintz, Mr. Cuminale and Mr. Bednarek had the
right to acquire beneficial ownership pursuant to the exercise before
June 30, 1998 of options granted by the Company are as follows: Mr.
Landman, 31,250; Ms. Saralegui, 10,417; Mr. Brown, 10,417; Mr. Heintz,
8,333; Mr. Cuminale, 4,167; and Mr. Bednarek, 4,163. The inclusion of
such shares in the table above does not constitute an admission by any
executive officer that he or she is the beneficial owner of such shares.
(7) The shares shown as owned by Mr. Noski are held by the Noski Family
Living Trust for which Mr. Noski is a trustee.
(8) The shares shown as owned by Mr. Landman do not include (i) 10,718,588
shares held for the benefit of the Article VII Trust for which Mr.
Landman is a joint trustee, (ii) 199,961 shares owned by Mr. Landman's
former wife, Pier Landman, (iii) 21,750 shares owned by trusts for the
benefit of Mr. Landman's minor children and (iv) 785,788 shares owned by
the Frederick A. Landman Irrevocable Trust, with respect to all of which
shares Mr. Landman disclaims beneficial ownership. Pier Landman is the
principal lifetime beneficiary of the Frederick A. Landman Irrevocable
Trust, and Mr. Landman's children are the remaindermen. Pier Landman is
also the sole trustee of the trusts for the benefit of Mr. Landman's
children.
(9) The shares shown as owned by Mr. Costello do not include (i) 785,788
shares held by the Frederick A. Landman Irrevocable Trust for which Mr.
Costello is trustee and (ii) 279,953 shares held by the Raycee Anselmo
Trust for which Mr. Costello is a joint trustee, with respect to all of
which shares Mr. Costello disclaims beneficial ownership.
(10) The shares shown as owned by Ms. Saralegui do not include 10,718,588
shares held for the benefit of the Article VII Trust for which Ms.
Saralegui is a joint trustee, and with respect to which Ms. Saralegui
disclaims beneficial ownership.
<PAGE>
The following table sets forth certain information regarding the
equity securities of GM beneficially owned as of May 1, 1998 by (i) each of the
directors of the Company, (ii) the Company's Chief Executive Officer and the
Named Executive Officers, and (iii) all executive officers and directors of the
Company as a group (14 persons).
<TABLE>
<CAPTION>
Amount and Nature of Amount and Nature of
Beneficial Ownership Beneficial Ownership of
of shares of GM shares of GM Class H
Name of Beneficial Owner(1) Common Stock(2) Common Stock(2)
--------------------------- -------------------- -----------------------
<S> <C> <C>
Michael T. Smith(3)......................................... 6,126 462,021
Charles H. Noski(4)......................................... 2,782 20,666
Frederick A. Landman........................................ -- --
Patrick J. Costello......................................... -- --
Roxanne S. Austin(5)........................................ 843 123,234
Steven D. Dorfman(6)........................................ 3,467 165,050
Dennis F. Hightower......................................... -- --
James M. Hoak............................................... -- --
Joseph R. Wright, Jr........................................ -- --
Lourdes Saralegui........................................... -- 500
Carl A. Brown............................................... -- --
Kenneth N. Heintz(7)........................................ 486 33,268
James W. Cuminale........................................... -- --
Robert A. Bednarek.......................................... -- --
All executive officers and directors as a group (14 persons) 13,704 805,560
</TABLE>
- ----------------------------
(1) For purposes of this table, beneficial ownership of securities is defined
in accordance with the rules of the SEC and means generally the power to
vote or exercise investment discretion with respect to securities,
regardless of any economic interests therein. Except as otherwise
indicated, the beneficial owners of shares of GM Common Stock or GMH
Common Stock listed above have sole investment and voting power with
respect to such shares, subject to community property laws where
applicable. In addition, for purposes of this table, a person or group is
deemed to have "beneficial ownership" of any shares which such person has
the right to acquire by June 30, 1998. For purposes of calculating the
percentage of outstanding shares held by each person listed above, any
shares which such person has the right to acquire by June 30, 1998 are
deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person.
(2) No individual director or executive officer beneficially owns one percent
or more of any class of outstanding equity securities of GM, nor do the
directors, nominees and executive officers as a group beneficially own
one percent or more of any class of outstanding equity securities of GM.
(3) The shares of GMH Common Stock shown as owned by Mr. Smith include (i)
2,689 shares that are held in trust by Bankers Trust Company as trustee
for the Hughes Salaried Employees Thrift and Savings Plan; (ii) 12 shares
that are held in trust under the GM Stock Purchase Program and (iii)
419,951 shares comprised of options exercisable before June 30, 1998 to
purchase GMH Common Stock granted pursuant to the Hughes Electronics
Corporation Incentive Compensation Plan and the GM Stock Incentive Plan.
(4) The shares of GM Common Stock shown as owned by Mr. Noski include 2,782
shares that are held by the Noski Family Living Trust for which Mr. Noski
is a trustee. The shares of GMH Common Stock shown as owned by Mr. Noski
include (i) 1,368 shares that are held in trust pursuant to the Hughes
Electronics Corporation Salaried Employees Thrift and Savings Plan, (ii)
16,646 shares that are held by the Noski Family Living Trust for which
Mr. Noski is a trustee, (iii) 1,326 shares held by the Irrevocable Trust
for the Benefit of Jennifer P. Noski, and with respect to which shares
Mr. Noski disclaims beneficial ownership, and (iv) 1,326 shares held by
the Irrevocable Trust for the Benefit of Michelle A. Noski, and with
respect to which shares Mr. Noski disclaims beneficial ownership.
(5) The shares of GM Common Stock shown as owned by Ms. Austin are held in
trust by the Thomas W. and Roxanne S. Austin Trust, of which Ms. Austin
is a trustee. The shares of GMH Common Stock shown as owned by Ms. Austin
include (i) 6,473 shares that are held in trust by Bankers Trust Company
as trustee for the Hughes Salaried Employees Thrift and Saving Plan; (ii)
4,956 shares that are held in trust by the Thomas W. and Roxanne S.
Austin Trust and (iii) 111,805 shares comprised of options exercisable
before June 30, 1998 to purchase GMH Common Stock granted pursuant to the
Hughes Electronics Corporation Incentive Compensation Plan and the GM
Stock Incentive Plan.
(6) The shares of GMH Common Stock shown as owned by Mr. Dorfman include (i)
1,341 shares that are held in trust by Bankers Trust Company as trustee
for the Hughes Salaried Employees Thrift and Savings Plan and (ii)
143,995 shares comprised of options exercisable before June 30, 1998 to
purchase GMH Common Stock granted pursuant to the Hughes Electronics
Corporation Incentive Compensation Plan and the GM Stock Incentive Plan.
(7) The shares of GMH Common Stock shown as owned by Mr. Heintz include (i)
588 shares that are held in trust by Bankers Trust Company as trustee for
the Hughes Salaried Employees Thrift and Savings Plan and (ii) 32,680
shares comprised of options exercisable before June 30, 1998 to purchase
GMH Common Stock granted pursuant to the Hughes Electronics Corporation
Incentive Compensation Plan.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Hughes Electronics and Agreements with Hughes Electronics
Entities.
Hughes Electronics beneficially owns, indirectly, 109,572,581
shares of the PanAmSat Common Stock representing approximately 81% of the
outstanding shares of PanAmSat Common Stock as of May 1, 1998. Hughes
Electronics and its subsidiaries are affiliates of the Company as defined under
SEC rules and regulations. In addition to those agreements described below,
Hughes Electronics provides certain administrative services to the Company,
including the provision of certain advisory and internal audit services, and the
participation of the Company or its employees in certain discount programs, such
as a business travel discount program and an automobile purchase discount
program. The Company believes that each of the transactions described below was
entered into on commercially reasonable terms and that the administrative
intercompany arrangements were provided on at least the same terms that the
Company could have obtained from a disinterested third party or resulted in a
cost savings to the Company. The figures provided below with respect to payments
made or received in 1997 reflect those payments made after May 16, 1997, the
effective date of the Merger, and do not include payments to and from Galaxy
prior to the Merger when Galaxy was a division of Hughes.
Satellite Procurement Agreements. The Company is a party to
agreements with HSC for the construction of various satellites. Prior to the
Merger, the Company entered into agreements for the construction and delivery of
Galaxy X and Galaxy XI, both currently scheduled to be launched in 1998. In
addition, under the agreements entered into between the Company and HSC prior to
the Merger, the Company agreed to pay approximately 20% of the total cost of the
PAS-2, PAS-3, PAS-4 and PAS-5 satellites in the form of incentive payments to be
paid to HSC over a 15-year period after the construction and launch of such
satellites. In 1997, the Company paid approximately $5.8 million in incentive
payments under these contracts. As of May 31, 1998, the Company had made
approximately $4.0 million in incentive payments under these contracts.
The Company is a party to an agreement dated as of August 15, 1997
with HSC for the construction and delivery of the PAS-1R and PAS-9 satellites.
On March 9, 1998 the Company and HSC entered into an agreement for the
construction and delivery of the PAS-6B satellite. The agreements require, among
other things, that the Company make payments representing approximately 85% of
the total cost of the satellites during the period of their construction,
delivery and launch support, with the remaining costs to be paid in the form of
incentive payments over the life of the satellites. The Company did not make any
payments under these agreements in 1997.
Launch Services. On August 29, 1996, the Company entered into a
contract with HSCI whereby HSCI agreed to provide the Company with launch
services for three satellites, to be performed by third-party launch providers
under contract with HSCI. Pursuant to such agreement, the Galaxy VIII-i
satellite was launched using an Atlas IIAS launch vehicle in December 1997. The
two remaining launches will be provided using one Delta III launch vehicle and
one Sea Launch launch vehicle. The Company did not make any payments under this
contract in 1997.
Satellite Services. The Company is party to agreements with Hughes
Electronics and certain of its subsidiaries and affiliates (together, the "HE
Entities") pursuant to which the Company provides satellite capacity, TT&C
services and other related services to the HE Entities, including HSC, Hughes
Network Systems, Inc., Galaxy Latin America LLC and DirecTV, Inc. ("DirecTV").
In 1997, the Company received payments aggregating approximately $47.8 million
from the HE Entities. As of May 31, 1998, the Company had received payments
aggregating approximately $46.7 million from the HE Entities.
Loan Agreements. In connection with the Merger, the Company
obtained a term loan in the amount of $1.725 billion from Hughes Electronics
(the "Term Loan"), originally maturing in 2000. At the closing of the Term Loan,
the Company paid Hughes Electronics a fee equal to 1% of the principal amount of
the Term Loan. During 1997, the Company made $82 million in interest payments
under the Term Loan. In December 1997, in connection with the refinancing of
PanAmSat International's existing indebtedness, the Company also modified the
terms of its indebtedness with Hughes Electronics so that (i) maturity of the
borrowings was extended to June 24, 2003, (ii) mandatory principal payments were
eliminated (however, prepayments of principal are permitted under certain
circumstances depending upon the level of cash flow from operations), and (iii)
the interest rate on the debt was adjusted to be a floating rate equal to that
of the Company under the Company's bank loan agreement. The Term Loan also
became subordinated to the bank loans.
The Company estimates that, in the aggregate, in 1998 the
transactions described above will result in the payment of approximately $357.7
million by the Company to the HE Entities and in the payment of approximately
$119.9 million by the HE Entities to the Company.
Hughes Purchase of PanAmSat Common Stock from Televisa and Founding Stockholders
On May 1, 1998, Hughes increased its beneficial ownership of the
Company from approximately 71.5% to approximately 81% through the purchase for
$60 per share in cash of approximately 11.2 million shares or 7.5% of the
PanAmSat Common Stock from Televisa and 2.9 million shares or 2% of the PanAmSat
Common Stock from a group of founding stockholders of PanAmSat, which includes
several members of the family of PanAmSat's late founder Rene Anselmo and
related trusts as well as Frederick A. Landman, PanAmSat's President and Chief
Executive Officer, and Lourdes Saralegui, an Executive Vice President of
PanAmSat.
Other Agreements
On February 28, 1997, the Company extended a loan to Mr. Carl A.
Brown, an Executive Vice President of the Company, to assist him in his
relocation from California to Connecticut. The loan was in the principal amount
of $92,250 and bore interest at a rate of 5.7%. Mr. Brown fully repaid the
principal amount plus accrued interest, a total of $94,224, in July 1997. On
April 4, 1997, the Company extended a loan to Mr. Kenneth N. Heintz, Executive
Vice President and Chief Financial Officer of the Company, to assist him in his
relocation from California to Connecticut. The loan was in the principal amount
of $128,500 and bore interest at a rate of 5.7%. Mr. Heintz fully repaid the
principal amount plus accrued interest, a total of $130,125, in June 1997.
Pursuant to a severance agreement with PanAmSat International,
Patrick J. Costello received a termination payment of $975,000 following the
Merger. Mr. Costello also receives the continuation of all employee welfare
benefit plans for the earlier of two years from the Merger or his obtaining
similar benefits from a subsequent employer. Mr. Costello's termination payment
may be subject to an excise tax imposed under Section 4999 of the Code, and if
it is, the Company would have an obligation to pay Mr. Costello the amount
necessary to reimburse him for such excise tax. From May 16, 1997, the effective
date of the Merger, until November 15, 1997, the effective termination date of
Mr. Costello's employment, Mr. Costello continued as a consultant to the Company
assisting in the transition following the Merger and performing other services
as requested by the Chief Executive Officer for which he was paid the sum of
$110,576. The agreement contains a covenant not to compete with the Company
which prohibits Mr. Costello from becoming employed by or rendering personal
services to any corporation, firm or other entity which directly competes with
the Company until September 21, 1998.
<PAGE>
DESCRIPTION OF THE SECURITIES
The Private Securities were, and the Exchange Securities will be,
issued under the Indenture, dated as of January 16, 1998, between the Company,
as issuer, and The Chase Manhattan Bank, as Trustee. A copy of the Indenture has
been filed as an Exhibit to the Registration Statement of which this Prospectus
is a part. The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture, including the definitions of
certain terms therein and those terms made a part thereof by reference to the
Trust Indenture Act of 1939, as amended. Whenever particular defined terms of
the Indenture not otherwise defined herein are referred to, such defined terms
are incorporated herein by reference. For definitions of certain capitalized
terms used in the following summary, see "-- Certain Definitions."
General
The 2003 Notes will be limited to $200 million aggregate principal
amount, the 2005 Notes will be limited to $275 million aggregate principal
amount, the 2008 Notes will be limited to $150 million aggregate principal
amount and the 2028 Debentures will be limited to $125 million aggregate
principal amount. The 2003 Notes will bear interest at the rate of 6% per annum,
the 2005 Notes will bear interest at the rate of 6-1/8% per annum, the 2008
Notes will bear interest at the rate of 6-3/8% per annum, and the 2028
Debentures will bear interest at the rate of 6-7/8% per annum, in each case,
from January 16, 1998 or from the most recent interest payment date to which
interest has been paid or duly provided for, payable semi-annually on each
January 15 and July 15 commencing July 15, 1998, to the persons in whose names
the Securities are registered at the close of business on the January 1 or July
1 as the case may be, preceding such January 15 or July 15.
The 2003 Notes will mature on January 15, 2003, the 2005 Notes
will mature on January 15, 2005, the 2008 Notes will mature on January 15, 2008,
and the 2028 Debentures will mature on January 15, 2028. The Securities will be
unsecured and will rank pari passu with all other unsecured and unsubordinated
indebtedness of the Company.
The Securities will be issued only in fully registered book-entry
form, without coupons, in denominations of $100,000 and integral multiples of
$1,000 in excess thereof. No service charge will be made for any transfer or
exchange of the Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Sections 302, 305). The Securities will be represented by Global
Securities (as defined below) registered in the name of a nominee of the
Depository. Except as set forth under "Book-Entry; Delivery and Form" below,
Securities will not be issuable in certificated form.
Book-Entry; Delivery and Form
Exchange Securities issued in exchange for the Private Securities
currently represented by one or more fully registered global securities will be
represented by one or more fully registered global securities (collectively, the
"Global Securities"), and will be deposited upon issuance with the Depository or
an agent of the Depository and registered in the name of the Depository or a
nominee of the Depository (the "Global Security Registered Owner"). Except as
set forth below, Global Securities may be transferred, in whole and not in part,
only to another nominee of the Depository or to a successor of the Depository or
its nominee.
Exchange Securities issued in exchange for other Private
Securities will be issued in registered, certificated form without interest
coupons.
The Depository has advised the Company that the Depository is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in the accounts of its Participants. The
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants or Indirect
Participants may beneficially own securities held by or on behalf of the
Depository only through the Participants or the Indirect Participants. The
ownership interests and transfer of ownership interests of such persons held by
or on behalf of the Depository are recorded on the records of the Participants
and Indirect Participants.
The Depository has also advised the Company that pursuant to
procedures established by it, (i) upon deposit of a Global Security, the
Depository will credit the accounts of its Participants with portions of the
principal amount of such Global Security representing the Exchange Securities
issued in exchange for the Private Securities that each such Participant has
instructed the Depository to surrender for exchange and (ii) ownership of such
interests in such Global Security will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depository (with respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of beneficial interests in
such Global Security).
Under the terms of the Indenture, the Company and the Trustee will
treat the persons in whose names the Exchange Securities, including any Global
Security, are registered as the owners thereof for the purpose of receiving
payments in respect of the principal of and premium, if any, and interest on any
Exchange Securities and for any and all other purposes whatsoever. Payments on
any Exchange Securities registered in the name of the Global Security Registered
Owner will be payable by the Trustee to the Global Security Registered Owner in
its capacity as the registered holder under the Indenture. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of the Depository's
records or the records of any Participant or Indirect Participant relating to or
payments made on account of beneficial ownership interests in any Global
Security, or for maintaining, supervising or reviewing any of the Depository's
records or records of any Participant or Indirect Participant relating to the
beneficial ownership interests in any Global Security or (ii) any other matter
relating to the actions and practices of the Depository or any of its
Participants or Indirect Participants. The Depository has advised the Company
that its current practice, upon receipt of any payment in respect of securities
such as the Exchange Securities (including principal and interest), is to credit
the accounts of the relevant Participants with the payment on the payment date,
in amounts proportionate to their respective holdings in principal amount of
beneficial interests in the relevant security as shown on the records of the
Depository unless the Depository has reason to believe it will not receive
payment on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of Exchange Securities will be governed by
standing instructions and customary practices and will be the responsibility of
the Participants or the Indirect Participants and will not be the responsibility
of the Depository, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by the Depository or any of its
Participants or Indirect Participants in identifying the beneficial owners of
the Exchange Securities, and the Company and the Trustee may conclusively rely
on and will be protected in relying on instructions from the Global Security
Registered Owner for all purposes.
Redemption
Each series of the Securities will be redeemable as a whole or in
part at the option of the Company at any time, at a redemption price equal to
the greater of (i) 100% of the principal amount of such Securities or (ii) the
sum of the present values of the remaining scheduled payments of principal and
interest thereon discounted to the date of redemption on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate (as defined herein) plus 10 basis points in the case of the 2003 Notes, 15
basis points in the case of the 2005 Notes, 20 basis points in the case of the
2008 Notes and 20 basis points in the case of the 2028 Debentures, plus, in each
case, accrued interest thereon to the date of redemption. The Securities shall
not be subject to any sinking fund.
"Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker as having a maturity
comparable to the remaining term of the Securities, as the case may be, to be
redeemed that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of such Securities, as the case may
be. "Independent Investment Banker" means one of the Reference Treasury Dealer
appointed by the Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to any redemption
date, (i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, the average of
the Reference Treasury Dealer Quotations actually obtained by the Trustee for
such redemption date. "Reference Treasury Dealer Quotations" means, with respect
to each Reference Treasury Dealer and any redemption date, the average, as
determined by the Trustee of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m.
on the third business day preceding such redemption date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Salomon
Brothers Inc, and their respective successors; provided, however that if any of
the foregoing shall cease to be a primary U.S. Government securities dealer in
New York City (a "Primary Treasury Dealer"), the Company shall substitute
therefor another Primary Treasury Dealer.
Notice of any redemption will be mailed at least 30 days but no
more than 60 days before the redemption date to each holder of Securities to be
redeemed.
Unless the Company defaults in payment of the redemption
price, on and after the redemption date interest will cease to accrue on the
Securities or portions thereof called for redemption.
Covenants
Liens. The Indenture provides that the Company will not create,
incur, assume or guarantee and will not permit any Restricted Subsidiary (as
defined below) to create, incur, assume or guarantee any indebtedness that is
secured by a mortgage, security interest, pledge or lien (collectively, "lien")
on any Principal Property or shares of capital stock or indebtedness of any
Restricted Subsidiary, whether owned at the date of the Indenture or thereafter
acquired, without effectively providing that the Securities shall be secured by
such lien equally and ratably with any and all other indebtedness thereby
secured. The foregoing restrictions, however, shall not apply to, among others,
indebtedness secured by (i) liens on any Principal Property acquired,
constructed or improved by the Company or any Restricted Subsidiary after the
date of the Indenture to secure indebtedness incurred for the purpose of
financing all or any part of the construction costs of such Principal Property
or the improvements thereon or liens on any Principal Property at the time of
its acquisition; (ii) liens on property or shares of capital stock or
indebtedness of a corporation existing at the time such corporation is merged
into or consolidated with the Company or a Restricted Subsidiary or at the time
of a sale, lease or other disposition of the properties of a corporation as an
entirety or substantially entirety to the Company or a Restricted Subsidiary;
(iii) liens on property or shares of capital stock or indebtedness of a
corporation existing at the time such corporation becomes a Restricted
Subsidiary; (iv) liens to secure indebtedness of any Restricted Subsidiary to
the Company or another Restricted Subsidiary but only so long as such
indebtedness is held by the Company or a Restricted Subsidiary; (v) liens in
favor of the United States of America or any state thereof, or any department
agency or political subdivision of the United States of America or any state
thereof, to secure partial progress, advance or other payments pursuant to any
contract or statute including, without limitation, liens to secure indebtedness
represented by pollution control or industrial revenue bonds, or to secure any
indebtedness incurred for the purpose of financing all or any part of the
purchase price or the cost of constructing or improving the portion of the
property subject to such liens; (vi) certain liens in favor of a customer in
respect of payments for goods produced for or services rendered to such
customer; (vii) liens existing at the date of the Indenture; (viii) mechanics'
or other similar liens arising in the ordinary course of business; (ix) certain
pledges or deposits, liens resulting from litigation or judgments, taxes or
other governmental charges or landlord or tenant rights and liens incidental to
the conduct of the business or the ownership of the property and assets of the
Company or a Restricted Subsidiary and which do not, in the opinion of the
Company, materially detract from the value of the property or assets or
materially impair the use thereof in the operation of the business of the
Company, and its Restricted Subsidiaries, taken as a whole; and (x) liens for
the sole purpose of extending, renewing or replacing in whole or in part any
lien referred to in the foregoing clauses (i) to (ix), inclusive, or in this
clause (x), provided that the principal amount of indebtedness secured thereby
shall not exceed the principal amount of indebtedness so secured at the time of
such extension, renewal or replacement and that such extension, renewal or
replacement shall be limited to all or a part of the property subject to the
lien so extended, renewed or replaced (plus improvements on such property).
(Section 1006).
For purposes of the "Liens" covenant described herein, the giving
of a guarantee which is secured by a lien on a Principal Property (including
shares of capital stock or indebtedness) of a Restricted Subsidiary and the
creation of a lien on Principal Property (including shares of capital stock or
indebtedness) of the Company or of any Restricted Subsidiary to secure
indebtedness which existed prior to the creation of such lien will be deemed to
involve the creation of indebtedness secured by a lien in an amount equal to,
without duplication, the principal amount secured by such lien.
Sale and Lease-Back Transactions. The Indenture provides that the
Company will not, nor will it permit any Restricted Subsidiary to, enter into
any arrangement with any Person providing for the leasing by the Company or any
Restricted Subsidiary of any Principal Property (except for (x) leases existing
at the date of the Indenture, (y) leases of not more than three years and (z)
leases between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries), which property has been owned and operated by the Company or any
Restricted Subsidiary for more than 180 days and has been or is to be sold or
transferred by the Company or such Restricted Subsidiary to such Person in
anticipation of such leasing (a "Sale and Lease-Back Transaction"), unless
either (a) the Company or such Restricted Subsidiary would be entitled to incur
indebtedness secured by a lien on such property without equally and ratably
securing the Securities pursuant to the Indenture or (b) the Company shall apply
an amount equal to the Attributable Debt (as defined below) of such Sale and
Lease-Back Transaction to (i) the acquisition of another Principal Property of
equal or greater fair market value, (ii) the retirement of indebtedness for
borrowed money, including the Securities, incurred or assumed by the Company or
any Restricted Subsidiary (other than indebtedness for borrowed money owed to
the Company or any Restricted Subsidiary) or (iii) any combination of the
foregoing. Notwithstanding the foregoing, no retirement referred to in clause
(ii) of the preceding sentence may be effected by payment at maturity or
pursuant to any mandatory sinking fund payment or any mandatory prepayment
provision. (Section 1007).
Exemption from Limitations. Notwithstanding the restrictions
described above, the Company or any Restricted Subsidiary may, without equally
and ratably securing the Securities, create, incur, assume, or guarantee
indebtedness secured by liens and enter into Sale and Lease-Back Transactions
which would otherwise be restricted by the foregoing provisions, provided that
at such time (and after giving effect to the transactions, to the receipt and
application of the net proceeds thereof and to the retirement of any
indebtedness which is concurrently being retired out of such proceeds) the sum
of the aggregate indebtedness secured by such liens plus the Attributable Debt
of all Sale and Lease-Back Transactions shall not exceed 10% of Consolidated Net
Tangible Assets (as defined below) as determined in accordance with the most
recent published consolidated balance sheet of the Company. (Section 1008).
Certain Definitions. Set forth below is a summary of certain of
the defined terms used in the covenants and other provisions of the Indenture.
Reference is made to the Indenture for the full definition of all terms as well
as any other capitalized term used herein for which no definition is provided.
"Attributable Debt" means, as to any particular lease under which
any Person is at the time liable at any date as of which the amount thereof is
to be determined, the total net amount of rent required to be paid by such
Person under such lease during the remaining term thereof, excluding renewals,
discounted at a rate per annum equal to the prevailing market interest rate, at
the time such lease was entered into, on United States Treasury obligations
having a maturity substantially the same as the average term of such lease, plus
3%. The net amount of rent required to be paid under any such lease for any such
period shall be the amount of the rent payable by the lessee with respect to
such period, after excluding amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water rates and similar
charges and contingent rents such as those based on sales. In the case of any
lease which is terminable by the lessee upon the payment of a penalty, such net
amount shall also include the amount of such penalty, but no rent shall be
considered as required to be paid under such lease subsequent to the first date
upon which it may be so terminated.
"Consolidated Net Tangible Assets" means the total assets shown on
the most recent audited annual consolidated balance sheet of the Company and its
consolidated subsidiaries, after deducting the amount of all current liabilities
and intangible assets.
"Principal Property" means any satellite or satellite systems
equipment, whether under development or in operation, manufacturing,
development, testing or research facility or warehouse (including, without
limitation, land, fixtures and equipment) owned or leased by the Company or any
Restricted Subsidiary (including any of the foregoing owned or leased after the
date of the Indenture), but not including (a) any property which in the good
faith determination of the Board of Directors of the Company is not of material
importance to the total business conducted by the Company as an entirety or (b)
any portion of a particular property which is similarly found not to be of
material importance to the use or operation of such property.
"Restricted Subsidiary" means a subsidiary of the Company which
owns a Principal Property.
Restriction upon Merger and Sale of Assets
The Indenture provides that no merger of the Company with or sale
of the Company's property substantially as an entirety to any other corporation
shall be made if, as a result, properties or assets of the Company would become
subject to a mortgage or lien which would not be permitted by the Indenture,
unless the Securities shall be equally and ratably secured with such
obligations. Any successor entity must be a corporation organized in the United
States, shall expressly assume the due and punctual payment of the principal
(and premium, if any) and interest on the Securities and, immediately after
giving effect to a merger or consolidation, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of Default,
shall have happened and be continuing. (Section 801).
Modification of the Indenture
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of at least a majority
in aggregate principal amount of each series of outstanding Securities affected
by such modification or amendment; but no such modification or amendment may,
without the consent of the Holder of each outstanding Security affected thereby,
(a) change the stated maturity of the principal of, or any installment of
interest on, any Securities, (b) reduce the principal amount of or interest on
any Securities, (c) change the place or currency of payment of principal of or
interest on any Securities, (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Securities, (e) reduce the
percentage in principal amount of outstanding Securities, the consent of whose
Holders is required for modification or amendment of the Indenture, (f) reduce
the percentage in principal amount of outstanding Securities necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults or (g) modify such provisions with respect to modification and
waiver. (Section 902).
The Holders of at least a majority in principal amount of the
outstanding Securities may waive compliance by the Company with certain
restrictive provisions of the Indenture. (Section 1012). The Holders of a
majority in principal amount of the outstanding Securities may waive any past
default under the Indenture, except a default in the payment of principal or
interest and certain covenants and provisions of the Indenture which cannot be
amended without the consent of the Holder of each outstanding Security affected.
(Section 513).
Events of Default
The following are Events of Default under the Indenture with
respect to each series of Securities issued thereunder: (a) failure to pay
principal of or any premium on such series when due, and (b) failure to pay
interest on such series when due, continued for 30 days.
The following are Events of Default under the Indenture with
respect to each series of Securities or all Securities (acting as one class):
(a) failure to perform or breach of any other covenant of the Company in the
Indenture continued for 90 days after written notice by the Trustee or Holders
of at least 25% of the principal amount of such outstanding Securities as
provided in the Indenture; (b) certain events of bankruptcy, insolvency or
reorganization of the Company; and (c) a default under any other indenture or
instrument evidencing or under which the Company has outstanding any
indebtedness for borrowed money in a principal amount of $25 million or more in
the aggregate, as a result of which such indebtedness shall have been
accelerated without such indebtedness having been discharged or such
acceleration having been annulled within 15 days after written notice thereof
shall first have been received by the Company from the Trustee or by such
Trustee and the Company from the Holders of at least 25% in aggregate principal
amount of such outstanding Securities, provided that if such default shall be
cured or waived pursuant to such other indenture or instrument, it shall cease
to be an Event of Default under the Indenture and any acceleration of such
Securities shall be automatically rescinded and annulled without action by the
Trustee or the Holders of such Securities. (Section 501).
If an Event of Default with respect to the Securities of any
series (or of all series, as the case may be) shall occur and be continuing,
either the Trustee or the Holders of at least 25% in aggregate principal amount
of such outstanding Securities may declare the principal amount of such
Securities to be due and payable immediately. At any time after a declaration of
acceleration with respect to the Notes of any series (or of all series, as the
case may be) has been made but before a judgment or decree for payment of the
money due has been obtained by the Trustee, the Holders of a majority in
aggregate principal amount of such outstanding Securities may rescind any
declaration of acceleration and its consequences, if all payments due (other
than those due as a result of acceleration) have been made, or deposited with
the Trustee and all other Events of Default with respect to such Securities have
been cured or waived. (Section 502).
The Indenture requires the Company to file annually with the
Trustee a written statement signed by two officers of the Company as to the
absence of certain defaults under the terms of the Indenture. The Indenture
provides that the Trustee may withhold notice to the Holders of any default
(except in payment of principal or premium, if any, or interest) if it considers
it in the interest of the Holders to do so. (Sections 602, 1010).
Subject to the provisions of the Indenture relating to the duties
of the Trustee, in case an Event of Default shall occur and be continuing, the
Indenture provides that the Trustee shall be under no obligation to exercise any
of its rights or powers under the Indenture at the request, order or direction
of Holders unless such Holders shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for indemnification and certain other
rights of the Trustee, the Indenture provides that the Holders of a majority in
principal amount of the Securities then outstanding shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. (Sections 512, 603).
Defeasance and Discharge
The terms of each series of Securities provide the Company with
the option to be discharged from any and all obligations to Holders of such
series of Securities (except for certain obligations to register the transfer or
exchange of Securities, to replace stolen, lost or mutilated Securities, to
maintain paying agencies and hold moneys for payment in trust) upon the deposit
with the Trustee, in trust, of money or U.S. Government Obligations (as
defined), or both, which through the payment of interest and principal thereof
in accordance with their terms will provide money in an amount sufficient to pay
any installment of principal (and premium, if any) and interest on the stated
maturity of such payments in accordance with the terms of the Indenture and such
Securities. Such option may be exercised only if the Company has received from,
or there has been published by, the United States Internal Revenue Service (the
"IRS") a ruling to the effect that such a discharge will not be deemed, or
result in, a taxable event with respect to such Holders. (Section 403).
Defeasance of Certain Covenant
The terms of each series of Securities provide the Company with
the option to omit to comply with the covenants described under the headings
"Liens" and "Sale and Lease-Back Transactions" above. The Company, in order to
exercise such option, will be required to deposit with the Trustee money or U.S.
Government Obligations, or both, which through the payment of interest and
principal thereof in accordance with their terms will provide money in an amount
sufficient to pay principal (and premium, if any) on the Stated Maturity (as
defined) of such payments in accordance with the terms of the Indenture and such
Securities. The Company will also be required to deliver to the Trustee an
opinion of counsel to the effect that the deposit and related covenant
defeasance will not cause the Holders of such series to recognize income, gain
or loss for federal income tax purposes. (Section 1009).
Certain Tax Considerations
Chadbourne & Parke LLP has advised the Company that because the
Exchange Securities should not be considered to differ materially from the
Private Securities, the exchange of the Private Securities for the Exchange
Securities pursuant to the Exchange Offer should not result in any material
federal income tax consequences to Holders. For a full description of the basis
of, and limitations on, this opinion, see "Certain U.S. Federal Income Tax
Considerations."
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion, which was prepared by Chadbourne & Parke
LLP, summarizes the material U.S. federal income tax consequences of the
exchange of the Private Securities for the Exchange Securities pursuant to the
Exchange Offer. This discussion is based on provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), its legislative history, judicial
authority, current administrative rulings and practice, and existing and
proposed Treasury Regulations, all as in effect and existing on the date hereof.
Legislative, judicial or administrative changes or interpretations after the
date hereof could alter or modify the validity of this discussion and the
conclusions set forth below. Any such changes or interpretations may be
retroactive and could adversely affect a Holder of the Private Securities or
Exchange Securities.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH
HOLDER OF A PRIVATE SECURITY THAT IS CONSIDERING THE EXCHANGE OF THE PRIVATE
SECURITY FOR AN EXCHANGE SECURITY IN THE EXCHANGE OFFER IS STRONGLY URGED TO
CONSULT WITH ITS OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES ARISING UNDER
FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX LAWS FROM THE EXCHANGE OF THE
PRIVATE SECURITIES FOR THE EXCHANGE SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Exchange Offer
The exchange of Private Securities for Exchange Securities
pursuant to the Exchange Offer should not be treated as a taxable transaction
for U.S. federal income tax purposes because the Exchange Securities will not be
considered to differ materially in kind or extent from the Private Securities.
Rather, the Exchange Securities received by any Holder should be treated as a
continuation of such Holder's investment in the Private Securities. As a result,
there should be no material U.S. federal income tax consequences to Holders
exchanging Private Securities for Exchange Securities pursuant to the Exchange
Offer, and each Holder should have the same adjusted issue price, adjusted basis
and holding period in the Exchange Securities as it had in the Private
Securities immediately prior to the exchange.
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of any Exchange
Securities received in exchange for Private Securities acquired by such
broker-dealer as a result of market-making or other trading activities. Each
broker-dealer that receives Exchange Securities for its own account in exchange
for such Private Securities pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Securities. The Company has agreed that for a period of up to 180 days after the
closing of the Exchange Offer, it will make this Prospectus, as amended or
supplemented, available to any such broker-dealer that requests copies of this
Prospectus in the Letter of Transmittal for use in connection with any such
resale.
The Company will not receive any proceeds from any sale of
Exchange Securities by broker-dealers or any other persons. Exchange Securities
received by broker-dealers for their own account pursuant to the Exchange Offer
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions or through the writing of
options on the Exchange Securities, or a combination of such methods of resale,
at market prices prevailing at the time of resale or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Securities. Any
broker-dealer that resells Exchange Securities that were received by it for its
own account pursuant to the Exchange Offer in exchange for Private Securities
acquired by such broker-dealer as a result of market-making or other trading
activities and any broker-dealer that participates in a distribution of such
Exchange Securities may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Securities and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the
Company's performance of, or compliance with, the Registration Rights Agreement
and will indemnify the holders of Private Securities (including any
broker-dealers), and certain parties related to such holders, against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Securities and certain U.S. federal
income tax consequences relating to the Exchange Securities will be passed upon
for the Company by Chadbourne & Parke LLP, New York, New York, special counsel
to the Company.
EXPERTS
The consolidated financial statements of PanAmSat Corporation and
subsidiaries and predecessor entity as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The consolidated financial statements of PanAmSat International
and subsidiaries and predecessor entity as of December 31, 1996 and 1995, and
for the years ended December 31, 1996, 1995 and 1994 of PanAmSat International
included in this Prospectus have been audited by Arthur Andersen LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing in giving said report.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
PanAmSat Consolidated Financial Statements
Independent Auditors' Report...................................... F-2
Consolidated Statements of Income for Each of the Three Years
Ended December 31, 1997....................................... F-3
Consolidated Balance Sheets--December 31, 1997 and 1996........... F-4
Consolidated Statements of Changes in Stockholders' Equity for
Each of the Three Years Ended December 31, 1997............... F-6
Consolidated Statements of Cash Flows for Each of the Three Years
Ended December 31, 1997....................................... F-7
Notes to Consolidated Financial Statements........................ F-8
PanAmSat International Financial Statements
Report of Independent Public Accountants.......................... F-22
Balance Sheets--December 31, 1996 and 1995 ....................... F-23
Statements of Operations--Year Ended December 31, 1996, 1995 and
1994.......................................................... F-25
Statements of Stockholders' Equity and Partners' Equity for Each
of the Three Years Ended December 31, 1996.................... F-26
Statements of Cash Flows--Years Ended December 31, 1996, 1995 and
1994.......................................................... F-27
Notes to Consolidated Financial Statements........................ F-29
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
PanAmSat Corporation
We have audited the accompanying consolidated balance sheets of
PanAmSat Corporation and subsidiaries and predecessor entity as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
PanAmSat Corporation and subsidiaries and predecessor entity as of December 31,
1997 and 1996 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
January 23, 1998 (except for Note 4,
which is March 9, 1998)
F-2
<PAGE>
<TABLE>
<CAPTION>
PANAMSAT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
December 31, 1997, 1996 and 1995
(In Thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Operating leases, satellite services and other............. $558,622 $319,084 $236,382
Outright sales and sales-type leases....................... 71,317 163,686 149,744
-------- -------- --------
Total revenues......................................... 629,939 482,770 386,126
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of outright sales and sale-type leases................ 20,476 52,969 49,616
Leaseback expense, net of deferred gains................... 61,907 59,927 36,597
Depreciation and amortization.............................. 149,592 58,523 76,522
Direct operating costs..................................... 61,199 34,794 29,931
Selling, general and administrative expenses............... 42,561 34,119 30,146
-------- -------- --------
Total operating costs and expenses..................... 335,735 240,332 222,812
-------- -------- --------
INCOME FROM OPERATIONS.......................................... 294,204 242,438 163,314
INTEREST EXPENSE--Net............................................ (30,973) (4,903) (5,828)
OTHER INCOME.................................................... 385 2,184 7,892
-------- -------- --------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY
ITEM....................................................... 263,616 239,719 165,378
INCOME TAXES.................................................... 117,325 89,895 62,017
-------- -------- --------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM..........
146,291 149,824 103,361
MINORITY INTEREST--Subsidiary preferred stock dividend........... 12,819 - -
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM................................ 133,472 149,824 103,361
EXTRAORDINARY ITEM, LOSS ON EXTINGUISHMENT OF DEBT, NET OF TAX..
20,643 - -
-------- -------- --------
NET INCOME...................................................... $112,829 $149,824 $103,361
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PANAMSAT CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(In Thousands)
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 91,739 $ 29
Accounts receivable--net................................................. 41,030 21,742
Net investment in sale-type leases....................................... 27,757 20,634
Prepaid expenses and other............................................... 77,891 23,313
Deferred income taxes.................................................... 46,940 46,989
------------ ------------
Total current assets................................................. 285,357 112,707
------------ ------------
SATELLITES AND OTHER PROPERTY AND EQUIPMENT--Net............................... 2,506,082 720,225
NET INVESTMENT IN SALES-TYPE LEASES........................................... 324,689 320,610
GOODWILL--Net of amortization.................................................. 2,498,498 72,896
DEFERRED CHARGES--Including deferred income taxes of $28,073
in 1996.................................................................. 67,808 49,078
------------ ------------
TOTAL ASSETS.................................................................. $5,682,434 $1,275,516
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PANAMSAT CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(In Thousands, Except Share Data)
1997 1996
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................................... $ 16,398 $ -
Accounts payable and accrued liabilities.................................. 26,828 30,941
Deferred gains on sale-leasebacks......................................... 42,870 42,871
Deferred revenues......................................................... 18,822 5,424
------------ ------------
Total current liabilities............................................. 104,918 79,236
DUE TO AFFILIATES (PRINCIPALLY MERGER-RELATED INDEBTEDNESS)................... 1,802,195 -
LONG-TERM DEBT................................................................ 640,123 -
DEFERRED GAINS ON SALE-LEASEBACKS............................................. 191,882 234,751
DEFERRED INCOME TAXES......................................................... 179,267 -
OTHER LIABILITIES AND DEFERRED CREDITS........................................ 103,029 51,595
ACCRUED OPERATING LEASEBACK EXPENSE........................................... 100,184 107,841
------------ ------------
TOTAL LIABILITIES............................................................. 3,121,598 473,423
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Parent company's net investment........................................... - 802,093
Common stock, $0.01 par value--400,000,000 shares authorized;
149,135,654 shares issued and outstanding............................. 1,491 -
Additional paid-in capital................................................ 2,501,344 -
Retained earnings......................................................... 58,001 -
------------ ------------
Total stockholders' equity............................................ 2,560,836 802,093
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $5,682,434 $1,275,516
============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PANAMSAT CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
(In Thousands, Except Share Data)
Parent Common Stock Additional
Company's Par Value Paid-In Retained
Net Investment Shares Amount Capital Earnings
-------------- ------------ ------- ---------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............. $ 471,310 - $ - $ - $ -
Net contributions from Parent...... 186,720 - - - -
Net income......................... 103,361 - - - -
------------ ------------ -------- ----------- ---------
BALANCE, DECEMBER 31, 1995........... 761,391 - - - -
Net distributions to Parent........ (109,122) - - - -
Net income......................... 149,824 - - - -
------------ ------------ -------- ----------- ---------
BALANCE, DECEMBER 31, 1996........... 802,093 - - - -
Net income prior to Merger......... 54,828 - - - (54,828)
Net contributions from Parent...... 370,424 - - - -
Capitalization in connection with (1,227,345) 149,122,807 1,491 2,500,854 -
Merger
Additional issuance of stock....... - 12,847 - 490 -
Net income......................... - - - - 112,829
------------ ------------ -------- ----------- ---------
BALANCE, DECEMBER 31, 1997........... $ - 149,135,654 $1,491 $2,501,344 $ 58,001
============ ============ ====== =========== =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PANAMSAT CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
(In Thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income......................................................................... $ 112,829 $149,824 $103,361
Adjustments to reconcile net income to net cash provided by operating activities:..
Cost of outright sales.......................................................... - 14,523 5,990
Gross profit on sales-type leases............................................... (33,180) (51,802) (62,855)
Depreciation and amortization................................................... 149,592 58,523 76,522
Deferred income taxes........................................................... 129,065 (21,399) (18,235)
Amortization of gains on sale-leasebacks........................................ (42,870) (41,559) (27,133)
Provision for uncollectible receivables......................................... - 1,315 (6,666)
Interest expense capitalized.................................................... (80,468) (14,613) (10,147)
Minority interest............................................................... 12,819 - -
Extraordinary item.............................................................. 20,643 - -
Changes in assets and liabilities, net of acquired assets and liabilities:.........
Collections on investments in sales-type leases................................. 21,978 31,204 19,554
Operating lease and other receivables........................................... (8,086) (6,053) (6,543)
Prepaid expenses and other current assets....................................... (37,333) 1,725 (1,604)
Accounts payable and accrued liabilities........................................ (130,921) (935) 8,486
Accrued operating leaseback expense............................................. (7,657) 38,738 3,441
Deferred revenues and other..................................................... (44,685) (8,253) (481)
----------- ---------- ----------
Net cash provided by operating activities..................................... 61,726 151,238 83,690
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of PanAmSat International, net of cash acquired..................... (1,486,266) - -
Capital expenditures............................................................ (541,879) (294,122) (270,396)
Proceeds from sale-leaseback of satellite transponders.......................... - 252,000 -
Proceeds from sale of marketable securities..................................... 388,173 - -
----------- ---------- ----------
Net cash used in investing activities......................................... (1,639,972) (42,122) (270,396)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings (including acquisition borrowings of $1.725 billion)............. 2,391,836 - -
Net contributions from (distributions to) parent company........................ - (109,122) 186,720
Parent company contributions prior to the Merger................................ 370,424 - -
Repayments of long-term debt.................................................... (1,092,794) - -
Stock issued to 401(k) plan..................................................... 490 - -
----------- ---------- ----------
Net cash provided by (used in) financing activities........................... 1,669,956 (109,122) 186,720
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 91,710 (6) 14
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 29 35 21
----------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 91,739 $ 29 $ 35
=========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash received for interest...................................................... $ 22,229 $ - $ -
=========== ========== ==========
Cash paid for interest.......................................................... $ 109,858 $ - $ -
=========== ========== ==========
Cash paid for taxes............................................................. $ 105,218 $ - $ -
=========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996 and 1995
(Dollars in Thousands, Except Per Share Data)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Basis of Presentation -- Effective May 16, 1997, PanAmSat
Corporation (the "Company") acquired the business of PanAmSat International
Systems, Inc. (then operating under its previous name, PanAmSat Corporation)
("PanAmSat International"). In connection with the acquisition, the net assets
of the Galaxy Business of Hughes Communications, Inc. (the "Galaxy Business")
were contributed to the Company. (As used herein, the Company refers to the
business and operations of PanAmSat Corporation and the Galaxy Business, its
predecessor entity.) The consideration paid to PanAmSat International's common
stockholders consisted of $1.5 billion in cash and 42.5 million shares of common
stock of the Company having an estimated value of $1.3 billion. The acquisition
of PanAmSat International was accounted for as a purchase and its operating
results have been consolidated from the date of acquisition. The purchase price
exceeded the estimated fair value of PanAmSat International's net assets
(principally satellites) by approximately $2.5 billion, which has been allocated
to goodwill and is being amortized on a straight-line basis over forty years.
In a separate but related transaction, as a condition precedent to
the merger, the Company redeemed 7.5 million shares of its common stock that was
received by a PanAmSat International stockholder for $225 million in cash, and
these proceeds were used by the former PanAmSat International stockholder to
acquire the Company's rights to equity interests in certain direct-to-home
businesses in Latin America and the Iberian Peninsula (the "DTH Rights").
In connection with the transactions described above, the Company
borrowed $1.725 billion from Hughes Electronics Corporation ("Hughes"), a wholly
owned subsidiary of General Motors Corporation ("GM") and owner of 71 1/2% of
the Company's common stock. The Hughes borrowings initially had a term of three
years, a floating interest rate of London Interbank Offered Rate ("LIBOR") plus
2% and quarterly principal payments of $50 million commencing in August 1998.
(See Note 7 for a description of certain modifications made to the terms of
these borrowings.)
As a result of the merger transactions described above (the
"Merger"), the Company acquired the indebtedness of PanAmSat International
consisting primarily of 9 3/4% Senior Secured Notes due 2000 and 11-3/8% Senior
Subordinated Discount Notes due 2003, as well as its 12 3/4% Mandatorily
Exchangeable Senior Redeemable Preferred Stock due 2005 (the "Preferred Stock").
During the third quarter of 1997, PanAmSat International exchanged the Preferred
Stock into 12 3/4% Senior Subordinated Notes due 2005. These debt instruments
are collectively referred to as the "Old Notes."
The principal components of the Merger were as follows:
Fair value of assets acquired (excluding goodwill)..........$1,954,902
Goodwill.....................................................2,470,000
Fair value of liabilities assumed (including Old Notes).....(1,424,902)
Fair value of common stock issued...........................(1,275,000)
-----------
Debt issued in connection with the Merger....................1,725,000
Less: Cash acquired..........................................(238,734)
-----------
Net cash paid in connection with the Merger.................$1,486,266
===========
F-8
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Unaudited pro forma summary results of operations as if PanAmSat
International had been acquired at the beginning of 1997 and 1996 are presented
below (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996
---- -----
<S> <C> <C>
Revenues............................................................... $755,980 $729,713
Income before extraordinary items...................................... $118,628 $ 55,454
Net Income............................................................. $ 97,985 $ 55,454
Income before extraordinary item per share--basic and diluted........... $ 0.80 $ 0.37
Net income per share--basic and diluted................................. $ 0.66 $ 0.37
</TABLE>
The unaudited pro forma results of operations include adjustments
to reflect the issuance of certain indebtedness related to the Merger, fair
value adjustments and the recognition of goodwill associated with the
transaction. The unaudited pro forma results exclude the impact of PanAmSat
International's $225 million pretax gain on the sale of the DTH Rights, as well
as certain professional and advisory fees and other expenses incurred by
PanAmSat International in connection with the Merger totaling $31.6 million,
both of which are nonrecurring items which are not indicative of the Company's
ordinary course of business. The pro forma earnings per share for the years
ended December 31, 1997 and 1996 is calculated on a basic and diluted basis
using the pro forma average number of common shares assumed to be outstanding
during the period.
Description of the Business--PanAmSat is the world's largest
commercial provider of satellite-based communications services through its
global network of 17 satellites (excluding Brasilsat A1, which is in inclined
orbit and does not provide the Company with a significant source of revenues)
that provide state-of-the-art telecommunications services for customers
worldwide. The Company is a leading provider of satellite capacity for
television program distribution to network, cable and other redistribution
sources in the United States, Latin America, Africa, south Asia and the
Asia-Pacific region. The Company also provides satellite services and related
technical support for live transmissions for news and special events coverage.
In addition, PanAmSat provides satellite services to telecommunications
carriers, corporations and Internet service providers for the provision of
satellite-based communications networks, including private corporate networks
employing very small aperture antennas and international access to the U.S.
Internet backbone.
Prior to the Merger, the Galaxy Business was an operating division
of a wholly owned subsidiary of Hughes and its financial information for these
periods was derived from the historical financial statements of the subsidiary
based upon assumptions that the Company's management believes represent a
reasonable basis for presenting results of operations and financial position.
Financial data for these periods also included the allocation of certain
corporate expenses of Hughes and its wholly owned subsidiary based upon a
systematic allocation process that was uniformly applied to similar operating
business units of Hughes.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements
include the accounts of the Company and its domestic and foreign subsidiaries.
All significant intercompany balances and transactions have been eliminated.
Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect amounts reported therein. Due to the
inherent uncertainty involved in making estimates, actual results reported in
future periods may be based upon amounts that differ from those estimates.
Revenue Recognition--The Company enters into contracts to provide
satellite capacity and related services. Revenues are generated from outright
sale, sales-type lease and operating lease contracts with customers to provide
satellite
F-9
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
transponders and transponder capacity and, in certain cases, earth station and
teleport facilities, for periods ranging from one year to the life of the
satellite. Virtually all contracts stipulate payment terms in U.S. dollars.
Pursuant to an outright sale contract, all rights and title to a
transponder may be purchased. In connection with an outright sale, the Company
recognizes the sale amount as revenue and the cost basis of the transponder is
removed and charged to cost of sales. Contracts for the sale of transponders
include a telemetry, tracking and control ("TT&C") service agreement with the
customer.
Lease contracts qualifying for capital lease treatment (typically
based on the term of the lease) are accounted for as sales-type leases. For
sales-type lease transactions, the Company recognizes as revenue the net present
value of the future minimum lease payments. The cost basis of the transponder is
removed and charged to cost of sales. During the life of the lease, the Company
recognizes as revenue in each respective period, that portion of each periodic
lease payment deemed to be attributable to interest income. The balance of each
periodic lease payment, representing principal repayment, is recognized as a
reduction of the net investment in sales-type leases. Interest income from
sales-type leases of approximately $38 million, $41 million and $27 million is
included in sales-type lease revenues for the years ended December 31, 1997,
1996 and 1995, respectively.
Lease contracts that do not qualify as sales-type leases are
accounted for as operating leases. Operating lease revenues are recognized on a
straight-line basis over the lease term. Differences between operating lease
payments received and revenues recognized are deferred and included in operating
lease receivables. Revenues for occasional services are recognized as services
are performed and billed. The Company has certain obligations, including
providing spare or substitute capacity if available, in the event of satellite
service failure under certain long-term agreements. If no spare or substitute
capacity is available, the agreements may be terminated. Except for certain
deposits, the Company is not obligated to refund payments previously made.
The Company has entered into sale-leaseback agreements for the
sale of certain of its satellite transponders that are subject to operating
leases. Gains resulting from such transactions are deferred and amortized over
the leaseback period. Leaseback expense is recorded using the straight-line
method over the term of the lease, net of the amortization of the deferred
gains. Differences between operating leaseback payments made and expense
recognized are deferred and included in accrued operating leaseback expense.
Future cash payments expected from customers under all long-term
arrangements described above aggregate approximately $7.0 billion as of December
31, 1997.
Fair Value of Financial Instruments--The carrying amounts of cash,
accounts receivables, accounts payable and accrued liabilities approximate their
fair values generally due to the short maturity of these items. The carrying
amount of the net investment in sales-type leases approximates fair value based
on the interest rates implicit in the leases.
At December 31, 1997, in connection with its debt refinancing
activities, the Company entered into certain U. S. Treasury rate lock contracts
to reduce its exposure to fluctuations in interest rates. The aggregate nominal
value of these contracts was $375 million and these contracts were accounted for
as hedges because they were applied to a specific refinancing plan that was
consummated shortly after December 31, 1997. The fair value of these financial
instruments at December 31, 1997 approximated their contract value. The cost to
unwind these instruments in 1998 will be amortized to expense over the term of
the newly placed debt securities to which such hedges were applied.
Concentration of Credit Risk--The Company provides satellite
transponders and related services and extends credit to a large number of
customers in the commercial satellite communications market. Management monitors
its exposure to credit losses and maintains allowances for anticipated losses
which are charged to selling, general and administrative expenses. The currency
in which the majority of the contracts are denominated is the U.S. dollar.
F-10
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Cash and Cash Equivalents--Cash and cash equivalents consists
of cash on hand and highly liquid investments with maturities at date of
acquisition of three months or less.
Accounts Receivable--Accounts receivable include amounts
earned under service agreements and occasional services which are billable as
performed. An allowance for doubtful accounts was provided for in the amount of
approximately $1.0 million and $0.8 million at December 31, 1997 and 1996,
respectively.
Satellites and Other Property and Equipment--Satellites and other
property and equipment are stated at historical cost, or in the case of
satellites acquired from PanAmSat International, the fair value at the date of
acquisition. The capitalized cost of satellites includes all construction costs,
incentive obligations, launch costs, launch insurance, direct development costs,
and capitalized interest. Substantially all other property and equipment
consists of the Company's teleport facilities.
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the respective assets as follows:
Estimated Lives
(Years)
---------------
Satellite systems under development........ --
Satellites in service...................... 13- 15
Communications equipment................... 7
General support equipment.................. 5-10
Buildings.................................. 25
The estimated useful lives of the satellites are determined by an
engineering analysis performed at the initial in-service dates. Estimated useful
lives are periodically reviewed using current TT&C data provided by various
service providers. To date, no significant change in the original estimated
useful lives has resulted. The telecommunications industry is subject to rapid
technological change which may require the Company to revise the estimated
useful lives of its satellites and communications equipment or to adjust their
carrying amounts.
Evaluation of Long-Lived Assets--The Company periodically
evaluates potential impairment loss relating to long-lived assets, including
goodwill, by assessing whether the unamortized carrying amount can be recovered
over the remaining life through undiscounted future expected cash flows
generated by the underlying assets.
Debt Issuance Costs--Included in Deferred Charges in the
accompanying balance sheet are debt issuance costs incurred in connection with
the $1.725 billion loan from Hughes of $17.3 million at December 31, 1997, which
are being amortized on a straight line basis over the life of the loan. The
accumulated amortization at December 31, 1997 is approximately $3.6 million.
Goodwill--Goodwill is primarily related to the acquisition of
PanAmSat International and is being amortized over 40 years. Accumulated
amortization was $77.8 million at December 31, 1997.
Deferred Revenues--The Company enters into agreements with its
customers under which they make prepayments for services to be rendered over a
specific period. Payments received are deferred and amortized over the periods
of performance.
Transponder Insurance--The Company accrues an obligation for the
present value of estimated in-orbit performance insurance costs on transponder
sale, sales-type lease and other agreements with performance warranty
provisions, concurrently with the recognition of the related revenue. The
Company also purchases insurance for the replacement value of its owned
satellite transponders. Premiums paid relative to such insurance are amortized
to expense over the insurance policy terms, which are typically one to three
years.
F-11
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Income Taxes--The provision for income taxes is based upon
reported income before income taxes. Deferred income tax assets and liabilities
reflect the impact of temporary differences between the amounts of assets and
liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes, as measured by applying currently enacted tax laws.
The Company and its domestic subsidiaries file a consolidated U. S. Federal
income tax return.
Prior to the Merger, Hughes Communications, Inc. (which owned the
Galaxy Business), along with other Hughes subsidiaries, joined with GM in filing
a consolidated U.S. Federal tax return. Current and deferred income taxes were
computed by Hughes and allocated to the Company in accordance with principles
established by Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Hughes paid the Company's share of the
consolidated income tax liability. The income taxes that would have been paid by
the Company if it were a separate taxpayer but were not paid under the Hughes
policy resulted in an increase in the parent company's net investment.
Earnings Per Share--The Company has adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which supersedes Accounting
Principles Board No. 15, Earnings Per Share, and modifies the presentation of
primary earnings per share ("EPS") on the face of the income statement. As the
Company was an operating division of Hughes for all periods prior to the merger,
EPS data for the years ended December 31, 1997, 1996 and 1995 have not been
presented on the face of the income statement.
Stock-Based Compensation--As permitted by Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, the
Company accounts for stock-based awards to employees using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees.
Reclassification--Certain prior period amounts have been
reclassified to conform with the current year's presentation.
New Accounting Pronouncements--The financial accounting Standards
Board issued Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure," Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" in 1997. The Company will adopt the disclosure requirements
of these statements in 1998.
3. NET INVESTMENT IN SALES-TYPE LEASES
The components of net investment in sales-type leases are as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Total minimum lease payments................................ $ 662,453 $ 696,723
Allowance for doubtful accounts............................. (12,897) (17,968)
Less unearned interest income............................... (297,110) (337,511)
----------- ----------
Total net investment in sales-type leases................... 352,446 341,244
Less current portion ....................................... (27,757) (20,634)
----------- ----------
$ 324,689 $ 320,610
=========== ==========
</TABLE>
Future minimum payments due from customers under sales-type
leases and related service agreements (primarily TT&C and in-orbit performance
protection) as of December 31, 1997 are as follows:
F-12
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
<TABLE>
<CAPTION>
Minimum Service
Lease Agreement
Payments Payments
-------- ---------
<S> <C> <C>
1998........................................................ $ 70,256 $ 7,860
1999........................................................ 77,440 9,800
2000........................................................ 76,093 9,720
2001........................................................ 77,391 9,720
2002........................................................ 77,926 9,720
2003 and thereafter......................................... 283,347 22,020
-------- --------
$662,453 $68,840
======== ========
</TABLE>
F-13
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
4. SATELLITES AND OTHER PROPERTY AND EQUIPMENT--NET
The Company's principal operating assets consist of satellites in
service, summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Satellite transponders under lease.......................... $1,713,409 $ 602,059
Satellite systems under development......................... 1,038,886 316,332
Buildings and leasehold improvements........................ 42,078 41,632
Machinery and equipment..................................... 136,989 92,573
Other....................................................... 11,406 8,346
----------- ----------
2,942,768 1,060,942
Less accumulated depreciation............................... (436,686) (340,717)
----------- ----------
$2,506,082 $ 720,225
=========== ==========
</TABLE>
At December 31, 1997, the Company had contracts for the
construction and development of six satellites with two satellite vendors.
Satellite contracts typically require the Company to make progress payments
during the period of the satellite's construction and orbital incentive payments
(plus interest) over the orbital life of the satellite. The incentive
obligations are subject to reduction or refund if the satellite fails to meet
specific technical operating standards. The satellite construction contracts
contain provisions that would enable the Company to terminate the contracts both
with and without cause. If terminated without cause, the Company would forfeit
its progress payments and be subject to termination payments that escalate with
the passage of time. If terminated for cause, the Company would be entitled to
recover any payments it made under the contracts and certain liquidated damages
as specified in the contracts.
The Company has entered into launch contracts for the launch of
both specified and unspecified future satellites. Each of the Company's launch
contracts provide that the Company may terminate such contract at its option,
subject to payment by the Company of a specified termination liability that
increases in magnitude as the applicable launch date approaches. In addition, in
the event of a failure of any launch, the Company may exercise the right to
obtain a replacement launch within a specified period following the Company's
request for relaunch.
On August 8, 1997, the Company launched its PAS-6 satellite which
commenced service on September 19, 1997 after successfully completing its
in-orbit testing. After launch, an anomaly was detected in PAS-6's solar arrays
affecting several of the onboard electrical circuits that provide power to the
satellite's transponders. The circuit failures will require the Company to
forego the use of some transponders initially, and turn off additional
transponders in later years. However, the ability of transponders to provide
transmission power for DTH signal reception to meet the customer's requirements
is not affected. The Company is working with its customers on PAS-6 to ensure
that the Company's services continue to meet their needs. Management has
evaluated the effects of this anomaly and has determined that no impairment loss
has occurred.
On March 9, 1998, the Company announced that it had entered into
arrangements with its customers to build a new satellite to be designated as
PAS-6B. In connection with these arrangements, the Company entered into an
amendment to its agreements with its customers on PAS-6 (the "PAS-6B DTH
Amendments"). Under these amendments, the Company will acquire a new Hughes HS
601 HP satellite that is scheduled to be launched on an Ariane IV launch vehicle
in the fourth quarter of 1998. The Company is exploring its options for the
deployment and use of the original PAS-6 satellite and anticipates using this
satellite as either a back-up for PAS-6B or moving it to another orbital
location for other purposes. Management believes that it will be able to
generate sufficient future cash flows on PAS-6 to enable it to recover the
carrying value of its investment in the satellite. In addition, the Company has
filed an insurance claim relating to PAS-6 and expects to receive a payment of
approximately $29 million from the insurance carrier.
F-14
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Future minimum lease payments due from customers under
non-cancelable operating leases on completed satellites, exclusive of sublease
payments reported below are as follows:
<TABLE>
<CAPTION>
December 31, 1997
Minimum Lease
Payments
-----------------
<S> <C>
1998.................................................................... $ 695,864
1999.................................................................... 666,102
2000.................................................................... 612,164
2001.................................................................... 571,626
2002.................................................................... 505,210
2003 and thereafter..................................................... 2,721,459
----------
$5,772,425
==========
</TABLE>
In February 1996, the Company entered into a sale-leaseback
agreement for certain transponders on Galaxy III-R with General Motors
Acceptance Corporation ("GMAC"), a subsidiary of GM. Proceeds from the sale were
$252 million and the sale resulted in a gain of $109 million, which was deferred
and is being amortized over the seven-year leaseback period. The transponders on
Galaxy III-R are currently under month-to-month subleases pending the planned
conversion of the satellite from international to domestic service in early
1998. Accordingly, there are no sublease payments on these transponders in the
table below. In prior years, the Company entered into sale-leaseback agreements
for the sale of certain transponders on SBS-6 and Galaxy VII, resulting in
deferred gains which are being amortized over the leaseback periods. The
transponder leaseback terms include early buy-out options as follows: $152
million in 1998 (for which an early buy-out option for $96.6 million relating to
transponders on SBS-6 was exercised by the Company in January 1998) and $366
million in 1999.
As of December 31, 1997, the future minimum lease amounts payable
to lessors under the sale-leaseback agreements and the future minimum payments
due from subleases under noncancelable subleases are as follows:
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------
Leaseback Sublease
Amounts Payments
--------- --------
<S> <C> <C>
1998............................................. $102,469 $ 76,555
1999............................................. 133,269 74,946
2000............................................. 164,657 69,693
2001............................................. 90,930 67,031
2002............................................. 138,278 56,477
2003 and thereafter.............................. 228,471 159,512
----------- ----------
$858,074 $504,214
=========== ==========
</TABLE>
F-15
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5. LONG-TERM DEBT
As of December 31, 1997 and 1996, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996
---- ----
<S> <C> <C>
Borrowings under bank agreements................. $600,000 $ --
Incentive obligations............................ 42,500 --
Other............................................ 10,193 --
---------- ----------
652,693 --
Less current maturities.......................... (12,570) --
---------- ----------
$640,123 $ --
========== ==========
</TABLE>
In December 1997, the Company commenced a debt tender offer and
restructuring program (the "Program") for the Old Notes. In connection with the
Program, the Company purchased approximately 99% of the principal amount of each
class of the Old Notes then outstanding. The Company also entered into a bank
borrowing agreement (the "Bank Agreement") that provided for bridge loans of up
to $300 million (terminating in April 1998) and loans of up to $500 million
under a five-year revolving credit facility. Using $600 million in borrowings
under the Bank Agreement (including $100 million under the bridge loans) and
available cash (including cash from the liquidation of certain marketable
securities), the Company retired Old Notes having a principal value of
approximately $1.1 billion. The debt refinancing Program resulted in the
recognition of an extraordinary charge of $20.6 million ($34.3 million before
taxes) related principally to the excess of the price paid for the debt over its
carrying value, net of any deferred financing costs and fair value adjustments
recognized in connection with the Merger.
In January 1998, the Company borrowed an additional amount of $125
million under the Bank Agreement principally for the purpose of exercising an
early buy-out option on a sale-leaseback agreement. Also in January 1998, the
Company completed a private placement debt offering for five, seven, ten and
thirty year notes aggregating $750 million (the "Notes Offering"), the proceeds
of which were used to retire all of the outstanding borrowings under the Bank
Agreement. As a result of the Notes Offering, the bridge loan under the Bank
Agreement terminated, and the five year revolving credit facility remains in
effect. Because all of the bank borrowings were refinanced on a long term basis
shortly after year end, these amounts have been classified as long term as of
December 31, 1997.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C>
1998................................................................. $ 12,570
1999................................................................. 12,180
2000................................................................. 7,819
2001................................................................. 148
2002................................................................. --
2003 and thereafter.................................................. 619,976
---------
$652,693
=========
</TABLE>
Interest expense for 1997 is presented net of $19.6 million of
interest income.
F-16
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. INCOME TAXES
The income tax provision consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Taxes currency payable (receivable) U.S. Federal and state................. $(11,740) $111,294 $80,252
Deferred tax (assets) liabilities--net U.S. Federal and state............... 129,065 (21,399) (18,235)
--------- --------- ---------
Total income tax provision................................................. $117,325 $89,895 $62,017
========= ========= =========
</TABLE>
The income tax provision was different than the amount computed
using the U.S. statutory income tax rate for the reasons set forth in the
following table:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected tax at U.S. statutory income tax rate............................. $ 92,266 $83,902 $57,882
U.S. state and local income taxes--net of federal income tax effect......... 12,900 14,479 9,989
Foreign sales corporation tax benefit...................................... (9,485) (9,589) (6,615)
Non-deductible goodwill amortization....................................... 14,527 -- --
Other...................................................................... 7,117 1,103 761
--------- --------- ---------
Total income tax provision................................................. $117,325 $89,895 $62,017
========= ========= =========
</TABLE>
Temporary differences which gave rise to deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- --------------------------------
Deferred Deferred Deferred Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities
---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Sale-leasebacks..................................... $ 85,780 $ -- $111,049 $ --
Depreciation........................................ -- 238,476 -- 71,616
Launch insurance costs.............................. -- 41,175 -- --
Customer deposits................................... 23,854 -- -- --
Accruals and advances............................... 29,969 -- 29,841 --
Other............................................... 14,275 6,554 5,788 --
--------- -------- --------- ---------
Total deferred taxes................................ $153,878 $286,205 $146,678 $71,616
========= ======== ========= =========
</TABLE>
At December 31, 1997, the Company had non-current deferred tax
liabilities of $286,205 and deferred tax assets of $153,878, of which $46,940
are current in nature. At December 31, 1996, the Company had deferred tax assets
of $75,062, of which $46,989 was current in nature.
7. RELATED PARTY TRANSACTIONS AND BORROWINGS
The Company purchases certain of its satellites and launch
services from a subsidiary of Hughes and has provided services to several
subsidiaries of Hughes. The Company also reimburses Hughes for the allocated
costs of certain expense items it jointly incurs with Hughes, principally
relating to administrative and other expenses. The aggregate amounts of related
party transactions in 1997 are summarized below:
F-17
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Satellite Purchases....................................... $345,546 $196,400 $115,337
Satellite Services Revenues:
Operating lease revenues............................. 87,235 72,043 26,261
Other satellite services ............................ 5,363 11,397 18,513
Allocations of Expenses:
Administrative and other expenses.................... 9,005 11,016 12,242
Interest expense..................................... 91,020 19,475 15,924
</TABLE>
Interest expense for 1997 is presented net of $8.4 million of
interest income.
The following table provides summary information relative to
the Company's related party borrowings from Hughes and its affiliates:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Merger related borrowings (see Note 1)...................... $1,725,000 $ --
Incentive obligations....................................... 80,819 --
Other....................................................... 204 --
---------- ----------
1,806,023 --
Less current maturities..................................... (3,828) --
---------- ----------
Total due to Affiliates..................................... $1,802,195 $ --
========== ==========
</TABLE>
In connection with the Notes Offering described in Note 5, the
Company also modified the terms of its indebtedness with Hughes so that the
maturity of the borrowings was extended to June 24, 2003, the mandatory
principal payments were eliminated (however, prepayments of principal are
permitted under certain circumstances depending upon the level of cash flow from
operations), the interest rate on the debt was adjusted to be a floating rate
equal to that of the Bank Agreement, and the debt became subordinated to the
Bank Agreement and the Notes Offering. In addition, subsequent to May 16, 2000
(the original maturity of the indebtedness), Hughes has the right to request
that the Company use its best efforts to replace the credit facility with
another credit facility on terms that may then be available to the Company.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C>
1998.................................................................... $ 3,828
1999.................................................................... 4,015
2000.................................................................... 4,435
2001.................................................................... 4,900
2002.................................................................... 5,413
2003 and thereafter .................................................... 1,783,432
----------
$1,806,023
==========
</TABLE>
F-18
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. RETIREMENT AND INCENTIVE PLANS
Employee Benefit Plans:
Defined Contribution 401(k) Plan--The Company has a 401(k) plan
for qualifying employees. A portion of employee contributions is matched by the
Company with shares of its common stock. The number of shares contributed to the
plan and the respective market values for 1997 were 12,847 shares and $0.5
million, respectively.
Deferred Compensation Plan--The Company has a Restoration and
Deferred Compensation Plan (the "Deferred Compensation Plan") for eligible
employees. Under the Deferred Compensation Plan, executives and other highly
compensated employees of the Company are entitled to defer a portion of their
compensation to future years. The annual amount that can be deferred is subject
to certain limitations, and a portion of the employee's contribution may be
matched by the Company if the employee elected to defer in the 401(k) Plan the
maximum amount permissible under the Deferred Compensation Plan and the Internal
Revenue Code of 1986, as amended. The maximum annual Company match under both
the 401(k) Plan and the Deferred Compensation Plan is limited to an aggregate
level of 4% of annual compensation. The Company matched portion of the Deferred
Compensation Plan consists of "credits" which vest when awarded. Contributions
that receive employer matching are required to be deferred until termination of
employment, and any nonmatched contributions may be deferred over a period
selected by the employee. In addition, the Company, at its discretion, may make
contributions to the Plan for the benefit of any participant as supplemental
compensation. The Deferred Compensation Plan is an unfunded plan, and the
deferrals and matching credits will receive earnings based upon rates set by the
Compensation Committee of the Board of Directors (the "Compensation Committee"),
but in no event will these amounts earn less than 100% of the Moody's Corporate
Bond Index Rate.
1997 Stock Incentive Plan--On May 5, 1997, the Company's Board of
Directors adopted the PanAmSat Corporation Long-Term Stock Incentive Plan
established in 1997 (the "Stock Plan"), which provides for the granting of
nonqualified stock options, incentive stock options, alternate appreciation
rights, restricted stock, performance units and performance shares to executive
officers, other employees, directors and independent contractors of the Company.
Restricted stock, performance units and performance shares may be granted at the
discretion of the Compensation Committee on such terms as such committee may
decide. The maximum number of shares of common stock which may be issued under
the Stock Plan is 7,456,140 and the maximum number of shares of common stock
which may be issued to any grantee pursuant to the Stock Plan is 2,000,000. The
Stock Plan is administered by the Compensation Committee. As of December 31,
1997, nonqualified options for 584,890 shares of common stock have been granted
under the Stock Plan. Such options are exercisable at a price equal to 100% of
the fair market value at the date of grant and vest ratably over three years.
As permitted by Statement of Financial Accounting Standards No.
123 "Accounting for Stock Based Compensation" ("SFAS 123"), the Company has
applied the recognition and measurement principles of Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued To Employees" to its stock
options and other stock-based compensation awards and, accordingly, no
compensation expense has been recognized on options granted to date. Options
outstanding at December 31, 1997 have exercise prices ranging from $29.00--
$38.25 per share (weighted average of $29.09 per share), a remaining life of
approximately nine and one-half years, and none of the options are exercisable.
Had compensation expense for stock options granted been determined based on the
fair value of the options at the grant dates (consistent with the provisions of
SFAS 123), the Company's net income for 1997 would have been reduced by
approximately $2.0 million.
The Company uses the Black-Scholes model for estimating the fair
value of its compensation instruments. The estimated fair value of options
granted in 1997 was $16.80 and the weighted average assumptions used for
calculation of the value were as follows; risk-free interest rate of 6.7%;
dividend yield 0%; expected life of ten years; and stock volatility of 30%.
Compensation Plans--On May 16, 1997, the Company assumed the
certain obligations of PanAmSat International with respect to its General
Severance Policy, Employee Separation Plan and an Executive Severance Pay
Program. These plans allow for benefits to be paid to the former employees of
PanAmSat International who became employees of the Company as a result of the
F-19
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Merger under certain circumstances relating to a termination of employment. The
benefits provided under these programs expire at various dates through May 1999.
During 1997, there were no material payments made under these programs.
9. COMMITMENTS AND CONTINGENCIES
The Company has commitments for operating leases primarily
relating to equipment and its executive office facilities in Greenwich,
Connecticut and various other locations. These leases contain escalation
provisions for increases as a result of increases in real estate taxes and
operating expenses. Minimum annual rentals of all leases, exclusive of potential
increases in real estate taxes and operating assessments, are as follows:
<TABLE>
<S> <C>
1998................................................................... $ 2,335
1999................................................................... 2,315
2000................................................................... 2,088
2001................................................................... 1,894
2002................................................................... 1,653
2003 and thereafter ................................................... 4,117
--------
$14,402
========
</TABLE>
In October 1996, Comsat Corporation ("Comsat") initiated an action
seeking unspecified actual, consequential and punitive or exemplary damages
against PanAmSat International, Televisa and News Corporation ("News"). The
complaint alleges that the Company interfered with the alleged termination by
News of an alleged contract between Comsat and News. Although the Company
believes this action is without merit and intends to vigorously contest this
matter, it is unable to predict the final outcome of this action at this time.
The Company is involved in other litigation in the normal course
of its operations. Management does not believe the outcome of such matters will
have a material effect on the consolidated financial statements.
10. QUARTERLY FINANCIAL INFORMATION--UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues............................................. $127,553 $134,192 $170,315 $197,879
Operating income..................................... 67,511 62,098 70,766 93,829
Income before extraordinary item .................... 41,853 19,902 27,416 44,301
Net income .......................................... 41,853 19,902 27,416 23,658
Income before extraordinary item per common
share--basic and diluted ........................ 0.18 0.30
Net income per common share--basic and diluted........ 0.18 0.16
</TABLE>
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
PanAmSat Corporation:
We have audited the accompanying consolidated balance sheets of
PanAmSat Corporation (a Delaware Corporation) and subsidiaries and predecessor
entity as of December 31, 1996 and 1995, and the related consolidated statements
of operations, stockholders' equity and partners' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
PanAmSat Corporation and subsidiaries and predecessor entity as of December 31,
1996 and 1995 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
January 27, 1997
F-21
<PAGE>
PanAmSat Corporation
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31, December 31,
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 1,453,055 $ 13,562,113
Accounts receivable, less allowance for doubtful accounts of
$200,000 and $100,000 respectively......................... 10,235,520 4,881,255
Prepaid expenses and other current assets.................... 8,228,455 5,594,999
---------------- ---------------
Total current assets..................................... 19,917,030 24,038,367
SATELLITES AND OTHER PROPERTY AND EQUIPMENT,
AT COST........................................................ 864,683,595 609,927,311
Less: Accumulated Depreciation and Amortization.............. (138,091,220) (79,177,520)
---------------- ---------------
726,592,375 530,749,791
MARKETABLE SECURITIES............................................. 379,178,538 495,078,866
SATELLITE SYSTEMS UNDER DEVELOPMENT............................... 479,748,974 377,383,581
DEBT ISSUANCE COSTS (Net of amortization)......................... 9,454,276 11,414,920
OTHER ASSETS...................................................... 472,166 154,287
---------------- ---------------
Total assets............................................. $1,615,363,359 $1,438,819,812
---------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
PanAmSat Corporation
<TABLE>
<CAPTION>
BALANCE SHEETS--(Continued)
December 31, December 31,
1996 1995
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt................................... $ 4,166,778 $ 3,287,250
Accounts payable.................................................... 2,318,877 834,405
Accrued interest.................................................... 7,109,375 7,109,375
Accrued liabilities and taxes....................................... 6,656,741 7,686,452
Deferred revenue.................................................... 8,423,704 6,009,836
-------------- --------------
Total current liabilities....................................... 28,675,475 24,927,318
LONG-TERM DEBT........................................................... 626,009,539 575,283,661
DEFERRED INCOME TAXES.................................................... 61,631,004 31,573,000
DEFERRED REVENUE......................................................... 71,920,802 41,656,778
OTHER LIABILITIES........................................................ 687,934 867,934
-------------- --------------
Total liabilities............................................... 788,924,754 674,308,691
-------------- --------------
COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK, 12 3/4% Mandatorily Exchangeable Senior Redeemable
Preferred Stock, $0.01 par value, 20,000,000 shares authorized,
331,284 shares issued and outstanding, 8,838 shares for accrued
dividends............................................................. 329,070,909 287,648,667
-------------- --------------
STOCKHOLDERS' EQUITY:
Class A Common Stock, $0.01 par value, 100,000,000 shares
authorized, 40,459,432 shares issued and outstanding.............. 404,594 404,594
Class B Common Stock, $0.01 par value, 100,000,000 shares
authorized, 40,459,431 shares issued and outstanding.............. 404,594 404,594
Common Stock, $0.01 par value, 400,000,000 shares authorized,
19,089,017 shares issued and outstanding.......................... 190,891 190,812
Additional paid-in-capital.......................................... 477,505,039 477,297,753
Retained earnings................................................... 18,862,578 (1,435,299)
-------------- --------------
Total stockholders' equity...................................... 497,367,696 476,862,454
-------------- --------------
Total liabilities and stockholders' equity...................... $1,615,363,359 $1,438,819,812
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
PanAmSat Corporation
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Year Ended December 31,
-------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Unaffiliated parties.................................. $237,833,855 $112,231,953 $58,710,472
Related parties....................................... 9,108,731 3,922,824 5,033,434
------------ ------------ ------------
246,942,586 116,154,777 63,743,906
OPERATING EXPENSES:
Direct expenses-service agreements.................... 10,504,777 5,729,290 4,254,122
Sales and marketing................................... 14,012,050 9,542,672 7,179,192
Engineering and technical services.................... 17,337,180 10,659,106 5,811,516
General and administrative............................ 25,349,395 15,687,798 9,767,705
Depreciation and amortization......................... 61,333,743 33,411,878 16,330,674
Compensatory programs................................. 4,873,596 8,341,040 --
Reorganization costs.................................. 4,758,177 -- --
------------ ------------ ------------
138,168,918 83,371,784 43,343,209
------------ ------------ ------------
INCOME FROM OPERATIONS..................................... 108,773,668 32,782,993 20,400,697
INTEREST INCOME............................................ (24,275,310) (20,637,256) (7,186,549)
INTEREST EXPENSE........................................... 24,897,084 19,044,771 9,589,322
------------ ------------ ------------
INCOME BEFORE INCOME TAXES................................. 108,151,894 34,375,478 17,997,924
INCOME TAXES............................................... 46,431,775 16,829,000 --
------------ ------------ ------------
NET INCOME................................................. $61,720,119 $17,546,478 $17,997,924
------------ ------------ ============
PREFERRED STOCK DIVIDEND................................... 41,422,242 25,976,655
------------ ------------
NET INCOME (LOSS) TO COMMON SHARES......................... $20,297,877 $(8,430,177)
============ ============
PRO FORMA (UNAUDITED) NET INCOME AND
EARNINGS PER COMMON SHARE:
Historical net income................................. $17,546,478 $17,997,924
Pro forma adjustment to income tax provision.......... (1,207,000) 7,245,000
------------ ------------
Pro forma net income.................................. 18,753,478 10,752,924
------------ ------------
Preferred stock dividend.............................. 25,976,655 --
------------ ------------
Pro forma net income (loss) to common shares.......... $(7,223,177) $10,752,924
============ ============
Actual and pro forma earnings (loss) per common
shares.............................................. $ 0.20 $ (0.08) $ 0.13
============ ============ ============
Actual and pro forma weighted average number of
common shares outstanding........................... 100,331,987 89,678,638 85,675,677
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
PanAmSat Corporation
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' EQUITY
Partner's
Interest
Limited General Partners Conditionally
Partners Partners Equity Redeemable
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1994................................. $59,309,145 $ 537,831 $59,846,976 $193,936,250
Net Income........................................... 17,817,944 179,980 17,997,924 --
Issuance of common stock............................. -- -- -- --
Contributions, net................................... 660,918 6,676 667,594 654,373
Contribution of limited partner's interest........... 2,422,500 -- 2,422,500 --
------------ ---------- ------------ --------------
BALANCE, December 31, 1994............................... 80,210,507 724,487 80,934,994 194,590,623
Net loss for period ending March 2, 1995............. (6,924,930) (69,949) (6,994,879) --
Capital contribution of equity interest granted to an
executive............................................ 3,849,300 -- 3,849,300 --
Contribution of assets and liabilities to PanAmSat
Corporation and issuance of common stock.......... (77,134,877) (654,538) (77,789,415) (194,590,623)
Cancellation of common stock upon reorganization to
PanAmSat Corporation (Note 2)..................... -- -- -- --
Issuance of preferred stock.......................... -- -- -- --
Accretion and preferred dividends payable in kind.... -- -- -- --
Reverse stock split and issuance of common stock..... -- -- -- --
Net Income for the period of March 3, 1995 through
December 31, 1995................................. -- -- -- --
------------ ---------- ------------ --------------
BALANCE, December 31, 1995............................... -- -- -- --
Net Income........................................... -- -- -- --
Exercise of employee stock options................... -- -- -- --
Accretion and preferred dividends payable in kind.... -- -- -- --
BALANCE, December 31, 1996............................... $ -- $-- $ -- $ --
============ ========== ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Common Stock Additional
Par Value Paid-In Retained
Shares Amount Capital Earnings
------ ------ ---------- --------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1994................................. -- $ -- $ -- $ --
Net Income........................................... -- -- -- --
Issuance of common stock............................. 100 1 999 --
Contributions, net................................... -- -- -- --
Contribution of limited partner's interest........... -- -- -- --
------------ ----------- -------------- ---------------
BALANCE, December 31, 1994............................... 100 1 999 --
Net loss for period ending March 2, 1995............. -- -- -- --
Capital contribution of equity interest granted to an
executive............................................ -- -- -- --
Contribution of assets and liabilities to PanAmSat
Corporation and issuance of common stock.......... 99,692,550 996,925 248,487,113 --
Cancellation of common stock upon reorganization to
PanAmSat Corporation (Note 2)..................... (100) (1) (999) --
Issuance of preferred stock.......................... -- -- -- --
Accretion and preferred dividends payable in kind.... -- -- -- (25,976,655)
Reverse stock split and issuance of common stock..... 307,450 3,075 228,810,640 --
Net Income for the period of March 3, 1995 through
December 31, 1995................................. -- -- -- 24,541,356
------------ ----------- -------------- --------------
BALANCE, December 31, 1995............................... 100,000,000 1,000,000 477,297,753 (1,435,299)
Net Income........................................... -- -- -- 61,720,119
Exercise of employee stock options................... 7,880 79 207,286 --
Accretion and preferred dividends payable in kind.... -- -- -- (41,422,242)
BALANCE, December 31, 1996............................... 100,007,880 $ 1,000,079 $477,505,039 $18,862,578
============ =========== ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
PanAmSat Corporation
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income.............................................................. $ 61,720,119 $ 17,546,478 $ 17,997,924
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 61,333,743 33,411,878 16,330,674
Deferred income taxes................................................ 30,058,004 8,677,000 --
Accretion of interest on senior subordinated discount notes.......... 40,341,610 36,128,588 32,355,546
Accretion of interest on marketable securities....................... (1,347,432) (1,004,072) (484,390)
Interest expense capitalized......................................... (39,469,904) (37,840,680) (41,038,656)
Compensation expense granted as equity interest...................... -- 3,849,300 --
Compensation expense on exercise of employee stock options........... 73,405 -- --
Changes in assets and liabilities:
Increase in accounts receivable.................................. (5,354,265) (1,946,143) (664,672)
Increase in prepaid expenses and other current assets............ (2,633,456) (1,838,622) (3,120,439)
(Increase) decrease in tax distribution receivable............... -- 6,671,967 (6,671,967)
Increase (decrease) in accounts payable.......................... 1,484,472 (837,248) 996,779
Increase (decrease) in accrued liabilities and taxes............. (1,029,711) 5,169,191 (1,208,956)
Increase in deferred revenue..................................... 32,677,892 27,045,197 11,603,136
Decrease in other liabilities.................................... (180,000) (60,000) (11,000)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................... 177,674,477 94,972,834 26,083,979
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment................................. (22,251,315) (13,476,119) (10,474,642)
Expenditures for satellite systems under development....................
(280,857,781) (333,051,711) (300,217,208)
Purchase of marketable securities....................................... -- (488,789,459) --
Proceeds from maturity of marketable securities......................... 117,247,760 50,000,000 247,753,638
Proceeds from insurance claim receivable................................ -- 191,084,380 --
Increase in other assets................................................ (319,955) (83,217) (120,515)
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES........................ (186,181,291) (594,316,126) (63,058,727)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner's conditionally redeemable capital contribution................. -- -- 50,000,000
Capital contributions, net.............................................. -- -- 1,321,967
Proceeds from preferred stock offering, net............................. -- 263,377,104 --
Proceeds from issuance of common stock, net............................. -- 228,813,715 --
Deferred offering costs................................................. -- -- (1,705,093)
Repayments of long-term debt............................................ (3,736,204) (2,139,623) (1,082,762)
Proceeds from exercise of employee stock options........................ 133,960 -- --
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES........... (3,602,244) 490,051,196 48,534,112
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.......... (12,109,058) (9,292,096) 11,559,364
CASH AND EQUIVALENTS, beginning of year..................................... 13,562,113 22,854,209 11,294,845
------------- ------------- -------------
CASH AND EQUIVALENTS, end of year........................................... $ 1,453,055 $ 13,562,113 $ 22,854,209
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash received for interest.............................................. $ 22,927,878 $ 19,633,184 $ 10,497,017
============= ============= =============
Cash paid for interest.................................................. $ 24,897,084 $ 20,756,864 $ 18,015,432
============= ============= =============
Cash paid for taxes................................................. $ 15,122,000 $ 8,845,000 $ --
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) Principles of Presentation:
On March 2, 1995, pursuant to the amended Exchange and Subscription
Agreement and Plan of Reorganization, PanAmSat Corporation (the "Company"),
PanAmSat, L.P. (the "Partnership") and its partners consummated various
transactions whereby the Company acquired the Partnership and converted it to
corporate form. In connection therewith, (i) Rene Anselmo and affiliated persons
and entities (the "Anselmo Group") exchanged their interests in the Partnership
for shares of Class A Common Stock representing approximately 49.66% of the
outstanding common stock of the Company, (ii) Univisa Satellite Holdings, Inc.
("Univisa") exchanged its interest in the Partnership for shares of Class B
Common Stock representing approximately 50.15% of the outstanding common stock
of the Company and (iii) a partner of the Partnership exchanged his interest in
the Partnership for shares of Common Stock representing approximately 0.19% of
the outstanding common stock of the Company. The Amended and Restated
Certificate of Incorporation of the Company provides, among other things, the
holders of the Class A Common Stock with the ability to elect a majority of the
Company's board of directors and the Anselmo Group and Univisa with a veto over
certain significant corporate transactions of the Company. On September 27,
1995, the Company completed an initial public offering of 18,920,000 shares of
common stock, including 4,595,676 shares held by certain selling stockholders,
and received net proceeds of approximately $229 million.
Prior to the conversion, the Partnership operated under terms of the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement") dated December 31, 1992. Univisa, a wholly owned subsidiary of Grupo
Televisa, S.A. ("Televisa") and a general partner in the Partnership, made cash
investments in partnership units of $200 million.
All assets and liabilities transferred were reflected at historical
cost by the Company and the Partnership. Accordingly, the accompanying financial
statements reflect the combined assets, liabilities, equity and operations of
the Company and the Partnership as if they had operated as a single entity since
their respective dates of organization. The accompanying financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
(2) Business description:
The business of the Company is to operate an international
telecommunications satellite system. The Company currently provides video, data
and voice telecommunications services in North America, South America, Europe
and Africa via its PAS-1 satellite ("PAS-1") and PAS-3 satellite ("PAS-3"), in
the Asia-Pacific region via its PAS-2 satellite ("PAS-2") and in Europe, Africa
and Asia via its PAS-4 satellite ("PAS-4"). PAS-1 was launched in June 1988,
PAS-2 in July 1994, PAS-4 in August 1995 and PAS-3 in January 1996. The Company
currently intends to construct and deploy four additional satellites over the
Atlantic, Atlantic, Indian, and Pacific ocean regions, respectively, (see Note
6). In addition, the Company intends to pursue providing satellite capacity to
customers offering direct to home ("DTH") services internationally and has
entered into various agreements relating to the provision of satellite capacity
for DTH services in Latin America and Spain (see Note 4). The development,
launch and operation of telecommunications satellites involve significant risks
of construction delays, launch delays, launch failure or damage to a satellite
following its launch which may reduce its performance or result in its
destruction. Such delays, launch failures or damage would adversely affect
operating results.
The Company holds a license from the Federal Communications Commission
("FCC") to operate PAS-1 in geostationary orbit at 45 degrees West Longitude,
PAS-2 at 191 degrees West Longitude, PAS-3 at 43 degrees West Longitude and
PAS-4 at 68.5 degrees East longitude. The Company has obtained or applied for
authorizations from the FCC for an all Ku-band satellite, additional C/Ku-band
hybrid satellites and for new Ka-band satellites. Conditional authority has been
received for additional satellites at 72 degrees East Longitude and 43 degrees
West Longitude (to be co-located with PAS-3). The Company has also filed
applications with the FCC for additional C/Ku-band hybrid satellites at 194
degrees West Longitude, 58 degrees West Longitude (the Company has informally
requested the FCC associate this application with the 81 degree West Longitude
orbital location), 68.5 degrees East Longitude (to be co-located with PAS-4), 79
degrees West Longitude, and 93 degrees West Longitude. The Company has filed
applications with the FCC for Ka-band satellites at 58 degrees, 79 degrees, 43
degrees, 45 degrees, and 103 degrees West Longitude, and at 169 degrees, 166
degrees, 68.5 degrees, and 72 degrees East Longitude. The Company's wholly-owned
subsidiary, PanAmSat Carrier Services,
F-28
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
Inc., has an FCC authorization to provide common carrier service via PAS-1. The
Company also holds licenses to provide domestic and international satellite
communications services in France, Germany, the United Kingdom, Ecuador,
Argentina, Pakistan and Japan.
The Company provides telecommunications services under long-term and
occasional (spot) booking arrangements, a majority of which are with foreign
entities, including Univisa affiliates.
The following summarizes the Company's foreign and domestic sales:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States............................. $ 98,983,567 $ 49,936,228 $26,175,302
Central and South America................. 47,673,139 29,078,131 23,680,874
Other foreign............................. 91,177,149 33,217,594 8,854,296
------------- ------------- -----------
$237,833,855 $112,231,953 $58,710,472
============= ============= ===========
</TABLE>
Future cash payments expected from customers under all long-term
arrangements for satellites in service (see Note 5) aggregate approximately $2.4
billion as of December 31, 1996, excluding any DTH service agreements described
in Note 4. Such cash payments may be reduced for outage or transponder failure
and may be further reduced for "lowest price" provisions for like transponder
capacity given to similarly situated customers. Approximately $229.8 million of
such arrangements at December 31, 1996 are terminable at the customer's option
after a minimum service period.
(3) Summary of Significant Accounting Policies:
Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates by
management in determining the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ materially from
those estimates.
Revenue recognition--
The Company enters into contracts to provide satellite capacity and
related services. These contracts generally provide for the use of satellite
and, in certain cases, earth station and teleport facilities for periods ranging
from one year to the life of the satellite. Virtually all contracts stipulate
payment terms in U.S. dollars.
Service agreements and occasional (spot) services. Revenues under
service agreements and occasional (spot) services are recognized as services are
performed and billed. The Company has certain obligations, including providing
spare or substitute capacity if available, in the event of satellite service
failure under certain long-term agreements. If no spare or substitute capacity
is available, the agreements may be terminated. Except for certain deposits, the
Company is not obligated to refund payments previously made.
Transponder contracts. Long-term transponder contracts provide for use
of a transponder for the life of the transponder. Payments for the transponder
are made over a shorter period, usually seven years. Uncured transponder
failures during the payment period result in cessation of customer payments. The
Company is not required to refund any portion of customer payments if a
transponder fails. The economic risk of loss passes to the customer upon receipt
of final payment by the Company.
Revenue under transponder contracts is recognized ratably over the
payment period, and a pro rata share of the cost of the satellite system and a
pro rata share of future telemetry, tracking and control ("TT&C") costs for the
life of the satellite are expensed over the same period. Accordingly, no revenue
will be recognized beyond the payment period, usually seven years, and all
estimated
F-29
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
costs related to these transponders will have been recognized as of the final
payment date. Revenues of approximately $3.2 million, $3.6 million, and $4.5
million for the years ended December 31, 1996, 1995 and 1994, respectively, are
included in the accompanying statements of operations relating to such
contracts.
Cash and cash equivalents--
Cash and cash equivalents consists of cash on hand and highly liquid
investments with maturities at date of acquisition of three months or less.
Accounts receivable--
Accounts receivable include amounts earned under service agreements and
occasional (spot) services which are billable as performed.
Marketable securities--
Marketable securities consist of debt securities issued by the United
States Treasury and other U.S. government corporations and agencies, corporate
debt securities and other securities (primarily investments in money market
funds consisting of the aforementioned securities) and have maturity dates
within one year. The carrying amounts of these securities are approximately
$130.8 million, $103.7 million and $144.7 million, respectively at December 31,
1996. The Company has classified the debt securities as held-to-maturity and,
accordingly, are recorded at amortized cost, which approximates fair value. The
money market funds are recorded at cost plus accrued income, which approximates
fair value. Proceeds of these securities are intended to be used for the
satellite systems under development and, accordingly, are classified as
long-term.
Satellites and other property and equipment--
Satellites and other property and equipment are stated at historical
cost. The cost of the PAS-1, PAS-2, PAS-3 and PAS-4 satellite system includes
all construction costs, incentive obligations, launch costs, launch insurance,
direct development costs, and capitalized interest. Substantially all other
property and equipment consists of the Company's teleport facilities.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the respective assets as follows:
<TABLE>
<CAPTION>
Estimated Lives
(years)
---------------
<S> <C>
PAS 1, PAS 2, PAS-3, and PAS-4 satellite system.................. 13-15
Communications equipment......................................... 7
General support equipment........................................ 5-10
Buildings........................................................ 25
</TABLE>
The estimated useful lives of the satellites were determined by an
engineering analysis performed at the in-service dates. The original estimated
useful lives are periodically reviewed using current TT&C data provided by
various service providers. To date, no significant change in the original
estimated useful lives has resulted. The telecommunications industry is subject
to rapid technological change which may require the Company to revise the
estimated useful lives of its satellites and communications equipment or to
adjust their carrying amounts.
Research and development costs and maintenance and repairs are charged
to operations as incurred.
Satellite systems under development--
Expenditures for satellite systems under development include
construction, launch and launch insurance progress payments, certain direct
development costs, capitalized interest, and components for a spare satellite
(see Note 6).
F-30
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
Cost of satellites which are lost at launch are carried, net of any
insurance proceeds, in satellite systems under development. The remaining net
amounts are depreciated proportionately over the estimated useful lives of
related satellites placed in service.
Debt issuance costs--
Debt issuance costs relate to the issuance of the Company's 9 3/4%
Senior Secured Notes ("Senior Secured Notes") and the Company's 11 3/8% Senior
Subordinated Discount Notes ("Discount Notes") in August 1993. These costs
totaled approximately $16.2 million at December 31, 1996, and are being
amortized over the life of the Notes using the interest method. The accumulated
amortization at December 31, 1996 is approximately $6.7 million.
Income taxes--
As a result of the conversion of the Partnership to a corporation on
March 2, 1995, the Company files corporate federal and state income tax returns.
This change in tax status was recognized by establishing deferred tax assets and
liabilities for temporary differences between the tax basis of assets and
liabilities and amounts reported in the balance sheet at the date of conversion
(see Note 9).
The current provision for income taxes represents actual or estimated
amounts payable or refundable on tax returns filed or to be filed for each year.
Deferred tax assets and liabilities are recorded for the estimated future tax
effects of temporary differences between the tax basis of assets and liabilities
and amounts reported in the balance sheets. The overall change in deferred tax
assets and liabilities for the period measures the deferred tax expense for the
period. Effects of changes in enacted tax laws on deferred tax assets and
liabilities are reflected as adjustments to tax expense in the period of
enactment.
Earnings per share--
The unaudited pro forma earnings per share have been calculated and
presented on a pro forma basis (i) to reflect the pro forma adjustments to the
income tax provision as if the Company had been incorporated and (ii) as if the
shares issued to effect the conversion of the Partnership to corporate form and
to effect a .859399 for 1 reverse split of the Company's common stock on
September 15, 1995 were outstanding for all periods presented and (iii) to
reflect the weighted average number of common shares issued in the Company's
initial public offering. When dilutive, stock options are included in the
weighted average number of shares outstanding using the treasury stock method.
Net income (loss) allocation--
The Partnership Agreement had provided that profits and losses of the
Partnership be allocated among the partners' percentage interests.
(4) Satellite Capacity for DTH Services:
In November 1995, the Company announced that it would serve as a
satellite service provider for a Latin America DTH service ("Latin America DTH")
to be offered by the Globo Organization ("Globo"), Televisa, The News
Corporation Limited ("News Corp.") and Tele-Communications International, Inc.
("TCI"). On February 29, 1996, the Company signed a binding letter agreement
with Globo, Televisa, and News Corp. (the "1996 Letter Agreement") to provide
service to a series of joint ventures (the "Latin America JVs") to be formed by
them and TCI on 48 transponders ultimately on PAS-5 and PAS-6 with temporary
service on PAS-3 pending the commencement of service on PAS-6. Also under the
1996 Letter Agreement, Globo, Televisa, and News Corp. have agreed to
proportionally guarantee 100 percent of the fees for transponder services to the
Latin America JVs. These guarantee obligations may be assigned to TCI and, with
the Company's prior written consent, to new equity participants in the Latin
America JVs. The Company will receive minimum service fees equivalent to the
Company's best estimate of the cost per transponder to the Company of designing,
launching, operating and insuring each satellite for the transponders used by
the Latin America JVs. The Company also will receive additional revenue based on
subscriber revenues of the Latin America JVs above a certain threshold, except
that the transponders on PAS-3 and PAS-6 that will be used by the Latin America
JV operating in Brazil will be charged on a fixed fee basis. On June 26, 1996, a
full-scale agreement was executed for service in Brazil on twelve transponders
(the "Brazil Agreement"). The 1996 Letter
F-31
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
Agreement remains in force for the remaining 36 transponders. Globo and News
Corp. have proportionately guaranteed the obligations under the Brazil
Agreement.
On September 20, 1996, the Company entered into an agreement with
Televisa S.A. de C.V., an affiliate of Televisa, to provide transponder service
on up to five PAS-3 Ku-band transponders, at least three of which will be used
for distribution of television services in Spain, which may include DTH
services. The service fees reflect market rates. This agreement superseded a
verbal agreement in principle with Televisa whereby PanAmSat and Televisa had
intended to form a joint venture to offer DTH services in the Iberian Peninsula.
Concurrently with the Combination (see Note 13) and immediately
following the Univisa Contribution, 7.5 million shares of New PanAmSat common
stock received by Satellite Company, L.L.C., a Nevada limited liability company
("S Company") and a subsidiary of Televisa, in connection with the Univisa
Contribution will be repurchased by New PanAmSat for $225 million. Following
such repurchase, either Televisa, S Company and/or their designees will purchase
for $225 million all of PanAmSat's rights to purchase from Televisa equity
interests in certain joint ventures to be formed to offer DTH services in Latin
America and the Iberian Peninsula.
The Company also has significant investments in and commitments for
PAS-5 and PAS-6 (see Note 6) which it had intended to use in the proposed DTH
business. Pursuant to the Reorganization Agreement, it is anticipated that the
Company's rights to acquire equity interests in the Latin America JVs will be
sold at the closing of Reorganization.
(5) Satellites and Other Property and Equipment:
The Company's principal operating assets consist of PAS-1, PAS-2, PAS-3
and PAS-4. The Company has in-orbit insurance coverage of $60 million for PAS-1
through August 26, 1997. In-orbit insurance coverage for PAS-2, PAS-3 and PAS-4
of $188 million, $215 million and $212 million, respectively, expires on May 21,
1997. The Company intends to obtain new in-orbit insurance coverage to become
effective upon these expiration dates. The Company operates terrestrial sites
and network control centers in Homestead, Florida, Ellenwood, Georgia and Napa,
California.
<TABLE>
<CAPTION>
Satellites and other property and equipment balances are as follows:
December 31,
----------------------------------
1996 1995
---- ----
<S> <C> <C>
Satellites in service (PAS 1, PAS-2, PAS-3 and PAS 4)..... $800,336,064 $568,338,771
Buildings and leasehold improvements...................... 22,821,996 14,554,391
Communications and support equipment...................... 39,536,928 25,057,147
Land...................................................... 1,988,607 1,977,002
------------- -------------
864,683,595 609,927,311
Less: Accumulated depreciation and amortization........... (138,091,220) (79,177,520)
------------- -------------
$726,592,375 $530,749,791
============= =============
</TABLE>
(6) Satellite Systems Under Development:
The Company has contracted with Hughes Aircraft Company ("Hughes") to
construct a satellite, PAS-5, to be deployed over the Atlantic Ocean region. The
Company has also contracted with Space Systems/Loral ("Loral") for the
construction and delivery of PAS-6, PAS-7 and PAS-8, and for the option to
purchase up to two additional satellites and up to four spare satellites
pursuant to the Loral Satellite Contract. PAS-6, PAS-7 and PAS-8 are to be
deployed over the Atlantic, Indian and Pacific ocean regions, respectively.
PAS-5 and PAS-6 will be suitable for DTH broadcast purposes and are scheduled to
be delivered in 1997. PAS-7 and PAS-8 are scheduled to be delivered in 1997 and
1998, respectively.
F-32
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
The Hughes and Loral contract terms include progress payments payable
monthly during the period of the satellites' construction and incentive
obligations payable monthly with interest ranging from 9.5% to 10% per annum
over a period of 10-15 years, scheduled to commence after the delivery and
launch of the satellites. The incentive obligations are subject to reduction or
refund (as applicable) if the satellites fail fully to meet specific technical
operating standards. The contracts contain rights to cancellation, which would
result in the forfeiture of all progress payments with escalating termination
payments.
The Company has entered into launch contracts with International Launch
Services ("ILS") for the launch of three satellites and Arianespace S.A.
("Arianespace") for the launch of one satellite. The Company expects to launch
PAS-5 and PAS-8 under the ILS contract from Khazakhstan using Proton rockets and
PAS-6 using an Ariane IV launcher. The Company has also entered into a
multi-launch agreement ("Multi-Launch Agreement") with Arianespace which
provides for one firm launch, which the Company plans to use for PAS-7, and
rights for additional launches. The Company has exercised its rights for an
additional launch in late 1999 or early 2000 for an unspecified satellite. The
launch contracts provide that the Company may terminate such contracts at its
option, and the contracts include termination liability schedules that increase
in magnitude as the timing of any such termination approaches the date of
launch. The maximum termination liability, calculated in accordance with such
schedules, for launch services that have been ordered in connection with any
individual launch (including postponement fees) is approximately $45.0 million.
Payments made by the Company prior to the Company's election to terminate any
such launch contract are offset against any such liability owed.
The Company has obtained policies for up to an aggregate of $1.2
billion of launch insurance for PAS-5, PAS-6, PAS-7, PAS-8 and a replacement
satellite or if no replacement is required, a satellite to be designated as
PAS-9. The Company expects the total cost (including costs for engineering,
construction, launch, launch insurance, direct development costs and certain
components for a spare satellite) of PAS-5, PAS-6, PAS-7, and PAS-8 to be
approximately $846 million, of which the Company has paid $429 million at
December 31, 1996. The Company has contracted commitments for approximately $417
million at December 31, 1996 related to its satellite systems under development.
(7) Long-Term Debt:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
9 3/4% Senior Secured Notes due 2000 (a)............................. $175,000,000 $175,000,000
11 3/8% Senior Subordinated Discount Notes due 2003--accreting
to $460,206,000 in August 1998 (including accreted
interest of $121,288,807 and $80,947,197 at December 31,
1996 and 1995, respectively) (b)................................ 386,289,228 345,947,618
Incentive obligations--payable to Hughes in monthly
installments including interest at 10% collateralized
by a security interest in three transponders on PAS 2,
PAS-3 and PAS-4, respectively................................... 67,201,987 55,111,069
Deferred satellite performance incentive--payable to
GE Astro in equal monthly installments of $66,075
including interest at 10%, maturing September 1998;
collateralized by a security interest in the proceeds
of future transponder sales from PAS-1.......................... 1,267,969 1,899,661
Note payable--payable to Hughes Network Systems, Inc. in
monthly installments including interest at 8.5%
collateralized by communications equipment...................... 417,133 612,563
------------ -------------
630,176,317 578,570,911
Less--Current maturities............................................. 4,166,778 3,287,250
------------ -------------
$626,009,539 $575,283,661
============ =============
</TABLE>
- -----------------
(a) Interest on the Senior Secured Notes is payable semi-annually on
February 1 and August 1 of each year, commencing February 1, 1994.
Interest incurred for the years ended December 31, 1996 and 1995
totaled approximately $17 million per year. The
F-33
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
Senior Secured Notes are redeemable after August 1, 1998, in whole or
in part, at the option of the Company, at a price of 101.625% declining
to 100% of principal plus accrued and unpaid interest, if any, to the
date of redemption. The Senior Secured Notes rank senior in right of
payment to all subordinated indebtedness of the Company and pari passu
in right of payment with all Senior Debt (as defined in the indenture
for the Senior Secured Notes). The Senior Secured Notes are secured by
liens on certain assets of the Company, including PAS-1, PAS-2, PAS-3
and PAS-4.
(b) Interest on the Discount Notes accretes prior to August 1, 1998 at
which time the principal outstanding will be approximately $460.2
million. Interest accreted for the years ended December 31, 1996 and
1995 totaled approximately $40.3 million and $36.1 million,
respectively. After August 1, 1998, interest on the Discount Notes will
be payable semi-annually on February 1 and August 1 of each year,
commencing on February 1, 1999. The Discount Notes are not redeemable
prior to August 1, 1998. Thereafter, the Discount Notes are redeemable,
in whole or in part, at the option of the Company, at a price of
104.266% declining to 100% of principal plus accrued and unpaid
interest, if any, to the date of redemption. The Company will be
required to redeem 25% of the original aggregate principal amount of
the Discount Notes at a redemption price equal to 100% of the principal
amount thereof together with accrued and unpaid interest each of August
1, 2001 and August 1, 2002. The Discount Notes are unsecured and are
subordinated in right of payment to all present and future Senior Debt
of the Company, including the Senior Secured Notes.
The indentures relating to the Senior Secured Notes and Discount Notes
contain restrictive covenants that, among other things, impose limitations on
the Company and its subsidiaries with respect to their ability to (i) incur
additional indebtedness; (ii) make certain investments; (iii) sell assets or
apply the proceeds therefrom; (iv) enter into transactions with affiliates and
(v) pay dividends. Under the financial covenants included in these restrictions
the Company is not currently permitted to incur additional indebtedness, except
as described below, or to make certain investments or pay dividends.
Under terms of the Senior Secured and Discount Notes, the Company is
limited to borrowing up to $30 million of additional bank debt and/or $15
million of debt in connection with the purchase of certain communications
equipment, excluding satellite incentive obligations for PAS-1, PAS-2, PAS-3,
and PAS-4. No such indebtedness or availability of such indebtedness existed at
December 31, 1996.
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
-------------
<S> <C>
1998........................................................................ $ 4,372,467
1999........................................................................ 3,974,298
2000........................................................................ 179,390,470
2001........................................................................ 4,850,219
2002 and thereafter......................................................... 433,422,085
------------
$626,009,539
============
</TABLE>
The fair value of the Company's debt exceeded the carrying value by
approximately $46.5 million at December 31, 1996. Capitalized interest totaled
approximately $39.5 million, $37.8 million and $41.0 million in 1996, 1995 and
1994, respectively, and is included in satellite systems under development.
(8) Preferred Stock
On April 21, 1995, the Company consummated the sale of 275,000 shares
of Preferred Stock and received proceeds of approximately $261.5 million, net of
underwriting discounts and commissions of approximately $10.7 million and
offering expenses of approximately $2.5 million. The Company anticipates that
all of such net proceeds will be applied to the development, construction and
launch of PAS-5 and PAS-6.
Dividends on the Preferred Stock are payable quarterly in arrears
commencing on July 15, 1995. On or before April 15, 2000, the Company may, at
its option, pay dividends in cash or in additional fully paid and non-assessable
shares of Preferred Stock having an aggregate liquidation preference equal to
the amount of such dividends. After April 15, 2000, dividends may be paid only
in cash. As of December 31, 1996, 340,122 shares have been issued and accrued.
F-34
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
The Preferred Stock is not redeemable prior to April 15, 2000. On or
after April 15, 2000, the Preferred Stock is redeemable at the option of the
Company, in whole or in part from time to time at a redemption price of 106.375%
declining to 100% of liquidation value plus accrued and unpaid dividends. The
Preferred Stock is subject to mandatory redemption in whole on April 15, 2005 at
a price equal to the liquidation preference thereof plus accrued and unpaid
dividends. Subject to certain conditions, the Company will be required to
exchange all the outstanding shares of Preferred Stock into the Company's 12
3/4% Senior Subordinated Notes due 2005 as soon as practicable following the
date that such exchange is permitted by the terms of the Senior Secured Notes
and the Discount Notes.
The fair value of the Company's Preferred Stock exceeded the carrying
value by approximately $75.1 million at December 31, 1996.
(9) Income Taxes:
Prior to the conversion, the Partnership was not subject to federal or
state income taxes. The partners were required to report their share of income
or loss in their respective income tax returns. Under terms of the Partnership
Agreement, quarterly distributions were required for income taxes for each year
that the Partnership had taxable income. Such distributions were calculated
using the highest effective combined U.S. federal, state, local and foreign tax
rate that was imposed on any partner which was a U.S. person with respect to
such partner's allocable share of taxable income of the Partnership for such
taxable year. At December 31, 1994, the Partnership was owed approximately $6.7
million from its partners for quarterly tax distributions made prior to the
launch of PAS-2, which resulted in a loss for the year ended December 31, 1994.
Such amounts were repaid in 1995.
Taxable income (loss) for the Company and its predecessor entities was
approximately $3.4 million and $(5.5 million) for 1995 and 1994, respectively.
Substantially all of the difference between the Company's and its predecessors'
book income and taxable income (loss) was attributable to differences in
depreciation for tax and financial reporting purposes and customer deposits. As
a result of the Partnership conversion, a net deferred tax liability of
approximately $22.9 million was recorded March 2, 1995, the conversion date.
The temporary differences that give rise to the net deferred tax
liability and their approximate tax effects as of December 31, 1996 and 1995 are
as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Satellites and other property and equipment........... $103,344 $52,199
Customer deposits..................................... (22,517) (16,694)
Alternative minimum tax credits....................... (16,854) (3,097)
Other................................................. (2,342) (835)
--------- ---------
Net deferred tax liability....................... $ 61,631 $ 31,573
========= =========
</TABLE>
The components of the provision for income taxes for the year ended
December 31, 1996 and for the period March 2, 1995 through December 31, 1995 are
as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Current provision...................................... $13,721 $7,191
Federal........................................... 1,641 961
State............................................. 31,070 8,677
------- -------
Total provision............................... $46,432 $16,829
======= =======
</TABLE>
F-35
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
The provisions for income taxes for the year ended December 31, 1996
and for the period March 2, 1995 through December 31, 1995 are reconciled to the
amount computed by applying the statutory federal tax rate to income before
taxes as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Statutory rate......................................... $37,853 $14,480
Permanent differences.................................. 1,772 174
State income taxes, net of federal benefit............. 6,807 2,175
------- -------
Total provision for income taxes.................. $46,432 $16,829
======= =======
</TABLE>
As of December 31, 1996, subject to review by the Internal Revenue
Service, the Company has approximately $16.9 million of alternative minimum tax
credit carryforwards which have no expiration date.
Pro Forma Tax Effects (unaudited)--
The accompanying statements of operations present, on an unaudited pro
forma basis, net income for the years ended December 31, 1995 and 1994 as if the
Company had been taxed at corporate federal and state tax rates and as if the
conversion occurred on January 1, 1994. The pro forma tax effects assume the net
deferred tax liability as described above would have been provided as the
related temporary differences arose.
The components of the pro forma provisions for income taxes for the
years ended December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Current (benefit) provision............................
Federal........................................... $ 5,444 $(1,997)
State............................................. 832 (218)
Deferred provision 9,346 9,460
-------- --------
Total provision for income taxes.............. $156,622 $ 7,245
======== ========
</TABLE>
The pro forma provisions for income taxes for the years ended December
31, 1995 and 1994 are reconciled to the amounts computed by applying the
statutory federal tax rate to income before taxes as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Statutory rate........................................... $12,031 $6,299
Permanent differences.................................... 1,371 --
State income taxes, net of federal benefit............... 2,220 946
Deferred provision
------- ------
Total pro forma provision for income taxes.......... $15,622 $7,245
</TABLE>
Substantially all of the difference between the Company's income for
financial reporting purposes and pro forma taxable income is attributable to the
difference in depreciation and customer deposits for tax and financial reporting
purposes, and, in 1995, the permanent difference created by a $3.8 million
charge related to a grant of a limited partnership interest in the Partnership
to the Executive Vice President of the Company, for which the income tax benefit
was specially allocated to the Anselmo Group.
F-36
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
(10) Related Party Transactions:
The Company has an employment agreement with Frederick A. Landman,
President and Chief Executive Officer, which terminates December 31, 1997
subject to automatic annual renewal. Total annual base compensation is $600,000
under this agreement.
The Company has earned revenues of approximately $9.1 million, $3.9
million and $5.0 million for 1996, 1995 and 1994, respectively, from entities
affiliated with Univisa. In addition, approximately $193.5 million of the
Company's expected future cash payments at December 31, 1996 for PAS-1 and PAS-3
under long-term arrangements are from the same entities.
The Company had a commitment to purchase certain equipment for a
minimum of $2.2 million in connection with the DTH venture described above. This
commitment has been canceled by the Company and certain costs associated with
this termination have been, and any additional costs will be, reimbursed by
Televisa under a separate indemnification agreement.
Certain engineering and technical services are provided by Rubin
Bednarek & Associates, a firm in which an executive of the Company, Robert
Bednarek, was a principal until December 31, 1995. Fees paid to this firm were
approximately $1,435,000 and $1,097,000 for the years ended December 31, 1995
and 1994, respectively.
(11) Employee Benefit Plans:
Non-Qualified Plans--
In December 1991, a predecessor company adopted non-qualified phantom
stock plans. In connection with the conversion of the Partnership into a
corporation, the plans were assumed by the Company and the Partnership recorded
a compensation charge and a liability of approximately $2.8 million, which was
the estimated fair value of the phantom shares at that time. The Company was
obligated to adjust this liability at each balance sheet date to the then
current estimate of fair value. Accordingly, the Company recorded additional
charges of $1.7 million in 1995. The liability was paid in connection with the
Company's initial public offering.
Also in connection with the conversion of the Partnership, the
Executive Vice President of the Company was granted a Partnership interest from
the Anselmo Group which was exchanged for Class A Common Stock upon the
consummation of the conversion. As a result, the Partnership recorded a
non-recurring compensation charge of approximately $3.8 million with an
offsetting increase to capital.
1995 Stock Plan--
Effective March 2, 1995, the Company adopted the PanAmSat Corporation
Long-Term Stock Investment Plan (the "Stock Plan"), which provides for the
granting of non-qualified stock options, incentive stock options, alternate
appreciation rights, restricted stock, performance units and performance shares
to executive officers and other key employees of the Company, and to other
service providers, including independent contractors of the Company. Restricted
stock, performance units and performance shares may be granted in the discretion
of the Committee (as defined below) on such terms as the Committee may decide.
The maximum number of shares of common stock which may be issued under the Stock
Plan is 5,000,000, and the maximum number of shares of common stock which may be
issued to any grantee pursuant to the Stock Plan is 2,000,000. The Stock Plan is
administered by a committee of the Board of Directors (the "Committee")
consisting of at least two directors of the Company. As of December 31, 1996,
options for 1,057,345 shares of common stock have been granted under the Stock
Plan, including options for 100,000 shares granted to non-employees. Such
options are exercisable at prices ranging from $17.00 to $28.75 per share (the
stock's market price at the date of grant) and vest ratably over five years.
The Company accounts for the Stock Plan under APB Opinion No. 25. Had
compensation cost for this plan been determined consistent with SFAS No. 123,
the Company's net income (loss) and earnings (loss) per share would have been
reduced as follows:
F-38
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net income (loss)............ As Reported $20,297,877 $(8,430,177)
Pro Forma 19,411,228 (9,279,621)
Earnings (loss) per share.... As Reported $0.20 $(0.08)
Pro Forma 0.19 (0.09)
</TABLE>
A summary of the status of the Company's Stock Plan at December 31,
1996 and 1995 and changes during the years then ended is presented in the table
and the narrative below:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
Shares Wtd. Avg. Shares Wtd. Avg.
(000's) Price (000's) Price
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year................. 1,042 17 --
Granted.......................................... 63 23 1,047 17
Exercised........................................ (48) 17 (5) 17
------ ---- ------
Outstanding at end of year....................... 1,057 17 1,042 17
====== ==== ======
Weighted average fair value of options granted... $ 4.94 -- $ 6.76 --
</TABLE>
994,000 of the 1,057,000 options outstanding at December 31, 1996 have
exercise prices of $17 with a weighted average exercise price of $17 and a
weighted average remaining contractual life of 4 years. 199,000 of these options
are exercisable. The remaining 63,000 options have exercise prices between $17
and $29, with a weighted average exercise price of $23 and a weighted average
remaining contractual life of 5 years. None of these options are currently
exercisable. There were no options exercisable at December 31, 1995.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1995 and 1996, respectively: risk-free interest
rate of 5.84 percent and 5.35 percent; expected dividend yield of 0 percent and
0 percent; expected lives of 5.0 and 1.7 years; expected stock price volatility
of 33.2 percent and 33.2 percent.
Compensation Plans--
On April 22, 1996, the Company adopted a General Severance Policy, an
Employee Separation Plan and an Executive Severance Pay Program, the first two
of which were amended by action of the Board of Directors on October 28, 1996.
Under the General Severance Policy, all employees would be entitled to receive a
minimum of two weeks' salary and a maximum of 29 weeks' salary upon termination
without cause and upon the execution by the employee of a release of all claims
against the Company. Under the Employee Separation Plan any employee (other than
below) who is terminated without cause following a change in control, as
defined, would be entitled to receive six months' continuation of such
employee's salary and certain benefits. The Executive Severance Pay Program
covers five senior officers and approximately 55 other key employees not covered
by the Employee Separation Plan and provides severance benefits of between 1.5
and 3 times the base salary and cash bonus for each such employee's salary
payable upon a change in control, as defined. The Reorganization (see Note 13)
will constitute a change in control.
In September 1996, the Company adopted a plan to pay a cash bonus to
its employees who would otherwise have qualified for the grant of stock options
under the Company's Long-Term Stock Investment Plan. Such compensation totaling
$4.8 million was paid in October 1996 in lieu of stock options.
(12) Commitments and Contingencies:
Orbital control of satellites in service is maintained by various
service providers under long-term TT&C agreements totaling approximately $66.8
million. Total annual TT&C costs for satellites in service is approximately $5.2
million per year. TT&C costs are included in Engineering and Technical Services
and are generally expensed on a straight-line basis over the term of the
agreement.
F-38
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
The Company has commitments for operating leases primarily relating to
equipment and its executive office facilities in Greenwich, Connecticut. These
leases contain escalation provisions for increases in rental due to increased
real estate taxes and operating expenses. Minimum annual rentals of all leases,
exclusive of increases in real estate taxes and operating assessments, are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C>
1997.................................................................... $1,016,100
1998.................................................................... 978,188
1999.................................................................... 953,792
2000.................................................................... 883,939
Thereafter.............................................................. 783,416
----------
$4,615,435
</TABLE>
Total rent expense approximated $1,009,000, $825,000 and $546,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
In March 1996, Comsat Corporation ("Comsat") initiated an action
seeking compensatory damages of $250 million and unspecified punitive damages
against the Company, Televisa and News Corp. The complaint alleges that the
Company interfered with the alleged termination, by News Corp., of an alleged
contract between Comsat and News Corp. Although the Company believes this action
is without merit and intends to vigorously contest this matter, it is unable to
predict the final outcome of this action at this time.
(13) Agreement and Plan of Reorganization:
On September 20, 1996 (the "Announcement Date"), the Company and Hughes
Electronics Corporation ("Hughes") announced their agreement to combine their
respective satellite service operations (the "Combination") into a new publicly
held company ("New PanAmSat"). Under the terms of the Agreement and Plan of
Reorganization that was entered into on the Announcement Date, the Galaxy
Business of Hughes will be combined with the Company to form New PanAmSat.
Holders of PanAmSat Common Stock and Class A Common Stock will have three
options to receive payment with respect to their outstanding shares: (a) one
half share of common stock of New PanAmSat and $15 in cash, (b) one share of
common stock of New PanAmSat (subject to proration, as applicable), or (c) $30
in cash (subject to proration, as applicable). The maximum cash consideration to
be paid to the Company's direct and indirect stockholders will be equal to $15
multiplied by the number of shares of Common Stock outstanding and Hughes may
elect to limit the number of shares of New PanAmSat Stock issued to one-half of
the number of shares of PanAmSat Common Stock outstanding at the time.
Immediately after the Combination, Hughes will own 71.5% of New PanAmSat unless
the Company's direct and indirect stockholders request more shares of New
PanAmSat Common Stock than cash and New PanAmSat permits additional shares of
its common stock to be issued in lieu of cash to the Company's direct and
indirect stockholders. In a separate but related transaction, New PanAmSat will
acquire all of the outstanding shares of Univisa, Inc., the indirect holder of
all of the Class B Common Stock of the Company, for consideration that is equal
in amount and form (subject to proration, as applicable) to the consideration
payable on account of each share of PanAmSat Common Stock and Class A Common
Stock (the "Univisa Contribution"). Assuming that New PanAmSat pays half stock
and half cash as consideration in the Combination and the Univisa Contribution,
immediately after the Combination, Hughes will own 71.5% of New PanAmSat, unless
the Company's direct and indirect stockholders request more shares of New
PanAmSat common stock than cash and New PanAmSat permits additional shares of
its common stock to be issued in lieu of cash to the Company direct and indirect
stockholders. The Combination requires governmental approval of the U.S. Federal
Communications Commission which is expected to be received within six to 12
months of the Announcement Date.
In connection with the above transactions, the Company has incurred
certain professional and advisory fees totaling $4.8 million for the year ended
December 31, 1996. The Company expects these fees will aggregate approximately
$20 million, with the majority of the remaining fees payable upon the successful
completion of the Combination. The Reorganization Agreement includes termination
provisions which require that, in the event that the Reorganization Agreement is
terminated by the Company, and the
F-39
<PAGE>
PANAMSAT CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
Company consummates or agrees to consummate certain business combination
transactions, PanAmSat will pay $80 million to Hughes Communications, Inc.
F-40
<PAGE>
No person has been authorized in connection with the Exchange Offer to give any
information or to make any representation not contained in this Prospectus, and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company. Neither the making of the Exchange Offer
pursuant to this Prospectus nor the acceptance of Private Securities for
surrender for exchange pursuant thereto shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to the date hereof.
TABLE OF CONTENTS
Page
Available Information...................................
Summary.................................................
Risk Factors............................................
The Exchange Offer......................................
Ratio of Earnings to Fixed Charges......................
Use of Proceeds.........................................
Capitalization..........................................
Selected Consolidated Historical Financial Data.........
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Business................................................
Legal Proceedings.......................................
Management..............................................
Principal Stockholders..................................
Certain Relationships and Related Transactions..........
Description of the Securities...........................
Certain U.S. Federal Income Tax Considerations..........
Plan of Distribution....................................
Legal Matters...........................................
Experts.................................................
Index to Financial Statements...........................
PANAMSAT CORPORATION
OFFER TO EXCHANGE
6% Notes due 2003 for any and all
outstanding 6% Notes due 2003
6-1/8% Notes due 2005 for any and all
outstanding 6-1/8% Notes due 2005
6-3/8% Notes due 2008 for any and all
outstanding 6-3/8% Notes due 2008
6-7/8% Debentures due 2028 for any and all
outstanding 6-7/8% Debentures due 2028
June ___, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Subsection (a) of Section 145 of the Delaware General Corporation
Law (the "DGCL") empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
he acted in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect to any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnification for
such expenses which the Court of Chancery or such other court shall deem proper.
Section 145 of the DGCL further provides that, to the extent that
a director or officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; and that
indemnification provided by, or granted pursuant to, Section 145 shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled. Section 145 further empowers the corporation to purchase and
maintain insurance on behalf of any person who is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145 of the DGCL.
Article seven of the Company's Certificate of Incorporation
provides, in detail, for the indemnification of directors and officers of the
Company to the fullest extent permitted under Section 145 of the DGCL. As
permitted by the DGCL, the Company's Certificate of Incorporation contains a
provision limiting the liability of directors for breach of fiduciary duty to
the Company or its stockholders except to the extent such exemption from
liability or limitation thereof is not permitted under the DGCL as the same
exists or may hereafter be amended.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted for directors, officers and controlling persons
of the Company pursuant to the foregoing provisions or otherwise, the Company
has been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by directors, officers and controlling persons of the Company in the successful
defense of any action, suit or proceeding) is asserted by such directors,
officers and controlling persons in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of competent
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Item 21. Exhibits and Financial Statement Schedules.
(A) FINANCIAL STATEMENT SCHEDULES
Financial statement schedules are omitted because of the absence of the
conditions under which they are required, or because the information is
set forth in the financial statements or notes thereto.
(B) EXHIBITS
2.1 Agreement and Plan of Reorganization, dated as of September 20, 1996,
among Hughes Communications, Inc., Hughes Communications Galaxy, Inc.,
Hughes Communications Satellite Services, Inc., Hughes Communications
Services, Inc., Hughes Communications Carrier Services, Inc., Hughes
Communications Japan, Inc., PanAmSat Corporation (formerly known as
Magellan International, Inc. ("PanAmSat")) and PanAmSat International
Systems, Inc. (formerly known as PanAmSat Corporation and successor
corporation to PanAmSat, L.P. ("PanAmSat International")) is
incorporated herein by reference to Exhibit 2.3 to PanAmSat
International's Quarterly Report on Form 10-Q for the period ended June
30, 1996.
2.2 Amendment to Agreement and Plan of Reorganization, constituting Exhibit
2.1 hereto, dated as of April 4, 1997, is incorporated herein by
reference to Appendix AA to the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") contained in PanAmSat's Registration Statement
on Form S-4 (Reg. No. 333-25293) filed on April 16, 1997 (the
"Registration Statement").
2.3 Agreement and Plan of Merger, dated as of April 4, 1997, among PanAmSat
International, PAS Merger Corp. and PanAmSat is incorporated herein by
reference to Appendix B to the Proxy Statement/Prospectus.
2.4 Assurance Agreement, dated September 20, 1996, between Hughes
Electronics Corporation, PanAmSat International, Satellite Company,
L.L.C. and PanAmSat is incorporated herein by reference to Appendix K
to the Proxy Statement/Prospectus.
2.5 Principal Stockholders Agreement, dated September 20, 1996, among
Hughes Communications, Inc., Hughes Communications Galaxy, Inc.,
Satellite Company, L.L.C., Univisa Satellite Holdings, Inc., the
holders of Class A Common Stock of PanAmSat International and the
Trustees of that certain Voting Trust of certain holders of Class A
Common Stock of PanAmSat International is incorporated herein by
reference to Appendix L to the Proxy Statement/Prospectus.
2.6 Stock Contribution and Exchange Agreement, dated September 20, 1996,
among Grupo Televisa, S.A., Satellite Company, L.L.C., PanAmSat and
Hughes Communications, Inc. is incorporated herein by reference to
Exhibit 2.4 to the Registration Statement.
3.1 Restated Certificate of Incorporation of PanAmSat.
3.2 Restated Bylaws of PanAmSat.
4.1 Amended and Restated Stockholder Agreement, dated as of May 16, 1997,
by and among PanAmSat, Hughes Communications, Inc., Satellite Company,
LLC and the former holders of Class A Common Stock of PanAmSat
International is incorporated herein by reference to Appendix M to the
Proxy Statement/Prospectus.
4.2.1 Amended and Restated Registration Rights Agreement, dated as of May 16,
1997, by and among PanAmSat, Hughes Communications, Inc., Hughes
Communications Galaxy, Inc., Hughes Communications Satellite Services,
Inc., Satellite Company, LLC and the former holders of Class A Common
Stock of PanAmSat International is incorporated herein by reference to
Appendix N to the Proxy Statement/Prospectus.
4.2.2** Agreement, dated as of May 1, 1998, by and among PanAmSat and the
former holders of Class A Common Stock of PanAmSat International.
4.3.1 Loan Agreement, dated May 15, 1997, between Hughes Network Systems,
Inc. and PanAmSat is incorporated herein by reference to Exhibit 4.3 to
PanAmSat's Current Report on Form 8-K dated June 5, 1997.
4.3.2 First Amendment to Loan Agreement, constituting Exhibit 4.3.1 hereto,
dated as of December 23, 1997, between Hughes Electronics Corporation
and PanAmSat.
4.3.3 Subordination and Amendment Agreement, dated as of February 20, 1998,
among Hughes Electronics Corporation, PanAmSat and Citicorp USA, Inc.,
as administrative agent, is incorporated herein by reference to Exhibit
4.3.3 to PanAmSat's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
4.4 Indenture, dated as of January 16, 1998, between PanAmSat and The Chase
Manhattan Bank, as Trustee, is incorporated herein by reference to
Exhibit 4.4 to PanAmSat's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.
5.1* Opinion of Chadbourne & Parke LLP regarding the validity of the
Exchange Securities.
8.1* Opinion of Chadbourne & Parke LLP regarding certain U.S. federal income
tax consequences relating to the Exchange Securities.
10.1 Participation Agreement, dated as of December 27, 1991, among Satellite
Transponder Leasing Corporation, GM Hughes Electronics Corporation,
Security Pacific Equipment Leasing, Inc., Wilmington Trust Company,
State Street Bank and Trust Company of Connecticut, National
Association ("State Street") and Goldman, Sachs & Co. is incorporated
herein by reference to Exhibit 10.1 to the Registration Statement.
10.2 Lease Agreement, dated as of December 27, 1991, among GM Hughes
Electronics Corporation, Satellite Transponder Leasing Corporation and
Wilmington Trust Company is incorporated herein by reference to Exhibit
10.2 to the Registration Statement.
10.3 Participation Agreement, dated as of December 27, 1991, among Satellite
Transponder Leasing Corporation, GM Hughes Electronics Corporation,
Student Loan Marketing Association, Wilmington Trust Company, State
Street and Goldman Sachs & Co. is incorporated herein by reference to
Exhibit 10.3 to the Registration Statement.
10.4 Lease Agreement, dated as of December 27, 1991, among GM Hughes
Electronics Corporation, Satellite Transponder Leasing Corporation and
Wilmington Trust Company is incorporated herein by reference to Exhibit
10.4 to the Registration Statement.
10.5.1 Participation Agreement and Purchase Agreement, dated as of August 21,
1992, among Hughes Communications Galaxy, Inc., Orion One, Inc., State
Street, Wilmington Trust Company, Hughes Communications, Inc. and BT
Securities Corporation, as agent is incorporated herein by reference to
Exhibit 10.5.1 to the Registration Statement.
10.5.2 First Amendment to Participation Agreement and Purchase Agreement,
constituting Exhibit 10.5.1 hereto, dated as of December 24, 1992,
among Hughes Communications Galaxy, Inc., Orion One, Inc., State
Street, Hughes Communications, Inc., Wilmington Trust Company, BT
Securities Corporation, as agent, and the other participants to the
Transponder Purchase Agreement is incorporated hereto by reference to
Exhibit 10.5.2 to the Registration Statement.
10.5.3 Second Amendment to Participation Agreement and Purchase Agreement,
constituting Exhibit 10.5.1 hereto, dated as of June 18, 1993, among
Hughes Communications Galaxy, Inc., Orion One, Inc., State Street, CIBC
Inc., Internationale Nederlanden Lease Structured Finance B.V.,
Wilmington Trust Company and BT Securities Corporation, as agent is
incorporated herein by reference to Exhibit 10.5.3 to the Registration
Statement.
10.6.1 Lease Agreement, dated as of December 31, 1992, by and between Hughes
Communications Galaxy, Inc. and State Street is incorporated herein by
reference to Exhibit 10.6.1 to the Registration Statement.
10.6.2 First Amendment to Lease Agreement constituting Exhibit 10.6.1, dated
as of June 18, 1993, by and between Hughes Communications Galaxy, Inc.
and State Street is incorporated herein by reference to Exhibit 10.6.2
to the Registration Statement.
10.7 Schedule identifying certain agreements that have been omitted on the
basis that such agreements are substantially identical to the
agreements filed as Exhibits 10.5.1, 10.5.2, 10.5.3, 10.6.1 and 10.6.2
hereto is incorporated herein by reference to Exhibit 10.7 to the
Registration Statement.
10.8.1 Launch Services Agreement No. 9411-002, dated November 14, 1994,
between Lockheed-Khrunichev-Energia International, Inc. and PanAmSat
International is incorporated herein by reference to Exhibit 10.10 to
Amendment No. 3 to PanAmSat International's Registration Statement on
Form S-1 (Reg. No. 33-84836), dated March 9, 1995. (1)
10.8.2 First Amendment to Launch Services Agreement No. 9411-002 constituting
Exhibit 10.8.1 hereto, dated March 30, 1995, between
Lockheed-Khrunichev-Energia International, Inc. and PanAmSat
International is incorporated herein by reference to Exhibit 10.10.2 to
Amendment No. 1 to PanAmSat International's Registration Statement on
Form S-1 (Reg. No. 33-95396), dated August 17, 1995. (1)
10.8.3 Second Amendment to Launch Services Agreement No. 9411-002 constituting
Exhibit 10.8.1 hereto, dated June 9, 1995, between
Lockheed-Khrunichev-Energia International, Inc. and PanAmSat
International is incorporated herein by reference to Exhibit 10.10.3 to
Amendment No. 1 to PanAmSat International's Registration Statement on
Form S-1 (Reg. No. 33-95396), dated August 17, 1995. (1)
10.8.4 Amendment Number 3 to Launch Services Agreement No. 9411-002
constituting Exhibit 10.8.1 hereto, dated August 23, 1996, between
Lockheed-Khrunichev-Energia International, Inc. and PanAmSat
International is incorporated herein by reference to Exhibit 10.10.4 to
PanAmSat International's Quarterly Report on Form 10-Q for the period
ended September 30, 1996. (1)
10.9.1 Agreement for the Launching into Geostationary Transfer Orbit of the
PanAmSat 6 Satellite by an Ariane Launch Vehicle, No. 94.5.918, dated
November 21, 1994, between PanAmSat International and Arianespace S.A.
is incorporated herein by reference to Exhibit 10.12 to Amendment No. 4
to PanAmSat International's Registration Statement on Form S-1 (Reg.
No. 33-84836), dated March 29, 1995. (1)
10.9.2 Amendment No. 1 to Agreement for the Launching into Geostationary
Transfer Orbit of the PanAmSat 6 Satellite by an Ariane Launch Vehicle,
No. 94.5.918, constituting Exhibit 10.9.1 hereto, dated May 1995,
between PanAmSat International and Arianespace S.A. is incorporated
herein by reference to Exhibit 10.12.2 to Amendment No. 1 to PanAmSat
International's Registration Statement on Form S-1 (Reg. No. 33-95396),
dated August 17, 1995. (1)
10.9.3 Amendment No. 2 to Agreement for the Launching into Geostationary
Transfer Orbit of the PanAmSat 6 Satellite by an Ariane Launch Vehicle,
No. 94.5.918, constituting Exhibit 10.9.1 hereto, dated April 29, 1996,
between PanAmSat International and Arianespace S.A. is incorporated
herein by reference to Exhibit S-1 to PanAmSat International's
Quarterly Report on Form 10-Q for the period ended March 31, 1996.
10.9.4 Amendment No. 3 to Agreement for the Launching into Geostationary
Transfer Orbit of the PanAmSat 6 Satellite by an Ariane Launch Vehicle,
No. 94.5.918, constituting Exhibit 10.9.1 hereto, dated December 31,
1996, between PanAmSat International and Arianespace S.A. is
incorporated herein by reference to Exhibit 10.12.8 to PanAmSat
International's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996. (1)
10.9.5 Side Letter to Agreement for Launching into Geostatonary Orbit of the
PanAmSat 6 Satellite by an Ariane Launch Vehicle, No. 94.5.918,
constituting Exhibit 10.9.1 hereto, dated March 9, 1998, between
PanAmSat International and Arianespace S.A., is incorporated herein by
reference to Exhibit 10.9.5 to PanAmSat's Quarterly Report on Form 10-Q
for the period ended March 31, 1998. (2)
10.10.1 Memorandum of Understanding, dated as of March 27, 1995, between Grupo
Televisa, S.A. and PanAmSat International is incorporated herein by
reference to Exhibit 10.13 to Amendment No. 4 to PanAmSat
International's Registration Statement on Form S-l (Reg. No. 33-84836),
dated March 29, 1995.(1)
10.10.2 Revised DTH System in Latin America Memorandum of Understanding, dated
as of September 20, 1996, between PanAmSat International and Grupo
Televisa, S.A. is incorporated herein by reference to Exhibit 10.13.2
to PanAmSat International's Quarterly Report on Form 10-Q for the
period ended September 30, 1996.
10.11.1 Satellite Purchase Contract, dated as of March 31, 1995, between Hughes
Aircraft Company and PanAmSat International is incorporated by
reference to Exhibit 10.14 to Amendment No. 5 to PanAmSat
International's Registration Statement on Form S-1 (Reg. No. 33-84836),
dated April 13, 1995. (1)
10.11.2 Amendment No. 1 to Satellite Purchase Contract constituting Exhibit
10.11.1 dated as of September 3, 1996, between Hughes Aircraft Company
and PanAmSat International is incorporated herein by reference to
Exhibit 10.14.1 to PanAmSat's Quarterly Report on Form 10-Q for the
period ended September 30, 1996. (1)
10.12 Galaxy IX Satellite and Services Contract, No. 95-HCG-001, dated August
7, 1995, between Hughes Communications Galaxy, Inc. and Hughes Space
and Communications Company is incorporated herein by reference to
Exhibit 10.12 to the Registration Statement. (1)
10.13 Letter Agreement, dated November 29, 1995, between Hughes
Communications Galaxy, Inc. and Hughes Space and Communications Company
regarding the construction of Galaxy X and Galaxy XI is incorporated
herein by reference to Exhibit 10.13 to the Registration Statement. (1)
10.14 Galaxy VIII-I Satellite and Services Contract (95-HCG-002), dated
October 31, 1995, between Hughes Communications Galaxy, Inc. and Hughes
Space and Communications Company is incorporated herein by reference to
Exhibit 10.14 to the Registration Statement. (1)
10.15.1 Agreement for the Launching into Geostationary Transfer Orbit of
PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933, dated as
of December 20, 1995, between PanAmSat International and Arianespace
S.A. is incorporated herein by reference to Exhibit 10.12.3 to PanAmSat
International's Quarterly Report on Form 10-Q of the Registrant for the
period ended March 31, 1996. (1)
10.15.2 Side Letter to Agreement for Launching into Geostationary Transfer
Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933,
dated as of December 20, 1995, between PanAmSat International and
Arianespace S.A., constituting Exhibit 10.15.1 hereto, is incorporated
herein by reference to Exhibit 10.12.4 to PanAmSat International's
Quarterly Report on Form 10-Q for the period ended March 31, 1996. (1)
10.15.3 Amendment No. 1 to Agreement for Launching into Geostationary Transfer
Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933,
dated as of April 29, 1996, between PanAmSat International and
Arianespace S.A., constituting Exhibit 10.15.1 hereto, is incorporated
herein by reference to Exhibit 10.12.5 to PanAmSat International's
Quarterly Report on Form 10-Q for the period ended March 31, 1996.
10.15.4 Amendment No. 2 to Agreement for Launching into Geostationary Transfer
Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933,
dated December 31, 1996, between PanAmSat International and Arianespace
S.A., constituting Exhibit 10.15.1 hereto, is incorporated herein by
reference to Exhibit 10.12.6 to PanAmSat International's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996. (1)
10.15.5 Amendment No. 3 to Agreement for Launching into Geostationary Transfer
Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933,
dated January 8, 1998, between PanAmSat International and Arianespace
S.A., constituting Exhibit 10.15.1 hereto, is incorporated herein by
reference to Exhibit 10.15.5 to PanAmSat's Quarterly Report on Form
10-Q for the period ended March 31, 1998. (2)
10.15.6 Amendment No. 1 to Side Letter to Agreement for Launching into
Geostatonary Transfer Orbit of PanAmSat Satellites by an Ariane Launch
Vehicle, No. 95.5.933, dated January 8, 1998, between PanAmSat
International and Arianespace S.A., constituting Exhibit 10.15.2
hereto, is incorporated herein by reference to Exhibit 10.15.6 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31,
1998. (2)
10.15.7 Amendment No. 4 to Agreement for Launching into Geostatonary Transfer
Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933,
dated March 9, 1998, between PanAmSat International and Arianespace
S.A., constituting Exhibit 10.15.1 hereto, is incorporated herein by
reference to Exhibit 10.15.7 to PanAmSat's Quarterly Report on Form
10-Q for the period ended March 31, 1998. (2)
10.15.8 Side Letter No. 2 to Agreement for Launching into Geostatonary Transfer
Orbit of PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933,
dated March 9, 1998, between PanAmSat International and Arianespace
S.A., constituting Exhibit 10.15.1 hereto, is incorporated herein by
reference to Exhibit 10.15.8 to PanAmSat's Quarterly Report on Form
10-Q for the period ended March 31, 1998. (2)
10.16 Participation Agreement, dated as of February 7, 1996, among Hughes
Communications Galaxy, Inc., General Motors Acceptance Corporation,
Wilmington Trust Company, Chemical Bank and the lending institutions
listed as loan participants in Schedule I to the Agreement is
incorporated herein by reference to Exhibit 10.16 to the Registration
Statement.
10.17 Lease Agreement, dated as of February 7, 1996, by and between
Wilmington Trust Company and Hughes Communications Galaxy, Inc. is
incorporated herein by reference to Exhibit 10.17 to the Registration
Statement.
10.18.1 Letter Agreement, dated February 29, 1996, among The News Corporation
Limited, Globo Participacoes, Ltd., Grupo Televisa, S.A., and PanAmSat
International, constituting Exhibit 10.18.1 hereto, is incorporated
herein by reference to Exhibit 10.7.2 to PanAmSat International's
Annual Report on Form 10-K for the period ended December 31, 1996. (1)
10.18.2 Amendment to Letter Agreement, dated November 4, 1996, among The News
Corporation Limited, Globo Participacoes, Ltd., Grupo Televisa, S.A.,
and PanAmSat International, constituting Exhibit 10.18.1 hereto, is
incorporated herein by reference to Exhibit 10.7.1 to PanAmSat
International's Quarterly Report on Form 10-Q/A for the period ended
March 31, 1996. (1)
10.18.3 Amendment to Letter Agreement, dated March 5, 1998, among The News
Corporation Limited, Globo Participacoes, Ltd., Grupo Televisa, S.A.,
and PanAmSat International, constituting Exhibit 10.18.1 hereto, is
incorporated herein by reference to Exhibit 10.7.2 to PanAmSat's
Quarterly Report on Form 10-Q for the period ended March 31, 1998. (1)
10.19.1 Amended and Restated Contract for PanAmSat Program, dated May 2, 1996,
between PanAmSat International and Space Systems/Loral, Inc. is
incorporated herein by reference to Exhibit 10.7.3 to PanAmSat
International's Quarterly Report on Form 10-Q for the period ended
March 31, 1996. (1)
10.19.2**Second Amended and Restated Contract for PanAmSat Program, dated April
1, 1998, between PanAmSat International and Space Systems/Loral, Inc.
(2)
10.20 Letter Agreement, dated June 10, 1996, between Hughes Communications
Galaxy, Inc. and Hughes Space and Communications Company regarding the
construction of Galaxy XI is incorporated herein by reference to
Exhibit 10.20 to the Registration Statement. (1)
10.21 Letter Agreement, dated August 12, 1996, between Hughes Communications
Galaxy, Inc. and Hughes Space and Communications Company regarding the
construction of Galaxy XII is incorporated herein by reference to
Exhibit 10.21 to the Registration Statement. (1)
10.22 Letter Agreement, dated August 12, 1996, between Hughes Communications
Galaxy, Inc. and Hughes Space and Communications Company regarding the
construction of Galaxy XIII, XIV, XV and XVI is incorporated herein by
reference to Exhibit 10.22 to the Registration Statement. (1)
10.23 Letter Agreement, dated August 21, 1996, between Hughes Communications
Galaxy, Inc. and Hughes Space and Communications Company regarding the
construction of Galaxy XI is incorporated herein by reference to
Exhibit 10.23 to the Registration Statement. (1)
10.24 DTH Option Purchase Agreement, dated September 20, 1996, between
PanAmSat International, Grupo Televisa, S.A. and Satellites Company,
L.L.C is incorporated herein by reference to PanAmSat International's
Quarterly Report on Form 10-Q for the period ended September 30, 1996.
(2)
10.25.1 Full-Time Transponder Service Agreement From PAS-3 (European Beam),
dated as of September 20, 1996, between PanAmSat International and
Televisa, S.A. is incorporated herein by reference to Exhibit 10.16 to
PanAmSat International's Quarterly Report on Form 10-Q for the period
ended September 30, 1996. (1)
10.25.2 Amendment to Full-Time Transponder Service Agreement From PAS-3
(European Beam), dated as of March 5, 1998, between PanAmSat
International and Televisa, S.A., constituting Exhibit 10.25.1 hereto,
is incorporated herein by reference to Exhibit 10.25.1 to PanAmSat's
Quarterly Report on Form 10-Q for the period ended March 31, 1998. (2)
10.26 Amended and Restated Launch Services Agreement, dated as of January 17,
1997, between Hughes Communications Galaxy, Inc. and Hughes Space and
Communications International, Inc. is incorporated herein by reference
to Exhibit 10.28 to the Registration Statement. (1)
10.27 Galaxy X Spacecraft, Related Services and Documentation Contract
(96-HCG-001), dated March 20, 1997, between Hughes Communications
Galaxy, Inc. and Hughes Space and Communications Company is
incorporated herein by reference to Exhibit 10.29 to the Registration
Statement. (1)
10.28 Second Amended and Restated Transponder Purchase and Sale Agreement,
dated as of March 5, 1998, between PanAmSat International and NetSat
Servicos Ltda. is incorporated herein by reference to Exhibit 10.27.2
to PanAmSat's Quarterly Report on Form 10-Q for the period ended March
31, 1998. (2)
10.29 Employment Agreement between PanAmSat and Frederick A. Landman, dated
as of May 15, 1997, is incorporated herein by reference to Exhibit
10.30 to PanAmSat's Quarterly Report on Form 10-Q for the period ended
June 30, 1997.
10.30.1 Amended and Restated Collateral Trust Agreement, dated as of May 16,
1997 by and among PanAmSat, Hughes Communications, Inc., Satellite
Company, LLC, Grupo Televisa, S.A. and IBJ Schroder Bank & Trust
Company is incorporated herein by reference to Exhibit 10.31 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30,
1997.
10.30.2 First Amendment to Amended and Restated Collateral Trust Agreement
constituting Exhibit 10.30.1 hereto, dated April 30, 1998 by and among
PanAmSat, Hughes Communications, Inc., Satellite Company, LLC, Grupo
Televisa, S.A. and IBJ Schroder Bank & Trust Company is incorporated
herein by reference to Exhibit 3 to Amendment No. 1 to the Schedule 13D
filed by Hughes Communications, Inc. on May 1, 1998.
10.31 Pledge and Security Agreement, dated as of May 16, 1997, by and among
Satellite Company, LLC, Grupo Televisa, S.A., in favor of IBJ Schroder
Bank & Trust Company is incorporated herein by reference to Exhibit
10.30 to PanAmSat's Quarterly Report on Form 10-Q for the period ended
June 30, 1997.
10.32 PanAmSat Corporation Long Term Incentive Plan established in 1997 is
incorporated herein by reference to Exhibit 10.33 to PanAmSat's
Quarterly Report on Form 10-Q for the period ended June 30, 1997.
10.33 PanAmSat Corporation Annual Incentive Plan, effective January 1, 1997,
is incorporated herein by reference to Exhibit 10.34 to PanAmSat's
Quarterly Report on Form 10-Q for the period ended June 30, 1997.
10.34 Intellectual Property Cross License Agreement, dated as of May 16,
1997, by and between PanAmSat and Hughes Electronics Corporation is
incorporated herein by reference to Exhibit 10.35 to PanAmSat's
Quarterly Report on Form 10-Q for the period ended June 30, 1997.
10.35 Leveraged Lease Guaranty Indemnification Agreement, dated as of May 16,
1997 by and between PanAmSat and Hughes Electronics Corporation
incorporated herein by reference to Exhibit 10.36 to PanAmSat's
Quarterly Report on Form 10-Q for the period ended June 30, 1997.
10.36 Fixed Price Contract between Hughes Communications Galaxy, Inc. and
Hughes Space & Communications Company for Galaxy XI HS702, Spacecraft,
Related Services and Documentation, Contract No. 96-HCG-002, executed
May 1997 is incorporated herein by reference to Exhibit 10.37 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30,
1997. (1)
10.37 Fixed Price Contract for PAS 1R and PAS 9 HS-702 Spacecraft, Related
Services and Documentation-Contract No. 97-HCG-001, dated as of August
15, 1997, between Hughes Space and Communications Company, Inc. and
PanAmSat is incorporated herein by reference to Exhibit 10.38 to
PanAmSat's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997. (1)
10.38 Transponder Sublease Agreement for Galaxy III-R between Hughes
Communications Galaxy, Inc. and California Broadcast Center, LLC, dated
April 21, 1997 is incorporated herein by reference to Exhibit 10.39 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30,
1997.(1)
10.39 Transponder Lease Agreement for Galaxy VIII(i) between Hughes
Communications Galaxy, Inc. and California Broadcast Center, LLC, dated
April 21, 1997 is incorporated herein by reference to Exhibit 10.40 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended June 30,
1997. (1)
10.40.1 Form of Indemnity Agreement between PanAmSat and each of its directors
and executive officers is incorporated herein by reference to Exhibit
10.41 to PanAmSat's Quarterly Report on Form 10-Q for the period ended
June 30, 1997.
10.40.2 Schedule identifying substantially identical agreements to the
Indemnity Agreement constituting Exhibit 10.40.1 hereto in favor of
Charles H. Noski, Frederick A. Landman, Patrick J. Costello, Steven D.
Dorfman, John J. Higgins, Ted G. Westerman, Dennis F. Hightower, James
M. Hoak, Joseph R. Wright, Jr., Michael T. Smith, Lourdes Saralegui,
Carl A. Brown, Kenneth N. Heintz, Robert A. Bednarek, James W.
Cuminale, David P. Berman and Roxanne S. Austin is incorporated herein
by reference to Exhibit 10.41.2 to PanAmSat's Quarterly Report on Form
10-Q for the period ended March 31, 1998. (2).
10.41 Credit Agreement, dated February 20, 1998, among PanAmSat, certain
lenders and Citicorp USA, Inc., as administrative agent, is
incorporated herein by reference to Exhibit 10.42 to PanAmSat's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
10.42 Agreement, dated as of May 15, 1996, between PanAmSat International and
Patrick J. Costello is incorporated herein by reference to Exhibit
10.11.19 to PanAmSat's Quarterly Report on Form 10-Q for the period
ended June 30, 1996.
10.43 Agreement, dated as of March 21, 1997, between PanAmSat and Patrick J.
Costello is incorporated herein by reference to Exhibit 10.44 to
PanAmSat's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
10.44.1 Agreement, dated as of May 15, 1996, between PanAmSat International and
Frederick A. Landman is incorporated herein by reference to Exhibit
10.11.16 to PanAmSat International's Quarterly Report on Form 10-Q for
the period ended June 30, 1996.
10.44.2 Amendment, dated as of March 6, 1998, to the Agreement between PanAmSat
International and Frederick A. Landman, constituting Exhibit 10.44.1
hereto, is incorporated herein by reference to Exhibit 10.45.1 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31,
1998.
10.45 Agreement, dated as of May 15, 1996, between PanAmSat International and
Lourdes Saralegui is incorporated herein by reference to Exhibit
10.11.17 to PanAmSat International's Quarterly Report on Form 10-Q for
the period ended June 30, 1996.
l0.46 Agreement, dated as of May 15, 1996, between PanAmSat International and
Robert A. Bednarek is incorporated herein by reference to Exhibit
10.11.18 to PanAmSat International's Quarterly Report on Form 10-Q for
the period ended June 30, 1996.
10.47 Agreement, dated as of May 15, 1996, between PanAmSat International and
James W. Cuminale is incorporated herein by reference to Exhibit
10.11.20 to PanAmSat International's Quarterly Report on Form 10-Q for
the period ended June 30, 1996.
10.48 Agreement, dated as of May 15, 1996, between PanAmSat International and
David P. Berman is incorporated herein by reference to Exhibit 10.11.21
to PanAmSat International's Quarterly Report on Form 10-Q for the
period ended June 30, 1996.
10.49 Agreement, dated April 7, 1997, between PanAmSat and Hughes Electronics
Corporation, regarding the terms of assignment of Kenneth N. Heintz to
PanAmSat is incorporated herein by reference to Exhibit 10.50 to
PanAmSat's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
10.50 Fixed Price Contract for PAS 6B HS601 HP Spacecraft, Related Services
and Documentation--Contract No. 98-PAS-001, dated as of March 9, 1998,
between PanAmSat International and Hughes Space and Communications
Company is incorporated herein by reference to Exhibit 10.51 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended March 31,
1998. (2)
10.51 Transponder Service Agreement, dated as of March 5, 1998, between
PanAmSat and Sky Multi-Country Partners, is incorporated herein by
reference to Exhibit 10.52 to PanAmSat's Quarterly Report on Form 10-Q
for the period ended March 31, 1998. (2)
10.52 Transponder Service Agreement, dated as of April 30, 1998, between
PanAmSat International and Corporacion de Radio y Telvision del Norte
de Mexico, S.A. de C.V. (2)
21.1 Subsidiaries of PanAmSat is incorporated herein by reference to Exhibit
21.1 PanAmSat's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997
23.1* Consent of Chadbourne & Parke LLP (included in its opinions filed as
Exhibits 5.1 and 8.1).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Arthur Andersen LLP.
24.1** Power of Attorney.
25.1 Statement of Eligibility of Trustee on Form T-1.
99.1* Form of Letter of Transmittal and related documents to be used in
conjunction with the Exchange Offer.
- -----------------
(1) Portions of this Exhibit have been omitted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment with
respect thereto.
(2) Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
* To be filed by amendment.
** Previously filed.
In lieu of filing certain instruments with respect to long-term
debt of the kind described in Item 601(b)(4) of Regulation S-K, Registrant
agrees to furnish a copy of such instruments to the Securities and Exchange
Commission upon request.
Item 22. Undertakings.
(a) Insofar as indemnification for liabilities arising under the
Securities Act, may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this amendment to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Greenwich, State of Connecticut, on June 24, 1998.
PANAMSAT CORPORATION
By: /s/ KENNETH N. HEINTZ
Kenneth N. Heintz
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons in
the capacities and on the dates indicated.
Name Title Date
* Chairman of the Board of Directors June 24, 1998
Michael T. Smith
* President and Chief Executive June 24, 1998
Frederick A. Landman Officer (principal executive
officer) and Director
* Director June 24, 1998
Roxanne S. Austin
* Director June 24, 1998
Patrick J. Costello
* Director June 24, 1998
Steven D. Dorfman
* Director June 24, 1998
Dennis F. Hightower
* Director June 24, 1998
James M. Hoak
* Director June 24, 1998
Charles H. Noski
* Director June 24, 1998
Joseph R. Wright
/s/ KENNETH N. HEINTZ Executive Vice President and Chief June 24, 1998
Kenneth N. Heintz Financial Officer (principal
financial officer and principal
accounting officer)
*By: /s/ JAMES W. CUMINALE
(James W. Cuminale, Attorney-in-Fact)
Information contained herein, marked with [***], is being filed pursuant to a
request for confidential treatment.
Exhibit 10.52
EXECUTION COPY
TRANSPONDER SERVICE AGREEMENT
This Agreement (the "Agreement") is entered into this 30th day of
April, 1998, by and between PanAmSat International Systems, Inc., a Delaware
corporation, formerly known as PanAmSat Corporation ("PanAmSat") and Corporacion
de Radio y Television del Norte de Mexico, S. A. de C.V., a sociedad anonima de
capital variable ("Customer"). This Agreement covers the provision of
twenty-four hour fixed term non-preemptible satellite signal reception and
retransmission service (the "Service") by PanAmSat to Customer from twelve (12)
Ku-band transponders (referred to generally as the "Service Transponders") in
the "Mexico Beam" (identified in Appendix C) of the Atlantic Ocean Region
Satellite referred to by the parties as PAS-5 ("PAS-5" or the "Satellite") that
was constructed by Hughes Space and Communications Company, formerly a division
of Hughes Aircraft Company ("Hughes"). The Service Transponders are more
particularly identified in Appendix A and the Satellite is described in
Appendix B of this Agreement. The Service shall be supplied by PanAmSat in
outerspace. The transponders on the Satellite and the beams in which these
transponders are grouped are referred to as "Transponder(s)" and the "Beam(s),"
respectively.
This Agreement implements that certain letter agreement dated February
29, 1996, by and among PanAmSat, The News Corporation Limited ("News"), Globo
Comunicacoes e Participacoes ("Globo") and Grupo Televisa, S.A. ("Televisa")
(the "Letter Agreement"). For the avoidance of doubt, the parties understand and
agree that the combination of this Agreement, that certain "Second Amended and
Restated Transponder Purchase and Sale Agreement," by and between PanAmSat and
NetSat Servicos Ltda. ("NetSat"), dated as of March 5, 1998 (the "Brazil
Agreement"), and that certain "Transponder Service Agreement," by and between
PanAmSat and Sky Multi-Country Partners ("Multi-Country Platform"), also dated
as of March 5, 1998 (the "Multi-Country Agreement") have superseded the Letter
Agreement as to all obligations of or to PanAmSat thereunder. This Agreement
constitutes the entire agreement between the parties and supersedes all previous
understandings, commitments, or representations concerning its subject matter.
The date of execution of this Agreement will not be asserted by either
party as being relevant to any matter or cause of action hereunder. Neither the
fact that this Agreement was executed on the date hereof, rather than as of
<PAGE>
February 29, 1996, nor the fact that any party may have information available to
it on the former date that it did not have available to it on the latter date,
shall be deemed to constitute a waiver by, or an estoppel of, any party with
respect to any right or remedy that such party might otherwise have had if this
Agreement had been executed on February 29, 1996.
AGREEMENT
In consideration of the foregoing and of the mutual promises set forth
below, PanAmSat and Customer mutually agree as follows:
ARTICLE 1. PROVISION OF SERVICE
1.1 The Service. PanAmSat agrees to provide, and Customer agrees to
accept, the Service. Except as otherwise specifically permitted under this
Agreement, PanAmSat shall not preempt or interrupt Customer's use of the
Service. In no event shall these exceptions be construed so as to permit
PanAmSat to preempt Customer's use of the Service so as to allow PanAmSat to use
the Service Transponders to provide Transponder capacity for itself or for
another customer.
1.2 Intentionally Deleted.
1.3 Intentionally Deleted.
1.4 Covenants on Use. Customer acknowledges and agrees that the
provision of Service that is the subject of this Agreement is being made in
consideration, among other things, of Customer's agreement and promise to use
the Service for particular purposes. In this regard, Customer agrees as follows:
(a) DTH Service. Except as otherwise provided herein, the
Service shall be used to meet the satellite transmission requirements of
Customer's direct to home service, which for purposes of this Agreement, except
for the specific purposes of Section 1.8, means video and audio programming that
is provided on a pay or subscription basis, together with associated audio and
data signals (e.g., authorization codes) and any other direct broadcast or
interactive or multimedia service (including, without limitation, internet
access and video games) and that is intended for direct reception (or by means
of SMATV) by, and is made available primarily to, end user recipients in the
home or business via "Ku-band" satellite
2
<PAGE>
transponders in the "Territory" ("DTH Service"). Other uses of the Service shall
be permitted to the extent provided under this Section 1.4 and Sections 1.6, and
1.7 below. References in this Agreement to Customer's "transmissions" and,
except where specifically limited to "video," references to Customer's
"programming" shall be deemed to include all permitted video and non-video
applications. As used in this Agreement, the "Territory" means Mexico, the
Dominican Republic, Costa Rica, Cuba, Guatemala, Nicaragua, Honduras, El
Salvador, Puerto Rico, Panama [*************************************] and the
United States, Canada, Belize, the British Virgin Islands, and all other islands
in the Caribbean located in whole or in part north of 12o North Latitude.
"Ku-band" means the frequency band between 10.7 and 17.8 GHz, excluding minor
overlaps of other bands to the extent generally recognized as falling outside
the "Ku-band" designation and also excluding authorizations that may be granted
(on a general applicability basis) for minor portions of the band solely for use
in connection with frequencies located outside of the band.
(b) Customer's DTH Service. As used in this Agreement, the
reference to "Customer's DTH Service" shall be deemed to include any DTH Service
that is owned, operated or managed by Customer or any entity that is directly or
indirectly "Controlled" by a combination of one or more of the "Approved
Participating Companies" that also, directly or indirectly, Control the
Customer. The Approved Participating Companies mean any one or more of the
following companies that directly or indirectly has an equity holding,
investment, or other economic interest in the Customer: News, Televisa,
Tele-Communications International, Inc. ("TINTA"), and/or any of the "Approved
Companies" that are identified in Appendix I. News and Televisa are also
referred to herein as the "Founding Partners." In addition, TINTA may elect
pursuant to Section 18.1 hereof, on notice to PanAmSat to be given no later than
May 4, 1998, to be deemed a Founding Partner. At Customer's request, the list of
Approved Companies may be expanded, subject to PanAmSat's prior written consent,
not to be unreasonably withheld, conditioned, or delayed; provided that, in
appropriate circumstances, PanAmSat may limit its consent to the involvement of
an Approved Company: (i) so that Control of Customer is retained by other
Approved Participating Companies, (ii) to exclude separate programming rights
under Section 1.4(c) below, and/or (iii) to exclude rights to be an assignee
under Section 10.5 of this Agreement. PanAmSat shall make all decisions required
under this paragraph in good faith
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
3
<PAGE>
based upon the financial qualifications and programming practices (i.e., with
respect to considerations identified in Section 10.5 below) of a proposed
Approved Company. For purposes of this Agreement, "Control" means voting control
over ordinary business activities (positive or negative) that may be exercised
directly or indirectly. As a condition for their interest in Customer and
participation in Customer's DTH Service, Customer shall require each of the
Approved Participating Companies to agree to and to comply with the terms and
conditions of the Agreement as they relate to them and shall make PanAmSat a
third party beneficiary entitled to enforce such provisions directly against the
Approved Participating Companies. It is understood that Customer's DTH Service
may carry programming provided to it by third parties.
Customer may permit video programming signals (with associated
audio and data signals) that are owned by one of the Founding Partners or their
"Affiliates" and that are being carried on the same Service Transponder as part
of Customer's DTH Service also to be received (the same feed), on an ancillary
basis, by cable head ends, SMATV and MMDS outlets and other non-DTH facilities
that may be developed for the distribution of video programming ("Non-DTH
Outlets"), provided as follows: [**********************************************
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**************] The foregoing notwithstanding, [*****************************
*******************************************] in their separate and unrelated
capacity as video programming channel providers that neither Customer nor any
other entity that provides Customer's DTH Service nor their agents or
[*******************************************************************************
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********************************************************************************
******************] As used in this Agreement, "Affiliate" means, with respect
to any entity (which for this purpose does not include natural persons), any
entity directly or indirectly, through one or more intermediaries, Controlling,
Controlled by, or under common Control with such entity. For purposes of this
paragraph, "Affiliates" of the Founding Partners shall also be deemed to include
(except for purposes of making determinations under clause (iii) that follows)
entities in which all of the following are the case: (i) a Founding
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
4
<PAGE>
Partner individually owns, directly or indirectly, at least 25% of the equity of
the entity; (ii) the Founding Partner has a board seat or comparable management
participation in the entity; and (iii) if the entity or its Affiliates has ever
entered into a satellite transponder transaction with PanAmSat, the Founding
Partner has had liability exposure to PanAmSat thereunder, either as a general
partner of the entity or as guarantor (in whole or in part) of the entity's
obligations to PanAmSat.
(c) Non-DTH Use. Customer, each Founding Partner (as long as
it directly or indirectly, owns or has an investment or economic interest in
Customer or in Customer's DTH Service), each Approved Participating Company that
has a minimum 10% voting equity in the Customer, and each entity that is an
Affiliate of any of the foregoing entities is referred to herein as a "Customer
Company." To the extent that the capacity provided by the Service Transponders
exceeds the requirements of the Customer Companies for the satellite
transmission of DTH Service in the [*****] Territory (as they reasonably
determine) and, except as permitted under Section 1.8(c), the Customer Companies
are not using other Ku-band satellite capacity in lieu of the Service
Transponders, to meet such requirements for the [*******] Territory, the
Customer Companies may use the Service Transponders for their own needs with
respect to the transmission of video, audio, data and teletext signals and any
other electronic information, including (without limitation) interactive video
applications, however transmitted, whether in the form of data, teletext or
packets. Subject to the following sentence and the specific exception stated in
the second grammatical paragraph in Section 1.4(b) above, [*******************
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******************************************] A Non-DTH Transponder, once used
primarily for Customer's DTH Service, shall cease to be deemed a Non-DTH
Transponder, but may again become a Non-DTH Transponder if its use reverts
primarily to non-DTH use.
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
5
<PAGE>
(d) Use by Others. In any circumstances in which Customer is
permitted above to allow the Service Transponders to be used by other Customer
Companies, or in circumstances in which Customer's DTH Service may carry
programming services provided to it by others, Customer shall remain ultimately
responsible to PanAmSat for all such use. In such circumstances, Customer's
responsibilities to PanAmSat with respect to Customer's use of Service
Transponders, Customer's transmissions to the Satellite, Customer's programming
and the responsibilities of Customer to PanAmSat for other activities hereunder
shall be read to include the use, transmissions, programming, and activities of
any such other entity. Customer shall also be responsible to PanAmSat for [*****
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********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*******************************************************************************]
(e) International PSN Restriction. In no event may the Service
Transponders (except to the extent that they are remarketed by PanAmSat, as
provided below) be used for switched public international telecommunications
services.
(f) Intent of Third Party Use. Customer acknowledges and
agrees that it is the parties' intent, in allowing the carriage of programming
services provided by others, to further Customer's ability to develop the DTH
market, but
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
6
<PAGE>
not to allow Customer to resell or otherwise make the Service Transponder(s)
available to others at a profit solely on the capacity itself, and that Customer
shall not, through the permission granted or through any other agreement or
arrangement, enter into any agreement to, or use the Customer Transponder(s) in
any way that would, materially conflict with this intent.
1.5 Transmission Plan for Transponders. Customer's transmissions to the
Satellite (which may be performed by one or more third party uplink providers,
as provided in Section 4.2 below) shall conform to digital transmission plans to
be submitted by Customer to PanAmSat and that shall be subject to PanAmSat's
prior written approval. The transmission plan shall include such information as
called for in the form of transmission plan that is attached hereto as Appendix
M and such other technical information as PanAmSat may require in its reasonable
engineering judgment to manage the operation of its satellites. Customer shall
be permitted to modify these transmission plans from time to time, subject to
PanAmSat's prior written approval. PanAmSat shall not unreasonably withhold its
approval of a transmission plan or modification to such a plan, which approval
shall be based solely upon the considerations identified in Section 4.1 below.
PanAmSat makes no representation, warranty, or covenant regarding the efficacy
of the use of any number of carriers or other alternative uses of capacity
provided under this Agreement. If not otherwise provided by PanAmSat pursuant to
separate agreement, Customer will provide PanAmSat, at no cost to PanAmSat, with
equipment necessary to decode its signals. It is understood that, in some
circumstances, PanAmSat may provide uplink services to Customer, in which event
Customer shall not be responsible to PanAmSat for the technical operation or
performance of such PanAmSat-provided uplinks under this or other sections of
this Agreement.
1.6 Marketing by PanAmSat of Customer's Capacity. At Customer's
request, PanAmSat shall market Service from Service Transponders for use by
third parties on an interim basis until Customer requires them for Customer's
DTH Service; provided that, after six months from the Service Date (the "Initial
Six Months") such marketing shall be limited to a maximum of [******] Service
Transponders. In such circumstances, PanAmSat shall use all reasonable efforts
to market services from the Service Transponders made available for this purpose
(which Customer would thereafter cease to employ) for the interim period to
other
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
7
<PAGE>
potential customers for video, data, or other uses, as market demand and
technical considerations may warrant, as reasonably determined by PanAmSat in
consultation with Customer, and subject to PanAmSat's reasonable discretion with
regard to the terms and conditions of service and selection of appropriate
customers, which shall be consistent with its general practices in this regard,
and Customer's consent rights set forth in clause (b) of this Section. In such
event:
(a) For the Initial Six Months, Customer's [******************
********************************************************************************
*****************************************************] Thereafter, subject to
Sections 1.7 and 1.8 below, the [*********] for any Service Transponders that
are or remain released for remarketing shall [*******************************
***********] In all cases, the applicable Service Fee shall continue to be
payable.
(b) PanAmSat shall actively market services from the Service
Transponders in good faith, provided that PanAmSat shall not be obligated to use
the Service Transponders ahead of any other capacity that PanAmSat may also have
available for comparable service. During the Initial Six Months, PanAmSat shall
market service from the Service Transponders made available under this Section
for occasional use; thereafter, unless otherwise agreed, marketing shall be for
full-time, fixed term uses. With the exception of the marketing of the Service
Transponders for occasional use during the Initial Six Months, all contracts
regarding possible use by third parties of Service Transponders, as permitted
under this Section 1.6, shall be promptly forwarded by PanAmSat to Customer for
specific written approval, rejection, or proposed modification by Customer, it
being understood that neither PanAmSat nor a third party customer shall be
required to accept Customer's proposed modifications, but also may not go
forward with an unmodified agreement for Service Transponders under this Section
1.6 that Customer has not approved. Customer shall also have the right to
approve or reject any particular customers for service from Service Transponders
that are made available under this Section. In addition, subject to the
considerations stated above, if Customer identifies to PanAmSat a potential
customer who desires to purchase service from PanAmSat that employs the Service
Transponders, PanAmSat shall seek, in good faith, promptly to enter into a
service agreement with said customer, provided that if PanAmSat was already in
negotiations with said potential customer
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
for other PanAmSat capacity, PanAmSat shall not be required to discontinue such
negotiations; and
(c) PanAmSat shall credit against Customer's next monthly
"Service Fee" (as defined below) (which shall continue to be due and payable),
during this period, such amounts that are actually received from other customers
for service from the Service Transponders for the previous month (less costs
reasonably incurred by PanAmSat for which PanAmSat is not separately reimbursed
for providing any related services and equipment that may be associated with the
provision of such service, e.g., turnaround, compression, or other terrestrial
services or facilities ("Additional Facilities Costs") and costs (including
reasonable attorneys' fees) reasonably incurred by PanAmSat in marketing such
services to, or negotiating a service agreement with, third parties)
("Transaction Costs") up to the amount of the Service Fee paid by Customer for
the applicable period for the Service Transponders made available by Customer to
PanAmSat for remarketing under this Section 1.6. For purposes of marketing for
occasional use, the parties agree that PanAmSat's Transaction Costs shall be
deemed to equal [******] of the revenues actually received from such effort. In
addition, after deducting the Additional Facilities Costs, if any, and
Transaction Costs specified above, if the [************************************]
by PanAmSat for service from the Service Transponders [****] the [**************
**] to be [***] to PanAmSat by Customer for [*********************] (the [******
******]) in [******] to crediting the next month's Service Fee payment, PanAmSat
shall [*******] as an [**********************] of such [***********] and shall
[***] Customer [*********] of such [*****************]
1.7 Withdrawal from DTH Business. Customer shall use all reasonable
efforts to use the Service to develop a DTH Service. If despite such efforts,
Customer and each of the Customer Companies (which, for this purpose, includes
the Founding Partners and their Affiliates, whether or not the Founding Partners
continue to hold an equity interest in Customer) ceases to own, operate, or have
an investment in, or otherwise have an economic interest in a DTH Service
operating within the [******] Territory, in each case, with no plan to reenter
DTH Service market in the [******] Territory on any such basis, then the
following shall occur:
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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(i) Customer shall so notify PanAmSat and shall cease using
the Service Transponders, which shall thereafter be available for marketing by
PanAmSat;
(ii) Subject to clause (v), below, Customer shall continue [*
***] PanAmSat [****************************************************************
****************************************] of [*******] per Service Transponder;
(iii) PanAmSat and the "PanAmSat Companies" (as defined in
Section 1.8) shall cease to have any obligations under Section 1.8 and Article
16 of this Agreement.
(iv) PanAmSat shall actively market services from the Service
Transponders in good faith subject to PanAmSat's reasonable discretion with
regard to the terms and conditions of service and selection of appropriate
customers, which shall be consistent with its general practices in this regard
provided that PanAmSat shall not be obligated to use the Service Transponders
ahead of any other capacity that PanAmSat may also have available for comparable
service. In addition, subject to the considerations stated above, if Customer
identifies to PanAmSat a potential customer who desires to purchase service from
PanAmSat that employs the Service Transponders, PanAmSat shall seek, in good
faith, promptly to enter into a service agreement with said customer, provided
that if PanAmSat was already in negotiations with said potential customer for
other PanAmSat capacity, PanAmSat shall not be required to discontinue such
negotiations; and
(v) PanAmSat shall credit against Customer's next monthly
"Service Fee" such amounts that are actually received from other customers for
service from the Service Transponders for the previous month less (A) [********]
per month per Service Transponder and (B) PanAmSat's Additional Facilities Costs
and Transaction Costs associated with the remarketing of the Service
Transponders up to the amount of the Service Fee paid by Customer for the
applicable period for the Service Transponders.
1.8 [**************]
(a) (i) PanAmSat. Subject to the exceptions stated in this
Section 1.8, PanAmSat agrees that, during the "Term" of this Agreement (as
defined
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
below), neither it nor any "PanAmSat Company" (defined herein as an Affiliate of
PanAmSat) will:
(A) use or enter into any transponder
contract (service, lease, purchase, or other vehicle) that does [**********] the
[***] of any Ku-band Transponder on any satellite which (x) is owned, operated
or managed by PanAmSat or any PanAmSat Company, (y) is located in the [****
************] and (z) has Ku-band coverage over the [********] Territory (other
than by a [*******************]) for the purpose of delivering any DTH Service
in [**************************] and, in such contracts that provide Ku-band
coverage over [*******************] for [*************] specifying Customer as a
[**************************] entitled to [**********] such [**************];
(B) use or enter into any multiple
transponder contract for PAS-5 transponders (service, lease, purchase, or other
vehicle) that does [**********] the [***] of PAS-5 transponders with coverage
over [********] (other than by a [*****************] for the purpose of
delivering any [*************************************************************
*********] and, in such multiple PAS-5 Transponder contracts, if any, that
provide Ku-band coverage over [********] for other purposes, specifying Customer
as a [***********************] entitled to [********] such [***********
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
******************************************]
(C) use or enter into any transponder
contract (service, purchase, or other vehicle) for the full-time, long term use
of the steerable Ku-band Transponders on PAS-5, if oriented for coverage over
[************] Territory, for use in the [*******] Territory without [*********
********************************************************************************
********************************************************************************
********************************************************************************
*********************************
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
********************************************************************************
********************************************************************************
********************************************************************************
************************************************************]; or
(D) [*****] its [********] for any satellite
located in the [****************************************************************
********************************************************************************
**************] unless the assignee agrees to be bound by the provisions of the
previous clauses (A), and, if applicable to PAS-5, (B) and (C).
The foregoing notwithstanding, neither PanAmSat nor any PanAmSat Company shall
be required to place [*************] on Ku-band Transponders that [*******] the
[*****************] of transmissions [******************] in the [********]
Territory (or, under clause B above, [*******]), as part of a
[**************************] that is [**************] for this purpose and that
is [*************] for other purposes (e.g., [********] to
[******************]), nor shall PanAmSat or any PanAmSat Company be required to
place [************] on the use of Ku-band Transponders whose
[*************************************] of [**********************] (or, under
clause B, [*********]) but that may have spillover coverage (in terms of
[***************] for DTH service) over a [**********] of the applicable area.
For the avoidance of doubt, none of the restrictions on PanAmSat or any PanAmSat
Company that are stated in this Section 1.8 shall apply to any satellite that is
[************************************]
(ii) Customer. Subject to the exceptions stated in
this Section 1.8, Customer agrees that, during the Term of this Agreement,
neither it nor any Customer Company will:
(A) own, invest in, or hold an economic
interest in a DTH Service [**************************************] that [******
*****************************] other than that provided by [********] pursuant
to this [*********] except as to the acquisition of transponder capacity for
the benefit of Customer's DTH service under circumstances in which the
restrictions of the immediately following clause (B) are waived and the
[************************************] are applied; or
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
(B) use [*********************************]
with coverage over [*********************] other than that provided by
[********] pursuant to this [************] for the [*********] of
[********************************************]
(iii) General Exceptions. It is understood and agreed
that nothing herein shall prohibit: (A) PanAmSat or a PanAmSat Company or
Customer or a Customer Company from making an investment in [************
*******] or its DTH Service; (B) PanAmSat or a PanAmSat Company from making an
investment in Customer, a Customer Company, or in Customer's DTH Service; nor
(C) Customer or any Customer Company from making an investment in PanAmSat or a
PanAmSat Company.
(b) Customer Exceptions. Subject to Section 1.8(g) below
(Survival), this Section 1.8 shall cease to apply to Customer or any Customer
Company in the following circumstances: (i) Customer is using [***] of the
[******] provided hereunder for the [***************] DTH Service, (ii) Customer
requests in writing, for PanAmSat to [****************] Ku-band capacity for its
DTH Service, which request shall make express reference to Customer's intent to
invoke its rights under this clause, and (iii) PanAmSat is [*******] to make
such [******************] available, at agreed upon [**********] or, if
applicable, [********] as [*******] under Section 16.1(a)(ii) that Customer has
accepted, within [**********] of such written request and agreement on, or
acceptance of, [*********] and (iv) within [*************] following the date
that PanAmSat notifies Customer that PanAmSat is [*******] to meet such
[**********] request within said period, Customer acquires or enters into a
binding agreement to acquire such [***************************] PanAmSat shall
keep Customer reasonably apprised of its efforts in response to a written
request under this clause and shall notify Customer at any such time that
PanAmSat reasonably determines that it will not meet such request within the
[************] period provided.
(c) [****************] In addition to the above exceptions,
subject to Customer's obligations under Section 3.2(c) below, Customer shall be
permitted to [***] its Transponder capacity on [**************] provided that
its DTH Service is [*********************] capacity provided by PanAmSat as soon
as reasonably practical.
(d) [*****************************] At Customer's option, the
provisions of this Section 1.8 shall [************] to a [*****************] on
and after
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
such date that it [*******] to have or be Affiliated with an entity that has any
direct or indirect ownership, investment or other economic interest in the
Customer or its DTH Service; provided as follows: (i) in [**********] shall more
than [***] of the [*********************] or Affiliates of more than [***] of
them, directly or indirectly, own, invest in, or otherwise hold an economic
interest in the [*****] DTH Service operating within [********************]
(other than the Customer's DTH Service) (ii) Customer shall, and shall
contractually require the [*********************] to, notify PanAmSat at such
time that a [*****************] (or any of its (their) Affiliates) enters or
takes any material step toward entering (e.g., securing [********************]
or [*********************] for a DTH Service) the business of providing DTH
Service in [*******************] or acquires, direct or indirectly, an
ownership, investment or other economic interest in another DTH Service
operating or which has taken or takes material steps toward operating within
[**********************] (any such event being referred to herein as a
[***********************************] [(iii) intentionally deleted;] (iv) at
PanAmSat's option on notice to Customer, and without regard to any other
[****************************] otherwise stated in this Agreement, [**********
********************************************************] and (v) within thirty
(30) days of PanAmSat's notice to Customer under clause (iv) above, Customer
shall [*************************************************************************
*****************************************] under this Agreement, [**************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*********************************************]
(e) Intentionally Deleted.
(f) Notices. Each party shall promptly notify the other of an
event that gives rise to a right to [*********] the [*********] of this Section
1.8 in relevant part. Within [********************] (or, in the case of clause
1.8(b)(i), [*************] of the later of: (i) the date that such notice is
received, or (ii) the [**************] for PAS-5, the party receiving such
notice must [********] the right granted or it shall be [**************] as to
the event giving rise thereto (but not as to any future independent
circumstances that may give rise to a separate right).
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
(g) Survival. The [*************] provisions of this Section
1.8 shall not relieve Customer, the Customer Companies, and, even if no longer a
Customer Company, the Founding Partners from the obligations stated in Sections
1.8(a)(ii)(A) and 1.8(d)(ii), (iv) and (v).
(h) [********************] of DTH Service. For purposes of
this Section 1.8 and Section 3.2(c) below, [***********************] do
[*************] DTH Service. In addition, for purposes of this Section 1.8 and
Section 3.2(c), the definition of "DTH Service" is [********] to
[********************] with associated [*****] and [****************] that is
intended for [******************] via satellite by [********************
***********] in the [********]
(i) Successors in Interests. For the avoidance of doubt and
not for limitation, the provisions of this Section 1.8 shall be binding upon any
entity that acquires all or substantially all of the assets of an entity that is
otherwise subject to the provisions to the same extent that the provisions would
be applicable to the entity being acquired.
(j) Individual Conduct. If any individual(s) who Controls an
entity that is subject to this Section 1.8 or any entity that is directly or
indirectly Controlled by such individual(s) takes an action, including (without
limitation) material steps toward doing so, of the kind described in Section
1.8(d)(ii) above, that would be prohibited under this Section, if said
individual were an entity, then the party that is not (if such individual(s)
were an entity) Affiliated with such individual may [**********] the
[***********] of this Section 1.8 on notice to the other party. In addition, the
conduct of such an individual, if he or she, if an entity, would be that of an
Affiliate of a Founding Partner, shall have the same additional consequences
under Sections 1.8(d) and Article 16 of this Agreement as if that Founding
Partner were a Founding Partner in Competition.
ARTICLE 2. TERM, SERVICE TERM, DEGRADED SERVICE
2.1 Term, Service Term. The term of this Agreement (the "Term") shall
commence upon the first date above written and, unless previously terminated in
accordance with the provisions of this Agreement, shall, subject to Section
16.1(f), remain effective until the end of the "Service Term," as defined below.
The "Service Term" is acknowledged to have commenced on October 12, 1997 (the
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
15
<PAGE>
"Service Date"). PanAmSat hereby certifies to Customer that all of the Service
Transponders met the "Service Specifications" as set forth in Appendix C as of
that date. The "Minimum Complement" of Service Transponders on PAS-5 is [****
***] Unless sooner terminated under Article 7 below, the Service Term shall end
when PAS-5 is taken out of commercial service (or relocated in the case of
Section 7.4(c)) in accordance with Section 7.4 below. For the avoidance of
doubt, while the Satellite is anticipated to have a lifetime of twenty-four (24)
to twenty-five (25) years, the anticipated life of the Satellite after launch
shall not be considered for purposes of determining whether the Service
Specifications are being met.
Customer acknowledges and agrees that PAS-5 has been designed
by its manufacturer for a planned life of fifteen (15) years, but because of the
use of a Proton launch, the launch of the Satellite is now predicted to allow
enough fuel for the Satellite to be maintained between twenty-four (24) years
and twenty-five (25) years. Customer further acknowledges and agrees that such
extended life beyond the approximate fifteen (15) years that would otherwise be
anticipated are due to the particular circumstances associated with the launch
of PAS-5 and may not occur and will not be required to be repeated in the case
of [***************************************************************] from which
capacity may be taken or ordered pursuant to this Agreement.
2.2 Intentionally Deleted.
2.3 Intentionally Deleted.
2.4 Degraded Service. Either before or after the Service Date, if a
Service Transponder, while operational, does not meet the Service
Specifications, Customer shall have the right, within ten (10) days of being
notified of this condition, provisionally to waive the Service Specifications to
the extent that they are not met.
If Customer gives such a provisional waiver, Customer shall
have an additional fifty (50) days (for a total of sixty from being notified of
the condition) in which to determine whether to accept the degraded capacity and
grant a permanent waiver of the Service Specifications to reflect the affected
Transponder(s)' current operating level, or not. The applicable termination
provisions of Section 7.3 shall also be stayed during any period in which
Customer is considering electing a permanent waiver.
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
If Customer gives a provisional waiver, it shall take and pay
for the affected degraded capacity, as if provided in accordance with the
Service Specifications until the conclusion of the sixty day period specified
above. On or before the end of this sixty-day period, either Customer shall
grant a permanent waiver of the Service Specifications or the termination
provisions of this Agreement, as to the capacity that does not meet the Service
Specifications shall, at that time, apply.
If a permanent waiver is given, it shall be deemed to apply
retroactively to the time of such failure to meet the Service Specifications (so
that, for example, the Service Date shall be deemed to have occurred on the same
day as the Service Date of the other Service Transponders on the Satellite that
meet their Service Specifications). In such event the Service Specifications for
the affected Service Transponder(s) shall be reduced to reflect the current
operating level of the affected Service Transponder(s); provided that PanAmSat
shall continue, if there are further steps that may practically be taken, to use
reasonable efforts to restore the affected Transponder to meet the Service
Specifications. For the avoidance of doubt, a waiver given under Section 2.4
shall not, unless otherwise agreed by Customer, be deemed to apply to any
further reduction in performance from the operating level of the affected
Service Transponders at the time that the waiver was given.
2.5 Pre-Service Testing. PanAmSat shall use all reasonable efforts to
coordinate with its satellite manufacturer (who conducts the pre-Service
in-orbit check out of PAS-5) to allow Customer, in consultation with PanAmSat,
to test Customer's transmit and receive equipment to be used with PAS-5 on a
noncommercial basis during the post-launch, pre-Service period; provided that
such tests do not interfere with the in-orbit testing, maneuvers, or other
related activities that are being conducted. PanAmSat shall cooperate with
Customer in carrying out such testing. Customer shall comply with all of the
provisions of this Agreement regarding such transmissions and any other
additional restrictions of which it may be notified vis-a-vis the requirement
not to interfere with the in-orbit tests or related activities relative to
PAS-5. Customer shall be responsible for any damage caused by its failure to
abide by any of these conditions.
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<PAGE>
ARTICLE 3. CUSTOMER PAYMENTS.
3.1 Monthly Service Fees, Deposit. For each month of the Service Term
beginning on the Service Date, Customer agrees to pay a monthly service fee (the
"Monthly Service Fee") that, subject to [***********************************]
shall be determined in accordance with Section 3.2 below. Not later than three
(3) months after the end of each [************] (as defined in Section 3.2),
Customer agrees to pay PanAmSat a [**************] payment, as and if determined
to be required under Section 3.2, so that Customer's [************************
***************************] obligation to PanAmSat for the [**************] is
satisfied. Customer shall make each and all payments of the Monthly Service Fee,
in advance, no later than the first business day of each month of the Service
Term. Payments due for Service under this Agreement are more generally referred
to as "Service Fee(s)."
PanAmSat acknowledges its receipt of a "Deposit" of [************
**************************************] (the "Deposit"). This Deposit has been
applied as an offset against the first and second Monthly Service Fees.
As set forth in Section 3.2(b), Monthly Service Fee payments, above
the [*****************] per Transponder, shall be calculated [******************
***********************************] This does not relieve Customer of its
obligation to make payment at the beginning of each month of the Service Term,
but does allow payment [*******************************************************
*****************************] By way of example only, [**********************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
***************************************************************]
3.2 [***********************] Service Fee.
(a) [*******] Obligation. For each [**************] the total
of Customer's "Monthly Service Fees" and [***************] payment to PanAmSat
(each as determined below) for each Service Transponder (other than any [*******
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
************] shall yield [*******] Service Fee per Transponder [********] to
PanAmSat that shall be determined by the following table:
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
[***********************
********************** [******************************
************************] *******************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[********************************]
[******************************************]
As used in this Agreement, [***********************] means each [***] month
period commencing on the Service Date and each [************] thereafter and
[*******************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*******************************************************************************]
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
[*******************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*******************************************************************************]
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
[*******************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*******************************************************************************]
(b) Monthly Obligation. Customer's Monthly Service Fee for
each Sevice Transponder [*****************] shall be determined based upon the
[***********************] applicable Monthly Service Fee is due, in accordance
with the following table:
[***********************
********************** [******************************
************************] *******************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[********************************]
[******************************************]
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
After the first Monthly Service Fee payment for each [*************] subsequent
Monthly Service Fee payments shall be [***************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*******************************************************************************]
[***********************
********************** [******************************
************************] *******************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[********************] [********************************
********************]
[*******************************************************************************
*********************************************************************]
[********************************]
[******************************************]
(c) Use of [**************************************************
********************************************************************************
********************************************************************************
********************************************************************************
******************************************************************] then, except
as provided in this Section 3.2(c), from and after the Service Date under this
Agreement, the [***************************************************************
********************************************************************************
********************************************************************************
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
********************************************************************************
*************************************************************] without implying
any additional rights to use such [**************************] and without
prejudice to any remedy to seek injunctive relief to prevent such use as
permitted under Section 9.4 of this Agreement.
If Customer [****************************************
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The foregoing notwithstanding, from and [************
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*******************************************************************************]
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
24
<PAGE>
[*******************************************************************************
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****************************] The previous sentence notwithstanding, [*********
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[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
25
<PAGE>
[*******************************************************************************
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(e) Early Termination. In the event that this Agreement is
terminated in whole or in part as to any individual Service Transponder(s) or
certain Service Transponders [*************************] for some or all of the
[***********] the above [*************] shall be made pro rata based on the
percentage of the [************] in which the Service Transponder(s) were made
available to Customer under this Agreement. [*****************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*******************************************************************************]
(f) [**************************************] Customer shall,
consistent with good business practice, use all reasonable efforts to use the
Service provided hereunder to develop and grow a DTH business [*************
********************************************************************************
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********************************************************************************
********************************************************************************
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[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
26
<PAGE>
********************************************************************************
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*******************************************************************************]
3.3 Manner Of Payment. All payments by Customer shall be made in U.S.
dollars; shall be deemed to be made only upon receipt by PanAmSat of collected
funds; and shall be made by bank wire transfer to such bank account as PanAmSat
may designate by notice to Customer, or by cashier's or certified check, from a
U.S. bank, delivered to PanAmSat at its principal place of business, as
designated in Section 14.5(b).
3.4 Late Payment. Any payment due from Customer to PanAmSat that is not
received by PanAmSat on the date that it is due shall be subject to a
delinquency charge (liquidated damages) at the rate of [*********************
*****************] on such overdue amount from the due date until it is actually
received by
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
27
<PAGE>
PanAmSat. Customer acknowledges that such delinquency charge is reasonable under
all the circumstances existing as of this date.
3.5 Taxes. Customer shall be responsible for, and shall indemnify
PanAmSat against, all Taxes that may be asserted as a result of the Service
provided to Customer and/or Customer's use of the Service, except for U.S.
income, property, or employment taxes imposed on PanAmSat; provided, that, to
the extent that Taxes may be imposed with respect to the Satellite itself,
Customer shall be responsible for a pro rata share (to be reasonably determined
by PanAmSat) in proportion to the capacity of the Satellite used by Customer,
but in no event greater than a fraction equal to the number of Service
Transponders divided by the number of Transponders on the Satellite. For
purposes of this Agreement, "Taxes" shall mean all foreign, federal, state,
provincial, and local income, franchise, sales, use, receipts, value added,
transfer, profits, excise, stamp, withholding and property taxes, duties or
assessments and governmental charges of any kind whatsoever (including interest,
penalties and additions with respect thereto). [*******************************
********************************************************************************
********************************************************************************
********************************************************************************
*****************************************]
ARTICLE 4. CUSTOMER'S OBLIGATIONS IN USING THE SERVICE TRANSPONDERS.
4.1 Non-interference and Use Restrictions. Customer's transmissions to
and from the Satellite and its use of the Service shall comply with all
applicable governmental laws, rules and regulations, and with the operational
requirements (the "Operational Requirements") set forth in Appendix D, as the
same may be modified from time to time by PanAmSat, in its reasonable
discretion, but only for good technical cause(s). Customer will follow
established practices and procedures for frequency coordination and will not use
the Service Transponders, or any portion thereof, in a manner which would or
could reasonably be expected to, under standard engineering practice, interfere
with the use of any other Transponder, the Satellite, or any other satellite or
transponder on such satellite, or cause physical harm to the Service
Transponders, any other Transponder, the Satellite, or any other in-orbit
satellite or transponder on such satellite. Provided that Customer's
transmissions conform with the transmission plans approved by PanAmSat under
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
28
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Section 1.5 above, Customer complies with the Operational Requirements, as the
same may be modified as provided above, and Customer immediately ceases any
transmission upon being notified by PanAmSat of any violation of this Section
4.1 (even if such transmission is in conformity with the Operational
Requirements), Customer shall not be deemed to be in breach of its obligations
under the preceding sentence.
4.2 No Terrestrial Facilities. Subject to the exception stated in
Section 1.5 above with respect to PanAmSat-provided uplinks, if any, Customer
shall be responsible for the provision, installation, operation and maintenance
of all earth station facilities and equipment ("Customer-Provided Facilities"),
for transmitting signals to, or receiving signals from, the Satellite in
accordance with the requirements set forth in this Agreement. Customer shall
also be responsible for acquiring all authorizations necessary for installation
and operation of Customer-Provided Facilities. Customer shall be permitted to
contract with third parties to transmit its signals to, or receive its signals
from the Satellite; provided, that, Customer requires its contractors to agree
to comply with all of the requirements set forth in this Agreement regarding
transmissions to, or reception from, the Satellite. If Customer retains third
parties (other than PanAmSat) as permitted by the previous sentence, these third
parties' facilities shall be deemed to be Customer-Provided Facilities and the
acts and omissions of these third parties in connection with the transmission or
reception of Customer's signals shall be deemed to be the acts and omissions of
such third parties and of Customer. Any provision by PanAmSat (or by an
affiliated company) to Customer of earth station or other terrestrial facilities
or services shall be the subject of a separate agreement.
[*******************************************************************
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**************************************]
4.3 Customer's Transmitting Stations. Customer will configure, equip
and operate its transmit facilities so that the interface of these facilities,
in space, with the
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
29
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Satellite shall conform to the characteristics and technical parameters of the
Satellite. Customer will follow PanAmSat's procedures for initiating or
terminating any transmission to the Satellite. Customer will operate all
transmit facilities in a manner that allows for cessation of, and will cease,
transmission immediately upon receiving notice from PanAmSat under Section
15.5(a) ("Telephone Notices"). Customer will furnish information on a continuing
basis as reasonably required by PanAmSat to prepare for, initiate, provide,
maintain and immediately discontinue the use of the Service Transponders upon
notice by PanAmSat.
PanAmSat shall have the right, but not the obligation, subject to such
reasonable confidentiality and use restrictions as Customer may impose, to
inspect any Customer-Provided Facilities together with associated facilities and
equipment used by Customer, or by a third party under the authority of Customer,
to transmit to the Service Transponders. PanAmSat will use all reasonable
efforts to schedule inspections to minimize the disruption of the operation of
the facilities, and Customer shall make the facilities available for inspection
at all reasonable times. Customer shall, upon PanAmSat's request, provide
measured proof that any transmit facility meets or exceeds the sidelobe envelope
described in Appendix D.
4.4 Consistent Application of Satellite Operating Procedures. PanAmSat
shall have similar (but not necessarily identical) restrictions not to interfere
with or cause physical harm to the Satellite, its Transponders, and other
satellites and their transponders, as contained in this Agreement with all other
customers, including any of its Affiliates, having a right to uplink to the
Satellite and shall enforce these restrictions (and, to the extent it may use
the Satellite for its own services, follow these restrictions itself) in a
consistent and nondiscriminatory manner vis-a-vis Customer and the other
customers with a right to uplink to the Satellite. Allowing for the fact
(understood and accepted by Customer) that technical variations in the kinds of
transmissions that different customers may employ, different performance
characteristics of different Transponders, differences in the use of adjacent
frequencies or the same frequencies on other satellites, other technical
factors, and the use of different uplink providers and facilities may require
the application of different restrictions to achieve the same non-interference
and satellite protection goals, PanAmSat shall not require Customer to follow
Operational Requirements or transmission procedures that are more stringent than
those imposed upon other customers on the same Satellite in comparable technical
circumstances.
30
<PAGE>
ARTICLE 5. TRANSPONDER FAILURE, PROTECTION.
5.1 Intentionally Deleted.
5.2 Intentionally Deleted.
5.3 Transponder Failure. If, after the Service Date, a Service
Transponder fails to meet the Service Specifications for: (a) any period of
[***************************************] or (b) a [********************] of
[********************] during any [******************************] or (c) any
[****************] following a [*********************] under circumstances that
make it [**********************] that a [***********] described in clauses (a)
or (b) will occur, such Transponder shall be deemed to have failed on a
"Confirmed Basis." Any such failure must be confirmed by PanAmSat, which it
shall take steps to do as expeditiously as possible. If confirmed, the failure
shall be measured as commencing from notice from Customer to PanAmSat of such
failure (provided that the affected Service Transponder is, in fact, not meeting
the Service Specifications). Any such failure shall be deemed to have ended upon
notice from PanAmSat to Customer that the affected Service Transponder is
capable of meeting the Service Specifications (provided that the affected
Service Transponder is, in fact, meeting the Service Specifications); provided,
further, that if PanAmSat enters into an agreement to provide Ku-band capacity
from the Satellite on which a Service Transponder is located and such agreement
provides that, for purposes of employing said "Spare Equipment" on the
Satellite, failure on a Confirmed Basis shall be deemed to have occurred in less
than the applicable time periods specified above, PanAmSat shall determine
whether a failure on a Confirmed Basis has occurred for Service Transponder on
the same Satellite under this Agreement using the time periods specified in such
other agreement.
In the event a Service Transponder fails on a Confirmed Basis,
PanAmSat shall, as soon as possible and to the extent technically feasible,
employ certain redundant equipment units, as described in Appendix B ("Spare
Equipment") on a first-needed, first-served basis as among Customer and other
Transponder owners, lessees, and users, including without limitation, PanAmSat
and its predecessors in interest ("Protected Parties"), as a substitute for a
Service Transponder equipment unit which has failed.
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
31
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Customer acknowledges and agrees that the Spare redundancy
plan of the Satellite may require PanAmSat to reassign certain traveling wave
tube amplifiers ("TWTAs") among Transponders to make use of a TWTA. In
circumstances in which a spare TWTA is required to be employed for any customer
and to do so requires a change in the TWTA assigned to Customer, Customer shall,
on notice from PanAmSat, cease transmitting to the applicable Service
Transponder(s) to allow the TWTA that is assigned to its Transponder(s) to be
reassigned and a different unit (that meets the Service Specifications) to be
put in its place. PanAmSat shall use all reasonable efforts to keep to a minimum
the time during which Customer is required to cease transmitting under this
paragraph, in accordance with good engineering practices, to make the shift in
the assignments.
In the event that [*************] Transponders
[*****************] to meet their respective [***********] or
[*****************************] and are entitled to [**********] under any
applicable agreement with PanAmSat, then the Protected Party who first executed
a definitive agreement as to the affected Satellite with PanAmSat or its
predecessors in interest shall, to the extent [***********************] have
[***********] as to use of the [******************] provided that, if [********]
from a Transponder is provided to more than [***] Protected Party (for example,
if there are [***] customers each taking service from [*********] of a
Transponder), PanAmSat's decision may be made in accordance with the order that
the [****************] Protected Party(ies) using the Transponder(s)
[******************] with PanAmSat or its predecessors in interest. As used in
this Section 5.3, the term [******************] shall be deemed to mean [*****
******************************] All determinations as to when
[***********************************] shall have occurred, for purposes of
determining whether the failures are [*************] shall be made by
[**************************************************] For purposes of this
Section 5.3, the date of Customer's definitive agreement with PanAmSat shall be
deemed to be February 29, 1996. PanAmSat hereby confirms that, as of February
29, 1996, PanAmSat had not entered into any other agreements for PAS-5
transponder capacity other than with Televisa (for the same Service
Transponders), which has given its consent to PanAmSat's commitment of Service
from said Service Transponders to Customer.
5.4 Reduction in Number of Transponders as Overall Power on the PAS-5
Satellite is Decreased. Customer acknowledges that it has been advised by
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
32
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PanAmSat that as the PAS-5 Satellite increases in age, because of an overall
power constraint on the Satellite, it may be necessary to cease operating (or
interrupt operation of) one or more Transponders (not anticipated
[*************************************************************************]), so
that the remaining Transponders continue to meet their applicable performance or
service specifications. Provided that it is consistent with protecting the
overall health and performance of the Satellite, as between the Service
Transponders and other Transponders on the Satellite, PanAmSat shall deactivate
Transponders that are necessary to address this power constraint in reverse
order of their right to protection under Section 5.3 above. The deactivation of
a Service Transponder under this Section 5.4 shall count toward determining
whether service on the applicable Transponder has failed on a Confirmed Basis.
5.5 Customer Cooperation. If a Service Transponder fails to meet the
Service Specifications, Customer shall use all reasonable efforts to cooperate
and aid PanAmSat in curing such failure; provided that all reasonable efforts
can be done at no cost to Customer. These obligations of Customer shall include,
but not be limited to, the following:
(a) At the request of PanAmSat, if there is a problem that can be
compensated for by increasing the power and/or changing other parameters of its
transmission to the Satellite, without affecting its Customer's use of the
Service, Customer shall do so to the extent it can with existing equipment; and
(b) Permitting PanAmSat, at PanAmSat's option, and at PanAmSat's
cost and expense, to upgrade the Customer-Provided Facilities.
5.6 Application to Individual Service Transponders. All determinations
of failures on a Confirmed Basis and protection rights to be made under this
Article 5 shall be made on an individual Service Transponder by Service
Transponder basis.
ARTICLE 6. PREEMPTIVE RIGHTS.
6.1 (a) Preemptive Rights In Abnormal Circumstances. Customer
recognizes that it may be necessary, in unusual or abnormal technical situations
or other unforeseen technical conditions, for PanAmSat deliberately to preempt
or interrupt Service to Customer from, and Customer's use of, one or more of the
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
33
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Service Transponders, solely in order to protect the overall health and
performance of the Satellite. Such decisions shall be made by PanAmSat in its
sole discretion, exercised in good faith. To the extent technically feasible,
PanAmSat shall give Customer at least 24 hours' notice of such preemption or
interruption and will use all reasonable efforts to schedule and conduct its
activities during periods of such preemption or interruption so as to minimize
the disruption of the services on the Satellite. Customer shall immediately
cease transmissions to the Service is at such time as its use of the Service
Transponder(s) preempted or interrupted pursuant to this Section. To the extent
that such preemption results in a loss to Customer of its use of a Service
Transponder sufficient to constitute a failure on a Confirmed Basis, Customer
shall have all the rights and remedies regarding termination set forth in
Articles 7.
(b) Testing in the Event of Failure. If the Service is not
meeting Service Specifications, but Customer elects to continue to use (and pay
for) the Service, as degraded, PanAmSat may, with Customer's reasonable consent
as to the time such action will be taken, interrupt Customer's use as necessary
to perform testing or take any other action that may be appropriate to attempt
to restore the affected Transponder(s) to the Service Specifications. In such
event, PanAmSat shall coordinate activities with affected customer(s) and shall
use all reasonable efforts to minimize the overall disruption of use to the
affected customer(s). If Customer refuses to provide the consent referred to in
the first sentence of Section 6.1(b) when such consent is requested, the
availability of remedies for failure to meet Service Specifications, including
the use of Spare Equipment and termination for failure to meet Service
Specifications shall be commensurately delayed.
ARTICLE 7. TERMINATION RIGHTS.
7.1 Intentionally Deleted.
7.2 Intentionally Deleted.
7.3 Termination For Failure After the Service Date. Subject to Section
2.4, on a Transponder by Transponder basis, this Agreement shall automatically
terminate if, after the Service Date, a Service Transponder fails on a Confirmed
Basis, unless, within thirty days of such failure, PanAmSat restores the
Transponder
34
<PAGE>
to its Service Specifications using, if required, any available Spare Equipment.
In the event one or more of the Service Transponders fails on a Confirmed Basis
and PanAmSat does not restore or replace the Transponder so that the Service
Specifications are met, but one or more of Service Transponder(s) still meet the
Service Specifications, this Agreement shall continue as to the remaining
Service Transponder(s), so long as the Minimum Complement of Transponders (or,
on and after the date that is [****************] after the Service Date, such
lesser number of Service Transponders as Customer was actually using for the
provision of DTH Service to the Territory immediately prior to such failure,
which for purposes of this Section 7.3 would then be deemed to be the Minimum
Complement) continues to meet their applicable Service Specifications. If the
applicable Minimum Complement cannot be provided, Customer shall be permitted to
terminate this Agreement as to the remaining Transponders on the Satellite. Said
termination right shall be exercised, if at all, no later than six months after
the occurrence of such event. Termination shall be effective immediately on
notice to PanAmSat; provided that, at Customer's option, if within said
six-month period, Customer enters into a binding agreement to take transponder
capacity for the provision of its DTH Service from PanAmSat or another provider,
Customer may, in its notice of termination, make its termination effective upon
the date that such other capacity is available to Customer; provided that,
Customer shall have first sought such capacity from PanAmSat, but PanAmSat was
unable to provide the requested capacity within a comparable time period. In
such event, Customer shall notify PanAmSat of the projected date of such
availability and of any change thereto. If Customer fails to exercise the
termination right for the loss of the Minimum Complement within the period
specified, this Agreement shall continue, with the number of Service
Transponders that continue to meet their applicable Service Specifications, [***
********************************************************************************
********************************************************************************
******************************************************]
7.4 Satellite [**************] PanAmSat may determine to take the
Satellite [*****************] or, in the case of clause (c), relocate it to
other use if: (a) in PanAmSat's [************************] the remaining [****]
on board the Satellite is [**************************] maintain
[***************************** ***************************************] allowing
sufficient [*********************] the Satellite; (b) the Satellite [**********
**********] to meet their applicable performance or service specifications of
[*****************]
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
35
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or more C-band Transponders or Ku-Band Transponders comprising
[********************************************]; with each high-powered Ku-band
Transponder (110 watts) equaling [*********************] and each low-powered
Ku-band Transponder (60 watts) equaling [**************] or (c) if Customer has
agreed to acquire capacity on a Successor Satellite, at such time that said
Successor Satellite is ready to be placed into commercial service. In such
event, PanAmSat shall promptly notify Customer of such determination and of the
date the Satellite will be taken out of service. The foregoing notwithstanding,
in the case of clause (b), if: (i) Customer agrees to enter into a [******]
Service Agreement for "Mexico Ku-band Transponders" [**************************]
as defined in and determined in accordance with Article 16 of this Agreement,
(ii) [**************************] Service Fees required to be paid under this
Agreement, Customer [**********************************************************
***************************************] of the Satellite after the occurrence
of the [***********] otherwise giving rise to PanAmSat's rights under clause
(b), and (iii) permitting [**********************************] PanAmSat's
[***************************************] for the Satellite (other than as to
the Service Transponders that would still be [**********************************
*********************] PanAmSat will not take [******************************]
pursuant to this clause (b) until the [****************************************
*********************************] On the date that the Satellite is
[****************************] this Agreement shall [*************************]
7.5 Termination By PanAmSat For Cause. PanAmSat may terminate this
Agreement if Customer fails: (a) to make payment of any amount due and such
amount remains unpaid within ten (10) business days after receiving from
PanAmSat a notice of such nonpayment (but only if the payment is at least twenty
(20) business days past due at the time of termination), or (b) to cease any
activity in violation of Section 4.1 or 6.1 upon receiving telephone or
facsimile notice from PanAmSat (provided that PanAmSat shall not be entitled to
terminate the Agreement under this clause (b) if all of the following
requirements are met: (i) Customer is (and remains) in compliance with Section
15.5(a), and the operator on duty mistakenly did not implement PanAmSat's
initial notice; (ii) the mistake was rectified as soon as it became apparent to
Customer; (iii) appropriate steps are taken to prevent a future recurrence of
the mistake and the problem is not recurring; and (iv) no damage occurred as a
result of the mistake or Customer immediately reimburses and indemnifies
PanAmSat for all such damage, or (c) to cease any other activity in violation of
Customer's material obligations under this
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
36
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Agreement other than any part of Section 1.8 of this Agreement (exclusive of the
payment obligations set forth under clauses (iv) and (v) of Section 1.8(d) or
Section 3.2(c), the failure of which to meet shall be subject to PanAmSat's
termination and related rights under clause (a) of this Section 7.5) within
thirty (30) days after receiving from PanAmSat a notice of such violation.
In the event of a termination under Section [*******] PanAmSat
may declare immediately due and payable the [*******] for all of the Service
Transponders based on the then predicted life of the Satellite (or, if the
termination right specified in [************] is exercised, through the date
that is [***************************************] after the Service Date)
[*********] for [****************************************************] from the
date paid to the date otherwise due in the absence of termination, and apply any
remaining unapplied portion of the Deposit against the termination liability. In
the event of a termination under Section [************] Customer shall be
responsible for payments of the remaining [****] for all of the Service
Transponders that would be otherwise due and as they would otherwise become due
on and after the date of such termination; provided that if Customer fails to
make payment of any such amount due and such amount remains unpaid within ten
(10) business days after receiving from PanAmSat a notice of such nonpayment
(but only if payment is at least twenty (20) business days due at the time of
termination), then PanAmSat may declare immediately due and payable the
remaining Service Fees [******************************************************
*****************] as provided above, and apply any remaining unapplied portion
of the Deposit against the termination liability. For purposes of this
paragraph, [*****] shall be deemed to equal the greater of: [******************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************]
The foregoing notwithstanding, if the termination right under
Section [***] has been exercised, Customer's termination liability under this
Section 7.5 shall be limited to the amount calculated as due above through the
date that is fifteen (15) years, seven (7) months after the Service Date.
In the event of such termination, in addition to all of PanAmSat's
other remedies at law or in equity, PanAmSat shall be entitled to [***] the
Service
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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Transponders or to [***********************] on such Transponders to [*********]
PanAmSat [*********] and Customer shall [*************] to any
[****************] with respect to such [***] or any [********] of amounts paid
to PanAmSat; provided, as follows: In the event that Customer has paid (and, if
applicable, continues timely to pay to) PanAmSat all amounts due hereunder
including, without limitation, pursuant to the preceding paragraphs of this
Section 7.5 (the "Termination Payment(s)"), PanAmSat shall use all [**********
***********] to [********] the Service Transponders and in the event PanAmSat
subsequently reaches an agreement to provide service to a [*****************] a
Service Transponder during the period that Service from said Service Transponder
would have otherwise been available to Customer hereunder, PanAmSat shall remit
to Customer as a [********] of the Termination Payment(s) any [**************]
it receives from [*********************] with respect to such Service
Transponder during such period, up to the Termination Payment(s) paid by
Customer for such Service Transponder over and above all Service Fees that were
paid or due prior to the date that this Agreement was terminated, less (i) any
amounts owed by Customer to PanAmSat under this Agreement; (ii) any
[**********************] (including [****************************************]
by PanAmSat in [********************] such amounts from Customer; (iii) any
other [*************************] by PanAmSat as a result of Customer's breach
of its obligations hereunder; (iv) any [*********************] (including
[******************************************] by PanAmSat in [************] such
Service Transponder to, or [************] a [********************] with,
[*************] and (v) any [**************************] by PanAmSat in
[*****************************] and equipment for which PanAmSat is not
[************************] that may be associated with the provision of such
service in addition to those agreed to be provided under this Agreement. Nothing
herein shall be [******************] PanAmSat to [**********] such [************
********************] if the [********] of the party, the party's proposed use
of the transponder or [********] for terms and conditions for service, or other
reasonable and appropriate factors, lead PanAmSat [**************************]
to determine not to enter such a service agreement; nor shall PanAmSat be
obligated to [***] the capacity formerly used to provide Service to Customer
[*******] of any other [**********] that PanAmSat may also have available.
Customer acknowledges that the foregoing rights of PanAmSat: (i) are [*********]
under all of the circumstances existing as of this date; (ii) constitute
[**********************] for the [***] of a [*********] and (iii) do
[************************]
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
38
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7.5A The foregoing notwithstanding, PanAmSat shall not be permitted to
terminate this Agreement under Section 7.5(a) if, for reasons beyond the
reasonable control of Customer and any Customer Company, Customer is prohibited
by a law of general applicability from making payments to PanAmSat (a "Payment
Force Majeure") and all of the following conditions are met: (i) regardless of
any Payment Force Majeure, Customer (or a third party on Customer's behalf)
makes payment, including late payment charges, of all unpaid amounts within
either (A) sixty (60) days of the date otherwise due, or (B) ninety (90) days of
the date otherwise due (without regard to the application of the letter of
credit specified below) if prior to the Payment Force Majeure event, Customer
shall have caused a New York commercial bank, acceptable to PanAmSat, to provide
PanAmSat with a letter of credit, in form and substance acceptable to PanAmSat,
for one month's payment (as measured as of the time of the Payment Force
Majeure), entitling PanAmSat to draw down payment upon notification to it by
Customer of the existence of a Payment Force Majeure and PanAmSat shall, in
fact, have been permitted to draw down such amount (so that Customer's total
permitted late payment under this paragraph is no more than sixty (60) days);
(ii) Customer promptly notifies PanAmSat of the existence of the Payment Force
Majeure (in all cases within any grace period for nonpayment otherwise permitted
under Section 7.5(a)), uses all reasonable efforts to have the condition giving
rise to the Payment Force Majeure removed as soon as possible, and (iii)
Customer uses all commercially reasonable and legal methods to have payment made
as soon as possible, from sources (including, on Customer's behalf, from
Customer Companies) as to which the Payment Force Majeure does not apply, and
keep PanAmSat promptly apprised of such efforts.
If all of the conditions set forth above, except (i) are met,
PanAmSat shall still have the right to exercise all of the remedies stated in
Section 7.5; provided that, in such circumstances, if within one hundred and
eighty (180) days of the permitted termination of this Agreement, Customer is
able to make payments, including for the period during which this Agreement was
terminated (less any payment PanAmSat may have received from third parties for
the relevant capacity during this period), to the extent that PanAmSat has not
already committed the Service Transponders to other customers, it shall permit
Customer to recommence the operation of this Agreement, upon payment of such
amounts, the next monthly payment due, and late payment charges.
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7.6 Rights and Obligations Upon Termination. Upon termination of this
Agreement in accordance with any of Sections 7.3, or 7.4 above, or Sections 7.7,
7.8, or 8.1 below or if this Agreement expires by its terms, [*****************
********************************************************************************
********************************************************************************
********************************************************************************
***************************************************************************] If
the termination of the entire Agreement occurs prior to the application of the
Deposit to the Service Fee payments, the unapplied portion shall be returned,
if applicable, with interest in accordance with Section 3.1 above. The
termination of this Agreement for any reason in accordance with this Agreement
shall extinguish all of PanAmSat's obligations to provide, and Customer's
obligations to accept and pay for, the Service under this Agreement, but shall
not relieve either party of any obligation that may have arisen prior to such
termination, including (without limitation), under Section 7.5 above, nor shall
termination affect the parties obligations under Article 11 ("Confidentiality")
that shall survive termination of this Agreement.
7.7 Termination for Patent Infringement. In the event that:
(a) PanAmSat's provision of the Service infringes upon the patents or
intellectual property rights of third parties; (b) such infringement exists
independent of the combination of the Service with any Customer-Provided
Facilities; and (c) as a result, Customer cannot use the Service Transponders
without infringing upon the patent or intellectual property rights of third
parties, Customer may terminate this Agreement upon thirty (30) days' notice to
PanAmSat, unless (i) such infringement ceases to exist within this thirty
(30)-day notice period; or (ii) PanAmSat agrees (to the extent that Customer is
not protected under the indemnity provided by PanAmSat's Satellite manufacturer)
to indemnify and hold harmless Customer from any claim or suit based on such
infringement and arising from PanAmSat's continued provision and Customer's
continued use of the Service Transponders on and after the date that PanAmSat
agrees to so indemnify Customer. In this latter instance, Customer agrees to
cooperate with PanAmSat and the Satellite manufacturer, as applicable, in the
defense of such claim and specifically agrees, as a condition to this indemnity,
to take all steps within its power that are required of it and/or that are
necessary for PanAmSat to take in order to receive the benefits of the
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
40
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Satellite manufacturer's indemnify, in accordance with the relevant provisions
of PanAmSat's contract with the Satellite manufacturer.
7.8 Early Termination Right. In recognition of the additional risks to
maintaining satellite operations beyond the specified design life of the
Satellite, Customer shall have the right, subject to the conditions specified in
this Section 7.8, to terminate this Agreement [*****************************
*******************] after the Service Date. Exercise of such termination rights
by Customer must occur, if at all, on or before the earlier of: (a)
[*****************************] of the Service Date; or (b) [****************]
after PanAmSat notifies Customer of PanAmSat's firm intention to launch a
Successor Satellite, with the intention to place it into commercial service
prior to the end of the [************************] if Customer exercises its
termination right under this Section 7.8, but in no event shall such exercise
decision be required earlier than [*****************************************]
Service Date.
ARTICLE 8. FORCE MAJEURE.
8.1 Failure To Commence Service Or To Perform. Any failure or delay in
the performance by PanAmSat of its obligation to commence or to continue to
provide Service shall not be a breach of this Agreement, if such failure or
delay results from any Act of God, governmental action (whether in its sovereign
or contractual capacity), or any other circumstance reasonably beyond the
control of PanAmSat, including, but not limited to, receive earth station sun
outage, meteorological or astronomical disturbances, earthquake, hurricane,
snowstorm, fire, flood, strikes, labor disputes, war, civil disorder, epidemics,
quarantines, embargoes, or acts or omissions of Customer or any third parties
(except that the acts or omissions of third parties acting on behalf of
PanAmSat, including PanAmSat's Satellite manufacturer and launch contractor,
shall not constitute a force majeure unless their acts and omissions are
themselves the result of force majeure conditions of the kind set forth above).
Subject to the following sentence, either party shall be permitted to terminate
this Agreement, as to the affected Service Transponder(s), if, because of force
majeure conditions: (a) after the Service Date, PanAmSat does not make Service
in accordance with the Service Specifications available, the Service
Transponders meeting the Service Specifications and their availability cannot be
recommenced within sixty (60) days; or (b) the nature of the force majeure event
makes it clearly ascertainable that PanAmSat's ability to make
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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available the Service from the Service Transponders meeting the Service
Specifications will not be able to recommence within this sixty (60) day period.
The foregoing notwithstanding, Customer's right to terminate, to the extent a
failure to provide Service results from a malfunction of the Satellite, shall be
governed by Section 7.3. Customer shall not be permitted to terminate this
Agreement if PanAmSat's inability to perform is due to acts or omissions of
Customer or its employees, agents, or contractors that are not in conformance
with Appendix D or for intermittent failures due to any or all of the following:
sun outages, meteorological or astronomical disturbances. In addition, in
circumstances that are not governed by Section 7.3 and that are not due to
events described in the previous sentence, if Service is not made available by
PanAmSat in accordance with the Service Specifications during a [************]
due to a force majeure condition, provided that Customer ceases use of the
affected Service Transponders during such period (except in coordination with
PanAmSat to determine if the Service can be restored to the Service
Specifications), the [*********************] due from Customer for the affected
Service Transponders during the applicable [************] shall be adjusted pro
rata to reflect the period during which Service from the Service Transponders
was not made available. [******************************************************]
ARTICLE 9. LIMITATION OF LIABILITY AND INDEMNIFICATION.
9.1 Limitation Of PanAmSat's Liability. EXCEPT AS EXPRESSLY PROVIDED IN
SECTION 7.6 ABOVE, ANY AND ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING, BUT
NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR USE,
ARE EXPRESSLY EXCLUDED AND DISCLAIMED. IT IS EXPRESSLY AGREED THAT PANAMSAT's
SOLE OBLIGATION AND CUSTOMER'S EXCLUSIVE REMEDIES FOR ANY CAUSE WHATSOEVER
ARISING OUT OF OR RELATING TO THIS AGREEMENT ARE LIMITED TO THOSE SET FORTH IN
SECTIONS 5.3, 8.1, 9.4, AND 9.5 AND ARTICLE 7 AND ALL OTHER REMEDIES OF ANY KIND
ARE EXPRESSLY EXCLUDED. In no event shall PanAmSat be liable for any incidental
or consequential damages or loss of revenues, whether foreseeable or not,
occasioned by any defect in the Satellite, the Transponders or the provision of
the Service Transponders to Customer, any delay in the provision of Service to
Customer, any failure of PanAmSat to continue to provide Service, or any other
cause whatsoever.
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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9.2 Limitation Of Liability Of Others. Without limiting the generality
of the foregoing, Customer acknowledges and agrees that it shall have no right
of recovery for the satisfaction of any cause whatsoever, arising out of or
relating to this Agreement, against (a) any supplier of services or equipment to
PanAmSat in connection with the construction, launch, operation, maintenance,
tracking, telemetry and control of the Satellite or the Service Transponder(s),
or the provision of the Service Transponders to Customer in any circumstances in
which PanAmSat would be obligated to indemnify the supplier, or (b) any officer,
director, employee, agent or partner of (i) PanAmSat or (ii) any service or
equipment provider under 9.2(a). Except as provided in Article 17 and Appendix L
and subject to PanAmSat's rights as a third party beneficiary under Section
1.4(b) of this Agreement, PanAmSat acknowledges and agrees that it shall have no
right of recovery for the satisfaction of any cause whatsoever, arising out of
or related to this Agreement, against any officer, director, employee, agent or
partner of Customer, except with respect to any partner or agent to the extent
arising out of the transmission of signals to the Satellite by it or on its
behalf.
9.3 Indemnification. Customer shall defend and indemnify the "PanAmSat
Group" (defined herein to mean PanAmSat and all officers, directors, employees,
agents and partners of PanAmSat) from any claims, liabilities, losses, costs, or
damages, including attorneys' fees and costs, arising out of the provision of
Service to Customer from, or Customer's use of, the Satellite or the Service
Transponder(s), that (a) is caused by the fault or negligence of Customer, (b)
arises under a warranty, representation, or statement by Customer to any third
party in connection with transmissions carried on the Service Transponders, (c)
arises out of the content of programming, including any libel, slander,
obscenity, indecency, pornography, religious fanaticism, or political advocacy,
infringement of copyright, infringement of patents, breach in the privacy or
security of transmissions; or (d) arises out of disputes between or among
Customer and any program supplier and/or its program recipients. The limitation
of liability set forth in this Article 9 shall apply to, and the
indemnifications set forth in this Article 9 shall run in favor of, the PanAmSat
Group.
9.4 Equitable Relief. Nothing contained in this Article 9 or elsewhere
in this Agreement shall preclude either party from seeking injunctive relief to
prevent
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<PAGE>
a willful breach or to compel performance in the event of a willful failure to
comply with this Agreement.
9.5 Patents, Copyrights, Mask Work Rights and Proprietary Computer
Programs. To the extent that the manufacturer of the Satellite or any part
thereof may be obligated to indemnify PanAmSat for any infringement of any
patent, copyright, "mask work" (as defined in the Semiconductor Chip Protection
Act, 17 U.S.C. Secs. 901-14) right or other proprietary computer right with
respect to the manufacture of, or provision of services from the Satellite and
the Service Transponders and such indemnification obligations may be passed
through to protect PanAmSat's customers, PanAmSat shall pass such protection
through to Customer; provided, that PanAmSat makes no representation or warranty
that any manufacturer's indemnification obligation exists or will continue to
exist or may be passed through; and provided further that, to the extent such
indemnification rights are limited, PanAmSat may equitably share such
indemnification protections for the common benefit of PanAmSat and its
customers.
9.6 Indemnitor Rights. If Customer is obligated to provide
indemnification pursuant to this Article 9 or PanAmSat undertakes to indemnify
Customer under Section 7.7, the indemnifying party (the "Indemnitor") shall
promptly defend any claims against the party entitled to indemnification (the
"Indemnitee") with counsel of Indemnitor's choosing at its own cost and expense.
The Indemnitee shall allow the Indemnitor to control the defense and cooperate
with, and assist as reasonably requested by, Indemnitor in the defense of any
such claim, including the settlement thereof on a basis stipulated by Indemnitor
(with Indemnitor being responsible for all costs and expenses of defending such
claim or making such settlement); provided, however, that (1) Indemnitor will
not, without the Indemnitee's consent, settle or compromise any claim or consent
to any entry of judgment which does not include the giving by the claimant or
the plaintiff to the Indemnitee of an unconditional release from all liability
for which the Indemnitor does not fully indemnify the Indemnitee with respect to
such claim, (2) the Indemnitee shall be entitled to participate at its sole
expense in support of Indemnitor's action in the defense of any such claim and
to employ counsel at the Indemnitee's own expense to assist in the handling of
such claim, and (3) the Indemnitee shall have the right to pay, settle or
compromise any such claim as to itself, provided that in such event Indemnitor
shall be relieved of any liability or
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obligation which would otherwise then or thereafter have existed or arisen in
respect of such claim.
9.7 Limitation of Liability [*************************************]
Customer's money damages exposure to PanAmSat with respect to any breach of
obligations under Section [***************************************************
********************************************************************************
*************************] shall be no greater than would be PanAmSat's
liability exposure to Customer for a breach by PanAmSat of its obligations under
that Section; i.e., [*************] is [***********] to [*******************]
and neither party is precluded from seeking injunctive relief in the event of a
willful breach.
ARTICLE 10. SUBORDINATION AND ASSIGNMENT.
10.1 Intentionally Deleted.
10.2 Intentionally Deleted.
10.3 Subordination to Other Entities. Customer acknowledges and agrees
that PanAmSat may grant security interests in the Transponders and/or the
Satellite. In such event, provisions that are the same as attached to this
Agreement as Appendix J or, to the extent that changes are requested by another
secured party, similar provisions shall apply.
10.4 PanAmSat's Right To Assign. Customer agrees that PanAmSat may
assign its rights and interests under this Agreement and to the Satellite and
any or all sums due or to become due under this Agreement to an assignee for any
reason; provided that, except with respect to the granting of a security
interest or the assignment of a right to payment, such assignee agrees in
writing to assume all of the duties and obligations of PanAmSat hereunder.
Customer agrees that upon receipt of notice from PanAmSat of such assignment,
Customer shall perform all of its obligations directly for the benefit of the
assignee and shall pay all sums due or to become due directly to the assignee,
if so directed. Upon receipt of notice of such assignment, Customer agrees to
execute and deliver to PanAmSat such documentation as assignee may reasonably
require from PanAmSat. As used in this Section 10.4, assign shall mean to grant,
sell, assign, encumber or otherwise convey directly or indirectly, in whole or
in part.
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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10.5 Customer Assignment. Customer may assign its rights under this
Agreement only in whole, only to an Approved Participating Company (or any
entity Controlled by one or more of the Approved Participating Companies), and
only if the following conditions are satisfied: (a) the proposed assignee in
writing assumes all of Customer's obligations with respect to this Agreement and
agrees to be treated as Customer for all purposes under this Agreement; (b) such
written undertaking is delivered to PanAmSat at least thirty (30) days in
advance of the assignment; (c) Customer guarantees assignee's performance of
payment obligations which obligations shall also continue to be subject to the
guarantee requirements stated under Article 17 below; and (d) either (i) the
assignee agrees in writing to continue the programming practices of Customer, or
(ii) the assignee is one of the Approved Participating Companies as to whom (as
shown in Appendix I) PanAmSat has consented and said assignee agrees to follow
the assignor's current programming practices (as exist as of the date of this
Agreement) with respect to the use of the Service Transponders, or (iii)
PanAmSat consents to such assignment in advance and in writing, such consent not
to be unreasonably withheld or delayed; it being understood that PanAmSat may
withhold its consent only if PanAmSat determines, in good faith, that some or
all of the assignee's programming may be pornographic, involve religious
fanaticism or political advocacy, obscene, indecent, slanderous, or in violation
of any governmental programming restrictions. Without limitation, any assignee
shall be required to use the Transponders assigned in accordance with Section
1.4.
10.6 Successors. Subject to all the provisions concerning assignments,
above, this Agreement shall be binding on and shall inure to the benefit of any
successors and assigns of the parties. The foregoing notwithstanding, no
assignment of this Agreement shall relieve either party of its obligations to
the other party, without the express written consent of the other party, not to
be unreasonably withheld. Any purported assignment by either party not in
compliance with the provisions of this Agreement shall be null and void and of
no force and effect.
10.7 No Resale. Except as expressly permitted in Sections 1.4, 1.6, and
10.5, the Service Transponders are being provided for Customer's own use and in
no event shall Customer be permitted to resell them, in whole or in part, to any
other person or entity. This Section 10.7 shall not be construed to prohibit the
Customer from subleasing capacity to the extent permitted in Section 1.4 hereof,
for usage and
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[*****************] purposes that are consistent with Customer's obligations to
PanAmSat under this Agreement.
ARTICLE 11.
11.1 Publicity. The terms of this Agreement, the transactions
contemplated herein, and the information exchanged in their connection shall be
kept strictly confidential by the parties and their advisors and shall be used
solely for the purposes contemplated by this Agreement and specifically not in
any way for purpose of competing with any party hereto or any of its Affiliates;
provided, however, that the parties may disclose such information: (i) to their
respective shareholders, directors, officers, partners, lenders, insurance
agents, accountants, and advisors on an as needed and confidential basis and the
foregoing agree (or are subject to agreement or other obligations of
professional responsibility (e.g., lawyers)) to keep such information
confidential; (ii) to regulatory authorities or the general public if and to the
extent a party is required by law or securities exchange rules or regulations to
make such disclosures (including, but not limited to, in connection with a
public offering); (iii) to actual and proposed potential partners, investors,
lenders, and successors in interest; and (iv) News, Televisa, TINTA, Globo,
Multi-Country Platform entities under any of their Control and such venture as
some or all of them may form in connection with the provision of DTH services on
an as needed and confidential basis. Subject to the proviso of the preceding
sentence, the parties will mutually agree on the timing and substance of the
initial announcement of this Agreement to the general public. To the extent
practicable, any other disclosures to the general public will be coordinated and
approved by the parties prior to release.
ARTICLE 12. REPRESENTATIONS, WARRANTIES AND COVENANTS.
PanAmSat has or will use all reasonable efforts to obtain by the
Service Date and maintain all consents and authorizations from the FCC and other
governmental entities that may be necessary to provide the Service as
contemplated in this Agreement; provided that, except as it may relate to
actions that may need to be taken with third parties or non-U.S. governmental
agencies a "best efforts" standard shall apply to PanAmSat's activities before
the FCC with respect to PAS-5. Subject to the understanding that certain
consents and authorizations have not yet been obtained and that certain
applications in this regard may be pending or
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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<PAGE>
subsequently filed with the FCC or other applicable governmental entity,
PanAmSat and Customer each represents and warrants to, and agrees with, the
other that:
12.1 Authority. It has the right, power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement shall not result in the breach or non-performance
of any document, instrument or agreement by which it is bound.
12.2 Partnership And Corporate Approvals. It has taken all requisite
partnership or corporate action, as applicable, to approve execution, delivery
and performance of this Agreement, and this Agreement constitutes a legal, valid
and binding obligation upon itself in accordance with its terms.
12.3 Consents. The fulfillment of its obligations will not constitute a
material violation of any existing applicable law, rule, regulation or order of
any governmental authority. All necessary or appropriate public or private
consents, permissions, agreements, licenses or authorizations necessary for the
performance of its obligations under this Agreement to which it is subject have
been obtained, or it will use all reasonable efforts to obtain, in a timely
manner.
12.4 Litigation. To the best of its knowledge, there is no outstanding
or threatened judgment, pending litigation or proceeding, involving or affecting
the transactions provided for in this Agreement, except as set forth in the
"Disclosure Schedule" set forth in Appendix G or as has been previously
disclosed in writing by either party to the other.
12.5 No Broker. It does not know of any broker, finder or intermediary
involved in connection with the negotiations and discussions incident to the
execution of this Agreement, or of any broker, finder or intermediary who might
be entitled to a fee or commission upon the consummation of the transactions
contemplated by this Agreement.
12.6 Good Faith. Each party shall carry out its obligations under this
Agreement, including (without limitation) with respect to all matters requiring
that a consent be given, in good faith.
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ARTICLE 13. ADDITIONAL REPRESENTATIONS, WARRANTIES AND
COVENANTS OF PANAMSAT.
13.1 Orbital Location. PanAmSat has been authorized by the FCC to
construct, launch and operate PAS-5 in geostationary orbit at 58o West
Longitude. PanAmSat shall use such orbital location (or, to the extent that
PanAmSat obtains FCC authority to do so, any location within five degrees of 58o
W.L.), unless prevented by subsequent order of the FCC, in which event PanAmSat
shall use such orbital position(s) closest to the range identified above that
the FCC may designate. PanAmSat shall use all reasonable efforts to resist any
move of the Satellite from outside the orbital range specified above. In the
event that PanAmSat is required to change the Satellite's orbital location, such
change shall not affect the continuing validity of this Agreement, except to the
extent such change prevents PanAmSat from providing Customer with Transponders
that meet the Service Specifications, in which event the termination provision
set forth in Section 7.3 shall apply. The foregoing notwithstanding, the parties
agree that the placement of the Satellite outside of the orbital range from 53o
West Longitude through and including 63o West Longitude shall, for purposes of
Section 7.3, constitute a failure of the Service Transponders to meet their
Service Specifications.
13.2 Government Authorizations. PanAmSat shall use all reasonable
efforts to obtain and maintain all necessary governmental authorizations or
permissions to operate the Satellite and to comply in all material respects with
all FCC and other governmental regulations regarding the operation of the
Satellite; provided that, except as it may relate to actions that may need to be
taken with third parties or non-U.S. governmental agencies, a "best efforts"
standard shall apply to PanAmSat's activities before the FCC with respect to
PAS-5.
PanAmSat will, as Customer may reasonably request, cooperate with
and assist Customer in compliance with Customer's obligations under [********
*****************************************************] in connection with
Customer's use of the Service provided hereunder; provided such actions required
of PanAmSat under this paragraph will not (a) subject it to the jurisdiction of
any governmental entity of the [**********************] or (b) result in the
incurrence by PanAmSat of any material costs or liabilities.
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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13.3 Operational Reports. PanAmSat shall provide Customer a quarterly
written operational report concerning the Satellite which shall include
information regarding the status of Spare Equipment and updated projections
regarding the predicted life of the Satellite. PanAmSat shall also notify
Customer as soon as practicable of any significant anomalies with respect to the
Satellite which have a material effect on the Service Transponder(s) or
materially reduce the projected life of the Satellite.
ARTICLE 14. Intentionally Deleted.
ARTICLE 15. MISCELLANEOUS.
15.1 Applicable Law And Entire Agreement. This Agreement shall be
interpreted according to the laws of the State of New York, U.S.A. Subject to
the following sentence, the parties agree that the appropriate and exclusive
forum for any disputes arising under this agreement shall be the United States
District Court for the Southern District of New York. Each party consents to the
jurisdiction of this court, but, if that court determines it lacks jurisdiction,
consents to the jurisdiction of the State courts of New York. The parties agree
to waive any or all rights they may have to a jury trial with respect to
disputes arising under this Agreement. Each party agrees that service of process
in any action or proceeding shall be deemed sufficient if mailed, first class,
postage prepaid, to the other at the address set forth in Section 15.5(b), as
the same may be changed in accordance with that Section. This Agreement may not
be amended or modified in any way, and none of its provisions may be waived,
except by a prior writing signed by an authorized officer of each party.
15.2 Severability; Reconstitution. Nothing contained in this Agreement
shall be construed so as to require the commission of any act contrary to law.
In the event that the transactions set forth in this Agreement are challenged
before a court or regulatory body of competent jurisdiction by other persons or
entities not parties hereto, PanAmSat and Customer agree that each will use its
all reasonable efforts before such court or regulatory body to support the
continuing operation of this Agreement by its terms. If any provision of this
Agreement shall be invalid or unenforceable, the provisions of this Agreement so
affected shall be curtailed and limited only to the extent necessary to permit
compliance with the minimum legal requirements; provided that if the effect is
such so that the economic relationships
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or benefits and burdens contemplated under the Agreement are substantially
affected, the parties shall seek and use all reasonable efforts to reconstitute
this Agreement so as best possible to restore to each party to the economic
position contemplated in this Agreement.
15.3 No Third Party Beneficiary. The provisions of this Agreement are
for the benefit only of Customer and PanAmSat, and, except as provided under
Sections 10.3 and 17.1 and Appendix J, no third party may seek to enforce or
benefit from these provisions, except that both parties acknowledge and agree
that the provisions of Sections 9.2 and 9.3 are intended for the benefit of the
PanAmSat Group. Any member of the PanAmSat Group shall have the right to
enforce, as a third party beneficiary, the provisions of Sections 9.2 and 9.3
either by (a) an action brought solely by itself, or (b) joining PanAmSat, or
other members of the PanAmSat Group in bringing an action against Customer for
violation of Sections 9.2 or 9.3. The foregoing notwithstanding, both parties
acknowledge and agree that the non-interference requirements of Section 4.1 are
intended for the benefit of both PanAmSat and all other Protected Parties,
except that no Protected Party who has the right to uplink to the Satellite
shall be entitled to third party beneficiary rights to enforce Section 4.1
against Customer, unless the agreement giving such other Protected Party the
right to uplink to the Satellite also gives Customer comparable third party
beneficiary rights against it. Any other Protected Party shall have the right,
as a third party beneficiary (a) to enforce the non-interference requirements of
Section 4.1, against Customer directly, in an action brought solely by itself,
or (b) to join with PanAmSat or any other Protected Parties in bringing an
action against Customer for violation of the non-interference requirements of
Section 4.1.
15.4 Non-Waiver of Breach. Either party may specifically waive any
breach of this Agreement by the other party, provided that no such waiver shall
be binding or effective unless in writing and no such waiver shall constitute a
continuing waiver of similar or other breaches. A waiving party may at any time,
upon notice given in writing to the breaching party, direct future compliance
with the waived term or terms of this Agreement, in which event the breaching
party shall comply as directed from such time forward.
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15.5 Notices.
(a) Telephone Notices. For the purpose of receiving notices
from PanAmSat regarding preemption, interference or other technical problems,
including with respect to Transponder failure and restoration, Customer shall
maintain at each earth station transmitting signals to the Satellite a telephone
that is continuously staffed at all times during which customer is transmitting
signals to the Satellite and an automatic facsimile machine in operation and
capable of receiving messages from PanAmSat at all times. THOSE PERSONS STAFFING
THE EARTH STATION, FOR THE PURPOSES OF RECEIVING SUCH MESSAGES FROM PANAMSAT,
MUST HAVE THE TECHNICAL CAPABILITY AND ABSOLUTE AUTHORITY IMMEDIATELY TO
TERMINATE OR MODIFY THE TRANSMISSION IF NOTIFIED BY PANAMSAT. PanAmSat shall
also maintain a telephone that is continuously staffed for the purposes of
receiving notices regarding the matters identified in the first sentence of
this Section 15.5(a). All such notices shall be made in English and shall be
effective upon the placement of a telephone call from one party to the other.
Each party shall promptly confirm all telephone notices that may be given under
this Agreement in writing in accordance with Section 15.5(b) below. Any
unsuccessful efforts to reach a party by telephone shall be followed by telecopy
and telephone calls to other contact points, e.g., the corporate headquarters of
the other party, that said party may have provided the notifying party.
(b) General Notices. All notices and other communications from
either party to the other, except as otherwise stated in this Agreement, shall
be in English writing and, shall be deemed received upon actual delivery or
completed facsimile addressed to the other party as follows:
To PanAmSat if by recognized courier PanAmSat International Systems, Inc.
service or by personal delivery to One Pickwick Plaza
its principal place of Greenwich, Connecticut 06830
business: Attention: General Counsel
To PanAmSat if by facsimile: 203-622-9163
Attention: General Counsel
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With a copy to:
If by recognized courier service or Goldberg, Godles, Wiener & Wright
by personal delivery to its principal 1229 Nineteenth Street, N.W.
place of business: Washington, D.C. 20036
Attention: Henry Goldberg
If by facsimile: 202-429-4912
Attention: Henry Goldberg
To Customer if by recognized courier c/o Innova, S. de R.L.
service or by personal delivery Insurgentes Sur 694
to its principal place of Piso 8
business: Col. Del Valle 03100
Mexico
To Customer if by facsimile: (525)-448-4118
Attention: Chief Executive Officer
With a copy to:
If by recognized courier service or The News Corporation Limited
by personal delivery to its 1211 Avenue of the Americas
principal place of business: New York, New York 10036
Attention: Group General Counsel
If by facsimile: 212-852-7147
and
The News Corporation/Sky
Latin America
10201 West Pico Boulevard
Los Angeles, California 90035
If by facsimile: 310-369-3742
Attention: Executive Vice President,
Business Affairs
and
If by facsimile: 310-369-3595
Attention: Executive Vice President,
Legal Affairs
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and
Televisa International LLC
201 South Biscayne Blvd.
Miami, Florida 33131
Attention: General Counsel
If by facsimile: 305-377-8129
and
Grupo Televisa S.A.
Avenida Vasco de Quiroga #2000
3er Piso, Colonia Sante Fe
Mexico, D.F. 01210
Attention: Chief Financial Officer
If by facsimile: (525)-261-2044
and
Norman P. Leventhal
Leventhal Senter & Lerman P.L.L.C.
2000 K Street, NW, Suite 600
Washington, DC 20006
If by facsimile: (202)-293-7783
Each party will advise the other of any change in the address, designated
representative or telephone or facsimile number.
For the avoidance of doubt, notices and certifications given by either
party to the other while relevant to the timing of further action by the
notified party shall not be deemed in and of themselves to establish the fact
stated in the notice. So, for example, under Section 5.3, the fact that Customer
notifies PanAmSat that a Transponder does not meet the Service Specifications
and/or that PanAmSat notifies Customer that a Transponder has been restored to
its Service Specifications shall not be deemed conclusive evidence, in and of
itself, of failure and/or restoration. Each party shall timely notify the other
if said party believes that any such notice is inaccurate.
54
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15.6 Headings. The descriptive headings of the Articles and sections of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
15.7 Documents. Each party agrees to execute, and, if necessary, to
file with the appropriate governmental entities and international organizations,
such documents as the other party shall reasonably request in order to carry out
the purposes of this Agreement.
15.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all such
counterparts together shall constitute but one and the same instrument.
15.9 Absence of Partnership. The relationship between the parties shall
not be that of partners and nothing in this Agreement shall be construed to
create a partnership between such parties.
ARTICLE 16. SUCCESSOR OR COLLOCATED SATELLITES.
16.1 Successor or Collocated Satellite.
(a) PanAmSat Elects to Launch.
(i) In the event that PanAmSat, or a PanAmSat Company
(collectively referred to as "PanAmSat" for purposes of this Section 16.1)
determines to launch a new "Collocated Satellite" or a "Successor Satellite"
(each as defined herein) during the Term hereof or during the survival period
specified in clause (f) below, with Ku-band transponders covering
[*************] the [*********************]as the Service Transponders (and with
primary coverage focused over [************************] that are [*************
*************] to or [********************] from the Service Transponders
("Mexico Ku-Band Transponders"), PanAmSat shall give Customer the right to
[******] or enter into a [********************************] with respect to, at
Customer's election, some or all (but in no event less than the lesser of (A)
[***********] and (B) an amount equal to [***********] of the [*******] Ku-band
[**********] on such satellite, a [*****] Service Agreement") of the Mexico
Ku-Band Transponders or [*******************] on such Collocated and/or
Successor Satellite at a price to be negotiated but not to
[*****************************] as determined below, and on other terms and
conditions to be negotiated in good faith, but which shall be
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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[***********************] in relevant part, to this Agreement, [*********] as
appropriate to reflect [********] in [*******] whether payment is [*********
*********] changes in [*********] and [****************************************]
and other [************] in circumstances that reasonably require [***********]
in, or [*********] from, the terms and conditions stated herein. The negotiation
period for each Collocated or Successor Satellite shall be for [*************]
during which time each party agrees to negotiate in good faith exclusively with
the other party (i.e., PanAmSat with respect to the Mexico Ku-band Transponders
subject to negotiation and Customer and the Customer Companies with respect to
transponder capacity to be used for the provision of DTH Service to the
[*******] Territory).
(ii) During the [*****************] negotiating
period, PanAmSat agrees to [******] Customer an end of life service contract
with service fees for a [****] Service Agreement on the applicable satellite
that shall, subject to the qualifications stated below, be
[*******************************************************************************
********************************] per month per Transponder increased for
[***********] by a percentage equal to the increase in the [***] (as defined
below) from the Service Date of the PAS-5 Service Transponders to the month and
year of the Service Date of the applicable Successor or Collocated Satellite
(with adjustment as necessary to reflect the change in the [***] from the time
of the negotiation to the Service Date of such Successor or Collocated
Satellite). The [***] means the [***********************] now known as the
[*************************************************************] for [***********
********************************************] for [***************]. If such
[***] shall be discontinued, the foregoing calculations shall be made using a
reasonably equivalent successor or comparable measure of [***********] in the
[******************] in the United States as reasonably determined by PanAmSat.
The price per Transponder as determined under this clause (ii), modified, if
applicable, under clause (iii) below, is referred to in this Agreement as the
[**************]
(iii) The foregoing notwithstanding, PanAmSat shall
be permitted to [*******] the service fees above that stated above with respect
to the [***] to reflect any extraordinary and substantial increase in its [****]
and [**************] in [*******************************] and
[***********************] and [***********] a Successor or Collocated Satellite
relative to such costs as of the date hereof, including increases in [*********
***********] or the need to purchase [******************]
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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increases in launch [***********] rates in excess of [****] of the [*********]
value (unless the [*******************] of launch [**********] is less than
[***********] to [*****************************************] because the [******
****] are [********] or other extraordinary factors the failure to take into
account of which would frustrate the intent of this [***************] which is
to [********************] that allows PanAmSat to earn a [**********************
***************] PanAmSat shall also be permitted to [********************] to
reflect any [*****************************] that result from [*************] a
satellite above and beyond the [***************************] of PAS-5 adjusted
to reflect then [*****************] technological standards.
(iv) The [**************] negotiating period may be
initiated by either party on notice to the other at any time within the time
period set forth below. Each negotiation period (per Collocated or Successor
Satellite) shall not begin earlier than the date on which both of the following
conditions have been satisfied: (A) PanAmSat notifies Customer of, or publicly
announces, a [***********] to launch a Collocated or Successor Satellite; and
(B) [*************] prior to the proposed launch of the Collocated or Successor
Satellite. Each negotiation period shall not commence, if at all later than [***
**************] prior to the date that the applicable Collocated or Successor
Satellite is scheduled to be launched. If negotiations are not initiated by such
date or successfully concluded with a binding purchase or service agreement
within the [**************] negotiation period, unless Customer has given
PanAmSat a "Customer's Offer" (as defined below), neither party shall have any
further obligation pursuant to this Section 16.1. The conclusion or failure to
conclude such an agreement for a transponder or transponders on a Collocated or
Successor Satellite shall not otherwise affect the parties' obligations
hereunder.
(v) At any time prior to the end of the applicable
negotiation period specified above, Customer shall have the right to make to
PanAmSat Customer's [************************] ("Customer's Offer") of the
[*****] and other [********] terms and conditions (sufficiently detailed, if
accepted, to form a binding contract) on which it is willing to [********] or
enter into an [******************************] for a [*******] number of Mexico
Ku-band Transponders on the applicable Collocated or Successor Satellite.
(vi) If Customer makes the Customer's Offer, for as
long as it is held open (i.e., that it may be accepted by PanAmSat without
Customer's subsequent right to withdraw it), until [****************] after the
launch of the
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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Collocated or Successor Satellite, PanAmSat will not, without [********]
offering the Customer the [************] to do so, and for a period of
[**********************] following notice of such offer to Customer, enter into
a [*********] or [*******************************************] for the [*****
***************] Mexico Ku-band Transponders on the same Satellite than stated
in Customer's Offer that, overall, taking into account the price (which, for
purposes of comparison, will be calculated on a [***************************
********************] by PanAmSat, but notified to Customer so that Customer may
make an [**********] in its offer to reflect this [*****************] and
[********] terms and conditions (but not [****************] individual terms and
conditions) are [**************************] to PanAmSat than, Customer's Offer.
(b) Related Collocated Satellite Rights. PanAmSat shall notify
Customer of any determination by PanAmSat to launch a Collocated Satellite, even
if the Satellite will [***] have [********] transponders that fall within the
definition of clause(a)(i) above for which Customer's rights under this Article
16 apply, if the [*******] of the [***] would [*******] the [***] of the
[***************************] on the Collocated Satellite for the provision of
Service to Customer for use in the [*******] Territory on a future Collocated
Satellite. (For the avoidance of doubt, in no event shall PanAmSat be permitted
to launch a Collocated Satellite which uses frequencies that would [********]
with the Service Transponders so as to [********] their meeting their
[**********] Specifications.) Before committing to such a Collocated Satellite
that would [****************] the use of [**********
************************************] by Customer in the [*********] Territory,
PanAmSat shall give Customer the opportunity to exercise its rights, if still
extant, under clause (c) below to require PanAmSat to launch a Collocated
Satellite, subject to applicable [******************] and [**************
***********] employing such [********************] with Ku-band [********] for
use in the [***********] Territory. Customer shall have until the later of: (i)
[*****************] from PanAmSat's notice to Customer, or (ii) until the
[*****************************] specified below, to exercise such rights.
Customer shall not be required to make any decision
regarding [*************************************************************] either
under this clause (b) or clause (a) above [*************************] nor
earlier than March 31, 1999, as to any [*********************] that is placed
into commercial service before that date (the "Decision Period"). In addition,
PanAmSat will not require Customer to make a
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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decision whether [**************************************************************
******] (and the "Decision Period" will be so extended), unless PanAmSat
[**********************] to [********************************] that it acquires
on a Collocated Satellite to any third party for any lawful purpose, subject to
Customer's ultimate obligations therefore, consistent with Section 10.6 of this
Agreement (i.e., an [****************************] the [*********************
***********************] without the consent of the other party).
Accordingly, by way of example, if PanAmSat notifies
Customer in [*********] of PanAmSat's [*****************] a
[********************] either with Mexico Ku-band Transponders or [************
************] Transponders that would have a [**********************************
********************************] to have Mexico Ku-band Transponders, Customer
[**********************] whether to [**********] an agreement to [************]
on such Satellite or [***********************] of a Satellite employing such
frequencies for Mexico Ku-band Transponders until [*******************] such
[*********************] could not be placed into [******************************
*********] unless Customer's right to so decide is extended until
[**************] and, unless PanAmSat allows Customer the right specified above
to [********************] Customer will have until [***************] to make a
decision, effectively [********] PanAmSat from committing to any [*************]
of such [********************************]
The foregoing notwithstanding, if Customer requests
PanAmSat to provide [****************************] under Section 1.8(b)(ii)
above, Customer shall [*****] to have the right to [*****] a decision to
[***************] from a [*********************] Informal discussions or
exchange of correspondence by the parties regarding the possibility of a
[***************************] including (without limitation), consultation under
clause (d) below, that does not clearly state that it is intended as a notice
under this clause or a request under Section 1.8(b)(ii) shall not be deemed to
give rise to rights under this or related provisions.
(c) PanAmSat Obligated to Launch. Customer may [*********
****************] to [*********************] with the [***********************]
and [*********] of a [***************] and/or, a Successor Satellite under the
following circumstances:
(i) The obligation may be applied only to a
[*************************] for PAS-5, [**********************] and, if Customer
agrees to [************************] on a
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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[****************************************] of the Service Date of PAS-5, [***
****************************************************] each with at least twelve
"Mexico Ku-band Transponders," meeting the criteria set forth in clause (a)
above;
(ii) Customer shall use all reasonable efforts to
[*****************] exercise of rights under this Section 16.1 with other users
of PAS-5 so that the same [**********************] may be used to satisfy the
needs of each entity, but placement into service of such Satellite shall not be
unreasonably delayed to accommodate such coordination;
(iii) Customer must [******************] or enter
into [**********] of [**********************] for at [********************]
Ku-band transponders on each satellite that PanAmSat is required to cause to be
[**********************************] provided that PanAmSat may [******]
Customer to [**********************] Ku-band transponders if Customer is
otherwise unwilling to do so, but only if PanAmSat grants Customer the right to
assign to any third party for any lawful purpose the number of transponders
above [**] ("Extra Transponders") that Customer is required to take (subject to
Customer's ultimate obligations as under Section 10.6) and PanAmSat agrees to
use reasonable efforts to assist Customer in assigning its rights to such
capacity;
(iv) Except under circumstances in which Customer is
acting in response to a notice given to it by PanAmSat under clause (b) of this
Section 16.1 of PanAmSat's intention to launch a Collocated Satellite, all or
substantially all of the [*********] provided to it under this Agreement must be
[**********] Customer's DTH Service and, at the time that such required
Satellite is placed in service, all [***********] provided under this Agreement,
with the exception of any Extra Transponders that Customer may be
[****************] under the previous clause (iii), may only be [************]
the [**********] of DTH Service;
(v) PanAmSat shall not be obligated to proceed with
[*************] until all [************************************] or other
[********************************] and [***************************************]
have been obtained or resolved. PanAmSat shall use all reasonable efforts to
obtain [**************************************] and to resolve such other
issues, provided that PanAmSat will use efforts in respect of Customer's
[**********] at least as great as it has used or uses during the [*********]
period for other capacity. If permitted by law, PanAmSat will go
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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forward in advance of such resolution if Customer [****] for and [******] the
[*************] (e.g., [************] and [***************] of proceeding along
such a course);
(vi) PanAmSat may [********] Customer to [*****] as
and [***************] the date that [**********************] are due, [*******
*******] PanAmSat's [*******] in [***********] and [***********] the Satellite
(including, without limitation, the [*******] of [***************************
************************] or other [***************] and launch [***********] In
such event, PanAmSat shall [********] such [*******************] against the
[*****************] otherwise due for the Collocated or Successor Satellite
[************************] at a rate of [*******************] per annum;
(vii) If Customer requires PanAmSat to proceed with
the construction, launch and operation of a Successor or Collocated Satellite,
the purchase price or service fees for transponders on such satellite, unless
otherwise agreed, shall be set in accordance with the [**************]
established under Section 16.1(a) above. Other terms of the agreement to
[****************************] shall be negotiated between the parties in good
faith, shall be [**********************] in relevant part, to this Agreement,
[************] as appropriate to [************************] whether
[*******************************************************************************
***************************************] and other [***********] in
circumstances that reasonably require [*********************************
*******************************************] herein; and
(viii) If Customer exercises its rights under this
Section 16.1(c) to require the construction of a Successor Satellite, it shall
do so sufficiently in advance so that: (A) a Successor Satellite for PAS-5 can
be scheduled to be available (subject to the conditions stated herein, at
Customer's election) either [*************************************************
***********] of PAS-5 (an "Early Successor Satellite") or, provided that the
termination right specified in [**********] above is not exercised, by such time
that the underlying satellite is to be taken out of service in accordance with
[***********] above, and (B) a Successor Satellite for a Collocated Satellite,
if any, can be scheduled to be available by the time that such Collocated
Satellite is to be taken out of Service.
(d) Consultation. PanAmSat will consult with Customer on the
planning and design of Successor and Collocated Satellites (including, without
limitation, the Ku-band transponders, [***************] etc.) intended for
[********
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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************************] it being understood that [**********************]
(e.g., [******************] that [*************] may be [***********] to
Customer at [****************] and beyond the [*************] stated in clause
16.1(a)(ii) above, if applicable.
(e) Condition of [**************] Customer shall cease to have
any rights under this Article 16 if there is any [*********************
*************] unless a [*****************************] of Customer remains with
the [**********************] which shall include Televisa, who, as of the date
hereof or, if applicable, as of the date that TINTA becomes a Founding Partner
(but without regard to any equity held as of such date by anyone other than a
Founding Partner), held a majority of the voting equity of the Customer.
Customer shall [********************] under clause (c) above if Customer
[***********] to have any [****************] under Section 1.8(a)(ii)(B). If
Customer [*********] to have obligations under Section 1.8(a)(ii)(B), Customer
shall [*******] to have any further rights under this Section 16.1 vis-a-vis
Collocated Satellites other than with respect to [***************************
********************] that may be already subject to a [*********************
********************************] between PanAmSat and Customer at that time.
(f) Survival. The termination of this Agreement under Section
7.4 or, if the number of Service Transponders that meet their Service
Specifications [******************] under Section 7.3, shall not
[**************] the parties [***********************] under Section 16.1, until
such time, if it has not already done so, as PanAmSat makes available to
Customer for [************] or [***************] a Collocated or Successor
Satellite (including, without limitation, an "Early Successor Satellite"). If
Customer then enters into a [***************] Agreement, the [*****************
*******************] of this Section 16.1 shall be [***************************
************] in that agreement, provided that in [**] right shall such rights
[*******] beyond [****************] At such time as such [******************]
Agreement is entered or at the [********] "Negotiation Period" (as defined in
Section 16.1) without such a [****************] Agreement being entered (except
for the operation of Section 16.1(a)(vi) as to the satellite that had been under
negotiation, if a Customer's Offer was made), this Section 16.1 shall
[******************************]
(g) Definitions. For purposes of this Agreement, the term
"Successor Satellite" shall mean any satellite containing [*****************]
that PanAmSat launches or causes to be launched to replace PAS-5 (or, if
Customer makes a [****************] Agreement for [************] on a
[******************] to [*************]
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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such [**********************] at its presently assigned location or at such
[******************************] to which the FCC may authorize PAS-5 to be
moved, or, to the extent that this Section 16.1 survives the termination of this
Agreement under clause (f) above, the [**********************] of PAS-5 from
which Customer [******************] provided under this Agreement. For purposes
of this Section 16.1, the term "Collocated Satellite" shall mean any new
Satellite (i.e., [***] one that has [***********] launched as of the date of
this Agreement), other than successor satellite(s) to previously launched
satellites, containing Ku-band capacity that PanAmSat launches or causes to be
launched to be in the same Orbital Slot as PAS-5 while PAS-5 is still in
[*******************] or, to the extent that this Section 16.1 survives the
termination of this Agreement under clause (f) above, the
[***********************] of PAS-5 from which Customer [******] the
[*************] provided under this Agreement.
ARTICLE 17. GUARANTIES.
17.1 The Guaranties. Each party's entry into this Agreement is
expressly conditioned upon the contemporaneous execution and delivery to
PanAmSat of the several guaranties of Televisa, News and TINTA (the "Original
Guarantors") in the form set out in Appendix L. If said Guaranties are not
executed and delivered to PanAmSat on the date of this Agreement, this Agreement
shall be null and void. PanAmSat agrees that, if the
[********************************************************] in Customer is
[**********] PanAmSat shall, subject to PanAmSat's prior written consent, not to
be unreasonably withheld, conditioned or delayed, allow the
[***********************************************] to reflect their interests by
substituting for the [******************************] the guarantees of
[**************************************] (so that [********
***************************************************************] obligations of
Customer under this Agreement), provided that the [*****************] are of
[**********************************************************] (as of the date
hereof) and provide PanAmSat with their guaranties in the form set out in
Appendix K. PanAmSat acknowledges and agrees that the guarantors under this
Section 17.1 are third party beneficiaries of the provisions of this Section
17.1 regarding adjustments to guaranteed amounts and are entitled to enforce
said provisions directly against PanAmSat.
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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ARTICLE 18. TINTA OPTION.
TINTA may elect, on notice to PanAmSat, to be given no later than May
4, 1998, to be deemed a Founding Partner, in which event TINTA shall also be
deemed to be a Customer Company. If TINTA does not exercise this option, it will
not be deemed a Founding Partner and it will only be deemed to be a Customer
Company if (and for so long as) it has a voting equity in Customer that is
higher than ten percent (10%), it being understood that, as of the Execution
Date, TINTA's interest is exactly ten percent (10%). For the avoidance of doubt,
by operation of Section 1.4(c) of this Agreement, if TINTA becomes a Customer
Company, its "Affiliates" shall also be deemed Customer Companies.
ARTICLE 19. INDEX TO DEFINED TERMS.
For ease of reference, there follows a list of defined terms, which
identifies the place in this Agreement where each such term is defined:
Defined Term Defined At:
Additional Facilities Costs 1.6(c)
Additional Transponders 3.2(c)
Affiliate 1.4(b)
Agreement Preamble
Approved Companies 1.4(b)
Approved Participating Companies 1.4(b)
[*****************] 3.1
[*****************] 3.2(a)
Beam Preamble
Brazil Agreement Preamble
[*****************] 16.1(a)(i)
[*****************] 16.1(a)(ii)
[*****************] 16.1(g)
Confirmed Basis 5.3
Control 1.4(b)
[***] 16.1(a)(ii)
Customer Company 1.4(c)
Customer Preamble
Customer's DTH Service 1.4(b)
Customer's Offer 16.1(a)(v)
Customer-Provided Facilities 4.2
Decision Period 16.1(b)
[*****************] 3.2(c)
Deposit 3.1
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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DTH Service 1.4(a)
[*****************] 16.1(c)(viii)
[**] 3.2(a)
[*****************] 1.6(c)
Extra Transponders 16.1(c)(iii)
[*****************] 3.2(a)
Founding Partner in Competition 1.8(d)
Founding Partners 1.4(b)
Globo Preamble
Hughes Preamble
Indemnitee 9.6
Indemnitor 9.6
Initial Six Months 1.6(a)(i)
Intelsat 1.8(a)(iii)
Ku-band 1.4(a)
Ku-band units 7.4
Letter Agreement Preamble
Mexico Beam Preamble
Mexico Ku-band Transponders 16.1(a)(i)
Minimum Complement 2.1
Minimum Service Fee 1.6(a)
[*****************] 3.1
Multi-Country Agreement Preamble
Multi-Country Platform Preamble
Negotiation Period 16.1(f)
NetSat Preamble
News Preamble
Non-DTH Outlets 1.4(b)
Non-DTH Transponder 1.4(c)
Operational Requirements 4.1
Original Guarantors 17
PanAmSat Company 1.8(a)(i)
PanAmSat Group 9.3
PanAmSat Preamble
PAS-5 Preamble
PAS-5 Orbital Slot 1.8(D)
Payment Force Majeure 7.5A
[******************************************] 1.8(a)(i)(B)
[*****************] 1.4(a)
programming 1.4(a)
Protected Parties 5.3
[********] 3.2(b)
Satellite Preamble
[*****************] 3.2(c)
Service Date 2.1
Service Fee 3.1
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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Service Preamble
Service Specifications 2.1
Service Term 2.1
Service Transponders Preamble
simultaneous 5.3
[*********************************************] 1.8(a)(i)(B)
Spare Equipment 5.3
[*****************] 16.1(g)
Taxes 3.5
TINTA 1.4(b)
Televisa Preamble
Term 2.1
Termination Payment(s) 7.5
Territory 1.4(a)
Transaction Costs 1.6(c)
transmissions 1.4(a)
Transponder Preamble
TWTAs 5.3
[*****************] 3.2(d)
Defined terms include plural or singular versions and derivatives therefrom
(e.g., "Control," "Controlling").
Each of the parties has duly executed and delivered this Agreement as
of the day and year first written above.
PANAMSAT INTERNATIONAL SYSTEMS, INC.
By:
Name:
Title:
CORPORACION DE RADIO Y TELEVISION
DEL NORTE DE MEXICO, S. A. DE C.V.
By:
Name:
Title:
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
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LIST OF APPENDICES
A. Service Transponders
B. Satellite Description and Spare Equipment
C. Service Specifications
D. Operational Requirements
E. Intentionally Deleted
F. Intentionally Deleted
G. Disclosure Schedule
H. Sample Calculations
I. Approved Companies
J. Sample Subordination Provision
K. Intentionally Deleted
L. Form of Guaranty
M. Form of Transmission Plan
Exhibit 23.2
Letterhead of Deloitte & Touche LLP
Stamford Harbor Park Telephone (203) 708-4000
333 Ludlow Street Facsimile (203) 708-4797
P.O. Box 10098
Stamford, Connecticut 06904
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 of Registration Statement
No. 333-56227 of PanAmSat Corporation on Form S-4 of our report dated January
23, 1998 (except for Note 4, which is dated March 9, 1998) appearing in the
Prospectus which is part of this Registration Statement and to the reference
to us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ Deloitte & Touche LLP
June 24, 1998
Exhibit 23.3
Letterhead of Arthur Andersen LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm), included in or made a part of Amendment
Number 1 of this Registration Statement on Form S-4 (File No. 333-56227), dated
January 27, 1997 which accompanies the consolidated financial statements of
PanAmSat Corporation and subsidiaries and predecessor entity as of December 31,
1996 and 1995, and for the years ended December 31, 1996, 1995 and 1994, of
PanAmSat Corporation.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Stamford, Connecticut
June 24, 1998
Exhibit 25.1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
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CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
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THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
New York 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 Park Avenue
New York, New York 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
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PANAMSAT Corporation
(Exact name of obligor as specified in its charter)
Delaware 95-4607698
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
One Pickwick Plaza
Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
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6% Notes due January 15, 2003
6 1/8% Notes due January 15, 2005
6 3/8% Notes due January 15, 2008
6 7/8% Notes due January 15, 2028
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<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New York
12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
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<PAGE>
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 11th day of June, 1998.
THE CHASE MANHATTAN BANK
By /s/Sheik Wiltshire
Sheik Wiltshire, Second Vice President
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<PAGE>
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business March 31, 1998, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Millions
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ........................................................$ 12,037
Interest-bearing balances ................................................ 4,054
Securities: ..................................................................
Held to maturity securities.................................................... 2,340
Available for sale securities.................................................. 50,134
Federal funds sold and securities purchased under
agreements to resell ..................................................... 24,982
Loans and lease financing receivables:
Loans and leases, net of unearned income $127,958
Less: Allowance for loan and lease losses 2,797
Less: Allocated transfer risk reserve ...... 0
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Loans and leases, net of unearned income,
allowance, and reserve ................................................... 125,161
Trading Assets ................................................................ 61,820
Premises and fixed assets (including capitalized
leases)................................................................... 2,961
Other real estate owned ....................................................... 347
Investments in unconsolidated subsidiaries and
associated companies...................................................... 242
Customers' liability to this bank on acceptances
outstanding .............................................................. 1,380
Intangible assets ............................................................. 1,549
Other assets .................................................................. 11,727
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TOTAL ASSETS .................................................................. $298,734
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</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits
In domestic offices ............................................ $96,682
Noninterest-bearing .....................................$38,074
Interest-bearing .........................................58,608
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In foreign offices, Edge and Agreement,
subsidiaries and IBF's........................................... 72,630
Noninterest-bearing ...................................$ 3,289
Interest-bearing ..................................... 69,341
Federal funds purchased and securities sold under agree-
ments to repurchase .................................................... 42,735
Demand notes issued to the U.S. Treasury ........................ 872
Trading liabilities .................................................... 45,545
Other borrowed money (includes mortgage indebtedness
and obligations under capitalized leases):
With a remaining maturity of one year or less .................... 4,454
With a remaining maturity of more than one year
through three years........................................ 231
With a remaining maturity of more than three years............... 106
Bank's liability on acceptances executed and outstanding 1,380
Subordinated notes and debentures ..................................... 5,708
Other liabilities...................................................... 11,295
TOTAL LIABILITIES ..................................................... 281,638
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EQUITY CAPITAL
Perpetual preferred stock and related surplus 0
Common stock ........................................................... 1,211
Surplus (exclude all surplus related to preferred stock)... 10,291
Undivided profits and capital reserves ................................. 5,579
Net unrealized holding gains (losses)
on available-for-sale securities ............................................... (1)
Cumulative foreign currency translation adjustments ......... 16
TOTAL EQUITY CAPITAL ........................................................ 17,096
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TOTAL LIABILITIES AND EQUITY CAPITAL ...................................... $298,734
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</TABLE>
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR.)
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