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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NO. 0-22531
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PANAMSAT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-4607698
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE PICKWICK PLAZA, GREENWICH, CONNECTICUT 06830
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 622-6664
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.01 per share
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[_]
As of March 25, 1999, the registrant had outstanding 149,244,362 shares of
Common Stock. As of such date, the aggregate market value of voting stock held
by non-affiliates of the registrant was approximately $613,190,264.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting
of Stockholders of PanAmSat Corporation, a Delaware corporation ("PanAmSat" or
the "Company") scheduled to be held on May 5, 1999 (to be filed not later than
120 days after the end of the Company's fiscal year) is incorporated by
reference into Part III hereof.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K contains certain forward-looking information
under the captions "Item 1. Business" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Private
Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain
forward-looking statements so long as such information is identified as
forward-looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected in the information. When used in this Annual
Report on Form 10-K, the words "estimate," "project," "plan," "anticipate,"
"expect," "intend," "outlook," "believe," and other similar expressions are
intended to identify forward-looking statements and information. Actual
results may differ materially from anticipated results due to certain risks
and uncertainties, including without limitation: (i) risks associated with
technology (including without limitation delayed launches, launch failures and
in-orbit failures), (ii) regulatory risks, (iii) risks associated with the
year 2000 issue, and (iv) litigation. Such factors are more fully described
under the caption "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." PanAmSat cautions that the foregoing
list of important factors is not exclusive. Further, PanAmSat 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.
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ITEM 1. 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 (as defined below). 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 Systems, Inc., a
Delaware corporation ("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 19 satellites provides state-of-the-art video
distribution and telecommunications services for customers worldwide.
Currently, an aggregate of more than 125 million households worldwide are
capable of receiving television programming carried by PanAmSat satellites.
PanAmSat satellites also serve as the transmission platforms for six 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
125,000 VSATs worldwide relay communications over PanAmSat satellites, and
nearly 50 ISPs in non-U.S. countries access the U.S. Internet backbone via
PanAmSat satellites.
The Company operates its business as a single operating segment and
maintains comprehensive and discrete financial information only for this
single operating segment. However, the Company does compile summary revenue
information by geographical region and for the three communications services
areas that it serves, namely: video services, telecommunications services and
other services, and has included such information herein for additional
analysis. See "--Services" and Note 1 to the Consolidated Financial
Statements.
THE MERGER
On May 16, 1997 PAS Merger Corp., a Delaware corporation, merged with and
into PanAmSat International (then operating under its previous name, PanAmSat
Corporation) and the Galaxy Satellite Services division ("Galaxy") of Hughes
Communications, Inc. ("HCI") was contributed to PanAmSat, with the result that
PanAmSat International became a wholly-owned subsidiary of PanAmSat (the
"Merger"). 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 HCI constituted approximately 71.5%
of the outstanding shares of PanAmSat Common Stock. On May 1, 1998, HCI
increased its ownership of PanAmSat Common Stock to approximately 81% of the
outstanding shares.
At the time of the Merger, Galaxy was a leading provider of commercial
satellite services in the United States, with a fleet consisting of ten
satellites. 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.
THE SATELLITES
GENERAL
PanAmSat operates the world's largest commercial network of geostationary
earth orbit ("GEO") communications satellites. The Company's fleet currently
consists of 19 satellites and is expected to consist of 24 satellites by the
end of 2000, with the launch of six additional satellites planned for 1999 and
2000 and the retirement of one existing satellite. PanAmSat's fleet covers
more than 98% of the world's population. The
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Company's satellite coverage falls into four regional categories--U.S.
domestic, Atlantic Ocean Region ("AOR"), Pacific Ocean Region ("POR") and
Indian Ocean Region ("IOR")--that comprise its global satellite network.
Virtually complete global 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.
GEO satellites are located in orbit approximately 22,300 miles above earth
and can blanket large geographic areas with signal coverage. GEO satellites
can be accessed through an uplink station virtually anywhere within the
satellite's footprint.
Communications satellites typically are evaluated on (i) their coverage
area, (ii) the quality of the signal transmitted to the coverage area and
(iii) the availability of the transponders. Footprint is a measurement of the
breadth of a satellite's coverage. A key measurement of signal quality is the
intensity of transmission power in the coverage area. Higher power signal
enables a customer to use smaller, lower-cost antennas on the ground.
Availability is determined by considering a satellite's operational "lifetime"
as well as the number of transponders capable of providing service.
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 in most cases 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 new 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 "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Spacecraft Developments" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Risk Factors--Risks
Associated with Technology." The Company's launch and construction strategy is
to replace existing satellites as they approach the end of 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
either to co-locate the older satellite with the new satellite or to move the
older 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 "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors--Regulatory Risks."
U.S. FOCUSED FLEET
PanAmSat is a 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 and data
communications applications. PanAmSat's current U.S. fleet consists of nine
satellites. Four satellites, Galaxy I-R, Galaxy V, Galaxy VI and Galaxy IX,
provide solely C-band video services and are dedicated to the cable sector,
carrying most of the major television networks and full-time cable programming
in the United States. 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 is expected to be taken out of service in 1999. Galaxy VII is a
"hybrid" satellite capable of providing both video and data services. Galaxy
III-R is a hybrid satellite capable of providing video, data and DTH services.
Galaxy VI provides C-band video and data services and currently serves as an
interim in-orbit back-up satellite for Galaxy IV, which was declared a total
loss in May 1998. See
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"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Spacecraft Developments." With global coverage,
PanAmSat can offer its large U.S. customers the ability to meet their
geographically diverse programming needs.
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 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. When
deployed, the Company anticipates that a cable neighborhood will be created on
Galaxy X-R. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Spacecraft Developments," "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Satellite Deployment Plan" and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations--Risk Factors--
Risks Associated with Technology."
PanAmSat's U.S. fleet also delivers telecommunications services for private
business networks (VSATs) and Internet applications (ISPs). Carriers and
network operators use PanAmSat's U.S. satellites as transmission pipelines for
their customers' communications networks.
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, PAS-6B and Galaxy VIII-i, providing coverage of
the AOR, PAS-2 and PAS-8, providing coverage of the POR and PAS-4 and PAS-7,
providing coverage of the IOR. 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, PAS-6B and Galaxy VIII-i, which are
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 or planned DTH
services in Latin America, 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 to nearly 50 ISPs in non-U.S.
countries. The coverage areas of the non-U.S. satellites are determined by the
shape of the satellite beams, and with minor exception are not alterable after
launch. PAS-5 has a movable beam that can be focused over different regions,
and certain of its transponders may be transferred from one beam to another if
market conditions warrant. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Spacecraft Developments" and
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Factors--Risks Associated with Technology."
PLANNED SATELLITES/SATELLITE DEPLOYMENT PLAN
Over the past eighteen months, various technical issues have affected
certain satellites (PAS-6, Galaxy VII, PAS-4, PAS-5 and Galaxy VIII-i) and
resulted in the complete loss of one satellite in orbit (Galaxy IV) and one
during launch (Galaxy X). For further information on these technical issues,
see "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Spacecraft Developments." In response to these
developments, the Company has modified its previously announced expansion and
restoration strategy to provide additional support for its existing fleet and
customers while also providing additional capacity (the "Satellite Deployment
Plan"). See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Satellite Deployment Plan."
Pursuant to the Satellite Deployment Plan, PanAmSat expects to launch six
additional satellites by late 2000, consisting of three new satellites for
Latin America (PAS-1R, PAS-9 and Galaxy III-C) and three new satellites
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for the United States (Galaxy XI, Galaxy IV-R and Galaxy X-R) by the end of
2000. Each of these satellites, described further below, is expected to be a
"hybrid" satellite capable of offering C-band and Ku-band services. In
addition, certain of the Company's existing satellites will be relocated upon
the commencement of service of certain of these new satellites.
Galaxy XI. Galaxy XI will be an HS-702 model spacecraft, designed to serve
both the U.S. market and Latin America. It is scheduled to be launched in the
third quarter of 1999 from an Ariane 4 launch vehicle and is scheduled to be
the first HS-702 placed into operation by any commercial satellite operator.
As part of the Satellite Deployment Plan, the Company has modified the
configuration of Galaxy XI to operate in several of PanAmSat's orbital slots
covering the United States. Galaxy XI will ultimately be located at
91(degrees) W.L., replacing Galaxy VII, which will be moved to a location to
be determined.
PAS-1R. PAS-1R will be an HS-702 spacecraft. PAS-1R will be launched at the
Company's option on either an Ariane 4 or Ariane 5 launcher. The Ariane 5 has
not yet been used by any commercial satellite operator. The Company plans to
use PAS-1R in the Americas, Europe and Africa. It is scheduled for launch in
the third or fourth quarter of 1999. PAS-1R is intended to replace and
significantly expand upon the capacity offered by PAS-1, which has reached the
end of its design life but may be used to back up PAS-1R or moved to another
orbital location to be determined.
Galaxy X-R. Galaxy X-R, a replacement for Galaxy X, will be an HS-601 HP
model spacecraft, designed to cover the United States. It is scheduled to be
launched during the fourth quarter of 1999 aboard an Ariane 4 or Ariane 5
launch vehicle and to occupy an orbital position located at 123(degrees) W.L.
Upon the commencement of Galaxy X-R operation, Galaxy IX, a C-band satellite
temporarily operating at 123(degrees) W.L., will be relocated to 127(degrees)
W.L. SBS-5 will then be taken out of service.
Galaxy IV-R. Galaxy IV-R will be an HS-601 HP model spacecraft. It is
scheduled for launch during the fourth quarter of 1999 on a Proton launch
vehicle. Galaxy IV-R will serve at 99(degrees) W.L. as the replacement for
Galaxy IV. 99(degrees) W.L. is the current location of Galaxy VI, which will
then be moved to 74(degrees) W.L., where it will continue to provide back-up
services.
PAS-9 (formerly announced as an undesignated international satellite). This
satellite will be an HS-601 HP, and will be located in the AOR. The Company
anticipates that it will be launched aboard the Sea Launch launch vehicle in
the first quarter of 2000, subject to certain conditions. The Sea Launch
successfully completed a demonstration launch but has not been used by any
governmental or commercial satellite operator. The orbital location of PAS-9
has not yet been determined. The Company's Mexico DTH customer which had
contracted for service on PAS-5 instead has contracted to take service on PAS-
9. The Ku-band transponders on PAS-5 will not be resold on a full-time basis,
and the Company anticipates that this will minimize potential disruptions to
PAS 5's C-band customers related to the battery cell anomalies affecting
PAS-5.
Galaxy III-C (formerly known as PAS-9). This satellite will be an HS-702
spacecraft, designed to cover the United States and Latin America. It is
scheduled to be launched in the third quarter of 2000 and to occupy an orbital
position located at 95(degrees) W.L. Upon the commencement of operation of
Galaxy III-C, the Company currently intends to move Galaxy III-R to another
orbital location over the United States.
One of the Company's existing satellites, SBS-5, has reached the end of its
expected life, and is expected to be removed from service by mid-2000,
resulting in a planned total fleet of 24 satellites, including multiple
satellites in each ocean region worldwide and one in-orbit spare satellite
(Galaxy VI) for the United States. Upon the successful transition of services
from PAS-6 to PAS-6B, it is anticipated that the PAS-6 satellite will be used
for backup or other services from a location to be determined.
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The implementation of the plan is subject to regulatory approval by the
Federal Communications Commission (the "FCC"). The Company expects that after
the successful launch of the previously described satellites, the revenues
attributable to the Galaxy VI, Galaxy VII, PAS-5 and PAS-6 satellites will be
at reduced levels compared to the Company's other satellites. The Company has
not yet determined whether revenue will be adversely impacted on Galaxy III-R
after completion of the Satellite Deployment Plan. No assurance can be given
that commercially suitable orbital locations will be obtained for all of these
satellites. Successful implementation of the Satellite Deployment Plan is
subject to risks attendant to the Company's business and the requirement of
additional capital. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Risk Factors."
For a discussion of the technological and regulatory risks associated with
the Company's planned satellites, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Risk Factors."
There can be no assurance that the Company will successfully implement the
Satellite Deployment Plan. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
SATELLITE PROCUREMENT AND LAUNCH ARRANGEMENTS
Satellite Procurement. The Company currently has six satellites under
construction and development. The Company has agreements with Hughes Space and
Communications Company ("HSC"), an affiliate of the Company, for construction
of Galaxy XI, Galaxy IV-R, Galaxy X-R, PAS-1R, Galaxy III-C and PAS-9. In
addition, the Company has an option to order up to three additional satellites
from HSC on an expedited delivery schedule, anticipated to be seven months
from exercise of the option (subject to certain conditions). The normal
delivery time for a satellite is approximately 12 to 24 months. 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
payments in the event of late delivery due to the fault of the manufacturer.
Each contract provides for a limited warranty. 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
additional damages as specified in such contracts. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
generally and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Risk Factors--Risks Associated with
Technology." For a discussion of the Company's Satellite Deployment Plan, see
"--The Satellites," "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Satellite Deployment Plan" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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 provides 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 "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--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 other entities.
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INSURANCE
Launch Insurance. 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 and Galaxy VIII-
i. 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. 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 to the
spacecraft for any reason (other than normal policy exclusions). The launch
insurance policy for Galaxy VIII-i includes claims arising from occurrences up
to two years after launch. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Spacecraft Developments" and
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Factors--Risks Associated with Technology."
The Company has not yet obtained launch insurance for any of its planned
launches. There can be no assurance that the Company will be able to obtain
insurance for its future satellites on terms comparable to its existing
satellites. Insurance may not be available for conditions detected in a policy
period that do not result in losses during the policy period.
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. Under
the 1997 program, typical in-orbit insurance periods run for three years.
PanAmSat generally obtains in-orbit insurance with respect to its satellites
in an initial amount approximately equal to the unamortized 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, typically based on a declining book value for 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. Partial failures or anomalies which occur
during a policy period that do not give rise to a claim may be excluded in
renewal policies.
PanAmSat's in-orbit policies typically include similar customary commercial
satellite insurance exclusions as those contained in its launch policies.
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SALE-LEASEBACK ARRANGEMENTS
The Company entered into sale-leaseback arrangements with respect to certain
transponders on Galaxy VII and Galaxy III-R in September 1993 and February
1996, respectively. Pursuant to such arrangements, Galaxy sold 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 semiannual lease
payments and operate and maintain such transponders and the applicable
satellites for terms of 11 years and 6.9 years, respectively. 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 Corporation ("GM") (as successor-in-interest to Hughes Electronics
Corporation ("Hughes Electronics")). In connection with the Merger, the
Company agreed to pay and indemnify GM for performing any of its obligations
under such guarantees.
The Company has options under the sale-leaseback arrangements to repurchase
the transponders prior to the end of the respective lease terms. In January
1999, the Company repurchased 12 C-band and 10 Ku-band transponders on the
satellite for approximately $141.3 million (including a make-whole premium of
$2.7 million) pursuant to such an option. The Company has the right to
repurchase the remaining transponders on Galaxy VII and the transponders on
Galaxy III-R in July 1999 for approximately $57.3 million and $170.3 million,
respectively, plus a make-whole premium (on the Galaxy VII transaction only)
in the event notes issued by the owners of the transponders are prepaid by the
Company rather than assumed at the time of repurchase. In the event that the
notes related to Galaxy VII are assumed, the Company's purchase price for the
transponders on Galaxy VII will be paid by (i) cash payment of $32.8 million
and (ii) assumption of 6.90% notes with a final maturity of July 2002 in an
aggregate principal amount of $24.5 million. In the event that the notes
related to Galaxy III-R are assumed, the Company's purchase price for the
transponders on Galaxy III-R will be paid by (i) cash payment of $46.2 million
and (ii) assumption of floating rate notes with a final maturity of January
2002 in an aggregate principal amount of $124.1 million.
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.
SERVICES
The Company operates its business as a single operating segment and
maintains comprehensive and discrete financial information only for this
single operating segment. However, the Company does compile summary revenue
information by geographical region and for the three communications services
areas that it serves, namely: video services, telecommunications services and
other services, and has included such information herein for additional
analysis. In the years ended December 31, 1998 and December 31, 1997,
PanAmSat's revenues of $767.3 million and pro forma revenues of $756.0
million, respectively, were derived from such service areas as follows:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF 1998 OF 1997
SERVICES REVENUES REVENUES
- -------- ---------- ----------
<S> <C> <C>
Video Services............................................ 73% 80%
Telecommunications Services............................... 21% 16%
Other Services............................................ 6% 4%
--- ---
Total..................................................... 100% 100%
</TABLE>
Revenues derived from Hughes Electronics and its affiliates comprised
approximately 16% of PanAmSat's revenues in 1998, making Hughes Electronics
and its affiliates the Company's largest customer.
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See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
VIDEO SERVICES
PanAmSat's Video Services provide long-term, full-time, part-time and
occasional satellite services for the transmission of news, sports,
entertainment and educational 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,
value-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" (an extension of the cable neighborhood concept)
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' 11,500
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 the BBC, Disney, Doordarshan (India), China Central Television,
Cisneros Group (Venezuela), ESPN, NBC, Fox, Sony, Tele-Communications, Inc.,
Turner Broadcasting and Viacom.
U.S. law has mandated that television broadcasters begin to broadcast their
signals both conventionally and in High Definition Television ("HDTV") format.
HDTV provides a higher quality video and audio signal than conventional analog
broadcasts and requires special television and decoder equipment to be viewed.
The Company anticipates that as HDTV becomes more prevalent, its satellites
will be used for the full-time distribution of HDTV signals to cable systems,
network affiliates, DTH customers and other redistribution systems.
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, Galaxy Latin America, MultiChoice/Orbicom, Sky Latin America and
South African Broadcasting Corp./Sentech.
PanAmSat has arrangements with customers to operate platforms on five
satellites for six current or planned DTH services in Latin America, South
Africa, 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 24,000 hours of total
special events transmissions in 1998. 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
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<PAGE>
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 (VSATs),
(iii) Internet access (ISPs) 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-Worldcom, 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 125,000 VSAT antennas worldwide
currently relay communications over PanAmSat satellites. The Company's largest
single telecommunications customer is Hughes Network Systems, Inc. ("HNS"), an
affiliate of the Company, which uses the equivalent of more than 22 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 and the University of
Southern California.
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
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<PAGE>
Internet data internationally at nearly 20 times the speed of traditional
telephone links. PanAmSat currently provides Internet services to nearly 50
non-U.S. ISPs. PanAmSat's Internet services customers include HNS, Microcom
Systems (Nigeria) and Planet Internet (New Zealand).
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. PanAmSat's SPOTbytes SM
service is marketed primarily to non-U.S. ISPs and corporations that require
high-speed access to the U.S. Internet backbone. The service is configured in
a variety of ways to provide easily scaleable, cost-effective Internet access.
The Company also is pursuing the development of shared carrier and multiple
channel services which are designed to use Internet-protocol ("IP") based
broadcasting platforms to deliver broadband IP and video services to regional
users as well as specially addressed user groups.
Telephony. The Company provides domestic and international satellite
services for public switched telephone network ("PSTN") transmissions.
PanAmSat currently offers international satellite based telephony services to
and from Latin America. These services include (i) delivering calls from Latin
America via a PanAmSat satellite to a U.S. telephone carrier that routes the
call to its final destination within or outside of the United States, and (ii)
delivering calls delivered to PanAmSat from U.S. telephone carriers to their
final destinations within Latin America via a PanAmSat satellite. In addition,
PanAmSat has implemented a secondary telephony service platform which is based
on Demand-Assigned-Multiple Access ("DAMA") technology to terminate more
efficiently voice traffic by routing the traffic to its intended destination
directly from the satellite, rather than a PanAmSat teleport.
The Company provides this service primarily to customers who deliver traffic
to a wide variety of locations and have relatively low volume between any two
points. The Company believes that DAMA provides customers with low cost
routing of their telephone calls. PanAmSat intends to extend these services
from Latin America to Europe and other regions of the world, especially in
locations where traditional telephone networks are limited. 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. PanAmSat
charges on a per minute basis for these services. The Company believes
competition for long-distance services and significant deregulation in several
countries could create new service opportunities.
PanAmSat's ability to provide domestic and international PSTN services is
restricted by various telecommunications regulations in most countries. See
"--Government Regulation."
OTHER SERVICES
Telemetry, Tracking and Control. PanAmSat provides TT&C services for 20
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 back-up 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 back-up C-band capacity on the Galaxy VI satellite. Generally,
subject to the terms of individual contracts, these customers are entitled to
replacement capacity on Galaxy VI if a transponder failure occurs 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 back-up 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(degrees) 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
10
<PAGE>
were subject to preemption if their capacity was required to serve as a back-
up transponder. In connection with the failure of Galaxy IV, all of the
Company's existing customers on Galaxy VI were preempted and most were
provided capacity on other PanAmSat satellites to use until a new back-up
satellite becomes available. Currently, these customers are not required to
pay for the backup service until Galaxy XI is launched and Galaxy VI becomes
available as a back-up satellite. PanAmSat intends to return Galaxy VI to its
status as an in-orbit spare satellite upon the launch of Galaxy XI to
99(degrees) W.L. during the third quarter of 1999. For a discussion of the
recent developments affecting Galaxy IV and Galaxy VI, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Spacecraft Developments." For a discussion of the Company's
Satellite Deployment Plan, see "--The Satellites," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Satellite Development Plan" and "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
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 19 satellites, seven teleport or TT&C facilities and more than 555
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, private business networks and Internet-related services.
PanAmSat's core resources are its global fleet of satellites and its
experienced staff of professionals. 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
six additional satellites by late 2000. These new satellites are designed to
provide replacement and 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 "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Spacecraft Developments" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors--Risks Associated With Technology." For a discussion
of the Company's Satellite Deployment Plan, see "--The Satellites," "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Satellite Development Plan" and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
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 12 V-band slots and six additional Ka-
band slots. There can be no assurance that the Company will be successful in
obtaining authorizations to operate at all or a portion of the locations for
which applications have been submitted. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations--Risk Factors--
Regulatory Risks."
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<PAGE>
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.
The Company may seek to expand its global service offerings through
corporate acquisitions, joint ventures and other strategic transactions.
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 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 from 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 SPOTbytes SM 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 Neighborhoods
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
neighborhoods 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.
PanAmSat neighborhoods 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. A popular anchor tenant will
draw many cable head-ends to point their receive dishes at a satellite. This
attracts additional programmers that want to join the programming neighborhood
with knowledge that many cable head-ends will be capable of receiving their
signal with the same dish used for the anchor tenant.
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.
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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 and its subsidiaries also have sales and marketing
offices in Long Beach, California, Coral Gables, Florida, Sydney, Australia,
London, England, Tokyo, Japan, Johannesburg, South Africa, Seoul, Korea and a
representative office in Mexico City, Mexico, 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 principal global competitor is Intelsat, an international treaty
organization of over 140 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. In recent years, Intelsat has launched
higher-powered satellites that are capable of providing video distribution,
DTH and private business network services. According to Intelsat's 1997 annual
report, video services comprised 29 percent of Intelsat's operating revenue.
Intelsat traditionally has provided capacity directly to its signatories,
which then market such capacity to their customers. Over 95 countries,
however, now permit some form of direct access to the Intelsat system and the
FCC has proposed permitting direct access, rather than through Comsat, in the
United States.
In March 1998, Intelsat approved the creation of an affiliate company that
would market satellite services directly to end users. In November 1998,
Intelsat transferred to this affiliate, known as New Skies Satellites N.V.
("New Skies"), five operating satellites plus a sixth satellite that was under
construction. Although ostensibly independent of Intelsat, New Skies is owned
by Intelsat and Intelsat's signatories. In light of this common ownership and
other continuing connections between the two organizations, PanAmSat has asked
the FCC to evaluate whether New Skies satisfies the FCC's requirements for
entry to the U.S. market by affiliates of Intelsat.
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. In February 1999, the FCC changed the manner in which
it regulates Comsat's pricing for these dominant carrier markets, switching
from rate of return regulation to an incentive-based pricing policy.
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
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<PAGE>
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 essential to successful implementation of the Company's business
plan. There can be no assurance that similar legislation will be passed by the
U.S. Senate or a that 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. ("GE Americom") and Lockheed
Martin Corp. ("Lockheed Martin"). For instance, Loral acquired AT&T Skynet (a
domestic U.S. satellite operator) in 1997, acquired Orion Network Systems (a
transatlantic satellite operator with plans to launch additional international
satellites in other regions) in 1998 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) in 1997. An
application has been filed requesting the FCC's approval for Lockheed Martin
to acquire up to 49 percent of Comsat's stock. PanAmSat has opposed the
application, arguing that the proposed transaction would, among other things,
violate the Communications Satellite Act, give Lockheed Martin de facto
control of Comsat, and lessen competition. Comsat and Lockheed Martin also are
seeking changes to the Communications Satellite Act that would enable Lockheed
Martin to purchase the remaining 51 percent of Comsat's stock.
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 Americom, 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 typically takes
approximately three or more years and costs approximately $200 million to $250
million or more. 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 currently 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 Skybridge and Teledesic/Celestri, are also not expected
to be direct 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, Teledesic/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.
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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 current
services. The primary use of optical fiber cables is to carry high-volume
telephony communications on a point-to-point basis. Transcontinental and
intercontinental 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. When PanAmSat begins to offer Internet-
related services on a larger scale, it may encounter competition from
companies offering optical fiber cable services, including Quest
Communications and Global Crossing.
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 Launch and Operate Satellites. The FCC grants
authorizations to satellite operators that 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 the FCC gives licensees a
"replacement expectancy" with respect to the replacement of their satellites.
At the end of a ten-year license term, a satellite that has not been replaced,
or that has been relocated to another orbital location following its
replacement, may be able to continue operating under a grant of special
temporary authority. Such operations, however, are secondary, and there can be
no assurance that the satellite will be permitted to continue operating after
the expiration of the initial ten-year license term. 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. PanAmSat has final FCC authorization
for one additional satellite, but the authorization does not cover certain
design changes that are the subject of a pending modification application.
PanAmSat has special temporary authority to operate the satellite as modified
on an interim basis. In addition, PanAmSat has a final authorization to
operate nine satellites in the Ka-band (one AOR, to be located at 58(degrees)
W.L.; two POR, to be
15
<PAGE>
located at 149(degrees) E.L. and 173(degrees) E.L.; four IOR, to be located at
36(degrees) E.L., 40(degrees) E.L., 48(degrees) E.L., and 124.5(degrees) E.L.;
and two U.S., to be located at l03(degrees) W.L. and 125(degrees) W.L.).
PanAmSat has also requested authority to operate five of these satellites in
the BSS band, and to operate six 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(degrees) E.L. In order
to finalize this authorization, PanAmSat must make a full financial showing
and complete its consultation with Intelsat for the satellite.
Except as noted, 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 additional satellites under interim or special temporary
authority. PanAmSat operates PAS-7 at 68.5(degrees) E. L. pursuant to a grant
of special temporary authority. PanAmSat is authorized to operate only the Ku-
band transponders on the satellite. Brasilsat Al previously was providing U.S.
domestic service from 79(degrees) 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. Pursuant to a grant of special
temporary authority, the Company has relocated Brasilsat A1 to 144(degrees)
W.L. and it is operating there. The Company also has amended its request for
an extension of interim authority to specify the 144(degrees) W.L. orbital
location. Another satellite, SBS-4, exceeded its regular license term in 1994
and, since that time, has operated at 77(degrees) W.L. under successive grants
of special temporary authority. SBS-4 must be relocated once the U.S.
satellite assigned to 77(degrees) W.L. is launched. There can be no assurance
that SBS-4 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(degrees) W.L. to 99(degrees)
W.L., to provide replacement C-band capacity. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Spacecraft Developments" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--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 (in the U.S.), (2) an application for a hybrid C/Ku-band
satellite to replace its separate C-band and Ku-band satellites at 74(degrees)
W.L.; and (3) an application to replace PAS-1 with PAS-1R. 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(degrees) W.L. and 93(degrees) W.L.) because, after PanAmSat's applications
were filed, the FCC assigned these orbital locations to other entities.
PanAmSat has requested that the 79(degrees) W.L. application be associated
with the 83(degrees) W.L. orbital location as a C-band only satellite.
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.
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<PAGE>
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.
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. The FCC requires applicants to demonstrate that
their proposed satellites would be compatible with the operations of adjacent
satellites. The FCC expects adjacent satellite operators to coordinate with
one another to minimize frequency conflicts, and it does not become involved
unless the operators are unable to resolve their conflicts. FCC involvement is
rare.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Factors--Regulatory Risks" generally and for a
description of certain frequency coordination issues affecting PAS-6, PAS-7,
and Galaxy VIII-i.
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 consultation 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. "Space segment capacity" consists solely of capacity on a
given satellite without any uplink, downlink or other value-added services.
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.
Most countries permit satellite carriers to provide space segment capacity
without any prior licensing or authorization. In others, however, a license is
required for provision of space segment capacity. PanAmSat has obtained such
licenses in Argentina, Colombia, Ecuador and Pakistan. Additionally, the
Company has sought
17
<PAGE>
service-type licenses, in order to provide certain space segment capacity
directly to end users. PanAmSat has obtained such licenses in Australia,
France, Germany Japan and the United Kingdom.
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 consult 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 "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Factors--Regulatory Risks."
EMPLOYEES
At December 31, 1998, PanAmSat had approximately 555 full-time employees.
PanAmSat believes that its relations with its employees are good.
ITEM 2. 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, Colorado teleport. The
18
<PAGE>
Company owns its teleport in Long Beach, California and leases offices in Long
Beach where its network operations center is located.
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; Tokyo, Japan; Seoul, Korea; and Mexico City,
Mexico. PanAmSat's leases for its foreign offices have been entered into upon
terms that PanAmSat believes to be reasonable and customary.
ITEM 3. LEGAL PROCEEDINGS
On or about October 25, 1996, an action was commenced by Comsat against
PanAmSat, News Corporation Limited ("News") and Grupo Television, 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 PanAmSat, the complaint alleges that PanAmSat, alone and
in conspiracy with Televisa, intentionally interfered with the alleged
agreement and with Comsat's economic relationship with News. Comsat had
previously filed a similar action in the United States District Court for the
District of Maryland. By order dated October 10, 1996, the Maryland District
Court dismissed without prejudice the complaint in that action on the ground
that the court lacked personal jurisdiction over all of the defendants. The
complaint in the present action seeks actual and consequential damages, and
punitive or exemplary damages in an amount to be determined at trial.
Following the completion of pretrial discovery, all defendants moved for
summary judgment dismissing the case. These motions are awaiting decision.
PanAmSat believes this action is without merit. It 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 PanAmSat.
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 "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Spacecraft Developments." The Company has filed a
motion to dismiss the case for lack of personal jurisdiction, which is pending
with the court. The complaint seeks compensatory damages in an amount not to
exceed $70,000 per plaintiff. The Company believes that the foregoing action
is frivolous and without merit, and PanAmSat intends to vigorously contest
this matter although there can be no assurance that PanAmSat will prevail.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1998, no matters were submitted to a
vote of stockholders through the solicitation of proxies or otherwise.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PanAmSat Common Stock is listed on the Nasdaq National Market and commenced
trading on May 19, 1997 under the symbol "SPOT".
The following table sets forth, for the calendar periods indicated, the high
and low closing sales price per share for PanAmSat Common Stock, as reported
by the Nasdaq National Market and the Dow Jones News Retrieval Service.
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ---- -----
<S> <C> <C>
Second Quarter (from May 19, 1997)........................... $30 3/8 $ 27 1/2
Third Quarter................................................ $44 1/2 $ 29 1/4
Fourth Quarter............................................... $46 1/4 $ 36 7/8
<CAPTION>
1998
----
<S> <C> <C>
First Quarter................................................ $60 7/8 $ 37 7/16
Second Quarter............................................... $64 7/8 $ 51
Third Quarter................................................ $57 7/8 $ 35 1/8
Fourth Quarter............................................... $42 $ 28 7/8
</TABLE>
At March 25, 1999, there were approximately 105 holders of record of
PanAmSat Common Stock.
To date, the Company has not declared or paid cash dividends on PanAmSat
Common Stock. The Company presently intends to retain future earnings to
support the growth of its business and, therefore, does not anticipate paying
cash dividends in the near future. The payment of any future dividends on
PanAmSat Common Stock will be determined by the Company's Board of Directors
in light of conditions then existing, including the Company's earnings,
financial condition and capital requirements, restrictions in financing
agreements, business conditions and other factors.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data 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 (which changed its
name to PanAmSat Corporation concurrent with its May 1997 acquisition of
PanAmSat International). The selected financial data as of December 31, 1998
and 1997 and for each year of the two year period ended December 31, 1998 have
been derived from the audited consolidated financial statements of PanAmSat
appearing elsewhere in this Annual Report, and should be read in conjunction
with such consolidated financial statements and notes related thereto and
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, YEAR ENDED DECEMBER 31,
1998 1997(1) 1996 1995 1994
---------- ----------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Total revenues.......... $ 767,263 $ 629,939 $ 482,770 $ 386,126 $ 328,243
---------- ----------- ---------- ---------- ---------
Costs and expenses
Cost of outright sales
and sales-type leases.. -- 20,476 52,969 49,616 45,747
Leaseback expense, net
of deferred gain....... 47,223 61,907 59,927 36,597 36,617
Depreciation and amorti-
zation................. 234,945 149,592 58,523 76,522 54,126
Direct operating costs.. 96,510 61,199 34,794 29,931 33,627
Selling, general & ad-
ministrative........... 70,251 42,561 34,119 30,146 51,595
---------- ----------- ---------- ---------- ---------
Operating income........ 318,334 294,204 242,438 163,314 106,531
Interest expense,
net(2)................. (97,788) (30,973) (4,903) (5,828) (6,826)
Other income............ -- 385 2,184 7,892 3,885
---------- ----------- ---------- ---------- ---------
Income before taxes,
minority interest and
extraordinary item..... 220,546 263,616 239,719 165,378 103,590
Income tax expense...... 95,940 117,325 89,895 62,017 38,846
Minority interest....... -- 12,819 -- -- --
Extraordinary item(3)... -- 20,643 -- -- --
---------- ----------- ---------- ---------- ---------
Net income.............. $ 124,606 $ 112,829 $ 149,824 $ 103,361 $ 64,744
========== =========== ========== ========== =========
OTHER FINANCIAL DATA:
EBITDA (4).............. $ 553,279 $ 444,181 $ 303,145 $ 247,728 $ 164,542
EBITDA margin (4)....... 72% 71% 63% 64% 50%
Net cash provided by op-
erating activities..... $ 568,173 $ 121,476 $ 151,238 $ 83,690 $ 110,490
Net cash used in invest-
ing activities......... (576,518) (1,639,972) (42,122) (270,396) (109,560)
Net cash provided by
(used in) financing
activities............. 94,148 1,610,206 (109,122) 186,720 (1,126)
Capital expenditures.... 678,593 541,879 294,122 280,543 114,660
Total assets............ 5,890,497 5,682,434 1,275,516 1,137,978 868,408
Total long-term obliga-
tions.................. 3,058,480 3,016,680 394,187 290,963 319,620
Total stockholders' eq-
uity................... 2,688,415 2,560,836 -- -- --
</TABLE>
- --------
(1) 1997 results include financial data for PanAmSat International from May
16, 1997 (the effective date of the Merger). See "Item 1. Business--
Overview--The Merger" for a description of the Merger.
(2) Net of capitalized interest of $59.9 million, $80.5 million, $14.6
million, $10.1 million, and $5.1 million for the years ended December 31,
1998, 1997, 1996, 1995 and 1994, respectively, and net of interest income
of $10.4 million and $28.0 million in 1998 and 1997, respectively.
(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
telecommunications 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.
21
<PAGE>
ITEM 7. 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 Annual Report.
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.
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED (UNAUDITED)
------------------------------ -------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
1998 1997 1996 1997 1996
--------- --------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES
Operating leases, satel-
lite services and oth-
er..................... $ 736,624 $ 558,622 $ 319,084 $ 684,663 $566,027
Outright sales and
sales-type leases...... 30,639 71,317 163,686 71,317 163,686
--------- --------- --------- --------- --------
Total revenue......... 767,263 629,939 482,770 755,980 729,713
--------- --------- --------- --------- --------
COSTS AND EXPENSES
Cost of outright sales
and sales-type leases.. -- 20,476 52,969 20,476 52,969
Leaseback expense, net
of deferred gain....... 47,223 61,907 59,927 61,907 59,927
Direct operating and
SG&A costs............. 166,761 l03,760 68,913 130,076 136,116
Depreciation and amorti-
zation................. 234,945 149,592 58,523 197,116 181,100
--------- --------- --------- --------- --------
Total................. 448,929 335,735 240,332 409,575 430,112
--------- --------- --------- --------- --------
Income from operations.. 318,334 294,204 242,438 346,405 299,601
Interest expense, net... 97,788 30,973 4,903 68,981 125,308
Other income............ -- (385) (2,184) (385) (2,184)
--------- --------- --------- --------- --------
Income before income
taxes, minority inter-
est and extraordinary
item................... 220,546 263,616 239,719 277,809 176,477
Income tax expense...... 95,940 117,325 89,895 134,343 92,549
--------- --------- --------- --------- --------
Income before minority
interest and extraordi-
nary item.............. 124,606 146,291 149,824 143,466 83,928
Minority interest, sub-
sidiary preferred stock
dividend............... -- 12,819 -- 24,838 28,474
--------- --------- --------- --------- --------
Income before extraordi-
nary item.............. 124,606 133,472 149,824 118,628 55,454
Extraordinary item: loss
on extinguishment of
debt, net of tax....... -- 20,643 -- 20,643 --
--------- --------- --------- --------- --------
Net income.............. $ 124,606 $ 112,829 $ 149,824 $ 97,985 $ 55,454
========= ========= ========= ========= ========
Net income per share--
basic and diluted...... $ 0.83 N/A N/A $ 0.66 $ 0.37
</TABLE>
22
<PAGE>
CONSOLIDATED RESULTS
1998 (AS REPORTED) COMPARED TO 1997 (PRO FORMA AND AS REPORTED)
The following discussion of 1998 versus 1997 performance is primarily based
on pro forma results. Pro forma results for 1997 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. Revenues increased $11.3 million, or 1%, to $767.3 million for the
year ended December 31, 1998 from $756.0 million for the same pro forma period
in 1997. Video services revenues were $560.7 million for the year ended
December 31, 1998, a decrease of 8% 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 same pro forma period in 1997. Telecommunications services
revenues were $159.1 million for the year ended December 31, 1998, an increase
of 29% from the same pro forma period in 1997. The increase was due primarily
to the growth in data and Internet-related service agreements.
Revenue results can also be analyzed based on the type of agreement.
Revenues from sales and sales-type leases decreased to $30.6 million for the
year ended December 31, 1998, from $71.3 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 $51.9 million, or 8%,
to $736.6 million for the year ended December 31, 1998, from $684.7 million
for the same pro forma period in 1997. The increase was primarily due to the
commencement of commercial service on two new satellites, PAS-5 and Galaxy
VIII-i, which were launched in the latter part of 1997 and generated a full
year of operating lease revenues in 1998.
As reported revenues increased $137.3 million, or 22%, to $767.3 million in
1998 from $629.9 million in 1997, 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. The Company
recorded no cost of outright sales and sales-type leases of transponders for
the year ended December 31, 1998, as compared to $20.5 million for the same
pro forma period in 1997. The pro forma cost of outright sales and sales-type
leases of transponders for the year ended December 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 $14.7 million, or 24%, to $47.2 million for the year ended
December 31, 1998, from $61.9 million for the same pro forma period in 1997.
The decrease was primarily attributable to the exercise by the Company of
early buy-out opportunities on sale-leaseback agreements during 1998.
Direct Operating and Selling, General and Administrative Costs. Direct
operating and selling, general and administrative costs increased $36.7
million, or 28%, to $166.8 million for the year ended December 31, 1998, from
$130.1 million for the same pro forma period in 1997. The increase primarily
was due to direct costs associated with additional satellites placed in
service and operating costs associated with the normal growth of the Company
attributable to the growth in the size of the satellite fleet.
Depreciation and Amortization. Depreciation and amortization increased $37.8
million, or 19%, to $234.9 million for the year ended December 31, 1998 from
$197.1 million for the same pro forma period in 1997, due primarily to
depreciation expense associated with additional satellites placed in service.
As reported depreciation and amortization increased $85.3 million, or 57%,
to $234.9 million in 1998, from $149.6 million in 1997. In addition to the
impact of the Merger, the increase was a result of depreciation expense
associated with additional transponder capacity placed in service.
23
<PAGE>
Income from Operations. Income from operations decreased $28.1 million, or
8%, to $318.3 million for the year ended December 31, 1998 from $346.4 million
for the same pro forma period in 1997. The decrease was primarily due to
increased depreciation and direct operating costs associated with the
Company's expanded satellite fleet, offset by increased revenue generated by
the expanded satellite fleet.
Interest Expense, Net. Interest expense, net increased $28.8 million, or
42%, to $97.8 million for the year ended December 31, 1998 from $69.0 million
for the same pro forma period in 1997. The increase was due primarily to
higher average borrowing levels during 1998 as well as less interest income
earned as a result of the Company's smaller investment portfolio and a lower
amount of capitalized interest cost for the satellites under construction
resulting from the lower borrowing rate in 1998.
Income Tax Expense. Income tax expense decreased $38.4 million, or 29%, to
$95.9 million for the year ended December 31, 1998 from $134.3 million for the
same pro forma period in 1997. The decrease was due to the decrease in income
before income taxes as well as to a lower effective tax rate in 1998
principally as a result of utilization of foreign sales corporation tax
benefits.
Minority Interest. Minority interest, representing preferred stock dividends
of PanAmSat International, were $0 for the year ended December 31, 1998 as
compared to $24.8 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.
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.
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.
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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.
SPACECRAFT DEVELOPMENTS
PAS-7 and PAS-8 were launched during the second half of 1998 and cover the
IOR and POR, respectively. PAS-6B was launched during the fourth quarter of
1998 and is located in the AOR.
As a result of technical problems that occurred on certain of the Company's
satellites in the last 18 months, the Company has modified its previously
announced expansion and restoration strategy to support its existing
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fleet and customers and provide additional capacity. The following recent
technical events have affected PanAmSat's satellite fleet:
Following the launch of PAS-6 in late 1997, an anomaly was detected in its
solar arrays. The satellite experienced several circuit failures in its solar
arrays and may experience additional failures in the future. The circuit
failures require the Company to forego the use of some transponders initially
and to turn off additional transponders in later years. The Company submitted
an insurance claim for this partial loss and $29.1 million was received during
1998. The ability of transponders to provide transmission power for DTH signal
reception using 60-centimeter dishes is not affected.
During 1998, three of the Company's satellites experienced what is believed
to be a related anomaly in their on-board SCPs. On May 19, 1998, all customer
services on Galaxy IV were permanently lost when the satellite experienced an
SCP failure that caused the satellite to rotate and lose its fixed orientation
with the Earth. The spare SCP was unavailable due to an earlier unrelated
event that had not been previously detected. The Company submitted an
insurance claim for this loss and received $162.5 million in 1998. For non-
pre-emptable customers, service was restored with the use of capacity on other
Company satellites, including capacity previously used by certain customers
whose service was subject to preemption and terminated in accordance with
their agreements. Subsequently, two other satellites (Galaxy VII and PAS-4)
had primary SCP failures but are operating normally on back-up systems.
An investigation of the anomaly, conducted by HSC, the manufacturer of the
three affected satellites, identified electrical short circuits involving tin-
plated relay switches as the most probable cause of the SCP failures. The
report concluded that the short circuits can occur only when several factors
are concurrently present. Of the 14 satellites owned by PanAmSat that were
constructed by HSC, five satellites (including PAS-4 and Galaxy VII) are the
same model spacecraft as the affected satellites, and have tin-plated relay
switches similar to the switches on the failed SCPs. No assurance can be given
that additional SCP failures will not occur.
On August 26, 1998, the Company's Galaxy X satellite was destroyed during
the inaugural launch of the Boeing Delta III rocket which exploded shortly
after liftoff. The Company plans to launch a replacement for Galaxy X, Galaxy
X-R, by the fourth quarter of 1999. The Company received $250 million in
insurance proceeds as a result of the failure.
In March 1998, two cells failed in the battery system of PAS-5. The
batteries' sole purpose is to power the payload and spacecraft operations
during the daily eclipse periods (having a duration of one minute to a maximum
of 75 minutes per day) which occur during two 40-day periods around each of
March 21 and September 21. During the autumn eclipse season in 1998,
additional full and partial cell failures occurred on the satellite. In future
eclipse seasons, service to one or more existing full-time customers may be
interrupted for brief periods which, depending upon their extent, could result
in a claim by affected customers for termination of their agreements. The
Company intends to submit an insurance claim for this partial loss. The
Company intends to use PAS-9, an international satellite scheduled for launch
in January 2000, to migrate its largest Ku-band customer from PAS-5. This will
result in fewer transponders being utilized on a full-time basis on PAS-5. The
Company believes that this will reduce the likelihood that full-time C-band
customers on PAS-5 will experience service interruptions during upcoming
eclipse seasons, although there can be no assurance that additional battery
cell failures will not occur in the future.
Also in the autumn eclipse season of 1998, a battery problem similar to the
PAS-5 anomaly was detected on Galaxy VIII-i, which is the same model satellite
as PAS-5. The incident resulted in the shut-off of a substantial number of
transponders for brief periods during the eclipses. The Company intends to
submit an insurance claim for this loss. There can be no assurance that
additional battery cell failures will not occur in future eclipse seasons. The
Company plans to monitor the battery cells on PAS-5 and Galaxy VIII-i during
future eclipse seasons to determine whether the condition has stabilized.
Following the launch of the Company's PAS-8 satellite, an error of the
satellite's manufacturer was discovered that affected the geographical
coverage or flexibility of all of the Ku-band transponders on the satellite.
The impact of the error is being evaluated by the Company, and it is currently
believed that certain of
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the transponders will not be marketable for their intended purpose, although
the affected transponders may be capable of generating revenue at a reduced
rate. The power of the transponders is not affected. The Company anticipates
making an insurance claim for its losses. The C-band beams have not been
affected by the error.
As a result of the foregoing, the Company's satellite deployment plan has
been modified to serve as an expansion, restoration and back-up plan.
SATELLITE DEPLOYMENT PLAN
PanAmSat's Satellite Deployment Plan is intended to enable the Company to
provide back-up and replacement capacity as well as expanded satellite
services on an expedited basis in the United States and worldwide. PanAmSat
modified its expansion plan to accommodate the back-up and restoration needs
of its largest customers in light of the unforeseen technical problems that
occurred during 1998 described in the previous section. PanAmSat expects to
launch six additional satellites by late 2000, consisting of three new
satellites for Latin America (PAS-1R, PAS-9 and Galaxy III-C) and three new
satellites for the United States (Galaxy-XI, Galaxy IV-R and Galaxy X-R).
Galaxy III-C will carry a payload capable of supporting services for both
Latin America and the United States. One of the Company's existing satellites,
SBS-5, which has reached the end of its expected life, is expected to be
removed from service by mid-2000, resulting in a planned total fleet of 24
satellites, including multiple satellites in each ocean region worldwide and
one in-orbit spare satellite (Galaxy VI) for the United States. The Company
also will have options to procure three ground spare satellites for launch on
an expedited basis.
PanAmSat's U.S. strategy anticipates that it will launch Galaxy XI in the
third quarter of 1999. Initially, Galaxy XI will be located at 99(degrees)
W.L., Galaxy VI's current location. This will permit Galaxy VI to return to
its original intended service as a back-up for the Company's U.S. customers.
It is anticipated that Galaxy VI will be located initially at 91(degrees)
W.L., where it will be co-located with Galaxy VII, and due to frequency
interference, will not be capable of offering services simultaneously with
Galaxy VII. Galaxy IV-R, which is expected to be launched in late 1999, will
be deployed at 99(degrees) W.L. for permanent service. Upon the successful
deployment of Galaxy IV-R, Galaxy-XI will be moved to 91(degrees) W.L. and
Galaxy VII (which is currently located at 91(degrees) W.L.) will be moved to a
new orbital location to be determined. Galaxy VI will be moved to 74(degrees)
W.L. where it will continue to provide back-up services. Also in late 1999,
the Company anticipates that it will launch Galaxy X-R, which will be
permanently located at 123(degrees) W.L., enabling Galaxy IX to be relocated
at 127(degrees) W.L. SBS-5 will then be taken out of service. In mid-2000, the
Company plans to launch Galaxy III-C, which is expected to be deployed at
95(degrees) W.L. for services to the domestic U.S. and Latin America. Galaxy
III-R would be moved for service at a new orbital location to be determined.
The Company expects that PAS-9 will be launched during 2000 and will be
located in the AOR. The Company's Mexico DTH customer which had contracted for
service on PAS-5 instead has contracted to take service on PAS-9. The Ku-band
transponders on PAS-5 will not be resold on a full-time basis, and the Company
anticipates that this will minimize the disruption to PAS-5's C-band customers
as a result of its battery problems. In the second half of 1999, the Company
expects to launch PAS-1R, which is intended to replace and significantly
expand upon the capacity offered by PAS-1, which may be used to back up PAS-1R
or moved to another orbital location not yet determined. Upon the successful
transition of services from PAS-6 to PAS-6B, it is anticipated that the PAS-6
satellite will be used for backup or other services from a location to be
determined.
The implementation of the plan is subject to regulatory approval by the FCC.
The Company expects that after the successful launch of the previously
described satellites, the revenues attributable to the Galaxy VI, Galaxy VII,
PAS-5 and PAS-6 satellites will be at a reduced level compared to the
Company's other satellites. The Company has not yet determined whether revenue
will be adversely impacted on Galaxy III-R after the completion of the
Satellite Deployment Plan. No assurance can be given that commercially
suitable orbital locations will be obtained for all of these satellites.
Successful implementation of the Satellite Deployment Plan
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is subject to risks attendant to the Company's business and the requirement of
additional capital. See "--Liquidity and Capital Resources."
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
(the "Hughes Term Loan") from Hughes Electronics, an affiliate of the Company.
In addition to the Hughes Term Loan, at December 31, 1998 the Company also had
long-term indebtedness of $750 million of the Notes (as defined below).
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. The Company now has six
satellites under various stages of development for which the Company has
budgeted capital expenditures. See "--Risk Factors." The Company will require
approximately $650 million to complete the construction, insure, and launch
such satellites. In addition to funding the construction and launch of new
satellites, the Company may choose to exercise certain remaining early buy-out
options under certain satellite sale-leaseback transactions entered into in
prior years. During 1998, the Company funded outlays of approximately $155.5
million in connection with the exercise of early buy-out options relating to
transponders on SBS-6. In addition, if the Company were to elect to exercise
its remaining early buy-out options under certain sale-leaseback transactions,
it would be required to fund outlays of approximately $366 million in 1999
(including an early buy-out option for $141.3 million (including a make-whole
premium of $2.7 million) relating to 22 transponders on Galaxy VII that was
exercised by the Company in January 1999).
On January 16, 1998, PanAmSat completed a private placement pursuant to Rule
144A under the Securities Act of 1933 for $750 million aggregate principal
amount of debt 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 August 1998, the Company converted the private
securities to public debt (the "Notes") by means of a registered exchange
offer.
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 short-term loan facility. The Company currently has $500
million of Revolving Credit Loans available to it under the Credit Agreement
less any amounts outstanding under the Commercial Paper Program as described
below.
On July 27, 1998, the Company initiated a $500 million commercial paper
program (the "Commercial Paper Program"). Borrowings under the Credit
Agreement and the Commercial Paper Program are limited to $500 million in the
aggregate and are expected to be used to fund the Company's satellite
construction program. As of March 17, 1999, the Company had approximately $75
million of notes outstanding under the Commercial Paper Program.
The Hughes Term Loan is subordinate to the notes issued in connection with
the Offering, the Revolving Credit Loans and the notes issued under the
Commercial Paper Program.
PanAmSat believes that, in addition to the Commercial Paper Program, 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, it will need additional
financing of up to $200 million to fund its operations, its anticipated
exercise of certain early buy-out options on certain satellite sale-
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leaseback transactions and its remaining costs for the construction and launch
of satellites currently under development for the next twelve months. The
Company intends to obtain such additional financing by increasing its current
borrowing facilities or from other financing sources which may become
available. 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, satellite insurance proceeds, PanAmSat's future
cash flow from operations and borrowings under the Commercial Paper Program
and/or 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. In addition, if the Company were to consummate any
strategic transactions or undertake any other projects requiring significant
capital expenditures, it may be required to seek additional financing. If
circumstances were to require 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 operating activities increased to $568.2 million in
1998, from $121.5 million in 1997, a decrease from $151.2 million in 1996. The
increase in 1998 was primarily attributable to increased operating results,
proceeds from insurance claims and reductions in non-cash working capital as
compared to 1997. The decrease in 1997 was primarily attributable to payment
of various liabilities acquired in the Merger.
Net cash used in investing activities decreased to $576.5 million in 1998,
from $1,640.0 million in 1997, an increase from $42.1 million in 1996. The
decrease in 1998 was primarily attributable to the acquisition of PanAmSat
International during the same period in 1997, coupled with proceeds from
insurance claims received during 1998. 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.
Net cash provided by financing activities decreased to $94.1 million in 1998
from $1,610.2 million in 1997, an increase from $(109.1) million in 1996. The
decrease in 1998 was primarily due to obtaining the Hughes Term Loan during
the same period in 1997. The increase in 1997 was primarily due to new
borrowings (including the Hughes Term Loan), offset by repayments of long-term
debt in connection with the tender offer for certain debt securities of the
Company's subsidiaries.
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 fair value of these financial instruments at December
31, 1997 approximated their contract value. The cost to unwind these
instruments in 1998 was $9.1 million and this amount has been deferred and is
being amortized to interest expense over the term of the related debt
securities to which such hedges were applied.
YEAR 2000 READINESS DISCLOSURE
Many of the world's computer systems currently use a two-digit format, as
opposed to a four digit format, to indicate the year. If not modified, these
computer systems will be unable to properly recognize dates beyond the year
1999, which could lead to system failures and business disruption in the U.S.
and internationally. PanAmSat's Year 2000 Plan ("Y2K Plan") addresses Year
2000 issues in the following phases:
(i) identification of the Company's systems, equipment and suppliers that
may be vulnerable to Year 2000 issues;
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(ii) assessment of the areas identified to determine risks associated with
their failure to be Year 2000 compliant and corrective actions that
would be necessary to prevent such failure;
(iii) correction of affected systems and equipment;
(iv) testing of systems and equipment to determine if Year 2000 compliant;
and
(v) contingency planning for reasonably likely worst-case scenarios.
PanAmSat commenced its Y2K Plan in 1997. A project team, consisting of
members of the engineering, operations, and software development groups meets
regularly and is in charge of plan scheduling and implementation.
Identification of susceptible systems and assessment of the corrective actions
has been completed by all functional areas.
None of the Company's primary assets, the in-orbit satellites, have date-
dependent processing and therefore they are not at substantial risk due to
Year 2000 issues. Station-keeping operations for the Company's satellites are
not date-dependent and no real-time commands will be required at the time of
the date of change.
Correction of the TT&C software for HSC-manufactured satellites is the most
significant component of the Y2K Plan. Updating the control software
represents the largest element of the Y2K Plan (approximately 80% in terms of
both cost and time), and of this portion approximately 60% of the update
effort was assigned to a single third-party software vendor and Y2K solutions
provider (The Raytheon Company). In the fall of 1998, the Company hired an
additional Y2K solutions provider to expedite the modification of the control
software. The Company also has dedicated in-house software staff to begin
making certain necessary upgrades and modifications. While the vast majority
of the software modifications and testing will be complete by mid-1999,
installation of the modified software at remote TT&C sites and final testing
of the entire system is not expected to be complete until the fourth quarter
of 1999.
Modification of software used to provide communications services to
customers (other than satellite control software) is on schedule for mid-1999
completion. Except with respect to the third-party activities relating to
satellite control software, all project coordination and systems modifications
are being performed by internal personnel.
Compliance verification requests have been sent to all identified third-
party equipment and system suppliers. Over 80% of such suppliers have
responded to the Company's verification requests with approximately 75% of
them indicating that the systems they provided are Year 2000 compliant.
PanAmSat's Y2K Plan team is working with such suppliers to correct all non-
compliant systems.
Updates of compressed digital video systems and Loral TT&C equipment are
expected to be complete by the end of the first quarter of 1999. It is
expected that all of these critical systems will be Year 2000 compliant by
mid-1999.
The Company has also completed an evaluation of the various management
information systems used by the Company for financial and administrative
functions and has determined that such systems are largely Y2K compliant.
Upgrades are planned for all non-compliant elements, and existing back-up
procedures can be used to perform normal Company financial and administrative
functions in the event of potentially uncorrected problems.
The Company has identified the potential loss of real-time satellite control
software functionality as a reasonably likely worst case scenario. Preliminary
contingency plans are being developed involving the use of back-dated
processors to operate the satellite control systems, which would result in
slightly higher operation costs until any remaining Year 2000 problems are
corrected. In addition, satellite control may be handled manually. The Company
is confident that either of these methods would provide adequate satellite
control, but the Company has not completed its evaluation of the risks
associated with these station-keeping methods. The Company expects to complete
the preparation of formal contingency plans by mid-1999.
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Internal efforts on Y2K projects have had a minimal impact on other non-Y2K
IT and non-IT projects. Any transition of activities currently being performed
by third-party Y2K solutions providers to internal resources could delay some
internal software projects.
The Y2K Plan is funded from cash flows from the Company's operations and is
currently in line with budgeted amounts. Approximately $450,000 has been
incurred to date in connection with the Y2K Plan. Of this amount,
approximately $250,000 was incurred in 1998 and $200,000 during 1997. The
total remaining cost through completion of the Y2K Plan is expected to be
approximately $2.1 million, including anticipated third-party costs. If
additional Y2K solutions providers become necessary for remediation of
satellite control software, the cost of the Y2K Plan will increase.
Based on its current assessment efforts, the Company does not believe that
Year 2000 issues will have a material adverse effect on the financial
condition or results of operations of the Company. The Company's Year 2000
issues, however, and any potential business interruption, costs, damages, or
losses related thereto, are also dependent upon the Year 2000 compliance of
third parties, both domestic and international, such as governmental agencies,
vendors and suppliers. As a result, the Company is unable to determine at this
time whether Year 2000 issues for third parties will materially affect the
Company.
RISK FACTORS
Risks Associated with Technology. Satellites are subject to significant
risks related to delayed and failed launches and in-orbit failures. Of the 29
satellite launches by PanAmSat or its predecessors since 1983, the Company has
experienced four launch failures and one in-orbit failure. Each of these
satellites was insured in an amount sufficient to substantially recover the
Company's investment therein. 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 satellites to terminate
their contracts.
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 is a launcher that may be used by PanAmSat to launch satellites
within the next year. Sea Launch is a joint venture among Boeing, Kvaerner
A.S., RSC-Energia and the NPO-Yuzhnoye space concern. This launch 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. Although a
successful demonstration launch was completed in March 1999, this launcher has
no commercial launch history, which poses heightened risks, including
potential launch delays and failures.
There can be no assurance that PanAmSat's planned launches will be
successful or will occur on schedule. See "--Satellite Deployment Plan" and
"Item 1. Business--The Satellites" for a discussion of the Company's Satellite
Deployment Plan and related launch schedule. A trade agreement between the
United States and Russian governments limits the number of satellites
manufactured in the United States which may be launched aboard Russian launch
vehicles through the end of the year 2000, which could impact PanAmSat
launches on Russian rockets. Although PanAmSat's Russian launch provider has
informed the Company that it is seeking to have the limit raised or
eliminated, there can be no assurance that such modification will be achieved,
which could result in a launch delay or increased launch costs. In addition,
Congress is currently investigating certain foreign launches of U.S.-
manufactured satellites. Although the Company does not believe that any of its
launch providers have been implicated in the investigation, there can be no
assurance that future launches by non-U.S. providers
31
<PAGE>
will not be adversely affected by this investigation, including the
possibility of significant launch delays. All of the Company's planned
launches are scheduled to occur on non-U.S. launchers. The failure to
implement the Satellite Deployment Plan on schedule could have a material
adverse affect on the Company's business.
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. Galaxy XI,
Galaxy III-C and PAS-1R 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.
Although the Company obtains launch insurance policies designed to cover the
cost to construct, launch and insure replacement satellites, there is a risk
that certain losses may not be covered by the Company's policies. Typically,
PanAmSat's launch policies are effective for three years from the date of a
satellite launch. During that time, if a covered malfunction occurs, but no
loss is incurred until after the expiration of the policy, the launch
insurance policy will not cover the loss, and a subsequent in-orbit policy
obtained may either exclude losses related to the known event or impose
deductibles that exceed the loss associated with the event. See "Item 1.
Business--The Satellites--Insurance."
For a detailed discussion of certain spacecraft health issues which affect
the Company's satellite fleet and the Company's related Satellite Deployment
Plan, see "--Spacecraft Developments," "--Satellite Deployment Plan," and
"Item 1. Business--The Satellites." The implementation of the Satellite
Deployment Plan is subject to regulatory approval by the FCC. The Company
expects that after the completion of the Satellite Deployment Plan, the
revenues attributable to the Galaxy VI, Galaxy VII, PAS-5 and PAS-6 satellites
will be at reduced levels compared to the Company's other satellites. The
Company has not yet determined whether revenue will be adversely impacted on
Galaxy III-R after completion of the Satellite Deployment Plan. No assurance
can be given that commercially suitable orbital locations will be obtained for
these satellites. Successful implementation of the Satellite Deployment Plan
is subject to risks attendant to the Company's business and the requirement of
additional capital. See "--Liquidity and Capital Resources" and "--Regulatory
Risks."
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 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. PanAmSat's successful implementation of the Satellite
Deployment Plan depends upon the Company's ability to obtain regulatory
authorization to operate its satellites at certain locations. No assurance can
be made that PanAmSat will obtain all of the authorizations necessary for the
completion of the Satellite Deployment Plan. The failure to implement the
Satellite Deployment Plan on schedule could have a material adverse affect on
the Company's business. See "Item 1. Business--Government Regulation."
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
32
<PAGE>
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. See "Item 1. Business--
Government Regulation."
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(degrees) E.L. from the FCC, which approval is subject to a full
financial showing and demonstration of consultation with Intelsat. It is
unlikely that PAS-7 will be permitted to operate its C-band transponders until
certain coordination issues are resolved with the Russian Federation. Certain
of the Ku-band downlink beams on PAS-8 include coverage, at very low power
levels, of the west coast of the United States and of Hawaii. Because the Ku-
band frequencies on these beams are allocated in the United States to the BSS,
PanAmSat's coverage of the United States is on a "non-conforming use" basis,
requiring that PanAmSat not interfere with, and accept interference from, any
authorized users in the United States.
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 use PAS-1R to expand the frequencies or coverages employed by PAS-1 at
45(degrees) 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. Following the failure of
Galaxy IV, the FCC granted the Company special temporary authority to relocate
Galaxy VI from 74(degrees) W.L. to 99(degrees) W.L. to provide replacement C-
band capacity. Currently, the Company anticipates relocating Galaxy VI to
91(degrees) W.L., subject to applicable regulatory approvals. Once slots have
been identified, the Company plans to apply for temporary authority to operate
at such locations until other satellites are authorized for, and commence
operations at, such slots. The Company has received special temporary
authority to relocate Brasilsat A1 from 79(degrees) W.L. to 144(degrees) W.L.
and to operate Brasilsat A1 at the new orbital location.
Litigation. See "Item 3. Legal Proceedings."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Market Risks."
33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. 35
Consolidated Statements of Income for Each of the Three Years Ended Decem-
ber 31, 1998............................................................. 36
Consolidated Balance Sheets--December 31, 1998 and 1997................... 37
Consolidated Statements of Changes in Stockholders' Equity for Each of the
Three Years Ended December 31, 1998...................................... 39
Consolidated Statements of Cash Flows for Each of the Three Years Ended
December 31, 1998........................................................ 40
Notes to Consolidated Financial Statements................................ 41
</TABLE>
34
<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 as of December 31, 1998 and 1997, 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, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 as of December 31, 1998 and 1997 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Stamford, Connecticut
January 15, 1999
35
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Operating leases, satellite services and other.. $736,624 $558,622 $319,084
Outright sales and sales-type leases............ 30,639 71,317 163,686
-------- -------- --------
Total revenues................................. 767,263 629,939 482,770
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of outright sales and sales-type leases.... -- 20,476 52,969
Leaseback expense, net of deferred gains........ 47,223 61,907 59,927
Depreciation and amortization................... 234,945 149,592 58,523
Direct operating costs.......................... 96,510 61,199 34,794
Selling, general and administrative expenses.... 70,251 42,561 34,119
-------- -------- --------
Total operating costs and expenses............. 448,929 335,735 240,332
-------- -------- --------
INCOME FROM OPERATIONS........................... 318,334 294,204 242,438
INTEREST EXPENSE--Net............................ (97,788) (30,973) (4,903)
OTHER INCOME..................................... -- 385 2,184
-------- -------- --------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND
EXTRAORDINARY ITEM.............................. 220,546 263,616 239,719
INCOME TAXES..................................... 95,940 117,325 89,895
-------- -------- --------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY
ITEM............................................ 124,606 146,291 149,824
MINORITY INTEREST--Subsidiary preferred stock
dividend........................................ -- 12,819 --
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM................. 124,606 133,472 149,824
EXTRAORDINARY ITEM--LOSS ON EXTINGUISHMENT OF
DEBT, NET OF TAX................................ -- 20,643 --
-------- -------- --------
NET INCOME....................................... $124,606 $112,829 $149,824
======== ======== ========
EARNINGS PER COMMON SHARE--Basic and diluted..... $ 0.83
========
Weighted average common shares outstanding....... 149,564
========
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 177,542 $ 91,739
Accounts receivable--net............................... 63,326 41,030
Net investment in sales--type leases................... 22,595 27,757
Prepaid expenses and other............................. 38,692 77,891
Deferred income taxes.................................. 36,438 46,940
---------- ----------
Total current assets................................. 338,593 285,357
---------- ----------
SATELLITES AND OTHER PROPERTY AND EQUIPMENT--Net......... 2,895,191 2,506,082
NET INVESTMENT IN SALES--TYPE LEASES..................... 173,382 324,689
GOODWILL--Net of amortization............................ 2,433,538 2,498,498
DEFERRED CHARGES......................................... 49,793 67,808
---------- ----------
TOTAL ASSETS............................................. $5,890,497 $5,682,434
========== ==========
</TABLE>
See notes to consolidated financial statements.
37
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities............... $ 88,005 $ 43,226
Deferred gains on sale-leasebacks...................... 34,303 42,870
Deferred revenues...................................... 21,294 18,822
---------- ----------
Total current liabilities............................ 143,602 104,918
---------- ----------
DUE TO AFFILIATES (PRINCIPALLY MERGER RELATED INDEBTED-
NESS)................................................... 1,788,353 1,802,195
LONG-TERM DEBT........................................... 750,056 609,116
DEFERRED GAINS ON SALE-LEASEBACKS........................ 121,477 191,882
DEFERRED INCOME TAXES.................................... 231,373 179,267
DEFERRED CREDITS AND OTHER (PRINCIPALLY CUSTOMER DEPOSITS
AND DEFERRED REVENUE)................................... 111,239 134,036
ACCRUED OPERATING LEASEBACK EXPENSE...................... 55,982 100,184
---------- ----------
TOTAL LIABILITIES........................................ 3,202,082 3,121,598
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value--400,000,000 shares
authorized;
149,231,121 and 149,135,654 outstanding at December
31, 1998 and 1997, respectively....................... 1,492 1,491
Additional paid-in-capital............................. 2,504,316 2,501,344
Retained earnings...................................... 182,607 58,001
---------- ----------
Total stockholders' equity........................... 2,688,415 2,560,836
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $5,890,497 $5,682,434
========== ==========
</TABLE>
See notes to consolidated financial statements.
38
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
PAR VALUE
------------------
PARENT ADDITIONAL
COMPANY'S PAID-IN RETAINED
NET INVESTMENT SHARES AMOUNT CAPITAL EARNINGS
-------------- ----------- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1996................... $ 761,391
Net distribution to Par-
ent.................... (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 con-
nection with Merger.... (1,227,345) 149,122,807 $1,491 $2,500,854 --
Additional issuance of
common stock........... -- 12,847 -- 490 --
Net income.............. -- -- -- -- 112,829
----------- ----------- ------ ---------- --------
BALANCE, DECEMBER 31,
1997................... -- 149,135,654 1,491 2,501,344 58,001
----------- ----------- ------ ---------- --------
Additional issuance of
common stock........... -- 95,467 1 2,972 --
Net income.............. -- -- -- -- 124,606
----------- ----------- ------ ---------- --------
BALANCE, DECEMBER 31,
1998................... $ -- 149,231,121 $1,492 $2,504,316 $182,607
=========== =========== ====== ========== ========
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
PANAMSAT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVI-
TIES:
Net income............................... $ 124,606 $ 112,829 $ 149,824
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Cost of outright sales................... -- -- 14,523
Gross profit on sales--type leases....... -- (33,180) (51,802)
Depreciation and amortization............ 234,945 149,592 58,523
Deferred income taxes.................... 62,608 129,065 (21,399)
Amortization of gains on sale-leasebacks. (36,140) (42,870) (41,559)
Amortization of debt issuance costs...... 6,105 3,600 --
Provision for uncollectible receivables.. (4,943) -- 1,315
Interest expense capitalized............. (59,947) (80,468) (14,613)
Insurance proceeds (net of $257.6 million
of satellite costs)..................... 184,026 -- --
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................................. 43,139 21,978 31,204
Operating lease and other receivables... (20,103) (8,086) (6,053)
Prepaid expenses and other assets....... 48,296 (23,683) 1,725
Accounts payable and accrued liabili-
ties................................... 21,066 (119,428) (935)
Accrued operating leaseback expense..... (17,079) (7,657) 38,738
Deferred revenues and other............. (18,406) (13,678) (8,253)
----------- ----------- ---------
Net cash provided by operating activi-
ties.................................. 568,173 121,476 151,238
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of PanAmSat International,
net of cash acquired.................... -- (1,486,266) --
Capital expenditures..................... (678,593) (541,879) (294,122)
Proceeds from sale-leaseback of satellite
transponders............................ -- -- 252,000
Proceeds from sales of marketable securi-
ties.................................... -- 388,173 --
Early buy-out of sale-leaseback.......... (155,530) -- --
Net book value of satellites recovered
through insurance....................... 257,605 -- --
----------- ----------- ---------
Net cash used in investing activities.. (576,518) (1,639,972) (42,122)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings (including acquisition
borrowings of $1.725 billion in 1997)... 1,165,000 2,349,336 --
Net contributions from (distributions to)
parent company.......................... -- -- (109,122)
Parent company contributions prior to the
Merger.................................. -- 370,424 --
Repayments of long-term debt............. (1,024,060) (1,082,952) --
Repayments of incentive obligations...... (30,632) (9,842) --
Debt issuance costs...................... (19,132) (17,250) --
Stock issued to 401(k) plan.............. 2,972 490 --
----------- ----------- ---------
Net cash provided by (used in) financ-
ing activities........................ 94,148 1,610,206 (109,122)
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 85,803 91,710 (6)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR..................................... 91,739 29 35
----------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR.... $ 177,542 $ 91,739 $ 29
=========== =========== =========
</TABLE>
See notes to consolidated financial statements
40
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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 International Systems, Inc., formerly
known as 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"), which then owned 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 which
commenced 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." (See Note 5
for a discussion of the refinancing of the Old Notes.)
The principal components of the Merger were as follows (in millions):
<TABLE>
<S> <C>
Fair value of assets acquired (excluding goodwill)................... $1,955
Goodwill............................................................. 2,470
Fair value of liabilities assumed (including the Old Notes).......... (1,425)
Fair value of common stock issued.................................... (1,275)
Subtotal-debt issued in connection with the Merger................... 1,725
Less: Cash acquired.................................................. (239)
------
Net cash paid in connection with the Merger.......................... $1,486
======
</TABLE>
41
<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 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 di-
luted.................................................... $ 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 pre-tax 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 amounts for the
years ended December 31, 1997 and 1996 are calculated on a basic and diluted
basis using the pro forma average number of common shares assumed to be
outstanding during the periods.
On May 1, 1998, Hughes increased its beneficial ownership of the Company
from approximately 71.5% to approximately 81% through the purchase of
approximately 11.2 million shares of common stock from the shareholder that
previously acquired the DTH Rights, and 2.9 million shares of common stock
from a group of founding shareholders of PanAmSat International, which
included certain officers of the Company. These shares were purchased for an
aggregate amount of $851.0 million or $60 per share.
DESCRIPTION OF THE BUSINESS--PanAmSat is the world's largest commercial
provider of satellite-based communications services through its global network
of 19 satellites 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
42
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 transponders and transponder capacity and, in certain cases, earth
station and teleport facilities, for periods typically 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 $31 million, $38 million and
$41 million is included in sales-type lease revenues for the years ended
December 31, 1998, 1997 and 1996, 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 as, or amortized from, 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 operating lease 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 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 $6.3 billion as of
December 31, 1998, including approximately $400 million relating to agreements
on satellites that are under construction at December 31, 1998 and are
expected to be launched within twelve months.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of cash, accounts
receivable, 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
43
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 was $9.1 million and this amount has been deferred and is
being amortized to interest expense over the terms of the related debt
securities.
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. Revenues
derived from affiliates of Hughes comprised approximately 16% of total
revenues in 1998. No unaffiliated customer provides the Company with revenues
in excess of 10% of total revenues.
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.
Supplemental cash flow information for 1998 and 1997 (the years in which the
Company was a separate operating company) is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash received for interest................................ $ 13,364 $ 22,229
======== ========
Cash paid for interest.................................... $138,678 $109,858
======== ========
Cash paid for taxes....................................... $ 3,425 $105,218
======== ========
</TABLE>
ACCOUNTS RECEIVABLE--Accounts receivable include amounts earned under
service agreements and occasional services which are billable as performed. An
allowance for doubtful accounts is maintained in the amount of approximately
$6.0 million and $1.0 million at December 31, 1998 and 1997, 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:
<TABLE>
<CAPTION>
ESTIMATED LIVES
(YEARS)
---------------
<S> <C>
Satellite systems under development.......................... --
Satellites in service........................................ 13-15
Communications equipment..................................... 7
General support equipment.................................... 5-10
Buildings.................................................... 25
</TABLE>
The estimated useful lives of the satellites are determined by an
engineering analysis performed at the initial in-service dates. As the
telecommunications industry is subject to rapid technological change, the
Company may be required to revise the estimated useful lives of its satellites
and communications equipment or to adjust their carrying amounts. Accordingly,
the estimated useful lives are periodically reviewed using current TT&C data
provided by various service providers. If a significant change in the
estimated useful lives is identified, the Company accounts for such changes on
a prospective basis.
44
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 of $29.9 million and $17. 3 million at
December 31, 1998 and 1997, respectively. These costs are being amortized to
interest expense on a straight line basis over the life of the related
indebtedness and the accumulated amortization at December 31, 1998 and 1997
amounted to $8.6 million and $3.6 million, respectively.
GOODWILL--Goodwill is primarily related to the acquisition of PanAmSat
International and is being amortized over 40 years. Accumulated amortization
was $142.8 million and $77.8 million at December 31, 1998 and 1997,
respectively.
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 sales,
sales-type leases 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.
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 rates. Beginning
in 1998, the Company and its subsidiaries joined with Hughes and GM in filing
a consolidated U.S. Federal income tax return. Under the tax sharing agreement
with Hughes, the portion of the Hughes consolidated tax liability recorded by
PanAmSat is generally equivalent to the liability it would have incurred on a
separate return basis. From the Merger date in 1997 and up to the date upon
which Hughes became an 81% shareholder in PanAmSat, the Company and its
domestic subsidiaries filed a separate 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 reports its earnings per share in accordance
with SFAS No. 128, Earnings Per Share, which supersedes Accounting Principles
Board Opinion No. 15, Earnings Per Share, and modifies the presentation of
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 and 1996 have not been presented.
STOCK-BASED COMPENSATION--As permitted by SFAS 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.
45
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION--As indicated in Note 1, the
Company operates in a single industry segment which is to provide satellite-
based telecommunications services to customers on a worldwide basis.
Substantially all of the Company's operations are in the United States. The
geographic distribution of the Company's revenues for 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
United States...................................................... 59% 72%
Latin America...................................................... 21% 13%
Asia............................................................... 11% 5%
Other.............................................................. 9% 10%
</TABLE>
Prior to the Merger, substantially all of the Company's revenues were
derived from U.S. customers.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 requires all derivatives to be recorded as
either assets or liabilities and the instruments to be measured at fair value.
Gains or losses resulting from changes in the values of those derivatives are
to be recognized immediately or deferred depending on the use of the
derivative and whether or not it qualifies as a hedge. PanAmSat will adopt
SFAS No. 133 by January 1, 2000, as required. Management is currently
assessing the impact of this statement on PanAmSat's operations and financial
position.
RECLASSIFICATION--Certain prior period amounts have been reclassified to
conform with the current year's presentation.
3. NET INVESTMENT IN SALES-TYPE LEASES
The components of the net investment in sales-type leases are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Total minimum lease payments........................... $ 301,878 $ 662,453
Allowance for doubtful accounts........................ (10,562) (12,897)
Less unearned interest income.......................... (95,339) (297,110)
--------- ---------
Total net investment in sales-type leases.............. 195,977 352,446
Less current portion................................... (22,595) (27,757)
--------- ---------
$ 173,382 $ 324,689
========= =========
</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, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
MINIMUM SERVICE
LEASE AGREEMENT
PAYMENTS PAYMENTS
-------- ---------
<S> <C> <C>
1999...................................................... $ 46,134 $ 4,520
2000...................................................... 44,727 5,700
2001...................................................... 45,811 5,700
2002...................................................... 44,919 5,700
2003...................................................... 43,391 5,700
2004 and thereafter....................................... 76,896 10,445
-------- -------
$301,878 $37,765
-------- -------
</TABLE>
46
<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 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Satellite transponders under lease.................. $ 2,142,710 $1,713,409
Satellite systems under development................. 1,088,861 1,038,886
Buildings and leasehold improvements................ 44,253 42,078
Machinery and equipment............................. 171,642 136,989
Other............................................... 14,307 11,406
----------- ----------
3,461,773 2,942,768
Less accumulated depreciation....................... (566,582) (436,686)
----------- ----------
$ 2,895,191 $2,506,082
=========== ==========
</TABLE>
At December 31, 1998, the Company had contracts for the construction and
development of six satellites with Hughes. 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.
The Company has experienced various technical incidents on a number of its
in-orbit satellites. These incidents generally have resulted in one or more of
the following: (i) a limitation or total loss of the satellite's ability to
provide the full complement of services that it was designed to provide, (ii)
material reduction to the satellite's expected orbital life, or (iii) a
reduction in certain of the satellite's on-board redundant systems making it
more exposed to potential damage in the event of an additional incident.
In May 1998, the Company experienced the total loss of its Galaxy IV
spacecraft when a system aboard the spacecraft failed, and a redundant onboard
system failed to take control of the spacecraft because it had been rendered
inoperable as a result of a prior undetected failure of this component.
Additionally, in August 1998, the Company experienced the total loss of its
Galaxy X satellite that it was attempting to launch when the launch vehicle
carrying the satellite failed and exploded. Whenever the Company experiences a
satellite anomaly or failure, management conducts an investigation of the
cause of the event and determines the effects that the anomaly may have on the
carrying value of its satellite and other assets and liabilities. The Company
has insurance coverage that generally reimburses the Company for all or a
substantial portion of the carrying value of the net assets that are affected
by the anomaly. During 1998, the Company received insurance proceeds of
47
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$441.6 million resulting from insurance claims and disposed of the carrying
value of the related assets as follows (in millions):
<TABLE>
<CAPTION>
DISPOSITION NET BOOK VALUE OF:
-------------------------------------
EXCESS/
OTHER (DEFICIENCY) OF
INSURANCE NET INVESTMENT IN ASSETS OR PROCEEDS OVER NET
PROCEEDS SATELLITE SALES-TYPE LEASES LIABILITIES BOOK VALUE
--------- --------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Galaxy IV............... $ 162.5 $ 56.8 $72.2 $39.8 $(6.3)
Galaxy X................ 250.0 171.7 43.8 28.4 6.1
PAS 6................... 29.1 -- -- -- --
-------
$ 441.6
=======
</TABLE>
The insurance proceeds relating to the PAS-6 anomaly were recorded as a
reduction in the carrying value of the PAS-6 satellite.
Future minimum lease payments due from customers under non-cancelable
operating leases on completed satellites, exclusive of sublease payments
reported below are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
MINIMUM LEASE
PAYMENTS
-----------------
<S> <C>
1999....................................................... $ 656,867
2000....................................................... 577,565
2001....................................................... 556,538
2002....................................................... 541,796
2003....................................................... 531,727
2004 and thereafter........................................ 2,336,018
-----------
$ 5,200,511
-----------
</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 deferred gain of $109.0 million which was
deferred and is being amortized over the seven year leaseback period. 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 expected term of the leaseback periods. The
Company's obligations under each sale-leaseback arrangement are guaranteed by
GM (as successor-in-interest to Hughes). In connection with the Merger, the
Company agreed to pay and indemnify GM for performing any of its obligations
under such guarantees. In 1998, the Company exercised its early buy-out
options for certain transponders on the SBS-6 transaction and repurchased the
transponders for total payments of $155.5 million. In January 1999, the
Company exercised an early buy-out option for $141.3 million (including a
make-whole premium of $2.7 million) related to certain transponders on Galaxy
VII, and has remaining early buy-out options of approximately $227 million on
Galaxy III-R and Galaxy VII (plus a make-whole premium (on the Galaxy VII
transaction only) in the event notes issued by the owners of the transponders
are prepaid by the Company rather than assumed at the time of repurchase) that
can be exercised later in 1999.
48
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1998, the future minimum lease amounts payable to lessors
under the sale-leaseback agreements and the future minimum payments due from
sublessees under noncancelable subleases are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------
LEASEBACK SUBLEASE
AMOUNTS PAYMENTS
--------- --------
<S> <C> <C>
1999...................................................... $ 90,891 $ 91,865
2000...................................................... 120,261 88,365
2001...................................................... 71,864 79,008
2002...................................................... 110,897 70,238
2003...................................................... 26,630 44,100
2004 and thereafter....................................... -- --
--------- --------
$ 420,543 $373,576
========= ========
</TABLE>
5. LONG-TERM DEBT
As of December 31, 1998 and 1997, long-term debt consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
BOOK FAIR MARKET BOOK FAIR MARKET
VALUE VALUE VALUE VALUE
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
6% Notes due 2003................ $200,000 $196,310 $ -- $ --
6 1/8% Notes due 2005............ 275,000 268,076 -- --
6 3/8% Notes due 2008............ 150,000 146,253 -- --
6 7/8% Notes due 2028............ 125,000 118,080 -- --
Borrowings under bank agreement.. -- -- 600,000 600,000
Other............................ 56 56 9,116 9,116
-------- -------- -------- --------
750,056 728,775 609,116 609,116
Less current maturities (included
in accounts payable and accrued
liabilities).................... -- -- -- --
-------- -------- -------- --------
$750,056 $728,775 $609,116 $609,116
======== ======== ======== ========
</TABLE>
Fair value amounts were determined based on quoted market prices for the
Notes or on current rates available to the Company for debt with similar
maturities and similar terms.
In December 1997, the Company completed 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 (the "Revolving
Credit Loans"). 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 $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
49
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 place to be used for future borrowings, or as a back-up facility
for a commercial paper program. In August 1998, the Company converted the
private placement debt to public debt by means of a debt exchange offer.
In July 1998, the Company launched a $500 million Commercial Paper program
to provide for short-term borrowings that the Company can refinance on a long-
term basis with the Revolving Credit Loans. Borrowings under the Revolving
Credit Loans and the Commercial Paper program are limited to $500 million in
the aggregate. Commercial paper borrowings of up to $190.0 million were made
during the year at interest rates ranging from 5.75% to 5.85%. At December 31,
1998 there were no borrowings outstanding under the program.
The Hughes Term Loan is subordinate to the notes issued in connection with
the Notes Offering, the Revolving Credit Loans and the notes issued under the
commercial paper program.
Annual maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999............................................................ $ --
2000............................................................ --
2001............................................................ --
2002............................................................ --
2003............................................................ 200,000
2004 and thereafter............................................. 550,056
---------
$ 750,056
=========
</TABLE>
Interest expense for 1998 and 1997 is presented net of interest income of
$5.8 million and $19.6 million, respectively.
6. INCOME TAXES
The income tax provision consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Taxes currently payable (receivable) U.S. fed-
eral and state................................. $33,331 $(11,740) $111,294
Deferred tax liabilities (assets)--net U.S. fed-
eral and state................................. 62,609 129,065 (21,399)
------- -------- --------
Total income tax provision...................... $95,940 $117,325 $ 89,895
======= ======== ========
</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 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Expected U.S. statutory income tax rate......... $77,191 $ 92,266 $83,902
U.S. state and local income tax rates--net of
federal income tax effect...................... 10,035 12,900 14,479
Foreign sales corporation tax benefit........... (14,000) (9,485) (9,589)
Non-deductible goodwill amortization............ 22,582 14,527 --
Other........................................... 132 7,117 1,103
------- -------- -------
Total income tax provision...................... $95,940 $117,325 $89,895
======= ======== =======
</TABLE>
50
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences which give rise to deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------------ --------------------
DEFERRED DEFERRED DEFERRED
TAX DEFERRED TAX TAX
ASSETS TAX LIABILITIES ASSETS LIABILITIES
-------- --------------- -------- -----------
<S> <C> <C> <C> <C>
Sale-leasebacks................ $ 65,428 $ -- $ 85,780 $ --
Depreciation................... -- 235,390 -- 238,476
Launch insurance costs......... -- 103,070 -- 41,175
Customer deposits.............. 17,798 -- 23,854 --
Accruals and advances.......... 27,343 -- 29,969 --
Tax credit carryforward........ 13,894 -- -- --
Other.......................... 24,440 5,378 14,275 6,554
-------- -------- -------- --------
Total deferred taxes........... $148,903 $343,838 $153,878 $286,205
======== ======== ======== ========
</TABLE>
At December 31, 1998, the Company had non-current deferred tax liabilities
of $343,838 thousand and deferred tax assets of $148,903 thousand, of which
$36,438 thousand was current in nature. At December 31, 1997, the Company had
non-current deferred tax liabilities of $286,205 thousand and deferred tax
assets of $153,878 thousand, of which $46,940 thousand 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 1998 are summarized below (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Satellite Purchases.............................. $267,133 $345,546 $196,400
Satellite Services Revenues:
Operating lease revenues....................... 105,663 87,235 72,043
Other satellite services....................... 17,791 5,363 11,397
Allocations of Expenses:
Administrative and other expenses.............. 3,211 9,005 11,016
Interest Expense............................... 108,288 91,020 19,475
</TABLE>
Interest expense for 1998 and 1997 is presented net of $4.6 million and $8.4
million of interest income, respectively.
The following table provides summary information relative to the Company's
accounts receivable and borrowings from Hughes and its affiliates (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Due from affiliates................................. $ 31,115 $ 27,574
========== ==========
Due to affiliates:
Merger-related borrowings......................... $1,725,000 $1,725,000
Incentive obligations............................. 67,368 80,819
Other............................................. -- 204
---------- ----------
1,792,368 1,806,023
Less current portion of incentive obligations (in-
cluded in accounts payable and accrued liabili-
ties)............................................ (4,015) (3,828)
---------- ----------
Total due to affiliates........................... $1,788,353 $1,802,195
========== ==========
</TABLE>
51
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 amounts due to affiliates are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999.............................................................. $ 4,015
2000.............................................................. 4,895
2001.............................................................. 5,394
2002.............................................................. 5,943
2003.............................................................. 1,731,548
2004 and thereafter............................................... 40,573
----------
$1,792,368
==========
</TABLE>
8. RETIREMENT AND INCENTIVE PLANS
EMPLOYEE BENEFIT PLANS:
DEFINED CONTRIBUTION PLANS 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 were 23,681 and 12,847 shares and
$1.1 million and $0.5 million for 1998 and 1997, 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
52
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1998,
nonqualified options for 1,493,319 shares of common stock (net of options
expired or terminated) 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 generally vest ratably over three years. Activity in the
Company's Stock Plan during 1998 and 1997 is summarized below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE EXERCISE PRICE
SHARES EXERCISE PRICE RANGE
--------- ---------------- --------------
<S> <C> <C> <C>
Options granted.................. 584,890 $ 29.09 $29.00-$ 38.25
Options exercised................ -- -- --
Options expired or terminated.... -- -- --
--------- ------- --------------
Outstanding at December 31, 1997. 584,890 $ 29.09 $29.00-$ 38.25
--------- ------- --------------
Options granted.................. 1,037,719 39.81 35.06-59.75
Options exercised................ (63,059) 29.00 29.00
Options expired or terminated.... (129,290) 33.57 29.00-59.75
--------- ------- --------------
Outstanding at December 31, 1998. 1,430,260 $ 36.48 $29.00-$ 59.75
--------- ------- --------------
--------- ------- --------------
Options exercisable at
December 31, 1998............... 113,590 $ 29.09 $ 29.00-$38.13
--------- ------- --------------
</TABLE>
As permitted by SFAS No. 123, Accounting for Stock Based Compensation, 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. 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 would have been reduced by
approximately $6.7 million, or $0.04 per basic and diluted share, in 1998, and
$2.0 million in 1997.
The Company uses the Black-Scholes model for estimating the fair value of
its compensation instruments. The estimated fair value of options granted in
1998 was $21.85 and the weighted average assumptions used for calculation of
the value were as follows: risk-free interest rate of 5.7%; dividend yield 0%;
expected life of ten years; and stock volatility of 30.7%. 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; stock
volatility of 30%.
Beginning in 1998, directors who are not full-time employees of the Company
receive their annual retainers in shares of restricted Common Stock of the
Company under the Stock Plan. The shares are issued each year after the
Company's annual meeting, vest quarterly over the course of the year served,
and may not be sold for a period of six months after vesting, subject to the
Company's trading policies. Directors also receive meeting fees in shares of
restricted Common Stock of the Company. The shares are issued after each in-
person or telephonic board or committee meeting attended, and may not be sold
for a period of six months following the date of grant, subject to the
Company's trading policies. As a group, non-employee directors received 5,284
shares with a
53
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
weighted average fair value of $50.64 in 1998. Directors also were granted
non-qualified stock options for 4,284 shares at an average price of $53.09
under the Stock Plan (as described above) upon their election in 1998.
Director stock option grants vest over a six month period from the date of
grant and none of the options were exercisable in 1998.
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 Merger
under certain circumstances relating to a termination of employment. The
benefits provided under these programs expire at various dates through May
1999. During 1998, payments made under these programs were approximately $2.6
million. 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 (in
thousands):
<TABLE>
<S> <C>
1999................................................................ $ 2,667
2000................................................................ 2,417
2001................................................................ 2,238
2002................................................................ 1,937
2003................................................................ 837
2004 and thereafter................................................. 3,265
--------
$ 13,361
========
</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
Summary financial information on a quarterly basis for the Company in 1998
and 1997 follows (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues..................... $ 193,025 $ 191,080 $ 186,540 $ 196,618
Operating income............. 84,876 73,569 78,327 81,562
Net income................... 35,348 27,757 29,925 31,576
Net income per share--basic
and diluted................. 0.24 0.19 0.20 0.21
</TABLE>
54
<PAGE>
PANAMSAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
MARCH JUNE 30, SEPTEMBER 30, DECEMBER 31,
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 share--basic and
diluted........................ -- -- 0.18 0.16
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
55
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information set forth under the captions "Election of Directors" and
"Executive Officers of the Company" contained in the Company's Proxy Statement
(to be filed not later than 120 days after the end of the Company's fiscal
year) for the 1999 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the information set forth under the caption "Executive Compensation" (up
to but not including the subcaption "Report of the Compensation Committee")
contained in the Company's Proxy Statement (to be filed not later than 120
days after the end of the Company's fiscal year) for the 1999 Annual Meeting
of Stockholders, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" contained in the Company's Proxy
Statement (to be filed not later than 120 days after the end of the Company's
fiscal year) for the 1999 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information set forth under the subcaptions "Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" under the
caption "Executive Compensation" contained in the Company's Proxy Statement
(to be filed not later than 120 days after the end of the Company's fiscal
year) for the 1999 Annual Meeting of Stockholders, which information is
incorporated herein by reference.
56
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)1.FINANCIAL STATEMENTS
See Index to Financial Statements on page 34.
2.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)REPORTS ON FORM 8-K
During the last quarter of 1998, the Company did not file any
Current Reports on Form 8-K with the Securities and Exchange
Commission.
(C)EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Reorganization, dated 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 dated as of April 4,
1997 constituting Exhibit 2.1 hereto 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 is incorporated
herein by reference to Exhibit 3.1 to PanAmSat's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
</TABLE>
57
<PAGE>
<TABLE>
<C> <S>
3.2 Restated Bylaws of PanAmSat.
4.1.1 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.
4.1.2 Letter Agreement dated February 26, 1999 among PanAmSat, Hughes
Communications, Inc. and the former holders of Class A Common Stock
of PanAmSat International.
4.2 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.
4.3.1 Loan Agreement, dated May 15, 1997, between Hughes Network Systems,
Inc. and PanAmSat is incorporated 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 is incorporated herein by references to
Exhibit 4.3.2 to PanAmSat's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
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
references to Exhibit 4.3.3 to PanAmSat's Annual Report on Form 10-
K for the fiscal year ended December 31, 1997.
4.3.4 Subordination Agreement dated as of January 16, 1998 between Hughes
Electronics and PanAmSat is incorporated herein by reference to
Exhibit 4.3.4 to PanAmSat's Quarterly Report on Form 10-Q for the
period ended September 30, 1998.
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 4.1 to PanAmSat's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
4.5 Agreement dated as of May 1, 1998 by and among PanAmSat and the
former holders of Class A Common Stock of PanAmSat International is
incorporated herein by reference to Exhibit 4.2.2 to PanAmSat's
Registration Statement on Form S-4 (Registration
No. 333-56227).
4.6 Registration Rights Agreement dated as of January 16, 1998 among
PanAmSat, Morgan Stanley & Co. Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Salomon Brothers Inc, Citicorp
Securities, Inc., BancAmerica Robertson Stephens and J.P. Morgan
Securities Inc. is incorporated herein by reference to Exhibit 4.5
to PanAmSat's Current Report on Form 8-K dated July 21, 1998.
4.7 Letter Agreement dated July 22, 1998 between Hughes Electronics
Corporation and PanAmSat is incorporated herein by reference to
Exhibit 4.3.4 to PanAmSat's Quarterly Report on Form 10-Q for the
period ended June 30, 1998.
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.
</TABLE>
58
<PAGE>
<TABLE>
<C> <S>
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 herein 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)
</TABLE>
59
<PAGE>
<TABLE>
<C> <S>
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
as of 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 dated as of March 9, 1998 to Agreement for Launching
into Geostationary Transfer Orbit of the PanAmSat 6 Satellite by
an Ariane Launch Vehicle, No. 94.5.918, between PanAmSat
International and Arianespace S.A. constituting Exhibit 10.9.1
hereto, 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. (1)
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-1 (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)
</TABLE>
60
<PAGE>
<TABLE>
<C> <S>
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, dated as of January 8, 1998, to Agreement for
Launching into Geostationary Orbit of PanAmSat Satellites by an
Ariane Launch Vehicle, No. 95.5.933, 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. (1)
10.15.6 Amendment No. 1, dated as of January 8, 1998, to Side Letter to
Agreement for Launching into Geostationary Transfer Orbit of
PanAmSat Satellites by an Ariane Launch Vehicle, No. 95.5.933,
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. (1)
</TABLE>
61
<PAGE>
<TABLE>
<C> <S>
10.15.7 Amendment No. 4, dated as of March 9, 1998, to Agreement for
Launching into Geostationary Transfer Orbit of PanAmSat
Satellites by an Ariane Launch Vehicle, No. 95.5.933, between
PanAmSat 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. (1)
10.15.8 Side Letter No. 2, dated as of March 9, 1998, to Agreement for
Launching into Geostationary Transfer Orbit of PanAmSat
Satellites by an Ariane Launch Vehicle, No. 95.5.933, 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. (1)
10.15.9 Amendment No. 5, dated as of October 12, 1998, to Agreement for
Launching into Geostationary Orbit of PanAmSat Satellites by an
Ariane Launch Vehicle, No. 95.5.933, between PanAmSat and
Arianespace S.A. constituting Exhibit 10.15.1 hereto. (2)
10.15.10 Side Letter No. 3, dated as of October 12, 1998, to Agreement
for Launching into Geostationary Orbit of PanAmSat Satellites by
an Ariane Launch Vehicle, No. 95.5.933, between PanAmSat and
Arianespace S.A. constituting Exhibit 10.15.1 hereto. (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 is incorporated herein by
reference to Exhibit 10.17.1 to PanAmSat International's
Quarterly Report on Form 10-Q/A for the period ended March 31,
1996. (1)
10.18.2 Amendment to Letter Agreement, dated November 4, 1996,
constituting Exhibit 10.18.1 hereto, among News Corporation
Limited, Globo Participacoes, Ltd., Grupo Televisa, S.A., and
PanAmSat International is incorporated herein by reference to
Exhibit 10.17.2 to PanAmSat International's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
10.18.3 Amendment, dated as of March 5, 1998, to Letter Agreement
between News Corporation Limited, Globo Comunicacoes e
Participacoes, S.A., Grupo Televisa, S.A. and PanAmSat
International constituting Exhibit 10.18.3 hereto, is
incorporated herein by reference to Exhibit 10.18.3 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's 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. is incorporated herein by reference to
Exhibit 10.19.2 to PanAmSat's Registration Statement on Form S-4
(Registration No. 333-56227). (1)
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)
</TABLE>
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<TABLE>
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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 Satellite
Company, L.L.C. is incorporated herein by reference to
Exhibit 10.13.1 to PanAmSat International's Quarterly Report on
Form 10-Q for the period ended September 30, 1996.
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, dated as of March 5, 1998, to Full-Time Transponder
Service Agreement From PAS-3 (European Beam) 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. (1)
10.26 Transponder Purchase and Sale Agreement, dated as of June 26,
1996, between PanAmSat International and Net Sat Servicos Ltda.
is incorporated herein by reference to Exhibit 10.2 to Net Sat
Servicios Ltda.'s Registration Statement on Form F-4 (Reg. No.
333-6318), dated January 21, 1997. (1)
10.27.1 Amended and Restated Transponder Purchase and Sale Agreement,
dated as of June 26, 1996, between PanAmSat International and Net
Sat Servicos Ltda. is incorporated herein by reference to Exhibit
10.2.1 to Net Sat Servicios Ltda.'s Registration Statement on
Form F-4 (Reg. No. 333-6318), dated January 21, 1997. (1)
10.27.2 Second Amended and Restated Transponder Purchase and Sale
Agreement dated as of March 5, 1998 between PanAmSat
International and Net Sat 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. (1)
10.28.1 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)
10.28.2 Letter Agreement, dated as of October 9, 1998, betweeen PanAmSat
and Hughes Space and Communications Company International, Inc.,
regarding Amended and Restated Launch Services Agreement between
Hughes Communications Galaxy, Inc. and Hughes Space and
Communications International, Inc. constituting Exhibit 10.28.1
hereto. (2)
10.29 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)
</TABLE>
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<TABLE>
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10.30 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.*
10.31.1 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.
10.31.2 First Amendment, dated April 30, 1998, to Amended and Restated
Collateral Trust Agreement by and among PanAmSat, Hughes
Communications, Inc., Satellite Company, LLC, Grupo Televisa,
S.A. and IBJ Schroder Bank & Trust Company constituting Exhibit
10.31.1 hereto, 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.
10.32 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.
10.33 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.*
10.34 PanAmSat Corporation Annual Incentive Plan, effective January l,
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.*
10.35 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.
10.36 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.
10.37.1 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)
10.37.2 Amendment No. 1, dated as of November 30, 1999, to Fixed Price
Contract between Hughes Communications Galaxy, Inc. and Hughes
Space and Communications Company for Galaxy XI HS702 Spacecraft,
Related Services and Documentation constituting Exhibit 10.37.1
hereto. (2)
10.38 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)
10.39 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)
</TABLE>
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<PAGE>
<TABLE>
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10.40 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)
10.41.1 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.*
10.41.2 Schedule identifying substantially identical agreements to the
Indemnity Agreement constituting Exhibit 10.41.1 hereto in favor
of Charles H. Noski, Frederick A. Landman, Patrick J. Costello,
Steven D. Dorfman, Dennis F. Hightower, James M. Hoak, Joseph R.
Wright, Jr., Michael T. Smith, Carl A. Brown, Kenneth N. Heintz,
Robert A. Bednarek, James W. Cuminale, David P. Berman, Roxanne
S. Austin, Tig H. Krekel, Stephen R. Kahn and R. Douglas Kahn.*
10.42 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.
10.43 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.*
10.44 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.*
10.45.1 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.*
10.45.2 Amendment dated as of March 6, 1998 to the Agreement between
PanAmSat International and Frederick A. Landman constituting
Exhibit 10.45.1 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.*
10.45.3 Amendment dated as of August 31, 1998 to the Agreement dated as
of May 15, 1996 between PanAmSat International and Frederick A.
Landman, as amended, constituting Exhibits 10.45.1 and 10.45.2
hereto, is incorporated herein by reference to Exhibit 10.44.3 to
PanAmSat's Quarterly Report on Form 10-Q for the period ended
September 30, 1998.*
10.45.4 Amendment dated November 20, 1998 to the Agreement dated as of
May 15, 1996 between PanAmSat International and Frederick A.
Landman, as amended, constituting Exhibits 10.45.1, 10.45.2 and
10.45.3 hereto.*
10.46 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 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.*
</TABLE>
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<TABLE>
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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 here in 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 HS601HP 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. (1)
10.51 Transponder Service Agreement dated as of March 5, 1998 between
PanAmSat International 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. (1)
10.52 Agreement dated as of July 10, 1998 between PanAmSat and Robert
A. Bednarek is incorporated herein by reference to Exhibit 10.46
to PanAmSat's Registration Statement on Form S-4 (Registration
No. 333-56227).*
10.53 Agreement dated as of July 10, 1998 between PanAmSat and James W.
Cuminale is incorporated herein by reference to Exhibit 10.47 to
PanAmSat's Registration Statement on Form S-4 (Registration No.
333-56227).*
10.54 Transponder Service Agreement dated as of April 30, 1998 between
PanAmSat International and Corporacion de Radio y Television del
Norte de Mexico, S.A. de C.V., is incorporated herein by
reference to Exhibit 10.52 to PanAmSat's Registration Statement
on Form S-4 (Registration No. 333- 56227). (1)
10.55 Fixed Price Contract for DOMSAT 1, DOMSAT 2, and Option
Spacecraft, Related Services and Documentation--Contract No. 98-
PAS-002, dated as of October 9, 1998, between PanAmSat and Hughes
Space and Communications Company. (2)
21.1 Subsidiaries of PanAmSat is incorporated herein by reference to
Exhibit 21.1 to PanAmSat's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
23.1 Consent of Deloitte & Touche LLP.
24.l Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
(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.
Exhibits indicated with a * symbol are an executive contract or compensatory
plan or arrangement filed pursuant to Item 14 of Form 10-K.
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.
A copy of any of the exhibits included in this Annual Report on Form 10-K,
other than those as to which confidential treatment is pending or has been
granted by the Securities and Exchange Commission, upon payment of a fee to
cover the reasonable expenses of furnishing such exhibits, may be obtained by
written request to the Company, at the address set forth on the front cover,
attention General Counsel.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the Town of Greenwich, State of Connecticut.
PanAmSat Corporation
By: /s/ James W. Cuminale
__________________________________
James W. Cuminale
Senior Vice President,
General Counsel and Secretary
March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
* Chairman of the Board of March 30, 1999
_____________________________________ Directors
MICHAEL T. SMITH
* President and Chief Executive
Officer (principal executive
officer) and Director
March 30, 1999
_____________________________________
FREDERICK A. LANDMAN
* Director March 30, 1999
_____________________________________
ROXANNE S. AUSTIN
* Director March 30, 1999
_____________________________________
PATRICK J. COSTELLO
* Director March 30, 1999
_____________________________________
STEVEN D. DORFMAN
* Director March 30, 1999
_____________________________________
DENNIS F. HIGHTOWER
* Director March 30, 1999
_____________________________________
JAMES M. HOAK
* Director March 30, 1999
_____________________________________
STEPHEN R. KAHN
* Director March 30, 1999
_____________________________________
CHARLES H. NOSKI
* Director March 30, 1999
_____________________________________
JOSEPH R. WRIGHT, JR.
/s/ Kenneth N. Heintz Executive Vice President and March 30, 1999
_____________________________________ Chief Financial Officer
KENNETH N. HEINTZ (principal financial officer
and principal accounting
officer)
*By: /s/ James W. Cuminale
_____________________________________
(JAMES W. CUMINALE, ATTORNEY-IN-
FACT)
</TABLE>
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<PAGE>
Exhibit 3.2
RESTATED BYLAWS
OF
PANAMSAT CORPORATION
ARTICLE I
Stockholders
SECTION 1.1. Annual Meetings. An annual meeting of stockholders
shall be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
SECTION 1.2. Special Meetings. Special meetings of stockholders for
any purpose or purposes may be called at any time by the Board of Directors, or
by a committee of the Board of Directors that has been duly designated by the
Board of Directors and whose powers and authority, as provided in a resolution
of the Board of Directors, include the power to call such meetings, but such
special meetings may not be called by any other person or persons.
SECTION 1.3. Notice of Meetings. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given that shall state the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the certificate of incorporation or
these Bylaws, the written notice of any meeting shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, such notice shall be
deemed to be given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation.
SECTION 1.4. Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the
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original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting,
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
SECTION 1.5. Quorum. Except as otherwise provided by law, the
certificate of incorporation or these Bylaws, at each meeting of stockholders
the presence in person or by proxy of the holders of shares of stock having a
majority of the votes which could be cast by the holders of all outstanding
shares of stock entitled to vote at the meeting shall be necessary and
sufficient to constitute a quorum. Where a separate vote by a series, class or
classes is required, a majority of the outstanding shares of stock of such class
or classes on any particular issue, present in person or represented by proxy,
shall be necessary and sufficient to constitute a quorum for purposes of such
issue. In the absence of a quorum, the stockholders so present may, by majority
vote, adjourn the meeting from time to time in the manner provided in Section
1.4 of these Bylaws until a quorum shall attend. Shares of its own stock
belonging to the Corporation or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the Corporation, shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
foregoing shall not limit the right of the Corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.
SECTION 1.6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his absence by the
President, or in his absence by an Executive Vice President, or in the absence
of the foregoing persons by a chairman designated by the Board of Directors, or
in the absence of such designation by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his absence the chairman
of the meeting may appoint any person to act as secretary of the meeting. The
chairman of the meeting shall announce at the meeting of stockholders the date
and time of the opening and the closing of the polls for each maker upon which
the stockholders will vote.
SECTION 1.7. Voting; Proxies. Each stockholder entitled to vote at
any meeting of stockholders shall be entitled to one vote for each share of
stock held by such stockholder which has voting power upon the matter in
question. At all meetings of stockholders for the election of directors, a
plurality of the votes cast shall be sufficient to elect a director. All other
elections and questions shall, unless otherwise provided by law, the certificate
of incorporation, these Bylaws or the rules or regulations of any stock exchange
applicable to the Corporation, be decided by the affirmative vote of the holders
of shares of stock having a majority of the votes present in person or
represented by proxy and entitled to vote thereon. Each stockholder entitled to
vote at a meeting of
2
<PAGE>
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from is date,
unless the proxy provides for a longer period. A proxy shall be irrevocable if
it states that it is irrevocable and if, and only as long as, it is coupled with
an interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by delivering
a proxy in accordance with applicable law bearing a later date to the Secretary
of the Corporation. Voting at meetings of stockholders need not be by written
ballot.
SECTION 1.8. Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date: (i) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten (10) days before the date of such meeting; and (ii) in the case of
any other action, shall not be more than sixty (60) days prior to such other
action. If no record date is fixed: (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; and (ii) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjured meeting.
SECTION 1.9. List of Stockholders Entitled to Vote. The Secretary
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so
3
<PAGE>
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
SECTION 1.10. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 1.9 of this ARTICLE I, or to vote
in person or by proxy at any meeting of stockholders.
SECTION 1.11. Conduct of Meetings. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
Corporation, their duly authorized and constituted proxies or such other persons
as the chairman of the meeting shall determine: (iv) restrictions on entry to
the meeting after the time fixed for the commencement thereof; and (v)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent otherwise determined by the Board of Directors or the
chairman of the meeting, meetings of stockholders shall not be required to be
held in accordance with the rules of parliamentary procedure.
SECTION 1.12. Advance Notice of Stockholder Nominations and Business.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders may be
made at an annual meeting of stockholders (a) pursuant to the Corporation's
notice of meeting, (b) by or at the direction of the Board of Directors or
(c) by any stockholder of the Corporation who was a stockholder of record
at the time of giving of notice provided for in this Bylaw, who is entitled
to vote at the meeting and complies with the notice procedures set forth in
this Bylaw.
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(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (A)(l) of this Bylaw, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such
other business must otherwise be a proper matter for stockholder action.
To be timely, a stockholder's notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close
of business on the 60th day nor earlier than the close of business on the
90th day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is more than thirty (30) days before or more than sixty (60) days
after such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the close of business on the 90th day prior
to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such meeting
is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time
period for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14a-11 thereunder (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; and (c)
as to the stockholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made (i) the name and address
of such stockholder, as they appear on the Corporation's books, and of such
beneficial owner, (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii) whether the proponent intends or is part of a
group which intends to solicit proxies from other stockholders in support
of such proposal or nomination.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased
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and there is no public announcement by the Corporation naming all of the
nominees for director or specifying the size of the increased Board of
Directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this
Bylaw shall also be considered timely, but only with respect to nominees
for any new positions created by such increase, if it shall be delivered to
the Secretary at the principal executive offices of the Corporation not
later than the close of business on the 10th day following the day on which
such public announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Bylaw, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Bylaw. In the event the
Corporation calls a special meeting of stockholders for the purpose of electing
one or more directors to the Board of Directors, any such stockholder may
nominate a person or persons (as the case may be) for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting, or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In
no event shall the public announcement or an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
(C) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as
shall have been brought before the meeting in accordance with the
procedures set forth in this Bylaw. Except as otherwise provided by law,
the certificate of incorporation or these Bylaws, the chairman of the
meeting shall have the power and duty to determine whether a nomination or
any business proposed to be brought before
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the meeting was made or proposed, as the case may be, in accordance with
the procedures set forth in this Bylaw and, if any proposed nomination or
business is not in compliance with this Bylaw, to declare that such
defective proposal or nomination shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to
affect any rights (i) of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act or (ii) of the holders of any series of Preferred Stock to elect
directors under specified circumstances.
SECTION 1.13. Stockholder Action. Any action required or permitted
to be taken by any stockholders of the Corporation must be effected at a duly
called annual or special meeting of such stockholders and may not be effected by
any consent in writing by such stockholders. Except as otherwise required by
law, special meetings of stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by a majority of the
entire Board of Directors.
SECTION 1.14. Inspectors of Election. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors of
election, who may be employees of the Corporation, to act at the meeting or any
adjournment thereof and to make a written report thereof. The Corporation may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. In the event that no inspector so appointed or designated is
able to act at a meeting of stockholders, the person presiding at the meeting
shall appoint one or more inspectors to act at the meeting. Each inspector,
before entering upon the discharge of his or her duties, shall take and sign an
oath to execute faithfully the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspector or inspectors so
appointed or designated shall (i) ascertain the number of shares of capital
stock of the Corporation outstanding and the voting power of each such share,
(ii) determine the shares of capital stock of the Corporation represented at the
meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
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disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares of capital stock of the
Corporation represented at the meeting and such inspectors' count of all votes
and ballots. Such certification and report shall specify such other information
as may be required by law. In determining the validity and counting of proxies
and ballots cast at any meeting of stockholders of the Corporation, the
inspectors may consider such information as is permitted by applicable law. No
person who is a candidate for an office at an election may serve as an inspector
at such election.
ARTICLE II
Board of Directors
SECTION 2.1. Number; Qualifications. The Board of Directors shall
consist of one or more members, the number thereof to be determined from time to
time by resolution of the Board of Directors. Directors need not be
stockholders.
SECTION 2.2. Election; Resignation; Removal; Vacancies. At the first
annual meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect directors each of whom shall hold office for a term of
one year or until his successor is elected and qualified. The number of
directors constituting the initial Board of Directors shall be ten. Subject to
the rights of holders of any series of Preferred Stock to elect directors under
specified circumstances, the number of directors may be modified from time to
time exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies. Any director may resign at any time upon written
notice to the Corporation. Any newly created directorship or any vacancy
occurring in the Board of Directors for any cause may be filled by a majority of
the remaining members of the Board of Directors, although such majority is less
than a quorum, or by a plurality of the votes cast at a meeting of stockholders,
and each director so elected shall hold office until the expiration of the term
of office of the director whom he has replaced or until his successor is elected
and qualified.
SECTION 2.3. Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine, and if
so determined notices thereof need not be given.
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SECTION 2.4. Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the President, any Vice President, the Secretary, or
by any member of the Board of Directors. Notice of a special meeting of the
Board of Directors shall be given by the person or persons calling the meeting
at least twenty-four hours before the special meeting.
SECTION 2.5. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Bylaw shall constitute presence in person at such meeting.
SECTION 2.6. Quorum; Vote Required for Action. At all meetings of
the Board of Directors a majority of the whole Board of Directors shall
constitute a quorum for the transaction of business. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
SECTION 2.7. Organization. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board, if any, or in his absence by the
President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his absence the chairman
of the meeting may appoint any person to act as secretary of the meeting.
SECTION 2.8. Informal Action by Directors. Unless otherwise
restricted by the certificate of incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE III
Committees
SECTION 3.1. Committees. The Board of Directors shall appoint the
committees provided for in these Bylaws in Sections 3.2 and 3.3 and may, by
resolution passed by the Board of Directors, designate one or more additional
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of
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Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of the committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member. Any such committee, to the extent permitted
by law and to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it.
SECTION 3.2. Compensation Committee.
(a) At each annual meeting of the Board of Directors, the Board of
Directors shall, by a resolution adopted by the Board of Directors, designate
and appoint from its members a Compensation Committee consisting of three or
more directors, each of whom shall be a "disinterested" person.
(b) The Compensation Committee shall have the powers and
responsibilities designated by the Board of Directors from time to time.
(c) Action taken by the Compensation Committee or at meetings duly
called shall require the affirmative vote of at least a majority of its members.
SECTION 3.3. Audit Committee.
(a) At each annual meeting of the Board of Directors, the Board of
Directors shall, by a resolution adopted by the Board of Directors, designate
and appoint from its members an Audit Committee consisting of three or more
directors, none of whom is an officer or employee of the Corporation.
(b) The Audit Committee shall have the powers and responsibilities as
designated by the Board of Directors from time to time.
SECTION 3.4. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board of Directors may
make, alter and repeal rules for the conduct of its business. In the absence of
such rules each committee shall conduct its business in the same manner as the
Board of Directors conducts its business pursuant to ARTICLE 11 of these Bylaws.
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ARTICLE IV
Officers
SECTION 4.1. Executive Officers; Election; Qualifications; Term of
Office; Resignation; Removal; Vacancies. The Board of Directors shall elect a
President and Secretary, and it may, if it so determines, choose a Chairman of
the Board from among its members. The Board of Directors may also choose a
Chief Operating Officer, one or more Executive Vice Presidents, one or more
Senior Vice Presidents, one or more Assistant Secretaries, a Treasurer and one
or more Assistant Treasurers. Each such officer shall hold office until the
first meeting of the Board of Directors after the annual meeting of stockholders
next succeeding his election, and until his successor is elected and qualified
or until his earlier resignation or removal. Any officer may resign at any time
upon written notice to the Corporation. The Board of Directors may remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation. Any number of offices may be held by the same person. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting.
SECTION 4.2. Powers and Duties of Executive Officers. The officers
of the Corporation shall have such powers and duties in the management of the
Corporation as may be prescribed in a resolution by the Board of Directors and,
to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors.
SECTION 4.3. Chairman of the Board. The Chairman of the Board shall
be a member of the Board of Directors. He shall preside at each meeting of the
Board of Directors or the stockholders. Unless the Chairman also holds another
office described in these Bylaws, he shall be a non-executive officer of the
Corporation.
SECTION 4.4. The President. The President shall be the chief
executive officer of the Corporation. He shall, in the absence of the Chairman
of the Board, preside at each meeting of the Board of Directors or the
stockholders. The President shall be responsible for the general supervision
and control of the business and affairs of the Corporation, subject to the
direction of the Board of Directors. The President may sign or countersign
certificates, contracts, agreements and other documents and instruments in the
name and on behalf of the Corporation, unless and except to the extent that any
document or instrument is required by law or by the Board of Directors to be
signed or countersigned by another officer of the Corporation. The President
may appoint
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additional officers that are not executive officers described in these Bylaws
(unless such appointments are approved by the Board of Directors), and such
additional officers shall serve the Corporation at the discretion of the
President. The President shall perform all duties incident to the office of the
President, and such other duties as may from time to time be assigned to him by
the Board of Directors.
SECTION 4.5. Chief Operating Officer. The Chief Operating Officer
shall report to the President and shall be responsible for day-to-day management
of the sales, operations and strategic activities of the Corporation and such
other duties as may from time to time be assigned to him by the President or the
Board of Directors. At the request of the President, or in his absence or in
the event of his inability or refusal to act, the Chief Operating Officer shall
perform the duties of the President, and when so acting, shall have the powers
of and be subject to the restrictions placed upon the President in respect of
the performance of such duties.
SECTION 4.6. Executive Vice President. Each Executive Vice President
shall perform all such duties as from time to time may be assigned to him by the
Board of Directors or the President. At the request of the President or the
Chief Operating Officer or in his absence or in the event of his inability or
refusal to act, the Executive Vice President, or if there shall be more than
one, the Executive Vice Presidents in the order determined by the Board of
Directors (or if there be no such determination, then the Executive Vice
Presidents in the order of their appointment), shall perform the duties of the
Chief Operating Officer, and when so acting, shall have the powers of and be
subject to the restrictions placed upon the Chief Operating Officer in respect
of the performance of such duties.
SECTION 4.7. Senior Vice President. Each Senior Vice President shall
perform all such duties as from time to time may be assigned to him by the Board
of Directors or the President. Each Senior Vice President shall perform all
duties incident to the office of such Senior Vice President, and such other
duties as may from time to time be assigned to him by the Board of Directors.
SECTION 4.8. Chief Financial Officer. The Chief Financial Officer
shall be responsible for the financial affairs of the Corporation and shall be
the chief accounting officer for public securities purposes. If the Chief
Financial Officer is not also the Treasurer of the Corporation, he shall be
responsible for the supervision of the Treasurer. He shall perform all duties
incident to the office of Chief Financial Officer, and such other duties as may
from time to time be assigned to him by the Board of Directors.
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SECTION 4.9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board of Directors
or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds;
(f) render to the Board of Directors, whenever the Board of Directors
may require, an account of the financial condition of the Corporation; and
(g) in general, perform all duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the Board
of Directors.
In the event that any officer of the Corporation other than the
Treasurer shall be designated as the Corporation's chief financial officer, the
Treasurer shall share the foregoing powers and duties with such chief financial
officer, and all references in these Bylaws to the Treasurer shall be deemed to
include such chief financial officer of the Corporation.
SECTION 4.10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the committees
of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all certificates for shares of the Corporation and
affix and attest the seal to all other documents to be executed on behalf of the
Corporation under its seal;
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(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the Board
of Directors.
SECTION 4.11. Assistant Secretaries. During the absence or
disability of the Secretary, the Assistant Secretary shall have and may exercise
all of the powers and shall discharge all of the duties of the Secretary. Each
Assistant Secretary shall also perform all such other duties as are incident to
his office or are properly requested by the President, the Secretary or the
Board of Directors.
SECTION 4.12. Assistant Treasurers. During the absence or disability
of the Treasurer, the Assistant Treasurer shall have and may exercise all of the
powers and shall discharge all of the duties of the Treasurer. Each Assistant
Treasurer shall also perform all such other duties as are incident to his office
or are properly requested by the President, the Treasurer or the Board of
Directors.
SECTION 4.13. Additional Officers. The Board of Directors may
appoint such other officers and agents as it may deem appropriate, and such
other officers and agents shall hold their offices for such terms and shall
exercise such powers and perform such duties as may be determined from time to
time by the Board of Directors. The Board of Directors may from time to time
delegate to any officer or agent the power to appoint subordinate officers or
agents and to prescribe their respective rights, terms of office, authorities
and duties. Any such officer or agent may remove any such subordinate officer
or agent appointed by him, for or without cause.
ARTICLE V
Stock
SECTION 5.1. Certificates. Every holder of stock shall be entitled
to have a certificate signed by or in the name of the Corporation by the
Chairman or the President or an Executive Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
Any of or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the
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Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
SECTION 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance
of New Certificates. The Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
Miscellaneous
SECTION 6.1. Fiscal Year. The fiscal year of the Corporation shall
be determined by resolution of the Board of Directors.
SECTION 6.2. Seal. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
SECTION 6.3. Waiver of Notice of Meetings of Stockholders, Directors
and Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
SECTION 6.4. Manner of Notice. Except as otherwise provided herein,
notices to directors and stockholders shall be in writing and delivered
personally or mailed to the directors or stockholders at their addresses
appearing on the books of the Corporation. Notice to directors may be given by
telegram, telecopier, telephone or other means of electronic transmission.
SECTION 6.5. Interested Directors; Quorum. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the
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Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (i) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committeve in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
SECTION 6.6. Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time.
SECTION 6.7. Amendment of Bylaws. These Bylaws may be altered or
repealed, and new bylaws made, by the Board of Directors, but the stockholders
may make additional bylaws and may alter and repeal any Bylaws whether adopted
by them or otherwise.
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Exhibit 4.1.2
February 26, 1999
PanAmSat Corporation
One Pickwick Plaza
Greenwich, Connecticut 06830
Attention: James W. Cuminale, Esq.
Hughes Communications, Inc.
c/o Michael T. Smith
Hughes Electronics Corporation
200 North Sepulveda
P.O. Box 956
El Segundo, California 90245
Dear Sirs:
Pursuant to Section 3(a) of the Amended and Restated Stockholder
Agreement, dated as of May 16, 1997, between PanAmSat Corporation (the
"Company"), Hughes Communications, Inc. ("HCI") and certain other parties (the
"Agreement"), the Board of Directors of the Company may not have more than ten
members. Terms used herein and not otherwise defined shall take the meaning
given them in the Agreement.
The Company desires to increase the size of its Board of Directors to
eleven members to allow Frederick A. Landman to remain on the Board,
notwithstanding his resignation as President and Chief Executive Officer of the
Company, effective on March 31, 1999.
The stockholders of the Company signatory below have beneficial
ownership of 66-2/3% of the Shares held by Minority Stockholders and accordingly
have the right pursuant to Section 8(l) of the Agreement to allow the Board of
Directors of the Company to increase in size.
We agree that notwithstanding the limitation contained in the first
sentence of Section 3(a) of the Agreement, when Frederick A. Landman ceases to
be Chief Executive Officer of the Company, the number of members of the Board of
Directors of the Company may be increased to eleven, solely to allow Frederick
A. Landman to serve, as one of HCI's designees, as the
<PAGE>
eleventh member of the Board of Directors of the Company.
The consent and waiver contained in this letter shall remain in effect
only for so long as Frederick A. Landman remains a member of the Board of
Directors of the Company as a designee of HCI.
Other than as expressly set forth above, the Agreement remains
unchanged and in full force and effect.
Yours very truly,
CLASS A HOLDERS
Mary Anselmo
-------------------------------------------------------
Name: Mary Anselmo, individually and as a trustee of
the Article VII Trust created by the RENE
ANSELMO REVOCABLE TRUST DATED JUNE 10, 1994 and
as a successor trustee under the Voting Trust
Agreement dated as of February 28, 1995 and as a
co-trustee of the RAYCE ANSELMO TRUST DATED
DECEMBER 23, 1991
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Exhibit 10.15.9
Page 1
"This Amendment #5 to the Launch Services Agreement 95.5.933 is entered into
between:
ARIANESPACE S.A., a company organized under the laws of France and having its
principal office at Boulevard de l'Europe, 91006 EVRY, France.
AND
PanAmSat Corporation a company organized under the laws of the State of Delaware
with principal offices located at One Pickwick Plaza, Greenwich, Connecticut,
U.S.A.
(hereinafter referred to as "PanAmSat Corporation" or under this Amendment,
"Customer")
and
PanAmSat International a company organized under the laws of the State of
Delaware with principal offices located at One Pickwick Plaza, Greenwich,
Connecticut, U.S.A.
(hereinafter referred to as "PanAmSat International")
Reference is made to the Launch Services Agreement 95.5.933 executed between
PanAmSat Corporation and ARIANESPACE on December 20, 1995 for the Launch of up
to four PanAmSat Satellites as amended (said agreement being hereinafter
referred to as the "Agreement").
The Parties hereby amend the Agreement in order to provide for three additional
Firm Launches: Firm Launch #4 (Galaxy 11, which Launch shall be for the benefit
of PanAmSat Corporation, Firm Launch #5 (Galaxy 4R, which Launch shall be for
the benefit of PanAmSat Corporation, Firm Launch #6 which shall be for the
benefit of PanAmSat Corporation and modify certain terms of the Agreement in the
manner provided for hereafter:
ARTICLE 1
FIRM LAUNCH #4, FIRM LAUNCH #5 AND FIRM LAUNCH #6
A) Three Firm Launches are hereby added to the Agreement for the Galaxy 11
Satellite (Firm Launch #4), the Galaxy 4R Satellite (Firm Launch #5) and a
Satellite to be designated by Customer in writing to ARIANESPACE no later than 1
June 1999 (Firm Launch #6) during the following Launch Periods:
<PAGE>
Page 2
i) Firm Launch #4
From 1 March 1999 up to and including 31 May 1999.
Notwithstanding the terms of the Agreement, it is agreed that, for Firm Launch
#4, under the terms of Article 6 of the Agreement, the Launch Slot shall be
determined no later than L-4 months (Paragraph 6.2) and the Launch Day shall be
determined no later than L-2 1/2 months (Paragraph 6.3).
ii) Firm Launch #5
From 1 October 1999 up to and including 31 December 1999.
Notwithstanding the terms of the Agreement, it is agreed that, for Firm Launch
#5, under the terms of Article 6 of the Agreement, the Launch Slot shall be
determined no later than L-6 months (Paragraph 6.2).
iii) Firm Launch #6
From 1 January 2000 up to and including 31 March 2000.
Notwithstanding the terms of the Agreement, it is agreed that, for Firm Launch
#6, under the terms of Article 6 of the Agreement, the Launch Slot shall be
determined no later than L-6 months (Paragraph 6.2).
B) The Launch Services Price for Firm Launch #4, Firm Launch #5 and Firm Launch
#6 under Paragraph 8.1.1. of the Agreement and the corresponding payment plans
under Paragraph 10.1.1 of the Agreement shall be as follows:
i) for Firm Launch #4:
a) Price
The price shall be [************************************************************
************************ ] for a mass of 4500 kg.
b) Mass / Launch Vehicle
[**************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
******************************************************************].
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
<PAGE>
Page 3
[*******************************************************************************
*****************************************************************************].
[*******************************************************************************
************************].
c) Payment Plan
The Launch Services Price for Firm Launch #4 shall be paid by Customer as
follows:
Date Percentage of Launch Services Price under a)
- [**********] [***]*
- [**********] [***] less Pr**
- [**********] [***]
- [**********] [***]
- [**********] [***]
* This amount shall have been received by ARIANESPACE on 15 October 1998 or
ten days after execution of the present amendment to the Agreement,
whichever is the latest notwithstanding the provisions of Paragraph 10.3.1.
of the Agreement.
** At the date of execution of this amendment, the price reduction under
Paragraph 8.1.1.D) of the Agreement equals [***********]. The applicable
price reduction shall be deducted from this payment.
ii) for Firm Launch #5:
a) Price
The price shall be [************************************] for a mass of 3475 kg
(lift off mass for standard GTO orbit on a dedicated Ariane 4). This price shall
not be subject to any Price Reduction under the terms of the Agreement.
b) Mass / Launch Vehicle
The following provisions shall apply to Firm Launch #5 and Firm Launch #6:
[**************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
******************************************************************].
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
<PAGE>
Page 4
Customer shall have the following rights:
x) Notwithstanding the terms of the terms of the Agreement, until L-6
months, Customer shall have the option to increase the mass of the
Satellite to 3800 kg (without adaptor, standard GTO orbit). The price for
this mass increase shall be a price of [***********] ("the Mass Increase
Fee"), which shall be paid upon exercise of the option under this paragraph
x). For greater certainty, its is specified that this mass increase shall
not be subject to the price reduction under Paragraph 8.1.1.D) of the
Agreement. Provided that, further to Customer's exercise of the option
under this Paragraph x), the Launch is not delayed by an aggregate duration
in excess of [*****] months (including both Customer and ARIANESPACE
related delays), the Launch will be performed by way of a dedicated Ariane
[***] Launch Vehicle.
Customer shall have the right to cancel the mass increase hereunder by
written notice received by ARIANESPACE no later than L-[***] months. In
this case, if Customer has paid to ARIANESPACE the Mass Increase Fee, the
Mass Increase Fee shall be credited to the next payment due for any Launch
under this Agreement.
xx) Starting from the date of execution of this Amendment up until the
earlier of i) 1 April 1999 for Firm Launch #5 and 1 July 1999 for Firm
Launch #6 or ii) until Customer has exercised its option under a)
hereabove, the Parties agree to discuss all injection strategies that may
be used to optimize the Launch of the Satellite on a dedicated Ariane 42L
Launch Vehicle while increasing the Satellite lift off mass up to a mass
between 3650 and 3700 kg. It is understood that such increase in the
Satellite mass means a higher probability of a final orbit below the
standard GTO orbit as defined in the Annexes to the Agreement. The final
decision in this respect (i.e. trade off between increase of the lift off
mass and the final orbit) shall be taken by Customer taking into
consideration the Launch Vehicle's technical constraints.
xxx) In all cases where the Launch is performed by way of a dedicated
Ariane 4 Launch Vehicle, Customer shall be entitled to exercise its rights
under Paragraph 8.1.3.A) iii) of the Agreement.
xxxx) If ARIANESPACE notifies to Customer that the Launch will be performed
as a Shared Launch, clauses x), xx) and xxx) shall no longer be applicable
and if Customer has paid to ARIANESPACE the Mass Increase Fee, the Mass
Increase Fee shall be credited to the next payment due for any Launch under
this Agreement or reimbursed to Customer if a credit cannot be made.
Furthermore, the baseline mass shall be increased to
[************************] and Customer shall have the right to further
increase the Satellite up to a mass of 3650 kg (without adaptor, standard
GTO orbit) no later than ten (10) days after ARIANESPACE's notification
under Paragraph 4.2.1 of the Agreement (but in no event shall Customer's
decision be required earlier than L-[***] months). The price for this mass
increase shall be a price of [*****] per kilogram, which shall be paid upon
exercise of the option under this paragraph d). For greater certainty, its
is
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
<PAGE>
Page 5
specified that this mass increase shall not be subject to the price
reduction under Paragraph 8.1.1.D) of the Agreement. Customer shall also be
entitled to exercise the rights under Paragraph 8.1.3.A) iv).
c) Payment Plan
The Launch Services Price for Firm Launch #5 shall be paid by Customer as
follows:
Date Percentage of Launch Services Price under a)
- [***] [***]*
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
* This amount shall have been received by ARIANESPACE on 15 October 1998 or
ten days after execution of the present amendment to the Agreement,
whichever is the latest notwithstanding the provisions of Paragraph 10.3.1.
of the Agreement.
iii) for Firm Launch #6:
a) Price
The price shall be [************************************************************
**************] for a mass of 3475 kg (lift off mass for standard GTO orbit on a
dedicated Ariane 4). This price shall not be subject to any Price Reduction
under the terms of the Agreement.
b) Mass / Launch Vehicle
The provisions of Paragraph ii)b) hereabove shall also apply to Firm Launch #6.
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
<PAGE>
Page 6
c) Payment Plan
The Launch Services Price for Firm Launch #6 shall be paid by Customer as
follows:
Date Percentage of Launch Services Price under a)
- [***] [***]*
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
- [***] [***]
* This amount shall have been received by ARIANESPACE on 15 October 1998 or
ten days after execution of the present amendment to the Agreement,
whichever is the latest notwithstanding the provisions of Paragraph 10.3.1.
of the Agreement.
d) Termination Fees
Notwithstanding the provisions of Paragraph 18 of the Agreement, the Parties
agree that, for Firm Launch #6, until 1 June 1999, the basic termination
liability under Paragraph 18.2.1 of the Agreement shall be limited to a sum of
[***************************************
********************************************************************************
**].
ARTICLE 2
PRICE REDUCTIONS UNDER PARAGRAPH 8.1.1.D) OF THE AGREEMENT
Paragraph 8.1.1.D) of the Agreement is hereby replaced by the following:
D) The Launch Services Prices stated under Paragraphs A), B), and C) under
Subparagraph 13.2.2. hereafter above shall be subject to a price reduction
as follows:
i) For Firm Launch #1:
[**********************************************************************
*]
ii) For Firm Launch #2:
[**********************************************************************
**********************]
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
<PAGE>
Page 7
iii) For Firm Launch #3
[***********************************************************************
*******************]
iv) For Firm Launch #4
[********************************************************************]
v) For Firm Launch #5
The Parties agree that no price reduction shall apply to this Launch.
vi) For Firm Launch #6
The Parties agree that no price reduction shall apply to this Launch.
vii) For Optional Launch #1:
a) if the Launch Option is exercised on or prior to 1 October 1999:
[***] of the Launch Services Price under Subparagraph 8.1.1.C) i) or
ii) (as increased for the initial Launch Period of Optional Launch #1),
as applicable, or
b) if the Launch Option is exercised after 1 October 1999:
[***] of the Launch Services Price under Subparagraph 8.1.1.C) i) or
ii) (as increased for the initial Launch Period of Optional Launch #1),
as applicable.
viii) For Optional Launch #2:
a) if Optional Launch #1 has been exercised or a Replacement Launch has
been ordered on or prior to 1 October 1999, at the date of exercise of
Optional Launch #2 and provided Optional Launch is exercised on or
prior to 1 October 2000:
the percentage applicable to Optional Launch #1 under Subparagraph vi)
above or, if applicable, to the Replacement Launch, plus [***] times
the Launch Services Price under Subparagraph 8.1.1.C) i) or ii) as
applicable (as increased for the initial Launch Period of Optional
Launch #2), or
b) in all other cases:
[***] of the Launch Services Price under Subparagraph 8.1.1.C) i) or
ii) (as applicable and as increased for the initial Launch Period of
Optional Launch #2).
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
<PAGE>
Page 8
ix) For Replacement Launches ordered under this Agreement:
Provided that the Replacement Launch is ordered no later than 31
December 2001, the percentage applicable to the last Launch ordered
under this Agreement to which a price reduction under the terms of
this Paragraph 8.1.1.D) applies (including Replacement Launches) plus
[***] times the applicable Launch Services Price under Article 13.
Further, if a Replacement Launch is ordered on or prior to 1 October
1999, any further option(s) exercised hereunder shall be subject to a
price reduction determined under Subparagraph 8.1.1.D)vi) above.
The price reduction as calculated under this Sub-paragraph 8.1.1.D)
shall be deducted from the payment due at L-9 months and, if the price
reduction exceeds this payment, the excess price reduction shall be
deducted equally from the payments at L-8 months and at L-10 months
under Paragraph 10.1.1. A), B) or C) as applicable. Notwithstanding the
foregoing, for Firm Launch #3, the price reduction shall be deducted
from the payment due on 1 August 1998 and for Firm Launch #4, the price
reduction shall be deducted from the payment due on 1 November 1998.
Furthermore, notwithstanding the foregoing, in the event a Launch
ordered under this Agreement (and subject to a price reduction under
this Paragraph 8.1.1.D)) is terminated, the Price Reduction of the
other Launches ordered shall be recalculated to take into account such
termination by deducting [***] from all Launches ordered after the date
of order of the Launch terminated.
Notwithstanding the foregoing, the price reduction under this Sub-
paragraph 8.1.1.D) may not in any case exceed [***] of the relevant
Launch Services Price under Paragraph 10.1.1A), B) or C); for Firm
Launch #3, under the provisions of Article 2 of Amendment #4 to the
Agreement or Firm Launch #4 under the provisions of Article 1 of this
Amendment for any Launch under this Agreement
ARTICLE 4
PRICE ESCALATION FORMULA
The Parties agree to discuss in good faith no later than five weeks after
execution of this Amendment the precise index to be applied for the application
of Index 0 under Paragraphs 9.1.A) and B) of the Agreement.
ARTICLE 5
REPLACEMENT LAUNCH - ACCELERATION
A) [***************************************************************
****************************************************************
****************************************************************
****************************************************************
***************************************]
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
<PAGE>
Page 9
B) The Parties agree that the provisions of Paragraph 11.5 of the Agreement
shall not apply until the actual date of the last Firm Launch under this
Agreement.
ARTICLE 6
This Amendment #4 constitutes an amendment to the Agreement within the meaning
of its Paragraph 20.6.
Executed this 12th day of October 1998
For ARIANESPACE For PanAmSat Corporation:
By: /s/ J. M. Luton By: /s/ Frederick A. Landman
Title: President-Directeur General Title: President and CEO
For PanAmSat International
By: /s/ Frederick A. Landman
Title: President
<PAGE>
Exhibit 10.15.10
Page 1
This Side Letter #3 to the Launch Services Agreement 95.5.933 between the
Parties is entered into between:
ARIANESPACE S.A., a company organized under the laws of France and having its
principal office at Boulevard de l'Europe, 91006 EVRY, France.
AND
PanAmSat Corporation a company organized under the laws of the State of Delaware
with principal offices located at One Pickwick Plaza, Greenwich, Connecticut,
U.S.A.
(hereinafter referred to as "PanAmSat Corporation")
and
PanAmSat International a company organized under the laws of the State of
Delaware with principal offices located at One Pickwick Plaza, Greenwich,
Connecticut, U.S.A.
(hereinafter referred to as "PanAmSat International")
(the two entities being also referred to as "Customer" with respect to the
Launches for their benefit)
Reference is made to Amendment #1 to the Side Letter to Launch Services
Agreement 95.5.933 executed between PanAmSat Corporation and ARIANESPACE on
December 20, 1995, for the Launch of PanAmSat Satellites (said Agreement as
amended being hereinafter referred to as the "Agreement" and the Launches
covered under said Agreement being hereafter referred to as the "Launches" and
said Amendment #1 to the Side Letter dated 8 January 1998 being hereinafter
referred to as "Side Letter #1") and to Side Letter #2 to the Agreement dated 9
March 1998 (hereinafter referred to as Side Letter #2). All capitalized terms
herein shall have the same meaning as under the Agreement.
On this day, the Parties have entered into Amendment #5 to the Agreement in
order to add Firm Launch #4, Firm Launch #5 and Firm Launch #6 to the Agreement.
The Parties agree that the conditions listed hereafter shall be applicable
notwithstanding the terms of the Agreement or of the Side Letter #1. Unless
otherwise indicated, words defined under the Agreement shall have the same
meaning in the present Side Letter.
ARTICLE 1
SPECIAL PROVISIONS FOR FIRM LAUNCH #4
<PAGE>
Page 2
The provisions of Articles I. to IV. of the Side Letter #1 shall not apply to
Firm Launch #4 under the Agreement and said Firm Launch #4 shall not be taken
into consideration for the application of said provisions.
[***********************************************************************
***********************************************************************
*****************************************************************].
[***********************************************************************
***********************************************************************
*************].
[***********************************************************************
***********************************************************************
***********************************************************************
*******************]
a) [********************************************************
***********************************************************
**********].
b) [********************************************************
***********************************************************
***********************************************************
****************************].
c) [********************************************************
***********************************************************
*********************************].
ARTICLE 2
[***********************************************************************
***********************************************************************
***********************************************************************
***************************************************************].
[***********************************************************************
***********************************************************************
***********************************************************************
****************************].
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
<PAGE>
Page 3
ARTICLE 3
This Side Letter constitutes an amendment to the Agreement within the meaning of
its Paragraph 20.6 as well as an amendment to the Side Letter #1 and the terms
of this Side Letter shall prevail in the event of any inconsistency with the
terms of the Agreement or with the terms of Side Letter #1. This Side Letter
shall remain confidential and unless indicated expressly otherwise,
authorization to disclose the Agreement shall not include authorization to
disclose this Side Letter.
Executed this 12th day of October, 1998.
FOR ARIANESPACE FOR PANAMSAT CORPORATION
/s/ J. M. Luton /s/ Frederick A. Landman
President-Directeur General President and CEO
FOR PANAMSAT INTERNATIONAL
/s/ Frederick A. Landman
President
FOR PANAMSAT INTERNATIONAL
<PAGE>
Exhibit 10.28.2
PanAmSat
Via Facsimile: (310) 364-6677
October 7, 1998
Mr. Harold McDonnell
Vice President
Hughes Space and Communications Company
Bldg S10, M/S S329
P.O. Box 92919
Los Angeles, CA 90009
Re: Sea Launch Arrangements
-----------------------
Dear Hal:
I received your letter today and believe that for the sake of clarity it
would be best to set our agreement out in one document, which we have done
below.
1. There shall be a demonstration launch of the Sea Launch system using a
dummy payload. The total cost of this demonstration launch shall be
[**********] of which [***********************************] and PanAmSat shall
contribute [************************************************
********************************************************************************
***********]
2. The Sea Launch service originally designated for Galaxy XI will be
reassigned to a launch period of the fourth quarter of 1999 for an HS601HP. The
monies already paid by PanAmSat shall be credited to the price for this fourth
quarter HS601HP launch. Remaining payments will be resumed following a
successful demonstration launch. The total price for this launch shall be
[***********************
****************************************************************************]
In addition, PanAmSat shall pay [**********] in costs for the integration effort
unique to the Sea Launch of this PanAmSat HS601HP.
3.[*****************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
***
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
PanAmSat Corporation
ONE PICKWICK PLAZA . GREENWICH, CONNECTICUT 06830 . USA . TELEPHONE
1/203/622/6664 . FAX 1/203/622/9163
<PAGE>
Page 2
*************************************************************************
*************************************************************************
*****.]
4. PanAmSat understands that the existing long term agreement ("LTA") between
HSCI and Sea Launch does not provide for a free re-flight in the event of a
launch failure. HSCI is currently in negotiation with Boeing on this subject.
In the event that HSCI negotiates a free or reduced rate re-flight (whether or
not pursuant to the LTA), or HSCI negotiates with Boeing for a free or reduced
rate re-flight under the LTA, then PanAmSat shall be entitled to the same
general re-flight right.
5. [****************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
**************************************************************.]
6. PanAmSat shall enjoy the benefit of all rights to which HSCI is entitled
with respect to the applicable launch service, including, without limitation,
rights of postponement, termination and communication with the launch providers.
However, in no respect will the rights and obligations of HSCI under its
contract with Sea Launch serve to limit or modify PanAmSat's rights as HSCI and
PanAmSat have expressly agreed herein. By way of example, PanAmSat shall have
the right to postpone its right to use the Sea Launch service on the same terms
that HSCI has the right to postpone under the LTA.
7. PanAmSat is encouraged to make and maintain direct communication with Sea
Launch and its partners concerning the PanAmSat Sea Launch service(s).
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
<PAGE>
Page 3
All prices referred to above are all-inclusive of all services, hardware,
software and facilities (not including those items to be supplied by HSC under
the applicable spacecraft construction contract).
The terms of this letter will serve as the basis for amending the terms of
that certain Amended and Restated Launch Services Agreement dated as of January
21, 1997 between PanAmSat Corporation (as assignee of Hughes Communications
Galaxy, Inc. ("HCG")) and Hughes Space and Communications Company International,
Inc. ("HSCI"), as supplemented by that certain letter agreement dated as of May
15, 1997.
Please indicate HSCI's acknowledgment and agreement with the foregoing by
signing below and returning this letter to me.
Very truly yours,
/s/ Robert A. Bednarek
Robert A. Bednarek
Chief Technology Officer
cc: Mr. Frederick Landman
ACKNOWLEDGED
AND AGREED TO:
HUGHES SPACE AND
COMMUNICATIONS COMPANY
INTERNATIONAL, INC.
By: /s/ Harold E. McDonnell
--------------------------
Name: Harold E. McDonnell
------------------------
Title: Executive Vice President
------------------------
Date: 9 October 1998
------------------------
<PAGE>
Exhibit 10.37.2
AMENDMENT No. 1 TO
FIXED PRICE CONTRACT
BETWEEN
PANAMSAT CORPORATION
AND
HUGHES SPACE AND COMMUNICATIONS COMPANY
FOR
GALAXY XI HS702
SPACECRAFT, RELATED SERVICES AND DOCUMENTATION
<PAGE>
AMENDMENT No. 1 TO FIXED PRICE CONTRACT FOR GALAXY XI HS702
SPACECRAFT, RELATED SERVICES AND DOCUMENTATION
This AMENDMENT No. 1 (the "Amendment"), entered into as of November __, 1998, by
and between PanAmSat Corporation (as assignee of Hughes Communications Galaxy,
Inc.), a Delaware corporation ("Buyer"), having a principal place of business at
One Pickwick Plaza, Suite 270, Greenwich, Connecticut 06830, and Hughes Space
and Communications Company, a Delaware corporation ("Contractor"), having a
principal place of business at 909 North Sepulveda Boulevard, El Segundo,
California 90245, amends that certain Fixed Price Contract For Galaxy XI HS702
Spacecraft, Related Services And Documentation dated as of May 7, 1997 (Contract
No. 96-HCG-002) (the "Agreement").
R E C I T A L S
WHEREAS, Buyer (as assignee of Hughes Communications Galaxy, Inc.) and
Contractor are party to the Agreement, providing for Buyer to purchase and
Contractor to provide the Galaxy XI Spacecraft, Documentation, and Related
Services as therein specified;
WHEREAS, the Parties now desire to amend the Agreement;
A G R E E M E N T
NOW, THEREFORE, the Parties hereby agree to amend and restate Amendment as
follows:
1. All references in the Agreement to "HCG" are hereby amended to read "Buyer".
2. Exhibit A, entitled "Galaxy XI Statement of Work," and Exhibit B, entitled
"Galaxy XI Spacecraft Specification," are hereby amended and restated in their
entirety in the forms attached to this Amendment.
3. ARTICLE 1. EXHIBITS AND INCORPORATIONS, Paragraphs 1.1, 1.2 and 1.3 are
hereby amended and restated in their entirety to read as follows:
"1.1 Exhibit A - Galaxy XI Statement of Work - executed on October 30,
1998.
1.2 Exhibit B - Galaxy XI Spacecraft Specification - executed on
November, 1998."
1
<PAGE>
4. ARTICLE 4. DELIVERABLES AND SCHEDULE is hereby amended as follows:
(a) Section 4.1. The Table in Section 4.1 is replaced in its entirety with
-----------
the following:
Date of Shipment, Integration Delivery
Delivery or Location and
Deliverable(s) Performance Performance Place
1. One Spacecraft March 31, 19991 - Shipment from
(the "Spacecraft") ("Shipment Date") Contractor's Facility
- Delivery to Launch Site
2. Launch Support, In Accordance with - Launch Site
Mission Operations and Exhibit A - Fillmore, California
In-Orbit Testing - Castle Rock, Colorado
(the "Related Services") - El Segundo, California
3. Documentation In Accordance with 1500 Hughes Way, Pod B
(the "Documentation") Exhibit A Long Beach, California
/1/ Contractor represents and warrants that shipment from
Contractor's facility will support a launch of the Spacecraft thirty
(30) days after the Shipment Date. [****************
***************************************************************]
(b) Section 4.2. Section 4.2 (including all subsections thereof) is hereby
-----------
deleted in its entirety and indicated as "[Reserved]."
5. ARTICLE 5. PRICE is hereby amended as follows:
----------- -----
(a) Section 5.1. Section 5.1 is hereby amended by replacing [************
-----------
**************************************] with [*********************
**********************************************]
(b) Section 5.3. The third-to-last sentence in Section 5.3 is hereby
------------
amended to read in its entirety as follows, and an additional sentence is
hereby inserted:
"Thereafter, the Contract Price shall mean [**********************
***************************************] Buyer and Contractor agree
that such a delay has occurred, and that Buyer is therefore excused
from paying such [***********************] amount."
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
2
<PAGE>
6. ARTICLE 6. PAYMENTS is hereby amended as follows:
---------- --------
(a) Section 6.3. Table 6.3 is hereby amended to read as follows beginning after
the [**********] payment:
[*********************] [***] [*****]
[******] [***] [*****]
[******] [***] [*****]
[******] [***] [*****]
[******] [***] [*****]
[******] [***] [*****]
[******] [***] [*****]
[*************
*****************] [***] [*****]
[*********************
**********************] [***] [*****]
[********************
********************
******************
*****************] [***] [*****]
[****************
*****************] [***] [*****]
1 [***********************************************************************
******************]
2 [***********************************************************************
***************************************************************************
******
***************************************************************************
******]
(b) Section 6.4 Payment Schedule Revision. Section 6.4 is hereby amended
--------------------------------------
and restated in its entirety to read as follows:
"The payment plan established in Paragraph 6.3 above is based upon a Launch
Slot between May 1, 1999 and May 31, 1999. If the Launch Date
established in accordance with Article 7, Paragraph 7.1.2 is later
than May 31, 1999, the payment plan in Paragraph 6.3 of this Article
shall be revised by mutual agreement of the Parties to reflect the
established Launch Date."
(c) Section 6.6. The address for submission of invoices to Buyer in
-----------
Section 6.6.1 is hereby amended and restated to read in its entirety as
follows:
"PanAmSat Corporation
One Pickwick Plaza
Greenwich, CT 06830
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
3
<PAGE>
Attention: Robert Bednarek, Senior Vice President and
Chief Technology Officer
cc: James Frownfelter, Vice President -- Space Systems
Stephen G. Salem, Senior Counsel (by fax to 310-525-5800)"
7. ARTICLE 7. SPACECRAFT LAUNCH DATE is hereby amended as follows:
----------------------------------
(a) Section 7.1. Section 7.1 is hereby amended and restated to read in its
-----------
entirety as follows:
"This Contract is written on the basis that the Spacecraft supplied
hereunder will be launched on an Ariane 4 or 5 launch vehicle within
the Launch Slot set forth below and within which a Launch Date and
Launch Window shall be established in accordance with Paragraphs 7.1.2
and 7.1.3 below:
Spacecraft Launch Vehicle Launch Slot
---------- -------------- -----------
Galaxy XI Ariane 4 or 5 May 1, 1999 through May 31, 1999
(b) Section 7.1.1. Section 7.1.1 is hereby amended and restated to read
-------------
in its entirety as follows:
"Launch Slot Definition. A thirty (30) day period of time
----------------------
during which the Launch will occur. The initial Launch Slot shall be
as specified in Paragraph 7.1.1."
8. ARTICLE 9. INSPECTION AND ACCEPTANCE is hereby amended as follows:
-------------------------------------
(a) Section 9.5. A new Section 9.5 is hereby added to read in its
-----------
entirety as follows:
"9.5 Until there has been a launch of the Spacecraft that does not result
in a Total Failure, Total Constructive Failure or Partial Failure, (as
defined in the applicable launch insurance contract) prior to the
completion of the Related Services, Contractor shall
[*****************************
*********************************************] and shall
[***********************************************************
************] The Parties agree that the foregoing shall not apply
to the following [**************************************************
********************************************************************
***************]
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
4
<PAGE>
9. ARTICLE 26. NOTICES AND AUTHORIZED COMPANY REPRESENTATIVES is hereby
------------------------------------------------------------
amended as follows:
(a) The information for Buyer is hereby deleted and replaced with the
following:
"1. PanAmSat Corporation
One Pickwick Plaza
Greenwich, Connecticut 06830
Attention: Robert Bednarek, Vice President and
Chief Technology Officer
cc: James Frownfelter
Vice President - Space Systems
and
cc: Stephen G. Salem
Catherine Sanchez
PanAmSat Corporation
1500 Hughes Way
Long Beach, California 90810
Authorized Representative(s): Frederick Landman,
President and Chief Executive Officer
Robert Bednarek
Senior Vice President and
Chief Technology Officer
James Frownfelter
Vice President - Space Systems"
(b) The information for Contractor is hereby amended by adding "Dr.
William L. Ballhaus, Assistant Program Manager" to the list of individuals
to whom a copy of notices should be sent, and by adding "Michael S.
Hersman, Customer Executive" as an Authorized Representative of Contractor.
5
<PAGE>
10. ARTICLE 33. ASSIGNMENT is hereby amended by amending the second sentence
------------------------
of Paragraph 33.1 to read as follows:
"In addition, notwithstanding anything in this Article 33 to the contrary,
the consent of Contractor shall not be required for, and Paragraph 33.2
shall not apply to any assignment by Buyer of its rights, duties and/or
obligations hereunder as security for any indebtedness of Buyer or its
subsidiaries or affiliates."
11. ARTICLE 36. LIQUIDATED DAMAGES FOR LATE SHIPMENT
--------------------------------------------------
A new Article 36, entitled "Liquidated Damages for Late Shipment" is hereby
added to read in its entirety as follows:
"36.1 In the event that the shipment of the Spacecraft is delayed due
to the fault of Contractor and not shipped on or before the Shipment
Date identified under Article 4 (as such date may be adjusted by
mutual agreement of the Parties), Contractor shall pay to Buyer
liquidated damages equal to [*************************************]
for the [**********] of delay. In the event of any delay of a partial
month, the amount specified in the preceding sentence shall be pro
rated on a day-for-day manner based upon the number of days in such
month.
36.2 Contractor shall pay to Buyer the liquidated damages owed
pursuant to Paragraph 36.1 within thirty (30) days of invoice from
Buyer.
36.3 The Parties understand and agree that the liquidated damages
provided under this Article 36 shall be in lieu of all other remedies
of any kind except for Buyer's rights and remedies under Article 11.
The reduction in Contract Price shall constitute liquidated damages
for such late shipment and shall not constitute a penalty. The
Parties acknowledge and agree that such liquidated damages are
believed to represent a genuine estimate of the losses that would be
suffered by reason of any such delay (which losses would be difficult
or impossible to calculate with certainty).
36.4 The maximum reduction in Contract Price under this Article 36
may equal but shall not exceed [********************************
*********]"
12. Each capitalized term used but not defined in this Amendment shall have the
meaning ascribed to such term in the Agreement. Except as amended by this
Amendment, the Agreement shall continue in full force and effect. This
Amendment may be signed in one or more counterparts, each of which shall
constitute an original and together which shall constitute one and the same
instrument.
[***] Filed separately with the Commission pursuant to a request for
confidential treatment.
6
<PAGE>
IN WITNESS WHEREOF, Buyer and Contractor have executed this Amendment to become
effective upon the 30th day of November, 1998.
HUGHES SPACE & COMMUNICATIONS COMPANY
- -------------------------------------
SIGNATURE: /s/ Michael S. Hersman
----------------------
NAME: Michael S. Hersman
---------------------------------
TITLE: PanAmSat Customer Executive
---------------------------
DATE: December 1, 1998
------------------------------
PANAMSAT CORPORATION
- --------------------
SIGNATURE: /s/ Robert A. Bednarek
----------------------
NAME: Robert A. Bednarek
---------------------------------
Senior Vice President and
TITLE: Chief Technology Officer
------------------------
DATE: December 3, 1998
------------------------------
7
<PAGE>
EXHIBIT 10.41.2
Schedule identifying substantially identical agreements by PanAmSat Corporation
("PanAmSat") in favor of each of the following persons, to the form of Indemnity
Agreement constituting Exhibit 10.41.1 to the Annual Report on Form 10-K of
PanAmSat for the Fiscal Year ended December 31, 1998
- ------------------------------------------------------------
Name
----
Charles H. Noski
Frederick A. Landman
Patrick J. Costello
Steven D. Dorfman
Dennis F. Hightower
James M. Hoak
Joseph R. Wright, Jr.
Michael T. Smith
Carl A. Brown
Kenneth N. Heintz
Robert A. Bednarek
James W. Cuminale
David P. Berman
Roxanne S. Austin
Tig H. Krekel
Stephen R. Kahn
R. Douglas Kahn
<PAGE>
Exhibit 10.45.4
PanAmSat Corporation
One Pickwick Plaza
Greenwich, Connecticut 06830
November 20, 1998
Mr. Frederick A. Landman
President and Chief Executive Officer
PanAmSat Corporation
One Pickwick Plaza
Greenwich, Connecticut 06830
Re: Modification of Employment Agreement
------------------------------------
Dear Fred:
Reference is made to that certain Employment Agreement, dated May 15, 1997, as
modified (the "Agreement"), between you and PanAmSat Corporation. This letter
will confirm our mutual agreement to the following amendment:
The first sentence of paragraph 7(d) on page 8 is amended and
restated in its entirety as follows:
"The Executive may voluntarily resign his employment hereunder (i) at any
time on or before March 31, 1999 (the "First Date"), for any reason or no
reason, upon no more than 90 and no fewer than 30 days prior written
notice to the Board of Directors and (ii) during the portion of the
Employment Term following the First Date, (A) upon written notice to the
Board of Directors given at any time with immediate effect, for "Good
Reason" (as defined immediately below) or (B) upon no more than 90 and no
fewer than 60 days prior written notice to the Board of Directors given
at any time, for any reason or no reason, specifying in each case,
whether resignation is pursuant to subsection (A) or (B) above."
Except as amended hereby, the Agreement remains in full force and effect.
<PAGE>
If the foregoing is acceptable to you, please indicate your agreement to this
amendment by signing and returning the enclosed copy of this letter.
Sincerely,
PanAmSat Corporation
By: Michael T. Smith
-----------------------------
Michael T. Smith
Chairman of the Board
Agreed to:
Frederick A. Landman
--------------------------
Frederick A. Landman
2
<PAGE>
Exhibit 10.55
FIXED PRICE CONTRACT
BETWEEN
PANAMSAT CORPORATION
AND
HUGHES SPACE AND COMMUNICATIONS COMPANY
FOR
DOMESTIC 1, DOMESTIC 2 AND OPTION
SPACECRAFT, RELATED SERVICES AND DOCUMENTATION
CONTRACT No. 98-PAS-002
This Contract (including Exhibits) contains information that is proprietary to
PanAmSat Corporation and Hughes Space and Communications Company. All
information contained herein is deemed to be Proprietary Information (as such
term is defined in Article 22 of this Contract) of both Parties, and disclosure
thereof is governed by Article 22.
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE 1. EXHIBITS AND INCORPORATIONS 2
ARTICLE 2. ORDER OF PRECEDENCE 3
ARTICLE 3. SPACECRAFT, DOCUMENTATION AND RELATED SERVICES ("DELIVERABLES") 4
ARTICLE 4. DELIVERABLES AND SCHEDULE 7
ARTICLE 5. PRICE 11
ARTICLE 6. PAYMENTS 13
ARTICLE 7. SPACECRAFT LAUNCH DATE 35
ARTICLE 8. BUYER-FURNISHED ITEMS 37
ARTICLE 9. INSPECTION AND ACCEPTANCE 41
ARTICLE 10. ACCESS TO WORK IN PROCESS 45
ARTICLE 11. TERMINATION FOR DEFAULT; LIMITATION OF LIABILITY 46
ARTICLE 12. EXCUSABLE DELAYS 50
ARTICLE 13. AMENDMENTS 52
ARTICLE 14. TERMINATION FOR CONVENIENCE 53
ARTICLE 15. TITLE AND RISK OF LOSS 58
ARTICLE 16. SPACECRAFT WARRANTY 62
ARTICLE 17. INDEMNIFICATION 64
ARTICLE 18. SPACECRAFT NOT LAUNCHED WITHIN SIX MONTHS AFTER ACCEPTANCE 65
ARTICLE 19. PATENT/COPYRIGHT INDEMNITY 66
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
<PAGE>
ARTICLE 20. RIGHTS IN INVENTIONS 70
ARTICLE 21. INTELLECTUAL PROPERTY RIGHTS 73
ARTICLE 22. FURNISHED DATA AND INFORMATION, DISCLOSURE AND USE 74
ARTICLE 23. PUBLIC RELEASE OF INFORMATION 77
ARTICLE 24. TAXES 78
ARTICLE 25. GOVERNING LAW 80
ARTICLE 26. TITLES 81
ARTICLE 27. NOTICES AND AUTHORIZED REPRESENTATIVES 82
ARTICLE 28. INTEGRATION 84
ARTICLE 29. CHANGES 85
ARTICLE 30. EFFECTS OF STORAGE ON BATTERIES 91
ARTICLE 31. INTER-PARTY WAIVER OF LIABILITY 92
ARTICLE 32. SPACECRAFT STORAGE 93
ARTICLE 33. DISPUTES 94
ARTICLE 34. ASSIGNMENT 97
ARTICLE 35. LIMITATION OF LIABILITY 99
ARTICLE 36. CORRECTIVE MEASURES; OPERATIONAL DEFICIENCIES 100
ARTICLE 37. LIQUIDATED DAMAGES FOR LATE PERFORMANCE 102
ARTICLE 38. OPTION SPACECRAFT 104
ARTICLE 39. NO THIRD PARTY RIGHTS 108
ARTICLE 40. INDEX OF DEFINED TERMS 109
ARTICLE 41. EFFECTIVE DATE OF CONTRACT 112
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
<PAGE>
This FIXED PRICE CONTRACT (the "Contract") is entered into as of the 9th day of
October, 1998, by and between PANAMSAT CORPORATION (herein called "Buyer"), a
Delaware corporation having a place of business at One Pickwick Plaza,
Greenwich, Connecticut 06830, and HUGHES SPACE AND COMMUNICATIONS COMPANY
(herein called "Contractor"), a Delaware corporation having a place of business
at 909 North Sepulveda Boulevard, El Segundo, California 90245.
WITNESSETH:
WHEREAS, the Parties now desire to enter into this Contract for Buyer to
purchase and Contractor to manufacture, deliver and perform (as applicable) the
Domestic 1 & Domestic 2 Spacecraft, Documentation and Related Services with
options for additional Spacecraft, Documentation and Related Services, as
provided and defined herein below;
NOW, THEREFORE, the Parties hereby agree as follows:
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
1
<PAGE>
ARTICLE 1. EXHIBITS AND INCORPORATIONS
The following documents are hereby incorporated and made a part of this
Contract with the same force and effect as though set forth herein:
1.1 Exhibit A - Statement of Work - dated October 9, 1998.
1.2A Exhibit B1 - Domestic 1 Spacecraft Specification - dated October 9,
1998.
1.2B Exhibit B2 - Domestic 2 Spacecraft Specification - dated October 9,
1998 (subject to completion in accordance with Paragraph 8.6).
1.3 Exhibit C - Spacecraft Integration Test Plan - dated October 9, 1998
1.4 Exhibit D - Product Assurance Plan - dated October 9, 1998.
1.5 Exhibit E - Maximum Termination Liability Schedule.
1.6 Exhibit F - Option Spacecraft Payment Plan.
1.7 Exhibit G - Sample Incentives Obligations Payment Schedule.
1.8 Exhibit H - Certain Documentation.
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
2
<PAGE>
ARTICLE 2. ORDER OF PRECEDENCE
In the event of any conflict or inconsistency among the provisions of this
document and the exhibits attached and incorporated into this Contract,
such conflict or inconsistency shall be resolved by giving precedence to
this document, and then to the attached and incorporated exhibits in the
order listed in Article 1 herein, entitled "Exhibits and Incorporations."
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
3
<PAGE>
ARTICLE 3. SPACECRAFT, DOCUMENTATION AND RELATED SERVICES ("DELIVERABLES")
3.1 Contractor shall sell and provide, and Buyer shall purchase, the items
and services referred to in Section 4.1. Contractor shall provide the
necessary personnel, material, services and facilities to design,
fabricate, test and deliver two (2) Spacecraft. One (1) HS601HP type
Spacecraft for Domestic 1 (hereinafter referred to as "Domestic 1" or
the "Spacecraft") and One (1) HS601HP type Spacecraft for Domestic 2
(hereinafter referred to as "Domestic 2" or as the "Spacecraft"),
including Documentation and Related Services (as defined in Article 4)
in accordance with the provisions of this Contract and in the manner
specified under Exhibits A, B, C and D hereto.
3.2 All materials and services specified in Exhibit A, "Statement of
Work," shall meet the requirements of the Exhibit B, entitled
"Spacecraft Specification," for the applicable Spacecraft.
3.3 If Contractor has not made delivery [*****************************
*********************************************************] or if,
prior to the Launch Date, [*****************************
**************************************************] Buyer may at its
election:
[*****************************************************
***************************************************
***************************************************
**********]
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
4
<PAGE>
[*****************************************************
**************************************************
**************************************************
**************************************************
**************************************************
**************************************************
**************************************************
**************************************************
**************************************************
**************************************************
**********************************]
Any such election shall be made by Buyer in writing. [*************
************************************************************
************************************************************
************************************************************
************************************************************
************************************************************
***************************************************]
3.4 [***********************************************************
******************************************] in accordance with: (i)
current directives and instructions in the Hughes Spacecraft Operators
Handbook, utilized at Buyer's Operations Control Center (OCC); and
(ii) any other Documentation utilized, including that Documentation
which takes into consideration the unique or special characteristics
of such Spacecraft. [************************************************
************************************************************
***********************************************************
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
5
<PAGE>
************************************************************
**************************************************] Buyer has
responsibility and liability for the Operations Control Center and its
associated ground station(s).
3.5 Spacecraft, Documentation and Related Services described above shall
be delivered to Buyer at the indicated locations on the dates set
forth in Article 4 entitled, "Deliverables and Schedule" herein.
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
6
<PAGE>
ARTICLE 4. DELIVERABLES AND SCHEDULE
4.1 The following deliverables to be furnished under this Contract shall
be furnished at the designated location(s) on or before the dates
specified below:
<TABLE>
<CAPTION>
Date of Shipment Location of Shipment
Delivery Delivery or
Deliverables or Performance Performance
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1A. One Domestic 1 Spacecraft September 25, 1999 (the . Shipped from Contractor's
"Shipment Date")/1/ facility.
. Delivery Site at Launch Site/2/.
- --------------------------------------------------------------------------------------------------------------
1B. One Domestic 2 Spacecraft October 25, 1999 (the . Shipped from Contractor's
"Shipment Date")/1/ facility.
. Delivery Site at Launch Site/2/.
- --------------------------------------------------------------------------------------------------------------
2A. Launch Support, Mission Operations In Accordance with Exhibit A . Performance Site to be
and In-Orbit Testing for Domestic 1 determined pursuant to
("Related Services") Paragraph 4.2.
. Fillmore, California
. Castle Rock, Colorado
. El Segundo, California
- --------------------------------------------------------------------------------------------------------------
2B. Launch Support, Mission Operations In Accordance with Exhibit A . Performance Site to be
and In-Orbit Testing for Domestic 2 determined pursuant to
("Related Services") Paragraph 4.2.
. Fillmore, California
. Castle Rock, Colorado
. El Segundo, California
- --------------------------------------------------------------------------------------------------------------
3A. Documentation for Domestic 1 In Accordance with Exhibit A 1500 Hughes Way
("Documentation") Long Beach, California
- --------------------------------------------------------------------------------------------------------------
3B. Documentation for Domestic 2 In Accordance with Exhibit A 1500 Hughes Way
("Documentation") Long Beach, California
- --------------------------------------------------------------------------------------------------------------
</TABLE>
/1/Contractor agrees to ship the Spacecraft from its facility on or before
such date as may be necessary to support the launch of the Spacecraft on
the Launch Date in accordance with the requirements of this Contract and
the Exhibits hereto.
[*******************************************************************
***************************************************************************
*****************]. Notwithstanding anything herein to the contrary,
Contractor shall not be required to ship any Spacecraft earlier than its
applicable Shipment Date (as such Shipment Date may be adjusted by mutual
agreement of the Parties).
/2/Delivery Site to be the Launch Integration Facility (Port of Long Beach)
in the event Buyer uses Sea Launch.
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
7
<PAGE>
4.2 Designation of Launch Vehicle.
4.2.1 Buyer shall designate a Spacecraft's Launch Vehicle on or
before [*****] months prior to the scheduled Launch Date for such
Spacecraft, in which event the Contract Price shall be increased
or decreased by the applicable amount specified in Paragraph 5.3.
If, subsequent to the date that is [*******] months prior to such
Launch Date, Buyer requests a change in the Launch Vehicle or
Approved Storage Facility for such Spacecraft, such request shall
be dealt with as a Change Order Request of Buyer under Article
29.
4.2.2 Contractor shall not be obligated to spend in excess of a total
cumulative amount of [***************************
***********************************************] In the event
that (i) Buyer has designated [*********************
***********************************************] and (ii)
[*****************************************************
***************************************************** ********]
then the Parties shall negotiate (a) [***********
*****************************************************
*******************] or (b) responsibility for any additional
costs to make such Spacecraft [*********************** *******]
4.2.3 Buyer shall pay the costs of delivering each Spacecraft to the
Launch Site, which costs are included in the Contract Price.
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
8
<PAGE>
Contractor shall arrange and provide transportation required for
the deliverables specified in Section 4.1.
4.3 Contractor shall be responsible for obtaining: (i) all U.S. Government
export licenses to enable export of each Spacecraft, related test and
support equipment to the Launch Site and disclosure of information
reasonably requested by Buyer's foreign insurers and (ii) all
authorizations required for Contractor to perform this Contract.
Notwithstanding the foregoing, (i) the failure or refusal of the U.S.
Government to issue a required export license or (ii) the
authorization by the U.S. Government of the export (a) of only a
portion of the information requested by Buyer's foreign insurers or
(b) to fewer than all of Buyer's foreign insurers (provided in the
case of both (i) and (ii) that Contractor has used its reasonable best
efforts to obtain such export license) shall be deemed under Paragraph
12.1 to be an act beyond the control of Contractor and therefore shall
constitute a Force Majeure Event.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
9
<PAGE>
ARTICLE 5. PRICE
5.1 The total price (the "Contract Price") for Contractor to provide the
Spacecraft, Documentation and Related Services shall be as follows:
(a) For Domestic 1, [***********************************************]
(b) For Domestic 2, [***********************************************]
5.2 Buyer shall pay Contractor the Contract Price stated in Paragraph 5.1
above in accordance with Article 6, Paragraph 6.2 of this Contract.
5.3 The Contract Price for a Spacecraft shall be adjusted in accordance
with the following table, based upon the Launch Vehicle designated by
Buyer for such Spacecraft pursuant to Paragraph 4.2.1. If Buyer
changes the designated Launch Vehicle for the Spacecraft in accordance
with Paragraph 4.2.1 (as opposed to Article 29), the Contract Price
shall be adjusted in accordance with the following table:
Table 5.3.1
-----------
Adjustment to Contract Price
----------------------------
Launch Vehicle Adjustment
---------------------------------------------------------------
Sea Launch [*********]
---------------------------------------------------------------
Delta III [*********]
---------------------------------------------------------------
Atlas IIAS/IIAR/III [*********]
---------------------------------------------------------------
Ariane 4/5 [*********]
---------------------------------------------------------------
Proton [*********]
---------------------------------------------------------------
Note: Price adjustments are applicable to Domestic 1 and/or
Domestic 2.
5.4 Any adjustment to the Contract Price under Paragraph 5.3 shall be
allocated pro rata over the entire Payment Plan for such Spacecraft
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
10
<PAGE>
(including In-Orbit Performance Incentive Obligations). Adjustments
allocated to payments already made shall be promptly paid by Buyer or
refunded by Contractor, as the case may be.
5.5 In the event that [***************************************
************************************************************
************************************************************
************************************************************
*******************************] Buyer agrees to pay to Contractor a
delivery incentive (the "Delivery Incentive") as follows:
5.5.1 [****************************************************
**************] Buyer shall pay to Contractor a Delivery
Incentive equal to:
(i) with respect to Domestic 1 or Domestic 2, [******
*****************************] and
(ii) with respect to any other Spacecraft purchased under
this Contract, [********************* **************]
and
5.5.2 [****************************************************
*******************************************] Buyer shall pay to
Contractor an additional Delivery Incentive equal to:
(i) with respect to Domestic 1 or Domestic 2, [*****
********************************] and
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
11
<PAGE>
(ii) with respect to any other Spacecraft purchased under
this Contract, [********************* ***************]
5.6 Contractor shall submit an invoice for any Delivery Incentive after
such amount is earned under Paragraph 5.5, and Buyer shall pay such
Delivery Incentive within thirty (30) days of receipt by Buyer of such
invoice. In the event of [**************************************] the
amounts specified in Paragraphs 5.5.1 and 5.5.2 shall be
[*************** ********************************************] The
Parties agree that the provisions of Paragraph 5.5 shall apply
separately to each Spacecraft, and that the maximum Delivery Incentive
for a Spacecraft under Paragraph 5.5 is: (i) with respect to Domestic
1 or Domestic 2, [***
************************************************] and (ii) with
respect to any other Spacecraft purchased under this Contract, [******
**************************************]
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
12
<PAGE>
ARTICLE 6. PAYMENTS
6.1 Pursuant to the terms set forth in this Article 6, and subject to
Buyer's rights, defenses and remedies as expressly stated in this
Contract, Buyer shall pay to Contractor the Contract Price as stated
in Article 5 herein for the applicable Spacecraft, Documentation, and
Related Services under this Contract.
6.2 Invoices shall be prepared and submitted by Contractor for each
Spacecraft in a form reasonably acceptable to Buyer. Payments to
Contractor for such Spacecraft shall be made according to the
following payment plans:
[**********]
------------
[************************]
--------------------------
<TABLE>
<CAPTION>
[*****] [****************] [*******************]
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
[***] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[***************************************] [***] [***]
- ----------------------------------------------------------------------------------------------------------
[******************************************* [***] [***]
*********************]
- ----------------------------------------------------------------------------------------------------------
[****************************] [***] [***]
[****************************]
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) [*******************************************]
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
13
<PAGE>
[**********]
------------
[************************]
--------------------------
<TABLE>
<CAPTION>
[*****] [****************] [*******************]
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
[***] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[*] [***] [***]
- ---------------------------------------------------------------------------------------------------
[***************************************] [***] [***]
- ----------------------------------------------------------------------------------------------------------
[******************************************* [***] [***]
*********************]
- ----------------------------------------------------------------------------------------------------------
[****************************] [***] [***]
[****************************]
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) [*******************************************]
6.3 Incentives Obligations.
6.3.1 The following definitions are applicable to this Section 6.3:
6.3.1.1 "Specified Operation Lifetime" means fifteen (15) years.
6.3.1.2 "Successfully Operating Payload." Each Spacecraft shall
be equipped with one or more Payloads, as specified in
Exhibit B. Each Payload shall be deemed to be Successfully
Operating if at least that number of Transponders that is
one more than one-half of the total number of Transponders
within such Payload are Successfully Operating Transponders
(as defined below).
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
14
<PAGE>
6.3.1.3 "Successfully Operating Transponder". A Successfully
Operating Transponder is a Transponder which meets either or
both of the following two criteria:
(a) The Transponder meets or exceeds the performance
specifications set forth in Exhibit B. For the
avoidance of doubt, if the Spacecraft is placed into
inclined orbit, then the Transponders shall be deemed
not to meet the criteria stated in this Paragraph
6.3.1.3(a) at such time as the Spacecraft would have
ceased to have a Useful Commercial Life, (as mutually
determined by the Parties) had it not been placed in
such an orbit.
(b) The Transponder, while not meeting or exceeding the
performance specifications, provides Buyer with no
material loss in its commercial value.
A Transponder shall also be deemed to be a Successfully
Operating Transponder if it meets the performance
specifications through use of any redundant or spare
equipment not already in use by another Transponder.
[*****************************************
*****************************************
******************************************
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
15
<PAGE>
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
******************************************
[***]FILED SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
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SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
16
<PAGE>
******************************************
***************************************]
6.3.1.4 "Useful Commercial Life". The Useful Commercial Life of
a Spacecraft means the period beginning on the Commencement
Date and ending on the earlier to occur of (i) the date on
which there is just sufficient fuel remaining on board the
Spacecraft only to eject the Spacecraft from its
geostationary orbital location or (ii) the date on which at
least one-half of the Transponders on each Payload are not
Successfully Operating Transponders.
6.3.1.5 "Successfully Injected Spacecraft". A Launched
Spacecraft shall be deemed to be a Successfully Injected
Spacecraft if:
(a) The transfer orbit/spacecraft attitude meets the
following required criteria:
(1) Perigee altitude error is less than or equal to
+-3 sigma;
(2) Apogee Altitude error is less than or equal to
+-3 sigma;
(3) Inclination error is less than or equal to +-3
sigma;
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(4) Argument of perigee error is less than or equal to
+-3 sigma; and
(5) The Spacecraft has been separated with attitude
rate errors of less than or equal to +-3 sigma and
(b) The Spacecraft has not suffered physical damage which
resulted from Launch Vehicle malfunction.
The calculated amount of Useful Commercial Life (the
"Calculated Operational Lifetime") shall be mutually
determined by Buyer and Contractor, based on standard
engineering practices, using measured actuals of the
Spacecraft, existing at the time of the operational hand-off
of the Spacecraft to Contractor from the Launch Vehicle
provider. If the attained transfer orbit/Spacecraft attitude
does not meet the criteria stated in this Section, but the
Calculated Operational Lifetime is greater than or equal to
the Specified Operational Lifetime for the Spacecraft, then
the Spacecraft shall be deemed to have been a Successfully
Injected Spacecraft. If, on the other hand, the attained
transfer orbit/Spacecraft attitude does not meet the
criteria stated above, and the Calculated Operational
Lifetime is less than the Specified Operational Lifetime,
then the Spacecraft shall be deemed not to be a Successfully
Injected Spacecraft. If Buyer and Contractor cannot agree on
the Calculated Operational Lifetime, then the Parties
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shall resolve such disagreement in acceptance with the
dispute resolution procedures set forth in Article 33.
During such dispute resolution procedure, Buyer shall
commence all payments under Section 6.3.2 to Contractor
based on Contractor's calculation of such Calculated
Operational Lifetime, except only the disputed amount(s)
which shall be paid by Buyer in escrow as set forth in
Section 29.4, and the prevailing party shall be entitled to
interest as provided therein.
6.3.1.6 "Incentives Interest Rate". The Incentives Interest Rate
shall be the lesser of (i) the prime rate of Chase
Manhattan, New York, as calculated on the first business day
of each month for which interest is calculated
[************] [***********************] or (ii)
[************] [***************]
6.3.1.7 "Commencement Date". The Commencement Date shall be the
date on which Buyer receives written certification from
Contractor that, based upon the results of completed in-
orbit performance tests, at least one Payload is a
Successfully Operating Payload.
6.3.2 Buyer shall pay to Contractor the Incentives Obligations and
the Change Order Profit Component (if applicable), as follows:
6.3.2.1 Incentives Obligations and Change Order Profit
Component. Subject to Section 6.3.2.3 through 6.3.2.6,
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Buyer shall be obligated to pay to Contractor the Incentives
Obligation and any Change Order Profit Component (if
applicable), as follows: Buyer shall pay Contractor equal
monthly payments that, when summed on a net present value
basis to the Commencement Date using the Incentives Interest
Rate, equals the total amount of Incentives Obligations plus
Change Order Profit Component due hereunder. For example, if
the Domestic 1 Spacecraft is a Successfully Injected
Spacecraft and on the Commencement Date all Transponders on
such Spacecraft are and continue to be Successfully
Operating Transponders for fifteen (15) years, assuming the
maximum [*****] [*********************] for the entire
period, the monthly Incentives Obligations payment would be
[***********] (the "Nominal Payment"). If the Incentives
Interest Rate is less than [**********************] for any
given month, the Incentives Obligations payment will be less
than the Nominal Payment. In such circumstances, the amount
of each month's payment will be calculated on a net present
value basis to the date of the last month's payment using
the remaining unpaid principal as the new principal, the
Incentives Interest Rate, and a term equal to the number of
months remaining in the Incentives period.
[*******************] of the total Incentives Obligations
shall be payable for the C-Band Payload, and [*******]
[****] of the total Incentives Obligations shall be payable
for the Ku-Band Payload. The Incentives
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Obligations, identified above, shall be payable in 180 equal
and consecutive monthly installments over a fifteen (15)
year life of the Spacecraft, except as may be adjusted as
set forth herein. Except as provided in Paragraph 6.3.4, the
first installment of each Incentives Obligations shall be
paid on the Spacecraft's Commencement Date. A sample
schedule matrix showing Incentives Obligations payments for
fifteen years, assuming fully successful operation, and with
a hypothetical interest rate will be attached to this
Contract as Exhibit G.
The foregoing notwithstanding:
(a) If the Spacecraft is not a Successfully Injected
Spacecraft pursuant to Section 6.3.1.4 but is
successfully placed into its on-station orbit by Hughes
during the "Transfer Period" (defined as the period
from separation of the Launch Vehicle through on-
station acquisition) then, subject to Section 6.3.2.3,
Buyer shall pay the Incentives Obligations for the
Spacecraft in equal and consecutive monthly
installments over a period of the Spacecraft's On
Station Operational Lifetime (defined at Section
6.3.2.1(b)).
(b) If the Spacecraft is Successfully Injected, but is not
successfully placed into its on-station orbit by
Contractor during the Transfer Period, then the total
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amount of the Incentives Obligations for the Spacecraft
shall be multiplied by a percentile equal to (i) the
On-Station Operational Lifetime divided by (ii) the
Calculated Operational Lifetime, which percentile
shall, in no event, be greater than one. Subject to
Section 6.3.2.3, Buyer shall pay such Incentives
Obligations for the Spacecraft in equal and consecutive
monthly installments over a period of the Spacecraft's
On-Station Operational Lifetime. The "On Station
Operational Lifetime" shall be mutually determined by
Buyer and Contractor, based on standard engineering
practices, using measured actuals of the Spacecraft,
existing at the end of the Transfer Period. However,
should the Spacecraft continue to operate successfully
beyond the On-Station Operational Lifetime, Contractor
will continue to earn Incentives Obligations at the
same monthly rate up to the Specified Operational
Lifetime.
(c) Finally, if the Spacecraft is not a Successfully
Injected Spacecraft and, in addition, is not
successfully placed into its on-station orbit during
the Transfer Period, then the total amount of the
Incentives Obligations shall be multiplied by the sum
of (A)(i) the Specified Operational Lifetime, plus (ii)
the On-Station Operational Lifetime, minus (iii) the
Calculated Operational Lifetime, divided by
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(B) the Specified Operational Lifetime, which
percentile shall, in no event, be greater than one.
Subject to Section 6.3.2.3, Buyer shall pay such
Incentives Obligations for the Spacecraft in equal and
consecutive monthly installments over a period of the
Spacecraft's On-Station Operational Lifetime.
For purposes of any provision of this Contract, if the
Incentives Obligations or related payment periods are
to be recalculated, the monthly installments due shall
be recalculated to reflect the imputed interest element
that is reflected in the payment plans specified above.
6.3.2.2 Notwithstanding the foregoing, if at any time Buyer
continues to utilize for revenue-producing purposes any
Transponder that is not a Successfully Operating
Transponder, then Buyer shall pay a pro rated amount of the
Incentives Obligation attributable to such Transponder that
is proportionate to the partial benefit that Buyer derives
from such Transponder (the "Partial Incentive Payment"), all
as mutually agreed upon by the Parties in good faith.
6.3.2.3 Except for any Change Order Profit Component (which is
non-contingent), and except as provided in Paragraph
6.3.2.2, payment of any Incentives Obligation shall be
contingent upon the Transponders being Successfully
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Operating Transponders, as set forth herein, on the
applicable Payload and shall be pro-rated, therefore, on a
Transponder equivalent-by-Transponder equivalent basis over
the duration of the applicable term of such Obligation;
provided, however, that beginning on the date, if any, that
any one or more of the Payloads are no longer a Successfully
Operating Payload, as and when ascertained pursuant to
Section 6.3.2.4 (the "Degraded Payload"), then Buyer's then-
remaining Incentives Obligations for such Payload(s)
(exclusive of any Change Order Profit Component, as
applicable) shall be deemed extinguished.
6.3.2.4 Whether any Transponder is not Successfully Operating
shall be mutually determined by Buyer and Contractor, based
on relevant technical data, reports and analyses, and each
Party will make available to the other Party for its review
upon reasonable request all data used in making such
determination. Any disagreements between the Parties shall
be resolved in accordance with the dispute resolution
procedure set forth in Article 33.
6.3.2.5 If the Spacecraft has not been, or is not being,
Properly Operated by the Buyer, and any Transponders thereof
are not Successfully Operating Transponders, then the
Transponders of the Spacecraft which were Successfully
Operating prior to such improper operation of the Spacecraft
shall be deemed to be Successfully Operating Transponders
for purposes of Contractor's entitlement to
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payment of any applicable Incentives Obligations for such
period as such Transponders would have reasonably been
predicted to continue to be Successfully Operating had the
Spacecraft and transponder thereon been Properly Operated by
Buyer; provided, however, that if the failure is the result
of a defect in the deliverable software (except to the
extent that such defect was caused solely by a modification
to such software by Buyer) or if Buyer demonstrates that the
failure of any Transponder to be Successfully Operating was
not caused primarily, directly or indirectly, by any act or
omission of Buyer, its agents, Subcontractors, Consultants
or representatives of any kind, then the foregoing provision
shall not apply with respect to such Transponder.
6.3.2.6 Buyer may prepay any portion of the Incentives
Obligations or the Change Order Profit Component pursuant to
the schedule matrix attached as Exhibit G. Any remaining
Incentives Obligations so prepaid shall be subject to refund
by Contractor to Buyer, in any instance and to the extent
that Buyer's obligation to make such payments is relieved
pursuant to this Article 6, as outlined in the last sentence
of Section 6.3.4.1 hereof.
6.3.3 "Spacecraft Retirement Payment". At any time following the
Spacecraft's Delivery, Buyer may, at its option, cease to utilize
the Spacecraft for any purpose; provided, however, that if Buyer
does cease using the Spacecraft (or if the Spacecraft is rendered
a total
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loss by virtue of Buyer's failure to Properly Operate the
Spacecraft), then, upon the exercise date of such option or the
declaration of the Spacecraft as a total loss as applicable, all
remaining Incentives Obligations payments for any Transponder
(and any Change Order Profit Component, if applicable) (subject
to the provisions of Section 6.3.2.3 through 6.3.2.5) shall
become immediately due and payable, all relative to the
Spacecraft; and Buyer shall pay to Contractor such amounts, in
immediately available funds, along with the outstanding balance
of principal and accrued interest on any other outstanding
payment obligations with respect to the Spacecraft, if any, as of
such date. In determining the amount of principal and interest
due, present value analysis discounted at the Incentives Interest
Rate per annum shall be done for any scheduled payment stream
previously created by the Parties hereunder. Notwithstanding the
foregoing, Buyer shall have the right to cease using the
Spacecraft and remove it from its orbital location at any time
following the expiration of the Spacecraft's Useful Commercial
Life, without payment of such Spacecraft Retirement Payment.
6.3.4 Incentive Obligations and Launch Delay
6.3.4.1 If the Spacecraft has not been launched by the 181st day
after the earlier of (i) the actual date of shipment of the
Spacecraft by Contractor or (ii) Buyer's Preliminary
Acceptance of the Spacecraft, then, except as set forth in
Paragraph 6.3.4.2, the first of the equal and consecutive
monthly installment payments for Incentive Obligations on
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the Spacecraft shall be due and payable and the fifteen year
period shall be deemed to have begun for purposes of this
Paragraph 6.3 and such payments shall commence (the "Pre-
Launch Incentive Payments"). If upon the Commencement Date
or at any time thereafter, any Transponder ceases to be a
successfully Operating Transponder or a Payload becomes a
Degraded Payload, then Contractor shall deliver to Buyer a
refund of that portion of the Pre-Launch Incentive Payment
attributable to such Transponder or Payload (plus interest
thereon calculated at the Incentives Interest Rate), taking
into account the amount of such time such Transponder or
Payload met the performance specifications, and Buyer's
subsequent Incentives Obligations shall be reduced
thereafter on a pro rata basis; provided, if applicable,
Buyer shall receive a credit to the extent of any Pre-Launch
Incentive Payments, to be applied as an offset against
Buyer's consecutive monthly installment payments for the
Incentives Obligations otherwise due and payable for the
months immediately following the Commencement Date.
6.3.4.2 If the Spacecraft has not been Launched due primarily to
(1) Contractor's fault after shipment or (2) Contractor's
failure to timely meet the Spacecraft's scheduled Shipment
Date (where such failure in shipment is not caused by
Buyer's actions or inactions) (or a combination of clauses
(1) and (2) immediately above), then the first of the equal
and consecutive monthly installments of the Incentives
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Obligations on the Spacecraft shall be due and payable on,
and interest shall not accrue until, the earlier to occur of
(i) the Commencement Date or (ii) one year after the earlier
of (a) the actual date of shipment of the Spacecraft by
Contractor or (b) Buyer's Preliminary Acceptance of the
Spacecraft. If upon the Commencement Date, or at any time
thereafter, any Transponder on the Spacecraft (which has
been subject to a Launch delay under this Paragraph 6.3.4.2)
ceases to be a Successfully Operating Transponder or a
Payload becomes a Degraded Payload, then Contractor shall
deliver to Buyer a refund (plus interest thereon calculated
at the Incentives Interest Rate) of that portion of the Pre-
Launch Incentives Payments attributable to such Transponder
or Payload, taking into account the amount of time such
Transponder or Payload met the performance specifications,
and Buyer's subsequent Incentives Obligation for the
affected Payload on the Spacecraft shall be reduced
thereafter on a pro rata basis; provided, however, that
Buyer shall receive a credit to the extent of any Pre-Launch
Incentive Payments, such credit to be applied as an offset
against Buyer's consecutive monthly installment payments for
the Incentives Obligations otherwise due and payable for the
months immediately following the Commencement Date.
6.3.4.3 If, for any reason other than primarily Contractor's
Fault, the Spacecraft has not been Launched within 24 months
following the Spacecraft's actual date of shipment, then the
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full amount of the Incentives Obligations (and any Change
Order Profit Component, if applicable) (including principal
and accrued interest, if any) shall become immediately due
and payable upon the last day of such 24th month. If,
however, the Spacecraft is subsequently Launched within 54
months of its actual date of shipment and any Transponder of
the Spacecraft ceases to be a Successfully Operating
Transponder or a Payload becomes a Degraded Payload, then
Buyer shall be entitled to a proportionate refund (plus
interest thereon calculated at the Incentives Interest Rate)
for any Incentives Obligations (and any Change Order Profit,
if applicable) paid for such Transponder or Payload, taking
into account the amount of time such Transponder or Payload
met the performance specifications. If, for any reason, the
Spacecraft has not been Launched prior to the third
anniversary of its actual date of shipment (the "Third
Anniversary"), then Buyer shall have an option (the
"LOPS/MOPS Option"), exercisable in writing received by
Contractor on or before the Third Anniversary, to extend its
right to utilize the Related Services for the Spacecraft to
the fifth anniversary of the Spacecraft's actual date of
shipment (the "Extension Period"). If Buyer does not timely
exercise the LOPS/MOPS Option, then Buyer shall pay
Contractor the portion of the "Related Services Price" (as
defined below) for the Spacecraft expended by the
Contractor. If Buyer timely exercises the LOPS/MOPS Option,
then the Related Services Price for the Spacecraft during
the Extension
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Period, shall be increased by a [***************] beginning
on the Third Anniversary. Buyer shall be obligated to pay
such escalation amount within 30 days of receipt of invoice
from Contractor. In any case, Contractor's obligation to
provide such services shall terminate on the date which is
fifty-four (54) months (or as early as thirty-six (36)
months) from the actual date of shipment of the Spacecraft.
If Contractor's obligation to provide Related Services is
terminated under the immediately preceding sentence, then
Buyer shall pay the portion of the Related Services Price
expended by the Contractor. For purposes of this Paragraph
6.3.4.3, "Related Services Price" shall mean the amount
payable upon completion of the Related Services pursuant to
Paragraph 6.2.
6.3.4.4 If, for any reason, other than Contractor's fault, a
Launch failure occurs between the time of Launch and the
Commencement Date (or if no Commencement occurs), then the
full amount of the Incentives Obligations (and any Change
Order Profit Component, if applicable) (the "Recoverable
Amount(s)") shall become immediately due and payable upon
the date of such Launch failure. Contractor shall be
entitled to obtain payment of such Recoverable Amounts from
the proceeds of the launch insurance obtained by Buyer and
shall be entitled to a priority in obtaining such proceeds
over Buyer and all other parties or claims; provided,
however, that nothing herein
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shall relieve Buyer of its obligations to pay to Contractor
all such Recoverable Amounts, as set forth herein. Buyer
agrees to name Contractor as a loss payee under Buyer's
launch insurance policy to the extent Contractor is entitled
to payment of Recoverable Amounts. During the six (6) months
immediately following such Launch failure, Buyer shall use
best reasonable efforts to obtain the proceeds of its launch
insurance to pay Contractor the Recoverable Amounts,
hereunder. However, if Contractor does not receive all such
Recoverable Amounts from the proceeds of Buyer's launch
insurance within such six (6) month period, then Buyer shall
be obligated immediately to compensate Contractor for, and
Contractor may also look to Buyer directly for satisfaction
of, all such Recoverable Amounts. For the purposes of this
Paragraph 6.3.4.4, "Launch" shall mean intentional ignition
of any first stage engine of the Launch Vehicle.
6.4 Contractor shall not be obligated to deliver the Spacecraft to the
Launch Site if there are any outstanding Delinquent Payments owed by
Buyer to Contractor with respect to such Spacecraft under this
Contract one month prior to shipment of such Spacecraft from the
Contractor facility. "Delinquent Payments" are defined as those
payments not received by Contractor within thirty (30) days of the
dates due as defined in Paragraphs 6.2.1 and 6.2.2 above. Once Buyer
has paid Contractor for any "Delinquent Payments" and any interest
accrued in accordance with Paragraph 6.6 below, Contractor shall use
its reasonable best efforts to ship such Spacecraft to the Launch Site
so as to enable launch on the
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scheduled Launch Date and in any event to make shipment as soon as
practicable and no later than sixteen (16) weeks after payment by
Buyer of such Delinquent Payments. Buyer will be responsible for and
will pay to Contractor any reasonable costs and [***] profit on such
costs that Contractor may incur as a result of a delay in delivery due
to Buyer's Delinquent Payments. Notwithstanding the foregoing, this
Section 6.4 shall not relieve Contractor of its obligation to deliver
a Spacecraft, and no "Delinquent Payment" shall be deemed to have
occurred, due to any non-payment by Buyer on account of an alleged
breach by Contractor or other dispute as to such payment. In such
event, Buyer shall, within thirty (30) days of the date such payment
is due, pay the full amount of such payment into an interest-bearing
escrow account to be established at Bank of America, Concord,
California. Upon settlement of the dispute as to such payment and
alleged breach in accordance with Article 33, the Party entitled to
the amount in escrow shall receive such amount together with all
accrued interest thereon and the other Party shall pay all costs and
fees associated with the escrow of such amount.
6.5 Invoice
6.5.1 Invoices submitted to Buyer for payment shall contain a cross-
reference to the Contract number and the date specified in the
Payment Plan of Paragraph 6.2. Contractor shall submit one (1)
original invoice for the Spacecraft in each instance to:
PanAmSat Corporation
One Pickwick Plaza
Greenwich, CT 06830
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Attention: Robert Bednarek, Senior Vice President and
Chief Technology Officer
cc: James Frownfelter, Vice President -- Space Systems
Stephen G. Salem, Senior Counsel (by fax to
310-525-5800)
6.5.2 Invoice amounts, as specified in Paragraph 6.2, provide for
billings to be submitted by the 15th day of each month and
shall be paid by Buyer within thirty (30) days upon receipt of
the invoice by Buyer.
6.6 Late Payments
In the event of a failure by the Buyer or the Contractor to
make a payment required pursuant to this Contract, the delinquent
Party shall pay interest at the rate of [********************] on the
overdue amount for the number of days that the payment is overdue,
commencing on the date payment is due and terminating on the date the
overdue amount is paid in full. Notwithstanding the foregoing, this
Section 6.6 shall not apply to any payment made into escrow in
accordance with Section 29.4.
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ARTICLE 7. SPACECRAFT LAUNCH DATE
7.1.1 "Launch Date" Defined. The calendar date during which a Launch
will occur. The Launch Date shall be notified by Buyer to
Contractor no later than three (3) months prior to the first day
of the applicable Launch month and once established, shall become
an express term of this Contract, subject to change in accordance
with this Article 7.
7.1.2 "Launch Window" Defined. A period of time within the Launch
Date during which a Launch can occur and meet mission
requirements. The Launch Window shall be established by mutual
agreement of Buyer and Contractor no later than forty-five (45)
days prior to the Launch Date and once established, shall become
an express term of this Contract.
7.1.3 Adjustment of dates. The time periods as delineated in
Sections 7.1.1 and 7.1.2 shall be adjusted to reflect applicable
launch provider contracts, consistent with ordinary practices of
such providers as familiar to the Parties.
7.2 The Contract Price set forth in Paragraph 5.1 includes Contractor
furnished launch support services, post launch support services, in-
orbit test support services, and post title transfer monitoring and
command of the Spacecraft if Buyer invokes the remedial provisions of
Article 3, Paragraph 3.3.
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7.3 If a Spacecraft Launch Date is postponed for any reason other than the
primary fault of Contractor (and/or any of its subcontractors or
suppliers), excluding any postponement due to an Excusable Delay as
defined in Article 12, the Parties shall negotiate in good faith to
determine an equitable adjustment to the price and affected terms of
this Contract, if any. If the cost of supplies or materials made
obsolete or excess as a result of such postponement is included in the
equitable adjustment, Buyer shall have the right to prescribe the
manner of disposition of such supplies or materials. Costs included in
the equitable adjustment shall include but not be limited to: support
personnel standby; extra travel expenses; transport termination or
rescheduling fees and a profit rate of [*****************]
7.4 Notwithstanding the foregoing, if a Spacecraft Launch Date is
postponed by either Party due to an Excusable Delay, as defined in
Paragraph 12.1 herein, the terms of Article 12 herein shall govern
such postponement.
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ARTICLE 8. BUYER-FURNISHED ITEMS
8.1 The following facilities, equipment, and services ("Buyer-Furnished
Items") shall be furnished by Buyer at no cost to Contractor, in a
timely manner, so as to enable Contractor to perform the work
described herein.
1) Reservation and procurement of launch services, launch insurance
(Contractor to be named a loss payee as provided in Paragraph
6.3.4.2), and associated services and facilities as described in
the applicable Launch Vehicle users' manual.
2) Storage of a Spacecraft and related test equipment for all Force
Majeure Events which prevent Buyer from supplying Buyer-Furnished
Items and/or Launch Vehicle delays.
3) Earth station facilities for IOT including appropriate RF
facilities, but not specialized test equipment.
Contractor will provide preliminary requirements of Item 1 above to
Buyer no later than two (2) months after the Effective Date of this
Contract to assist Buyer's compliance with this Article, which shall
be consistent with what Contractor has generally required Buyer to
secure for previous launches with the same launch provider. Subject to
the confidentiality requirements of the applicable agreements,
Contractor will be allowed to review the list of services which Buyer
has procured in Buyer's contract(s) for launch services.
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In the event that the Buyer-Furnished Items set forth above are not
provided in a timely manner, excluding any excusable delay as defined
in Article 12 herein, then Buyer shall be liable to Contractor for all
applicable costs which shall include but not be limited to:
procurement or rental of suitable substitutes for such Buyer Furnished
Items at no higher than market prices, with title and possession of
all such procured items reverting to Buyer after Contractor's use
under this Contract; support personnel standby; extra travel expenses;
transport termination or rescheduling fees; and installation/de-
installation of communication links to the Launch Site and a profit
rate of [****************] In the event that the Buyer-Furnished
Items are not provided in a timely manner and the Contractor must
procure or rent suitable substitutes, and the foregoing process has
materially affected the Contractor's ability to ship the Spacecraft on
or prior to the applicable Shipment Date, the parties agree to adjust
such Shipment Date to account for any delay resulting from the non-
suitability or non-timely provision of such Buyer-Furnished Items.
8.2 Contractor shall maintain a system to ensure the adequate control and
protection of Buyer's Property. For the purposes of this Article,
Buyer Property shall be defined as any item which Buyer provides to
the Contractor or directs Contractor to maintain in storage or an
inventory account under this Contract. Upon receipt of notification
from Buyer, the Contractor shall complete and return within fifteen
(15) working days a Property System Certification describing the
system that will be used to control Buyer's Property. Additionally,
upon prior notice to Contractor Buyer's representative may, at its
option and at no additional cost to Buyer, conduct surveillance of the
Contractor's Property Control System
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during normal business hours as Buyer deems necessary to assure
compliance with the terms and conditions of this Article.
8.3 Contractor shall, commencing with its receipt and during its custody
or the use of any Buyer's Property, accomplish the following:
A. Establish and maintain inventory records and make such records
available for review upon Buyer's request;
B. Provide the necessary precautions to guard against damage from
handling and deterioration during storage;
C. Perform periodic inspection to assure adequacy of storage
conditions; and
D. Ensure that Buyer's Property is used only for performing this
Contract, unless otherwise provided in this Article or approved
by Buyer.
8.4 Contractor shall not modify, add-on, or replace any Buyer Property
without Buyer's prior written authorization. Contractor shall
immediately report to Buyer's contract representative the loss of any
Buyer Property or any such property found damaged, malfunctioning, or
otherwise unsuitable for use. The Contractor shall determine and
report the probable cause and necessity for withholding such property
from use.
8.5 Upon termination or completion of this Contract, and upon request by
Buyer, the Contractor shall perform a physical inventory, adequate for
accountability and disposition purposes, of all Buyer's Property
applicable to such terminated or completed agreement and shall cause
its subcontractors and suppliers at every tier to do likewise.
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8.6 If Buyer does not approve [*****************************] for Domestic
1 on or before October 9, 1998 or Domestic 2 on or before November 2,
1998, then the Parties shall agree upon a mutually acceptable delay to
the Shipment Date for the applicable Spacecraft; provided, that such
--------
Shipment Date shall not be delayed by more than day-for-day for each
day of delay by Buyer in approving [***********************] [***] for
the applicable Spacecraft; provided, further, that Buyer shall have
-------- -------
the option to subsequently change [**********************]
[**********] of Domestic 2 on or before December 1 with no adjustment
in Contract Price and with the Parties to agree upon a mutually
acceptable delay to the Shipment Date for the applicable Spacecraft
not to exceed one month of delay. Contractor shall reasonably and
promptly respond to Buyer's requests for information and assistance in
preparing and submitting to Buyer such [**************************]
8.7 The use of Buyer's TT&C ground systems at Fillmore (for C-Band
Programs) or Castlerock (for K-Band programs) shall be provided at no
cost to the Contractor for transfer orbit services.
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ARTICLE 9. INSPECTION AND ACCEPTANCE
9.1 Inspection of all Hardware, documentation and Contractor's services
provided hereunder shall take place in accordance with the terms of
Article 10, entitled "Access to Work in Process," herein.
9.2 "Preliminary Acceptance" of the Spacecraft shall occur when all in-
plant tests required to be performed by Contractor for the Spacecraft
and other deliverable Hardware have been completed and the Contractor
has demonstrated at the pre-ship review that the Spacecraft and other
deliverable Hardware and contract deliverables meet the requirements
of this Contract, at which time Buyer shall accept the Spacecraft and
other deliverable Hardware on a Preliminary basis in writing within
five (5) business days. If the Spacecraft or other deliverable
Hardware is unacceptable, Contractor shall promptly and at its
expense, rectify the unsatisfactory Hardware and resubmit such
Hardware for acceptance by Buyer as provided above. In either case,
such Hardware shall be deemed accepted upon failure of Buyer to notify
Contractor in writing within the above five (5) business days that it
is accepted, rejected or that in Buyer's opinion further corrective
action must be taken by the Contractor. In the event that Buyer has
not given Preliminary Acceptance of the Spacecraft, Contractor shall
not ship the Spacecraft from Contractor's facility without Buyer's
prior written consent. Any such Preliminary Acceptance shall not
constitute a "Consent to Fuel" nor a "Final Acceptance", which shall
occur pursuant to Paragraphs 9.3 and 9.4, respectively.
9.3 Buyer shall have access to Launch Integration Facility and/or Launch
Site test results during the launch campaign in accordance with the
provisions
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of Article 10, Paragraph 10.1 "Access to Work in Process."
Contractor shall not fuel Spacecraft at the Launch Site until Buyer
has given its written "Consent to Fuel" notice after satisfactory
completion and Buyer's review of successful launch site test data upon
completion of Launch Integration Facility and/or Launch Site tests
specified in Exhibit C, Spacecraft Integration Test Plan.
9.4 Final Acceptance of the Spacecraft shall occur upon the earlier to
occur of (i) the completion of In-orbit Testing in accordance with
Exhibit A, or (ii) immediately before a Partial Failure, Total Failure
or Total Constructive Failure (as each such term is defined in the
applicable Launch Insurance Contract or successor contract), which
occurs at or after Intentional Ignition.
9.5 With respect to deliverable Hardware which Buyer orders Contractor to
store, the Hardware shall be stored at a location to be negotiated and
Final Acceptance shall occur at the end of the [**********] warranty
period as set forth in Article 16 herein, entitled "Spacecraft
Warranty," or such other event mutually agreed upon between the
Parties.
9.6 Non-Conforming Products.
9.6.1 If (i) the Spacecraft does not meet its weight requirements and
as a result such Spacecraft cannot achieve the Specified
Operational Lifetime on an Ariane 42L Launch Vehicle and (ii)
Buyer will be required to pay for additional weight from the
launch provider in order to achieve the Specified Operational
Lifetime without delaying the placing of the Spacecraft in its
orbital location by
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more than fifteen (15) additional days, then Contractor shall
reimburse Buyer for such additional payments up to a maximum of
[****************************]
9.6.2 Any Preliminary Acceptance or Final Acceptance by Buyer of a
Spacecraft that does not conform to the requirements of this
Contract (whether or not related to weight) shall not affect the
Parties rights and obligations under Paragraph 6.3 ("Incentive
Obligations") with respect to the Spacecraft or other deliverable
that does not perform to the specifications of this Contract.
9.6.3 In the event that (i) Contractor makes a reimbursement to Buyer
with respect to a Spacecraft pursuant to Paragraph 9.6.1, and
(ii) the Useful Commercial Life of such Spacecraft continues
beyond the Specified Operational Lifetime, then Buyer shall pay
to Contractor each month that the Useful Commercial Life of such
Spacecraft continues (not to exceed thirty-six months beyond the
Specified Operational Lifetime) an amount equal to the lesser of
(a)[******************************************* ********] or (b)
[*********************************
******************************************************
****************] All amounts payable by Buyer pursuant to this
Paragraph 9.6.3 shall include interest on the amount payable by
Buyer, calculated at the Incentives Interest Rate from the date
that Contractor reimbursed Buyer pursuant to Paragraph 9.6.1
until the date of the applicable payment by Buyer.
[**************
*****************************************************
***********************************]
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9.7 Until there has been a launch of the Spacecraft that does not result
in a Total Failure, Total Constructive Failure or Partial Failure, (as
defined in the applicable launch insurance contract) prior to the
completion of the Related Services, Contractor shall
[****************************
*********************************************] and shall [****]
[***********************************************************
**********]
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ARTICLE 10. ACCESS TO WORK IN PROCESS
10.1 Contractor shall afford Buyer access to work in progress being
performed at Contractor's plants and (subject to the Buyer's launch
vehicle contract) at the Launch Integration Facility and/or Launch
Site pursuant to this Contract, including technical data,
documentation, and hardware, at all times, subject to Contractor's
approval not to be unreasonably withheld, during the period of
Contract performance, provided such access does not unreasonably
interfere with such work or require the disclosure of Contractor's
proprietary information to third Parties and subject to (i)
Contractor's Security Procedures and (ii) U.S. or foreign government
laws, rules and regulations.
10.2 To the extent that the Contractor's major subcontracts permit,
Contractor shall afford Buyer access to work being performed pursuant
to this Contract in subcontractor's plants during normal business
hours in the company of Contractor's representatives.
Contractor shall exert reasonable effort in subcontracting to obtain
permission for Buyer access to those major subcontractors' plants.
Major subcontracts are defined as those subcontracts in excess of
[******] [****************************]
10.3 Buyer shall have the right to witness on a non-interference basis all
system and subsystem tests scheduled by Contractor in connection with
the performance of work under this Contract. If the system or
subsystem tests are performed by a subcontractor of Contractor,
Contractor shall take all reasonable steps to secure Buyer's access to
the subcontractor's facility or
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facilities. Buyer's right to witness testing shall be on a non-
interference basis with the subcontractor's activities and subject to
(i) any subcontractor security procedures and (ii) U.S. or foreign
government laws, rules, and regulations.
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ARTICLE 11. TERMINATION FOR DEFAULT; LIMITATION OF LIABILITY
11.1 Subject to provisions of Article 3 entitled "Spacecraft,
Documentation and Related Services," Article 5 entitled "Price" and
Article 12 entitled "Excusable Delays" and the final sentence of
Paragraph 4.3, Buyer may issue a written notice of default with
respect to a particular Spacecraft to Contractor if: (i) Contractor
fails [****************************
*********************************************************] as
confirmed in writing by the Contractor's and Buyer's Senior Executives
and such failure may result in a delay in delivery of more than
[****** *****]; or (ii) the delivery of such Spacecraft or
Contractor's performance of any material obligation under the Contract
has been delayed for more than [************] other than due to the
primary fault of Buyer or a Force Majeure Event. Subsequent to the
issuance of said notice, the Buyer may terminate this Contract with
respect to such Spacecraft and thereafter elect remedies as identified
in Paragraph 11.2 below.
11.2 If Buyer terminates this Contract, in whole or in part, as provided
in Paragraph 11.1 herein, Buyer, at its sole option, shall either: (i)
take title to all deliverable hardware, all hardware in process which
ultimately would have been deliverable by Contractor and all drawings
and data produced by Contractor which ultimately would have been
deliverable by Contractor, the cost of which has been charged or
becomes chargeable to any work terminated plus all reasonable
reprocurement costs up to a maximum amount per Spacecraft of: (a)
[*********************] ****************] in the event of a
termination of this Contract solely with respect to Documentation
and/or Related Services for such Spacecraft
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or (b) [************************] with respect to a complete
termination of the Contract with respect to such Spacecraft; or (ii)
receive a refund of all payments submitted to Contractor by the Buyer
for performance of this Contract for the portion terminated by Buyer,
plus [***********************************************************
***********************************************************
**********************************************] and Contractor shall
retain title and possession to all terminated Hardware which
ultimately would have been deliverable by Contractor.
11.3 Notwithstanding the other provisions of this Article, there will be
no termination for default after Intentional Ignition of the Launch
Vehicle for the applicable Spacecraft.
11.4 If, after termination of this Contract (or portion thereof) under the
provisions of this Article, a final determination is made pursuant to
Article 33, entitled "Disputes," that Contractor was not in default
under the provisions of this Article, or that the default was
excusable under the provision of Article 12 entitled "Excusable
Delays," the rights and obligations of the Parties shall be the same
as if notice of termination had been issued pursuant to Article 14,
entitled "Termination for Convenience," or pursuant to Article 12,
Paragraph 12.4, as the case may be.
11.5 Except as otherwise provided in the Contract, the rights and remedies
of the Parties provided in this Article shall be in lieu of any other
rights and remedies provided by law or in equity in the event
Contractor fails to meet its obligations under this Contract. Buyer
shall have no other rights or
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remedies for late delivery of the Spacecraft, Documentation and
Related Services under this Contract except for those rights and
remedies expressly provided for in this Contract.
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ARTICLE 12. EXCUSABLE DELAYS
12.1 If either Party or a subcontractor of either Party is delayed by act
of God, or of the public enemy, fire, flood, earthquake, epidemic,
quarantine restriction, strike, walkout, freight embargo, or any other
event which is beyond their control or does not arise from the acts or
omissions of either Party or its respective subcontractors, said delay
shall constitute an excusable delay ("Force Majeure Events"). In the
event of an excusable delay, there shall be an equitable adjustment to
the time of delivery and/or performance stated in this Contract. The
affected Party shall give notice in writing to the other Party within
10 working days that an excusable delay condition exists after
learning of such delay. Such notification shall include the cause of
the excusable delay, the expected length of the excusable delay, and
alternate plans to mitigate the effect of the excusable delay.
12.2 If the affected Party, as defined in Paragraph 12.1 above, requests
or experiences, on a cumulative basis, excusable delay(s) greater than
[***] [***] days, the Parties shall enter into good faith negotiations
to develop a mutual course of action and/or an equitable adjustment to
the affected terms of this Contract.
12.3 Notwithstanding the foregoing, if the Launch Date for the Spacecraft
defined in Paragraph 7.1 herein is delayed due to a Force Majeure
event affecting Buyer's ability to furnish any item to be supplied by
it under Article 8 hereof, Buyer shall reimburse Contractor for all
reasonable expenses incurred as a result, including without limitation
expenses for:
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support personnel standby; extra travel expenses; and transport
termination or rescheduling fees.
12.4 Notwithstanding anything herein to the contrary, in the event that a
Force Majeure Event occurs and continues to delay or prevent
performance by Contractor of its obligations as to either or both
Spacecraft for a period of [************] or longer from the initial
occurrence of such Force Majeure Event, then Buyer shall have the
right to terminate this Contract with respect to the affected
Spacecraft upon thirty (30) days written notice. In the event of a
termination under this Paragraph 12.4, Buyer shall be entitled to a
refund of [***********************************
***********************************************************
************************************************************
**********] and Contractor shall retain title to all Deliverables
produced by Contractor under this Contract with respect to the
affected Spacecraft.
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ARTICLE 13. AMENDMENTS
The terms and provisions of this Contract shall not be amended or modified
without specific written provision to that effect, signed by the Authorized
Representative(s) of both Parties. These Authorized Representative(s) are
identified in Article 27, "Notices and Authorized Representative(s)." No
oral statement of any person shall in any manner or degree modify or
otherwise affect the terms and provisions of this Contract.
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ARTICLE 14. TERMINATION FOR CONVENIENCE
14.1 Buyer may terminate all or any portion of the work to be performed
pursuant to this Contract upon five (5) days written notice to
Contractor. Buyer shall pay Contractor, in the event of such
termination, termination liability equaling all Costs (as defined in
Paragraph 14.7 below) expended by Contractor for all work done up to
the date of termination on the terminated portion of the Contract,
settlements with subcontractors for work performed prior to
termination on the terminated portion of the Contract, and
Contractor's reasonable costs related to termination which would not
otherwise have been incurred plus a [***] profit for the applicable
termination costs and charges, but in no event more than the maximum
termination liability for the applicable Spacecraft that is set forth
in Exhibit F hereto, as of the date of termination, less amounts
previously paid by Buyer to Contractor pursuant to Article 6; provided
that the Parties agree that Exhibit F sets forth the maximum
termination liability if the entire Contract is terminated under this
Article 14 with respect to the applicable Spacecraft, and that the
maximum termination liability shall be reduced pro rata appropriately
in the event of a termination under this Article 14 of less than all
the work to be performed by Contractor. Buyer shall pay the unpaid
balance of such termination liability within thirty (30) days of
Buyer's receipt of certification of Contractor's costs. In the event
that Buyer has paid to Contractor any amount in excess of such
termination liability, then Contractor shall refund such excess amount
to Buyer within thirty (30) days of certification of costs. In no
event shall the termination liability for a Spacecraft exceed either
the Contract Price defined in Article 5 herein or the amount specified
in Exhibit F for such Spacecraft.
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14.2 In the event of termination by Buyer hereunder, and upon payment in
full of all amount due (if any) under 14.1 above (or, if any amount is
in dispute, payment of such amount into escrow in the manner set forth
in Paragraph 6.4), all tangible work in process inventories generated
under this Contract, with respect to the terminated work, shall become
the property of Buyer. Buyer shall direct disposition of such property
within sixty (60) days from date of termination (which disposition may
include requesting Contractor to undertake mitigation efforts in
accordance with Paragraph 14.6 below) or such other date as agreed to
by the Parties. Final acceptance and transfer of title for all
tangible work in process inventories to be delivered to the Buyer in
the event of termination shall be the subject of separate negotiations
between Buyer and Contractor and shall be subject to applicable U.S.
Government Export Regulations. The expense of disposition shall be
borne by Buyer.
14.3 In the event of a termination pursuant to this Article 14 of either
(but not both) Domestic 1 or Domestic 2, then the Contract Price for
the non-terminated Spacecraft (Domestic 1 or Domestic 2) shall be
[****** ***********************************************************
*******************] and the Contract Price for the first Option
Spacecraft exercised under Article 38 shall be [******************
***********************************************************
***********************************]
14.4 In the event that both Domestic 1 and Domestic 2 are terminated
pursuant to this Article 14 and:
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a) the Option had been exercised for one Option Spacecraft, then
the Contract Price for such Option Spacecraft shall be
[********************************************** **********]
b) the Option had been exercised for two Option Spacecraft, then
the Contract Price for such Option Spacecraft shall be
[**********************************************
***************]
14.5 [*********************************************************
**********************************************************
******************] In addition, in such event the termination
liability of Buyer for the terminated Spacecraft under this Article 14
shall not include any non-recurring Costs (or profit thereon) mutually
beneficial to both the terminated Spacecraft and the non-terminated
Spacecraft.
14.6 At Buyer's request, Contractor shall use reasonable best efforts to
identify an alternate use (i.e. sale to third Parties and/or internal
utilization) for any Hardware affected by a termination under this
Article 14. The Contractor shall submit a proposal to Buyer, which,
at a minimum, defines (i) the applicable Hardware, (ii) the intended
use of the Hardware, (iii) the original acquisition cost/value of the
applicable Hardware, as available, and (iv) the sale/transfer
payment(s) to be received by Buyer. Contractor shall use its
reasonable best efforts to obtain fair market value for the applicable
Hardware. Buyer, at its sole option, may accept or reject the
proposal submitted by Contractor. In the event that Buyer accepts the
proposal submitted by Contractor, payment by Contractor to Buyer of
the agreed upon payment value shall occur within thirty (30) days of
the
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sale/transfer of the applicable Hardware, or such other payment
period as mutually accepted between the Parties. If the Contractor's
proposal is rejected by Buyer, and if Contractor is unable to find any
alternative use within two (2) years of being requested to do so or if
Buyer so directs, then Title to the applicable Hardware shall be
vested as stated in Paragraph 14.2 above.
14.7 As used in this Article 14, Contractor's "Costs" shall mean costs
actually incurred by Contractor in performing its obligations
hereunder (including G&A costs not to exceed [******************] of
such costs) all such costs to be determined in accordance with
Contractor's normal accounting practices. Contractor shall provide to
Buyer an invoice certified by a financial officer of the company
stating Contractor claim for costs properly includes only the costs
specified in this paragraph. In the event Buyer desires independent
verification of claim, Buyer may request to have independent certified
public accountants (CPA) audit costs incurred by Contractor and report
to the Parties. The CPA to perform such audit shall be selected by
the Buyer, subject to the approval of the Contractor, which approval
shall not be unreasonably withheld (and in any event shall not be
withheld if Buyer selects a "Big Six" accounting firm). Contractor
shall cooperate with such CPA and shall provide all data and records
reasonably requested by such CPA. Such audit shall be at Buyer's
expense unless such audit shows Contractor's costs to have been
overstated (in which event Contractor shall bear the audit expense).
Such audit shall constitute a final determination of actual costs
notwithstanding the provision of Article 33; provided that, if the
costs determined by such report exceed the amount of Contractor's
termination claim, Buyer shall only be obliged to pay the amount of
Contractor's termination claim.
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14.8 Contractor shall use its reasonable best efforts to include in its
subcontracts for work hereunder on terms that will enable Contractor
to terminate such subcontracts with a goal of minimizing termination
costs in a manner consistent with this Article 14.
14.9 This Article 14 and Buyer's rights under this Article 14 shall not be
applicable to any Option Spacecraft for which the [*****************]
[*********************************************************** ********]
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ARTICLE 15. TITLE AND RISK OF LOSS
15.1 Title and risk of loss or damage in respect of all items to be
delivered under this Contract shall pass from Contractor to Buyer as
follows:
15.1.1 Risk of loss of the Spacecraft and title shall pass from
Contractor to Buyer upon the earlier to occur of: (i) the
completion of In-orbit Testing in accordance with Exhibit A; or
(ii) immediately before a Partial Failure, Total Failure or Total
Constructive Failure (as each such term is defined in Buyer's
applicable Launch Insurance Contract) which occurs at or after
Intentional Ignition.
15.1.2 In respect to a Spacecraft which Buyer directs Contractor to
store, title and risk of loss shall remain with the Contractor
until Final Acceptance as specified in Article 9.5 herein.
15.1.3 "Risk of Loss" for purposes of this Article 15 is limited to
the responsibility and liability for a Partial Failure, Total
Failure or Total Constructive Failure (as each such term is
defined in Buyer's applicable Launch Insurance Contract).
Responsibility and liability for the Spacecraft prior to
intentional ignition is with the Contractor.
15.2 In the event of damage to or destruction of Hardware when Contractor
shall have risk of loss, Contractor shall repair or replace (subject
to Buyer's consent, not to be unreasonably withheld) said Hardware.
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15.3 Insurance Provided By Contractor. The Contractor shall, at its own
expense, provide and maintain the following insurance:
15.3.1 "All Risk" Insurance
(i) The Policy for "All Risks" insurance shall insure the
Contractor and name Buyer as additional insured and Loss
Payee as their interest may appear.
(ii) The insurance shall cover the Spacecraft while in or about
the Contractor's and subcontractors' plants, while at other
premises which may be used or operated by the Contractor for
construction or storage purposes, while in transit, or while
at the Designated Launch Site until Intentional Ignition, or
while Spacecraft is stored by the Contractor at Buyer's
direction until Final Acceptance as specified in Article
9.4.
(iii) Such insurance shall be sufficient to cover the full
replacement value or selling price of the Spacecraft and may
be issued with deductibles, for which losses shall be borne
by the Contractor.
(iv) This "All Risk" insurance shall be in force from the time of
the Effective Date of this Contract and shall continue in
effect until Contractor's liabilities have expired at
intentional ignition.
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15.3.2 Third Party Liability Insurance
(i) The Policy(s) for Third Party Liability insurance shall be
written on forms the Buyer may review and shall include
Buyer as additional insured.
(ii) This Third Party Liability insurance shall be in force from
the time of the Effective Date of this Contract and shall
continue in effect until Contractor's liabilities have
expired at intentional ignition.
(iii) The Policy(s) may be issued with deductibles, for which
losses shall be borne by the Contractor.
15.4 General Insurance Requirements
(i) The Contractor shall, upon request, provide to the Buyer
certificates of the Insurance Policy(s) issued by an agent
of the Contractor's Insurer(s) for coverage which the
Contractor is required to provide pursuant to the provisions
of these Articles.
(ii) All Policies of insurance to be provided and maintained
pursuant to these Articles shall require the insurer(s) or
its authorized agent(s) to give each insured not less than
thirty (30) days prior written notice in the event of
cancellation or any proposed material change in such
policies, except for
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ten (10) days prior written notice in the event of
cancellation due to non-payment of premium.
(iii) The Contractor may also acquire and maintain, at its own
expense, other insurance for amounts and perils, and upon
such terms, conditions and deductibles as it may deem
advisable or necessary to cover any loss or damage to
persons or property that may occur as a result of the
performance of this Contract.
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ARTICLE 16. SPACECRAFT WARRANTY
16.1 Contractor warrants that the Spacecraft, upon successful completion
of Spacecraft in plant Tests pursuant to Article 9 herein, shall be
free from any defects in material or workmanship and shall conform to
the applicable specifications and drawings, as evidenced by the
acceptance criteria in Exhibits A-D herein.
16.2 This warranty shall start from the date of Preliminary Acceptance of
the Spacecraft as stated in Article 9 herein, entitled "Inspection and
Acceptance," and continue for a period of [********] or until the
"Intentional Ignition" (defined herein as the Intentional Ignition of
any rocket motor on the first stage of the Launch Vehicle) of the
applicable Launch Vehicle, whichever is earlier.
[***********************
************************************************************
************************************************************
************************************************************
************************************************] ("Warranty Time
Period"). Contractor shall not be liable in Contract or in Tort for
any incidental, special, contingent, or consequential damages.
16.3 Buyer shall have the right at any time during the Warranty Time
Period to reject any goods not conforming to this warranty and require
that Contractor, at its expense, correct or replace (at Contractor's
option) such goods with conforming goods. If any time during the
Warranty Time Period Contractor fails to correct or replace such
defective goods and fails to initiate reasonable efforts to correct or
replace such defective goods within a reasonable period after written
notification and authorization from
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Buyer, Buyer may then, by contract or otherwise, correct or replace
such defective goods and equitably adjust the price.
16.4 Except as otherwise expressly agreed upon in this Contract,
Contractor shall have no liability, or responsibility in Contract or
in Tort with respect to the Spacecraft after Intentional Ignition (as
defined in Paragraph 16.2) of the Launch Vehicle.
16.5 THE ABOVE WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING FITNESS FOR PARTICULAR PURPOSE OR MERCHANTABILITY
AND THE REMEDY PROVIDED HEREIN IS THE SOLE REMEDY FOR FAILURE BY
CONTRACTOR TO FURNISH A SPACECRAFT THAT IS FREE FROM MATERIAL DEFECTS
IN MATERIAL OR WORKMANSHIP AS SET FORTH IN PARAGRAPH 16.1 ABOVE. ALL
OTHER WARRANTIES OR CONDITIONS IMPLIED BY ANY OTHER STATUTORY
ENACTMENT OR RULE OF LAW WHATSOEVER ARE EXPRESSLY EXCLUDED AND
DISCLAIMED. CONTRACTOR AND ITS SUBCONTRACTORS SHALL HAVE NO LIABILITY
IN CONTRACT OR IN TORT (INCLUDING NEGLIGENCE) OR IN ANY OTHER MANNER
WHATSOEVER FOR A SPACECRAFT AFTER INTENTIONAL IGNITION OTHER THAN AS
EXPRESSLY PROVIDED IN THIS CONTRACT.
16.6 Any limitations on warranties, liability or requests for
indemnification from liability for the malfunction of delivered items
which are imposed upon the Contractor by its various equipment
suppliers shall be passed on directly to Buyer provided, however,
nothing therein shall decrease or
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invalidate the rights of the Buyer during, or the length of, the
Warranty Time Period as stated in this Article.
ARTICLE 17. INDEMNIFICATION
17.1 Each Party shall indemnify and hold the other and/or all its
officers, agents, servants, subsidiaries, affiliates, parent companies
and employees, or any of them, harmless from any liability or expense
in connection herewith on account of damage to property (excepting
other Spacecraft in flight) and injuries, including death, to all
persons including but not limited to employees of the Parties, and
their subcontractors, and of all other persons performing any part of
the work hereunder, arising from any occurrence caused by a negligent
act or omission of the indemnifying Party or its subcontractors, or
any of them in connection with the work to be performed by such Party
under this Contract. The indemnifying Party shall have the right, but
not the obligation, to participate in any legal or other proceedings
concerning claims for which it is indemnifying under this Article 17
and to direct the defense of such claims. However, with respect to
such legal or other proceedings, the indemnifying Party shall pay all
expenses (including attorneys fees incurred by the indemnified Party
in connection with such legal or other proceedings) and satisfy all
judgments, costs or other awards which may be incurred by or rendered
against the indemnified Party. The indemnifying Party shall not settle
any such claim, legal or other proceeding without first giving thirty
(30) days prior written notice of the Terms and Conditions of such
settlement and obtaining the consent of the indemnified Party, which
consent shall not be unreasonably withheld or delayed.
17.2 Notwithstanding the foregoing, neither the Contractor nor its
subcontractors shall have any liability in Contract or in Tort, for
damages
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to or caused by the Spacecraft after Intentional Ignition (as defined
in Paragraph 16.2), and Buyer shall obtain waivers of subrogation
rights from Buyer's insurers against Contractor, and affiliates and
subcontractors of Contractor.
ARTICLE 18. SPACECRAFT NOT LAUNCHED WITHIN SIX MONTHS AFTER ACCEPTANCE
18.1 If the Spacecraft is not launched within six (6) months after its
Preliminary Acceptance per Article 9, entitled "Inspection and
Acceptance," and is subsequently ordered to be launched within
[*******] following its Preliminary Acceptance, it is agreed that the
Spacecraft shall be returned at Contractor's option and at
Contractor's expense, to Contractor's facility for inspection and
refurbishment. Any inspection and refurbishment undertaken by
Contractor to meet the requirements of Article 16 entitled,
"Spacecraft Warranty," shall be at Contractor's expense, including
Spacecraft transit insurance. After completion of inspection and
refurbishment, Contractor shall not re-ship such Spacecraft without
the consent of Buyer, which shall be governed by Paragraph 9.2.
18.2 If the Spacecraft is not launched within six (6) months after its
Preliminary Acceptance and is subsequently ordered to be launched
later than [***] [***] following its Preliminary Acceptance, it is
agreed that the Spacecraft shall be returned, at Buyer's expense, to
Contractor's facility for inspection and refurbishment. An equitable
adjustment to Contract price for such inspection and refurbishment, to
include a [***] profit component shall be negotiated by the Parties
unless the fact that the launch is scheduled for later than
[*********] is due to Contractor's negligent acts or omissions. After
completion of inspection and refurbishment,
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Contractor shall not re-ship such Spacecraft without the consent of
Buyer, which shall be governed by Paragraph 9.2.
18.3 If the Spacecraft is returned to Contractor's facility for inspection
and refurbishment per the terms of Paragraph 18.2 above, all charges
to return the Spacecraft to the Launch Site shall be borne by Buyer.
18.4 If the Spacecraft has not been launched within [******] after its
preliminary Acceptance, neither Party shall be further obligated to
the other with respect to the Spacecraft. Disposition of the
Spacecraft shall be at the option of Buyer with costs of such
disposition to be borne by Buyer.
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ARTICLE 19. PATENT/COPYRIGHT INDEMNITY
19.1 Contractor shall indemnify and hold Buyer harmless against any
liability or expense as a result of claims, actions, or proceedings
against Buyer alleging the infringement of any trademarks, United
States Copyright or mask work, United States Letters Patent, any other
intellectual property rights, by any article fabricated by Contractor
and delivered to Buyer pursuant to this Contract as set forth below.
19.2 Contractor agrees to defend at its own expense any claim, action,
proceeding or request for royalty payments or any claim for equitable
relief or damages against Buyer, its subsidiaries, and the officers,
employees, consultants and advisors of Buyer and its subsidiaries
(each such party entitled to indemnification being referred to herein
as a "Buyer Indemnitee") based on an allegation that the manufacture
of any item under this Contract or the use, lease, or sale thereof
infringes any United States Letters Patent trademark, United States
Copyright or mask work or any other intellectual property right, and
to pay any royalties and other costs related to the settlement of such
claim, action, proceeding or request and to pay the costs and damages,
including reasonable attorney's fees finally awarded as the result of
any claim, action or proceeding based on such request, provided that
Contractor is given prompt written notice of such request or claim by
Buyer and given authority and such assistance and information as is
available to Buyer for resisting such request or for the defense of
such claim, action or proceeding, and provided that such Buyer
Indemnitee has not intentionally done and shall not intentionally do
anything to prejudice materially the defense of such claim, action or
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proceeding. Any such assistance or information which is furnished by
Buyer at the written request of Contractor is to be at Contractor's
expense.
19.3 In the event that, as a result of any such claim, action, proceeding
or request: a) prior to delivery, the manufacture of any item is
enjoined; or b) after delivery, the use, lease or sale thereof is
enjoined, Contractor agrees to utilize its best effort to either: (1)
negotiate a license or other agreement with plaintiff so that such
item is no longer infringing; or (2) modify such item suitably or
substitute a suitable item therefore, which modified or substituted
item is not subject to such injunction, and to extend the provisions
of this Article thereto. In the event that neither of the foregoing
alternatives is suitably accomplished by Contractor, Contractor shall
be liable to Buyer for Buyer's additional costs and damages arising as
a result of such injunction; provided however, that in no event shall
Contractor's entire liability under this Article exceed
[*********************] [******] for each Spacecraft. The existence
of one or more claims, actions, proceedings or lawsuits shall not
extend such amount.
19.4 The foregoing indemnity shall not apply to any infringement resulting
from a modification or addition, by other than Contractor, to an item
after delivery.
19.5 To the extent that an infringement of an intellectual property right
results solely from the compliance by Contractor with an express
direction of Buyer in a Change Order Request to employ a particular
design not provided in the original Spacecraft Specification for such
Spacecraft, then Buyer shall defend or settle, at its expense, any
such suit against Contractor, subject to the same conditions,
liability cap and other
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limitations provided in this Article 19 that are applicable to
Contractor's indemnification obligations.
19.6 The foregoing constitutes the Parties' entire obligation with respect
to claims for infringement described in this Article 19.
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ARTICLE 20. RIGHTS IN INVENTIONS
20.1 As used in this Contract, "Program Invention" shall mean any
invention, discovery or improvement conceived of and first reduced to
practice in the performance of Work under this Contract. Information
relating to Inventions shall be treated as proprietary information in
accordance with the provisions of this Contract. Rights to inventions
conceived solely by Contractor or its employees shall vest completely
with Contractor.
20.2 Contractor shall be the owner of all Program Inventions invented
solely by Contractor. Contractor grants Buyer a royalty-free,
nonexclusive license in Program Inventions to use Program Inventions
solely for the purposes of maintenance and operation of the Spacecraft
and delivered Equipment. Contractor agrees that it will not revoke
such license if Buyer is in compliance with the terms of the license.
20.2.1 In the case of joint Program Inventions, that is, inventions
conceived jointly by one or more employees of both Parties
hereto, each Party shall have an equal, undivided one-half
interest in and to such joint Program Inventions, as well as in
and to patent applications and patents thereon in all countries.
20.2.2 In the case of such joint Program Inventions, Contractor shall
have the first right of election to file patent applications in
any country, and Buyer shall have a second right of election.
Each Party in turn shall make its election at the earliest
practicable time, and shall notify the other Party of its
decision.
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20.2.3 The expenses for preparing, filing and securing each joint
Program Invention patent application, and for issuance of the
respective patent shall be borne by the Party which prepares and
files the application. The other Party shall furnish the filing
Party with all documents or other assistance that may be
necessary for the filing and prosecution of each application.
Where such joint Program Invention application for patent is
filed by either Party in a country which requires the payment of
taxes, annuities, maintenance fees or other charges on a pending
application or on an issued patent, the Party which files the
application shall, prior to filing, request the other Party to
indicate whether it will agree to pay one-half of such taxes,
annuities, maintenance fees or other charges. If within sixty
(60) days of receiving such request, the non-filing Party fails
to assume in writing the obligation to pay its proportionate
share of such taxes, annuities, maintenance fees or other
charges, or if either Party subsequently fails to continue such
payments within sixty (60) days of demand, it shall forthwith
relinquish to the other Party, providing that said other Party
continues such payments, its interest in such application and
patent and the Invention disclosed therein, subject, however, to
retention of a paid-up, non-exclusive, non-assignable license in
favor of the relinquishing Party, its parent, and any subsidiary
thereof to make, use, lease and sell the apparatus and/or methods
under said application and patent.
20.3 Each owner of a jointly-owned patent application or patent resulting
therefrom shall, provided that it shall have fulfilled its obligation,
if any, to pay its share of taxes, annuities, maintenance fees and
other charges on
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such pending application or patent, have the right to grant non-
exclusive licenses thereunder and to retain any consideration that it
may receive therefor without obligation to account therefor to the
other Party. In connection therewith, each of the Parties hereby
consents to the granting of such non-exclusive licenses by the other
Party and also agrees not to assert any claim with respect to the
licensed application or patent against any licensee of the other Party
thereunder during the term of any such license.
20.4 No sale or lease hereunder shall convey any license by implication,
estoppel or otherwise, under any proprietary or patent rights of
Contractor, to practice any process with such product or part, or, for
the combination of such product or part with any other product or
part.
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ARTICLE 21. INTELLECTUAL PROPERTY RIGHTS
Except as provided in Article 20, neither Party shall acquire any rights
with respect to any patent, trademark, trade secret, or any other
intellectual property developed or used by the other Party in the
performance of this Contract.
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ARTICLE 22. FURNISHED DATA AND INFORMATION, DISCLOSURE AND USE
"Proprietary Information" shall mean any data and information received by
one Party from the other Party, which is identified as proprietary in
accordance with either of the following methods: (i) if in writing, it
shall be marked by the disclosing Party with an appropriate proprietary
legend, or (ii) if disclosed orally, it shall be presented by the
disclosing Party as Proprietary at the time of disclosure and shall be
confirmed by the disclosing Party as Proprietary Information in writing
within thirty (30) days of its initial oral disclosure.
22.1 The receiving Party agrees to protect such data and information with
the same degree of care which the receiving Party uses to protect its
own confidential data and information;
22.2 The receiving Party shall not disclose or have disclosed to third
Parties, in any manner or form, or otherwise publish such data and
information so long as it remains proprietary without the express
written authorization of the other Party or except as otherwise
permitted in this Article 22;
22.3 The receiving Party agrees that it shall use such data and
information solely in connection with the performance of Work under
this Contract, unless otherwise expressly authorized in writing by or
on behalf of the other Party with the designation of specific data and
information and use;
22.4 The foregoing obligations with regard to such data and information
shall exist unless and until such time as:
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22.4.1 Such data and information are previously known to the
receiving Party or otherwise publicly available prior to its
receipt by the receiving Party without the default of the
receiving Party; or
22.4.2 Such data and information have been lawfully disclosed to the
receiving Party by a Third Party which has the right to disclose
such data; or
22.4.3 Such data and information are shown by written record to have
been independently developed by the receiving Party; or
22.4.4 Such data and information are otherwise available in the
public domain without breach of this Contract by the receiving
Party; or
22.4.5 Such data and information are disclosed by or with the
permission of the disclosing Party to a Third Party without
restriction; or
22.4.6 Such data and information are disclosed by the receiving Party
as required by law or government regulation or order (as long as
the receiving Party provides reasonable notice to the disclosing
Party prior to such disclosure); or
22.4.7 Such data and information are released for disclosure in
writing by or with the express written permission of the
disclosing Party.
22.5 Providing Buyer shall obtain from the recipient a nondisclosure
agreement at least as restrictive as this Article 22, Buyer may
disclose any proprietary information on a need to know basis to its
customer(s), contractors,
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insurers, consultants, advisors, counsel and actual or prospective
lenders, investors, or successors in interest. In no event shall
either Party disclose any proprietary information of the other Party
to any competitor of the other Party without first obtaining written
consent from the other Party.
22.6 Any copyrighted material belonging to a Party to this Contract may be
copied by the other Party as necessary to enable the receiving Party
to perform its obligations under this Contract, provided always that
the copyright legend is retained on the material.
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ARTICLE 23. PUBLIC RELEASE OF INFORMATION
Neither Party shall issue news releases, articles, brochures,
advertisements, prepared speeches, and other information releases
concerning the work performed or to be performed under this Contract by
Contractor or its subcontractors, or any employee or consultant of either,
which contains new information not previously disclosed as permitted under
the Contract, without first obtaining the prior written approval of the
other Party concerning the content and timing of such release which
approval shall not be unreasonably withheld. The initiating Party shall
provide such releases to the other Party for review within a reasonable
time prior to the desired release date and the other Party shall be
required to respond within said time period.
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ARTICLE 24. TAXES
24.1 The price which shall be paid by Buyer for Spacecraft, Documentation
and Related Services [****************************] any U.S. (federal,
state or local) sales or use taxes, or fees or other U.S. taxes
against real or personal property, however designated, which may be
levied or assessed against Contractor. Buyer shall be responsible for
the payment of all personal property taxes, if any, with regard to
goods which are levied upon subsequent to the date of delivery to
Buyer. Buyer shall be responsible for any inventory taxes, state taxes
or any other taxes that are assessed to Contractor as a result of
storage of a Spacecraft in accordance with Article 32.
24.2 In the event Contractor in the performance of this Contract is
required to pay non-U.S. customs, import duties, value-added or sales
taxes, commercial card fees, port fees, harbor maintenance tax, other
charges, or taxes, or fees, (collectively, "Assessments") however
designated (except for (i) any Assessment based on Contractor's income
and (ii) any Assessment incurred as a result of or associated with
Contractor's manufacture of a Spacecraft), then Buyer will reimburse
Contractor for such Assessments within thirty (30) days of written
notification by Contractor of payment; provided, however that,
Contractor shall use its reasonable best efforts to obtain waivers,
exemptions and/or relief from such Assessments when practicable, and
Buyer shall not be required to pay any Assessment to the extent any
such waiver, exemption or relief is pending or has been obtained.
Notification shall then be supported by an invoice and attachment(s)
evidencing such payment having been made by Contractor.
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ARTICLE 25. GOVERNING LAW
This Contract shall be deemed made in the State of California and shall be
construed in accordance with the laws of the State of California without
resort to its conflicts of law principles.
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ARTICLE 26. TITLES
Titles given to the Articles herein are inserted only for convenience and
are in no way to be construed as part of this Contract or as a limitation
of the scope of the particular article to which the title refers.
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ARTICLE 27. NOTICES AND AUTHORIZED REPRESENTATIVES
Any notice or request required or desired to be given or made hereunder
shall be in writing and shall be effective if delivered in person or sent
by mail or by facsimile as indicated below:
1. PanAmSat International Systems, Inc.
One Pickwick Plaza
Greenwich, Connecticut 06830
Attention: Robert Bednarek, Senior Vice President and
Chief Technology Officer
cc: James Frownfelter
Vice President - Space Systems
and
cc: Stephen G. Salem
Senior Counsel
1500 Hughes Way
Long Beach, California 90810
Authorized Representative(s): Frederick Landman,
President and Chief Executive Officer
Robert Bednarek
Senior Vice President and
Chief Technology Officer
James Frownfelter
Vice President - Space Systems
2. Hughes Space and Communications Company
Post Office Box 92919, Airport Station
Bldg. S41, M/S A374
Los Angeles, California 90009
Attention: Samuel C. Tricoli, Contracts Manager
cc: Bernie Bienstock, Program Manager
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Authorized Representative(s): Harold McDonnell
Vice President
Mark Shahriary
Vice President
or in each case as a Party may direct by notice to the other Party in
accordance with this Article 27.
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ARTICLE 28. INTEGRATION
This document, with Exhibits, constitutes the entire understanding between
the Parties with respect to the subject matter of this Contract and
supersedes all previous oral and/or written negotiations, commitments, and
understandings of the Parties, including that certain Authorization to
Proceed dated as of August 25, 1998 (the "ATP") between the Parties.
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ARTICLE 29. CHANGES
Subject to Paragraphs 4.2.1 and 5.3:
29.1 Any changes requested by Contractor during the performance of this
Contract, within the general scope of this Contract, which will add or
delete work, stop work, affect the design of the Spacecraft, change
the method of shipment or packing, or the place or time of delivery,
or will affect any other requirement of this Contract, shall be
submitted in writing ("Change Proposal") to Buyer [***************]
days prior to the proposed effective date of the change. If such
Contractor requested change causes an increase or decrease in the
total price or other terms of this Contract, Contractor shall submit a
proposal to Buyer detailing the impact of such change.
29.2 Buyer shall notify Contractor in writing within ten (10) calendar
days after receipt of the requested change and price adjustment
(downward or upward), if any, whether or not it agrees with and
accepts such Change Proposal. If Buyer agrees with and accepts the
Contractor requested Change Proposal, Contractor shall proceed with
the performance of the Contract as changed or in the case of a stop
work order, suspend the performance of this Contract, and an amendment
to the Contract reflecting the Change Proposal shall be incorporated
into the Contract. If Buyer does not agree with the Contractor
requested Change Proposal, the Parties shall attempt to reach
agreement on such Change Proposal. If the Parties are unable to agree
on the requested change and price adjustment, then the Parties shall
proceed with the performance of this Contract, as unchanged. In the
event the Parties are able to reach agreement on the change, but not
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on the price adjustment component, then the Parties shall elevate such
dispute to the Senior Executives of the respective companies for
resolution. If resolution cannot be achieved within a reasonable
period of time under the circumstances, Buyer may make a qualified
acceptance of the Change Proposal, accepting all matters other than
price adjustment, and the issue of price adjustment shall be submitted
for resolution by arbitration in accordance with the provisions of
Paragraph 33.2 hereof. Pending such resolution of the price issue, the
Parties shall perform their obligations under the Contract, or in the
case of a Stop work order, suspend their obligations, as if the Change
Proposal had been accepted; provided, however, that Buyer shall pay
any disputed amount of the price adjustment into an escrow account in
accordance with Paragraph 29.4 hereof on the date such amount would
have been due and payable had the Change Proposal been accepted, or if
the Change Proposal could result in a downward adjustment in the
Contract Price in excess of the amount remaining to be paid by the
Buyer, Contractor shall deposit the disputed amount of such excess
into an escrow account in accordance with Paragraph 29.4 hereof.
29.3 Buyer may submit to Contractor in writing (a "Change Order Request")
[****************] days prior to the proposed effective date of the
change detailing any changes requested by Buyer during the performance
of this Contract, within the general scope of the Contract, which will
add or delete work, stop work, affect the design of the Spacecraft,
change the method of shipment or packing, or the place or time of
delivery, or will affect any other requirement of this Contract.
Contractor shall respond to such Change Order Request in writing to
Buyer within [************] days after such request. If Contractor
determines that the change requested
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by Buyer is feasible and can be made at no additional cost and with no
associated delays, then Contractor shall so notify, Buyer and
Contractor shall commence implementing such change. If the Contractor
determines otherwise, then, Contractor shall submit to Buyer, a
proposal detailing the impact of such change and the price adjustment
(downward or upward), if any, (the "Change Order Offer"). Buyer shall
notify Contractor in writing, within ten (10) calendar days after
receipt of Contractor's Change Order Offer, whether or not it agrees
with and accepts Contractor's Change Order Offer. If Buyer agrees with
and accepts Contractor's Change Order Offer, Contractor shall
immediately proceed with the performance of the Contract as changed,
or in the case of a stop work order, suspend the performance of this
Contract, and an amendment to the Contract reflecting such change
shall be incorporated into the Contract. If Buyer does not agree with
the Contractor's Change Order Offer, the Parties shall attempt to
reach agreement on such Change Order Offer. In the event the Parties
are able to reach agreement on the change, but not on the price
adjustment component, then the Parties shall elevate such dispute to
the Senior Executives of the respective companies for resolution. If
resolution cannot be achieved within a reasonable period of time under
the circumstances, Buyer may make a qualified acceptance of the Change
Order Offer, accepting all matters other than price, and the issue of
price shall be submitted for resolution by arbitration in accordance
with the provisions of Paragraph 33.2 hereof. Pending such resolution
of the price issue, the Parties shall perform their obligations under
the Contract, or in the case of a Stop work order, suspend their
obligations, as if the Change Order Offer had been accepted; provided
however, that the Buyer shall pay any disputed amount of the price
adjustment into an escrow account in accordance with Paragraph 29.4
hereof on the date such amount would
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have been due and payable had the Change Order Offer been accepted, or
if the Change Order Request could result in a downward adjustment in
the Contract Price in excess of the amount remaining to be paid by
Buyer, Contractor shall deposit the disputed amount of such excess
into an escrow account in accordance with Paragraph 29.4 hereof. The
dispute shall then be resolved by arbitration under the provisions of
Article 33, entitled "Disputes."
29.4 Escrow Provisions - Disputed Amounts
Disputed amounts with respect to any change under this Article 29
shall be paid into an interest bearing escrow account to be
established at Bank of America, Concord, California. Upon settlement
of the dispute as to such payment and alleged breach in accordance
with Article 33, the Party entitled to the amount or part thereof in
escrow, shall receive such amount together with all accrued interest
thereon and the other Party shall pay all costs and fees associated
with the escrow of said amount. The placement of disputed amounts into
an escrow account shall not relieve either Party of its remaining
obligations under this contract.
29.5 Determination of Price Adjustment of Change
The Parties agree that the change order price adjustment (downward or
upward) for any change shall be equal to the sum of (i) the "Change
Order Cost" plus (ii) the "Change Order Profit Component". The "Change
Order Cost" shall mean those additional or reduced recurring and non-
recurring costs to Contractor to implement such change (or which are
not required to be implemented), as determined in accordance with
Contractor's normal accounting practices, including those general and
administrative costs ("G&A Costs") of such change, as determined in
accordance with
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Contractor's normal accounting practices, [*********************]
[****] of Contractor's costs for such change. The "Change Order Profit
Component" shall be equal to [**************] of the Change Order
Cost. The Total Change Order Cost shall be payable in accordance with
the payment plan agreed by the Parties or, if applicable, by the
Arbitrator. Unless otherwise agreed by the Parties, the Change Order
Profit Component shall be payable in equal monthly installments at the
same time as the monthly installments of Incentives Obligations;
provided, however, that payment of the Change Order Profit Component
-------- -------
shall not be conditioned upon performance of the Spacecraft or any
component thereof.
29.6 If Contractor makes any improvements to the generic HS601HP
Spacecraft design, then Contractor shall provide reports to Buyer
concerning such improvements. Buyer may request that any improvement
to the HS601HP Spacecraft design reported to Buyer be incorporated
into the Spacecraft, and such improvements shall be considered a
Change and shall be dealt with in accordance with the Change Order
process in this Article 29. The foregoing shall not apply to any
changes to the generic HS601HP Spacecraft design, to correct or
mitigate the impact of anomalies with respect to such design, made by
Contractor on its own accord or as necessary in Contractor's
reasonable engineering judgment, which changes shall not relieve
Contractor of its obligations to meet the technical specifications for
each Spacecraft, as set forth in the applicable Exhibit B, hereto.
Contractor shall notify Buyer on a periodic basis or as requested by
Buyer from time to time of any anomalies with respect to such HS601HP
Spacecraft design.
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29.7 The Change Order Price shall be allocated and payable as follows: The
Change Order Profit Component shall be an independent payment
obligation not contingent upon performance of the Spacecraft and shall
be payable at the same time as the monthly installments of the
Incentives Obligations for the Spacecraft as set forth in Paragraph
6.3.4 and, in any case, the then-remaining Change Order Profit
Component for the Spacecraft shall be paid in full with the last
Incentives Obligations Payment. The Total Change Order Cost shall be
payable as agreed by the Parties.
29.8 To the extent that (i) any change agreed under this Article 29
deletes any Hardware already produced by Contractor, then the
provisions of Paragraphs 14.2 and 14.6 shall apply to the disposition
of such Hardware.
29.9 The Spacecraft shall be designed to support the Launch Vehicle
interface requirements issued by the Launch Vehicle provider (as to
Ariane 4 and 5, Proton, Delta III, Atlas IIAS, IIAR and III, and Sea
Launch Launch Vehicles) existing at the time of the date on which a
Launch Vehicle designation is made under Paragraph 4.2.1. If there are
any material changes to such interface requirements thereafter, then
any such change shall be deemed to be a Change Order Request by Buyer,
and the Change Order process set forth in Section 29.3 shall apply.
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ARTICLE 30. EFFECTS OF STORAGE ON BATTERIES
For Spacecraft batteries to provide the required minimum fifteen (15) years
of in-orbit services per Exhibit B, it is understood that launch must occur
within three (3) years from the date of activation of the first battery
cell. In the event Buyer directs Contractor to store any deliverable
Spacecraft and the period of such storage causes a launch later than three
(3) years from the date of activation of that Spacecraft's first battery
cell, and Buyer upon its election to either: (i) install replacement
batteries or (ii) recondition batteries, so directs Contractor, Buyer shall
pay Contractor its costs plus a [***] profit rate. In either case (i) or
(ii), the batteries shall meet a fifteen (15) year in-orbit service
requirement.
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ARTICLE 31. INTER-PARTY WAIVER OF LIABILITY
31.1 Buyer and Contractor each agree not to make a claim against the other
for an event that occurs at the Launch Integration Facility and/or
Launch Site premises involving damage to, loss of, or loss of use of
their property or the property of others in their possession, caused
by the fault or negligence of the other Party to this Contract, or
otherwise caused by any defect in any product manufactured or sold by
the other Party to this Contract. Such claims are waived and each
Party will bear its own losses. Buyer will include a comparable clause
in each of its contracts with vendors, subcontractors or customers for
services or benefits expected as a result of the launch or orbiting of
the Spacecraft. Such comparable clause shall include a requirement to
flow the clause down to lower-tier contractors.
31.2 Notwithstanding any other provisions of this Contract, prior to the
time any Party, associated with launch activities at the Launch
Integration Facility and/or Launch Site, shall enter the Launch
Integration Facility and/or Launch Site, such Parties shall be
required to sign an Inter-Party Waiver of Liability consistent with
that between Buyer and the Contractor as incorporated herein under
Paragraph 31.1 of this provision or other similar agreement as may be
required by the launch agency. Each Party shall have the
responsibility to assure that all the Parties associated with the
launch of the Spacecraft (for which they have control or privity of
Contract with hereunder) have executed said Inter-Party Waiver of
Liability.
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ARTICLE 32. SPACECRAFT STORAGE
32.1 Buyer may, at its option, order Contractor to store, in accordance
with the provisions of Exhibit B Spacecraft Specification, the
deliverable Spacecraft (including separate storage of Batteries, if
needed) for a period of up to two (2) years from the date of their
delivery to Buyer. Buyer shall provide written notice to the
Contractor not later than six (6) months prior to the scheduled
delivery of the Spacecraft. Contractor's price for providing storage
shall be provided to Buyer in accordance with Article 29, "Changes,"
(and such price shall be deemed a "Change Proposal" for purposes of
Article 29) within 30 days after receipt of Buyer's notice to store
the Spacecraft and Contractor shall arrange for such storage
facilities. If such storage facilities are unavailable, Contractor and
Buyer shall hold discussions to determine a mutually agreed storage
arrangement.
32.2 No later than six (6) months and three (3) months prior to a stored
Spacecraft's scheduled Launch Month and Launch Date, Buyer shall
notify Contractor in writing of such Launch Month and Launch Date,
respectively. Contractor shall take such steps as may be necessary to
remove such Spacecraft from storage and ship it to the Launch Site
designated by Buyer so as to support such Launch Date.
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ARTICLE 33. DISPUTES
33.1 Disputes
33.1.1 In the event any dispute arises between the Contractor and the
Buyer relating to this Contract, either Party may give written
notice to the other of its objections and reasons therefore. The
Contractor and Buyer shall consult in an effort to reach a mutual
agreement to resolve such dispute. In the event a mutual
agreement cannot be reached within fifteen (15) days after
receipt of this notice, the respective positions of the Parties
shall be forwarded to Contractor and Buyer's respective Executive
Offices for discussions and they shall attempt to reach a mutual
agreement to resolve such dispute within another fifteen (15) day
period.
33.2 Arbitration of Disputes
33.2.1 Grounds for Arbitration and Notice Requirement. Any dispute,
----------------------------------------------
disagreement, controversy or claim arising out of or relating to
this Contract or the interpretation thereof or any arrangements
relating thereto, or the validity or enforceability thereof, or
contemplated therein or the breach, termination or invalidity
thereof which is not settled to the mutual satisfaction of the
Parties in accordance with Paragraph 33.1 above, then it shall be
settled exclusively and finally by binding arbitration, after
written notice by either Party. Arbitration of such disputes in
accordance with this Article 33 shall be the Parties' exclusive
remedy.
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33.2.2 Administration and Rules. Arbitration proceedings in
------------------------
connection with the Contract shall be administered by the
American Arbitration Association in accordance with its then in
effect Commercial Arbitration Rules, together with any relevant
supplemental rules including but not limited to its Supplementary
Procedures for Large, Complex Disputes, as modified by the terms
and conditions of the Contract. With respect to the selection of
arbitrators, arbitration proceedings in connection with this
Contract shall be conducted before a panel of three (3)
arbitrators. Within fifteen (15) days after the commencement of
arbitration, each Party shall select from a list of qualified
persons one person to serve as an arbitrator on the panel, and
within ten (10) days of their selection, the two arbitrators
shall select a third arbitrator who is listed as an active member
of the American Arbitration Association at the time that
arbitration proceedings commence. If the two arbitrators selected
by the respective Parties are unable or fail to agree upon the
third arbitrator in the allotted time, then the third arbitrator
shall be selected by the American Arbitration Association.
33.2.3 Place of Arbitration. The place of arbitration shall be in Los
--------------------
Angeles, California, U.S.A.
33.2.4 Discovery. The arbitrators shall have the discretion to order
---------
a pre-hearing exchange of information by the Parties, including
without limitation, production of requested documents, exchange
of
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summaries of testimony of proposed witnesses, and examination by
deposition of the Parties.
33.2.5 Award and Judgment. The arbitrators shall have no authority to
------------------
award punitive damages, and may not, in any event, make any
ruling, finding or award that does not conform to the terms and
conditions of this Contract. Subject to the foregoing, the
Parties agree that the judgment of the arbitrators shall be final
and binding upon the Parties and that the judgment upon the award
rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
33.2.6 Confidentiality. No Party or arbitrator may disclose the
---------------
existence, content, or results of any arbitration proceedings in
connections with this Contract without prior written consent of
all Parties to the arbitration proceeding.
33.2.7 Fee and Expenses. All fees and expenses of any arbitration
----------------
proceedings in connection with this Contract shall be borne by
the losing Party. However, each Party shall bear the expense of
its own counsel, experts, witnesses, and preparation and
presentation of evidence.
33.2.8 Performance. Contractor and Buyer shall continue with
-----------
performance under this Contract during any disagreement,
negotiation, or arbitration.
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ARTICLE 34. ASSIGNMENT
34.1 Neither Party shall assign, or transfer this Contract or any of its
rights, duties or obligations thereunder to any person or entity, in
whole or part without the prior written consent of the other Party
except that either Party may assign or transfer any of its rights,
duties or obligations under this Contract, either in whole or in part,
to its parent company, subsidiary or affiliate./1/ In addition,
notwithstanding anything in this Article 34 to the contrary, the
consent of Contractor shall not be required for, and Paragraph 34.2
shall not apply to any assignment by Buyer of its rights, duties
and/or obligations hereunder as security for any indebtedness of Buyer
or its subsidiaries or affiliates.
Neither Party shall unreasonably withhold consent to any
assignment or transfer providing that the requesting Party can
demonstrate to the other Party's satisfaction prior to such assignment
that:
(1) its successor or assignee possesses the financial resources to
fulfill the obligations of this Contract; and
(2) any such assignment or transfer shall not jeopardize any data
rights or competitive position, or violate laws related to export
or technology transfer, or otherwise increase the other Party's
risks or obligations.
If the requesting Party cannot so demonstrate, both Parties agree
to negotiate in good faith suitable modifications and new provisions
to this Contract which would mitigate the above risks and/or bring
this Contract into conformance with applicable laws. As used in this
Agreement,
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"Affiliate" of, or a person "affiliated" with, a specified person,
shall mean a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, the person specified.
34.2 The Parties agree that in the event that the ownership or control of
Buyer or Contractor is changed, the Parties reserve the right to
negotiate in good faith suitable modifications and new provisions to
this Contract which would mitigate any additional risks, financial or
otherwise, which may be brought about by such change in ownership or
control.
34.3 This Contract shall be binding upon the Parties hereto and their
successors and permitted assigns.
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ARTICLE 35. LIMITATION OF LIABILITY
35.1 The Parties to this Contract expressly recognize that commercial
space ventures involve substantial risks and recognize the commercial
need to define, apportion and limit contractually such risks
associated with this commercial space venture. The payments and other
remedies expressly set forth in this Contract fully reflect the
Parties' negotiations, intentions and bargained-for allocation of such
risks associated with commercial space ventures.
35.2 In no event shall the Parties be liable for any direct, indirect,
incidental, special, contingent or consequential damages (including,
but not limited to, lost revenues or profits), except as expressly
provided for in this Contract. This Article shall survive the
expiration or termination of this Contract for whatever cause.
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ARTICLE 36. CORRECTIVE MEASURES; OPERATIONAL DEFICIENCIES
36.1 Without limiting the obligations of Contractor under other provisions
of this Contract, if the data available from another satellite
manufactured or under manufacture or design by Contractor (a
"Contractor Satellite") indicates that there is or may be a material
deficiency in the design or manufacture of such Contractor Satellite
which, in the reasonable opinion of Contractor, will or may adversely
affect the Spacecraft produced under this Contract, or the operations
of such Spacecraft, then Contractor shall notify Buyer of any such
material deficiency. Contractor shall promptly take appropriate
corrective measures, at Contractor's expense, with respect to the
Spacecraft so as to satisfactorily eliminate from such Spacecraft
prior to its shipment all the material deficiencies discovered in
Contractor Satellite(s), subject to the provisions of Paragraph 36.5.
36.2 In the event that the corrective measures performed pursuant to this
Article 36 cause a delay, then: (i) Contractor shall [***********]
[**********************] in accordance with Paragraph 4.1; (ii) the
time periods provided in Paragraph 5.5 and 37.1 [*************] and
(iii) Buyer and Contractor shall discuss the impact (if any) to the
construction and delivery of the Spacecraft.
36.3 If Contractor, in performing corrective measures in accordance with
this Article 36, replaces any equipment or part determined to be
deficient, such deficient equipment or part shall remain or become the
property of Contractor.
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36.4 Contractor shall disclose to Buyer sufficient technical and
operational information regarding a material deficiency
[***********************] to enable Buyer to make an informed decision
regarding the taking of corrective measures.
Notwithstanding the foregoing, Contractor shall not be obligated by
this Article 36 to disclose the identity (or any identifying
information) of any such satellite, or the owners or customers of such
Contractor Satellite, on which a material deficiency is discovered.
36.5 Contractor shall be obligated to notify Buyer promptly if Contractor
proposes to resolve technical deficiencies (arising during the design
and/or manufacturing process of the Spacecraft) through the imposition
of operational constraints. The Parties agree promptly to enter into
good faith negotiations to resolve any such deficiency and, if
appropriate, agree to adjust equitably the Contract Price and/or
schedule, subject to Paragraph 36.2. In the event that the Parties
cannot reach an agreement within five (5) business days as to the
resolution of such deficiency or its adjustment (if any) to Contract
Price and/or schedule, then the unresolved issues shall be submitted
to the Contractor's and Buyer's senior executives for resolution. If
such senior executives cannot reach agreement within ten (10) business
days thereafter, then the remaining unresolved issues shall be
submitted for resolution by arbitration pursuant to Paragraph 33.2.
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ARTICLE 37. LIQUIDATED DAMAGES FOR LATE PERFORMANCE
37.1 In the event that (i) the shipment of a Spacecraft is delayed due to
the fault of Contractor (and/or Contractor's subcontractors or
suppliers) and is not shipped on or before the applicable Shipment
Date identified under Article 4 (as such date may be adjusted by
mutual agreement of the Parties) or (ii) Contractor does not timely
deliver the Exhibit H Certain Documentation required to be delivered
prior to launch, Contractor shall pay liquidated damages for such
Spacecraft as follows:
37.1.1 For [************] of delay, Contractor shall pay to Buyer
liquidated damages equal to:
(i) with respect to Domestic 1 or Domestic 2, [*****
********************************] and
(ii) with respect to any other Spacecraft purchased under
this Contract, [********************* **************]
and
37.1.2 For each of the next [**************************] of delay,
Contractor shall pay to Buyer additional liquidated damages equal
to:
(i) with respect to Domestic 1 or Domestic 2 [*****
*********************************] and
(ii) with respect to any other Spacecraft purchased under
this Contract, [********************** **************]
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37.2 In the event of any delay of a partial month, the amounts specified
in Paragraphs 37.1.1 and 37.1.2, as applicable, shall be pro rated on
a day-for-day manner based upon the number of days in such month.
37.3 Contractor shall pay to Buyer the liquidated damages owed pursuant to
Paragraphs 37.1.1 and 37.1.2 within thirty (30) days of invoice from
Buyer.
37.4 The Parties understand and agree that the liquidated damages provided
under this Article 37 shall be in lieu of all other remedies of any
kind except for Buyer's rights and remedies under Articles 11 and 14.
The amounts presented in Paragraph 37.1 shall constitute liquidated
damages for such late shipment and shall not constitute a penalty.
The Parties acknowledge and agree that such liquidated damages are
believed to represent a genuine estimate of the losses that would be
suffered by reason of any such delay (which losses would be difficult
or impossible to calculate with certainty).
37.5 The Parties agree that the provisions of this Article 37 shall apply
separately to each Spacecraft, and that the maximum liquidated damages
for a Spacecraft under this Article 37 is: (i) with respect to
Domestic 1 or Domestic 2,
[**********************************************]; and (ii) with
respect to any other Spacecraft purchased under this Contract,
[***********************************************]
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ARTICLE 38. OPTION SPACECRAFT
38.1 Buyer shall have the option (the "Option") to purchase from
Contractor additional HS601HP spacecraft (the "Option Spacecraft") in
accordance with this Article 38. Buyer shall exercise this Option by
written notice to Contractor, and shall approve
[*************************] for such Option Spacecraft on or before
the later to occur of (i) the date of Option exercise or (ii) the date
that is [****************] prior to the applicable Shipment Date.
Upon Buyer's exercise of the Option for an Option Spacecraft,
Contractor shall construct and deliver such Option Spacecraft, perform
all Related Services and deliver all Documentation therefor, in
accordance with the terms and provisions of this Contract (except as
expressly provided otherwise in this Article 38 and subject to
Paragraph 14.9, to the extent applicable), and all references in the
Contract to "Spacecraft" shall thereafter be deemed to include such
Option Spacecraft.
38.2 Subject to the last sentence of this Paragraph 38.2, the "Shipment
Date" for an Option Spacecraft purchased by Buyer shall be the date
that is [**] [*********] after the later to occur of:
(a) Exercise by Buyer of the Option for such Option Spacecraft;
or
(b) As applicable,
(i) With respect to the first Option Spacecraft, [**]
[*******]
(ii) With respect to the second Option Spacecraft,
[*********]
(iii) With respect to the third Option Spacecraft, the
date that is [******] after the exercise of the Option to
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purchase the first Option Spacecraft, but in no event
earlier than [*********] or
(iv) With respect to the fourth Option Spacecraft, the
date that is [********] after the exercise of the Option to
purchase the second Option Spacecraft, but in no event
earlier than [***********]
Notwithstanding the foregoing, in the event that the Option is
exercisable for one or two Option Spacecraft on the date that is
[****] after the completion of in-orbit testing of the last Spacecraft
purchased by Buyer under this Contract [********] then the Option
shall remain exercisable for such number of Option Spacecraft subject
to Paragraph 38.3, and upon exercise the Shipment Date for such
Spacecraft shall be the date that is seven months after the later to
occur of (i) exercise by Buyer of the Option for such Option
Spacecraft or (ii) the date that is [********] after [********]
38.3 The Options shall expire upon the earlier to occur of (i) the
exercise of the Option for a fourth Option Spacecraft, (ii)
[*********] or (iii) the termination pursuant to Article 14 of both
Domestic 1 and Domestic 2.
38.4 Upon exercise of the Option to purchase an Option Spacecraft, the
Option shall continue to be an Option to purchase two Option
Spacecraft, up to a maximum of six spacecraft purchased under this
Contract (including Domestic 1 and Domestic 2). By way of example:
(i) if Buyer has exercised the Option to purchase a total of two
Option Spacecraft, the Option may be exercised for two additional
Option Spacecraft; (ii) if Buyer has exercised the Option to purchase
a total of three Option Spacecraft, the Option may only be exercised
for one additional Option
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Spacecraft; and (iii) if Buyer has exercised the Option to purchase a
total of four Option Spacecraft, the Option shall expire.
38.5 The Contract Price for the first Option Spacecraft and the second
Option Spacecraft shall be [******************************************
*********************] each, subject to adjustment in accordance with
Paragraphs 14.3 and 14.4. The Contract Price for all other Option
Spacecraft purchased under this Contract shall be [****************
**************************************************] each. The
Contract Price shall include all Related Services and Documentation,
and shall be based upon use of an Ariane 4 or 5 Launch Vehicle. For
any Option Spacecraft purchased by Buyer, the Contract Price will be
paid in accordance with the payment plan attached hereto as Exhibit F
(subject to pro rata adjustment in the event of a change in the
Contract Price). [****
***********************************************************
************************************************************
*****************]
38.6 In the event that a Spacecraft suffers a launch failure or one or
more Payloads are not Successfully Operating Payloads on the
Commencement Date, then the total number of Option Spacecraft for
which the Option is exercisable over the life of this Contract shall
be increased by one. In such event: (a) the Shipment Date for such
additional Option Spacecraft shall be determined in the same manner as
the Shipment Date for the third and fourth Option Spacecraft under
Paragraph 38.2; (b) the number of Option Spacecraft upon which
expiration of the Option may occur under clause (i) of Paragraph 38.3
shall be increased by one; (c) the date in clause (ii) of Paragraph
38.3 shall be extended to [*******] and (d) the maximum
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number of Spacecraft that may be purchased by Buyer under Paragraph
38.4 shall be increased by one and the examples in Paragraph 38.4
shall be deemed to be adjusted accordingly. Notwithstanding the
foregoing, the Option shall not be exercisable for more than two (2)
Option Spacecraft simultaneously.
38.7 In the event that Buyer terminates either (but not both) Domestic 1
or Domestic 2 pursuant to Article 14, then the total number of Option
Spacecraft for which the Option is exercisable over the life of this
Contract shall be increased by one. In such event: (a) the Shipment
Date for such additional Option Spacecraft shall be determined in the
same manner as the Shipment Date for the third and fourth Option
Spacecraft under Paragraph 38.2; (b) the number of Option Spacecraft
upon which expiration of the Option may occur under clause (i) of
Paragraph 38.3 shall be increased by one; (c) the date in clause (ii)
of Paragraph 38.3 shall be extended to [***********] and (d) the
maximum number of Spacecraft that may be purchased by Buyer under
Paragraph 38.4 shall be increased by one and the examples in Paragraph
38.4 shall be deemed to be adjusted accordingly. Notwithstanding the
foregoing, the Option shall not be exercisable for more than two
Option Spacecraft simultaneously.
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ARTICLE 39. NO THIRD PARTY RIGHTS
39.1 Contractor represents and warrants that neither Contractor nor any
third party has any continuing rights or obligations with respect to
any Deliverable under this Contract (except as to Contractor as
expressly provided herein) or with respect to any parts or materials
incorporated into any such Deliverable. Contractor agrees to
indemnify Buyer for, and hold Buyer harmless from, any and all
liability, loss, claim or damage to which Buyer or its affiliates (or
any director, officer, employee or agent of Buyer or one of its
affiliates) may become subject, arising from any claim by any such
third party or any breach of the representations and warranties made
by Contractor in this Article 39.
39.2 This Article shall survive delivery of the Spacecraft and the
Documentation, the performance of the Related Services, and any
termination of this Contract.
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ARTICLE 40. INDEX OF DEFINED TERMS
Each of the following capitalized terms has the meaning ascribed to such
term in the applicable Paragraph.
Defined Terms Paragraph
------------- ---------
Affiliate 34
Assessments 24.2
Authorized Representatives 27
Buyer Introduction
Buyer-Furnished Items 8.1
Buyer Indemnitee 19.2
Calculated Operational Lifetime 6.3.1.5
Certain Documentation Exhibit E
Change Order Cost 29.5
Change Order Offer 29.3
Change Order Profit Component 29.5
Change Order Request 29.3
Change Proposal 29.1
Commencement Date 6.3.1.7
Contract Introduction
Contract Price 5.1
Contractor Introduction
Contractor Satellite 36.1
Costs 14.7
Degraded Payload 6.3.2.3
Delinquent Payments 6.4
Deliverables 3
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
107
<PAGE>
Documentation 4.1
Effective Date 42
Extension period 6.3.4.3
G&A Costs 29.5
Incentive Interest Rate 6.3.2.2
Intentional Ignition 16.2
Launch Date 7.1.1
Launch Vehicle 4.2.1
Launch Window 7.1.2
OCC 3.3
On-Station Operational Lifetime 6.3.2.1(b)
Pre-Launch Incentives Payment 6.3.4.1
Program Invention 20.1
Properly Operated 3.4
Proprietary Information 22
Recoverable Amount 6.3.4.4
Related Services 4.1
Related Services Price 6.3.4.3
Risk of Loss 15.1.4
Shipment Date 4.1
Spacecraft 3.1
Spacecraft Retirement Payment 6.3.3
Specified Operational Lifetime 6.3.1.1
Successfully Injected Spacecraft 6.3.1.5
Successfully Operating Payload 6.3.1.2
Successfully Operating Transponder 6.3.1.3
Third Anniversary 6.3.4.3
Useful Commercial Life 6.3.1.4
Warranty Time Period 16.2
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
108
<PAGE>
ARTICLE 41. EFFECTIVE DATE OF CONTRACT
The "Effective Date" of this Contract No. 98-PAS-002 shall be October 9, 1998.
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
109
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Contract No. 98-PAS-
002 to become effective upon the date specified in Article 41, herein entitled,
"Effective Date of Contract."
HUGHES SPACE & COMMUNICATIONS COMPANY
SIGNATURE: /s/ Iradj Shahriary
-------------------------------------
NAME: Iradj Shahriary
---------------------------------------
TITLE: Executive Vice President
-------------------------------------
DATE: October 9, 1998
--------------------------------------
PANAMSAT CORPORATION
SIGNATURE: /s/ Frederick A. Landman
-----------------------------------
NAME: Frederick A. Landman
--------------------------------------
TITLE: President and Chief Executive Officer
-------------------------------------
DATE: October 12, 1998
--------------------------------------
PANAMSAT AND HUGHES PROPRIETARY INFORMATION
SUBJECT TO RESTRICTIONS ON CONTRACT TITLE PAGE
110
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 333-
51855 on Form S-8 and in Registration Statement No. 333-28253 on Form S-8 of our
report dated January 15, 1999, appearing in the Annual Report on Form 10-K of
PanAmSat Corporation for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
March 30, 1999
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
The undersigned, acting in the capacity or capacities with respect to
PanAmSat Corporation stated with their respective names below, hereby constitute
and appoint Kenneth N. Heintz and James W. Cuminale, each acting alone, the
attorneys-in-fact of the undersigned with full power to them and each of them to
sign for and in the name of the undersigned in the capacities indicated below
(a) the Annual Report on Form 10-K of PanAmSat Corporation for the fiscal year
ended December 31, 1998, and (b) any and all amendments and supplements thereto,
but subject to the prior approval of PanAmSat's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 by a majority of the Board of Directors
of PanAmSat:
<TABLE>
<CAPTION>
Signature Date
<S> <C>
Michael T. Smith March 25, 1999
- -------------------------------------
Michael T. Smith
Chairman of the Board of Directors
Frederick A. Landman March 25, 1999
- -------------------------------------
Frederick A. Landman
President, Chief Executive
Officer (principal executive officer)
and Director
Roxanne S. Austin March 25, 1999
- -------------------------------------
Roxanne S. Austin
Director
Patrick J. Costello March 25, 1999
- -------------------------------------
Patrick J. Costello
Director
Steven D. Dorfman March 22, 1999
- -------------------------------------
Steven D. Dorfman
Director
Dennis F. Hightower March 25, 1999
- -------------------------------------
Dennis F. Hightower
Director
</TABLE>
<PAGE>
James M. Hoak March 25, 1999
- -------------------------------------
James M. Hoak
Director
Stephen R. Kahn March 26, 1999
- -------------------------------------
Stephen R. Kahn
Director
Charles H. Noski March 25, 1999
- -------------------------------------
Charles H. Noski
Director
Joseph R. Wright, Jr. March 19, 1999
- -------------------------------------
Joseph R. Wright, Jr.
Director
March , 1999
- -------------------------------------
Kenneth N. Heintz
Executive Vice President and
Chief Financial Officer
(principal financial officer and
principal accounting officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT
OF INCOME AS OF DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 177,542
<SECURITIES> 0
<RECEIVABLES> 85,921
<ALLOWANCES> 5,967
<INVENTORY> 0
<CURRENT-ASSETS> 338,593
<PP&E> 3,461,773
<DEPRECIATION> 566,582
<TOTAL-ASSETS> 5,890,497
<CURRENT-LIABILITIES> 143,602
<BONDS> 56
0
0
<COMMON> 1,492
<OTHER-SE> 2,686,923
<TOTAL-LIABILITY-AND-EQUITY> 5,890,497
<SALES> 0
<TOTAL-REVENUES> 767,263
<CGS> 0
<TOTAL-COSTS> 448,929
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,788
<INCOME-PRETAX> 220,546
<INCOME-TAX> 95,940
<INCOME-CONTINUING> 124,606
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,606
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.83
</TABLE>
