<PAGE>
As filed with the Securities and Exchange Commission on April 10, 2000
Registration No. 333-30826
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
General Motors Corporation
(Exact name of registrant as specified in its charter)
Delaware 7374 38-0572515
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
300 Renaissance Center
Detroit, Michigan 48265-
3000
(313) 556-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Peter R. Bible
Chief Accounting Officer
General Motors Corporation
300 Renaissance Center
Detroit, Michigan 48265-3000
(313) 556-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
Warren G. Andersen General Motors Marcy J.K. Tiffany
Corporation 300 Renaissance Hughes Electronics Corporation 200
CenterDetroit, Michigan 48265 (313) North Sepulveda Boulevard El Segundo,
665-4921 California 90245 (310) 662-9688
Joseph P. Frederick S. Green Francis J. Victor I. Lewkow
Gromacki Michael E. Morison Sarah Cleary, Gottlieb,
Kirkland & Lubowitz Weil, Beshar Davis Steen & Hamilton One
Ellis 200 East Gotshal & Manges Polk & Wardwell Liberty Plaza New
Randolph Drive LLP 767 Fifth 450 Lexington York, New York 10006
Chicago, Avenue New York, Avenue New York, (212) 225-2000
Illinois 60601 New York 10153 New York 10017
(312) 861-2000 (212) 310-8000 (212) 450-4000
--------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective and the other
conditions to the commencement of the Exchange Offer described herein have
been satisfied or waived.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this document is not complete and may be +
+changed. We may not exchange these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This document is not an offer to sell these securities and is not a +
+solicitation of an offer to buy these securities in any state where the offer +
+or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
OFFERING CIRCULAR-PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED APRIL 10, 2000
General Motors Corporation
Offer to Exchange
Shares of Class H Common Stock
for each share of
$1 2/3 Par Value Common Stock
-----------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON , 2000, UNLESS THE EXCHANGE OFFER IS EXTENDED.
-----------
General Motors will issue shares of Class H common stock for each share
of $1 2/3 par value common stock that is validly tendered and accepted by GM in
the exchange offer. [The number of shares of Class H common stock to be issued
for each share of $1 2/3 par value common stock that is validly tendered and
accepted by GM in the exchange offer, which we sometimes refer to in this
document as the "exchange ratio," will be determined by GM immediately prior to
the commencement of the exchange offer. It is currently expected that such
number of shares of Class H common stock will have a market value about 12 to
23 percent greater than the market value of the $1 2/3 par value common stock
tendered, as measured by the relative trading prices of the Class H common
stock and the $1 2/3 par value common stock at the time that GM determines the
exchange ratio.] GM will accept up to shares of $1 2/3 par value common
stock in the aggregate and will issue up to a total of shares of Class H
common stock in the exchange offer. If more than shares of $1 2/3 par
value common stock are validly tendered, GM will accept shares for exchange on
a pro rata basis as described in this document.
-----------
The terms and conditions of the exchange offer are described in this document,
which you should read carefully. None of GM, Hughes, the dealer manager or the
marketing manager or any of their officers or directors makes any
recommendation as to whether or not you should tender your shares of $1 2/3 par
value common stock in the exchange offer. You must make your own decision after
reading this document and consulting with your advisors based on your own
financial position and requirements.
-----------
This is an offering of Class H common stock in exchange for $1 2/3 par value
common stock. Class H common stock is a "tracking stock" of GM designed to
provide holders with financial returns based on the financial performance of
Hughes, which is a wholly-owned subsidiary of GM. GM's Class H common stock is
listed on the New York Stock Exchange under the symbol "GMH."
All persons holding $1 2/3 par value common stock are eligible to participate
in the exchange offer if they tender their shares in a jurisdiction where the
exchange offer is permitted under local law.
-----------
Investing in the Class H common stock involves risks. See "Risk Factors"
beginning on page 17.
-----------
Salomon Smith Barney is the Marketing Manager for Hughes Electronics
Corporation in the exchange offer.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this document is truthful or complete. Any representation to the contrary is a
criminal offense.
-----------
GM has retained the services of Morrow & Co., Inc. as information agent to
assist you in connection with the exchange offer. You may call Morrow to
request additional documents and to ask any questions at (877) 816-5329 (toll
free) in the United States or at (212) 754-8000 (collect) elsewhere.
-----------
The Dealer Manager for the exchange offer is:
MORGAN STANLEY DEAN WITTER
Offering Circular-Prospectus dated , 2000
<PAGE>
[PROSPECTUS COVER GATEFOLD
INSIDE FRONT - PAGE 1]
THE BUSINESSES OF HUGHES
DIRECT-TO-HOME (DTH) ENTERTAINMENT
1999 REVENUES = $3.8B
[DIRECTV Logo] [Graphic of family
watching television]
. Leading U.S. Multichannel Provider
with Over 8M Subscribers
- $58 Average Monthly Revenue per Subscriber
. Leading Latin American Multichannel Provider
with over 0.8M Subscribers
- $36 Average Monthly Revenue per Subscriber
SATELLITE DISTRIBUTION SERVICES
1999 REVENUES = $0.8B
[PANAMSAT Logo] [Graphic of satellite in orbit
around earth]
. Leading Commercial Provider of
Global Satellite Communications Services
. 20 In-Orbit Satellites
. "Blue-Chip" Global Customers
. $6.1B Backlog
BROADBAND SERVICES AND PRODUCTS
1999 REVENUES = $1.4B
[HUGHES NETWORKS SYSTEMS Logo] [Graphic of person using a
home computer]
. Leading Global Supplier of Satellite-Based
Private Business Networks (VSATs)
. One of Two Largest Manufacturers of
DIRECTV Subscriber Equipment
. Provides DirecPC, a High-Speed
Internet Access Service
<PAGE>
[PROSPECTUS COVER GATEFOLD
INSIDE FRONT - PAGE 2 AND 3]
Consumer Services
[DIRECTV Logo] Television Entertainment
[DirecPC Logo] Internet and Data Services
[Graphic descriptions starting at lower right corner and moving counterclockwise
. Communication control room
. Transmission to satellite of various logos of television stations and
DIRECTV packages, including:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
NBA League Pass TV Asia Black Entertainment Television
MLS/ESPN Shootout NFL Sunday Ticket (BET)
Headline News DIRECTV Sports Choice The Travel Channel
TNT Bravo Encore True Stories
ABC College Football Encore Westerns Cartoon Network
ESPN2 Encore Mystery The Weather Channel
TRIO MLB Extra Innings CNN
Newsworld International Turner Classic Movies (TCM) Independent Film Channel (IFC)
ESPN2 TBS Superstation The Learning Channel (TLC)
The Nashville Network (TNN) SCI FI Channel USA Network
Home Shopping Network (HSN) DIRECTV The Disney Channel
Encore Action Major League Baseball NBA League Pass
E! Entertainment Television Discovery Channel Fox Family Channel
NHL Center Ice STARZ! Major League Baseball
American Movie Classics (AMC) The History Channel Home & Garden Television
CNN International CNBC (HGTV)
Encore Love Stories ESPN GamePlan Playboy TV
ESPN NFL Sunday Ticket Extra The Golf Channel
NBA League Pass TNT Bloomberg Television
Encore WAM! MuchMusic
Direct Ticket A&E Network
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</TABLE>
. Satellite broadcasting information to DIRECTV Satellite dish
. Home with "cut-out" roof revealing family watching television and person
using a home computer]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Questions and Answers About the
Exchange Offer..................... 1
Summary............................. 6
Risk Factors........................ 17
The Transactions.................... 26
The Exchange Offer.................. 31
Price Range and Dividends for $1 2/3
Par Value Common Stock............. 47
Price Range for Class H Common
Stock.............................. 48
Capitalization of GM................ 49
Selected Historical Financial Data
of Hughes.......................... 50
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Hughes............ 51
Unaudited Pro Forma Combined
Condensed Financial Information of
Hughes............................. 68
Notes to Unaudited Pro Forma
Combined Condensed Financial
Information of Hughes.............. 71
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business of GM..................... 74
Business of Hughes................. 75
Management of Hughes............... 101
Board of Directors of Hughes....... 102
Shares Eligible for Future Sale.... 104
Overview of GM Capital Stock....... 107
Description of Class H Common
Stock............................. 115
Comparison of Rights of $1 2/3 Par
Value Stockholders and Class H
Stockholders...................... 122
Material U.S. Federal Income Tax
Consequences...................... 127
Legal Matters...................... 129
Experts............................ 129
Disclosure Regarding Forward-
Looking Statements................ 130
Where You Can Find More
Information....................... 131
Appendix A: Hughes Electronics
Corporation Audited Financial
Statements........................ A-1
</TABLE>
----------------
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information different from that
contained in this document. We are offering to sell, and seeking offers to
buy, the securities offered by this document only in jurisdictions where
offers and sales are permitted under the laws of those jurisdictions. The
information contained in this document is accurate only as of the date of this
document regardless of the time of delivery or of any sale of the securities
offered by this document.
----------------
This document incorporates important business, financial and other
information about General Motors and Hughes that is not included in or
delivered with this discount. See "Where You Can Find More Information" on
page for a list of the documents that General Motors and Hughes have
incorporated by reference into this document.
Documents incorporated by reference are available from GM without charge,
excluding all exhibits unless specifically incorporated by reference as
exhibits in this document. You may obtain some of the documents incorporated
by reference in this document at GM's Internet World Wide Web site,
"http://www.gm.com" and selecting "The Company" and then selecting "Investor
Information." Written and telephone requests for any of these documents should
be directed to:
Written requests for documents:
GM Fulfillment Center
MC 480-000-FC1
30200 Stephenson Hwy.
Madison Heights, MI 48071
Telephone: (313) 667-1500
Telephone requests for documents:
(313) 667-1500
Select Menu Option #2
If you would like to request copies of these documents, please do so by
, 2000 in order to receive them before the expiration of the exchange
offer.
----------------
AIReach(R), DirecDuo(TM), DirecPC(R), DIRECTV(R), DIRECTV Para Todos(TM),
DirecWay(TM), Galaxy(R), NET/36(TM), PRIMESTAR(R), Spaceway(TM), SPOTbytes(R)
and U.S. Satellite Broadcasting(R) are trademarks of Hughes Electronics
Corporation or its subsidiaries. All other trademarks are properties of their
respective owners.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER
Q1. Why did GM choose to conduct the exchange offer?
A1. The exchange offer of up to about $9 billion of Class H common stock is an
important element of our overall plan to restructure GM's economic
interest in our Hughes subsidiary in order to realize some of the economic
value arising from GM's ownership of Hughes. The other element consists of
our anticipated contributions of about $7 billion of Class H common stock
to certain of our employee benefit plans, which we explain further below
in the response to Question 3. Assuming that the exchange offer is fully
subscribed and that the contributions to the employee benefit plans are
made as anticipated, we will issue a total of about new shares
of Class H common stock, with an aggregate value of about $16 billion,
based on the closing trading price of Class H common stock on ,
2000.
We expect that our plan will result in the following benefits to GM and
its stockholders:
. We will use the exchange offer to repurchase a substantial amount of $1
2/3 par value common stock, which we expect will significantly increase
the earnings per share attributable to $1 2/3 par value common stock in
the future.
. The contributions to the employee benefit plans will reduce our annual
pension expense and other post-retirement employee benefit expense and
will strengthen GM's overall financial position.
. The issuance of additional shares of Class H common stock in connection
with these transactions will substantially increase the liquidity of
that stock in the market, which we believe will benefit Class H
stockholders over time.
Q2. Is the exchange offer being utilized to separate Hughes from GM?
A2. No. This exchange offer is not a split-off of Hughes from GM. Upon
completion of the exchange offer, Hughes will remain a wholly-owned
subsidiary of GM. The exchange offer will not affect the business
operations of Hughes, and GM's automotive operations will continue to have
direct access to the opportunities for strategic synergies with Hughes'
rapidly growing communications services businesses. GM currently has no
plans or intention to separate Hughes or any of its businesses from GM,
whether by means of a spin-off, split-off or any other transaction.
However, GM will continue to evaluate what Hughes ownership structure
would be optimal for the two companies and GM's stockholders. As a result,
GM may determine to pursue any number of future transactions involving
Hughes, or no transaction at all.
Q3. What are the contributions to the employee benefit plans?
A3. We currently plan to contribute a total of about $7 billion of Class H
common stock to:
. our pension plan for the benefit of our hourly-rate employees; and
. a dedicated account within our voluntary employees' beneficiary
association trust, which was established to fund certain hourly retiree
health care and life insurance benefits under some of our welfare plans,
and which we sometimes refer to in this document as the "VEBA."
Our contribution of Class H common stock to the pension plan will reduce
our annual pension expense. In addition, our contribution of Class H
common stock to the VEBA will reduce our expense relating to other post-
retirement employee benefits for our employees. Although we reserve the
right to modify the amount or timing of each contribution, or not to make
either contribution at all, in the event that our board of directors
determines that such a change would be in the best interests of GM and its
stockholders, we currently expect to complete these contributions during
the second quarter of 2000.
1
<PAGE>
Q4. Will the issuance of Class H common stock in the exchange offer and the
contributions to the employee benefit plans dilute the earnings per share
attributable to the Class H common stock currently outstanding?
A4. No. These transactions will not dilute the earnings per share attributable
to the Class H common stock. GM's Class H common stock is a "tracking
stock" to which we allocate a portion of the earnings of our Hughes
subsidiary in order to determine earnings per share. The portion of
Hughes' earnings allocated to the Class H common stock for this purpose
increases proportionately upon the issuance of additional shares of Class
H common stock in transactions such as the exchange offer and the proposed
contributions to the employee benefit plans. Because the number of shares
of Class H common stock and the earnings allocated to such stock will
increase proportionately, there will be no dilution to the earnings per
share of Class H common stock.
Q5. How will these transactions affect the allocation of Hughes' earnings
between the $1 2/3 par value common stock and the Class H common stock?
A5. Our certificate of incorporation allocates Hughes' earnings between our
two classes of common stock based on a fraction that we sometimes refer to
in this document as the "Class H fraction." For more information about the
Class H fraction and how we allocate Hughes' earnings in order to
determine earnings per share, see "Summary--Class H Common Stock" on page
.
In order to illustrate the effect of the exchange offer and the
contributions to the employee benefit plans on the Class H fraction, we
have calculated the Class H fraction based on the number of shares of
Class H common stock outstanding as of December 31, 1999 based on certain
assumptions as of that date which give effect to the exercise of all
outstanding options and the shares of Class H common stock issuable upon
conversion of GM's Series H preference stock. Based on the Class H
fraction as so calculated, about 37% of Hughes' earnings would have been
allocable to the Class H common stock for purposes of determining earnings
per share and amounts available for the payment of dividends. The
remaining portion of Hughes' earnings, about 63%, would have been
allocable to the $1 2/3 par value common stock.
Giving effect to a fully-subscribed exchange offer, the Class H fraction
calculated as of December 31, 1999 as described above would result in the
allocation of about % of Hughes' earnings to the Class H common stock
and the balance of about % to the $1 2/3 par value common stock. In
addition, assuming that the exchange offer is fully subscribed and that GM
completes the contributions to the employee benefit plans as anticipated,
the Class H fraction as described above would allocate about % of
Hughes' earnings to the Class H common stock and the balance of about %
to the $1 2/3 par value common stock.
Q6. How will the exchange offer affect me?
A6. The exchange offer will provide you with an opportunity to increase your
interest in the financial performance of Hughes by exchanging your shares
of $1 2/3 par value common stock for shares of Class H common stock. This
exchange will generally be free of any U.S. federal income tax. We explain
the tax consequences further below in the response to Question 20.
Pursuant to the exchange offer, you may tender some, all or none of your
shares of $1 2/3 par value common stock in exchange for shares of Class H
common stock. However, you will be affected by the exchange offer whether
or not you tender any of your shares of $1 2/3 par value common stock. For
more information, see "Risk Factors--Risk Factors Relating to the Exchange
Offer--You Will Be Affected by the Exchange Offer Whether or Not You
Tender Your Shares of $1 2/3 Par Value Common Stock" on page .
Q7. May I participate in the exchange offer?
A7. You may participate in the exchange offer if you hold shares of $1 2/3 par
value common stock and you validly tender your shares during the exchange
offer period in a jurisdiction where this exchange offer is permitted
under the laws of that jurisdiction.
2
<PAGE>
Q8. How many shares of Class H common stock will I receive for each share of
$1 2/3 par value common stock that I tender?
A8. You will receive shares of Class H common stock for each share of $1
2/3 par value common stock that you validly tender in the exchange offer
that is accepted by GM. We sometimes refer to this number in this document
as the "exchange ratio." No fractional shares of Class H common stock will
be distributed in the exchange offer. Instead, you will be paid cash in
exchange for any fractional share.
Q9. When does the exchange offer expire?
A9. The exchange offer period and withdrawal rights will expire at 12:00
midnight, New York City time, on , 2000, unless GM extends the
exchange offer. We sometimes refer to this date and time in this document
as the "expiration date." You must tender your shares of $1 2/3 par value
common stock so that they are received by the exchange agent prior to the
expiration date if you wish to participate in the exchange offer.
Q10. How do I tender my shares in the exchange offer?
A10. The procedures you must follow in order to tender your shares of $1 2/3
par value common stock in the exchange offer will depend upon whether you
hold your shares of $1 2/3 par value common stock in certificated form,
in book-entry form, through a bank or broker or through an employee
benefit plan. In addition, you may need to follow certain special
procedures if you tender your shares in a jurisdiction other than the
United States. For instructions about how to participate in the exchange
offer, see "Summary--Terms of the Exchange Offer--Procedures for
Tendering" on page , "The Exchange Offer--Procedures for Tendering
Shares of $1 2/3 Par Value Common Stock" on page and "The Exchange
Offer--Special Procedures for Certain Jurisdictions Outside the United
States" on page .
Q11. Can I tender only a portion of my shares of $1 2/3 par value common stock
in the exchange offer?
A11. Yes. This is a voluntary exchange offer, which means that you may tender
some, all or none of your shares of $1 2/3 par value common stock in the
exchange offer. If you have a stock certificate that represents more
than the number of shares of $1 2/3 par value common stock you wish to
tender, you may specify on the letter of transmittal how many of your
shares of $1 2/3 par value common stock are to be tendered and how many
are to be returned to you. Any shares that you are not tendering but that
are represented by stock certificates sent in to the exchange agent will
be returned to you in book-entry form. For information about book-entry
registration, please see our response to Question 21 below. If you own
fewer than 100 shares of $1 2/3 par value common stock and wish to take
advantage of the preferential treatment of odd-lot shares in the event
that the exchange offer is oversubscribed, you must tender all of your
shares in the exchange offer. For information on odd-lot shares, see "The
Exchange Offer--Proration; Tenders for Exchange by Holders of Fewer than
100 Shares of $1 2/3 Par Value Common Stock" on page .
Q12. What should I do if I want to retain my shares of $1 2/3 par value common
stock?
A12. Nothing, if you are not tendering any of your shares of $1 2/3 par value
common stock in the exchange offer. However, if you are tendering some,
but not all, of your shares of $1 2/3 par value common stock in the
exchange offer, and the shares you wish to tender are represented by the
same stock certificate as shares you wish to retain, you will need to
give certain instructions to the exchange agent as provided for in the
instructions to the letter of transmittal.
Q13. Can I change my mind after I tender my shares of $1 2/3 par value common
stock?
A13. Yes. You may change your mind and withdraw tenders of your shares any
time before the exchange offer expires. If you change your mind again,
you can retender your shares of $1 2/3 par value common stock by
3
<PAGE>
following the tender procedures again prior to the time the exchange offer
expires. For information about the procedures for tendering and
withdrawing tenders of your shares of $1 2/3 par value common stock, see
"The Exchange Offer--Procedures for Tendering Shares of $1 2/3 Par Value
Common Stock" on page and "--Withdrawal Rights" on page .
Q14. Does the exchange offer involve a premium?
A14. Based on the closing trading prices for shares of $1 2/3 par value common
stock and Class H common stock on , 2000, the exchange ratio would
result in a tendering $1 2/3 par value stockholder receiving shares of
Class H common stock with a market value greater than the market value of
the shares of $1 2/3 par value common stock tendered. However, the
relative trading prices for Class H common stock and $1 2/3 par value
common stock will fluctuate over the course of the exchange offer and any
premium that you might receive as a tendering $1 2/3 par value
stockholder will depend on the prices of shares of $1 2/3 par value
common stock and Class H common stock at the time of the closing of the
exchange offer. As a result, we cannot predict what the amount of the
premium, if any, will be at the closing of the exchange offer or the
prices at which shares of Class H common stock or $1 2/3 par value common
stock will trade over time.
You can calculate an indicated premium, expressed as a percentage, based
on market values using the following formula:
( (Exchange Ratio) X (Price of one share of Class H common stock) )
( --------------------------------------------------------------- 1 ) X 100
( Price of one share of $1 2/3 par value common stock )
For example: Assume a price of $ for a share of $1 2/3 par value
common stock and a price of $ for a share of Class H common stock,
which were the closing trading prices on the NYSE for shares of $1 2/3 par
value common stock and Class H common stock on , 2000. At an
exchange ratio of shares of Class H common stock for one share of
$1 2/3 par value common stock, the indicated premium would be about
percent of the $1 2/3 par value common stock share price.
Q15. Are there any conditions to GM's obligation to complete the exchange
offer?
A15. Yes. We do not have to complete the exchange offer unless all of the
conditions outlined on pages to are satisfied. In particular,
there is a condition that at least shares of the $1 2/3 par value
common stock must be tendered in the exchange offer. This means that we
will not be obligated to complete the exchange offer unless at least
shares of $1 2/3 par value common stock are tendered so that at
least percent of the shares of Class H common stock offered pursuant
to the exchange offer can be exchanged. We sometimes refer to this
condition in this document as the "minimum condition." GM may at any time
waive any or all of the conditions to the exchange offer.
Q16. What happens if the minimum condition is not satisfied?
A16. If fewer than shares of $1 2/3 par value common stock are
tendered in the exchange offer, the minimum condition will not be
satisfied and we may choose not to complete the exchange offer. If we
choose not to complete the exchange offer, we will promptly return any
shares of $1 2/3 par value common stock that may have been tendered to
us. In addition, if we choose not to complete the exchange offer, we will
reevaluate our current plan with respect to realizing some of the
economic value arising from our ownership of Hughes.
Q17. What happens if the minimum condition is satisfied, but less than
shares of $1 2/3 par value common stock are tendered?
A17. If the minimum condition is satisified and all of the other conditions to
the exchange offer have been satisfied or waived, GM would be obligated
to complete the exchange offer as described in this document.
4
<PAGE>
Under these circumstances, the exchange offer would not be fully
subscribed and, as a result, we would issue fewer shares of Class H common
stock than we would have if more shares of $1 2/3 par value common stock
had been validly tendered.
Q18. What happens if more than shares of $1 2/3 par value common stock
are tendered?
A18. If more than shares of $1 2/3 par value common stock are tendered
in the exchange offer, all shares of $1 2/3 par value common stock that
are validly tendered will be accepted for exchange on a pro rata basis.
However, tenders by persons who own fewer than 100 shares of $1 2/3 par
value common stock, which are sometimes referred to as "odd-lots," who
tender all of the shares they own will not be subject to proration and
will be accepted in full. Shares you own in a GM or GM affiliated savings
plan are not eligible for the preferential treatment that odd-lot holders
will receive. Proration will be based on the number of shares of $1 2/3
par value common stock that each $1 2/3 par value stockholder has
tendered in the exchange offer, and not on that stockholder's aggregate
ownership of $1 2/3 par value common stock. Any shares not accepted for
exchange as a result of proration will be returned to tendering $1 2/3
par value stockholders in book-entry form.
Q19. What happens if GM declares a quarterly dividend on $1 2/3 par value
common stock during the exchange period and I have previously tendered my
shares?
A19. If a dividend is declared with a record date before the completion of the
exchange offer, you will be entitled to that dividend even if you have
previously tendered your shares. Tendering your shares of $1 2/3 par
value common stock in the exchange offer is not a sale or transfer of the
shares until they are accepted by GM for exchange upon completion of the
exchange offer.
Q20. Will I be taxed on the shares of Class H common stock that I receive in
the exchange offer?
A20. We currently anticipate receiving a tax opinion from Kirkland & Ellis to
the effect that, for U.S. federal income tax purposes, the exchange of
Class H common stock for $1 2/3 par value common stock pursuant to the
exchange offer will be tax-free to GM and, except in connection with cash
received instead of fractional shares, to $1 2/3 par value stockholders
who participate in the exchange offer. We have conditioned our obligation
to complete the exchange offer on our receipt of this opinion. The tax
opinion will not address state, local or foreign tax consequences that
may be applicable to $1 2/3 par value stockholders who participate in the
exchange offer. We describe certain material tax considerations at
"Material U.S. Federal Income Tax Consequences" on page . You
should consult your tax advisor as to the particular tax consequences to
you of your participation in the exchange offer.
Q21. How does book-entry registration work?
A21. Both Class H common stock and $1 2/3 par value common stock are
registered in book-entry form through the direct registration system
administered by GM's stock transfer agent and registrar, Fleet National
Bank. Under this system, unless a stockholder requests a stock
certificate representing his or her shares, ownership of Class H common
stock and $1 2/3 par value common stock is represented by account
statements periodically distributed to stockholders by Fleet, who holds
the book-entry shares on behalf of stockholders. For more information
about book-entry registration, see "The Exchange Offer--Book-Entry
Accounts" on page .
Q22. Who should I call if I have questions or want copies of additional
documents?
A22. You may call the information agent, Morrow, to ask any questions or to
request additional documents at (877) 816-5329 (toll free) in the United
States or at (212) 754-8000 (collect) elsewhere. You may also obtain free
copies of other documents publicly filed by GM at the SEC's website at
www.sec.gov or at GM's website at www.gm.com. See "Where You Can Find
More Information" on page .
5
<PAGE>
SUMMARY
In this summary, we highlight information which we describe in greater
detail elsewhere in this document. This summary may not contain all of the
information that you should consider before deciding whether to participate in
the exchange offer. We urge you to read this entire document carefully,
including the "Risk Factors" section and the consolidated financial statements
and the notes to those statements. As used in this document, unless the context
requires otherwise,
. "General Motors," "GM" or "we" means General Motors Corporation and its
consolidated subsidiaries, including Hughes; and
. "Hughes" means Hughes Electronics Corporation, its consolidated
subsidiaries and its ownership interest in equity affiliates.
Overview
We will issue shares of our Class H common stock for each share of
our $1 2/3 par value common stock that is validly tendered and accepted by us
in the exchange offer, up to an aggregate of shares of Class H common
stock. In addition, we currently plan to contribute about $7 billion of Class H
common stock to certain of our employee benefit plans during the second quarter
of 2000. We are using these transactions to implement our overall plan to
restructure our economic interest in our Hughes subsidiary in order to realize
some of the economic value arising from our ownership of Hughes. We expect that
these transactions, if completed, will significantly increase the earnings per
share attributable to $1 2/3 par value common stock in the future.
General Motors
General Motors is primarily engaged in the automotive and, through its
wholly-owned Hughes subsidiary, the communications services industries. GM is
the world's largest manufacturer of automotive vehicles. GM also has financing
and insurance operations and, to a lesser extent, engages in other industries.
Our principal executive offices are located at 300 Renaissance Center, Detroit,
Michigan 48265-3000 and our telephone number is (313) 556-5000.
Hughes
Hughes is a leading global provider of digital entertainment, information
and communications services and satellite-based private business networks.
Let us tell you more about our Hughes subsidiary:
. Hughes has been a pioneer in many aspects of the satellite and wireless
communications industry, and its technologies have driven the creation of
new services and markets and have established Hughes as a leader in each
of the markets it serves. Hughes believes that its ability to identify,
define and develop new markets early has provided it with a significant
competitive advantage in building sustainable market leadership
positions.
. Hughes is focused on providing advanced communications services on a
global basis and has developed a wide range of entertainment, information
and communications services for both the home and business markets,
including video, data, voice, multimedia and Internet services. Over the
past two years, these services have comprised an increasingly significant
portion of Hughes' revenues. Hughes believes that these services provide
the potential for higher value through higher margins and higher growth
than Hughes' traditional manufacturing businesses.
6
<PAGE>
. Earlier this year, Hughes announced a strategy designed to focus its
resources on its high-growth services businesses. As part of this
strategy, Hughes is:
. selling its satellite systems manufacturing businesses;
. discontinuing several product lines in its wireless business to focus
on its leading broadband wireless network business; and
. realigning its marketing efforts to focus on its consumer and business
enterprise customers.
. Hughes' business includes:
. DIRECTV. Hughes, through DIRECTV, is the world's leading digital
multi-channel entertainment provider, based on the number of
subscribers, with over 8 million subscribers worldwide.
. PanAmSat. The PanAmSat subsidiary of Hughes has the largest commercial
satellite fleet in the world, with 20 satellites capable of
transmitting signals to geographic areas covering a substantial
portion of the world's population.
. Broadband Services and Products. Hughes is a leading provider of
satellite and wireless communications ground equipment and business
communications services, with a greater than 50% share of the global
market for satellite-based private business networks.
Hughes' business currently also includes Hughes Space and Communications,
a leading satellite manufacturer. However, Hughes has recently agreed to
sell its satellite systems manufacturing businesses to The Boeing Company.
This sale of the most significant portion of its traditional manufacturing
businesses is part of Hughes' strategy to focus its business on integrated
entertainment, information and communications services.
. Hughes' business objective is to enhance its position as a premier
provider of integrated information, entertainment and communications
services by leveraging its satellite and wireless communications systems
expertise and by capitalizing on its competitive advantages. Hughes' core
strategies for achieving this objective are to:
. Lead the multi-channel entertainment market. Hughes intends to
capitalize on favorable demand trends for multi-channel entertainment
in the United States and select international markets, including by
maintaining DIRECTV's leadership position in the United States through
its premier brand of distinctive programming, leveraging its
experience in the U.S. multi-channel entertainment market and brand
name in international markets where Hughes believes significant growth
opportunities exist and increasing average revenue per subscriber.
. Capitalize on growth opportunities in the markets for Internet
services and digital data. Hughes intends to capitalize on the growth
of the Internet and the increased presence of digital data in the
communications services industry by integrating a range of Internet-
based and interactive technologies into DIRECTV programming and by
developing an array of digital data, intranet and Internet services
for the consumer and business enterprise markets.
. Achieve sustainable market leadership positions. Hughes strives to
achieve and sustain market leadership positions by identifying,
defining and developing new markets and introducing innovative
products and services to serve these markets.
Hughes' principal executive offices are located at 200 North Sepulveda
Boulevard, El Segundo, California 90245 and its telephone number is (310) 662-
9688.
7
<PAGE>
Class H Common Stock
General Motors has two classes of common stock:
.$1 2/3 par value common stock; and
.Class H common stock.
GM's Class H common stock is a "tracking stock" designed to provide holders
with financial returns based on the financial performance of Hughes. However,
in the event of a GM liquidation, insolvency or similar event, Class H
stockholders would have no direct claim against the assets of Hughes. Rather,
Class H stockholders would only have rights in the assets of GM as common
stockholders of GM.
We determine the earnings per share and the amounts available for the
payment of dividends on the Class H common stock by a fraction which reflects
the portion of Hughes' earnings that is allocated to the Class H common stock.
We sometimes refer to this fraction as the "Class H fraction." The numerator
and denominator of the Class H fraction are determined at the end of each
quarter, as follows:
. The numerator of the Class H fraction is the weighted average number of
shares of Class H common stock outstanding during the applicable period.
. The denominator of the Class H fraction is the notional number of shares
of Class H common stock which, if outstanding, would represent 100% of
the tracking stock interest in the earnings of Hughes.
We sometimes refer to the denominator of the Class H fraction as the "Class H
dividend base." The Class H dividend base can be adjusted by the GM board of
directors in specified circumstances, including to reflect contributions by GM
to Hughes.
The issuance of shares of Class H common stock in the exchange offer and the
contributions to the employee benefit plans will increase the numerator of the
Class H fraction without changing the denominator. Accordingly, such issuances
will increase the portion of Hughes' earnings that is allocable to the Class H
common stock and will reduce the portion that is allocable to the $1 2/3 par
value common stock for purposes of determining earnings per share and amounts
available for the payment of dividends. Assuming that the exchange offer is
fully subscribed and that the contributions to the employee benefit plans are
made as anticipated, the combined effect of these transactions would be to
increase the tracking stock interest in Hughes' earnings represented by Class H
common stock from about 37% to %, with a corresponding reduction of the
portion of Hughes' earnings attributable to $1 2/3 par value common stock from
about 63% to %. These percentages are provided for illustrative purposes
only and are based on certain assumptions which we describe elsewhere in this
document. For more information, see "Description of Class H Common Stock--
Detailed Calculation of Amount Available for Dividends on Class H Common
Stock--Illustrative Calculation of Class H Fraction Following the Exchange
Offer and the Contributions to the Employee Benefit Plans." Because the
earnings of Hughes allocable to Class H common stock will increase
proportionately with the increase in the number of shares of Class H common
stock outstanding, these issuances will not dilute the earnings per share
attributable to the Class H common stock.
The payment of dividends on Class H common stock is determined by GM's board
of directors. Since the completion in 1997 of a series of transactions that
involved a restructuring of the predecessor of Hughes, which we sometimes refer
to in this document as the "Hughes restructuring transactions," no dividends
have been paid on the Class H common stock. We do not currently expect to pay
dividends on the Class H common stock in the foreseeable future.
8
<PAGE>
Terms of the Exchange Offer
<TABLE>
<S> <C>
Terms of the exchange offer We are offering to exchange shares of Class H common
(see page )................. stock for each share of $1 2/3 par value common stock
validly tendered in the exchange offer, up to a maximum of
shares of $1 2/3 par value common stock. This is a
voluntary exchange offer, which means that you may tender
all, some or none of your shares of $1 2/3 par value
common stock in the exchange offer.
All shares of $1 2/3 par value common stock validly
tendered and not withdrawn and accepted by GM will be
exchanged at the exchange ratio, on the terms and subject
to the conditions of the exchange offer, including the
proration provisions. The terms and conditions of the
exchange offer are described in this document, the letter
of transmittal and the accompanying instructions to the
letter of transmittal. We will promptly return in book-
entry form any shares of $1 2/3 par value common stock not
accepted by GM for exchange following the expiration of
the exchange offer and determination of the final
proration factor.
Expiration date; extension; The exchange offer and withdrawal rights will expire at
termination (see pages 12:00 midnight, New York City time, on , 2000, unless
and )...................... GM extends the exchange offer. You must validly tender
your shares of $1 2/3 par value common stock so that they
are received by the exchange agent prior to this date if
you wish to participate in the exchange offer. We may also
terminate the exchange offer in the circumstances
described on page .
Proration; odd-lots (see page If more than shares of $1 2/3 par value common stock
)........................... are tendered, we will accept all shares validly tendered
on a pro rata basis. We will announce the preliminary
proration factor by press release promptly after the
exchange offer expires. We expect to announce any final
proration factor within about seven business days after
the expiration date.
If you hold fewer than 100 shares of $1 2/3 par value
common stock, and tender all of these shares for exchange,
all of your shares will be accepted for exchange without
proration if the exchange offer is completed. Shares you
own through a GM or GM affiliated savings plan are not
eligible for this preferential treatment.
Withdrawal rights You may withdraw tenders of your shares of $1 2/3 par
(see page )................. value common stock at any time before the exchange offer
expires and at other times under certain circumstances. If
you change your mind prior to the expiration of the
exchange offer, you may retender your shares of $1 2/3 par
value common stock by following the tender procedures
again and retendering prior to the expiration date.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Conditions for completion of The exchange offer is subject to various conditions,
the exchange offer (see page including the condition that at least shares of $1
)........................... 2/3 par value common stock are validly tendered, which
must be satisfied in order for us to be obligated to
complete the exchange offer.
No fractional shares (see page No fractional shares of Class H common stock will be
)........................... distributed in the exchange offer. If you would otherwise
be entitled to receive a fractional share of Class H
common stock, you will be paid cash for the fractional
share.
Procedures for tendering shares If you hold certificates representing your shares of $1
of $1 2/3 par value common 2/3 par value common stock, you must complete and sign the
stock (see pages to )..... letter of transmittal designating the number of shares of
$1 2/3 par value common stock you wish to tender. Send the
letter of transmittal, together with your $1 2/3 par value
common stock certificates and any other documents required
by the letter of transmittal and the instructions to the
letter of transmittal, by registered mail, return receipt
requested, so that it is received by the exchange agent at
one of the addresses listed on the back cover of this
document before the expiration of the exchange offer.
If you hold shares of $1 2/3 par value common stock
through a broker, you should receive instructions from
your broker on how to participate. You will not need to
complete the letter of transmittal. Please contact your
broker directly if you have not yet received instructions.
Some financial institutions may also effect tenders by
book-entry transfer through The Depository Trust Company.
If you hold certificates for shares of $1 2/3 par value
common stock or if you hold shares of $1 2/3 par value
common stock through a broker, you may also comply with
the procedures for guaranteed delivery.
If you hold shares of $1 2/3 par value common stock in
book-entry form through the direct registration system,
you should send the executed letter of transmittal
indicating the number of shares to be tendered to the
exchange agent by registered mail, return receipt
requested, so that it is received by the exchange agent at
one of the addresses listed on the back cover of this
document before the expiration of the exchange offer.
If you participate in a GM or a GM affiliated company
savings plan listed on page , you will receive separate
instructions from the plan trustees or administrator of
the plan regarding how to tender these shares. You should
follow those instructions, and you should not use the
letter of transmittal to tender your shares held under any
of these plans.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Delivery of shares of Class H
common stock (see page ).... We will deliver shares of Class H common stock issued in
the exchange offer by book-entry transfer and cash instead
of fractional shares as soon as reasonably practicable
after the expiration of the exchange offer, acceptance of
shares of $1 2/3 par value common stock for exchange and
determination of the proration factor.
Comparative per share market
price information (see pages
and )...................... Shares of $1 2/3 par value common stock and Class H common
stock are currently listed and traded on the NYSE. GM's $1
2/3 par value common stock is traded under the symbol
"GM," and GM's Class H common stock is traded under the
symbol "GMH."
On January 31, 2000, the last trading day before the
public announcement of the exchange offer, the closing
trading price of $1 2/3 par value common stock on the NYSE
was $80.56, and the closing trading price of Class H
common stock was $112.50.
On , 2000 the second to last trading day before
the start of the exchange offer, the closing trading price
of $1 2/3 par value common stock on the NYSE was $ ,
and the closing trading price of Class H common stock on
the NYSE was $ .
U.S. federal income tax
consequences (see page )..... We currently anticipate receiving a tax opinion from
Kirkland & Ellis to the effect that, for U.S. federal
income tax purposes, the exchange of Class H common stock
for $1 2/3 par value common stock pursuant to the exchange
offer will be tax-free to GM and, except in connection
with cash received instead of fractional shares, to $1 2/3
par value stockholders who participate in the exchange
offer. Each $1 2/3 par value stockholder should consult
his or her tax advisor as to the particular tax
consequences of the exchange offer to him or her.
IRS regulations require that, if you participate in the
exchange offer, you include certain information in your
U.S. federal income tax return for the year in which the
exchange offer occurs. GM will provide this information to
you after the exchange offer is completed.
No appraisal rights............ No appraisal rights are available to stockholders of GM in
connection with the exchange offer.
Exchange agent................. Fleet National Bank
Information agent.............. Morrow & Co., Inc.
Dealer manager................. Morgan Stanley Dean Witter
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Marketing manager for Hughes... Salomon Smith Barney
Risk factors (see pages to You should read and consider carefully the matters
)........................... described under the caption "Risk Factors," as well as the
other information set forth in this document, before
deciding whether to participate in the exchange offer.
Determining whether to
participate in the exchange None of General Motors, Hughes, the exchange agent, the
offer......................... information agent, the dealer manager, the marketing
manager or any of their respective officers or directors
makes any recommendation as to whether you should tender
your shares of $1 2/3 par value common stock in the
exchange offer. You must make your own decision regarding
whether to tender and, if so, how many shares to tender
after reading this document and consulting with your
advisors based on your own financial position and
requirements and any other relevant considerations.
We urge you to read this document and the accompanying
documents very carefully.
Regulatory issues.............. In order to complete the exchange offer, we must make
certain filings and notifications and receive certain
authorizations or exemptions from governmental agencies
regulating securities law issues in foreign jurisdictions.
We believe that no material foreign regulatory
requirements remain to be complied with, and no further
material approvals must be obtained.
</TABLE>
12
<PAGE>
Comparative Per Share Data
We summarize in the tables below the historical and pro forma per share
information for each of the two classes of GM common stock. We calculated book
value per share based on the liquidation rights of each class, which are
described at "Description of Class H Common Stock--Liquidation Rights." All
earnings (loss) per share amounts set forth in this document are reported as
diluted, unless otherwise noted.
Historical Per Share Data
<TABLE>
<CAPTION>
As of and for the year ended
December 31,
-----------------------------
1998 1999
-------------- --------------
$1 2/3 Class H $1 2/3 Class H
------ ------- ------ -------
<S> <C> <C> <C> <C>
Book value per share............................. $20.00 $12.00 $27.02 $16.21
Cash dividends per share......................... 2.00 -- 2.00 --
Earnings (loss) per share from continuing
operations attributable to common stock......... 4.32 0.68 8.53 (0.77)
</TABLE>
Pro Forma Per Share Data
This pro forma per share information gives effect to a fully-subscribed
exchange offer. As a result of the exchange offer, the earnings (loss) per
share calculation of the $1 2/3 par value common stock will reflect the lower
number of outstanding shares of $1 2/3 par value common stock and the $1 2/3
par value stockholders' decreased interest in the available separate
consolidated net income (loss) of Hughes. While there will be no change to the
earnings per share of Class H common stock, the earnings per share calculation
of the Class H common stock will reflect the Class H stockholders' increased
interest in the available separate consolidated net income (loss) of Hughes and
the proportionate increase in the number of shares of Class H common stock
outstanding.
<TABLE>
<CAPTION>
As of and for the year ended
December 31,
----------------------------
1998 1999
------------- --------------
$1
2/3 Class H $1 2/3 Class H
----- ------- ------ -------
<S> <C> <C> <C> <C>
Book value per share.............................. $ $ $ $
Cash dividends per share.......................... 2.00 -- 2.00 --
Earnings (loss) per share from continuing
operations attributable to common stock..........
</TABLE>
13
<PAGE>
Summary Historical Consolidated Financial Data of GM
On May 28, 1999, GM completed the separation of Delphi Automotive Systems
Corporation from GM. Prior to 1999, Delphi was a business segment of GM. The
following statement of operations data for each of the three years in the
period ended December 31, 1999 and the balance sheet data as of December 31,
1999 and 1998 have been derived from GM's consolidated financial statements,
reflecting Delphi Automotive Systems Corporation as discontinued operations,
which have been audited by Deloitte & Touche LLP, independent auditors. The
statement of operations data for the years ended December 31, 1996 and 1995 and
the balance sheet data as of December 31, 1997, 1996 and 1995 have been derived
from the unaudited consolidated financial statements of GM, reflecting Delphi
Automotive Systems Corporation as discontinued operations and, in the opinion
of management, include all adjustments, consisting only of normal recurring
items, necessary to present fairly such data. The following summary
consolidated financial data also reflects Electronic Data Systems Corporation
as discontinued operations for the periods presented prior to its June 7, 1996
split-off from GM.
You should read the data below in conjunction with GM's consolidated
financial statements (including the notes thereto) and Management's Discussion
and Analysis of Financial Condition and Results of Operations in the GM 1999
Form 10-K, which is incorporated into this document by reference. Certain
amounts for 1998 and prior years have been reclassified to conform with the
1999 classifications.
<TABLE>
<CAPTION>
As of and for the year ended
December 31,
----------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total net sales and
revenues............... $154,954 $158,281 $172,580 $155,445 $176,558
Income from continuing
operations before
cumulative effect of
accounting changes..... 4,726 4,100 6,483 3,049 5,576
Income (loss) from
discontinued
operations............. 2,207 863 215 (93) 426
Cumulative effect of
accounting changes..... (52) -- -- -- --
-------- -------- -------- -------- --------
Net income............. $ 6,881 $ 4,963 $ 6,698 $ 2,956 $ 6,002
======== ======== ======== ======== ========
Earnings Per Share:
1 2/3 par value common
stock
Basic earnings per
share (EPS) from
continuing
operations............ $ 5.57 $ 5.08 $ 8.52 $ 4.40 $ 8.70
Basic earnings (loss)
per share from
discontinued
operations............ 1.71 0.98 0.18 (0.14) 0.66
Diluted EPS from
continuing
operations............ 5.52 5.04 8.45 4.32 8.53
Diluted earnings
(loss) per share from
discontinued
operations............ 1.69 0.98 0.17 (0.14) 0.65
Cash dividends
declared per share.... 1.10 1.60 2.00 2.00 2.00
Class H common stock
subsequent to the
Hughes restructuring
transactions
Basic EPS from
continuing
operations.......... -- -- 0.02 0.68 (0.77)
Diluted EPS from
continuing
operations.......... -- -- 0.02 0.68 (0.77)
Class H common stock
prior to the Hughes
restructuring
transactions
Basic EPS from
continuing
operations.......... 1.39 1.83 2.30 -- --
Basic EPS from
discontinued
operations.......... 1.38 1.05 0.87 -- --
Diluted EPS from
continuing
operations.......... 1.39 1.83 2.30 -- --
Diluted EPS from
discontinued
operations.......... 1.38 1.05 0.87 -- --
Cash dividends
declared per share.. 0.92 0.96 1.00 -- --
Class E common stock
Basic EPS from
discontinued
operations.......... 1.96 0.04 -- -- --
Diluted EPS from
discontinued
operations.......... 1.96 0.04 -- -- --
Cash dividends
declared per share.. 0.52 0.30 -- -- --
Balance Sheet Data:
Total assets............ $209,520 $216,965 $221,767 $246,688 $274,730
Long-term debt.......... 4,100 5,352 5,669 7,118 7,415
GM-obligated mandatorily
redeemable preferred
securities of
subsidiary trusts...... -- -- 222 220 218
Stockholders' equity.... 23,310 23,413 17,584 15,052 20,644
</TABLE>
14
<PAGE>
Earnings per share attributable to the Class H common stock are determined
based on the relative amounts of Hughes net income available for the payment of
dividends to holders of Class H common stock and to holders of $1 2/3 par value
common stock. The manner in which this allocation is made is described further
at "Description of Class H Common Stock--GM Certificate of Incorporation
Provisions Regarding Dividends."
The amounts for Class H common stock subsequent to its recapitalization, as
part of the Hughes restructuring transactions, present the earnings
attributable to Class H common stock subsequent to its recapitalization on
December 17, 1997 related to Hughes, consisting principally of its digital
entertainment services, satellite communications services and satellite-based
private business networks businesses.
The amounts for Class H common stock prior to its recapitalization, as part
of the Hughes restructuring transactions, present the earnings attributable to
Class H common stock prior to its recapitalization on December 17, 1997 related
to Hughes, consisting principally of its defense electronics, automotive
electronics and telecommunications and space business.
Long-term debt totals are calculated from GM's automotive, communications
services and other operations only.
15
<PAGE>
Summary Historical Financial Data of Hughes
The following summary historical financial data have been derived from, and
should be read in conjunction with Hughes' financial statements, as well as the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Hughes," and the "Unaudited Pro Forma Combined Condensed
Financial Information of Hughes," and the "Notes to Unaudited Pro Forma
Combined Condensed Financial Information of Hughes" sections of this document.
The statement of operations data for each of the three years in the period
ended December 31, 1999 and the balance sheet data as of December 31, 1999 and
1998 have been derived from Hughes' financial statements included elsewhere in
and incorporated by reference into this document, which have been audited by
Deloitte & Touche LLP, independent auditors. The statement of operations data
for the years ended December 31, 1996 and 1995, and the balance sheet data as
of December 31, 1997, 1996 and 1995 have been derived from Hughes' unaudited
financial statements and in the opinion of management include all adjustments,
consisting only of normal recurring items, necessary to present fairly such
data.
On December 17, 1997, Hughes' predecessor and GM completed the Hughes
restructuring transactions, a series of transactions which restructured Hughes'
predecessor and which were designed to address strategic challenges facing
Hughes' three principal businesses. These transactions included:
. the tax-free spin-off of Hughes' defense electronics business to holders
of GM's $1 2/3 par value common stock and old Class H common stock;
. the transfer of Delco Electronics Corporation, Hughes' automotive
electronics business, to GM's Delphi Automotive Systems business sector,
which is now a separate corporation; and
. the recapitalization of the old Class H common stock into the Class H
common stock that is currently outstanding.
These transactions were followed immediately by the merger of the defense
electronics business with Raytheon Company.
In connection with the Hughes restructuring transactions, the
telecommunications and space business of Hughes' predecessor, consisting
principally of its digital direct-to-home broadcast, satellite services,
network systems and satellite systems businesses, were contributed to the
recapitalized Hughes. These telecommunications and space businesses, both
before and after the recapitalization, are referred to as Hughes. The financial
information presented for Hughes, unless otherwise noted, represents the
financial information of the recapitalized Hughes.
On January 13, 2000, Hughes announced that it had reached an agreement to
sell its satellite systems manufacturing businesses to Boeing. As a result, the
financial results for those businesses are treated as discontinued operations
for all periods presented herein. Consequently, revenues, operating costs and
expenses, and other non-operating results for the satellite systems
manufacturing businesses are excluded from Hughes' results from continuing
operations.
16
<PAGE>
<TABLE>
<CAPTION>
As of and for the years ended
December 31,
-----------------------------------------
1995 1996 1997 1998 1999
------ ------ ------- ------- -------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues.............. $1,554 $2,058 $ 2,838 $ 3,481 $ 5,560
Total operating costs and
expenses................... 1,574 2,109 2,794 3,527 5,988
------ ------ ------- ------- -------
Operating profit (loss)..... $ (20) $ (51) $ 44 $ (46) $ (428)
====== ====== ======= ======= =======
Income (loss) from
continuing operations
before extraordinary item
and cumulative effect of
accounting change.......... $ (30) $ 13 $ 237 $ 64 $ (391)
Income (loss) from
discontinued operations,
net of taxes............... 36 150 171 196 100
Gain on sale of discontinued
operations, net of taxes... -- -- 63 -- --
Extraordinary item, net of
taxes...................... -- -- (21) -- --
Cumulative effect of
accounting changes......... -- -- -- (9) --
------ ------ ------- ------- -------
Net income (loss) .......... 6 163 450 251 (291)
Adjustments to exclude the
effect of GM purchase
accounting adjustments..... 21 21 21 21 21
Preferred stock dividend.... -- -- -- -- (51)
------ ------ ------- ------- -------
Earnings (loss) used for
computation of available
separate consolidated net
income (loss).............. $ 27 $ 184 $ 471 $ 272 $ (321)
====== ====== ======= ======= =======
Balance Sheet Data:
Total assets................ $3,513 $3,861 $12,142 $12,617 $18,597
Long-term debt.............. -- -- 638 779 1,586
Owner's equity.............. 2,609 2,492 8,340 8,412 11,681
Other Data:
EBITDA...................... $ 130 $ 113 $ 304 $ 342 $ 223
Capital expenditures........ 389 362 713 1,329 1,665
</TABLE>
- --------
"EBITDA" is defined as operating profit (loss), plus depreciation and
amortization. EBITDA is not presented as an alternative measure of operating
results or cash flow from operations, as determined in accordance with
generally accepted accounting principles. Hughes management believes it is a
meaningful measure of performance and is commonly used by other large
communications, entertainment and media service providers. EBITDA does not give
effect to cash used for debt service requirements and thus does not reflect
funds available for investment in the business of Hughes, dividends or other
discretionary uses.
In addition, EBITDA as presented herein may not be comparable to similarly
titled measures reported by other companies.
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RISK FACTORS
You should carefully consider each of the following risks and uncertainties
and all of the other information set forth in this document before deciding
whether to participate in the exchange offer. The following risks and
uncertainties relate principally to:
. The exchange offer;
. The business of Hughes; and
. GM's dual-class common stock capital structure.
The risks and uncertainties described below are not the only ones facing
GM, Hughes and your investment in Class H common stock. You should carefully
review the information set forth elsewhere in this document and in the other
documents which are incorporated by reference into this document. Additional
risks and uncertainties not presently known to us or that we currently believe
to be immaterial may also adversely affect GM, Hughes and your investment in
Class H common stock.
If any of the following risks and uncertainties develop into actual events,
Hughes' business, financial condition or results of operations could be
materially adversely affected. In such case, the trading price of the Class H
common stock could decline, and you may lose all or part of your investment.
This document contains forward-looking statements that involve risks and
uncertainties. Hughes' actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including the risks and uncertainties faced by Hughes described below
and elsewhere in this document.
Risk Factors Relating to the Exchange Offer
You Will Be Affected by the Exchange Offer Whether or Not You Tender Your
Shares of $1 2/3 Par Value Common Stock
Your investment in GM will be subject to different risks as a result of the
exchange offer. As a holder of shares of $1 2/3 par value common stock, you
will be affected by the exchange offer regardless of whether you tender all,
some or none of your shares of $1 2/3 par value common stock in the exchange
offer:
. If you exchange all of your shares of $1 2/3 par value common stock for
shares of Class H common stock in the exchange offer, you will have an
increased interest in the financial performance of Hughes. However, you
will no longer participate in any change in the value of the $1 2/3 par
value common stock because you will no longer own any shares of $1 2/3
par value common stock.
. If you exchange some, but not all, of your shares of $1 2/3 par value
common stock in the exchange offer, you will generally have an increased
interest in the financial performance of Hughes, and a diminished
interest in the financial performance of GM's businesses other than
Hughes, assuming that you exchange a greater percentage of your shares of
$1 2/3 par value common stock than the percentage of all outstanding
shares of $1 2/3 par value common stock that are exchanged in the
exchange offer.
. If you do not exchange any of your shares of $1 2/3 par value common
stock in the exchange offer, you will continue to participate in any
change in the value of $1 2/3 par value common stock. However, because
the numerator of the Class H fraction will be increased by the number of
shares of Class H common stock issued in the exchange offer, you will
have a diminished interest in the financial performance of Hughes.
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You May Not Receive Any Premium on the Issuance of Class H Common Stock in
Exchange for $1 2/3 Par Value Common Stock
We cannot predict whether or to what extent there will be a premium at the
end of the exchange offer. As a result, if you tender your shares of $1 2/3
par value common stock in the exchange offer, you may not receive any premium.
Any premium that you would receive through your participation in the exchange
offer will depend on the market prices of shares of $1 2/3 par value common
stock and Class H common stock at the time of the closing of the exchange
offer, which we cannot predict.
The Issuance of Class H Common Stock in the Exchange Offer and the
Contributions to the Employee Benefit Plans May Adversely Affect the Market
Price of Class H Common Stock
The exchange offer will increase substantially the number of publicly held
shares of Class H common stock and the number of Class H common stockholders.
The shares of Class H common stock to be issued to the $1 2/3 par value
stockholders in the exchange will generally be eligible for immediate resale
in the open market. If a significant number of $1 2/3 par value stockholders
who receive shares of Class H common stock in the exchange offer attempt to
sell such shares of Class H common stock on the open market after the exchange
offer, the market price of Class H common stock could be adversely affected.
Similarly, the contributions will result in the issuance of a substantial
number of shares of Class H common stock to the employee benefit plans. If the
trustees of the employee benefit plans receiving shares of Class H common
stock in the contributions were to sell a significant number of these shares
after the contributions, the market price of Class H common stock could be
adversely affected. The ability of the employee benefit plans to transfer
their shares will, however, be subject to a registration rights agreement with
GM, which will provide for certain restrictions on transfer. We cannot assure
you that the Class H common stock trading prices will not fluctuate
significantly after either or both of the exchange offer and the contributions
to the employee benefit plans.
GM's Failure to Complete the Contributions to the Employee Benefit Plans as
Planned Could Affect the Market Price of $1 2/3 Par Value Common Stock
If GM does not complete the contributions to the employee benefit plans
substantially on the terms and within the time anticipated, the market price
of $1 2/3 par value common stock could be adversely affected as a result of
GM's failure to reduce its annual pension expense and its other post-
retirement employee benefit expense and to strengthen GM's overall financial
position. This exchange offer and GM's anticipated contributions are
independent transactions. This means that GM could determine to complete the
exchange offer, but not the contributions. Although we currently intend to
make the contributions to the employee benefit plans, we are not obligated to
do so and we cannot assure you as to whether, when or the terms on which such
contributions will occur.
Risk Factors Relating to the Business of Hughes
Hughes Will Be Adversely Affected if It Fails to Maintain Leading
Technological Capabilities
The rapid technological changes and innovation that characterize the
entertainment, information and communications services industry could cause
the services and products offered by Hughes to become obsolete. If the new
technologies on which Hughes is currently focusing its research and
development investments fail to achieve acceptance in the marketplace, Hughes
would suffer a material adverse effect on its future competitive position and
results of operations. For example, competitors of Hughes could be the first
to obtain proprietary technologies that are perceived by the market as being
superior. In addition, after substantial research and development
expenditures, one or more of the technologies under development by Hughes or
any of its strategic partners could become obsolete prior to its introduction.
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Hughes' operating results will depend to a significant extent on its
ability to continue to introduce new products and services on a timely basis
and to reduce costs of its existing products and services. We cannot assure
you that Hughes will successfully identify new product or service
opportunities or develop and market these opportunities in a timely or cost-
effective manner. The success of new product development depends on many
factors, including proper identification of customer needs, cost, timely
completion and introduction, differentiation from offerings of competitors and
market acceptance.
Technological innovation is important to Hughes' success and depends, to a
significant degree, on the work of technically skilled employees. Competition
for the services of these types of employees is vigorous. We cannot assure you
that Hughes will be able to attract and retain these employees. If Hughes were
unable to attract and maintain technically skilled employees, its competitive
position could be adversely affected.
Hughes Could Have Inadequate Access to Capital for Growth
Hughes may not be able to raise adequate capital to complete some or all of
its business strategies or to react rapidly to changes in technology,
products, services or the competitive landscape. Hughes believes that key
success factors in the entertainment, information and communications services
industry include superior access to capital and financial flexibility.
Industry participants often face high capital requirements in order to take
advantage of new market opportunities, respond to rigorous competitive
pressures and react quickly to changes in technology. For example, as a result
of the competitive environment in the multi-channel entertainment industry,
DIRECTV may have to incur increased subscriber acquisition costs by making
competitive offers in the future to maintain its market leadership.
Hughes expects the global entertainment, information and communications
services market to continue to grow due to the high demand for communications
infrastructure and the opportunities created by industry deregulation. Many of
Hughes' competitors are committing substantial capital and, in many instances,
are forming alliances to acquire or maintain market leadership. Hughes'
strategy is to be a leader in providing entertainment, information and
communications products and services by building on its experience in
satellite technology and by making acquisitions and establishing, maintaining
and restructuring strategic alliances as appropriate. This strategy will
require substantial investments of capital over the next several years. We
cannot assure you that Hughes will be able to satisfy its capital requirements
in the future, whether through lack of competitive access to capital markets,
GM's overall financial condition, restrictions imposed by GM or otherwise.
GM's ability to issue Class H common stock as a means of funding Hughes'
capital requirements may be limited in the event of the enactment of changes
in the tax law which would result in the imposition of a tax on certain
issuances of stock such as Class H common stock. Neither GM nor Hughes can
predict whether or when any such changes would occur.
Hughes' Future Growth Depends Upon its Ability to Implement its Business
Strategy
Hughes' business strategy is focused on becoming a premier provider of
integrated entertainment, information and communications services. As part of
this strategy, Hughes recently implemented several new initiatives and entered
into a strategic alliance with America Online, Inc. One of these new
initatives is the sale by Hughes of its satellite systems manufacturing
businesses to Boeing. This sale is subject to customary closing conditions as
well as conditions relating to Hughes' export activities in China. For more
information on conditions relating to Hughes' export activities in China, see
"--Grand Jury Investigation/State Department Review Could Result in Sanctions"
below. Another new initiative is Hughes' development of the Spaceway system,
which is designed to capitalize on the emerging broadband communications
services market. Spaceway is still under development and is subject to a
number of risks and uncertainties. We cannot assure you that the introduction
of the Spaceway system will not be delayed, or that the Spaceway system will
ever be implemented, or, if implemented, will allow Hughes to successfully
capitalize on the emerging broadband communications
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services market. We cannot assure you that Hughes will be successful in
implementing these new initiatives, or any other new initiatives, or that
Hughes will realize the anticipated benefits of its alliance with AOL.
Hughes Is Vulnerable to Satellite Failure
DIRECTV, PanAmSat and other Hughes businesses own or utilize satellites in
their businesses. Orbiting satellites are subject to the risk of failing
prematurely due to, among other things, mechanical failure, a collision with
objects in space or an inability to maintain proper orbit. Satellites are
subject to the risk of launch delay and failure, destruction and damage while
on the ground or during launch and failure to become fully operational once
launched. Delays in the production or launch of a satellite or the complete or
partial loss of a satellite, in-orbit or during launch, could have a material
adverse impact on the operation of Hughes' businesses. With respect to both
in-orbit and launch problems, insurance carried by PanAmSat and Hughes does
not compensate for business interruption or loss of future revenues or
customers. Hughes has, in the past, experienced technical anomalies on some of
its satellites. We cannot assure you that Hughes will not experience further
satellite anomalies in the future. Service interruptions caused by these
anomalies, depending on their severity, could result in claims by affected
customers for termination of their transponder agreements, cancellation of
other service contracts or the loss of other customers.
Hughes May Be Unable to Manage Effectively the Growth of its DIRECTV
Businesses
Hughes' ability to continue the planned expansion of its DIRECTV businesses
and to increase its customer base while maintaining its price structure,
reducing its churn rate and managing costs will depend upon, among other
things, its ability to manage its growth effectively. To accomplish this,
Hughes must continue to develop its internal and external sales force,
installation capability and customer service representatives, maintain its
relationships with third party vendors and implement procedures to mitigate
subscriber credit risk. Hughes will also need to continue to grow, train and
manage its employee base. If Hughes is unable to manage its growth
effectively, it could experience an increase in subscriber churn and, as a
result, its business could be adversely affected. In addition, subscriber
acquisition costs may increase if DIRECTV offers additional incentives in
order to respond to competition, to expand its businesses or for other
reasons. If subscriber acquisition costs increase significantly, it could have
a material adverse effect on Hughes' business.
Hughes' Main Satellite Supplier Will No Longer Be an Affiliate of Hughes
After the Sale of Hughes Space and Communications to Boeing
Historically, Hughes has been able to fulfill most of its satellite needs
from Hughes Space and Communications, one of its wholly-owned subsidiaries.
Following the completion of the sale of Hughes Space and Communications to
Boeing, Hughes will no longer manufacture satellites. Although DIRECTV and
PanAmSat currently have contracts with Hughes Space and Communications
designed to satisfy Hughes' satellite needs over the near term, Hughes will
need to obtain new contracts with Hughes Space and Communications or with
alternative suppliers for its future satellite needs. In addition, although
Hughes believes that its current contracts with Hughes Space and
Communications are on substantially arms' length terms, we cannot assure you
that Hughes will be able to obtain contracts for the manufacture of new
satellites from Hughes Space and Communications or from alternative suppliers
on similar terms.
Hughes Could Be Adversely Affected by its Customers' Inability to Obtain
Financing
Customers of Hughes are dependent from time to time upon third party equity
or debt financing in order to pay for products and services purchased from
Hughes. Collection of amounts due to Hughes from these customers may be
adversely affected by their inability to obtain this third party financing. If
these customers are unable to obtain, or are delayed in obtaining, third party
financing, and are therefore unable to pay amounts due to Hughes in the
future, Hughes may incur substantial losses related to costs it has incurred
in excess of amounts collected to date from those customers. This could also
have a negative effect on Hughes' future cash flows.
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Hughes has contracts with ICO Global Communications (Operations), Ltd. to
build the satellites and related components for ICO's global wireless
communications system. ICO's parent company recently filed for bankruptcy
protection under Chapter 11. If ICO's parent company is unable to confirm a
plan of reorganization that provides for full payment to Hughes under these
contracts, ICO may be unable to pay these amounts, which would result in a
large pre-tax charge to Hughes' earnings. For more information about this
matter, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Hughes."
Hughes Is Subject to Domestic and Foreign Regulations Which Could Adversely
Affect the Nature and Extent of the Services It Offers
Hughes' businesses are subject to various regulations. DIRECTV is subject
to substantial regulation by the U.S. Federal Communications Commission. FCC
rules and regulations are subject to change in response to industry
developments, new technology and political considerations. In addition, the
satellite industry is highly regulated both in the United States and
internationally. Hughes is subject to the regulatory authority of the U.S.
Government and the national communications authorities of the countries in
which it operates. These agencies regulate the construction, launch and
operation of Hughes' satellites and the orbital slots planned for these
satellites. Hughes is currently subject to an investigation regarding certain
of its export compliance activities. Hughes, its customers or companies with
which Hughes does business must have authority from each country in which
Hughes provides services or provides its customers' use of its satellites.
Although Hughes believes that its customers and/or companies with which Hughes
does business presently hold the requisite licenses and approvals for the
countries in which it currently provides services, regulations in each country
are different and, as a result, there may be instances of noncompliance of
which Hughes is not aware.
Hughes' businesses could be adversely affected by the adoption of new laws,
policies and regulations. We cannot assure you that Hughes will succeed in
obtaining all requisite regulatory approvals for its operations without the
imposition of restrictions on, or adverse consequences to, its businesses. We
also cannot assure you that material adverse changes in regulations affecting
the industries in which Hughes operates its businesses will not occur in the
future.
Hughes Is Subject to Other Risks Related to its International Operations
About 21% of Hughes' revenues in 1999, excluding revenues from Hughes Space
and Communications, were generated outside the United States. Hughes is
currently evaluating expansion opportunities in select international markets.
These international operations subject Hughes to many risks inherent in
international business activities, including:
. limitations and disruptions resulting from the imposition of government
controls;
. difficulty meeting export license requirements;
. economic or political instability;
. trade restrictions;
. changes in tariffs;
. currency fluctuations;
. greater difficulty in safeguarding intellectual property; and
. difficulties in managing overseas subsidiaries and international
operations.
These risks could have a material adverse affect on Hughes' business.
Grand Jury Investigation/State Department Review Could Result in Sanctions
There is a pending grand jury investigation into whether Hughes should be
accused of criminal violations of the export control laws arising out of the
participation of two of its employees on a committee formed to
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review the findings of Chinese engineers regarding the failure of a Long March
rocket in China in 1996. Hughes is also subject to the authority of the U.S.
State Department to impose sanctions for non-criminal violations of the Arms
Export Control Act. The possible criminal and/or civil sanctions could include
fines as well as debarment from various export privileges and participation in
government contracts. Hughes does not expect the grand jury investigation or
State Department review to result in a material adverse effect upon its
business. However, there can be no assurance as to those conclusions.
As part of the sale of Hughes Space and Communications to Boeing, Hughes
has agreed to indemnify Boeing for the full amount of any monetary fines and
penalties, payable either prior to or after the closing of the transaction,
resulting from Hughes' export control activities in China that were previously
disclosed by Hughes and any other compliance matters related to exports by
Hughes to China that may arise prior to the closing of the transaction. If
Hughes were to enter into a settlement of this matter prior to the closing of
the Boeing transaction that involves a debarment, as regards sales to the U.S.
government, or a material suspension of Hughes' export licenses or other
material limitation on projected business activities of the satellite systems
manufacturing businesses, Boeing would not be obligated to complete the
purchase of Hughes' satellite systems manufacturing businesses. We cannot
assure you that the results of these investigations or any settlement entered
into in connection with these investigations will not adversely impact Hughes'
business and results of operations.
In addition, a congressional committee chaired by Representative Cox
released a report in May 1999 containing negative commentary about the
compliance of U.S. satellite manufacturers, including Hughes Space and
Communications, with U.S. export control laws. We are uncertain of the impact
that this report will have on the satellite manufacturing and launching
industries. Many of Hughes' satellite launches, including those of PanAmSat,
are scheduled for non-U.S. launch providers. We cannot assure you that future
satellite launches by non-U.S. launch providers will not be adversely affected
by this investigation and report, including the possibility of significant
launch delays.
Compromise of Satellite Programming Signals Could Adversely Affect Hughes'
Business
The delivery of direct broadcast television programming requires the use of
encryption technology to assure that only authorized subscribers can receive
the programming. It is illegal to create, sell or otherwise distribute or use
mechanisms or devices to circumvent that encryption. Theft of cable and
satellite programming does occur and attempts have been made to circumvent
Hughes' signal encryption. Hughes has implemented measures intended to reduce
signal theft of its programming. If Hughes were unable to respond to any
widespread compromise of its encryption technology, its business could be
materially adversely affected.
Disputes with Raytheon Regarding Former Defense Operations Could Result in a
Material Payment from Hughes to Raytheon
In connection with the 1997 spin-off of the defense electronics business of
Hughes' predecessor as part of the Hughes restructuring transactions and the
subsequent merger of that business with Raytheon, the terms of the merger and
related agreements between Hughes and Raytheon provided processes for
resolving disputes that might arise in connection with post-closing financial
adjustments that were also called for by the terms of the merger agreement.
These financial adjustments might require a cash payment from Raytheon to
Hughes or vice versa. A dispute currently exists regarding the post-closing
adjustments that Hughes and Raytheon have proposed to one another and related
issues regarding the adequacy of disclosures made by Hughes to Raytheon in the
period prior to consummation of the merger. Raytheon and Hughes are proceeding
with the dispute resolution process. It is possible that the ultimate
resolution of the post-closing financial adjustment and of related disclosure
issues may result in Hughes making a payment to Raytheon that would be
material to Hughes. However, the amount of any payment that either party might
be required to make to the other cannot be determined at this time. Hughes
intends to vigorously pursue resolution of the disputes through the
arbitration process, opposing the adjustments proposed by Raytheon and seeking
the payment from Raytheon that it has proposed.
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Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure
Class H Stockholders Do Not Have Any Claims on the Assets of Hughes
Class H stockholders are common stockholders of General Motors and, as a
result, have rights in the equity and assets of GM rather than of Hughes.
Although the net income of Hughes is allocated for accounting purposes to
calculate the amounts which may be used to pay dividends on each class of GM
common stock, this allocation does not result in a physical segregation of the
assets of GM or Hughes, or the establishment of separate accounts or dividend
or liquidation preferences. If a liquidation, insolvency or similar event
occurred with respect to Hughes, creditors of Hughes, as well as GM as the
sole stockholder of Hughes, would receive payment from the assets of Hughes.
The holders of Class H common stock would not be entitled to any payment from
the assets of Hughes.
We Cannot Assure You That Cash Dividends Will Ever Be Paid on the Class H
Common Stock
We cannot assure you that cash dividends will ever be paid on the Class H
common stock. If you wish to receive a dividend, Class H common stock may not
be an appropriate investment for you. Unlike the $1 2/3 par value common
stock, cash dividends are not currently paid on the Class H common stock.
Since the completion of the Hughes restructuring transactions in late 1997,
the GM board has not paid cash dividends on the Class H common stock. Further,
the GM board does not currently intend to pay dividends on the Class H common
stock in the foreseeable future. Similarly, since that time, Hughes has not
paid dividends to GM on its common stock held by GM and does not intend to do
so in the foreseeable future. Future earnings of Hughes are expected to be
retained for the development of the business of Hughes. The GM board reserves
the right to reconsider from time to time its policies and practices regarding
dividends on the Class H common stock and to pay or not to pay, or increase or
decrease the dividends paid on the Class H common stock, if any, on the basis
of GM's consolidated financial position, including liquidity and other
factors, such as the earnings and consolidated results of operations and
financial condition of Hughes.
The Interests of GM's $1 2/3 Par Value Stockholders May Conflict with the
Interests of Class H Stockholders
The holders of Class H common stock may have different interests than the
holders of $1 2/3 par value common stock with respect to various intercompany
transactions and other matters, and we cannot assure you as to how any
conflicts between these interests will be resolved. Under Delaware law, the GM
board owes fiduciary duties to all holders of GM common stock, regardless of
class, and must act with due care and on an informed basis in the best
interests of GM and all of its common stockholders. In carrying out their
fiduciary duties to all of GM's stockholders, the officers and directors of GM
may make decisions and pursue policies or transactions that are different from
those that they would make or pursue if the Class H common stock were the only
class of common stock of GM. The GM board, in the discharge of its fiduciary
duties, oversees, principally through its capital stock committee, the
policies, programs and practices of GM which may give rise to conflicts of
interest between GM's two classes of common stock.
Class H Stockholders Will Be Common Stockholders of GM and Will Be Subject to
the Risks of an Investment in GM
We cannot assure you that the market value of the Class H common stock will
reflect the performance of Hughes as we intend. Class H stockholders will
continue to be common stockholders of GM and, as such, will be subject to all
risks of an investment in GM and all of its businesses, assets and
liabilities.
The Trading Price of Class H Common Stock Could Be Adversely Affected by GM's
Results
If GM were to experience a significant financial or other setback, this
could have an adverse effect on the trading price of the Class H common stock
as well as the $1 2/3 par value common stock. The trading prices of the Class
H common stock and the $1 2/3 par value common stock are generally affected by
different events. A transaction which is beneficial to the holders of $1 2/3
par value common stock may not positively affect the
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trading price of the Class H common stock, which historically has, in general,
been affected more by the results of Hughes rather than those of GM.
GM Board Policies and Practices Relating to Class H Common Stock Can Be
Adopted, Changed or Rescinded Without Stockholder Approval
The GM board may adopt, change or rescind policies, practices or policy
statements which could have a significant impact on the Class H common stock,
in each case without the approval of GM's common stockholders, including the
Class H stockholders. The GM board has adopted a policy statement governing
certain matters relating to its dual-class common stock capital structure.
This policy statement is subject to change at any time without stockholder
approval. The policy statement sets forth certain principles to guide the
board's actions relating to, among other things, transactions between GM and
Hughes and the relationship between dividends, if any, to be paid by Hughes to
GM and by GM to the Class H stockholders.
Your Class H Common Stock May Be Converted into $1 2/3 Par Value Common Stock
Without Your Consent
All outstanding shares of Class H common stock are potentially subject to
mandatory recapitalization into shares of $1 2/3 par value common stock under
certain circumstances. Any recapitalization would significantly change both
the form and nature of your investment in Class H common stock, without your
consent. Any recapitalization can be effected at a 120% exchange ratio at any
time after December 31, 2002 in the sole discretion of the GM board, or
automatically, if GM disposes of 80% or more of the business of Hughes to a
person, entity or group of which GM is not the majority owner. If we effect a
recapitalization at a time when the Class H common stock is considered to be
undervalued relative to the $1 2/3 par value common stock, any such
recapitalization may be disadvantageous to Class H common stockholders.
Additionally, any recapitalization would preclude Class H common stockholders
from retaining their investment in a security that is intended to reflect
separately the financial performance of Hughes. We cannot predict the impact
on the market price of the $1 2/3 par value common stock that any exercise by
GM of its recapitalization right would have. Consistent with GM's certificate
of incorporation, applicable corporate law and the GM board policy statement
referred to above, the GM board may submit from time to time to the GM common
stockholders for their consideration and approval one or more alternative
transactions on terms different from those provided for by these provisions
concerning recapitalization of Class H common stock at a 120% exchange ratio.
The Market Price of Class H Common Stock Will Fluctuate and Could Fluctuate
Significantly
We cannot predict the extent to which the market price of the Class H
common stock will fluctuate following the exchange offer. The stock market has
experienced extreme price and volume fluctuations. In the past, companies that
have experienced volatility have sometimes been the object of securities class
action litigation. Securities class action litigation may result in
substantial costs and a diversion of management's attention and resources.
In addition, GM has granted registration rights to certain persons in
connection with the issuance of shares of Class H common stock and securities
convertible into Class H common stock and intends to grant registration rights
to the trustees of the employee benefit plans in connection with the
anticipated contributions to these plans. For more information about these
share issuances and the related registration rights, see "Shares Eligible for
Future Sale." If these parties elect to sell their shares in the open market,
it could adversely affect the market price of Class H common stock. Further,
additional shares of Class H common stock may be issued by GM from time to
time in connection with future acquisitions and strategic alliances. The sale
of such shares, if any, also could adversely affect the market price of Class
H common stock.
Proposed Changes in the Tax Law Could Affect GM's Future Ability to Issue
Shares of Class H Common Stock
A proposal made by the Clinton administration in February 2000 would tax
stockholders upon the receipt of tracking stock similar to Class H common
stock, if the tracking stock was distributed by a corporation with
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respect to, or in exchange for, its own stock for a reason other than to
effectuate a stock split or similar transaction relating to the tracking
stock. The proposal would also grant the Secretary of the Treasury authority
to treat tracking stock as an instrument other than stock or as stock of
another entity for U.S. federal income tax purposes. The proposal would not
apply to an issuance of tracking stock if the underlying tracked assets could
be distributed in a transaction that would qualify as a tax-free spin-off for
U.S. federal income tax purposes. As proposed, this provision would apply to
tracking stock issued on or after the date of the proposal's enactment by the
U.S. Congress.
If enacted at any time, the Clinton administration proposal or any similar
proposal could limit our future ability to issue shares of Class H common
stock to our stockholders in a manner free of U.S. federal income tax to those
stockholders. Moreover, while the Clinton administration proposal does not
appear to affect GM's ability to issue Class H common stock in exchange for
cash or property other than stock of GM, including the ability to issue Class
H common stock in capital-raising public offerings or in acquisitions of
target companies, we cannot assure you that future legislative or regulatory
action with respect to this or any similar proposal will not limit GM's
ability to issue Class H common stock in such circumstances.
We cannot predict whether the Clinton administration proposal will be
enacted by the U.S. Congress, and, if enacted, whether it will be in the form
proposed or whether it will apply to any future issuances of Class H common
stock.
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THE TRANSACTIONS
Background and Purpose
The exchange offer of up to $9 billion of Class H common stock is an
important element of our overall plan to restructure GM's economic interest in
its Hughes subsidiary in order to realize some of the economic value arising
from GM's ownership of Hughes. The other element consists of our anticipated
contributions of a total of about $7 billion of Class H common stock to
certain of our employee benefit plans. Assuming that the exchange offer is
fully subscribed and that the contributions to the employee benefit plans are
made as anticipated, we will issue a total of about new shares of
Class H common stock, with an aggregate value of about $16 billion, based on
the closing trading price of Class H common stock on , 2000.
We will use the exchange offer to repurchase a substantial amount of $1 2/3
par value common stock, which we expect will significantly increase the
earnings per share attributable to $1 2/3 par value common stock in the
future. In addition, the employee benefit plan contributions will reduce our
annual pension expense and our expense relating to other post-retirement
employee benefits and will strengthen GM's overall financial position. These
transactions will not dilute the earnings per share attributable to the
outstanding Class H common stock. As described further below at "--Effects of
the Transactions," upon completion of a fully-subscribed exchange offer and
the contributions, GM will retain about a %, or $ billion, economic
interest in Hughes, based on the closing market price of Class H common stock
on , 2000. The issuance of additional shares of Class H common
stock in connection with these transactions will substantially increase the
liquidity of that stock in the market, which we believe will benefit Class H
stockholders over time.
In recent years, stock repurchase programs relating to our $1 2/3 par value
common stock have constituted an important part of our overall capital plan.
Since 1997, we have used about $9 billion in cash in connection with these
programs. These repurchases have reduced the number of shares of $1 2/3 par
value common stock outstanding by about 18%, which has increased the earnings
per share attributable to $1 2/3 par value common stock. The exchange offer
will enable us to utilize a portion of GM's economic interest in Hughes to
effect a substantial additional repurchase of $1 2/3 par value common stock
without diluting the tracking stock interest in the earnings of Hughes that is
currently held by existing holders of Class H common stock.
We have also made substantial progress in recent years in addressing the
underfunded status of our U.S. pension plans. During the last six years, we
have contributed over $22 billion to our U.S. pension plans, including over $6
billion of GM Class E common stock, which was subsequently exchanged for EDS
common stock. Additionally, since 1997, we have contributed over $6 billion to
our VEBA trust. Based on the number of shares determined by the closing
trading price of Class H common stock on , 2000, we would
contribute a total of about shares of Class H common stock to the
pension plan for the benefit of our hourly employees and to the VEBA. The
contribution of a significant amount of Class H common stock to our pension
plan would represent a further reduction in our pension plan funding
obligations and would help to ensure that the pension plan continues to be
fully funded, as determined in accordance with applicable accounting
standards. The contribution of Class H common stock to our VEBA would reduce
our expense relating to other post-retirement employee benefits. For more
information, see "--Contributions to the Employee Benefit Plans" below.
Upon completion of the exchange offer and the contributions to the employee
benefit plans, Hughes will remain a wholly-owned subsidiary of GM. These
transactions will not affect the business operations of Hughes, and GM's
automotive operations will continue to have direct access to the opportunities
for strategic synergies with Hughes' rapidly growing communications services
businesses. GM currently has no plans or intention to separate Hughes or any
of its businesses from GM, whether by means of a spin-off, split-off or any
other transaction. However, GM will continue to evaluate what Hughes ownership
structure would be optimal for the two companies and GM's stockholders. As a
result, GM may determine to pursue any number of future transactions involving
Hughes, or no transaction at all. After the exchange offer and the
contributions, GM will continue to have the flexibility to use its remaining
economic interest in Hughes in a variety of ways, including as a currency for
additional repurchases of $1 2/3 par value common stock, for use in connection
with acquisitions, for contributions to our employee benefit plans, to raise
capital in a tax-efficient manner or for use in
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implementing further corporate restructurings. See "Risk Factors--Risk Factors
Relating to GM's Dual-Class Common Stock Capital Structure--Proposed Changes
in the Tax Law Could Affect GM's Future Ability to Issue Shares of Class H
Common Stock."
Contributions to the Employee Benefit Plans
We currently plan to contribute a total of about $7 billion of Class H
common stock to our pension plan for the benefit of our hourly-rate employees
and to our VEBA. Based on the number of shares determined by the closing
trading price of Class H common stock on , 2000, these anticipated
contributions would consist of about shares of Class H common stock.
The contribution of a significant amount of that Class H common stock to the
pension plan will help to ensure that the hourly pension plan will continue to
be fully funded for the foreseeable future, as determined in accordance with
the standards set forth in Statement of Financial Accounting Standards No. 87
issued by the Financial Accounting Standards Board. The contribution of a
portion of that Class H common stock to the VEBA will reduce our liability for
other post-retirement employee benefits. The expected return on the assets
contributed to these two employee benefit plans will reduce our annual
expenses associated with pension and other post-retirement employee benefits.
Although we reserve the right to modify the amount or timing of each
contribution, or not to make the contributions at all, in the event that our
board of directors determines that such a change would be in the best
interests of GM and its stockholders, we currently expect to complete the
contributions to the pension plan and the VEBA, which may take the form of one
or more separate contributions, during the second quarter of 2000.
GM believes that its anticipated contributions of Class H common stock,
having a market value of about $7 billion, to certain of its employee benefit
plans during the second quarter of 2000 will have a significant favorable
impact on GM's pre-tax income in the future. The specific amount of the impact
of the contributions on GM's pre-tax income is not known at this time and will
be based on, among other things, the size, timing and terms of the
contributions as well as the value assigned by the trustees of the employee
benefit plans to the Class H common stock that is contributed. In addition,
the favorable effect of the contributions on GM's pre-tax income will be
offset by several factors, including the terms of the 1999 labor contract,
changes in health-care trend rates and higher levels of profit-sharing.
Although GM currently expects to make the contributions substantially on the
terms described in this document, GM is not obligated to do so. We cannot
assure you as to whether, when or the terms on which such contributions will
occur, or the actual amount of the impact on its pre-tax income. See "Risk
Factors--Risk Factors Relating to the Exchange Offer--GM's Failure to Complete
the Contributions to the Employee Benefit Plans as Planned Could Affect the
Market Price of $1 2/3 Par Value Common Stock."
Registration Rights and Transfer Restrictions
The shares of Class H common stock to be contributed to the employee
benefit plans will be subject to an agreement that will provide the plans with
registration rights with respect to the shares of Class H common stock they
will own as a result of the contributions. That agreement will also regulate
the manner in which such shares may be transferred. The following description
summarizes the material terms currently expected to be included in that
agreement. This description does not purport to be complete and is qualified
in its entirety by reference to the full text of the form of registration
rights agreement to be entered into by GM and the employee benefit plans,
which has been filed as an exhibit to the registration statement of which this
document is a part.
. The employee benefit plans will be permitted to transfer their shares of
Class H common stock only in certain specified types of transactions and
under certain circumstances, including public offerings and negotiated
transactions, whether registered with the SEC or not, and certain
transfers to other employee benefit plans maintained by GM and its
subsidiaries.
. The employee benefit plans will together have the right to require GM to
register offerings of their shares of Class H common stock no more than
two times in any twelve-month period during the first four years
following the initial contribution and three times in any twelve-month
period thereafter for the duration of the agreement. Subject to certain
limitations, GM will have the right to postpone the filing or
effectiveness of any such registration or the making of certain transfers
at any time that GM determines
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that such action would interfere with any proposal or plan by GM to engage
in any material transaction or would require GM to make a public
disclosure of material information which was previously non-public.
. The employee benefit plans will be prohibited from making a negotiated
transfer of Class H common stock to certain persons who are or who as a
result of the transfer would become holders of more than 5% of the then
outstanding Class H common stock or in blocks of more than 2% of the then
outstanding Class H common stock. Additionally, the underwriters in any
registered offerings of the employee benefit plans' shares will agree to
use their reasonable best efforts to make a broad public distribution of
those shares and not to sell those shares in blocks of more than 2% of
the then outstanding Class H common stock.
. Prior to GM registering any offering of shares of Class H common stock
with the SEC, GM will be required to notify the employee benefit plans of
its intent to do so and, subject to certain exceptions and volume
limitations, add to that offering as many shares of Class H common stock
held by the employee benefit plans as they request.
. In the context of a third-party tender offer, the employee benefit plans
will be restricted from selling their shares of Class H common stock
under certain circumstances, and they will have the right to cause GM to
purchase their shares of Class H common stock under certain
circumstances.
The agreement is also expected to provide that in the event that Class H
common stock would be converted into or exchanged for securities of an issuer
other than GM, that new issuer would succeed to all of the rights and
obligations of GM under the agreement, except for certain indemnification
provisions relating to prior offerings of Class H common stock under the
agreement. Under such circumstances, all of the provisions of the agreement
applicable to the Class H common stock held by the employee benefit plans
would apply to the securities into which the Class H common stock is
converted. An example of such a transaction would be the separation of Hughes
from GM by means of a spin-off or split-off transaction. GM has no current
plans or intention to separate Hughes or any of its businesses from GM,
whether by means of a spin-off, split-off or any other transaction.
It is also expected that, for a period that generally terminates on the
second anniversary of certain possible corporate transactions involving
Hughes, the employee benefit plans will each agree that they will vote against
any transactions that would potentially limit a tax-free spin-off of Hughes.
In addition, the employee benefit plans would be subject to certain transfer
restrictions intended to preserve the tax-free status of certain possible
corporate transactions involving Hughes.
Effects of the Transactions
Assuming that the exchange offer is fully subscribed and the contributions
to the employee benefit plans are made as anticipated, and based on the number
of shares of Class H common stock that would be subject to the contributions
as determined by the closing trading price of Class H common stock on
, 2000, the combined effect of the exchange offer and the
contributions will be to increase the tracking stock interest in Hughes'
earnings represented by Class H common stock from about 37% to %, with a
corresponding reduction of the portion of Hughes' earnings attributable to $1
2/3 par value common stock from about 63% to %. These percentages are
provided for illustrative purposes only and are based on certain assumptions
which give effect to the exercise of outstanding stock options and the shares
of Class H common stock issuable upon conversion of the Series H preference
shares, as described further below at "Description of Class H Common Stock--
Detailed Calculation of Amount Available for Dividends on Class H Common
Stock--Illustrative Calculation of Class H Fraction Following the Exchange
Offer and the Contributions to the Employee Benefit Plans." The actual
percentages will not be known until the actual number of shares of Class H
common stock issued in the exchange offer and the contributions to the
employee benefit plans have been determined.
Although GM will have reduced its economic interest in Hughes as a result
of these transactions, GM will continue to own 100% of the common stock of
Hughes. Accordingly, we will continue to be able to realize the strategic
benefits of owning and controlling Hughes and the financial benefits of
consolidating Hughes' financial position and results in our financial
statements and of consolidating Hughes for U.S. federal income tax purposes.
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Exchange Offer
The issuance of shares of Class H common stock in this exchange offer will
increase the numerator of the Class H fraction by the number of shares issued
in the exchange offer and will thereby reduce the interest of $1 2/3 par value
stockholders in the financial performance of Hughes for earnings per share and
dividend purposes.
The exchange offer will provide $1 2/3 par value stockholders with an
opportunity to increase, in a manner generally free of U.S. federal income
tax, their interest in the financial performance of Hughes by exchanging
shares of $1 2/3 par value common stock for shares of Class H common stock.
Every $1 2/3 par value stockholder will be affected by these transactions,
regardless of whether he or she participates in the exchange offer, as
described below:
. Tender of All of Your Shares of $1 2/3 Par Value Common Stock. If you
tender all of your shares of $1 2/3 par value common stock for shares of
Class H common stock in the exchange offer, provided all such shares are
accepted for exchange, you will continue to have an ownership interest in
General Motors, but you will have increased your interest in the
financial performance of Hughes by virtue of your ownership of Class H
common stock. However, you will no longer participate in any change in
value of the $1 2/3 par value common stock because you will no longer own
any shares of $1 2/3 par value common stock.
. Tender of Some, But Not All, of Your Shares of $1 2/3 Par Value Common
Stock. If you exchange some, but not all, of your shares of $1 2/3 par
value common stock in the exchange offer, you will generally have an
increased interest in the financial performance of Hughes, and a
diminished interest in the financial performance of GM's businesses other
than Hughes, assuming that you exchange a greater percentage of your
shares of $1 2/3 par value common stock than the percentage of all
outstanding shares of $1 2/3 par value common stock that are exchanged in
the exchange offer.
. Tender of None of Your Shares of $1 2/3 Par Value Common Stock. If you do
not tender any of your shares of $1 2/3 par value common stock in the
exchange offer, you will continue to own the same number of shares of $1
2/3 par value common stock and will thus continue to have an ownership
interest in General Motors. You will continue to participate in any
change in the value of the $1 2/3 par value common stock. However, as a
result of the increase in the numerator of the Class H fraction described
above, you will have a diminished interest in the financial performance
of Hughes.
All shares of $1 2/3 par value common stock acquired by General Motors in
the exchange offer will become authorized and unissued shares of $1 2/3 par
value common stock. This means that these shares will generally be available
for issuance by GM without further stockholder action, except as may be
required by applicable law or the rules of the NYSE, for general or other
corporate purposes, including stock splits and dividends, acquisitions, the
raising of additional capital for use in GM's businesses and pursuant to
employee benefit plans.
Contributions to the Employee Benefit Plans
The issuance of shares of Class H common stock in the contributions to the
employee benefit plans, assuming they are made as anticipated, will also
increase the numerator of the Class H fraction by the number of shares issued
in the contributions and will thereby reduce the interest of $1 2/3 par value
stockholders in the financial performance of Hughes for earnings per share and
dividend purposes.
The contribution to the pension plan will reduce our annual pension expense
and will help to ensure that the pension plan will continue to be fully
funded, as determined in accordance with applicable accounting standards.
Additionally, the contribution to the VEBA will reduce our expense relating to
other post-retirement benefits for our employees. However, we cannot
accurately predict the amount or timing of our pension funding obligations in
the future or the related impact on our financial results and financial
condition. These amounts may be affected by general economic conditions,
including anticipated interest rates, the actual investment return on plan
assets, including the value of the shares of Class H common stock contributed
to the pension plan, the retirement rate of our employees, the attrition rate
of our employees and other factors. In particular, following the contribution
to the pension plan, so long as the pension plan holds any Class H common
stock, any appreciation or depreciation in the value of Class H common stock
will affect the level of GM's pension expense and unfunded pension liability,
which are actuarially determined and computed in accordance with generally
accepted accounting principles.
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Following the contributions, subject to certain restrictions, the trustees
of the employee benefit plans will have the authority and discretion to cause
the employee benefit plans to hold the shares of Class H common stock
contributed by GM or to sell all or any portion thereof from time to time as
they deem appropriate. Significant sales of Class H common stock by the
employee benefit plans could adversely affect the market price of Class H
common stock. The employee benefit plans will be subject to agreements that
will provide them with registration rights with respect to the shares of Class
H common stock they receive pursuant to the contributions, but will also
regulate the manner in which such shares may be sold. For more information,
see "--Contributions to the Employee Benefit Plans--Registration Rights and
Transfer Restrictions."
No Appraisal Rights
Appraisal is a statutory remedy available to corporate minority
stockholders who object to extraordinary actions taken by their corporation.
This remedy allows dissenting stockholders to require the corporation to
repurchase their stock at a price equivalent to its value immediately prior to
the extraordinary corporate action. No appraisal rights are available to $1
2/3 par value stockholders or Class H stockholders in connection with the
exchange offer.
Regulatory Approvals
In order to complete the exchange offer, we must make certain filings and
notifications and receive certain authorizations or exemptions from
governmental agencies regulating securities law issues in foreign
jurisdictions. We believe that no material foreign regulatory requirements
remain to be complied with, and no further material approvals must be
obtained. For more information, see "The Exchange Offer--Certain Matters
Relating to Foreign Jurisdictions."
No filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, are required in connection with the exchange offer generally. If a
$1 2/3 par value stockholder decides to participate in the exchange offer and
consequently acquires enough shares of Class H common stock to exceed any
threshold stated in the regulations under this act, and if an exemption under
those regulations does not apply, such $1 2/3 par value stockholder and GM
could be required to make filings under this act, and the waiting period under
the act would have to expire or be terminated before any exchanges of shares
with such stockholder could be effected. A filing requirement could delay
exchanges with that stockholder for several months or more.
Accounting Treatment
The shares of $1 2/3 par value common stock which we receive pursuant to
the exchange offer will be recorded as a decrease in GM's stockholders' equity
in an amount equal to the market value as of the expiration date of the Class
H common stock issued in the exchange offer. This issuance of Class H common
stock will be recorded as an equal and offsetting increase in GM's
stockholders' equity. Accordingly, except for the direct costs of the
transaction, the exchange offer will not affect the financial position or
results of operations of GM. As a result of the exchange offer, basic and
diluted earnings per share calculations for the $1 2/3 par value common stock
subsequent to the expiration date will reflect the lower number of outstanding
shares of $1 2/3 par value common stock and the $1 2/3 par value stockholders'
decreased interest in the available separate consolidated net income of
Hughes. While the earnings per share for Class H common stock will not change,
basic and diluted earnings per share calculations for the Class H common stock
subsequent to the expiration date will reflect the Class H stockholders'
increased interest in the available separate consolidated net income of Hughes
and the proportionate increase in the number of shares of Class H common stock
outstanding.
The contributions of Class H common stock to the employee benefit plans
will be recorded at the value assigned to such Class H common stock by the
trustees of the plans at the time of the contributions, with these respective
amounts increasing GM's prepaid pension asset and reducing GM's liability for
other post-retirement employee benefits. The expected return on these assets
will reduce our annual pension expense and our annual expense associated with
other post-retirement employee benefits.
GM's issuance of shares of Class H common stock in the exchange offer and
the contributions to the employee benefit plans will not, in and of itself,
affect the financial position or results of operations of Hughes.
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THE EXCHANGE OFFER
Terms of the Exchange Offer
General Motors is offering to exchange shares of Class H common stock
for each share of $1 2/3 par value common stock held that is validly tendered
on the terms and subject to the conditions described below by 12:00 midnight,
New York City time, on , 2000. GM may extend this deadline for any
reason, including under certain circumstances specified below. The last day on
which tenders will be accepted, whether on , 2000 or any later date to
which the exchange offer may be extended, is sometimes referred to in this
document as the "expiration date." This is a voluntary exchange offer, which
means that $1 2/3 par value stockholders may tender all, some or none of their
shares in the exchange offer. All persons holding $1 2/3 par value common
stock are eligible to participate in the exchange offer if they validly tender
their shares during the exchange offer period in a jurisdiction where the
exchange offer is permitted under the laws of that jurisdiction.
GM will accept up to shares of $1 2/3 par value common stock for
exchange and will issue up to shares of Class H common stock in the
exchange offer. If more than shares of $1 2/3 par value common stock
are validly tendered, the tendered shares will be subject to proration when
the exchange offer expires. GM's obligation to complete the exchange offer is
subject to important conditions that are described at "--Conditions for
Completion of the Exchange Offer."
In determining the exchange ratio, GM considered, among other things:
. recent market prices on the NYSE for shares of $1 2/3 par value common
stock and Class H common stock; and
. advice from the dealer manager as to what exchange ratio might attract
enough $1 2/3 par value stockholders to participate in the exchange
offer.
We are sending this document and related documents to all persons who held
shares of $1 2/3 par value common stock on or about , 2000. As of
December 31, 1999, there were about 617,437,531 shares of $1 2/3 par value
common stock outstanding, which were held of record by about 499,809
stockholders.
GM will furnish this document and related documents to brokers, banks and
similar persons whose names or the names of whose nominees appear on GM's $1
2/3 par value stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of shares of $1 2/3 par value common stock.
The terms and conditions of this exchange offer are set forth in this
document, the letter of transmittal and the instructions to the letter of
transmittal. Each stockholder who tenders shares in the exchange offer will be
agreeing to the terms and conditions of the exchange offer and will be making
certain representations and warranties to, and agreements with GM, as
described in these documents. We urge you to read these documents carefully
before deciding whether to participate in the exchange offer.
None of General Motors, Hughes, the exchange agent, the information agent,
the dealer manager, the marketing manager or any of their respective officers
or directors makes any recommendation as to whether you should participate in
the exchange offer.
Proration; Tenders for Exchange by Holders of Fewer than 100 Shares of $1 2/3
Par Value Common Stock
If, upon the expiration date, $1 2/3 par value stockholders have validly
tendered more than shares of $1 2/3 par value common stock so that
more than shares of Class H common stock would be exchanged, we will
accept on a pro rata basis all shares of $1 2/3 par value common stock validly
tendered and not withdrawn, with appropriate adjustments to avoid the issuance
of fractional shares of $1 2/3 par value common stock, except as described
below.
Except as otherwise provided in this paragraph, holders of an aggregate of
less than 100 shares of $1 2/3 par value common stock who validly tender all
of their shares will not be subject to proration if the exchange offer is
oversubscribed. Shares of $1 2/3 par value common stock held in a GM or GM
affiliated company savings plan
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are not eligible for this preferential treatment. Beneficial holders of 100 or
more shares of $1 2/3 par value common stock are not eligible for this
preferential treatment, even if such holders have separate stock certificates
or accounts representing fewer than 100 shares of $1 2/3 par value common
stock. If you own fewer than 100 shares of $1 2/3 par value common stock and
wish to take advantage of the preferential treatment of odd-lot shares in the
event of proration, you must tender all of your shares in the exchange offer.
We will announce preliminary results of the exchange offer by press release
promptly after the expiration date. However, because of the difficulty in
determining the number of shares of $1 2/3 par value common stock validly
tendered for exchange, GM expects that the final results, including proration,
if any, will not be determined until about seven business days after the
expiration date. We will announce the final results of the exchange offer by
press release promptly after such results have been determined.
No Fractional Shares
No fractional shares of Class H common stock will be distributed in the
exchange offer. The exchange agent, acting as agent for holders of $1 2/3 par
value common stock otherwise entitled to receive fractional shares of Class H
common stock as a result of the exchange offer, will aggregate all fractional
shares and sell them for the accounts of those stockholders after the exchange
offer. The proceeds from these sales will be distributed, net of commissions,
to those stockholders on a pro rata basis. These cash payments will be made
instead of issuing fractional shares whether shares are tendered to the
exchange agent or through the book-entry transfer facility. These cash
payments will generally be taxable to you. See "Material U.S. Federal Income
Tax Consequences."
None of General Motors, Hughes, Fleet, Morrow, Morgan Stanley Dean Witter,
Salomon Smith Barney or any soliciting dealer will guarantee any minimum
proceeds from the sale of fractional shares of Class H common stock, and no
interest will be paid on any of the proceeds.
Exchange of Shares of $1 2/3 Value Common Stock
If all of the conditions of the exchange offer are satisfied or waived, GM
will exchange shares of Class H common stock for each validly tendered
share of $1 2/3 par value common stock that was not properly withdrawn prior
to the expiration date, except as described at "--Proration; Tenders for
Exchange by Holders of Fewer Than 100 Shares of $1 2/3 Par Value Common Stock"
and "--Extension of Tender Period; Termination; Amendment." GM may, subject to
the rules under the Securities Exchange Act, delay accepting or exchanging any
shares of $1 2/3 par value common stock in order to comply in whole or in part
with any applicable law. For a description of GM's right to delay, terminate
or amend the exchange offer, see "--Extension of Tender Period; Termination;
Amendment."
If GM notifies the exchange agent either orally or in writing that it has
accepted the tenders of shares of $1 2/3 par value common stock for exchange,
the exchange of these shares will be complete. Promptly following the
announcement by GM of any final proration factor, the exchange agent will
deliver the tendered shares of $1 2/3 par value common stock to GM.
Simultaneously, the exchange agent, as agent for the tendering stockholders,
will receive from GM, the shares of Class H common stock that correspond,
based on the exchange ratio and taking into account proration, to the number
of shares of $1 2/3 par value common stock tendered. The exchange agent will
then credit such shares to book-entry accounts maintained by the transfer
agent for the benefit of the holders.
If any tendered shares of $1 2/3 par value common stock are not exchanged
for any reason, or if fewer shares are exchanged due to proration, these
unexchanged or untendered shares of $1 2/3 par value common stock will be
credited to book-entry accounts for the shares maintained by GM's transfer
agent for the benefit of the holders.
As soon as reasonably practicable following the crediting of shares to your
respective book-entry accounts, GM's transfer agent will send you an account
statement evidencing your holdings.
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GM will not pay interest under the exchange offer, regardless of any delay
in making the exchange or crediting or delivering shares.
No alternative, conditional or contingent tenders will be accepted in the
exchange offer. Tendering stockholders waive any right to receive notice of
the acceptance by GM of their shares of $1 2/3 par value common stock for
exchange.
Procedures for Tendering Shares of $1 2/3 Par Value Common Stock
To tender your shares of $1 2/3 par value common stock, you must complete
the following procedures before the expiration date:
If you have stock certificates representing your shares of $1 2/3 par value
common stock, you should send the following documents to the exchange agent by
registered mail, return receipt requested, sufficiently in advance of the
expiration date for them to be received by the exchange agent before the
expiration date:
. a properly completed and executed letter of transmittal indicating the
number of shares of $1 2/3 par value common stock to be tendered and any
other documents required by the instructions to the letter of
transmittal; and
. the actual stock certificates representing the shares of $1 2/3 par value
common stock to be tendered.
In addition, you must endorse your stock certificate or enclose an appropriate
stock power if:
. a stock certificate representing shares of $1 2/3 par value common stock
is registered in the name of a person other than the signer of a letter
of transmittal;
. delivery of shares of Class H common stock is to be made to the exchange
agent on behalf of a person other than the registered owner of the shares
of $1 2/3 par value common stock being tendered; or
. shares of $1 2/3 par value common stock not accepted for exchange are to
be delivered to GM's transfer agent on behalf of a person other than the
registered owner.
The signature on the letter of transmittal must be guaranteed by an
eligible institution unless the shares of $1 2/3 par value common stock
tendered under the letter of transmittal are tendered in one of the following
ways:
. by the registered holder of the shares of $1 2/3 par value common stock
tendered if such holder has not requested special issuance as described
in "Special Issuance Instructions" of the instructions to the letter of
transmittal; or
. for the account of an eligible institution.
An eligible institution is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or a correspondent in
the United States. Most banks and financial institutions are eligible
institutions.
The exchange agent's addresses are set forth on the back cover of this
document.
If you hold your shares of $1 2/3 par value common stock through a broker,
you should follow the instructions sent to you separately by your broker. You
should not use the letter of transmittal to direct the tender of your shares
of $1 2/3 par value common stock. Your broker must notify The Depository Trust
Company and cause it to transfer the shares into the exchange agent's account
in accordance with The Depository Trust Company's procedures. The broker must
also ensure that the exchange agent receives an agent's message from The
Depository Trust Company confirming the book-entry transfer of your shares of
$1 2/3 par value common stock. An agent's message is a message, transmitted by
The Depository Trust Company and received by the exchange agent, that forms a
part of a book-entry confirmation, which states that The Depository Trust
Company has received an express acknowledgment from the participant in The
Depository Trust Company tendering the shares that such participant has
received and agrees to be bound by the terms of the letter of transmittal and
the accompanying instructions to the letter of transmittal.
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If you are an institution which is a participant in The Depository Trust
Company's book-entry transfer facility, you should follow the same procedures
that are applicable to persons holding shares through a broker as described in
the immediately preceding paragraph.
If you hold your shares of $1 2/3 par value common stock as a participant
in GM's Dividend and Cash Investment Plan or in book-entry form with the GM
transfer agent through the direct registration system, you should send a
properly completed and executed letter of transmittal indicating the number of
shares to be tendered and any other documents required by the instructions to
the letter of transmittal to the exchange agent by registered mail, return
receipt requested, sufficiently in advance of the expiration date for them to
be received by the exchange agent before the expiration date. If you tender
all of your shares that you hold in GM's Dividend and Cash Investment Plan,
that tender will constitute termination of your participation in GM's Dividend
and Cash Investment Plan.
If you hold your shares of $1 2/3 par value common stock as a participant
in a GM or a GM affiliated company savings plan, you should follow the
instructions sent to you separately by the plan trustees or administrator of
the plan. You should not use the letter of transmittal to direct the tender of
your shares of $1 2/3 par value common stock held in such a plan.
The GM or GM affiliated company savings plans eligible to participate in
the exchange offer include:
. The General Motors Savings-Stock Purchase Program for Salaried Employees
in the United States;
. The Personal Savings Plan for Hourly-Rate Employees in the United
States;
. The Saturn Individual Savings Plan for Represented Members;
. The General Motors Canadian Savings-Stock Purchase Program;
. The GMAC Mortgage Group Savings Incentive Plan; and
. General Motors of Canada Limited Group Retirement Savings Plan and
Savings Plan for Hourly Employees.
Also, employees of GM and its affiliates who hold shares of $1 2/3 par
value common stock following the exercise of stock options are eligible to
participate in the exchange offer. Holders of shares of $1 2/3 par value
common stock that were acquired upon the exercise of an incentive stock option
generally will not be taxed for U.S. federal income tax purposes at the time
of tender of such shares, but rather generally will be taxed at the time of
the disposition of the shares of Class H common stock that were acquired in
exchange for such shares of $1 2/3 par value common stock. Each holder of $1
2/3 par value common stock subject to stock options should consult his or her
tax advisor as to the particular tax consequences to that holder.
Trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity who
sign the letter of transmittal, notice of guaranteed delivery or any
certificates or stock powers must indicate the capacity in which they are
signing, and must submit evidence of their power to act in that capacity
unless waived by GM.
If you validly tender your shares of $1 2/3 par value common stock and such
shares are accepted by GM, there will be a binding agreement between you and
GM on the terms and subject to the conditions set forth in this document and
in the letter of transmittal and the accompanying instructions to the letter
of transmittal. A person who tenders shares of $1 2/3 par value common stock
for his or her own account violates U.S. federal securities law unless the
person owns:
. such shares of $1 2/3 par value common stock;
. other securities convertible into or exchangeable for such shares of $1
2/3 par value common stock and intends to acquire shares of $1 2/3 par
value common stock for tender by conversion or exchange of such
securities; or
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. an option, warrant or right to purchase such shares of $1 2/3 par value
common stock and intends to acquire shares of $1 2/3 par value common
stock for tender by exercise of such option, warrant or right.
U.S. federal securities law provides a similar restriction applicable to the
tender or guarantee of a tender on behalf of another person.
Do not send letters of transmittal, certificates representing shares of $1
2/3 par value common stock or other exchange offer documents to General
Motors, Hughes, Morrow, Morgan Stanley Dean Witter, Salomon Smith Barney or
any soliciting dealer. These materials must be submitted to Fleet, the
exchange agent, at one of the addresses set forth on the back cover of this
document as described above in order for you to participate in the exchange
offer.
It is up to you to decide how to deliver your shares of $1 2/3 par value
common stock and all other required documents to the exchange agent. It is
your responsibility to ensure that all necessary materials are received by the
exchange agent prior to the expiration date. If the exchange agent does not
receive all of the materials required by this section at one of the addresses
set forth on the back cover of this document before the expiration date, your
shares will not be validly tendered in the exchange offer.
Special Procedures for Certain Jurisdictions Outside the United States
If you wish to tender your shares of $1 2/3 par value common stock in a
jurisdiction other than the United States, certain special procedures may need
to be followed, depending on the laws of the particular jurisdiction in which
you tender your shares. For example, the laws of some foreign jurisdictions
require that a local bank or similar institution be engaged as a local
exchange agent for that jurisdiction. In each case where special procedures
are applicable to a jurisdiction outside the United States, we have included
special instructions regarding such procedures with this document. If you wish
to tender your shares of $1 2/3 par value common stock in a jurisdiction other
than the United States, you should also read carefully the information
applicable to you at "--Certain Matters Relating to Foreign Jurisdictions."
If you have questions concerning these special procedures, or if you plan
to tender your shares from a jurisdiction other than the one indicated by your
mailing address, please contact our information agent, Morrow, at (877) 816-
5329 (toll free) in the United States or at (212) 754-8000 (collect)
elsewhere.
GM's Interpretations Are Binding
GM will determine in its sole and absolute discretion all questions as to
the form of documents, including notices of withdrawal, and the validity,
form, eligibility, including time of receipt, and acceptance for exchange of
any tender of shares of $1 2/3 par value common stock in the exchange offer.
This determination will be final and binding on all tendering stockholders.
GM reserves the absolute right to:
. determine whether a tendering stockholder is eligible;
. reject any and all tenders of any shares of $1 2/3 par value common stock
not validly tendered or the acceptance of which, in the opinion of GM's
counsel, may be unlawful;
. waive any defects or irregularities in the tender of shares of $1 2/3 par
value common stock or any conditions of the exchange offer either before
or after the expiration date; and
. request any additional information from any record or beneficial owner of
shares of $1 2/3 par value common stock that GM deems necessary or
appropriate.
None of GM, Hughes, Fleet, Morrow, Morgan Stanley Dean Witter, Salomon
Smith Barney, the soliciting dealers and any other person will be under any
duty to notify tendering $1 2/3 par value stockholders of any defect or
irregularity in tenders or notices of withdrawal. It is your responsibility to
ensure that your shares of $1 2/3 par value common stock are validly tendered
in accordance with the procedures described in this document and the related
documents prior to the expiration date.
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Lost, Destroyed, Mutilated or Stolen Certificates
If your certificate representing shares of $1 2/3 par value common stock
has been lost, destroyed, mutilated or stolen and you wish to tender your
shares, please complete Box A of the accompanying letter of transmittal. You
will need to enclose a check payable to the surety company in the amount
needed to pay for a surety bond for your lost, destroyed, mutilated or stolen
shares and any other applicable procedures. The surety bond amount will be
$1.60 per share, with a minimum surety bond amount of $20.00 in all cases.
Upon receipt of the surety bond payment and a properly completed letter of
transmittal, including Box A, your shares will be included in the exchange
offer.
Guaranteed Delivery Procedures
If you wish to tender your shares of $1 2/3 par value common stock but the
shares are not immediately available, or time will not permit the shares or
other required documentation to reach the exchange agent before the expiration
date, you may still tender your shares of $1 2/3 par value common stock if:
. the tender is made through an eligible institution;
. the exchange agent receives from the eligible institution before the
expiration date, a properly completed and duly executed notice of
guaranteed delivery, substantially in the form provided by GM; and
. the exchange agent receives the certificates for all physically tendered
shares of $1 2/3 par value common stock, in proper form for transfer and
a properly completed letter of transmittal, or a facsimile of a letter of
transmittal and all other documents required by the letter of transmittal
and the accompanying instructions to the letter of transmittal, within
three NYSE trading days after the date of execution of the notice of
guaranteed delivery.
You may deliver the notice of guaranteed delivery by hand, facsimile
transmission or mail to the exchange agent at the applicable address set forth
on the back cover of this document and you must include a guarantee by an
eligible institution in the form set forth in the notice of guaranteed
delivery.
Withdrawal Rights
You may withdraw tenders of shares of $1 2/3 par value common stock at any
time prior to the expiration date and, unless GM has accepted your tender as
provided in this document and the accompanying documents, after the expiration
of 40 business days from the commencement of the exchange offer. If GM:
. delays its acceptance of shares of $1 2/3 par value common stock for
exchange;
. extends the exchange offer; or
. is unable to accept shares of $1 2/3 par value common stock for exchange
under the exchange offer for any reason,
then, without prejudice to GM's rights under the exchange offer, the exchange
agent may, on behalf of GM, retain shares of $1 2/3 par value common stock
tendered, and such shares of $1 2/3 par value common stock may not be
withdrawn except as otherwise provided in this document, subject to provisions
under the Securities Exchange Act that provide that an issuer making an
exchange offer shall either pay the consideration offered or return tendered
securities promptly after the termination or withdrawal of the exchange offer.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of its addresses set forth on the back
cover of this document. The notice of withdrawal must:
. specify the name of the person having tendered the shares of $1 2/3 par
value common stock to be withdrawn;
. identify the number of shares of $1 2/3 par value common stock to be
withdrawn; and
. specify the name in which physical $1 2/3 par value common stock
certificates are registered, if different from that of the withdrawing
holder.
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If certificates representing the shares of $1 2/3 par value common stock
have been delivered or otherwise identified to the exchange agent, then,
before the release of such certificates, the withdrawing holder must also
submit the serial numbers of the particular certificates to be withdrawn.
If the shares of $1 2/3 par value common stock have been tendered pursuant
to the procedures for book-entry transfer, any notice of withdrawal must
specify the name and number of the account at The Depository Trust Company to
be credited with the withdrawn shares and otherwise comply with the procedures
of such facility.
If the shares of $1 2/3 par value common stock have been tendered pursuant
to the procedures applicable to participants in GM's Dividend and Cash
Investment Plan or through book-entry transfer under the direct registration
system, any notice of withdrawal must specify the name and number of the
account with GM's transfer agent.
Any shares of $1 2/3 par value common stock withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the exchange offer.
Properly withdrawn shares may be retendered by following one of the procedures
described at "--Procedures for Tendering Shares of $1 2/3 Par Value Common
Stock" at any time on or before the expiration date.
If you withdraw your tender of any shares of $1 2/3 par value common stock,
such shares will be credited to a book-entry account maintained by GM's
transfer agent on your behalf. However, any stockholder who wishes to receive
a physical certificate evidencing his or her shares will be able to obtain a
certificate at no charge by contacting GM's transfer agent.
Except as otherwise provided above, any tender of shares of $1 2/3 par
value common stock made under the exchange offer is irrevocable.
Book-Entry Accounts
Physical stock certificates representing shares of Class H common stock or
$1 2/3 par value common stock will not be issued as a result of the exchange
offer. Rather than issuing physical stock certificates representing either
shares of $1 2/3 par value common stock returned due to proration or
withdrawal or shares of Class H common stock issued in exchange for shares of
$1 2/3 par value common stock tendered in the exchange offer, the exchange
agent will credit such shares to book-entry accounts maintained by the GM
transfer agent for the benefit of the respective holders. This method of
holding stock eliminates the need for actual stock certificates to be issued
and eliminates the requirements for physical movement of stock certificates at
the time of sale. As soon as reasonably practicable following the crediting of
shares to your respective book-entry accounts, you will receive an account
statement from GM's transfer agent evidencing your holdings, as well as
general information on the book-entry form of ownership through GM's direct
registration system. For more information about the book-entry form of
ownership under GM's direct registration system, see "Description of Class H
Common Stock--Direct Registration System."
You are not required to maintain a book-entry account and you may at any
time obtain a physical stock certificate for all or a portion of your shares
of Class H common stock received as part of the exchange offer at no cost to
you. Instructions describing how you can obtain stock certificates will be
included with the account statement mailed to you and can also be obtained
upon request from GM's transfer agent.
Extension of Tender Period; Termination; Amendment
GM expressly reserves the right, in its sole and absolute discretion, for
any reason, including the non-satisfaction of any of the conditions for
completion set forth below, to extend the period of time during which the
exchange offer is open or to amend the exchange offer in any respect,
including changing the exchange ratio. GM also expressly reserves the right to
extend the period of time during which the exchange offer is open in the
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event the exchange offer is undersubscribed--that is, fewer than shares
of $1 2/3 par value common stock are tendered. In any of these cases, GM will
make a public announcement of the extension or amendment.
If GM materially changes the terms of or information concerning the
exchange offer, GM will extend the exchange offer. Depending on the substance
and nature of such change, we will extend the offer for at least five to ten
business days following the announcement if the exchange offer would have
otherwise expired within such five to ten business days.
If any condition for completion of the exchange offer described below is
not satisfied, GM reserves the right to choose to delay acceptance for
exchange of any shares of $1 2/3 par value common stock or to terminate the
exchange offer and not accept for exchange any shares of $1 2/3 par value
common stock. For more information, see "--Conditions for Completion of the
Exchange Offer--Consequences of Unsatisfied Conditions."
If GM extends the exchange offer, is delayed in accepting any shares of $1
2/3 par value common stock or is unable to accept for exchange any shares of
$1 2/3 par value common stock under the exchange offer for any reason, then,
without affecting GM's rights under the exchange offer, the exchange agent
may, on behalf of GM, retain all shares of $1 2/3 par value common stock
tendered. These shares of $1 2/3 par value common stock may not be withdrawn
except as provided at "--Withdrawal Rights" above. GM's reservation of the
right to delay acceptance of any shares of $1 2/3 par value common stock is
subject to applicable law, which requires that GM pay the consideration
offered or return the shares of $1 2/3 par value common stock deposited
promptly after the termination or withdrawal of the exchange offer. Any shares
of $1 2/3 par value common stock to be returned to you will be credited to a
book-entry account in your name maintained by GM's transfer agent. However,
any stockholder who wishes to receive a physical certificate evidencing his or
her shares will be able to obtain a certificate at no charge by contacting
GM's transfer agent.
GM will issue a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day following any
extension, amendment, non-acceptance or termination of the previously
scheduled expiration date.
Conditions for Completion of the Exchange Offer
Minimum Condition
GM will not be obligated to complete the exchange offer unless at least
shares of $1 2/3 par value common stock are validly tendered and not
withdrawn and all of the other conditions to the exchange offer described
below have been satisfied. This condition, which we sometimes refer to in this
document as the "minimum condition," is designed to ensure that at least
shares of Class H common stock are issued under the exchange offer and
represents about % of the outstanding shares of $1 2/3 par value common
stock as of , 2000.
Tax Opinions Condition
GM's obligation to complete the exchange offer is also conditioned on GM's
receipt of an opinion from its outside tax counsel, Kirkland & Ellis, to the
effect that, for U.S. federal income tax purposes, the exchange of Class H
common stock for $1 2/3 par value common stock pursuant to the exchange offer
will not result in the recognition of gain or loss either by $1 2/3 par value
stockholders who participate in the exchange offer, except in connection with
any cash received instead of fractional shares, or by GM. The exchange offer
will have these U.S. federal income tax consequences to $1 2/3 par value
stockholders and GM only if Class H common stock is treated as stock of GM for
U.S. federal income tax purposes. GM anticipates that it will also receive an
opinion from Kirkland & Ellis to this effect, the receipt of which is also a
condition to GM's obligation to complete the exchange offer. For more
information, see "Risk Factors--Risk Factors Relating to GM's Dual-Class
Common Stock Capital Structure--Proposed Changes in the Tax Law Could Affect
GM's Future Ability to Issue Shares of Class H Common Stock" and "Material
U.S. Federal Income Tax Consequences."
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Other Conditions
In addition, even if the minimum condition is satisfied and GM receives the
tax opinions, GM may also choose not to accept shares for exchange and not to
complete the exchange offer if:
. any action, proceeding or litigation seeking to enjoin, make illegal or
delay completion of the exchange offer or otherwise relating in any
manner to the exchange offer is instituted or threatened;
. any order, stay, judgment or decree is issued by any court, government,
governmental authority or other regulatory or administrative authority
and is in effect, or any statute, rule, regulation, governmental order or
injunction shall have been proposed, enacted, enforced or deemed
applicable to the exchange offer, any of which would or might restrain,
prohibit or delay completion of the exchange offer or impair the
contemplated benefits of the exchange offer to GM or Hughes;
. any of the following occurs and the adverse effect of such occurrence
shall, in the reasonable judgment of GM, be continuing:
. any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the over-the-
counter market in the United States;
. any extraordinary or material adverse change in U.S. financial
markets generally, including, without limitation, a decline of at
least twenty percent in either the Dow Jones Average of Industrial
stocks or the Standard & Poor's 500 Index from , 2000;
. a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States;
. any limitation, whether or not mandatory, by any governmental entity
on, or any other event that would reasonably be expected to
materially adversely affect, the extension of credit by banks or
other lending institutions;
. a commencement of a war or other national or international calamity
directly or indirectly involving the United States, which would
reasonably be expected to affect materially and adversely, or to
delay materially, the completion of the exchange offer; or
. if any of the situations described above exists at the time of
commencement of the exchange offer, GM determines that the situation
deteriorates materially subsequent to the time of commencement;
. any tender or exchange offer, other than this exchange offer by GM, with
respect to some or all of the outstanding Class H common stock or $1 2/3
par value common stock or any merger, acquisition or other business
combination proposal involving GM or Hughes, shall have been proposed,
announced or made by any person or entity;
. any event or events occur that have resulted or may result, in GM's
judgment, in an actual or threatened change in the business condition,
income, operations, stock ownership or prospects of GM and its
subsidiaries, taken as a whole, or of Hughes and its subsidiaries, taken
as a whole; or
. as the terms "group" and "beneficial owner" are used in Section 13(d) of
the Securities Exchange Act and SEC rules thereunder,
. any person, entity or group shall have become directly or indirectly
the beneficial owner of more than five percent of the outstanding
shares of $1 2/3 par value common stock or Class H common stock, other
than a person, entity or group which had publicly disclosed such
beneficial ownership by an appropriate filing with the SEC prior to
, 2000; or
. any such person, entity or group which had publicly disclosed such
beneficial ownership prior to such date shall have become directly or
indirectly the beneficial owner of additional $1 2/3 par value common
stock and Class H common stock, the ownership of which was not publicly
disclosed in such filing, constituting more than two percent of the
outstanding shares of $1 2/3 par value common stock and Class H common
stock; or
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. any new group shall have been formed that beneficially owns more than
five percent of the outstanding shares of $1 2/3 par value common stock
or Class H common stock; or
. any one or more of the foregoing events relating to beneficial
ownership would occur as a result of the issuance of Class H common
stock in exchange for any shares of $1 2/3 par value common stock that
have been tendered in the exchange offer;
the occurrence of which event, in the judgment of GM in any such case and
regardless of the circumstances, makes it inadvisable to proceed with the
exchange offer or with the acceptance of shares of $1 2/3 par value common
stock tendered for exchange.
Consequences of Unsatisfied Conditions
If any condition to the exchange offer is not satisfied, GM may, in its
sole and absolute discretion:
. terminate the exchange offer and promptly return in book-entry form all
tendered shares of $1 2/3 par value common stock to tendering
stockholders;
. delay acceptance for exchange of any shares of $1 2/3 par value common
stock, extend the exchange offer and, subject to the withdrawal rights
described at "--Withdrawal Rights," retain all tendered shares of $1 2/3
par value common stock until the extended exchange offer expires;
. amend the terms and conditions of the exchange offer; or
. waive the unsatisfied condition and, subject to any requirement to extend
the period of time during which the exchange offer is open, complete the
exchange offer.
These conditions are for the sole and exclusive benefit of GM. GM may
assert these conditions with respect to all or any portion of the exchange
offer regardless of the circumstances giving rise to them. GM may waive any
condition in whole or in part at any time in its sole and absolute discretion.
GM's failure to exercise its rights under any of the conditions described
above does not represent a waiver of these rights. Each right is an ongoing
right which may be asserted at any time. Any determination by GM concerning
the conditions described above will be final and binding upon all parties.
If a stop order issued by the SEC is in effect at any time after the
commencement of this exchange offer with respect to the registration statement
of which this document is a part, GM will not accept any shares of $1 2/3 par
value common stock tendered and will not exchange shares of Class H common
stock for any shares of $1 2/3 par value common stock.
Legal Limitation
This document is not an offer to sell, and it is not soliciting any offer
to buy, any Class H common stock in any jurisdiction in which the offer or
sale is not permitted. Other than as described below under "--Matters Relating
to Foreign Jurisdictions--Legal Restrictions Governing the Exchange Offer,"
General Motors is not currently aware of any jurisdiction where the making of
the exchange offer or its acceptance would not be legal. If GM learns of any
jurisdiction where making the exchange offer or its acceptance would not be
permitted, GM intends to make a good faith effort to comply with the relevant
law of such jurisdiction. If, after a good faith effort, GM cannot comply with
such law, GM will determine whether the exchange offer will be made to, and
whether tenders will be accepted from or on behalf of, persons who are holders
of shares of $1 2/3 par value common stock residing in the jurisdiction.
In any U.S. jurisdiction where the securities or blue sky laws require the
exchange offer to be made by a licensed broker or dealer, the exchange offer
shall be deemed to be made by Morgan Stanley & Co. Incorporated and, in other
jurisdictions, may be made on GM's behalf by one or more registered brokers or
dealers licensed under the laws of such jurisdiction.
For information regarding legal restrictions governing the exchange offer
in certain foreign jurisdictions, see "--Matters Relating to Foreign
Jurisdictions--Legal Restrictions Governing the Exchange Offer."
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Fees and Expenses
Dealer Manager
Morgan Stanley & Co. Incorporated is acting as the dealer manager in
connection with the exchange offer. Morgan Stanley will receive a fee of $1.5
million for its services as dealer manager, in addition to being reimbursed by
GM for its reasonable out-of-pocket expenses, including attorneys' fees, in
connection with the exchange offer. The foregoing fees will be payable if and
when the exchange offer is completed. Morgan Stanley has in the past provided
and is currently providing investment banking services to GM and Hughes,
including financial advisory services to GM in connection with the
restructuring of GM's economic interest in Hughes, for which it has received
and will receive customary compensation.
GM has agreed to indemnify Morgan Stanley Dean Witter against specified
liabilities related to this transaction, including civil liabilities under the
U.S. federal securities laws, and to contribute to payments which Morgan
Stanley Dean Witter may be required to make in respect thereof. However, it is
the opinion of the SEC that indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. Morgan
Stanley Dean Witter may from time to time hold shares of $1 2/3 par value
common stock in its proprietary accounts, and to the extent it owns shares in
these accounts at the time of the exchange offer, it may tender these shares
in the exchange offer.
Marketing Manager for Hughes
Salomon Smith Barney Inc. is acting as marketing manager for Hughes in
connection with the exchange offer. In its role as marketing manager for
Hughes, Salomon Smith Barney will participate in the marketing efforts related
to the transaction. Salomon Smith Barney will receive a fee of $1.5 million
for its services as marketing manager, in addition to being reimbursed by
Hughes for its reasonable out-of-pocket expenses, including attorneys' fees,
in connection with the exchange offer. The foregoing fees will be payable when
and if the exchange offer is completed. Salomon Smith Barney has in the past
provided and is currently providing investment banking services to GM and
Hughes, including financial advisory services to Hughes in connection with the
restructuring of GM's economic interest in Hughes, for which it has received
and will receive customary compensation.
Hughes has agreed to indemnify Salomon Smith Barney against specified
liabilities related to this transaction, including civil liabilities under the
U.S. federal securities laws, and to contribute to payments which Salomon
Smith Barney may be required to make in respect thereof. However, it is the
opinion of the SEC that indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. Salomon Smith Barney
may from time to time hold shares of $1 2/3 par value common stock in its
proprietary accounts, and to the extent it owns shares in these accounts at
the time of the exchange offer, it may tender these shares in the exchange
offer.
Soliciting Dealers
GM will pay each soliciting dealer a solicitation fee of $0.75 per share,
for up to 1,000 shares per tendering $1 2/3 par value stockholder, for each
share of $1 2/3 par value common stock tendered and accepted for exchange
under the exchange offer if that soliciting dealer has affirmatively solicited
and obtained the tender. GM will not pay a solicitation fee in connection with
a tender of $1 2/3 par value common stock by a $1 2/3 par value stockholder
who tenders:
. more than 10,000 shares of $1 2/3 par value common stock; or
. from a country outside the United States.
"Soliciting dealer" includes the following organizations:
. any broker or dealer in securities that is a member of any national
securities exchange in the United States or of the National Association
of Securities Dealers, Inc.; or
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. any bank or trust company located in the United States.
In order for a soliciting dealer to receive a solicitation fee with respect
to the valid tender of shares of $1 2/3 par value common stock held in
registered form, the exchange agent must have received, by three NYSE trading
days after the expiration date, a properly completed and duly executed letter
of transmittal. If a letter of transmittal is not received by the exchange
agent within three NYSE trading days after the expiration date, no
solicitation fee will be paid to such soliciting dealer.
In order for a soliciting dealer to receive a solicitation fee with respect
to the valid tender of shares of $1 2/3 par value common stock held
beneficially, the exchange agent must have received, by three NYSE trading
days after the expiration date, an agent's message. If an agent's message is
not received by the exchange agent within three NYSE trading days after the
expiration date, no solicitation fee will be paid to such soliciting dealer.
Under no circumstances shall a fee be paid to a soliciting dealer more than
once with respect to any shares of $1 2/3 par value common stock. No
soliciting dealer is required to make a recommendation to holders of shares of
$1 2/3 par value common stock as to whether to tender or refrain from
tendering in the exchange offer.
Soliciting dealers should take care to ensure proper record-keeping to
document their entitlement to any solicitation fee. GM and the exchange agent
reserve the right to require additional information, as deemed warranted in
their sole discretion.
All questions as to the validity, form, and eligibility, including time of
receipt of notices of solicited tenders will be determined by the exchange
agent and GM, in their sole discretion, which determination will be final and
binding. Neither GM, the exchange agent nor any other person will be under any
duty to give notification of any defects or irregularities in a notice of
solicited tender or incur any liability for failure to give such notification.
GM will not pay a solicitation fee to a soliciting dealer who for any
reason must transfer the fee to a tendering stockholder. Soliciting dealers
are not entitled to a solicitation fee with respect to shares of $1 2/3 par
value common stock beneficially owned by them or with respect to any shares
that are registered in the name of a soliciting dealer unless the shares are
held by such soliciting dealer as nominee and are tendered for the benefit of
beneficial holders. No broker, dealer, bank, trust company or fiduciary shall
be deemed to be the agent of GM, Hughes, Fleet, Morrow, Morgan Stanley Dean
Witter or Salomon Smith Barney for purposes of the exchange offer.
GM will not pay any fees or commissions to any broker or dealer or any
other person, other than Morgan Stanley Dean Witter, Salomon Smith Barney and
the soliciting dealers, for soliciting tenders of shares of $1 2/3 par value
common stock under the exchange offer. Brokers, dealers, commercial banks and
trust companies will, upon request made within a reasonable period of time, be
reimbursed by GM for reasonable and necessary costs and expenses incurred by
them in forwarding materials to their customers.
Information Agent and Exchange Agent
GM has retained Morrow & Co., Inc. to act as the information agent and
Fleet National Bank to act as the exchange agent in connection with the
exchange offer. Fleet also currently serves as GM's transfer agent. The
information agent may contact holders of shares of $1 2/3 par value common
stock by mail, telephone, facsimile transmission and personal interviews and
may request brokers, dealers and other nominee stockholders to forward
materials relating to the exchange offer to beneficial owners. The information
agent and the exchange agent each will receive reasonable compensation for
their respective services, will be reimbursed for reasonable out-of-pocket
expenses and will be indemnified against liabilities in connection with their
services.
Neither the information agent nor the exchange agent has been retained to
make solicitations or recommendations. The fees they receive will not be based
on the number of shares of $1 2/3 par value common stock tendered under the
exchange offer; however, the exchange agent will be compensated in part on the
basis of the number of letters of transmittal received and the number of
account statements distributed.
43
<PAGE>
GM has retained certain other persons to serve as local exchange agents in
connection with the exchange offer in jurisdictions outside the United States.
These local exchange agents will receive reasonable compensation and other
rights in connection with their services.
Certain Matters Relating to Foreign Jurisdictions
Legal Restrictions Governing the Exchange Offer
As of December 31, 1999, there were $1 2/3 par value stockholders with
addresses of record in more than 100 foreign jurisdictions throughout the
world. As a result, GM is seeking to conduct the exchange offer on a global
basis. However, GM is not offering to sell, and is not soliciting any offer to
buy, any Class H common stock in any foreign jurisdiction in which the offer
or sale is not permitted.
GM is not currently aware of any foreign jurisdiction other than France or
Japan where the making of the exchange offer to, or its acceptance by, current
stockholders of record would not be legal. If GM learns of any other
jurisdiction where making the exchange offer to, or its acceptance by, current
stockholders of record would not be permitted without further action to be
taken by GM, GM intends to make a good faith effort to comply with the
relevant law of such jurisdiction. If, after a good faith effort, GM cannot
comply with such law, GM will not extend the exchange offer to holders of
shares of $1 2/3 par value common stock residing in that jurisdiction.
In any jurisdiction where the securities or blue sky laws require the
exchange offer to be made by a licensed broker or dealer, the exchange offer
may be made on GM's behalf, but only with its prior written consent, by one or
more registered brokers or dealers licensed under the laws of such
jurisdiction. For more information, see "--Special Procedures for Certain
Jurisdictions Outside the United States."
Australia. This prospectus does not constitute a full disclosure document
for the purposes of Australian law.
Austria. No prospectus satisfying the requirements of Kapitalmarktgesetz,
the Austrian Capital Markets Act, has been prepared in connection with the
exchange offer. The exchange offer is therefore not a public offering under
Austrian law, and each holder in Austria should retain independent tax advice
to determine the tax consequences of participating in the exchange offer.
Belgium. Upon approval by Commission bancaire et financiere/Commissie voor
het Bank- en Financiewezen, the Belgian Commission for Banking and Finance,
this document and other offering materials, and a Belgian supplement, in the
French and Dutch languages, summarizing the principal terms and conditions of
the exchange offer, will be available to the public at the head offices of BBL
Bank at Avenue Marnix 24, 1000 Brussels.
Brazil. The exchange offer has not been registered or approved and this
prospectus has not been reviewed by the Comissao de Valores Mobiliarios in
Brazil. The exchange offer is made to holders of $1 2/3 par value common stock
as described in this document and is not available to the investing public in
Brazil. General Motors will only issue shares of Class H common stock in
exchange for shares of $1 2/3 par value common stock pursuant to the exchange
offer in circumstances that do not constitute a public offering in Brazil and
in accordance with applicable laws and regulations. GM reserves the right to
reject shares of $1 2/3 par value common stock tendered in the exchange offer,
as set forth elsewhere in this document.
France. The exchange offer is not being conducted, directly or indirectly,
in France. Therefore, this document may not be distributed in or forwarded to
stockholders located in France. Any purported acceptance of or tender in this
exchange offer that may be construed as violating these restrictions shall be
null and void for all purposes.
Germany. Upon approval by Bundesaufsichtsamt fur den Wertpapierhandel, the
German Federal Securities Trading Authority, and publication in accordance
with German law, this document and other offering materials, and a German
supplement, summarizing the principal terms and conditions of the exchange
offer, will be available to the public at the offices of Deutsche Bank AG,
Taunusanlage 12, 60235 Frankfurt am Main.
44
<PAGE>
Israel. GM has received an exemption from the prospectus requirements of
the securities law of the State of Israel in connection with the exchange
offer. You should not construe that exemption as certifying the accuracy,
reliability or adequacy of the matters contained in this document or as to the
investment quality of the securities offered by this document.
Japan. The exchange offer is not being conducted, directly or indirectly,
in Japan. Therefore, this document may not be distributed in or forwarded to
stockholders located in Japan. Any purported acceptance of or tender in this
exchange offer that may be construed as violating these restrictions shall be
null and void for all purposes.
Spain. Sin perjuicio de todo lo anterior, se advierte que la presente
oferta esta asimismo condicionada en Espana a su previa verificacion y
registro por parte de la Comision Nacional del Mercado de Valores, en los
terminos previstos por los articulos 5 y 7 del Real Decreto 291/1992, de 27 de
marzo, sobre Emisiones y Ofertas Publicas de Venta de Valores. En
consecuencia, en el supuesto de que la referida verificacion y registro, que
ya han sido solicitados del citado organismo, no tuvieran finalmente lugar con
caracter previo al cierre de la oferta, esta no surtira efectos en Espana.
Notwithstanding any other information contained in this document, GM's
extension of the exchange offer in Spain is conditioned on the prior
verification and registration by the Spanish National Stock Markets
Commission, as provided for by articles 5 and 7 of Royal Decree 291/1992 of
March 27, related to public issues and offerings of securities. GM has already
requested that verification and registration; however, if it is not received
prior to the closing of the exchange offer, the exchange offer shall not be
effective in Spain and any tenders by $1 2/3 par value stockholders pursuant
to the exchange offer in Spain will be rejected by GM.
United Kingdom. A prospectus relating to the exchange offer has been
prepared in accordance with the rules made pursuant to section 156A of the
Financial Services Act 1986, will have been delivered for registration to the
Registrar of Companies of England and Wales as required by section 149(1) of
the Financial Services Act 1986 prior to its publication in accordance with
the requirements of the Public Offers of Securities Regulations 1995 and will
be made available to the public free of charge at the offices of Cleary,
Gottlieb, Steen & Hamilton at City Place House, 55 Basinghall Street, London
EC2V 5EH from the time shares of Class H common stock are offered to the
public in the United Kingdom for the first time to the end of the period
during which the exchange offer remains open.
This document and other documents relating to the exchange offer may only
be issued and passed on in the United Kingdom to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended or is a person to whom such
a document may otherwise lawfully be issued or passed on.
Certain Other Foreign Jurisdictions. In certain other foreign
jurisdictions, including Austria, Brazil, China, Ireland, Israel, Italy,
Mexico, Norway, Spain, and Sweden, GM is conducting the exchange offer in
reliance upon a private placement or other similar exemption or exception
under the applicable laws of such jurisdictions. In the event that GM
determines at any time that any such exemption or exception would not be
available, GM reserves the right in its sole and absolute discretion to
determine not to conduct the exchange offer in such jurisdiction and to reject
any tenders in such jurisdictions.
Income Tax Consequences in Certain Foreign Jurisdictions
We briefly summarize below the tax consequences of the exchange offer for
individual $1 2/3 par value stockholders residing in:
. Australia;
. Belgium;
. Canada;
. Germany;
. The Netherlands;
. Switzerland; and
. The United Kingdom.
45
<PAGE>
We do not intend this summary to be a comprehensive account of the rules
applicable to individual $1 2/3 par value stockholders in any jurisdiction. In
particular, we do not discuss the tax consequences for $1 2/3 par value
stockholders who are subject to special tax rules. Moreover, this summary does
not address the tax considerations relevant to the ownership and disposition
of shares of Class H common stock, which are not expected to differ
significantly from the considerations associated with holding shares of $1 2/3
par value common stock. As indicated below, the exchange will not be treated
as a taxable event in some jurisdictions. In other jurisdictions, however, the
exchange will be treated either as a taxable disposition of $1 2/3 par value
common stock or as a dividend. Additional disclosure may be provided in
supplemental materials as required by the law or practice of the relevant
jurisdiction.
Australia. The receipt of the Class H common stock and cash in exchange for
the $1 2/3 par value common stock will be treated in part as a dividend for
individual investors in Australia and the remainder will be treated as
consideration received in respect of a taxable event, that is, the disposal of
the $1 2/3 par value common stock. This taxable event may generate an
assessable gain or loss.
Belgium. The characterization of the exchange offer for Belgian tax
purposes raises difficult issues. We believe that the exchange should be
treated for Belgian tax purposes as a stock redemption by us in exchange for
shares of another class of stock and, therefore, should not be a taxable
transaction for individual $1 2/3 par value stockholders in Belgium. Further
disclosure regarding the considerations relevant to Belgian holders of $1 2/3
par value common stock will be provided in the supplemental materials directed
to those stockholders along with this document. The delivery of shares of
Class H common stock in exchange for shares of $1 2/3 par value common stock
may under certain circumstances be subject to stamp or similar taxes in
Belgium, which we will not pay and for which each $1 2/3 par value stockholder
tendering shares in the exchange offer in Belgium may be responsible.
Canada. We summarize below the Canadian federal income tax consequences
relating to $1 2/3 par value stockholders residing in Canada who tender their
shares of $1 2/3 par value common stock and who hold their shares of $1 2/3
par value common stock as capital property for the purposes of the Income Tax
Act (Canada), which we sometimes refer to in this document as the "Canadian
Code."
This summary is based upon the current provisions of the Canadian Code and
the regulations issued thereunder, all specific proposals to amend the
Canadian Code and the regulations publicly announced by the Canadian
government prior to the date hereof and our understanding of the current
administrative and assessing policies of the Canada Customs and Revenue
Agency. This summary is not exhaustive of all possible Canadian federal income
tax considerations and does not take into account any changes in law or
administrative and assessing policies, whether by legislative, governmental or
judicial decision or action, nor does it take into account or consider any
other federal tax considerations or provincial, territorial or foreign tax
considerations.
For Canadian income tax purposes:
. a $1 2/3 par value stockholder who is a resident of Canada and who
exchanges pursuant to the exchange offer shares of $1 2/3 par value
common stock which were held by the $1 2/3 par value stockholder as
capital property immediately before the exchange for shares of Class H
common stock to be held as capital property will not, solely by virtue of
the exchange, realize a capital gain or loss in respect of the shares
being exchanged for the purposes of the Canadian Code.
. a $1 2/3 par value stockholder will be deemed to have acquired the shares
of Class H common stock received as consideration for the shares being
exchanged for a cost equal to the aggregate adjusted cost base of the
shares being exchanged to the $1 2/3 par value stockholder immediately
before the exchange. Under the published administrative practice of the
Canada Customs and Revenue Agency, a holder who receives less than Cdn
$200 cash instead of fractional shares on the exchange will have the
option of either:
. treating the cash received as the proceeds of disposition of the
fractional shares for capital gains tax purposes; or
46
<PAGE>
. treating the cash as a reduction in the cost to the holder of the
Class H common stock received as consideration for the shares being
exchanged.
A holder who receives more than Cdn $200 cash instead of fractional shares
must treat the cash as proceeds of disposition of the fractional shares for
capital gains tax purposes.
Germany. The exchange of $1 2/3 par value common stock for Class H common
stock and cash should not be a taxable event for individual $1 2/3 par value
stockholders in Germany who have held the $1 2/3 par value common stock as a
private asset for more than one year. Otherwise, the exchange will be treated
as a taxable disposition and $1 2/3 par value stockholders will recognize gain
measured by the difference between their cost of acquisition for, or adjusted
tax basis in, the $1 2/3 par value common stock and the value of the Class H
common stock and cash received in exchange therefor. Individual $1 2/3 par
value stockholders who have held $1 2/3 par value common stock as a private
asset for not more than one year will only be subject to taxation if the
aggregate amount of short-term capital gain realized during the calendar year
is 1,000 German marks or more.
The Netherlands. The receipt of Class H common stock and cash in exchange
for $1 2/3 par value common stock will be treated as a dividend for individual
$1 2/3 par value stockholders in the Netherlands, to the extent the fair
market value of the Class H common stock exceeds the paid-in capital on the $1
2/3 par value common stock.
Switzerland. The exchange of $1 2/3 par value common stock and cash for
Class H common stock and cash will not be a taxable event for individual $1
2/3 par value stockholders in Switzerland for Swiss federal, Zurich cantonal
and municipal income tax purposes, except to the extent cash is received
instead of fractional share
interests in Class H common stock. Other cantons are expected to apply a
similar tax treatment. Individual Swiss resident $1 2/3 par value stockholders
who hold the $1 2/3 par value common stock as part of their private property
will also not be subject to taxation with respect to the cash they receive.
The delivery of shares of Class H common stock in exchange for shares of $1
2/3 par value common stock may under certain circumstances be subject to a
stamp duty in Switzerland, which we will not pay and for which each $1 2/3 par
value stockholder tendering shares in the exchange offer in Switzerland may be
responsible.
United Kingdom. The exchange of $1 2/3 par value common stock for Class H
common stock and cash will not be a taxable event for individual $1 2/3 par
value stockholders in the United Kingdom, except that, under certain
circumstances, U.K. resident $1 2/3 par value stockholders will be subject to
taxation to the extent cash is received instead of fractional share interests
in Class H common stock.
All $1 2/3 par value stockholders should consult their own tax advisors
concerning the tax consequences of the exchange offer in light of their
particular circumstances in the countries in which they are subject to
taxation.
47
<PAGE>
PRICE RANGE AND DIVIDENDS FOR $1 2/3 PAR VALUE COMMON STOCK
GM's $1 2/3 par value common stock is listed and traded on the NYSE under
the symbol "GM." The following table contains, for the periods indicated, the
high and low sale price per share of $1 2/3 par value common stock, not
adjusted to account for the spin-off of Delphi which occurred during the
second quarter of 1999, as reported on the NYSE composite tape, and the cash
dividends paid per share of $1 2/3 par value common stock:
<TABLE>
<CAPTION>
Cash Dividend
Calendar Year High Low Per Share
------------- ------ ------ -------------
<S> <C> <C> <C>
1998
First Quarter............................... $74.25 $55.06 $0.50
Second Quarter.............................. 76.69 66.13 0.50
Third Quarter............................... 74.75 54.44 0.50
Fourth Quarter.............................. 74.94 47.06 0.50
1999
First Quarter............................... $93.88 $69.19 $0.50
Second Quarter.............................. 94.88 61.06 0.50
Third Quarter............................... 72.44 59.75 0.50
Fourth Quarter.............................. 79.06 60.69 0.50
2000
First Quarter............................... $88.13 $70.75 $0.50
Second Quarter (through April 7, 2000)...... 86.63 79.25 --
</TABLE>
There were 499,809 holders of record of $1 2/3 par value common stock as of
December 31, 1999.
On January 31, 2000, the last full day of trading prior to the public
announcement of the exchange offer, the closing trading price per share of $1
2/3 par value common stock as reported on the NYSE composite tape was $80.56.
On , 2000, the second to last full day of trading prior to
commencement of the exchange offer, the closing trading price of a share of $1
2/3 par value common stock as reported on the NYSE was $ . You should
obtain current market quotations for the shares of $1 2/3 par value common
stock before deciding whether to tender your shares of $1 2/3 par value common
stock. We can give no assurance concerning the market price of $1 2/3 par
value common stock in the future.
If the GM board of directors declares a quarterly dividend on the $1 2/3
par value common stock after commencement of the exchange offer but prior to
the expiration of the exchange offer period, it is possible that the record
date for determining holders of $1 2/3 par value common stock entitled to
receive the dividend would be a date before the expiration of the exchange
offer period. Tendering your shares of $1 2/3 par value common stock in the
exchange offer will not change your status as a record holder of $1 2/3 par
value common stock, except with respect to those of your shares that are
accepted for exchange upon completion of the exchange offer. This means that
if you tender shares of $1 2/3 par value common stock before the record date
for a dividend, you will continue to be the record holder of those shares on
the record date and you will be entitled to receive payment of the dividend if
the record date is a date prior to the expiration of the exchange offer
period. In such event, the quarterly dividend would be paid to you in the
normal manner and would be separate from any shares of Class H common stock,
and cash instead of fractional shares, issued to you in the exchange offer.
$1 2/3 par value stockholders who exchange shares of $1 2/3 par value
common stock pursuant to this exchange offer will not be entitled to any
dividends on those shares of $1 2/3 par value common stock with a record date
after the date on which GM accepts such tendered shares. $1 2/3 par value
stockholders will continue to receive the regular quarterly dividend with
respect to any shares of $1 2/3 par value common stock that are not exchanged
pursuant to the exchange offer.
The GM board of directors may declare dividends on $1 2/3 par value common
stock after considering many factors, including GM's competitive position,
available cash, financial conditions, earnings and capital requirements. GM
may choose not to pay dividends in the future. See "Comparison of Rights of $1
2/3 Par Value Stockholders and Class H Stockholders--Common Stock Dividends."
48
<PAGE>
PRICE RANGE FOR CLASS H COMMON STOCK
The Class H common stock is listed on the NYSE under the symbol "GMH." The
following table contains, for the periods indicated, the high and low sale
prices per share of Class H common stock, as reported on the NYSE composite
tape.
<TABLE>
<CAPTION>
Calendar Year High Low
------------- ------- -------
<S> <C> <C>
1998
First Quarter.......................................... $ 48.00 $ 31.50
Second Quarter......................................... 57.88 42.75
Third Quarter.......................................... 50.81 35.00
Fourth Quarter......................................... 42.38 30.38
1999
First Quarter.......................................... $ 53.00 $ 38.50
Second Quarter......................................... 63.88 48.94
Third Quarter.......................................... 62.44 48.75
Fourth Quarter......................................... 97.63 55.94
2000
First Quarter.......................................... $141.00 $ 91.50
Second Quarter (through April 7, 2000)................. 124.75 106.00
</TABLE>
There were 192,866 holders of record of Class H common stock as of December
31, 1999.
On January 31, 2000, the last full day of trading prior to the public
announcement of the exchange offer, the closing trading price per share of
Class H common stock as reported on the NYSE composite tape was $112.50. On
, 2000, the second to last full day of trading prior to
commencement of the exchange offer, the closing trading price per share of
Class H common stock as reported on the NYSE was $ . You should obtain
current market quotations for the shares of Class H common stock before
deciding whether to tender your shares of $1 2/3 par value common stock. We
can give no assurance concerning the market price of Class H common stock in
the future.
Since the completion of the Hughes restructuring transactions in late 1997,
GM has not paid dividends on the Class H common stock. The GM board does not
currently expect to pay dividends on the Class H common stock in the
foreseeable future. Future earnings of Hughes are expected to be retained for
the development of the business of Hughes. For more information, see
"Description of Class H Common Stock--Dividend Policy."
49
<PAGE>
CAPITALIZATION OF GM
The following table sets forth the capitalization of General Motors and its
consolidated subsidiaries at December 31, 1999, and as adjusted to reflect
consummation of a fully-subscribed exchange offer. The following table should
be read in conjunction with GM's consolidated financial statements (including
the notes thereto) and Management's Discussion and Analysis of Financial
Condition and Results of Operations in the GM 1999 Form 10-K, which is
incorporated into this document by reference.
The pro forma information gives effect to a fully-subscribed exchange
offer. As a result of the exchange offer, the earnings per share calculation
of the $1 2/3 par value common stock will reflect the lower number of
outstanding shares of $1 2/3 par value common stock and the $1 2/3 par value
stockholders' decreased interest in the available separate consolidated net
income of Hughes. While there will be no change to the earnings per share of
Class H common stock, the earnings per share calculation of the Class H common
stock will reflect the Class H stockholders' increased interest in the
available separate consolidated net income of Hughes and the proportionate
increase in the number of shares of Class H common stock outstanding.
<TABLE>
<CAPTION>
As of
December 31, 1999
----------------------------------
Actual Adjustments Pro Forma
---------- ------------- ---------
(in millions)
<S> <C> <C> <C>
Total debt (1)............................. $131,688 $ $
Minority interests......................... 596
General Motors--obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely junior
subordinated debentures of General Motors
--Series D............................... 79
--Series G............................... 139
Stockholders' Equity
Preference stocks........................ $ -- $ $
GM common stock
$1 2/3 par value common stock.......... 1,033
Class H common stock................... 14
Capital surplus (principally additional
paid-in capital)........................ 13,794
Retained earnings........................ 6,961
-------- -------- --------
Subtotal............................... 21,802
Accumulated foreign currency translation
adjustments............................. (2,033)
Net unrealized gains on securities....... 996
Minimum pension liability adjustment..... (121)
-------- -------- --------
Total stockholders' equity............. 20,644
-------- -------- --------
Total capitalization................... $153,146 $ $
======== ======== ========
<CAPTION>
Historical Adjustments Pro Forma
---------- ------------- ---------
(in millions)
<S> <C> <C> <C>
Amount Available for the Payment of
Dividends
$1 2/3 par value common stock............ $ 13,704 $ $
Class H common stock..................... 5,377
-------- -------- --------
Total.................................. $ 19,081 $ $
======== ======== ========
</TABLE>
- --------
(1) Calculated as the sum of Loans payable and Long-term debt for Automotive,
Communications Services and Other Operations plus Debt for Financing and
Insurance Operations.
50
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF HUGHES
The following selected historical financial data have been derived from,
and should be read in conjunction with Hughes' financial statements, as well
as the "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Hughes", and the "Unaudited Pro Forma Combined
Condensed Financial Information of Hughes" and the "Notes to Unaudited Pro
Forma Combined Condensed Financial Information of Hughes" sections of this
document. The statement of operations data for each of the three years in the
period ended December 31, 1999 and the balance sheet data as of December 31,
1999 and 1998 have been derived from Hughes' financial statements included
elsewhere in and incorporated by reference into this document, which have been
audited by Deloitte & Touche LLP, independent auditors. The statement of
operations data for the years ended December 31, 1996 and 1995, and the
balance sheet data as of December 31, 1997, 1996 and 1995 have been derived
from Hughes' unaudited financial statements and in the opinion of management
include all adjustments, consisting only of normal recurring items, necessary
to present fairly such data.
<TABLE>
<CAPTION>
As of and for the years ended
December 31,
-----------------------------------------
1995 1996 1997 1998 1999
------ ------ ------- ------- -------
(in millions, except per share
amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues...................... $1,554 $2,058 $ 2,838 $ 3,481 $ 5,560
Total operating costs and expenses.. 1,574 2,109 2,794 3,527 5,988
------ ------ ------- ------- -------
Operating profit (loss)............. (20) (51) 44 (46) (428)
Other income (expense), net......... (38) 33 330 (56) (232)
Income tax provision (benefit)...... (23) 22 162 (142) (237)
Minority interests in losses of
subsidiaries....................... 5 53 25 24 32
------ ------ ------- ------- -------
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting change.................. (30) 13 237 64 (391)
Income (loss) from discontinued
operations, net of taxes........... 36 150 171 196 100
Gain on sale of discontinued
operations, net of taxes........... -- -- 63 -- --
Extraordinary item, net of taxes.... -- -- (21) -- --
Cumulative effect of accounting
changes............................ -- -- -- (9) --
------ ------ ------- ------- -------
Net income (loss)................... 6 163 450 251 (291)
Adjustments to exclude the effect of
GM purchase accounting adjustments. 21 21 21 21 21
Preferred stock dividend............ -- -- -- -- (51)
------ ------ ------- ------- -------
Earnings (loss) used for computation
of available separate consolidated
net income (loss).................. $ 27 $ 184 $ 471 $ 272 $ (321)
====== ====== ======= ======= =======
Balance Sheet Data:
Cash and cash equivalents........... $ 7 $ 6 $ 2,784 $ 1,342 $ 238
Current assets...................... 1,620 1,658 5,179 4,075 3,858
Total assets........................ 3,513 3,861 12,142 12,617 18,597
Current liabilities................. 478 692 1,008 1,346 2,642
Minority interests.................. -- 12 608 482 544
Long-term debt...................... -- -- 638 779 1,586
Owner's equity...................... 2,609 2,492 8,340 8,412 11,681
Other Data:
EBITDA.............................. $ 130 $ 113 $ 304 $ 342 $ 223
Depreciation and amortization....... 150 164 260 388 651
Capital expenditures................ 389 362 713 1,329 1,665
</TABLE>
"EBITDA" is defined as operating profit (loss), plus depreciation and
amortization. EBITDA is not presented as an alternative measure of operating
results or cash flow from operations, as determined in accordance with
generally accepted accounting principles. Hughes management believes it is a
meaningful measure of performance and is commonly used by other large
communications, entertainment and media service providers. EBITDA does not
give effect to cash used for debt service requirements and thus does not
reflect funds available for investment in the business of Hughes, dividends or
other discretionary uses.
In addition, EBITDA as presented herein may not be comparable to similarly
titled measures reported by other companies.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF HUGHES
General
Business Overview
The continuing operations of Hughes are comprised of the following
segments: Direct-To-Home Broadcast, Satellite Services and Network Systems.
The discontinued operations of Hughes consist of its satellite systems
manufacturing businesses, which in January 2000, Hughes agreed to sell to The
Boeing Company. Also included in discontinued operations for 1997 is the
Avicom in-flight entertainment business, which was sold to Rockwell Collins,
Inc. in December 1997. These transactions are discussed more fully below at
"Liquidity and Capital Resources--Acquisitions, Investments and Divestitures."
Hughes' financial information does not include the business of Delco
Electronics Corporation or Hughes' defense electronics business. These
businesses were divested as part of Hughes' recapitalization in December 1997,
as more fully discussed in Note 1 to the financial statements included
elsewhere in and incorporated by reference into this document.
The Direct-To-Home Broadcast segment consists primarily of the United
States and Latin America DIRECTV businesses, which provide digital multi-
channel entertainment. The DIRECTV U.S. operations grew significantly during
1999 with Hughes' acquisition of the 2.3 million subscriber direct broadcast
satellite medium-power business of PRIMESTAR in April 1999 and Hughes'
acquisition of United States Satellite Broadcasting, a provider of premium
subscription programming services, in May 1999. DIRECTV intends to continue to
operate the medium-power PRIMESTAR business, PRIMESTAR by DIRECTV, through the
end of 2000. During such time, the medium-power subscribers will continue to
be offered the opportunity to transition to the high-power DIRECTV service.
The acquisition of U.S. Satellite Broadcasting Company provided DIRECTV with
25 channels of video programming, including premium networks such as HBO,
Showtime, Cinemax and The Movie Channel, which are now being offered to
DIRECTV's subscribers. The results of operations for PRIMESTAR and U.S.
Satellite Broadcasting Company have been included in Hughes' financial
information since their dates of acquisition. See Note 17 to the financial
statements included elsewhere in and incorporated by reference into this
document and "Liquidity and Capital Resources--Acquisitions, Investments and
Divestitures" below for further discussion of these transactions.
In addition, DIRECTV U.S. launched local broadcast network services in the
fourth quarter of 1999. Currently, DIRECTV is providing major local broadcast
networks to 23 U.S. markets and plans to increase these markets to at least 25
in the first half of 2000. DIRECTV U.S. also launched foreign language
programming in seven U.S. cities through its DIRECTV Para Todos(TM) service,
which currently provides programming packages with up to 21 Spanish special
interest channels combined with up to 77 English channels. DIRECTV expects to
expand the DIRECTV Para Todos(TM) service nationwide in the first half of 2000
and to expand its programming in other languages. The launch of these services
did not materially affect revenues in 1999, but is expected to result in
increased revenues in 2000 and thereafter.
The Latin America DIRECTV businesses are comprised of Galaxy Latin America,
LLC, Hughes' 78% owned subsidiary that provides DIRECTV services to 27
countries in Latin America and the Caribbean Basin; SurFin Ltd., a company 75%
owned by Hughes, that provides financing of subscriber receiver equipment to
certain Galaxy Latin America operating companies; Grupo Galaxy Mexicana,
S.R.L. de C.V., the exclusive distributor of DIRECTV in Mexico which was
acquired in February 1999; and Galaxy Brasil, Ltda., the exclusive distributor
of DIRECTV in Brazil, which was acquired in July 1999. The results of
operations for SurFin, Grupo Galaxy Mexicana, and Galaxy Brasil have been
included in Hughes' financial information since their dates of acquisition.
See Note 17 to the financial statements included elsewhere in and incorporated
by reference into this document and at "Liquidity and Capital Resources--
Acquisitions, Investments and Divestitures" below for further discussion of
these transactions.
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Also included as part of the non-operating results of the Direct-To-Home
Broadcast segment is DIRECTV Japan, a company 42.2% owned by Hughes that
provides DIRECTV services in Japan. On March 1, 2000, Hughes announced that
DIRECTV Japan's operations would be discontinued and that its subscribers
would migrate to SkyPerfecTV, a company in Japan providing direct-to-home
satellite broadcasting. In connection with this transaction, Hughes will
receive an ownership interest in SkyPerfecTV. See "Liquidity and Capital
Resources--Acquisitions, Investments and Divestitures" below for further
discussion.
In June 1999, Hughes announced a new strategic alliance with AOL to develop
and market digital entertainment and Internet services nationwide. This
alliance is expected to accelerate subscriber growth and revenue per
subscriber for DIRECTV, DirecPC(R) and eventually the new broadband services
to be delivered via Spaceway(TM). As part of this alliance, Hughes and AOL
plan to introduce two new enhanced TV and Internet-based interactive services
in 2000. The first is a combination television receiver that will allow the
consumer not only to receive DIRECTV's extensive programming, but also to
access "AOL TV," a new service that will bring AOL's extensive interactive and
Internet content to the consumer's television. The second is a high-speed
Internet service called "AOL Plus via DirecPC" that will be delivered using
Hughes Network Systems' DirecPC satellite network. Additionally, Hughes and
AOL also plan to jointly develop new services and content for DIRECTV.
The Satellite Services segment consists of PanAmSat, Hughes' 81% owned
subsidiary. PanAmSat provides satellite services to its customers primarily
through long-term operating lease contracts for the full or partial use of
satellite transponder capacity. In May 1997, Hughes and PanAmSat Corporation
merged their respective satellite service operations into a new publicly-held
company, which retained the name PanAmSat Corporation. As a result of this
merger, Hughes obtained a 71.5% ownership interest in PanAmSat. Since the date
of the merger, Hughes has included PanAmSat's results of operations in its
financial information. In May 1998, Hughes purchased an additional 9.5%
interest in PanAmSat, increasing Hughes' ownership to 81%. See Note 17 to the
financial statements included elsewhere in and incorporated by reference into
this document and the "Liquidity and Capital Resources--Acquisitions,
Investments and Divestitures" section below for further discussion of these
transactions.
The Network Systems segment consists of Hughes Network Systems, a
manufacturer of DIRECTV receiver equipment and provider of satellite and
wireless communications ground equipment and business communications services.
In December 1999, Hughes Network Systems recorded a pre-tax non-operating gain
of about $39.4 million resulting from the sale of securities of its 56.1%
owned subsidiary, Hughes Software Systems Private Limited, in conjunction with
Hughes Software Systems' initial public offering in India. In January 2000,
Hughes announced the discontinuation of its mobile cellular and narrowband
local loop product lines at Hughes Network System. As a result of this
decision, Hughes Network Systems recorded a fourth quarter 1999 pre-tax charge
to continuing operations of $272.1 million. The charge represents the write-
off of receivables and inventories, licenses, software and equipment with no
alternative use.
The Network Systems segment was also affected in February 1999 by a
notification received by Hughes from the Department of Commerce that it
intended to deny a U.S. government export license that Hughes was required to
obtain in connection with its contract with Asia-Pacific Mobile
Telecommunications Satellite Pte. Ltd. for the provision of a satellite-based
mobile telecommunications system. As a result, Asia-Pacific Mobile and Hughes
terminated the contract on April 9, 1999, resulting in a pre-tax charge to
Hughes' earnings of $92.0 million in the first quarter of 1999. Of the $92.0
million charge, $11.0 million was attributable to the Network Systems segment
and the remainder to Hughes Space and Communications which is included in
discontinued operations. The charge represented the write-off of receivables
and inventory, with no alternative use, related to the contract.
Satellite Fleet
At December 31, 1999, Hughes had a fleet of 25 satellites, five owned by
DIRECTV and 20 owned and operated by PanAmSat. The satellite fleet was
expanded in the fourth quarter of 1999 with the launch of DTV-1R
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and Galaxy-XI. DTV-1R was placed into service at DIRECTV's 101(degrees) west
longitude orbital slot and an existing satellite, DBS-1, was moved to
DIRECTV's 110(degrees) west longitude orbital slot. The DTV-1R satellite adds
additional capacity for the basic programming and local network channels of
DIRECTV U.S. Galaxy-XI will become an integral component of PanAmSat's Galaxy
cable neighborhood and is expected to be operational in the first half of
2000.
PanAmSat expects to add additional satellites as part of its comprehensive
satellite expansion and restoration plan adopted in 1998. The additional
satellites are intended to meet the expected demand for additional satellite
capacity, replace capacity affected by satellite anomalies, and provide added
backup to existing capacity. In connection with this plan, two satellites were
successfully launched, Galaxy-XI in 1999 and Galaxy-XR in January 2000. In
addition, five satellites are now under construction for PanAmSat by Hughes
Space and Communications. PanAmSat expects to launch four of these satellites
in 2000 and one in 2001.
In the third quarter of 2000, DIRECTV U.S. expects to launch DIRECTV 5,
which will replace the DIRECTV 4 satellite located at 119(degrees) west
longitude. DIRECTV U.S. has also contracted with Hughes Space and
Communications to build DIRECTV 4S, a high-powered spot-beam satellite that
will provide additional capacity for new local channel service or other new
services beginning in 2002.
On March 17, 1999, Hughes announced its intention to make an initial
investment of $1.4 billion in the Spaceway satellite system. The Spaceway
system, when completed, will provide high-speed, two-way communications of
video, voice and data directly to companies and individual consumers. Hughes
expects that this initial investment will allow it to construct three high-
powered satellites to provide broadband network services "on demand" for
video-conferencing, data transfer and other purposes in North America by 2003.
Hughes is currently assessing the possibility of providing Spaceway services
to most of the world using high-orbit satellites as well as complementary
services from a low-orbit system. These subsequent phases would require
significant additional investments.
Hughes' in-orbit satellites are subject to the risk of failing prematurely
due to, among other things, mechanical failure, collision with objects in
space or an inability to maintain proper orbit. Satellites are subject to the
risk of launch delay and failure, destruction and damage while on the ground
or during launch and failure to become fully operational once launched. Delays
in the production or launch of a satellite or the complete or partial loss of
a satellite, in-orbit or during launch, could have a material adverse impact
on the operation of Hughes' businesses. With respect to both in-orbit and
launch problems, insurance carried by PanAmSat and Hughes does not compensate
for business interruption or loss of future revenues or customers. Hughes has,
in the past, experienced technical anomalies on some of its satellites.
Service interruptions caused by these anomalies, depending on their severity,
could result in claims by affected customers for termination of their
transponder agreements, cancellation of other service contracts or the loss of
other customers.
Results of Operations
1999 compared to 1998
Overall
Revenues. Revenues increased 59.8% to $5,560.3 million in 1999 from
$3,480.6 million in 1998. The Direct-To-Home Broadcast segment was the primary
contributor to the growth in revenues resulting from record subscriber growth
in both the U.S. and Latin America DIRECTV businesses and from additional
revenues for the U.S. DIRECTV businesses from the PRIMESTAR and U.S. Satellite
Broadcasting Company acquisitions. Also contributing to the growth in revenues
were increased sales of DIRECTV(TM) receiver equipment at the Network Systems
segment.
Operating Costs and Expenses. Operating costs and expenses grew to $5,988.3
million in 1999 from $3,526.8 million in 1998. Broadcast programming and other
costs increased $863.7 million during 1999 due primarily to the added costs
for the PRIMESTAR by DIRECTV and premium channel services. Cost of products
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sold increased $348.0 million in 1999 from 1998 due to the increased sales of
DIRECTV receiver equipment discussed above and the write-off of $91.5 million
of inventory associated with the discontinued wireless product lines at the
Network Systems segment. Selling, general and administrative expenses
increased by $987.0 million due primarily to increased costs at the Direct-To-
Home Broadcast segment for subscriber acquisition costs and added costs for
the PRIMESTAR by DIRECTV business and a charge of $180.6 million at the
Network Systems segment resulting from the write-off of receivables, licenses
and equipment associated with the discontinued wireless product lines.
Depreciation and amortization increased $262.8 million in 1999 over 1998 due
primarily to added goodwill, intangibles and property, plant and equipment
resulting from the acquisitions discussed above, and additions to PanAmSat's
satellite fleet.
EBITDA. Earnings Before Interest, Taxes, Depreciation and Amortization is
defined as operating profit (loss), plus depreciation and amortization. EBITDA
is not presented as an alternative measure of operating results or cash flow
from operations, as determined in accordance with generally accepted
accounting principles. However, Hughes believes EBITDA is a meaningful measure
of Hughes' performance and that of its business units. EBITDA is a performance
measurement commonly used by other communications, entertainment and media
service providers and therefore can be used to analyze and compare Hughes'
financial performance to that of its competitors. EBITDA is also a measurement
used for certain of Hughes' debt covenants and is used by rating agencies in
determining credit ratings. EBITDA does not give effect to cash used for debt
service requirements and thus does not reflect funds available for investment
in the business of Hughes, dividends or other discretionary uses. EBITDA
margin is calculated by dividing EBITDA by total revenues.
EBITDA declined to $222.7 million in 1999 from $341.7 million in 1998. The
decline was attributable to charges incurred at the Network Systems segment
which included the $272.1 million charge related to the discontinued wireless
product lines and the $11.0 million write-off related to the termination of
the APMT contract. These declines were offset by an increase in EBITDA of
$145.7 million at the Direct-To-Home Broadcast segment and $65.5 million at
the Satellite Services segment.
Operating Loss. Hughes' operating loss was $428.0 million in 1999, compared
to $46.2 million in 1998. The increased operating loss resulted from the
decrease in EBITDA, discussed above, and higher depreciation and amortization
at the Direct-To-Home Broadcast segment resulting primarily from goodwill from
recent acquisitions.
Interest Income and Expense. Interest income declined to $27.0 million in
1999 compared to $112.3 million in 1998. This change resulted from a decline
in cash and cash equivalents. Interest expense increased to $122.7 million in
1999 from $17.5 million in 1998. The increase in interest expense resulted
from an increase in debt and interest associated with liabilities for above-
market programming contracts assumed in the acquisitions of PRIMESTAR and U.S.
Satellite Broadcasting Company. The changes in cash and cash equivalents and
debt are discussed in more detail below at "Liquidity and Capital Resources."
Other, Net. Other, net declined to a net expense of $136.3 million in 1999
from a net expense of $151.8 million in 1998. Other, net for 1999 included
losses from equity method investments of $189.2 million of which $134.9
million related to DIRECTV Japan, offset by the gain of $39.4 million from the
sale of securities in the HSS initial public offering and other miscellaneous
items. Other, net for 1998 included losses from equity method investments of
$128.3 million, of which $83.2 million related to DIRECTV Japan, and a
provision of $34.5 million for estimated losses associated with the bankruptcy
filings of two Network Systems segment customers. These losses were offset by
the gains on the sale of property and investments of about $15.0 million.
Income Taxes. Hughes recognized an income tax benefit of $236.9 million in
1999 compared to $142.3 million in 1998. The higher tax benefit in 1999
resulted primarily from higher losses from continuing operations. The income
tax benefit in 1998 included a favorable adjustment relating to an agreement
with the IRS regarding the treatment of research and experimentation credits
for the years 1983 through 1995.
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Income (Loss) From Continuing Operations. Hughes reported a loss from
continuing operations in 1999 of $391.1 million compared with 1998 income from
continuing operations of $63.5 million.
Discontinued Operations. Revenues for the satellite systems manufacturing
businesses decreased to $2,240.7 million for 1999 from revenues of $2,820.4
million for 1998. Revenues, excluding intercompany transactions, were $1,780.4
million for 1999 and $2,483.3 million for 1998. The decrease in revenues was
principally due to contract revenue adjustments and delayed revenue
recognition that resulted from increased development costs and schedule delays
on several new product lines and decreased activity associated with the
contract with ICO Global Communications (Operations) Ltd.
The satellite systems manufacturing businesses reported an operating loss
of $0.6 million for 1999 compared to operating profit of $286.3 million for
1998. The reported operating loss, excluding intercompany transactions,
amounted to $10.4 million for 1999 compared to operating profit of $295.3
million for 1998. The 1999 operating loss included a pre-tax charge of $125.0
million that resulted from increased development costs and schedule delays on
several new product lines, a one-time pre-tax charge of $81.0 million
resulting from the termination of the Asia-Pacific Mobile contract and
decreased activity associated with a contract with ICO Global Communications
(Operations) Ltd.
Hughes had maintained a lawsuit against the U.S. government since September
1973 regarding the U.S. government's infringement and use of a Hughes patent,
which we sometimes refer to in this document as the "Williams patent,"
covering "Velocity Control and Orientation of a Spin Stabilized Body,"
principally satellites. On April 7, 1998, the U.S. Court of Appeals for the
Federal Circuit reaffirmed earlier decisions in the patent case, including an
award of $114.0 million in damages, plus interest. In March 1999, Hughes
received a payment from the U.S. government as a final settlement of the suit
and as a result, recognized as income from discontinued operations a pre-tax
gain of $154.6 million.
Accounting Changes. In 1998, Hughes adopted American Institute of Certified
Public Accountants Statement of Position 98-5, Reporting on the Costs of
Start-Up Activities. Statement of Position 98-5 requires that all start-up
costs previously capitalized be written off and recognized as a cumulative
effect of accounting change, net of taxes, as of the beginning of the year of
adoption. On a prospective basis, these types of costs are required to be
expensed as incurred. The unfavorable cumulative effect of this accounting
change at January 1, 1998 was $9.2 million after-tax.
Direct-To-Home Broadcast Segment
Revenues for the Direct-To-Home Broadcast segment more than doubled to
$3,785.0 million in 1999 from $1,816.1 million in 1998. Operating losses grew
to $292.1 million in 1999 from $228.1 million in 1998 while EBITDA increased
to $19.9 million in 1999 from negative $125.8 million in 1998.
United States. The DIRECTV U.S. businesses reported revenues of $3,404.6
million in 1999, more than twice the reported revenues of $1,604.1 million in
1998. The increase in revenues resulted from an increase in subscribers for
the high-power business and added revenues from PRIMESTAR by DIRECTV and
premium channel services. Subscribers for the high-power DIRECTV business
increased by 2.2 million subscribers (1.6 million excluding PRIMESTAR
conversions and incremental subscribers from U.S. Satellite Broadcasting
Company) during 1999 to 6.7 million subscribers at the end of 1999. Including
PRIMESTAR by DIRECTV subscribers, there were over 8 million subscribers at the
end of 1999. Average monthly revenue per subscriber for the high-power
business increased to $58 for 1999 from $46 for 1998. This increase resulted
primarily from the addition of the premium channel services in April of 1999.
EBITDA was $151.2 million in 1999 compared to negative $17.9 million in
1998. The change in EBITDA resulted from the increased revenues that were
partially offset by increased subscriber acquisition costs and added operating
costs from the PRIMESTAR by DIRECTV and premium channel services. The DIRECTV
U.S.
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businesses reported an operating loss of $97.9 million in 1999 compared to
$100.0 million in 1998. The decreased operating loss resulted from increased
EBITDA which was generally offset by increased depreciation and amortization
that resulted from the PRIMESTAR and U.S. Satellite Broadcasting Company
acquisitions.
Latin America. Revenues for the Latin America DIRECTV businesses increased
82.3% to $315.3 million in 1999 from $173.0 million in 1998. The increase in
revenues reflects an increase in subscribers and the consolidation of the
Grupo Galaxy Mexicana, Galaxy Brasil and SurFin businesses. Subscribers grew
to 804,000 at the end of 1999 from 484,000 at the end of 1998. Average monthly
revenue per subscriber decreased to $36 in 1999 from $41 in 1998. The decline
in average revenue per subscriber resulted from currency devaluations in
Brazil.
EBITDA was negative $105.6 million in 1999 compared to negative $93.0
million in 1998. The change in EBITDA resulted primarily from additional
losses from the consolidation of Grupo Galaxy Mexicana and Galaxy Brasil. The
Latin America DIRECTV businesses incurred an operating loss of $168.4 million
in 1999 compared to an operating loss of $113.2 million in 1998. The increased
operating loss resulted from the decline in EBITDA and higher depreciation and
amortization that resulted from the Grupo Galaxy Mexicana, Galaxy Brasil and
SurFin transactions.
Satellite Services Segment
Revenues increased for the Satellite Services segment by $43.3 million to
$810.6 million in 1999 from $767.3 million in 1998. This increase was
primarily due to increased operating lease revenues, partially offset by a
decrease in sales and sales-type lease revenues. Operating lease revenues,
which reflect long-term satellite service agreements from which PanAmSat
derives revenues over the duration of the contract, were 97% of total 1999
revenues and increased by 6.9% to $787.5 million from $736.7 million in 1998.
Total sales and sales-type lease revenues were $23.1 million for 1999 compared
to $30.6 million for 1998.
EBITDA was $618.8 million compared to $553.3 million in 1998. The increase
was principally due to higher revenue that resulted from the commencement of
new service agreements on additional satellites placed into service in 1999
and lower leaseback expense resulting from the exercise of certain early buy-
out opportunities under sale-leaseback agreements during 1999. Operating
profit was $338.3 million in 1999, an increase of $20.0 million over 1998. The
increase resulted from the higher EBITDA in 1999 offset by increased
depreciation expense resulting from increased capital from additions to the
satellite fleet.
Backlog for the Satellite Services segment, which consists primarily of
operating leases on satellite transponders, was $4,856.3 million in 1999
compared to $4,461.9 million in 1998.
Network Systems Segment
Revenues for the Network Systems segment increased 28.6% to $1,384.7
million in 1999 from $1,076.7 million in 1998. The higher revenues resulted
from greater shipments of DIRECTV receiver equipment. Shipments of DIRECTV
receiver equipment totaled about 2.1 million units in 1999 compared to about
0.7 million units in 1998.
The Network Systems segment reported negative EBITDA of $178.1 million in
1999 compared to EBITDA of $52.6 million in 1998. The Network Systems segment
incurred an operating loss of $227.3 million in 1999 compared to operating
profit of $10.9 million in 1998. The decline in EBITDA and operating profit
resulted from the $272.1 million charge related to the discontinuation of the
wireless product lines, offset in part by the increased sales of DIRECTV
receiver equipment.
Backlog for the Network Systems segment, which consists primarily of
private business networks and satellite-based mobile telephony equipment
orders, was $996.0 million in 1999 compared to $1,333.4 million in 1998.
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Eliminations and Other
The elimination of revenues increased to $420.0 million in 1999 from $179.5
million in 1998 due primarily to increased manufacturing subsidies received by
the Network Systems segment from the DIRECTV businesses which resulted from
the increased DIRECTV receiver equipment shipments.
Operating losses for "eliminations and other" increased to $246.9 million
in 1999 from $147.3 million in 1998. The increase was primarily due to
increases in eliminations of intercompany profit and corporate expenditures.
The increased intercompany profit elimination resulted from the increased
intercompany sales noted above and increased corporate expenditures resulted
primarily from higher pension and other employee costs.
1998 compared to 1997
Overall
Revenues. Revenues in 1998 increased 22.6% to $3,480.6 million compared
with $2,838.3 million in 1997. Each of Hughes' business segments contributed
to the growth in revenue, which included continued strong subscriber growth in
the Direct-to-Home Broadcast segment, the effect of the PanAmSat merger and
increased operating lease revenues for video, data and Internet-related
services in the Satellite Services segment and increased sales of DIRECTV
receiver equipment in the Network Systems segment.
Operating Costs and Expenses. Operating costs and expenses increased to
$3,526.8 million in 1998 from $2,794.8 million in 1997. Broadcast programming
and other costs increased $299.1 million during 1998 due to increased
programming costs at the Direct-To-Home Broadcast segment and the effects of a
full year of costs from PanAmSat. The increase in costs of products sold of
$68.2 million during 1998 resulted primarily from the costs related to the
increased shipments of DIRECTV receiver equipment. Selling, general and
administrative expenses increased $237.1 million in 1998 due primarily to
increased marketing and subscriber acquisition costs in the Direct-to-Home
Broadcast segment and increased expenditures to support the growth in the
remaining business segments. The increase in depreciation and amortization
expense of $127.6 million in 1998 resulted from increased goodwill
amortization related to the PanAmSat transactions and increased capital
expenditures in the Direct-to-Home Broadcast and Satellite Services segments.
EBITDA increased slightly during 1998 to $341.7 million from $303.8 million
in 1997. The increase in EBITDA resulted from the full year effects of
PanAmSat and improved EBITDA at DIRECTV U.S. These EBITDA improvements were
offset by higher corporate expenses, primarily related to pension and other
employee costs, and a decline in EBITDA in 1998 at the Network Systems segment
due principally to lower sales of wireless telephone systems and private
business networks in the Asia-Pacific region and provisions for estimated
losses associated with uncollectible amounts due from certain wireless
customers.
Operating Profit (Loss). Hughes incurred an operating loss of $46.2 million
in 1998 compared with operating profit of $43.5 million in 1997. This decline
resulted from increased goodwill amortization, resulting primarily from the
PanAmSat transactions, which more than offset the improvement in EBITDA.
Interest Income and Expense. Interest income increased to $112.3 million in
1998 compared to $33.0 million in 1997, due primarily to higher cash balances
resulting from the recapitalization of Hughes. Interest expense decreased
$73.5 million to $17.5 million in 1998 versus $91.0 million in 1997 resulting
from the repayment of debt, arising from the PanAmSat merger, at the end of
1997.
Other, net. Other, net for 1998 relates primarily to losses from
unconsolidated subsidiaries of $128.3 million, attributable principally to
equity investments, including American Mobile Satellite Corporation and
DIRECTV Japan, and a provision for estimated losses associated with bankruptcy
filings by two customers of the Network Systems segment. Other, net for 1997
includes a $489.7 million pre-tax gain recognized in connection with the May
1997 PanAmSat merger offset by losses from unconsolidated subsidiaries of
$72.2 million.
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Income Taxes. Hughes recorded a tax benefit of $142.3 million in 1998
compared to a tax provision of $162.0 million in 1997. Income taxes in 1998
benefited from the favorable adjustment relating to a fourth quarter 1998
agreement with the Internal Revenue Service regarding the treatment of
research and experimentation costs for the years 1983 through 1995 and also
reflect the tax benefit recorded for the losses incurred from continuing
operations.
Income (Loss) From Continuing Operations. Income from continuing operations
was $63.5 million in 1998 compared with $236.9 million in 1997.
Discontinued Operations and Extraordinary Item. On December 15, 1997,
Hughes Avicom International, Inc. was sold to Rockwell Collins, Inc.,
resulting in an after-tax gain of $62.8 million. Hughes recorded an
extraordinary after-tax charge of $20.6 million in 1997 related to the
refinancing of PanAmSat's debt. For additional information see Note 8 to the
financial statements included elsewhere in and incorporated by reference into
this document.
Also included in discontinued operations are the results of the satellite
systems manufacturing businesses. Revenues for the satellite systems
manufacturing businesses increased 13.2% in 1998 to $2,820.4 million from
$2,491.9 million in 1997. Revenues, excluding intercompany sales, were
$2,483.3 million in 1998 compared to $2,290.0 million in 1997. The increase in
revenues resulted primarily from higher commercial satellite sales to
customers such as Thuraya Satellite Telecommunications Company, PanAmSat, ICO
Global Communications and Orion Asia Pacific Corporation. Operating profit for
the satellite systems manufacturing businesses in 1998 was $286.3 million, an
increase of 52.9% over $187.2 million in 1997. Operating profit, excluding
intercompany transactions, was $295.3 million in 1998 compared to $241.9
million in 1997. The increase was primarily due to the higher commercial
satellite sales noted above.
Accounting Changes. In 1998, Hughes adopted American Institute of Certified
Public Accountants Statement of Position 98-5, Reporting on the Costs of
Start-Up Activities. Statement of Position 98-5 requires that all start-up
costs previously capitalized be written off and recognized as a cumulative
effect of accounting change, net of taxes, as of the beginning of the year of
adoption. On a prospective basis, these types of costs are required to be
expensed as incurred. The unfavorable cumulative effect of this accounting
change at January 1, 1998 was $9.2 million after-tax.
Direct-To-Home Broadcast Segment
The Direct-to-Home Broadcast segment's revenues for 1998 increased 42.2% to
$1,816.1 million from $1,276.9 million in 1997. EBITDA for the segment
improved in 1998 to negative $125.8 million compared to negative $168.5
million in 1997. The operating loss for the segment declined to $228.1 million
in 1998 from $254.6 million in 1997.
United States. The DIRECTV U.S. business was the biggest contributor to the
segment's revenue growth with revenues of $1,604.1 million for 1998, a 45.4%
increase over prior year's revenues of $1,103.3 million. The large increase in
revenues resulted primarily from an increase in subscribers. Subscribers grew
to about 4.5 million at the end of 1998 compared to 3.3 million at the end of
1997. Average monthly revenue per subscriber also increased during 1998 to
$46, compared to $44 for 1997.
DIRECTV U.S. reported negative EBITDA of $17.9 million in 1998 compared to
negative EBITDA of $68.0 million in 1997. The full-year 1998 operating loss
for DIRECTV U.S. was $100.0 million compared with an operating loss of $137.0
million in 1997. The improvement in EBITDA and lower operating loss was
principally due to increased subscriber revenues which more than offset
increased sales and marketing expenditures.
Latin America. Revenues for the Latin America DIRECTV businesses increased
to $173.0 million in 1998 from $70.0 million in 1997. The increase in revenues
resulted from an increase in subscribers to 484,000 at the end of 1998 from
300,000 at the end of 1997.
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EBITDA was negative $93.0 million in 1998 compared to negative $96.5
million in 1997. The operating loss was $113.2 million in 1998 compared with
an operating loss of $111.8 million in 1997. The increased operating loss
resulted from higher sales and marketing expenditures and subscriber
acquisition costs.
Satellite Services Segment
Revenues for the Satellite Services segment in 1998 increased 21.8% to
$767.3 million from $629.9 million in 1997. The increase in revenues was due
to the May 1997 PanAmSat merger and increased operating lease
revenues from the commencement of service agreements for full-time video
distribution, as well as short-term special events and an increase in data and
Internet-related service agreements. The increase was partially offset by a
decrease in sales and sales-type lease revenues.
As a result of the increased revenues described above, the Satellite
Services segment's EBITDA and operating profit improved. EBITDA increased to
$553.3 million in 1998 from $438.1 million in 1997. Operating profit increased
8.7% to $318.3 million in 1998, compared with the prior year's operating
profit of $292.9 million. Operating profit margin in 1998 declined to 41.5%
from 46.5% in the prior year principally due to goodwill amortization
associated with the PanAmSat merger, a provision for losses relating to the
May 1998 failure of PanAmSat's Galaxy IV satellite and increased depreciation
expense resulting from increased capital expenditures by PanAmSat.
Backlog for the Satellite Services segment, which consists primarily of
operating leases on satellite transponders, was $4,461.9 million in 1998
compared to $5,772.5 million in 1997.
Network Systems Segment
Revenues for the Network Systems segment in 1998 were $1,076.7 million
compared with $1,011.3 million in 1997. The increase in revenues resulted from
the growth in sales of DIRECTV receiver equipment and increased sales of
private business networks and satellite-based mobile telephony equipment
offset by lower international sales of wireless telephony systems and private
business networks, primarily in the Asia-Pacific region.
EBITDA was $52.6 million in 1998, a decrease of $53.5 million from 1997.
Operating profit in 1998 was $10.9 million compared with $74.1 million in 1997
and operating profit margin declined to 1.0% from 7.3%. These decreases were
primarily due to a $26.0 million provision for estimated losses associated
with the bankruptcy filing by a customer, provision for uncollectible amounts
due from certain wireless customers and lower international sales of wireless
telephony systems and private business networks, primarily in the Asia Pacific
region.
Backlog for the Network Systems segment, which consists primarily of
private business networks and satellite-based mobile telephony equipment
orders, was $1,333.4 million in 1998 compared to $1,101.4 million in 1997.
Eliminations and Other
The elimination of revenues increased $99.7 million in 1998 to $179.5
million due primarily to increased intercompany activity resulting from the
PanAmSat merger and increased manufacturing subsidies received by the Network
Systems segment from DIRECTV that resulted from the increased shipment of
DIRECTV receiver equipment.
Operating losses for "eliminations and other" increased to $147.3 million
in 1998 from $68.9 million in 1997. The increase was primarily due to
increases in eliminations of intercompany profit and corporate expenditures.
The increased intercompany profit elimination resulted from the increased
intercompany sales
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noted above and increased corporate expenditures resulted primarily from
higher pension and other employee costs.
Liquidity and Capital Resources
Cash and Cash Equivalents. Cash and cash equivalents were $238.2 million at
December 31, 1999 compared to $1,342.0 million at December 31, 1998. The
decrease in cash resulted primarily from increased investing activities,
offset in part by increased borrowings and the issuance of preferred stock.
Cash provided by operating activities was $379.5 million in 1999, compared
to $612.1 million in 1998 and $90.6 million in 1997. The change in 1999 from
1998 resulted primarily from increased cash requirements for working capital,
offset by increased income from continuing operations excluding non-cash
adjustments such as depreciation and amortization, the loss resulting from the
discontinuation of the wireless product lines and deferred taxes. The change
in 1998 from 1997 resulted primarily from increased income from continuing
operations excluding non-cash adjustments and decreased working capital
requirements.
Cash used by investing activities was $3,941.8 million in 1999, compared to
$2,128.5 million in 1998 and $2,115.6 million in 1997. The increase in 1999
investing activities reflects the acquisitions of PRIMESTAR and the related
Tempo Satellite assets, U.S. Satellite Broadcasting Company, SurFin, Grupo
Galaxy Mexicana and Galaxy Brasil. The 1999 increase is also due to
investments in DIRECTV Japan convertible bonds, the early buy-out of satellite
sale-leasebacks at PanAmSat and an increase in expenditures for property,
compared to 1998. The increase in 1998 investing activities reflects the
purchase of an additional 9.5% interest in PanAmSat, the early buy-out of
satellite sale-leasebacks at PanAmSat and an increase in expenditures for
satellites, compared to 1997, offset in part by proceeds from insurance claims
for the full or partial loss of certain PanAmSat satellites.
Cash provided by (used in) financing activities was $2,577.5 million in
1999, compared to $(63.6) million in 1998 and $5,014.0 million in 1997. 1999
financing activities reflect increased borrowings and proceeds from the
issuance of preferred stock. 1998 financing activities include the payment to
General Motors for the Delco post-closing price adjustment stemming from the
Hughes restructuring transactions, offset in part by net long-term borrowings.
1997 financing activities reflect the impact of the PanAmSat merger, the
Hughes restructuring transactions and cash contributions from GM.
Cash provided by (used in) discontinued operations was $(119.0) million in
1999, compared to $138.3 million in 1998 and $(211.5) million in 1997. The
decrease in 1999 was due to increased working capital, increased development
costs, the termination of the Asia-Pacific Mobile contract and decreased
activity associated with the ICO contract. The increase in 1998 compared to
1997 was due to a decrease in working capital requirements.
Liquidity Measurement. As a measure of liquidity, the current ratio (ratio
of current assets to current liabilities) at December 31, 1999 and 1998 was
1.46 and 3.03, respectively. Working capital decreased by $1,513.3 million to
$1,215.9 million at December 31, 1999 from $2,729.2 million at December 31,
1998. The change in working capital resulted principally from the decrease in
cash and cash equivalents discussed above.
Property and Satellites. Property, net of accumulated depreciation,
increased $540.0 million to $1,223.0 million in 1999 from $683.0 million in
1998. The increase in property resulted primarily from capital expenditures of
about $506.4 million, additions resulting from acquisitions of about $281.6
million, offset by depreciation of $227.0 million. The increase in capital
expenditures of $262.5 million in 1999 over 1998 was primarily due to an
increase in subscriber leased DIRECTV receiver equipment used in the
conversion of PRIMESTAR subscribers. Satellites, net of accumulated
depreciation, increased $709.8 million to $3,907.3 million in 1999 from the
$3,197.5 million reported in 1998. Capital expenditures, including
expenditures related to satellites, increased to $1,665.3 million in 1999 from
$1,328.8 million in 1998. 1999 capital expenditures
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include $789.4 million for the construction of satellites and $369.5 million
for the early buy-out of satellite sale-leasebacks.
Common Stock Dividend Policy and Use of Cash. As discussed in Note 15 to
the financial statements included elsewhere in and incorporated by reference
into this document, since the completion of the recapitalization of Hughes in
late 1997, the GM board has not paid, and does not currently intend to pay in
the foreseeable future, cash dividends on its Class H common stock. Similarly,
since such time, Hughes has not paid dividends on its common stock to GM and
does not currently intend to do so in the foreseeable future. Future Hughes
earnings, if any, are expected to be retained for the development of the
businesses of Hughes. Hughes expects to have significant cash requirements in
2000 primarily due to capital expenditures of about $1.5 to $2.0 billion for
satellites and property.
In addition, Hughes expects to increase its investment in affiliated
companies, primarily related to its international DIRECTV businesses. These
cash requirements are expected to be funded from a combination of cash
provided from operations, cash to be received upon completion of the Boeing
transaction, amounts available under credit facilities and debt and equity
offerings, as needed.
Debt and Credit Facilities. Short-Term Borrowings. In October 1999, Hughes
issued $500.0 million ($498.9 million net of unamortized discount) of floating
rate notes to a group of institutional investors in a private placement. The
notes bear interest at a variable rate which was 7.45% at December 31, 1999.
Interest is payable quarterly and the notes are due and payable on October 23,
2000.
Notes Payable. PanAmSat issued five, seven, ten and thirty-year notes
totaling $750.0 million in January 1998. The outstanding principal balances
and interest rates for the five, seven, ten and thirty-year notes as of
December 31, 1999 were $200 million at 6.0%, $275 million at 6.125%, $150
million at 6.375% and $125 million at $6.875%, respectively. Principal on the
notes is payable at maturity, while interest is payable semi-annually.
In July 1999, in connection with the early buy-out of satellite sale-
leasebacks, PanAmSat assumed $124.1 million of variable rate notes, all of
which were outstanding at December 31, 1999. The notes bear interest at
various rates. The weighted average interest rate on the notes was 6.75% at
December 31, 1999. The notes mature on various dates through January 2, 2002.
Revolving Credit Facilities. Hughes has three unsecured revolving credit
facilities totaling $1.6 billion, consisting of a $750.0 million multi-year
facility, a $350.0 million 364-day facility and a $500.0 million bridge
facility. The multi-year credit facility provides for a commitment of $750.0
million through December 5, 2002 and borrowings bear interest at various
rates, of which the weighted average rate at December 31, 1999 was 7.09%. The
364-day facility provides for a commitment of $350.0 million through November
22, 2000. These facilities also provide backup capacity for Hughes' commercial
paper program. The bridge facility provides for a commitment of $500.0 million
through the earlier of November 22, 2000 or the receipt of proceeds from the
issuance of any debt securities of Hughes in a public offering. $500.0 million
was outstanding under the multi-year facility at December 31, 1999. No amounts
were outstanding under the commercial paper program, 364-day or bridge
facilities at December 31, 1999.
PanAmSat maintains a $500.0 million multi-year revolving credit facility
that provides for short-term and long-term borrowings and a $500.0 million
commercial paper program that provides for short-term borrowings. The multi-
year revolving credit facility provides for a commitment through December 24,
2002. Borrowings under the credit facility and commercial paper program are
limited to $500.0 million in the aggregate. No amounts were outstanding under
either the multi-year revolving credit facility or the commercial paper
program at December 31, 1999.
At December 31, 1999, Hughes' 75% owned subsidiary, SurFin, had a total of
$227.9 million outstanding under a $400.0 million unsecured revolving credit
facility expiring in June 2002. Borrowings under the credit
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facility bear interest at various rates of interest. The weighted average
interest rate on these borrowings was 6.84% at December 31, 1999.
Other. At December 31, 1999, Galaxy Brasil had a total of $24.3 million
outstanding under variable rate notes bearing interest at various rates. The
weighted average interest rate of the notes was 11.9% at December 31, 1999.
Principal is payable in varying amounts at maturity in April and May 2002, and
interest is payable monthly.
Other long-term debt totaling $16.2 million and $28.9 million at December
31, 1999 and 1998, respectively, consisted primarily of notes bearing fixed
rates of interest of 9.61% to 11.11%. Principal is payable at maturity in
April 2007, while interest is payable semi-annually.
As part of a debt refinancing program undertaken by PanAmSat in 1997, an
extraordinary charge of $20.6 million ($34.4 million before taxes) was
recorded that resulted from the excess of the price paid for the debt over its
carrying value, net of deferred financing costs.
Hughes has filed a shelf registration statement with the SEC with respect
to an issuance of up to $2.0 billion of debt securities from time to time. No
amounts have been issued as of December 31, 1999.
Acquisitions, Investments and Divestitures. On March 1, 2000, Hughes
announced that DIRECTV Japan's operations will be discontinued and that its
subscribers would migrate to SkyPerfecTV. As a result of this transaction,
Hughes will acquire about a 6.8% interest in SkyPerfecTV, which is expected to
complete an initial public offering during its fiscal year ending March 31,
2001. Hughes will be required to fund a substantial portion of the costs to be
incurred over the next six to nine months to exit the DIRECTV Japan business.
Hughes will accrue such exit costs during the first quarter of fiscal 2000.
The first quarter charge will be offset by the fair value of the SkyPerfectTV
interest received; however, the amounts are not yet estimable. In addition,
Hughes will continue to record its share of DIRECTV Japan's operating losses
during 2000.
On January 13, 2000, Hughes announced that it had reached an agreement to
sell its satellite systems manufacturing businesses to Boeing for $3.75
billion in cash. The final transaction, which is subject to regulatory
approval, is expected to close in the second or third quarter of 2000 and
result in an after-tax gain in excess of $1 billion. The financial results for
the satellite systems manufacturing businesses are treated as discontinued
operations for all periods presented herein.
Also on January 13, 2000, Hughes announced the discontinuation of its
mobile cellular and narrowband local loop product lines at Hughes Network
Systems. As a result of this decision, Hughes recorded a fourth quarter 1999
pre-tax charge to continuing operations of $272.1 million. The charge
represents the write-off of receivables and inventories, licenses, software
and equipment with no alternative use.
In September and November of 1999, DIRECTV Japan raised a total of about
$281 million through the issuance of bonds, convertible into common stock, to
five of its major shareholders, including $244.7 million issued to Hughes.
On July 28, 1999, Galaxy Latin America acquired Galaxy Brasil, the
exclusive distributor of DIRECTV in Brazil, from Tevecap S.A. for about $114.0
million plus the assumption of debt. In connection with the transaction,
Tevecap also sold its 10% equity interest in Galaxy Latin America to Hughes
and The Cisneros Group of Companies, the remaining Galaxy Latin America
partners, which increased Hughes' ownership interest in Galaxy Latin America
to 77.8%. As part of the transaction, Hughes also increased its ownership
interest in SurFin from 59.1% to 75.0%. The total consideration paid in the
transactions amounted to about $101.1 million.
On May 20, 1999, Hughes acquired by merger all of the outstanding capital
stock of U.S. Satellite Broadcasting Company, a provider of premium
subscription television programming via the digital broadcasting
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system that it shares with DIRECTV. The total consideration of about $1.6
billion paid in July 1999, consisted of about $0.4 billion in cash and 22.6
million shares of Class H common stock.
On April 28, 1999, Hughes completed the acquisition of PRIMESTAR's 2.3
million subscriber medium-power direct-to-home satellite business. The
purchase price consisted of $1.1 billion in cash and 4.9 million shares of
Class H common stock, for a total purchase price of $1.3 billion. As part of
the agreement to acquire PRIMESTAR, Hughes agreed to purchase the high-power
satellite assets and related orbital frequencies of Tempo Satellite Inc., a
wholly-owned subsidiary of TCI Satellite Entertainment Inc. The purchase price
for the Tempo Satellite assets consisted of $500 million in cash. Of this
purchase price, $150 million was paid on March 10, 1999 for a satellite that
has not yet been launched and the remaining $350 million was paid on June 4,
1999 for an in-orbit satellite and 11 related satellite orbital frequencies.
In February 1999, Hughes acquired an additional ownership interest in Grupo
Galaxy Mexicana, a Latin America local operating company which is the
exclusive distributor of DIRECTV in Mexico, from Grupo MVS, S.R.L. de C.V.
Hughes' equity ownership represents 49.0% of the voting equity and all of the
non-voting equity of Grupo Galaxy Mexicana. In October 1998, Hughes acquired
from Grupo MVS an additional 10.0% interest in Galaxy Latin America,
increasing Hughes' ownership interest to 70.0%. Hughes also acquired an
additional 19.8% interest in SurFin, a company providing financing of
subscriber receiver equipment for certain local operating companies located in
Latin America and Mexico, increasing Hughes' ownership percentage from 39.3%
to 59.1%. The aggregate purchase price for these transactions was $197.0
million in cash.
In May 1998, Hughes purchased an additional 9.5% interest in PanAmSat for
$851.4 million in cash, increasing its ownership interest in PanAmSat to
81.0%. PanAmSat was originally acquired in May 1997, when Hughes and PanAmSat
completed the merger of their respective satellite service operations into a
new publicly-held company, which retained the name PanAmSat Corporation.
Hughes contributed its Galaxy satellite services business in exchange for a
71.5% interest in the new company. Existing PanAmSat stockholders received a
28.5% interest in the new company and $1.5 billion in cash. Such cash
consideration and other funds required to consummate the merger were funded by
new debt financing totaling $1,725.0 million borrowed from GM, which was
subsequently repaid in December 1997. The PanAmSat merger was treated as a
partial sale of the Galaxy business by Hughes and resulted in a one-time pre-
tax gain of $489.7 million ($318.3 million after-tax).
The financial information included herein reflect the acquisitions
discussed above from their respective dates of acquisition. The acquisitions
were accounted for by the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on the estimated fair values at the date of acquisition. The
excess of the purchase price over the estimated fair values of the net assets
acquired has been recorded as goodwill, resulting in goodwill additions of
$3,612.4 million and $702.9 million for the years ended December 31, 1999 and
1998, respectively.
The December 31, 1999 financial statements for the PRIMESTAR transaction
reflect a preliminary allocation of the purchase price for the transaction
based upon information currently available. Adjustments relating to the
tangible assets, including equipment located on customer premises; intangible
assets, including customer lists and dealer network; and accrued liabilities
for programming contracts and leases with above-market rates are estimates
pending the completion of independent appraisals currently in process.
Additionally, the adjustment to recognize the benefit of net operating loss
carryforwards of U.S. Satellite Broadcasting Company represents a preliminary
estimate pending further review and analysis by Hughes management. The
foregoing appraisals, review and analysis are expected to be completed by
March 31, 2000. Accordingly, the final purchase price allocations may be
different from the amounts reflected herein. As a result of the acquisitions
of Grupo Galaxy Mexicana, SurFin and Galaxy Brasil, foreign currency risk, as
more fully described at "Market Risk Disclosure," has increased for Hughes and
may increase in the future.
On December 15, 1997, Hughes sold substantially all of the assets and
liabilities of the Hughes Avicom business to Rockwell Collins, Inc. for cash,
which resulted in an after-tax gain of $62.8 million. Hughes Avicom is treated
as a discontinued operation for all periods prior to its disposition.
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Also, in December 1997, Hughes repurchased from AT&T for $161.8 million a
2.5% equity interest in DIRECTV, ending AT&T's marketing agreement to
distribute the DIRECTV direct broadcast satellite television service and
DIRECTV receiver equipment.
New Accounting Standards. In September 1999, the Financial Accounting
Standards Board issued Emerging Issues Task Force Issue 99-10, Percentage Used
to Determine the Amount of Equity Method Losses. EITF 99-10 addresses the
percentage of ownership that should be used to compute equity method losses
when the investment has been reduced to zero and the investor holds other
securities of the investee. EITF 99-10 requires that equity method losses
should not be recognized solely on the percentage of common stock owned;
rather, an entity-wide approach should be adopted. Under such an approach,
equity method losses must be recognized based on the ownership level that
includes other equity securities (e.g., preferred stock) and loans/advances to
the investee or based on the change in the investor's claim on the investee's
book value. Hughes adopted EITF 99-10 during the third quarter of 1999 which
resulted in Hughes recording a higher percentage of DIRECTV Japan's losses
subsequent to the effective date of September 23, 1999. The unfavorable impact
of adopting EITF 99-10 was $39.0 million after-tax.
In June 1998, the FASB issued Statement of Financial Accounting Standards
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. Hughes plans to adopt SFAS No. 133, as amended,
by January 1, 2001, as required. Hughes does not expect that the adoption of
SFAS No. 133 will have a material impact on Hughes' results of operations and
financial position.
Commitments and Contingencies
Hughes may be required to make a cash payment to, or receive a cash payment
from, Raytheon in connection with the merger of the defense electronics
business of Hughes with Raytheon in 1997. The amount of any such cash payment
to or from Raytheon, if any, is not determinable at this time.
There is a pending grand jury investigation into whether Hughes should be
accused of criminal violations of the export control laws arising out of the
participation of two of its employees on a committee formed to review the
findings of Chinese engineers regarding the failure of a Long March rocket in
China in 1996. Hughes is also subject to the authority of the U.S. State
Department to impose sanctions for non-criminal violations of the Arms Export
Control Act. The possible criminal and/or civil sanctions could include fines
as well as debarment from various export privileges and participating in
government contracts. If Hughes were to enter into a settlement of this matter
prior to the closing of the Boeing transaction that involves a debarment from
sales to the U.S. government or a material suspension of Hughes' export
licenses or other material limitation on projected business activities of the
satellite systems manufacturing businesses, Boeing would not be obligated to
complete the purchase of Hughes' satellite systems manufacturing businesses.
Hughes does not expect the grand jury investigation or State Department review
to result in a material adverse effect upon its business. However, there can
be no assurance as to those conclusions.
Hughes has contracts with ICO Global Communications (Operations), Ltd. to
build the satellites and related components for ICO's global wireless
communications system. ICO's parent company recently filed for bankruptcy
protection under Chapter 11. If ICO's parent company is unable to confirm a
plan of reorganization that provides for full payment to Hughes under these
contracts, ICO may be unable to pay these amounts and the most likely outcome
would be a liquidation proceeding. In the event that a liquidation becomes
probable, Hughes would expect to record a pre-tax charge to income of up to
about $350 million, of which $100 million would be attributable to continuing
operations and $250 million would be attributable to discontinued operations.
A portion of the purchase price to be paid by Boeing will be placed in escrow
under certain circumstances if prior to completing this sale to Boeing,
Hughes' contracts with ICO are not assumed by ICO with bankruptcy court
approval or new similar contracts are not entered into with bankruptcy court
approval.
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At December 31, 1999, minimum future commitments under noncancelable
operating leases having lease terms in excess of one year are primarily for
real property and aggregated $250.8 million, payable as follows: $102.8
million in 2000, $52.3 million in 2001, $24.2 million in 2002, $17.8 million
in 2003, $12.5 million in 2004 and $41.2 million thereafter. Certain of these
leases contain escalation clauses and renewal or purchase options. Rental
expenses under operating leases, net of sublease rental income, were $58.5
million in 1999, $82.7 million in 1998 and $89.1 million in 1997.
Hughes is contingently liable under standby letters of credit and bonds in
the amount of $222.0 million at December 31, 1999. In Hughes' past experience,
no material claims have been made against these financial instruments. In
addition, at December 31, 1999, Hughes has guaranteed up to $209.1 million of
bank debt, including $105.0 million related to American Mobile Satellite
Corporation. Of the bank debt guaranteed, $105.0 million matures in March
2003; $55.4 million matures in September 2007; and the remaining $48.7 million
is due in variable amounts over the next five years.
In connection with the direct-to-home broadcast businesses, Hughes has
commitments related to certain programming agreements which are variable based
upon the number of underlying subscribers and market penetration rates.
Minimum payments over the terms of applicable contracts are anticipated to be
about $1,000.0 million to $1,150.0 million.
As part of a marketing agreement entered into with AOL on June 21, 1999,
Hughes committed to increase its sales and marketing expenditures over the
next three years by about $1.5 billion relating to DirecPC/AOL-Plus, DIRECTV,
DIRECTV/AOL TV and DirecDuo.
See Notes 20 and 21 to the financial statements included elsewhere in and
incorporated by reference into this document for further discussion of the
above matters and various legal proceedings and claims that could be material,
individually or in the aggregate, to Hughes' continuing operations or
financial position.
Year 2000
A comprehensive, company-wide, Year 2000 program was initiated in 1996 to
identify and remediate potential Year 2000 problems. The Year 2000 program was
implemented in seven phases which included awareness, inventory, assessment,
remediation, testing, implementation and contingency planning. Hughes incurred
and expensed about $10.0 million during 1999, about $4.0 million during 1998
and about $1.0 million through 1997, related to the assessment of, and ongoing
efforts in connection with, its Year 2000 program. Future spending for
remaining system remediation and testing is currently estimated to be from
$0.6 million to $1.0 million.
As of the date of this report, Hughes has experienced no significant
problems related to the Year 2000 conversion either domestically or in foreign
locations. After extensive system verification and testing, all computerized
information and process control systems are operating normally. The
performance of critical customers and suppliers continues without notable
change. Production and business activities are normal at all locations. Hughes
also has not received any material complaints regarding any Year 2000 issues
related to its products. However, Hughes cannot provide assurance that
problems will not arise.
Hughes continues to monitor the status of its operations, suppliers and
distribution channels to ensure no significant business interruptions.
In addition to the above, the satellite systems manufacturing businesses
incurred expenditures related to the Year 2000 conversion of about $11.0
million and $5.0 million during 1999 and 1998, respectively. Future spending
for the satellite systems manufacturing businesses is estimated at about $1.0
million. As of the date of this report, the satellite systems manufacturing
businesses have experienced no significant problems related to the Year 2000
conversions, however, Hughes cannot provide assurance that problems will not
arise.
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Each Hughes operating company is funding its respective Year 2000 efforts
with current and future operating cash flows.
Security Ratings
On January 14, 2000, subsequent to the announcement of the sale of Hughes'
satellite systems manufacturing businesses to Boeing, Standard and Poor's
Rating Services and Moody's Investors Service each affirmed its respective
debt ratings for Hughes. S&P maintained its BBB-minus credit rating, which
indicates the issuer has adequate capacity to pay interest and repay
principal. S&P maintained the short-term corporate credit and commercial paper
ratings at A-3. S&P revised its outlook to positive from negative.
Moody's confirmed Hughes' Baa2 long-term credit and P-2 commercial paper
ratings. While the outlook remains negative, Moody's ended its review for
possible downgrade. The Baa2 rating for senior debt indicates adequate
likelihood of interest and principal payment and principal security. The P-2
commercial paper rating is the second highest rating available and indicates
that the issuer has a strong ability for repayment relative to other issuers.
Debt ratings by the various rating agencies reflect each agency's opinion
of the ability of issuers to repay debt obligations as they come due. Lower
ratings generally result in higher borrowing costs. A security rating is not a
recommendation to buy, sell, or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating organization. Each rating
should be evaluated independently of any other rating.
Market Risk Disclosure
The following discussion and the estimated amounts generated from the
sensitivity analyses referred to below include forward-looking statements of
market risk which assume for analytical purposes that certain adverse market
conditions may occur. Actual future market conditions may differ materially
from such assumptions because the amounts noted below are the result of
analyses used for the purpose of assessing possible risks and the mitigation
thereof. Accordingly, the forward-looking statements should not be considered
projections by Hughes of future events or losses.
General
Hughes' cash flows and earnings are subject to fluctuations resulting from
changes in foreign currency exchange rates, interest rates and changes in the
market value of its equity investments. Hughes manages its exposure to these
market risks through internally established policies and procedures and, when
deemed appropriate, through the use of derivative financial instruments.
Hughes' policy is to not enter into speculative derivative instruments for
profit or execute derivative instrument contracts for which there are no
underlying exposures. Hughes does not use financial instruments for trading
purposes and is not a party to any leveraged derivatives.
Foreign Currency Risk
Hughes generally conducts its business in U.S. dollars with a small amount
of business conducted in a variety of foreign currencies and therefore is
exposed to fluctuations in foreign currency exchange rates. Hughes' objective
in managing the exposure to foreign currency changes is to reduce earnings and
cash flow volatility associated with foreign exchange rate fluctuations.
Accordingly, Hughes enters into foreign exchange-forward contracts to mitigate
risks associated with future foreign currency firm commitments. Foreign
exchange-forward contracts are legal agreements between two parties to
purchase and sell a foreign currency, for a price specified at the contract
date, with delivery and settlement in the future. At December 31, 1999, the
impact of a hypothetical 10% adverse change in exchange rates on the fair
values of foreign exchange-forward contracts and foreign currency denominated
assets and liabilities would not be significant.
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Investments
Hughes maintains investments in publicly-traded common stock of
unaffiliated companies and is therefore subject to equity price risk. These
investments are classified as available-for-sale and, consequently, are
reflected in the balance sheets at fair value with unrealized gains or losses,
net of taxes, recorded as part of accumulated other comprehensive income
(loss), a separate component of stockholder's equity. At December 31, 1999,
the fair values of the investments in such common stock were $1,025.2 million.
The investments were valued at the market closing prices at December 31, 1999.
No actions have been taken by Hughes to hedge this market risk exposure. A 10%
decline in the market price of these investments would cause the fair value of
the investments in common stock to decrease by $102.5 million as of December
31, 1999.
Interest Rate Risk
Hughes is subject to interest rate risk related to its $2.1 billion of debt
outstanding at December 31, 1999. As of December 31, 1999, debt consisted of
Hughes' $500.0 million floating rate line of credit and a $498.9 million
floating rate note, PanAmSat's fixed-rate borrowings of $750.0 million, and
various other floating and fixed rate borrowings. Hughes is subject to
fluctuating interest rates which may adversely impact its results of
operations and cash flows for its variable rate bank borrowings. Fluctuations
in interest rates may also adversely effect the market value of Hughes' fixed-
rate borrowings. At December 31, 1999, outstanding borrowings bore interest at
rates ranging from 6.00% to 11.11%. The potential fair value loss resulting
from a hypothetical 10% decrease in interest rates related to Hughes'
outstanding debt would be about $29.0 million as of December 31, 1999.
Credit Risk
Hughes is exposed to credit risk in the event of non-performance by the
counterparties to its foreign exchange-forward contracts. While Hughes
believes this risk is remote, credit risk is managed through the periodic
monitoring and approval of financially sound counterparties.
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UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION OF HUGHES
The following unaudited pro forma combined condensed financial statements
have been derived from the historical financial statements of Hughes, U.S.
Satellite Broadcasting Company, PRIMESTAR and TCI Satellite Entertainment, the
parent company of Tempo Satellite, to give effect to:
. the merger of Hughes with U.S. Satellite Broadcasting Company that was
completed as of May 20, 1999;
. Hughes' acquisition of PRIMESTAR's direct broadcast satellite medium-
power business and related high-power satellite assets of Tempo Satellite
that was completed as of April 28, 1999; and
. the proceeds from the issuance of Hughes Series A preferred stock that
was completed as of June 24, 1999.
The unaudited pro forma combined condensed statements of income (loss) from
continuing operations reflect adjustments as if the transactions described
above had each taken place at the beginning of the periods presented. The
historical Hughes amounts reflect the satellite systems manufacturing
businesses as discontinued operations. Accordingly, the results of those
businesses have been excluded from the historical Hughes amounts included in
the Unaudited Pro Forma Combined Condensed Financial Information presented
herein. The historical U.S. Satellite Broadcasting Company amounts included in
the unaudited pro forma combined condensed statement of income (loss) from
continuing operations for the year ended December 31, 1999 are for the period
January 1, 1999 through May 20, 1999, prior to the date of the merger. The
historical PRIMESTAR/Tempo Satellite amounts included in the unaudited pro
forma combined condensed statement of income (loss) from continuing operations
for the year ended December 31, 1999 are for the period January 1, 1999
through April 28, 1999, prior to the date of the acquisition. Certain of the
pro forma adjustments described in the accompanying notes are based on
preliminary estimates and various assumptions that Hughes believes are
reasonable under the circumstances.
The unaudited pro forma combined condensed statements of income (loss) from
continuing operations do not give effect to any cost savings that may be
realized from the merger with U.S. Satellite Broadcasting Company and the
PRIMESTAR/Tempo Satellite acquisition, which savings relate primarily to the
reduction of duplicative operating, general and administrative expenses.
Hughes' merger with U.S. Satellite Broadcasting Company and the acquisition
of PRIMESTAR/Tempo Satellite have been accounted for as purchases. Under the
purchase method of accounting, the purchase price is allocated to assets
acquired and liabilities assumed based on their estimated fair values. Certain
of the adjustments included in the unaudited pro forma combined condensed
financial statements reflect a preliminary allocation of the purchase price
for the PRIMESTAR transaction based upon information currently available.
Adjustments relating to tangible assets, including equipment located on
customer premises; intangible assets, including customer lists and dealer
network; and accrued liabilities for programming contracts and leases with
above-market rates are estimates pending the completion of independent
appraisals currently in process. Additionally, the adjustment to recognize the
benefit of net operating loss carryforwards of U.S. Satellite Broadcasting
Company represents a preliminary estimate pending further review and analysis
by Hughes management. These appraisals, valuations and studies are expected to
be completed by March 31, 2000. Accordingly, the final purchase price
allocations may be different from the amounts reflected herein.
The unaudited pro forma combined condensed financial statements should be
read in conjunction with Hughes' financial statements, including the
respective notes thereto, as of and for the years ended December 31, 1999 and
1998, included elsewhere in and incorporated by reference into this document
and the financial statements, including the respective notes thereto, of U.S.
Satellite Broadcasting Company, PRIMESTAR, which following Hughes' acquisition
of its direct broadcast satellite medium-power business, changed its name to
Phoenixstar, Inc., and TCI Satellite Entertainment, each as of and for the
year ended December 31, 1998 and each of which is incorporated by reference
into this document.
69
<PAGE>
HUGHES UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF INCOME (LOSS) FROM CONTINUING OPERATIONS
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
U.S.
Satellite PRIMESTAR/
Historical Broadcasting Tempo
U.S. Merger Pro Historical Acquisition Pro Series A Pro
Historical Satellite Pro Forma Forma PRIMESTAR/ Pro Forma Forma Preferred Forma
Hughes Broadcasting Adjustments Combined Tempo Adjustments Combined Stock Combined
---------- ------------ ------------ -------- ---------- ----------- -------- --------- --------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Direct broadcast,
leasing and other
services............ $4,550 $252 $ (7) (a) $4,795 $ 545 -- $5,340 -- $5,340
Product sales........ 1,010 -- -- 1,010 -- -- 1,010 -- 1,010
------ ---- ----- ------ ----- ----- ------ ---- ------
Total Revenues..... 5,560 252 (7) 5,805 545 -- 6,350 -- 6,350
------ ---- ----- ------ ----- ----- ------ ---- ------
Operating Costs and
Expenses
Cost of products
sold................ 955 -- -- 955 -- -- 955 -- 955
Broadcast
programming and
other costs......... 2,075 149 37 (b) 2,216 267 $ 31 (l) 2,502 -- 2,502
(45) (d) (12) (o)
Selling, general,
and administrative
expenses............ 2,308 134 (7) (a) 2,381 258 (31) (l) 2,517 -- 2,517
(37) (b) (91) (m)
(17) (e)
Depreciation and
amortization........ 650 9 24 (g) 682 198 (5) (p) 722 -- 722
(1) (h) 1 (q)
(154) (r)
------ ---- ----- ------ ----- ----- ------ ---- ------
Total operating
costs and
expenses.......... 5,988 292 (46) 6,234 723 (261) 6,696 -- 6,696
------ ---- ----- ------ ----- ----- ------ ---- ------
Operating Profit
(Loss)............... (428) (40) 39 (429) (178) 261 (346) -- (346)
Interest income
(expense), net....... (96) 1 (40) (d) (142) (57) (1) (o) (172) $ 28 (z) (144)
(7) (i) (19) (s)
57 (t)
(10) (u)
Other, net............ (136) -- -- (136) 114 (114) (v) (136) -- (136)
------ ---- ----- ------ ----- ----- ------ ---- ------
Income (Loss) from
Continuing Operations
Before Income Taxes
and Minority
Interests............ (660) (39) (8) (707) (121) 174 (654) 28 (626)
Income tax benefit
(expense)............ 237 10 (j) 247 75 (75) (w) 225 (11) (aa) 214
(22) (x)
Minority interests in
net losses of
subsidiaries......... 32 -- -- 32 -- -- 32 -- 32
------ ---- ----- ------ ----- ----- ------ ---- ------
Income (Loss) from
Continuing
Operations........... (391) (39) 2 (428) (46) 77 (397) 17 (380)
Adjustments to exclude
the effect of GM
purchase accounting
related to Hughes
Aircraft Company..... 3 -- -- 3 -- -- 3 -- 3
Preferred Dividends... (51) -- -- (51) -- -- (51) (48) (bb) (99)
------ ---- ----- ------ ----- ----- ------ ---- ------
Earnings (Loss) Used
for Computation of
Available Separate
Consolidated Income
(Loss) from
Continuing
Operations........... $ (439) $(39) $ 2 $ (476) $ (46) $ 77 $ (445) $(31) $ (476)
====== ==== ===== ====== ===== ===== ====== ==== ======
Available Separate
Consolidated Income
(Loss) from
Continuing Operations
Average number of
shares of Class H
common stock
outstanding (in
millions)
(numerator)......... 124.7 9.0 (k) 133.7 1.5 (y) 135.2 135.2
Class H dividend
base (in millions)
(denominator)(1).... 418.5 9.0 (k) 427.5 1.5 (y) 429.0 429.0
Available Separate
Consolidated Income
(Loss) from
Continuing
Operations.......... $ (131) $ (149) $ (140) $ (150)
====== ====== ====== ======
</TABLE>
- -------
(1) See discussion of Class H dividend base in the Notes to the Hughes
financial statements included in and incorporated by reference into this
document.
The accompanying notes are an integral part of the unaudited pro forma combined
condensed financial statements.
70
<PAGE>
HUGHES UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF INCOME (LOSS) FROM CONTINUING OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
U.S.
Satellite PRIMESTAR/
Historical Broadcasting Tempo
U.S. Merger Pro Historical Acquisition Pro Series A Pro
Historical Satellite Pro Forma Forma PRIMESTAR/ Pro Forma Forma Preferred Forma
Hughes Broadcasting Adjustments Combined Tempo Adjustments Combined Stock Combined
---------- ------------ ------------ -------- ---------- ----------- -------- --------- --------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Direct broadcast,
leasing and other
services............ $2,640 $551 $ (3) (a) $3,188 $ 1,290 -- $4,478 -- $4,478
Product sales........ 841 -- -- 841 -- -- 841 -- 841
------ ---- ---- ------ ------- ------ ------ ---- ------
Total Revenues..... 3,481 551 (3) 4,029 1,290 -- 5,319 -- 5,319
------ ---- ---- ------ ------- ------ ------ ---- ------
Operating Costs and
Expenses
Cost of products
sold................ 607 -- -- 607 -- -- 607 -- 607
Broadcast
programming and
other costs......... 1,211 328 75 (b) 1,530 655 $ 85 (l) 2,234 -- 2,234
(84) (d) (36) (o)
Selling, general,
and administrative
expenses............ 1,321 267 (3) (a) 1,487 486 (85) (l) 1,888 -- 1,888
(75) (b)
(1) (c)
(22) (f)
Impairment of long-
lived assets........ -- -- -- -- 950 (950) (n) -- -- --
Depreciation and
amortization........ 388 17 58 (g) 460 543 (13) (p) 580 -- 580
(3) (h) 3 (q)
(413) (r)
------ ---- ---- ------ ------- ------ ------ ---- ------
Total operating
costs and
expenses.......... 3,527 612 (55) 4,084 2,634 (1,409) 5,309 -- 5,309
------ ---- ---- ------ ------- ------ ------ ---- ------
Operating Profit
(Loss)............... (46) (61) 52 (55) (1,344) 1,409 10 -- 10
Interest income
(expense), net....... 95 4 (75) (d) 7 (146) (4) (o) (84) $ 57 (z) (27)
(17) (i) (57) (s)
146 (t)
(30) (u)
Other, net............ (152) -- -- (152) (8) -- (160) -- (160)
------ ---- ---- ------ ------- ------ ------ ---- ------
Income (Loss) from
Continuing Operations
Before Income Taxes
and Minority
Interests............ (103) (57) (40) (200) (1,498) 1,464 (234) 57 (177)
Income tax benefit
(expense)............ 142 -- 16 (j) 158 148 (148) (w) 171 (23) (aa) 148
13 (x)
Minority interests in
net losses of
subsidiaries......... 25 -- -- 25 -- -- 25 -- 25
------ ---- ---- ------ ------- ------ ------ ---- ------
Income (Loss) from
Continuing Operations
Before Cumulative
Effect of Accounting
Change............... 64 (57) (24) (17) (1,350) 1,329 (38) 34 (4)
Adjustments to exclude
the effect of GM
purchase accounting
related to Hughes
Aircraft Company..... 3 -- -- 3 -- -- 3 -- 3
Preferred Dividends... -- -- -- -- -- -- -- (99) (bb) (99)
------ ---- ---- ------ ------- ------ ------ ---- ------
Earnings (Loss) Used
for Computation of
Available Separate
Consolidated Income
(Loss) from
Continuing Operations
Before Cumulative
Effect of Accounting
Change............... $ 67 $(57) $(24) $ (14) $(1,350) $1,329 $ (35) $(65) $ (100)
====== ==== ==== ====== ======= ====== ====== ==== ======
Available Separate
Consolidated Income
(Loss) from
Continuing Operations
Before Cumulative
Effect of Accounting
Change:
Average number of
shares of Class H
common stock
outstanding (in
millions)
(numerator)......... 105.3 22.6 (k) 127.9 4.9 (y) 132.8 132.8
Average Class H
dividend base (in
millions)
(denominator)(1).... 399.9 22.6 (k) 422.5 4.9 (y) 427.4 427.4
Available Separate
Consolidated Income
(Loss) from
Continuing
Operations Before
Cumulative Effect of
Accounting Change... $ 18 $ (4) $ (11) $ (31)
====== ====== ====== ======
</TABLE>
- -------
(1) See discussion of Class H dividend base in the Notes to the Hughes
financial statements included in and incorporated by reference into this
document.
The accompanying notes are an integral part of the unaudited pro forma combined
condensed financial statements.
71
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF
HUGHES
Various reclassifications have been made to the historical financial
statements of U.S. Satellite Broadcasting Company, PRIMESTAR and TCI Satellite
Entertainment to conform to the unaudited pro forma combined condensed
financial statement presentation. As more fully described in Note 3 to
PRIMESTAR's 1998 consolidated financial statements, the historical operating
results of PRIMESTAR reflect the operations of its predecessor, TCI Satellite
Entertainment, prior to the restructuring transaction on April 1, 1998.
U.S. Satellite Broadcasting Company Merger Pro Forma Adjustments
The following adjustments, which are set forth in millions of dollars, give
pro forma effect to the U.S. Satellite Broadcasting Company merger.
(a) To eliminate intercompany transactions between Hughes and U.S.
Satellite Broadcasting Company.
(b) To reclassify certain amounts in the historical financial statements of
U.S. Satellite Broadcasting Company to conform to Hughes' presentation.
(c) To eliminate non-recurring expenses related to the merger.
(d) To reflect the amortization of the accrued liability for programming
contracts with above-market rates. The effective interest method was
used to amortize the liability and to impute interest expense thereon.
(e) To eliminate non-recurring fees recorded by U.S. Satellite Broadcasting
Company during 1999 in connection with the merger.
(f) To eliminate a non-recurring loss recorded by U.S. Satellite
Broadcasting Company during 1998 and to provide for the termination of
various contracts as specified in the U.S. Satellite Broadcasting
Company merger agreement.
(g) To reflect amortization of the intangible assets consisting of customer
lists, licenses granted by the Federal Communications Commission and
enterprise level goodwill. Amortization of the customer lists was
calculated based on a five-year useful life, and the amortization of
licenses granted by the Federal Communications Commission and
enterprise level goodwill were calculated based on useful lives of 40
years.
(h) To reflect reduced depreciation expense resulting from the write-down
of fixed assets to fair values.
(i) To reduce interest income on cash required for the U.S. Satellite
Broadcasting Company merger.
(j) Income taxes associated with the pro forma adjustments discussed above
have been calculated at an assumed combined federal and state rate of
40%, excluding amortization of estimated goodwill which is not
deductible for tax purposes.
The unaudited pro forma combined condensed statements of income (loss)
from continuing operations have also been adjusted to recognize a tax
benefit, at an assumed combined federal and state rate of 40%, for U.S.
Satellite Broadcasting Company's historical losses from continuing
operations for the periods ended December 31, 1999 and 1998. This
adjustment recognizes that, if the U.S. Satellite Broadcasting Company
merger had taken place at the beginning of the periods presented, the
tax benefit of U.S. Satellite Broadcasting Company's losses would have
been realized in the consolidated federal tax return of General Motors.
(k) In connection with the U.S. Satellite Broadcasting Company merger,
General Motors contributed cash to the capital of Hughes, sufficient to
enable Hughes to purchase from General Motors, for fair value as
determined by the GM board, the 22.6 million shares of Class H common
stock delivered to U.S. Satellite Broadcasting Company shareholders in
the merger. In connection therewith, the GM board also increased the
Class H dividend base by 22.6 million. For purposes of pro forma
presentation, the historical GM Class H numerator and denominator have
been adjusted to reflect the weighted-average
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF
HUGHES--Continued
number of shares of Class H common stock that would have resulted if the
U.S. Satellite Broadcasting Company merger had taken place at the
beginning of each period presented.
PRIMESTAR/Tempo Satellite Acquisition Pro Forma Adjustments
The following adjustments, which are set forth in millions of dollars, give
pro forma effect to the PRIMESTAR/Tempo Satellite acquisition:
(l) To reclassify certain amounts in the historical financial statements of
PRIMESTAR to conform to Hughes' presentation.
(m) To eliminate non-recurring expenses related to the acquisition.
(n) To eliminate a non-recurring impairment loss and related income tax
benefit recorded by PRIMESTAR during 1998 to reduce the carrying amount
of certain assets to their net realizable values.
(o) To reflect the amortization of the accrued liability for programming
contracts and leases with above-market rates. The effective interest
method was used to amortize the liability and to calculate the
accretion of interest expense.
(p) To reflect amortization of the intangible assets consisting of customer
lists, licenses granted by the Federal Communications Commission,
dealer/install network, and enterprise level goodwill. Amortization of
the customer lists was calculated based on a five-year useful life, and
the amortization of the dealer/install network was calculated based
upon a 15-year useful life. Amortization of licenses granted by the
Federal Communications Commission and enterprise level goodwill was
calculated based on useful lives of 40 years.
(q) To record depreciation on the in-orbit satellite acquired by us in
connection with the PRIMESTAR/Tempo Satellite acquisition over the
estimated remaining useful life of 12 years.
(r) To reflect reduced depreciation expense resulting from the write-down
of fixed assets to fair values.
(s) To reflect interest expense associated with the incremental debt
incurred by Hughes to finance the PRIMESTAR/Tempo Satellite
acquisition.
(t) To reduce interest expense associated with PRIMESTAR debt not assumed
by Hughes.
(u) To reduce interest income on cash required for the PRIMESTAR
acquisition assuming Hughes' historical interest income rate.
(v) To eliminate a non-recurring net gain recorded by PRIMESTAR during 1999
in connection with the sale of certain assets and the retirement of
debt as a result of the PRIMESTAR/Tempo Satellite acquisition.
(w) To eliminate PRIMESTAR's historical income tax benefit recorded in
connection with PRIMESTAR's restructuring consummated during 1998.
(x) Income taxes associated with the pro forma adjustments discussed above
have been calculated at an assumed combined federal and state rate of
40%. Because the PRIMESTAR/Tempo Satellite acquisition is a taxable
transaction, amortization of goodwill is expected to be deductible over
15 years for income tax purposes.
The unaudited pro forma combined condensed statements of income (loss)
from continuing operations have also been adjusted to recognize a tax
benefit, at an assumed combined federal and state rate of 40%, for
PRIMESTAR's historical losses from continuing operations for the periods
ended December 31, 1999 and 1998. This adjustment recognizes that, if
the PRIMESTAR/Tempo Satellite acquisition had taken place at the
beginning of the periods presented, the tax benefit of PRIMESTAR's and
Tempo Satellite's losses would have been realized in the consolidated
federal tax return of General Motors.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF
HUGHES--Continued
(y) Based on the PRIMESTAR asset purchase agreement, 4.9 million shares of
Class H common stock were issued to effect the PRIMESTAR acquisition.
Hughes acquired these shares from General Motors for a cash payment,
which was funded with a cash capital contribution from General Motors.
In connection therewith, the General Motors board also increased the
Class H dividend base by about 4.9 million. For purposes of pro forma
presentation, the historical GM Class H numerator and denominator have
been adjusted to reflect the weighted-average number of shares of Class
H common stock that would have resulted if the PRIMESTAR acquisition
had taken place at the beginning of each period presented.
Preferred Stock Issuance Adjustments
The following adjustments, which are set forth in millions of dollars, give
pro forma effect to the issuance of Hughes Series A preferred stock.
(z) To reduce interest expense for the result of the pay down of short-term
debt.
(aa) To reflect the income tax effects of a reduction in interest expense
that resulted from the pay down of short-term debt at an assumed
combined federal and state tax rate of 40%.
(bb) To record dividends and amortization of fees on the Hughes Series A
preferred stock.
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<PAGE>
BUSINESS OF GM
General
General Motors is primarily engaged in the automotive and, through its
wholly-owned Hughes subsidiary, the communications services industries. GM is
the world's largest manufacturer of automotive vehicles. GM also has financing
and insurance operations and, to a lesser extent, engages in other industries.
GM's automotive segment is comprised of four regions:
. GM North America;
. GM Europe;
. GM Asia/Pacific; and
. GM Latin America/Africa/Mid-East.
GM North America designs, manufacturers and markets vehicles primarily in
North America under the following nameplates:
.Chevrolet .GMC .Buick .Saturn
.Pontiac .Oldsmobile .Cadillac
GM's international operations meet the demands of customers outside North
America with vehicles designed, manufactured and marketed under the following
nameplates:
.Opel .Holden .Saab .GMC .Buick
.Vauxhall .Isuzu .Chevrolet .Cadillac
GM participates in the communications services industry through its Hughes
subsidiary, which is a leading global provider of digital entertainment
services, satellite communications services and satellite-based private
business networks. For more information about Hughes, see "Business of
Hughes."
GM's financing and insurance operations primarily relate to General Motors
Acceptance Corporation, which provides a broad range of financing services,
including consumer vehicle financing, full service leasing, mortgage services
and vehicle and homeowner's insurance. GM's other industrial operations
include the design, manufacturing and marketing of locomotives and heavy duty
transmissions.
Substantially all of GM's automotive-related products are marketed through
retail dealers and through distributors and jobbers in the United States,
Canada, and Mexico, and through distributors and dealers overseas. At December
31, 1999, there were about 8,100 GM vehicle dealers in the United States, 840
in Canada and 155 in Mexico. Additionally, there were a total of about 11,340
outlets overseas which include dealers and authorized sales, service and parts
outlets on the same date.
Recent Developments
On March 13, 2000, GM and Fiat S.p.A. agreed to form a strategic industrial
alliance, creating an important partnership for the companies in two of the
world's largest automotive markets: Europe and Latin America. We expect that
this alliance will provide significant opportunities to create value for both
GM and Fiat stockholders through significant synergies between the companies
in the areas of material cost reductions, leveraging of each company's
powertrain activities, efficiency in financial service operations, sharing of
automotive technologies and effective leveraging of each other's platforms. In
connection with this alliance, GM will acquire about 20% of Fiat Auto in
exchange for about $2.4 billion. In addition, GM will issue 32,053,422 shares
of $1 2/3 par value common stock to Fiat for about $2.4 billion. Based on the
number of shares to be issued to Fiat and the total number of outstanding
shares of $1 2/3 par value common stock as of February 29, 2000 and giving
effect to the exercise of all outstanding stock options for $1 2/3 par value
common stock as of such date, Fiat would receive about 5.1% of the outstanding
$1 2/3 par value common stock as of such date. However, this percentage will
increase as a result of both the reduced number of shares of $1 2/3 par value
common stock outstanding after the exchange offer and GM's planned $1.4
billion stock repurchase program, which is described further at "Overview of
GM Capital Stock--Recent Developments Affecting GM's Capital Structure." It is
currently anticipated that Fiat will be granted certain registration rights in
connection with its acquisition of $1 2/3 par value common stock. This
issuance of $1 2/3 par value common stock to Fiat is expected to be completed
in 2000.
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<PAGE>
BUSINESS OF HUGHES
Overview
Hughes is a leading global provider of digital entertainment, information
and communications services and satellite-based private business networks.
Hughes has been a pioneer in many aspects of the satellite and wireless
communications industry, and its technologies have driven the creation of new
services and markets and have established Hughes as a leader in each of the
markets it serves. Hughes believes that its ability to identify, define and
develop new markets early has provided it with a significant competitive
advantage in building sustainable market leadership positions.
In January 2000, Hughes announced a strategy designed to accelerate the
growth of its services businesses. In connection with this new focus on its
services businesses, Hughes recently entered into an agreement to sell its
satellite systems manufacturing businesses to Boeing for $3.75 billion in
cash. In addition, Hughes has realigned its marketing efforts to focus on its
two major customer groups: consumers and business enterprises. Hughes believes
this marketing realignment will enable it to obtain the full benefit of the
synergies between its various business units and more effectively reach its
customers.
Hughes provides advanced communications services on a global basis. Hughes
has developed a range of entertainment, information and communications
services for the home and business markets, including video, data, voice,
multimedia and Internet services. Hughes believes that these services provide
the potential for higher value through higher margins and higher growth than
Hughes' traditional manufacturing businesses. For the years ended December 31,
1998 and 1999, multi-channel entertainment services, satellite transponder
leasing and other services revenues represented about $2.6 billion, or 76%, of
Hughes' total revenues and about $4.6 billion, or 82%, of Hughes' total
revenues, respectively. This represents a 72% year-over-year growth in service
revenues. These figures exclude revenues attributable to Hughes' satellite
systems manufacturing businesses. We currently expect that Hughes' revenues
from its services businesses as a percentage of total revenues will be even
higher in 2000.
Hughes' businesses include:
. DIRECTV, the world's leading digital multi-channel entertainment service,
based on the number of subscribers. DIRECTV includes businesses in the
United States and Latin America, and constitutes Hughes' Direct-to-Home
Broadcast segment. In 1999, DIRECTV gained a record 1.6 million net new
subscribers in the United States, representing a 39% growth rate over
1998. As of December 31, 1999, average revenue per residential U.S.
DIRECTV subscriber of $58 was the highest in the U.S. multi-channel
entertainment industry.
. PanAmSat, the owner and operator of the largest commercial satellite
fleet in the world. PanAmSat, a publicly-held company of which Hughes
owns 81%, constitutes Hughes' Satellite Services segment. PanAmSat owns
and operates 20 satellites that are capable of transmitting signals to
geographic areas covering a substantial portion of the world's
population. PanAmSat provides satellite capacity for the transmission of
cable and broadcast television programming from the content source to the
consumer distribution point (the consumer's home or cable operator).
PanAmSat satellites have the capability to reach over 125 million cable
households around the world and serve as transmission platforms for six
direct-to-home services worldwide. 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 terminals or "VSATs" and international access to the
U.S. Internet backbone.
. Broadband Services and Products, which includes Hughes Network Systems, a
leading provider of satellite and wireless communications ground
equipment and business communications services. Hughes Network Systems
has more than a 50% share of the global market for VSAT private business
networks and constitutes Hughes' Network Systems segment. Hughes Network
Systems is also leading the development of Spaceway, a satellite-based
broadband communications platform that is expected to provide customers
with high-speed, two-way data communication on a more cost-efficient
basis than
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<PAGE>
systems that are currently available. Spaceway is expected to launch
service in North America in 2003 and currently is not a separately
reported business segment.
In addition, Hughes' business currently includes its satellite systems
manufacturing businesses. Hughes Space and Communications, the largest
component of Hughes' satellite systems manufacturing businesses, is the
principal component of the discontinued operations captions in Hughes'
financial statements because Hughes has agreed to sell Hughes Space and
Communications and its related satellite systems manufacturing assets to
Boeing as more fully described below at "--Hughes Space and Communications."
Recent Developments
There have been several recent developments affecting Hughes' businesses
that Hughes believes will accelerate its growth as a premier provider of
integrated entertainment, information and communications services:
. New Corporate Focus. Hughes has undertaken several new initiatives
designed to focus its resources and management attention on its high-
growth entertainment, information and communications services businesses.
Hughes has entered into an agreement with Boeing for the sale of Hughes'
satellite systems manufacturing businesses. This sale of the most
significant portion of Hughes' traditional manufacturing businesses is
intended to accelerate Hughes' transformation into an entertainment,
information and communications services business. Hughes also believes
that Boeing, with its strong systems integration capabilities, will
continue to provide Hughes with a reliable source of satellites in the
future. For additional information on this transaction, see "--Hughes
Space and Communications" below.
In addition, Hughes' wireless communication equipment business, conducted
through Hughes Network Systems, will focus solely on its leading broadband
wireless access (point-to-multipoint) product line and will discontinue
its mobile cellular and narrowband fixed wireless product lines. Hughes
does not believe that it has the critical mass required to be competitive
in the mobile cellular or narrowband markets. However, Hughes believes
that it has superior technology and valuable experience in the broadband
wireless access market and intends to use that expertise to increase its
penetration in a market that is expected to experience rapid growth over
the next several years. Finally, Hughes has realigned its marketing
efforts to focus on its two major customer groups, as more fully described
below.
. New Marketing Initiative. As part of its new corporate focus, Hughes has
created two new executive positions, each of which will have the primary
responsibility for Hughes' two main customer groups: consumers and
business enterprises. Hughes believes that its marketing realignment will
enable it to obtain the full benefit of the synergies between its various
business segments and to more effectively serve its customers. Hughes
also believes that this new marketing initiative will allow it to better
identify and capitalize on rapidly changing trends in these two markets.
For more information on Hughes' marketing realignment, see "--Sales and
Marketing" below.
. Local Programming. Following the enactment of new legislation regarding
the delivery of local programming in the United States, DIRECTV recently
expanded its program offerings to include the major local broadcast
networks and a national Public Broadcasting System feed in 23 U.S.
markets. This legislation allows DIRECTV to compete more effectively with
cable television providers who previously had the advantage because they
could offer subscribers local channels. Now, DIRECTV can provide local
channels to subscribers with digital-quality picture and sound. Many of
DIRECTV's existing customers are able to receive this local programming
using their existing receiver equipment. In addition, DIRECTV plans to
deliver local programming in new markets in which customers will receive
the local channels through a new dual-feed satellite dish. DIRECTV
intends initially to introduce local programming in up to 25 markets,
capable of reaching about 50 million U.S. television households. In the
future, DIRECTV may expand its local programming markets to additional
cities based on market demand. Hughes expects that DIRECTV's ability to
deliver local programming will result in higher revenue per subscriber as
well as new DIRECTV subscribers in the markets where DIRECTV offers local
channels.
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. DIRECTV Japan/SkyPerfecTV Transaction. On March 1, 2000, Hughes announced
that DIRECTV Japan's operations would be discontinued and that its
subscribers would migrate to SkyPerfecTV, a provider of direct-to-home
satellite broadcasting in Japan. In connection with this transaction,
Hughes will receive an ownership interest in SkyPerfecTV. For more
information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Hughes."
. Strategic Alliance with America Online. In June 1999, Hughes announced a
new strategic alliance with AOL to develop and market digital
entertainment and Internet services nationwide. This alliance is expected
to accelerate subscriber growth and revenue per subscriber for DIRECTV,
DirecPC and eventually new broadband services to be delivered via
Spaceway. As part of this alliance, Hughes and AOL plan to introduce two
new enhanced TV and Internet-based interactive services later this year.
The first is a combination television receiver that will allow the
consumer to not only receive DIRECTV's extensive programming, but also to
access "AOL TV," a new service that will bring AOL's extensive
interactive and Internet content to the consumer's television. The second
is a high-speed Internet service called "AOL Plus via DirecPC" that will
be delivered using Hughes Network Systems' DirecPC satellite network.
Hughes currently expects to achieve over one million subscribers to the
AOL Plus via DirecPC service by the end of 2003. DirecPC is a satellite-
based Internet service which uses a small receiver dish to provide access
speeds up to 400 kilobits-per-second, which is substantially faster than
traditional computer modems that use analog phone lines. Hughes and AOL
also plan to jointly develop new services and content for DIRECTV. Hughes
currently expects to spend about $1.5 billion in connection with the
marketing of these and other services and products over the next three
years. For more information about this alliance, see "--Broadband
Services and Products" below.
Industry Background
Hughes' businesses provide equipment and services for the following
industries:
. digital entertainment and information;
. satellite- and terrestrial-based communications; and
. private business networking.
These diverse businesses share a common focus on delivering media and
multimedia content, data and voice traffic to a broad universe of consumer and
business enterprise customers almost instantaneously and in a cost-effective
manner.
Consumer Entertainment and Information Services
Traditionally, the consumer has received entertainment and information
services from several different and unrelated industries. The consumer
received phone service from a telephone company and television service from a
broadcast or cable company, and more recently Internet service from an
Internet service provider or "ISP", typically using traditional telephone
lines as a means of access.
Today's improved digital technologies can deliver all of these services
faster and more efficiently, and these three industries are now competing with
each other as well as forming alliances to meet the growing demands of
consumers. Government deregulation and technological advances and innovations
have contributed to this industry realignment. These factors have expanded
industry capacity to provide an increasing variety of video, information and
data at prices affordable to the consumer. They have also enabled new
technologies such as satellites to compete for the same business. For example,
DIRECTV's satellite fleet, is capable of distributing hundreds of digital
entertainment channels to every television household in the contiguous United
States.
The rapid development of the Internet and the consumer's growing demand for
entertainment and information has led to demand for rapid delivery of vast
amounts of information through broadband
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communications systems as opposed to traditional narrowband systems. These new
broadband systems, including terrestrial-based fiber-optic and wireless
systems and, when operational, satellite-based systems, such as Spaceway,
enable entertainment and information providers to offer new services and
products to satisfy customer demands.
With the development of broadband delivery systems, such as Hughes'
DirecDuo and DirecPC systems, the consumer can receive data and information
from the Internet at speeds significantly faster than traditional methods. In
addition, the capability of broadband platforms to deliver large amounts of
data provides the incentive for companies to develop new and innovative
services and offerings for the consumer. The ability to combine the delivery
of a number of services, which is sometimes referred to as a "bundled
offering," is the goal of many companies in the industry.
Generally, a consumer purchases television and Internet services
separately. Today, a single provider can offer more television programming
than a traditional television service provider with higher quality picture and
sound as well as higher speed Internet access than some ISPs at competitive
prices. Additionally, the traditional television service is increasingly
offering more interactivity and information to the television viewer. At the
same time, entertainment services such as video streaming and music
downloading are being delivered through the consumer's computer. Hughes'
recent strategic alliance with AOL is just an example of the rapid convergence
of the television and personal computer platforms.
Hughes is an active participant in these important and rapidly growing
industries through its DIRECTV, DirecPC and DirecDuo services. Hughes
continues to be an industry leader through its integration and development of
new technologies and products and its alliances with industry leaders such as
AOL, TiVo, Inc. and Wink Communications.
Enterprise Communications and Information Services
Communications and information services for business enterprises have
evolved rapidly over the last several years as the same technological advances
fueling consumer media, communication and data demand have impacted business
enterprises. Today, enterprises are demanding more reliable, faster two-way
and one-way data and voice delivery to their various sites as well as to their
customers. Corporations are setting up private networks, including voice
communications, local and wide area data networks and intranets, as well as
using public networks such as the Internet.
With the rapid development of the Internet, business enterprises are
focusing increasingly on their capabilities to deliver innovative products and
services, such as e-commerce and broadband data communications. Due to the
ubiquity of the Internet and its increasingly high level of security as a
means of transmitting corporate data, business enterprises are dramatically
increasing their use of private and public corporate networks on a regional
and global basis.
The infrastructure required to support this traffic is rapidly developing.
Broadband networks using terrestrial-, wireless- and satellite-based
technologies are replacing narrowband networks such as traditional public and
private telephone networks. Additionally, consumer demand for entertainment
and information is driving business enterprises' requirements for wholesale
delivery of data, which can be repackaged and reformatted for consumers as
well as enterprise customers.
A wide variety of operators, including fiber-optic cable, terrestrial-based
wireless and satellite operators provide wholesale transmission of data.
PanAmSat currently is the largest commercial satellite services provider for
the distribution of wholesale entertainment, data and information.
Hughes Network Systems is a leader in providing private business networks
via VSATs. Private business networks are high-speed, satellite-based
enterprise communications networks. For example, individual gas
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stations use VSATs to send customer credit card data to central processing
locations and receive back payment approvals. These private networks often
utilize satellite transponder capacity leased from PanAmSat. Hughes is also a
leader in the development of terrestrial-based wireless systems known as
broadband wireless access systems. This technology allows business enterprises
to cost effectively transmit data at very high data-rates in areas where
fiber-optic systems and satellite-based systems are not as cost effective.
Hughes believes that the market for private business networks using VSATs will
continue its strong growth trends and that the broadband wireless access
market will grow significantly over the next several years.
Hughes believes that the rapid expansion of enterprise communications
networks and the bandwidth those networks require will increase exponentially
over the next several years. Hughes believes that new broadband platforms with
two-way traffic capabilities will lead the next generation of communications
technology. Hughes has planned the Spaceway platform to provide its next
generation of satellite-based broadband products and services beginning in
2003. The Spaceway satellite-based platform is expected to allow business
enterprises to introduce a wide range of two-way, high data-rate services,
such as distance learning, across a business enterprise's global locations
simultaneously, by utilizing full motion streaming video. Hughes believes that
the market for these services will also grow significantly in the future.
Technology Overview
Hughes has been a pioneer in the development of satellite-based technology,
which currently serves as the basis for many of its products and services.
Satellite technology includes two major components: the ground network and
equipment and the satellite.
Geosynchronous satellites orbit the earth from locations about 22,300 miles
above the equator. At this altitude, the satellite remains in a fixed position
above a specific location on the earth at all times. This allows business
enterprises and consumers the ability to point their ground equipment at one
spot in the sky and remain in constant contact with the satellite. This
altitude also allows one satellite to provide service to a large portion of
the world.
Satellites are assigned orbital positions or "slots." These slots are
designated by their location East or West of the zero meridian, measured in
degrees of longitude, and comprise both a physical location and an assignment
of broadcast spectrum. Broadcast spectrum is divided into "bands" or frequency
ranges measured in hertz. Because these slots only exist along the equator,
there are a finite number of available slots and frequencies. Through a
Federal Communications Commission application process, Hughes obtains licenses
for orbital slots which, following successful international coordination, are
registered with the International Telecommunication Union.
Typical geosynchronous satellite frequency bands include:
. C-band--used as the traditional network and cable television programming
distribution band;
. Ku-band--used for many telecommunications services, including Internet
access, and direct-to-home broadcast satellite television services; and
. Ka-band--a high frequency band that can be used for new broadband, high-
speed data and Internet service offerings.
Typically, an individual satellite divides its assigned frequency bands
into smaller channels that are often referred to as "transponders." Satellites
are often described as having a certain number of transponders. By knowing the
number of transponders and the amount of hertz allocated to each transponder,
total satellite capacity can be calculated in terms of hertz. This capability
can further be assessed in terms of its usage, such as digital TV channels or
raw data throughput. For example, direct broadcast satellites over the United
States currently provide up to 32 transponders from each of several orbital
slots. Each transponder is allocated 24 megahertz of spectrum. Through digital
compression algorithms and advanced ground equipment, satellites can currently
place
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anywhere from six to 10 television video channels on each transponder and
still maintain excellent picture quality from the consumer's perspective.
Geosynchronous satellites act as relay stations receiving information and
data, amplifying it and then relaying it back to the ground. Future satellite
systems, like Spaceway, will have powerful on-board processors to more
efficiently direct the information to the appropriate end-user.
The ground network consists of software and equipment to send or "uplink"
data to the satellite as well as receive or "downlink" data from the
satellite. Certain services, such as most VSATs, allow for the same equipment
to be used to both send and receive data. These are also known as two-way or
interactive systems. Other applications like digital direct-to-home broadcast
satellite and DirecPC are currently one-way by satellite to the end user. In
other words, the equipment only receives information. In this case, any
outbound requests, such as requests to visit web sites, do not go out over the
satellite but typically via the phone line. Hughes expects that as technology
improves and the cost of equipment drops, two-way satellite systems affordable
to the consumer will be available near the end of this year.
Depending on the application, the frequency band, and the overall power of
the satellite, different sized receive and send equipment is used. Typically,
C-band ground equipment uses five-meter or larger dishes to send and receive,
while Ku-band receive equipment used for digital direct-to-home broadcast
satellite is only 18 inches in diameter. In addition to the dish, there is
also indoor equipment used to translate the data that is received. In the case
of a digital direct-to-home broadcast satellite system, the indoor unit takes
the form of a set-top box which converts the digital signal into one used by
standard televisions, by high definition televisions or "HDTV", or by
computers.
Strategy
Hughes' business objective is to enhance its position as a premier provider
of integrated information, entertainment and communications services by
leveraging its satellite and wireless communications systems expertise and by
capitalizing on its competitive advantages discussed below. Hughes' core
strategies for achieving this objective are to:
. Focus on high-value, high-growth entertainment and business
communications services. Hughes' recent decisions to sell its satellite
systems manufacturing businesses, to refocus its wireless network
business and to realign its marketing efforts to focus on its consumer
and business enterprise customers, were all designed to accelerate the
growth of its services businesses. Each of these actions is intended to
increase Hughes' focus on the needs of its customers and to devote
significant resources to the integration of new broadband and interactive
services with Hughes' existing multi-channel video programming. Hughes
believes that these efforts will enable it to better identify and
capitalize on rapidly changing trends in its industry to position Hughes
as the leading provider of these products and services.
. Lead the multi-channel entertainment market. Hughes intends to capitalize
on favorable demand trends for multi-channel entertainment in the United
States and select international markets. Hughes intends to maintain
DIRECTV's leadership in the United States by providing a premier service
with distinctive programming. This programming will include exclusive
entertainment programming, HDTV programming and unique interactive,
personal choice and Internet-based services, such as the TiVo Personal
TV(TM) service which allows subscribers to create their own television
program selection based upon personal preferences.
Hughes is also leveraging its experience in the multi-channel
entertainment market in the United States and brand name in select
international markets where Hughes believes significant growth
opportunities exist. In addition, Hughes' strategy in the multi-channel
entertainment market includes initiatives to increase average revenue per
subscriber. DIRECTV's average monthly revenue per residential U.S. DIRECTV
subscriber was about $58 as of December 31, 1999, the highest in the U.S.
multi-channel entertainment industry. With the recent introduction of
local channels as well as new interactive services to be introduced in
2000, DIRECTV expects average revenue per subscriber to increase.
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. Capitalize on growth opportunities in the markets for Internet services
and digital data. Hughes believes that the growth of the Internet and the
increased presence of digital data will have a major impact on the
entertainment, information and communications services industry. Hughes
has several initiatives in this area, including the following:
. DIRECTV expects to integrate a range of Internet-based and
interactive technologies into its service in the United States and
Latin America later this year, such as AOL TV in the United States,
which will allow a DIRECTV subscriber to access the Internet via the
television. See "--Recent Developments--Strategic Alliance with
America Online."
. Hughes Network Systems has developed an array of digital data,
intranet and Internet services for the consumer, such as DirecPC, and
enterprise markets, such as DirecWay(TM), which it intends to
aggressively market to its own customers and to customers of AOL.
. PanAmSat has developed a range of Internet-related services,
including SPOTbytes(R), a bundled Internet service that offers links
from international locations to the U.S. Internet backbone via
PanAmSat teleports, and a new service that provides the direct
broadcast of Internet content to local computer servers in the United
States and internationally. PanAmSat also recently announced the
introduction of NET/36(TM), a high-speed, bandwidth-intensive network
that will deliver popular video, audio and data content with high
clarity to thousands of digital subscriber line providers, cable
headends, ISPs and broadband wireless providers worldwide.
. Beginning with the anticipated North American service launch in 2003,
Hughes believes Spaceway will offer customers a wide range of high-
speed, two-way, data communication services for which demand has been
forecast to increase dramatically in the future.
. Achieve sustainable market leadership positions. Hughes has achieved
market leadership positions by identifying, defining and developing new
markets and introducing innovative products and services to serve these
markets. For example, PanAmSat's early development of a business model
that involved the leasing of satellite transponder space has enabled
Hughes and PanAmSat to capture a significant share of the world's limited
supply of both satellite orbital slots and broadcast spectrum. Early
entry into the digital direct-to-home broadcast satellite industry has
provided Hughes with direct relationships with a large subscriber base to
whom an expanded array of services can be offered and has created strong
relationships with the programmers that provide content for its DIRECTV
service. In addition, early entry into the market for accessing the
Internet via satellites and DIRECTV's customer base of more than 8
million subscribers worldwide has positioned Hughes with key strategic
partners such as AOL. Hughes believes that its leadership in technology
and its consumer and business enterprise customer base will provide
Hughes with a competitive advantage for the introduction of the Spaceway
platform.
Hughes has also pursued and will continue to pursue acquisitions and
strategic alliances, such as its acquisitions of PRIMESTAR, Inc. and
United States Satellite Broadcasting Company, Inc. and its alliance with
AOL, to extend its leadership in core markets. In those markets where
leadership cannot be attained, Hughes intends to divest or reposition its
businesses, such as its recent decision to discontinue its mobile
cellular and narrowband fixed wireless manufacturing product lines. For
more information, see "--Acquisitions, Strategic Alliances and
Divestitures.
In this regard, Hughes from time to time participates and is currently
participating in exploratory discussions regarding potential strategic
alliances or business combinations. Hughes may continue to engage in
discussions with other companies in the future. Those alliances or
business combinations could involve companies engaged in a wide variety
of businesses, including providing content or Internet services. We
cannot assure you that any such transaction will be consummated or, if
consummated, whether any such transaction would or would not have a
material impact on Hughes' business.
. Incentivize Management. Employee compensation programs are designed to
help Hughes achieve its business objective and maximize long-term
shareholder value. As part of this focus, most full-time employees of
Hughes and its wholly-owned subsidiaries hold Class H common stock or
options to purchase Class H common stock. In particular, more than half
of the compensation of Hughes' top executives is composed of stock
options, stock grants and other stock performance-based incentive
compensation.
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Competitive Advantages
Hughes believes that it has several important competitive advantages in the
industries in which it competes. Hughes believes these competitive advantages
should enable it to achieve sustainable market leadership positions and
accelerate revenue and EBITDA growth. These competitive advantages include:
. DIRECTV Brand and Franchise. In the United States, DIRECTV has a
leadership position in the U.S. multi-channel entertainment market,
including:
. One of the largest multi-channel entertainment providers. As of
December 31, 1999, DIRECTV had over 8 million subscribers, making
DIRECTV the third largest multi-channel entertainment provider in the
United States. This market position provides DIRECTV with greater
opportunity to obtain programming on favorable terms, secure unique
and exclusive programming and introduce new services.
. Substantial channel capacity. Currently, DIRECTV has capacity to
deliver about 400 entertainment channels, including local channels,
in 23 markets. DIRECTV expects its capacity to increase to about 500
channels by the end of 2000 and plans to offer local channels in
additional markets.
. A well-developed, robust distribution network. DIRECTV has a robust
distribution network, based on retail points of sale, including
national retailers such as Circuit City, Radio Shack and Best Buy,
and several regional Bell telephone companies which provide
installation, customer service and billing and the PRIMESTAR dealer
network in small urban and rural markets.
Hughes believes these factors, together with DIRECTV's strong brand name,
provide it with significant competitive advantages over other U.S. multi-
channel entertainment providers. Hughes also believes that DIRECTV's
high-quality digital picture and sound, its increased variety of
programming and its high quality customer service provide competitive
advantages over traditional cable television. Hughes is also utilizing
the DIRECTV brand name and U.S. leadership position to accelerate growth
in select international markets.
. Direct Digital Interactive and Broadband Links to Homes and Businesses.
Hughes believes that its established relationships with both its consumer
and business enterprise customers will become increasingly valuable as
key markets in which to offer expanded services. Consumers and business
enterprises are increasingly demanding the flow of greater amounts of
data at higher speeds than can be provided by traditional computer modems
using traditional phone lines. In many cases, satellite-based systems are
well suited to address this need on a cost-effective basis. In meeting
this demand, Hughes intends to capitalize on its existing customer
relationships as well as new customer relationships created through
strategic alliances. Hughes also intends to upgrade many of its existing
corporate data network clients and satellite Internet customers, many of
whom are Fortune 500 companies, and DirecPC subscribers to Spaceway.
. Satellite Technology Advantages. Satellite-based service offerings have
inherent competitive advantages over ground-based services for many
applications. These include:
. the ability to broadcast hundreds of channels economically to
millions of recipients over very wide geographic areas with little
incremental cost per end user;
. the potential for low cost two-way communications to areas of low
population density;
. the ability to roll-out new infrastructure to a large number of
customers quickly; and
. the ability to deliver large amounts of information at high
transmission speeds.
Hughes believes that its ability to develop leading satellite
technologies has helped Hughes become a leader in each of its businesses,
and it intends to continue to develop new technologies to maintain these
leadership positions. For example, Hughes developed, together with
Thomson Consumer Electronics, the technology for the first set-top box
receiver used by DIRECTV. Hughes continues to integrate and develop new
technologies to maintain its multi-channel leadership, including set-top
boxes that will provide interactive services. In addition, Hughes
believes that the technology utilized in VSAT equipment
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and signal compression technologies have enabled Hughes Network Systems
and PanAmSat to maintain industry leadership positions.
. Global Market Leader. Hughes believes that its global leadership
positions in its target markets--digital multi-channel entertainment and
information, satellite transponder leasing and private business
networks--enable it to achieve economies of scale. The entertainment,
information and communications services businesses generally are
characterized by high fixed costs with relatively lower variable costs. A
market leadership position enables some of the costs of developing
expanded services, such as infrastructure, to be spread across a larger
customer base. In addition, Hughes Network Systems has benefited from
economies of scale resulting from its global leadership position in
VSATs.
. Comprehensive Portfolio of Global Satellite Services. Hughes believes
that its presence in several major segments of the entertainment,
information and communications services industry affords significant
synergies and provides Hughes with the ability to respond to the latest
industry growth trends. Historically, Hughes has leveraged its systems
expertise to develop new service businesses such as DIRECTV, satellite
transponder leasing and Spaceway. For example, Hughes Network Systems'
ability to increase production of DIRECTV set-top boxes on short notice
enabled DIRECTV to meet new subscriber demand and achieve record
subscriber growth in 1999. In addition, Hughes' systems expertise was an
important element in the formation of the strategic alliance with AOL and
has enabled Hughes to respond quickly to the growth needs of its services
businesses. Hughes believes that the breadth of its services and products
positions it to capitalize on the convergence of entertainment,
information and the Internet for both individual consumers and business
enterprises.
. Global Spectrum and Orbital Slots. Operation of an international
satellite fleet requires significant international and U.S. regulatory
approvals and Hughes considers its regulatory authorization to use
desirable broadcast spectrum and its orbital slots to be a significant
competitive advantage. For example, Hughes believes that PanAmSat's
global transmission capability, especially its ability to transmit
signals among many of the world's major regions, provides it with a
significant advantage over commercial competitors who operate fleets
limited to regional coverage. PanAmSat currently operates the largest
commercial network of geosynchronous communications satellites and has
the ability to transmit signals to a geographic area that includes a
substantial portion of the world's population. PanAmSat is the only
commercial entity that offers geosynchronous satellite services on a
global, one-stop shopping basis.
DIRECTV
Introduced in June 1994, DIRECTV was one of the first digital multi-channel
entertainment providers in North America. Currently, DIRECTV programming is
available in the 48 contiguous United States and 27 countries in Latin America
and the Caribbean basin via Galaxy Latin America.
Hughes believes it can leverage the DIRECTV brand name and market
leadership position in the United States and in select international markets.
As a result, Hughes evaluates, on an ongoing basis, opportunities to expand
DIRECTV to serve other international markets. There is often intense
competition in the international markets in which Hughes expects to offer
DIRECTV. In order to increase its customer base in these markets, DIRECTV may
consider offering dealer and customer incentives which may result in increased
subscriber acquisition costs.
DIRECTV U.S.
Highlights
. More than 8 million DIRECTV U.S. subscribers as of December 31, 1999,
which includes 1.4 million PRIMESTAR By DIRECTV subscribers
. A record 1.6 million net new subscribers to its high-power service in
1999, compared to 1.2 million net new subscribers in 1998, representing a
39% growth rate
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. Monthly revenue per residential U.S. DIRECTV subscriber of about $58 as
of December 31, 1999, the highest in the United States multi-channel
entertainment industry
. Local channels available in 23 markets capable of reaching nearly 50
million households
. Current capacity to provide about 400 entertainment channels, including
local channels, in the United States, which is expected to increase to
about 500 entertainment channels by the end of 2000
. A robust U.S. distribution network, with extensive retail points of sale
Strategic Goals
. Increase average revenue per subscriber
. Minimize subscriber churn
. Reduce subscriber acquisition cost in most distribution channels
. Add new and innovative programming, including new interactive and
Internet-based services and expand market availability of local
programming
. Further broaden and strengthen distribution channels
In 1999, Hughes acquired the U.S. digital direct-to-home broadcast
satellite medium-power business of PRIMESTAR and the related high-power
satellite assets of Tempo Satellite and U.S. Satellite Broadcasting Company, a
provider of premium movie services to households throughout the continental
United States.
Subscribers. As of December 31, 1999, DIRECTV, under the DIRECTV and
PRIMESTAR By DIRECTV brands, had over 8 million subscribers, making it the
third largest multi-channel entertainment provider in the United States. This
includes about 1.5 million subscribers located primarily in rural areas of the
contiguous United States who receive DIRECTV services under an arrangement
with the National Rural Telecommunications Cooperative. DIRECTV expects to
achieve a total of between 9.5 million and 10 million subscribers by the end
of 2000. Through Hughes' acquisition of U.S. Satellite Broadcasting Company,
DIRECTV gained a base of over two million customers subscribing to premium
movie services, over 90% of which were already receiving DIRECTV programming.
The integration of this business is complete. Through the PRIMESTAR
acquisition, DIRECTV obtained a base of just under 2.3 million subscribers. As
of December 31, 1999, about 470,000 of these subscribers had been converted to
the DIRECTV service. DIRECTV expects to convert 70% of the acquired PRIMESTAR
subscriber base to DIRECTV. DIRECTV expects this to occur by the end of 2000.
DIRECTV's 1999 net subscriber churn rate was about 1.5% per month, compared
to an average monthly churn rate of about 2.5% for the cable television
industry. DIRECTV has implemented aggressive churn management programs
designed to reduce subscriber turnover. DIRECTV's net subscriber churn for a
given period is calculated by dividing the number of subscribers canceling
service during the period by the total number of subscribers at the end of the
period. See "Risk Factors--Risk Factors Relating to the Business of Hughes--
Hughes May Be Unable to Manage Effectively the Growth of its DIRECTV
Business."
DIRECTV's cost of acquiring new subscribers, including incentives paid to
retailers, subsidies for receiver equipment and consumer promotions, is
currently about $500 per subscriber. As part of Hughes' strategic alliance
with AOL, DIRECTV expects to offer additional incentives to retailers to
reduce the cost to the consumer of the receiver equipment necessary to receive
the new interactive services and intends to offer additional consumer
promotions designed to attract more subscribers. For a description of this new
service, see "--Programming--AOL TV" below. In the future, subscriber
acquisition costs will continue to be largely determined by the competitive
environment.
Programming. Currently, DIRECTV has the capacity to offer about 400 digital
channels of television shows, premium movies, sports and pay-per-view events,
including 36 digital music channels, and local channels.
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DIRECTV currently expects capacity to increase to about 500 channels by the
end of 2000. DIRECTV also provides premium sports and other premium
programming such as THE NFL SUNDAY TICKET(R), which allows subscribers,
subject to local restrictions, to view every National Football League game
played each Sunday during the regular season. DIRECTV is the exclusive small
dish provider of THE NFL SUNDAY TICKET through 2002. Hughes believes that
DIRECTV's increased channel offerings, channel capacity and large subscriber
base provides DIRECTV with a competitive advantage in acquiring subscribers,
obtaining programming from leading content providers on favorable terms and,
in the future, generating advertising revenue.
With the recent passage of the Satellite Home Viewer Improvement Act of
1999, DIRECTV is now permitted to provide local television programming to its
customers. DIRECTV currently provides the major local broadcast networks plus
a national PBS feed to 23 markets. Initial plans call for the delivery of
local channels to up to 25 markets, capable of reaching about 50 million U.S.
television households. In most of these markets, DIRECTV subscribers can
receive local programming with their existing receiver equipment. This
legislation allows DIRECTV to compete more effectively with cable television
providers who previously held an advantage over DIRECTV because they could
offer subscribers local channels. DIRECTV believes that it has a competitive
advantage in this area over cable television providers because of its ability
to provide subscribers with local channels with digital-quality picture and
sound.
DIRECTV U.S. also provides foreign language programming through its new
DIRECTV Para Todos(TM) service. This service was launched nationwide during
the first quarter of 2000. DIRECTV Para Todos(TM) currently provides
programming packages that provide over 20 Spanish special interest channels
with up to 77 English language channels, including CNN en Espanol, UniVision,
GalaVision, TV Chile and other special interest channels. In addition, DIRECTV
has a dedicated Spanish-speaking customer call center for subscribers of this
service.
DIRECTV intends to introduce new enhanced TV and interactive service
offerings later this year. These offerings will include:
. AOL TV. In addition to its own programming, DIRECTV will offer
subscribers access to a wealth of information through connected
interactivity with certain AOL features, such as Internet access, instant
messaging and buddy lists, and AOL members will be offered the ability to
connect to a new AOL interactive service designed to enhance the
television viewing experience.
. DIRECTV/TiVo Combination Box. Through integration with the TiVo Personal
TV(TM) service, DIRECTV subscribers that use a new combination
DIRECTV/TiVo satellite digital receiver will be able to control the
programming they watch by being able to pause live television and create
their own television programming lineup based on their personal
preferences. This service will provide DIRECTV customers with access to a
wide variety of programming seamlessly integrated with the control,
convenience and personalization that TiVo provides. DIRECTV owns about 8%
of the equity of TiVo, Inc., the owner of the TiVo Personal TV(TM)
service.
. DIRECTV Interactive. These services will include data-enhanced
programming, e-commerce and interactive advertising. Later this year,
DIRECTV will introduce the Wink(R) service, which will enable DIRECTV
subscribers to access data enhanced programming and perform e-commerce
transactions via their television and remote control. This service will
be free of charge to DIRECTV subscribers. DIRECTV owns about 4% of the
equity of Wink Communications, the owner of the Wink(R) technology.
Distribution Channels. The DIRECTV service is distributed to consumers
through various channels. Both DIRECTV service and equipment are distributed
through consumer electronics stores such as Circuit City, Radio Shack and Best
Buy and satellite television dealers. In addition, Hughes has agreements with
several regional Bell telephone companies to distribute DIRECTV programming
and service by bundling it with local phone services. These arrangements
typically provide that the telephone companies will provide installation,
customer service and billing services. DIRECTV also distributes its services
to rural and small urban areas through the newly-acquired PRIMESTAR dealer
network, which has enhanced its presence in those markets. Finally, as part
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of Hughes' strategic alliance with AOL, AOL will market DIRECTV to its on-line
subscriber base, which as of January 31, 2000 totaled over 23 million
subscribers.
Satellite Fleet and Equipment. DIRECTV currently has a fleet of five
satellites, three of which are located at 101(degrees) west longitude, one of
which is located at 110(degrees) west longitude, and one of which is located
at 119(degrees) west longitude. In the third quarter of 2000, DIRECTV expects
to launch its sixth satellite, DIRECTV 5, which will replace DIRECTV 4 at
119(degrees) west longitude. DIRECTV 4 will then serve primarily as an in-
orbit spare in the event of any problems on Hughes' other satellites. See
"Risk Factors--Risk Factors Relating to the Business of Hughes--Hughes Is
Vulnerable to Satellite Failure." DIRECTV has also contracted to build a
seventh satellite, DIRECTV 4S, a high-powered spot-beam satellite to provide
additional capacity for its new local channel service or other new services
beginning in 2002. DIRECTV's signals originate from its broadcast facilities
in Castle Rock, Colorado and in Los Angeles, California.
Hughes believes that the frequencies DIRECTV is authorized to use for
delivering digital television signals in the United States are significant
assets. There are currently only three licensed United States orbital slots
that provide the capability to deliver high-power digital television signals
throughout the contiguous United States. These orbital slots have a total of
96 available frequencies and DIRECTV controls 46 of these frequencies.
DIRECTV receiving equipment is manufactured by Hughes Network Systems and a
number of name brand consumer electronics companies, including RCA/Thomson
Consumer Electronics and Sony. Equipment prices paid by consumers have fallen
steadily from the initial $699-$899 range in June 1994 to about $99-$249
today. The technology for the DIRECTV service is based, in part, on Hughes'
satellite and satellite-based services experience and, in part, on the
expertise of the consumer electronics manufacturers which produce the
equipment. DIRECTV has outsourced many of the significant facets of consumer
marketing, the operation of the related infrastructure and support services to
vendors experienced in the respective fields.
Galaxy Latin America
Highlights
. More than 800,000 subscribers in 27 countries throughout Latin America
and the Caribbean basin, capable of reaching 97% of the potential market
. Monthly revenue per subscriber of about $36 as of December 31, 1999
. Capacity to provide over 355 digital video and audio channels
. New exclusive programming arrangements with affiliates of HBO and Disney
. New subscriber acquisitions in the quarter ended December 31, 1999 nearly
double that of any previous quarter
Strategic Goals
. Accelerate subscriber growth through aggressive marketing of the DIRECTV
service
. Broaden and strengthen distribution channels in Latin America and the
Caribbean basin
. Expand and continue to improve customer service
. Minimize subscriber churn
. Add new and exclusive programming, including new interactive and web-
based services and expanding market availability of local programming
Hughes currently provides DIRECTV service in 27 countries in Latin America
and the Caribbean basin via Galaxy Latin America under the brand name
"DIRECTV". Introduced in mid-1996, Galaxy Latin America was the first digital
direct-to-home broadcast satellite television service available in Latin
America and currently has
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the capacity to provide over 300 digital video channels. Hughes owns about 78%
of Galaxy Latin America, with The Cisneros Group of Companies of Venezuela
holding the remaining ownership share. Galaxy Latin America, like other
businesses of Hughes, may require significant capital to implement its
strategic goals or react rapidly to changes in technology, products, services
or the competitive landscape. Any such future capital needs may be funded
through the issuance by Galaxy Latin America of equity or debt securities.
Subscribers. As of December 31, 1999, DIRECTV had about 804,000 subscribers
throughout Latin America, representing subscriber growth of about 74% compared
to 1998. Galaxy Latin America added 136,000 net new subscribers in the fourth
quarter of 1999, which nearly doubled the previous record set in the first
quarter of 1999. These gains were primarily due to Galaxy Latin America's
acquisition of operating control in Brazil and Mexico as well as a strong
performance in Argentina. The average revenue per subscriber in the Latin
American region is currently about $36 per month. Galaxy Latin America
believes that about one-half of television households in Latin America, or
about 50 million households, earn an income sufficient to afford multi-channel
pay television services, but only a small fraction currently subscribes to
such services. Hughes believes that this market has significant growth
potential.
To further accelerate subscriber growth, Galaxy Latin America and its local
operating companies will continue to promote the service aggressively, will
concentrate on superior customer service, will continue its strategy of adding
new distribution and mitigating subscriber churn. In addition, in most
instances, subscriber acquisition costs in Latin America generally have been
much lower than in the United States.
Distribution. Local operating companies in each country provide marketing,
sales, distribution, customer service and other infrastructure services.
Hughes believes that having an equity stake, and in some situations a
controlling interest, in the local operating companies will help it to pursue
a coordinated marketing and operating strategy throughout Latin America. In
furtherance of this strategy, Hughes has recently increased its ownership of
the local operating company in Mexico and now manages its day-to-day
operations. Also, in July 1999, Galaxy Latin America acquired Galaxy Brasil,
Ltda., the exclusive distributor of DIRECTV services in Brazil. Additionally,
Hughes has purchased an interest in several local operating companies in other
large Latin American markets, including Venezuela, Colombia, Argentina and
Puerto Rico. These six markets represent over 90% of the current Latin
American target pay television market.
Programming. Galaxy Latin America provides a selection of international
programming tailored to each of its particular markets. Galaxy Latin America's
programming packages include multi-lingual programming, local programming and
several sports and special events packages. Galaxy Latin America plans to
supplement its current programming line-up with new popular local programming
as well as introducing interactive service offerings.
Galaxy Latin America recently announced new exclusive programming
arrangements with HBO Latin America and Buena Vista International (Walt
Disney). The two five-year arrangements with HBO Latin America provide Galaxy
Latin America with the exclusive direct-to-home broadcast satellite television
rights to HBO's three premium channels in Brazil and five premium channels in
Argentina. The arrangement with Walt Disney provides Galaxy Latin America with
exclusive direct-to-home broadcast satellite television rights to the Disney
Channel in all Spanish-speaking Latin America, except for Puerto Rico. The
Disney Channel is expected to launch in the second half of 2000.
Galaxy Latin America plans to launch its initial offering of interactive
services in the second half of 2000. Galaxy Latin America's initial offering
of services is expected to include information services, interactive
electronic program guides and transaction-based services. The main objective
of these services are to enhance Galaxy Latin America's core programming
service in order to attract new subscribers to these services, maintain a high
level of loyalty among current subscribers and increase average revenue per
subscriber. Galaxy Latin America plans to continue to improve the interactive
services with enhanced programming content, synchronized advertising and e-
commerce applications.
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DIRECTV Japan
The DIRECTV Japan service commenced commercial operations in December 1997,
after competitor PerfecTV had already introduced a full service offering.
DIRECTV Japan began full service in April 1998. A second competitior, Japan
Sky Broadcasting had planned to initiate service in April 1998 as well. On May
1, 1998, PerfecTV and Japan Sky Broadcasting merged to form SkyPerfecTV. As of
the end of 1999, DIRECTV Japan had about 386,000 subscribers and SkyPerfecTV
had about 1.5 million subscribers.
On March 1, 2000, Hughes announced that DIRECTV Japan's operations would be
discontinued and that its subscribers would migrate to SkyPerfecTV. In
connection with this transaction, Hughes will receive an ownership interest in
SkyPerfecTV. For more information, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Hughes."
PanAmSat
Highlights
. A leading commercial provider of global satellite communications services
with:
. Unique resources both in space and on the ground; and
. ""Blue-chip" global customers
. Global network of 20 satellites supported by seven teleport operations
facilities in the United States
. A unique one-stop provider of global satellite services through its
global network of satellites capable of transmitting signals to a
geographic area that includes a substantial portion of the world's
population
. About $6.1 billion in backlog at December 31, 1999
Strategic Goals
. Expand satellite fleet
. Continue to offer customers unique one-stop shopping for their national,
regional or global satellite transmission needs on its own fleet of
satellites
. Obtain market leadership positions by identifying, defining and
developing new markets early and expanding innovative value-added
services and applications such as Internet distribution and transmission
of HDTV
PanAmSat currently operates the world's largest commercial network of
geosynchronous communications satellites. PanAmSat is the only commercial
entity that has a fleet of satellites that is capable of offering
geosynchronous satellite services on a global, one-stop-shopping basis.
PanAmSat has regulatory approval to operate its satellite fleet in the C-
band, the traditional network and cable television distribution band and the
Ku-band, the band used for many telecommunications services and direct-to-home
television services. In addition, PanAmSat has obtained Federal Communications
Commission authorization for licenses in the Ka-band, a high-powered frequency
that can be used for broadband, high-speed data and Internet service
offerings.
PanAmSat seeks to obtain market leadership positions by identifying,
defining and developing new markets early. In 1983, PanAmSat revolutionized
the television industry by launching Galaxy I, the first satellite to be
dedicated solely to cable television programming for the United States.
PanAmSat pioneered the "cable neighborhood" concept in the satellite services
industry by securing key cable programming for Galaxy I, which prompted a core
group of cable operators to focus their ground antennas on Galaxy I's orbital
position. Once a core group of cable operators had aligned their dishes with
the satellite, subsequent transmission capacity on the satellite was sold at a
premium. This "cable neighborhood" strategy continues to be a major business
strategy for PanAmSat, and PanAmSat has created cable neighborhoods on its
other U.S. and international satellites.
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Additionally, in 1988, PanAmSat launched the PAS-1 Atlantic Ocean Region
satellite, becoming the first private-sector international satellite service
provider. In 1995, with the launch of the PAS-4 Indian Ocean satellite,
PanAmSat became the world's first private-sector company to provide global
satellite services.
Services and Customers. Through its 81% interest in PanAmSat Corporation,
Hughes offers comprehensive end-to-end satellite services. The entity
currently known as PanAmSat, a publicly-held corporation traded on the Nasdaq
National Market System under the symbol "SPOT," was created through the merger
of Hughes' Galaxy satellite services operations and PanAmSat's satellite
services operations in May 1997. Today, the PanAmSat network:
. Distributes cable and broadcast television programming that reaches more
than 125 million households each day for a wide variety of clients,
including CNN, NBC, HBO, Disney, Fox, Sony, TCI, Viacom, Turner
Broadcasting, ESPN, the British Broadcasting Corporation, NHK (Japan),
CBS, Cisneros Group (Venezuela) and the Australian Broadcasting
Corporation
. Operates platforms for direct-to-home satellite broadcast services to
Latin America, South Africa and Taiwan that together will broadcast more
than 500 channels
. Provides live transmission services for news, sports and special events
coverage, and transmits news coverage for virtually every major news
gathering organization in the world
. Provides satellite services to more than 35 telecommunications carriers
worldwide, including MCI WorldCom, Sprint, ImpSat, Microspace and Telstra
(Australia)
. Provides access to the U.S. Internet backbone to ISPs and other
telecommunications providers in nearly 50 countries
. Relays digital data via more than 125,000 VSATs predominantly through the
private networks of clients of Hughes Network Systems and other customers
of PanAmSat, including AG Edwards, the Associated Press, BP Amoco,
Chevron, IBM, Kmart, Reuters, Toys "R" Us, the University of Southern
California and Wal-Mart
PanAmSat provides satellite services to its customers primarily through
long-term operating lease contracts for the full or partial use of transponder
capacity. PanAmSat also offers services to its customers through sales and
sales-type lease contracts. PanAmSat currently provides service to hundreds of
video distribution and telecommunications customers worldwide. As of December
31, 1999, PanAmSat had long-term arrangements for satellite services
representing future payments of about $6.1 billion, including amounts due from
affiliated companies, as well as about $250 million relating to arrangements
on satellites that were under construction on December 31, 1999 and are
expected to be in service by the end of 2000.
In March 2000, PanAmSat announced the introduction of NET/36(TM), a high-
speed, bandwidth-intensive network that will deliver popular video, audio and
data content with high clarity to thousands of digital subscriber line
providers, cable headends, ISPs and broadband wireless providers worldwide.
Through the use of PanAmSat's global in-orbit satellite fleet as well as the
deployment of satellite-enabled servers to last-mile Internet providers,
NET/36 will circumvent thousands of miles of wires and multiple routers
clogging the terrestrial Internet network.
As part of this introduction, PanAmSat has entered into separate strategic
alliances with U S WEST(R) and RealNetworks. U S WEST, one of the largest
digital subscriber line service providers in the United States, will use
NET/36 for Internet protocol content delivery to U S WEST's digital subscriber
line and Internet subscribers. RealNetworks, a leader in streaming media
delivery on the Internet, will provide RealSystem G2, which offers a scalable
distribution architecture for the delivery of video and audio programming to
large audiences worldwide. Additional alliances and agreements are expected as
PanAmSat introduces this network.
Satellite Fleet. In December 1999, PanAmSat launched its 20th satellite,
Galaxy-XI, which is an HS-702 model spacecraft built by Hughes Space and
Communications. Galaxy-XI contains 40 Ku-band and 24 C-band transponders and
is the largest commercial communications satellite ever launched. Galaxy-XI
will become an
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integral component of the Galaxy cable neighborhood after reaching its orbital
location at 91(degrees) west longitude and is expected to be operational in
the first half of 2000.
In January 2000, PanAmSat launched its 21st satellite, Galaxy-XR, which is
a HS-601 HP model satellite built by Hughes Space and Communications. Galaxy-
XR commenced service in March 2000. Galaxy-XR contains 24 Ku-band and 24 C-
band transponders and has created the fifth orbital location in the Galaxy
cable neighborhood, which Hughes believes is the premier platform for the
distribution of cable programming throughout the United States.
PanAmSat retired the SBS 5 Ku-band domestic U.S. satellite in March 2000.
The SBS 5 satellite was retired because it reached the end of its useful life.
Customers were transferred without disruption to Galaxy-XR, which is serving
as the replacement satellite for SBS 5. With the retirement of SBS 5,
PanAmSat's satellite fleet was reduced to 20 satellites.
To maintain its competitive advantages, PanAmSat plans to expand its fleet
from 20 satellites to 24 by mid-2001. This expansion will involve the launch
of five additional satellites and the retirement of one additional existing
satellite. These additional satellites are intended to meet the expected
demand for additional transponder capacity, replace capacity affected by
satellite anomalies and provide additional back-up to existing capacity. See
"Risk Factors--Risk Factors Relating to the Business of Hughes--Hughes is
Vulnerable to Satellite Failure." There can be no assurance that the schedule
for PanAmSat's future satellite launches will be met. Delays in the production
or timely and successful launch of these satellites could materially affect
the ability of PanAmSat to deliver services and benefit from the opportunities
it is currently pursuing. In addition, revenues attributable to satellites
affected by anomalies could be at reduced levels.
Broadband Services and Products
Highlights
. Hughes Network Systems is the world's leading supplier of satellite-based
private business networks, based on an estimated worldwide market share
of over 50% of the revenues of satellite-based private business networks
products and services
. Hughes Network Systems has shipped over 300,000 one-way and two-way VSATs
to customers in 85 countries
. Hughes Network Systems is one of the two largest manufacturers of DIRECTV
subscriber equipment
. Hughes Network Systems provides satellite-based high-speed access to the
Internet through its DirecPC service at speeds of up to 400 kilobits-per-
second, which is substantially faster than traditional computer modems
. Hughes has committed about $1.4 billion for investment in Spaceway, a
satellite-based broadband communications network for North America
Strategic Goals
. Maintain leadership in the private business networks market and establish
a leading position in the broadband wireless access equipment market
. Significantly expand production of DIRECTV subscriber equipment
. Leverage products and technologies into service business opportunities
. Aggressively market high-speed Internet access via DirecPC to consumers,
including over 23 million AOL customers, and to ISPs
. Lead the development of the emerging market for broadband communications
services through the Spaceway broadband satellite platform:
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. Become the first satellite-based broadband service in North America
serving large businesses, telecommuters, small office/home office
users and consumers upon service launch expected in 2003
. Upgrade a portion of Hughes Network Systems' existing extensive
"blue-chip" business and DirecPC customer base to Spaceway and sell
broadband services to DIRECTV subscribers
. Work with global strategic partners to roll out additional
geosynchronous systems in other regions as the markets develop
Hughes Network Systems is a leading supplier of communications services and
products. Hughes Network Systems designs, manufactures and installs advanced
networking solutions for businesses and governments worldwide. As part of
Hughes' overall strategy of focusing on its high-growth businesses, Hughes
Network Systems' wireless equipment business resources will be focused solely
in the broadband wireless access (point-to-multipoint) market and its mobile
cellular and fixed wireless businesses will be discontinued. Hughes Network
Systems is transforming itself into a premier broadband products and services
company with particular emphasis on providing broadband access. As part of
this transformation, Hughes Network Systems has developed a new marketing
initiative in which it will align its services and products in four marketing
groups: enterprise services and products, consumer services and products,
carrier services and products and Spaceway.
Enterprise Services and Products. Hughes Network Systems is the leading
supplier, based on market share, of VSATs used in satellite-based private
business networks. Hughes Network Systems has delivered or received orders for
more than 300,000 of these terminals for use in the private networks of
companies, government agencies, universities and research institutions. These
include more than 9,000 terminals installed in the GM Pulsar network,
currently the world's largest private business network. Since 1987, Hughes
Network Systems has sold private business networks to a variety of customers
worldwide, including DaimlerChrysler, Ford, Toyota, Chevron, Texaco, Mobil,
Amoco, Wal-Mart, Toys "R" Us, Jusco (Japan) and France Telecom. Hughes is also
a market leader in providing VSAT corporate data networking services and
expects to be a leading provider of satellite broadband Internet services to
businesses, many of which are Fortune 500 companies.
Consumer Services and Products. Hughes Network Systems' consumer products
and services business include the manufacture of set-top boxes for the
DIRECTV, DirecPC and DirecDuo services and providing new applications and
services to the customers of these services.
Hughes Network Systems began manufacturing subscriber equipment for DIRECTV
in 1996 and is now one of the two leading suppliers of this equipment in terms
of volume. Hughes Network Systems was able, on short notice, to increase its
production of DIRECTV receivers in 1999 to more than 2.1 million units,
enabling DIRECTV to achieve record subscriber growth. Hughes Network Systems
intends to continue its production of DIRECTV units, including the new dual-
feed, dual-receive equipment for receiving local channels described above at
"--DIRECTV," and expects its production to grow to over 3.0 million units in
2000. In addition, Hughes Network Systems will design and build the initial
dual purpose set-top receivers for the DIRECTV/AOL interactive television and
Internet service described above at "--DIRECTV." Other manufacturers may
eventually build these receivers as well.
Hughes Network Systems developed DirecPC, an information delivery service
that uses a small antenna and high-speed digital transmission from a satellite
to make Internet access, software, documents, desk-top video, games, news and
other information accessible through personal computers. DirecPC allows
consumers to download data and video at speeds of up to 400 kilobits-per-
second while using their telephone lines to transmit information from their
computers. Hughes currently expects to introduce a high-speed "two-way"
DirecPC service for downloading data and video and transmitting information by
the end of 2000. As part of Hughes' strategic alliance with AOL, Hughes
Network Systems will make AOL service available nationwide through the DirecPC
network. This service will provide consumers with high-speed access to AOL
content and enable Hughes Network Systems to introduce new applications and
services to the consumer. AOL has also acquired the right to purchase capacity
on the new Spaceway platform to enable consumers to benefit from satellite
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broadband Internet access. By migrating these existing and planned DirecPC
customers to the Spaceway platform, Hughes expects to provide expanded
capabilities to these customers while keeping end-user costs low enough to
provide competitive advantages over ground-based and other satellite-based
offerings.
DirecDuo is a satellite receiving system that provides both DIRECTV service
and the ability to obtain Internet access through DirecPC. This one satellite
dish allows customers to receive both DIRECTV television entertainment and AOL
and other internet services for the computer.
Carrier Services and Products. Hughes believes that significant
communications opportunities exist in utilizing digital ground-based
technologies to provide broadband fiber-quality wireless access to businesses
worldwide. For example, Hughes Network Systems has entered into agreements to
provide competitive local exchange carriers Winstar Communications, Inc. and
Teligent, Inc. with its AIReach(R) Broadband system. The AIReach Broadband
system uses wireless technology to provide high-quality, high-speed
communications access to buildings not reached by fiber optic cables.
Hughes Network Systems believes that its technologies and extensive
experience position it to become a leading provider of satellite-based mobile
communications equipment and services. Hughes has been awarded several programs
in recent years to provide satellite ground telecommunications networking
equipment which has established Hughes Network Systems' presence in this
sector.
Spaceway. As part of its broadband strategy, Hughes intends to make an
initial investment of $1.4 billion in Spaceway in North America. Spaceway will
provide "bandwidth-on-demand" which will offer customers the ability to
transmit and receive via satellite, referred to as "two-way communication," any
combination of data, video, audio, and multimedia while paying only for the
amount of bandwidth they need for their specific application. Utilizing its
expertise in private business networks, the AOL alliance and advanced ground-
based communications infrastructure, Hughes Network Systems plans to focus on
offering new broadband services via the Spaceway platform to a wide range of
customers, including its existing "blue-chip" customer base and its existing
and planned DIRECTV and DirecPC customer base. Because of its early investments
in broadband technology and its networking expertise, Hughes Network Systems
believes it will be a leader in offering innovative broadband services to
businesses, government agencies and individuals. In addition, Spaceway is
expected to provide an overlay to current ground-based networks, providing
network operators with a wireless extension of their existing capabilities.
Hughes' advanced technologies and networking services expertise will be very
important to Spaceway. The system will start with the construction and launch
of three HS 702 spacecraft expected to be built by Hughes Space and
Communications, and will utilize ground stations and very small satellite
dishes designed by Hughes Network Systems. PanAmSat will provide expertise in
satellite and network operations, and is expected to resell capacity in certain
markets. DIRECTV plans to cross-sell the services to its extensive customer
base. Hughes Network Systems and Hughes Space and Communications have
negotiated a non-compete agreement in the Spaceway contract designed to protect
Hughes' first-to-market advantage for the Spaceway broadband system.
Hughes anticipates working with strategic global partners to roll out
Spaceway systems in other regions, including Europe, Latin America, Africa and
Asia. As these markets and the technology evolve, Hughes' strategy contemplates
making additional investments to add a fleet of spacecraft in lower earth
orbits that will support additional interactive broadband services, including
services without a transmission delay, in high-traffic markets. See "Risk
Factors--Risk Factors Relating to the Business of Hughes--Hughes' Future Growth
Depends Upon its Ability to Implement its Business Strategy" for a discussion
of risks and uncertainties in connection with Spaceway.
Hughes Space and Communications
As a result of the agreement to sell Hughes' satellite systems manufacturing
businesses to Boeing, Hughes Space and Communications is the principal
component of the discontinued operations captions in Hughes'
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financial statements. Hughes Space and Communications designs and builds
satellite systems for commercial customers worldwide and for the U.S.
Department of Defense, NASA and other government agencies. About 75% of Hughes
Space and Communications revenues in 1999 were from commercial customers.
Boeing has agreed to purchase the satellite systems manufacturing businesses
for $3.75 billion in cash. The purchase price payable by Boeing is subject to
adjustment if the estimated closing net assets are greater than or less than a
specified target number. In addition, Hughes will be required to deposit into
escrow 40% of the estimated net asset value of all of Hughes' contracts with
ICO unless prior to the closing of the transaction:
. substantial consummation of a plan or reorganization has occurred in
connection with which all ICO contracts are either assumed or replaced
with new ICO contracts; or
. all ICO contracts have been assumed or replaced with new contracts, and
a bankruptcy or similar court has approved (1) such new assumption or
replacement and (2) funding commitments from investors or lenders to ICO
that provide for full payment of all amounts under those ICO contracts.
The release of these funds from escrow depends on the type of post-closing
resolution of the ICO bankruptcy. If within two years of the closing, no
resolution of the ICO bankruptcy has occurred, the entire escrow amount will
be paid to Boeing, subject to reduction by any amounts previously paid to
Boeing that are attributable to the ICO contracts. The agreement with Boeing
also provides that for a period of three years from the closing date of the
transaction, Boeing will not develop, own or make any financial investments in
any system that would be in direct competition with PanAmSat and/or the
Spaceway systems, subject to limited exceptions. Hughes has also agreed to
indemnify and hold Boeing harmless for the full amount of any monetary fines
and penalties, payable before or after the close of the transaction, resulting
from Hughes' export control activities in China that were previously disclosed
by Hughes and any other compliance matters related to exports by Hughes to
China that may arise prior to the close of the transaction. See "--Legal
Proceedings--Grand Jury Investigation."
The Boeing transaction is subject to regulatory approvals and other
customary closing conditions. Either Hughes or Boeing can terminate the
agreement if the sale has not been completed by October 31, 2000. In addition,
Boeing will not be required to close the transaction if a "material adverse
change" occurs. Under the terms of the agreement with Boeing, a material
adverse change includes, among other things, a settlement by Hughes of the
China investigation prior to closing that results in a debarment from sales to
the U.S. government or a material suspension of Hughes' export licenses or
other material limitation on the projected business activities of the
satellite systems manufacturing businesses. If, however, any such settlement
only involves a suspension of licenses or other limitation on business
activities restricting sales to China or to any other customer or country for
which material sales are not anticipated, Hughes would not be deemed to have
suffered a material adverse change. Hughes expects this transaction to close
in mid-2000.
As of December 31, 1999, Hughes Space and Communications had outstanding
orders to construct 36 communications satellites for companies and government
agencies in several countries, representing over $4.8 billion in backlog. In
1999, seven satellites built by Hughes Space and Communications were launched
and Hughes Space and Communications expects to exceed that number in 2000.
Launch schedules are subject to a number of factors, some of which are beyond
the control of Hughes Space and Communications, including weather,
availability of launch vehicles, launch vehicle problems and governmental and
political pressures. Launch difficulties and delays, as well as construction
delays, can result in increased costs to Hughes Space and Communications.
Since the launch of Hughes Space and Communications' first satellite in
1963, its satellites have accumulated over 1,000 years of in-orbit experience,
with channel availability of about 98% on HS 376, HS 601 and other in-orbit
commercial satellites. About 95% of Hughes Space and Communications'
satellites have remained in service past their originally scheduled retirement
dates.
Hughes Space and Communications' technological capabilities have enhanced
the power and capacity of its satellites and improved their cost
effectiveness. These improvements strengthen the leadership position of
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Hughes Space and Communications and expand the market for satellites as a
whole. For example, Hughes Space and Communications has developed a family of
satellite structures, electronics, propulsion and power systems which can be
replicated at relatively low cost in a variety of commercial and government
configurations. In addition, Hughes Space and Communications has applied
signal compression and other methods to enhance the efficiency of
transponders. The newest product in this family is the HS 702 satellite, which
offer substantially higher power levels than those previously achieved in the
industry. Advances in digital electronics, high-power amplifiers, antenna
implementations and propulsion systems offer improved performance capabilities
of satellites built by Hughes Space and Communications.
Hughes has historically acted as a prime contractor or major subcontractor
with respect to various U.S. government programs. Principally, this business
is performed by Hughes Space and Communications. After the sale of the
satellite systems manufacturing businesses to Boeing, Hughes' programs with
the U.S. government will be substantially reduced and any future programs
would only likely involve acting as a subcontractor. Any subcontracting work
would be principally performed by Hughes Network Systems. As a result, after
the closing of the Boeing transaction, a much smaller portion of Hughes'
revenues will be derived from U.S. government programs. Net sales to the U.S.
government in 1999 were about $561 million, substantially all of which is
attributable to Hughes Space and Communications.
Sales and Marketing
As part of its new corporate focus, Hughes has realigned its sales and
marketing efforts. Hughes has created two new executive positions each of
which will have the primary responsibility for Hughes' two main customer
groups:
. consumers; and
. business enterprises.
Hughes believes that this marketing realignment will enable it to obtain the
full benefit of the synergies between its various business segments and will
focus management's attention on its high-growth entertainment, information and
communications services businesses. Hughes believes that this approach will
allow Hughes to better focus on its customers' needs and to better identify
and capitalize on rapidly changing trends in their respective markets.
The operations of DIRECTV U.S. and Galaxy Latin America, the consumer
applications of products and services developed by Hughes Network Systems and
Spaceway, and all AOL-related endeavors will be overseen by Mr. Eddy
Hartenstein, the Corporate Senior Executive Vice President, Hughes Consumer
Sector. The operations of PanAmSat, Hughes Network Systems, the enterprise
applications of products and services developed by Hughes Network Systems and
Spaceway, including the systems development for those products and related
enterprise broadband products and services will be overseen by Mr. Jack Shaw,
Corporate Senior Executive Vice President, Hughes Enterprise Sector.
Other
Hughes owns equity interests in other businesses in addition to those
described above. These businesses are reported as part of the "Eliminations
and Other" segment in Hughes' financial statements and the revenues of these
businesses are not, in the aggregate, material to Hughes. Spaceway is
currently reported as part of this segment in Hughes' financial statements.
Competition
Although Hughes has certain strengths which it believes help it compete in
each of the markets in which it competes, each of these markets is highly
competitive. Hughes faces competition from numerous other companies offering
video, audio and data products and services. These include a broad range of
companies
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engaged in communications and entertainment, including other digital multi-
channel entertainment providers, cable television operators, wireless cable
television operators, television networks and local broadcasters, home video
products companies and global and regional satellite and ground-based
communications service companies, as well as companies developing new
technologies.
Some of Hughes' competitors in these markets have similar or better
financial, technological and personnel resources than Hughes. Hughes believes
technological capabilities and innovation and the ability to invest in new and
developing businesses are critical to obtaining and maintaining leadership in
the markets in which it participates and the communications industry in
general. Hughes cannot assure you as to the effect that competition may have
on its financial condition or results of operations. See "Risk Factors--Risk
Factors Relating to the Business of Hughes--Hughes Will Be Adversely Affected
if It Fails to Maintain Leading Technological Capabilities."
DIRECTV. DIRECTV faces competition from local cable television operators as
well as direct-to-home satellite system operators in each of its regional
markets. DIRECTV believes that it can compete effectively with traditional
cable television because DIRECTV combines higher quality digital picture and
sound and greater programming variety with higher quality customer service. In
addition, the enactment of new legislation regarding local programming will
enable DIRECTV to compete directly with cable television providers in this
market. DIRECTV expects to face increasing competition from digital cable
television in the future because digital cable is capable of delivering high
quality picture and sound and a broader range of programming than traditional
cable television.
Hughes believes that DIRECTV can compete effectively with direct-to-home
satellite system operators through a combination of its broad range of
programming, including exclusive programming, and well-developed distribution
channels. Echostar Communications Corporation is the only other digital direct
broadcast satellite service company in the multi-channel industry currently in
operation in the United States. In 1999, Echostar acquired the satellites and
orbital slots owned by The News Corporation Limited and MCI WorldCom, Inc.
DIRECTV faces competition from other direct broadcast satellite service
providers in major regions of Latin America. The DIRECTV service also competes
with telephone companies, broadcast television and other entertainment
services, including video rentals.
As a result of this competitive environment, DIRECTV in the United States
and internationally may consider increasing the subsidy on DIRECTV receiver
equipment and increasing consumer marketing and promotions in order to compete
effectively, which may result in increased subscriber acquisition costs.
PanAmSat. PanAmSat primarily competes with companies and organizations that
own or utilize satellite or ground-based transmission facilities. Satellite
operators include:
. global competitors such as Intelsat;
. regional operators expanding globally, such as Loral Space and
Communications, Ltd., GE Americom, Societe Europeenne des Satellites, New
Skies Satellite N.V.; and
. numerous other regional operators and governments.
Broadband Services and Products. Hughes Network Systems faces global
competition in the VSAT market from Gilat Satellite Networks Ltd. and in its
wireless broadband access markets from firms such as Lucent Technologies Inc.,
Telefonaktiebolaget LM Ericsson, as well as other large telecommunications
companies and the various regional Bell telephone companies. Hughes Network
Systems faces competition from RCA/Thomson Consumer Electronics and Sony
Corporation in the manufacturing of DIRECTV subscriber equipment.
The Spaceway platform will face competition from companies that offer both
ground-based and satellite-based broadband services. Companies offering
ground-based broadband services include AT&T Corp., MCI WorldCom, Qwest
Communications International, Inc., Time Warner Inc. and Bell Atlantic
Corporation.
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Companies who may offer satellite-based broadband services include Teledesic
LLC, Skybridge LP and Loral Space & Communications Ltd.'s Cyberstar.
Acquisitions, Strategic Alliances and Divestitures
Due to rapid growth in the telecommunications and space industry,
particularly internationally, and increasing competitive pressures, Hughes
reviews its competitive position on an ongoing basis and from time to time
considers various acquisitions, strategic alliances and divestitures in order
to continue to compete effectively, improve its financial results, grow its
business and allocate its resources efficiently. It is also important for
Hughes to form strategic partnerships with other firms to bring together the
necessary expertise, such as distribution, market knowledge and technology, to
address competitive pressures and meet new market demands. Hughes has
accomplished this in its DIRECTV businesses, such as the PRIMESTAR and U.S.
Satellite Broadcasting Company acquisitions, its network systems businesses
and through its recent alliance with AOL. See "Shares Eligible for Future
Sale." Hughes also considers periodically making equity investments in
companies with which Hughes can jointly provide services to its customers.
Such investments by Hughes include equity investments in TiVo, Inc., Wink
Communications, XM Satellite Radio and Thomson Multimedia. The aggregate
market value of these investments as of February 15, 1999 was about $1
billion, the majority of which was related to Thomson Multimedia.
In connection with Hughes' acquisitions of each of PRIMESTAR and U.S.
Satellite Broadcasting Company, GM issued Class H common stock as part of the
total consideration. In connection with Hughes' strategic alliance with AOL,
GM issued a security convertible into Class H common stock. In the future, in
connection with other acquisitions or strategic alliances, GM may decide to
issue additional shares of Class H common stock, either alone or in
combination with cash or other property. Although there is a proposal by the
Clinton administration that, if enacted, would result in a tax on stockholders
upon their receipt of tracking stock similar to Class H common stock under
certain circumstances, this proposal does not appear to affect GM's ability,
including on behalf of Hughes, to issue Class H common stock in exchange for
cash or property other than GM stock, including the ability to issue Class H
common stock in capital-raising public offerings or in acquisitions of target
companies. However, proposed draft legislation for the Clinton
administration's proposal has not been released, and it is possible that such
draft legislation, or future legislative or regulatory action, if enacted,
could restrict GM's ability to issue Class H common stock more than as
described above. See "Risk Factors--Risk Factors Relating to GM's Dual-Class
Common Stock Capital Structure--Proposed Changes in the Tax Law Could Affect
GM's Future Ability to Issue Shares of Class H Common Stock."
Regulation
Various aspects of Hughes' businesses are subject to federal and state
regulation. Noncompliance with these regulations could result in the
suspension or revocation of Hughes' licenses or registrations at issue, the
termination or loss of contracts at issue or the imposition of contractual
damages, civil fines or criminal penalties.
DIRECTV's business is subject to regulation by the U.S. Federal
Communications Commission. These regulations govern, among other things, the
authorization to license the use of orbital slots for the delivery of digital
television signals.
The satellite industry is highly regulated both in the United States and
internationally. Hughes is generally subject to the regulatory authority of
the U.S. government and the regulatory authority of other countries in which
PanAmSat operates. The ownership and operation of PanAmSat's satellite system
is regulated by the U.S. Federal Communications Commission primarily for:
. the licensing of satellites and earth stations;
. avoidance of interference with other radio stations; and
. compliance with FCC rules governing U.S.-licensed satellite systems.
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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 each requested satellite for one year.
Under the FCC's rules, unless an applicant has received an authorization to
launch and operate a satellite, it must notify the FCC in writing prior to
commencing satellite construction, and any construction engaged in is at the
applicant's own risk. Under the FCC's rules, an entity such as PanAmSat that
provides international telecommunications services on a common carrier basis
must first receive authorization to provide such services.
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. In addition, Hughes may be subject to national communications
and/or broadcasting laws with respect to its provision of international
satellite service.
Research and Intellectual Property
The ability to continue to generate technological innovations is important
to Hughes' long-term business strategy. See "Risk Factors--Risk Factors
Relating to the Business of Hughes--Hughes Will Be Adversely Affected if It
Fails to Maintain Leading Technological Capabilities." The continued
development of new technologies may provide new and improved products which
will continue to fuel business opportunities and product improvements which,
among other things, will enable the extension of profitable production
programs. Research and development is carried on in each of Hughes' business
units in connection with ongoing product improvement efforts.
In addition, HRL Laboratories LLC, a company of which Hughes owns 50%,
conducts long-range applied research in the specialized fields of physics,
chemistry, electronics and information sciences, primarily for the benefit of
Hughes Space and Communications. As part of the Boeing transaction, Boeing
expressed interest in obtaining Hughes' 50% interest in HRL, which requires
the consent of Raytheon Company, which is the other member of HRL.
Hughes utilizes a large number of patents and trademarks which are held by
Hughes or its affiliates. Hughes believes that, in the aggregate, the rights
existing under such patents, trademarks and licenses are important. Hughes
believes that its competitive position is dependent on research, engineering
and production capabilities. Hughes actively pursues patent and trademark
protections of its technological and engineering innovations, and actively
pursues enforcement of its intellectual property rights.
Legal Proceedings
Raytheon Purchase Price Adjustment Dispute. In connection with the 1997
spin-off of the defense electronics business of Hughes' predecessor as part of
the Hughes restructuring transactions and the subsequent merger of that
business with Raytheon Company, the terms of the merger agreement provided
processes for resolving disputes that might arise in connection with post-
closing financial adjustments that were also called for by the terms of the
merger agreement. These financial adjustments might require a cash payment
from Raytheon to Hughes or vice versa.
A dispute currently exists regarding the post-closing adjustments which
Hughes and Raytheon have proposed to one another and related issues regarding
the adequacy of disclosures made by Hughes to Raytheon in the period prior to
consummation of the merger. Hughes and Raytheon are proceeding with the
dispute resolution process. It is possible that the ultimate resolution of the
post-closing financial adjustment and of related disclosure issues may result
in Hughes making a payment to Raytheon that would be material to Hughes.
However, the amount of any payment that either party might be required to make
to the other cannot be determined at this time. Hughes intends to vigorously
pursue resolution of the disputes through the arbitration processes, opposing
the adjustments proposed by Raytheon, and seeking the payment from Raytheon
that Hughes has proposed.
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National Rural Telecommunications Cooperative. On June 3, 1999, the
National Rural Telecommunications Cooperative filed a lawsuit against DIRECTV,
Inc. and Hughes Communications Galaxy, Inc., which we refer to together in
this description as "DIRECTV", in the U.S. District Court for the Central
District of California, alleging that DIRECTV has breached the DBS
Distribution Agreement with the NRTC. The DBS Distribution Agreement provides
the NRTC with certain rights, in certain specified portions of the United
States, with respect to DIRECTV programming delivered over 27 of the 32
frequencies at the 101(degrees) west longitude orbital location. The NRTC
claims that DIRECTV has wrongfully deprived it of the exclusive right to
distribute programming formerly provided by U.S. Satellite Broadcasting
Company over the other five frequencies at 101(degrees). DIRECTV denies that
the NRTC is entitled to exclusive distribution rights to the former U.S.
Satellite Broadcasting Company programming because, among other things, the
NRTC's exclusive distribution rights are limited to programming distributed
over 27 of the 32 frequencies at 101(degrees). The NRTC's complaint seeks, in
the alternative, the right to distribute former U.S. Satellite Broadcasting
Company programming on a non-exclusive basis and the recovery of related
revenues from the date U.S. Satellite Broadcasting Company was acquired by
Hughes. DIRECTV maintains that the NRTC's right under the DBS Distribution
Agreement is to market and sell the former U.S. Satellite Broadcasting Company
programming as its agent and the NRTC is not entitled to the claimed revenues.
DIRECTV intends to vigorously defend the NRTC claims. DIRECTV has also filed a
counterclaim against the NRTC seeking a declaration of the parties' rights
under the DBS Distribution Agreement.
On August 26, 1999, the NRTC filed a second lawsuit against DIRECTV
alleging that DIRECTV has breached the DBS Distribution Agreement. In this
lawsuit, the NRTC is asking the court to require DIRECTV to pay the NRTC a
proportionate share of unspecified financial benefits that DIRECTV derives
from programming providers and other third parties. DIRECTV denies that it
owes any sums to the NRTC on account of the allegations in these matters and
plans to vigorously defend itself against these claims.
Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., the two
largest NRTC affiliates, filed an action on January 11, 2000 against DIRECTV
in the U.S. District Court in Los Angeles. The plaintiffs allege, among other
things, that DIRECTV has interfered with their contractual relationship with
the NRTC. The plaintiffs plead that their rights and damages are derivative of
the rights and claims asserted by the NRTC in its two cases against DIRECTV.
The plaintiffs also allege that DIRECTV has interfered with their contractual
relationships with manufacturers and distributors by preventing those parties
from selling receiving equipment to the plaintiffs' dealers. DIRECTV denies
that it has wrongfully interfered with any of the plaintiffs' business
relationships and will vigorously defend the lawsuit. On February 29, 2000,
two NRTC members, North Central Telephone Cooperative and Northeast Rural
Services, Inc., filed a class action lawsuit on behalf of themselves and the
remaining NRTC members participating in DIRECTV's direct-to-home broadcast
satellite business. The allegations in the class action suit are patterned on
the allegations made by Pegasus and Golden Sky.
Echostar. EchoStar Communications Corporation and others commenced an
action in the U.S. District Court in Colorado on February 1, 2000 against
DIRECTV, Hughes Network Systems and Thomson Consumer Electronics, Inc.
seeking, among other things, injunctive relief and unspecified damages,
including treble damages, in connection with allegations that the defendants
have entered into agreements with retailers and program providers and engaged
in other conduct that violates the antitrust laws and constitutes unfair
competition. DIRECTV believes that the complaint is without merit and intends
to vigorously defend against the allegations raised. DIRECTV and Hughes filed
counterclaims against EchoStar, alleging that EchoStar tortiously interfered
with DIRECTV's contract with Kelly Broadcasting Systems pursuant to which
Kelly Broadcasting was to have provided DIRECTV with foreign language
programming and related services. DIRECTV and Hughes also allege that EchoStar
has misused the registered PRIMESTAR trademarks and conspired with dealers to
mislead PRIMESTAR subscribers to switch to EchoStar service. Finally, DIRECTV
and Hughes allege that EchoStar has engaged in false advertising and unfair
competition by misleading consumers to believe that they were lawfully
entitled to receive network programming and out-of-market National Football
League games.
Financing Contract Dispute. General Electric Capital Corporation and
DIRECTV, Inc. entered into a contract on July 31, 1995, in which General
Electric Capital Corporation agreed to establish and manage a private
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label consumer credit program for consumer purchases of hardware and related
DIRECTV programming. Under the contract, General Electric Capital Corporation
agreed to provide certain related services to DIRECTV, including credit risk
scoring, billing and collections services. DIRECTV agreed to act as a surety
for loans complying with the terms of the contract. Hughes guaranteed
DIRECTV's performance under the contract. A complaint and counterclaim have
been filed by the parties in the U.S. District Court for the District of
Connecticut concerning General Electric Capital Corporation's performance and
DIRECTV's obligation to act as a surety. General Electric Capital Corporation
claims damages from DIRECTV in excess of $140 million. DIRECTV is seeking
damages from General Electric Capital Corporation in excess of $45 million.
Hughes intends to vigorously contest General Electric Capital Corporation's
allegations and pursue its own contractual rights and remedies. Pretrial
discovery is completed. No specific trial date has been set, but a trial may
be held in 2000.
Grand Jury Investigation. There is a pending grand jury investigation into
whether Hughes should be accused of criminal violations of the export control
laws arising out of the participation of two of its employees on a committee
formed to review the findings of Chinese engineers regarding the failure of a
Long March rocket in China in 1996. Hughes is also subject to the authority of
the State Department to impose sanctions for non-criminal violations of the
Arms Export Control Act. The possible criminal and/or civil sanctions could
include fines as well as debarment from various export privileges and
participating in government contracts. If Hughes were to enter into a
settlement of this matter prior to the closing of the Boeing transaction that
involves a debarment from sales to the U.S. government or a material
suspension of Hughes' export licenses or other material limitation on
projected business activities of the satellite systems manufacturing
businesses, Boeing would not be obligated to complete the purchase of Hughes'
satellite systems manufacturing businesses. Hughes does not expect the grand
jury investigation or State Department review to result in a material adverse
effect upon its business. However, there can be no assurance as to such a
favorable outcome.
Personalized Media Patent Dispute. In November 1996, Personalized Media
Communications, Inc. brought an International Trade Commission proceeding
against DIRECTV, U.S. Satellite Broadcasting Company, Hughes Network Systems
and other manufacturers of receivers for the DIRECTV system to prevent
importation of certain receivers manufactured in Mexico, alleging infringement
of one of its patents. During 1997, the International Trade Commission held
for DIRECTV and other respondents on all claims at issue, finding each to be
invalid. Personalized Media appealed these adverse rulings to the Court of
Appeals for the Federal Circuit. During 1998, the Court of Appeals affirmed
the lower court's holdings as to three of the claims, and remanded to the
International Trade Commission for further deliberation on a remaining claim.
Personalized Media then moved for dismissal of the proceeding, which was
granted, terminating the action. Also in 1996, Personalized Media filed a
related action in the U.S. District Court for the Northern District of
California. This case has been stayed pending outcome of the International
Trade Commission proceeding. The complaint alleges infringement and willful
infringement of three Personalized Media patents, and seeks unspecified
damages, trebling of damages, an injunction and attorneys' fees. Hughes denies
that it engaged in acts of infringement of the asserted patents and intends to
vigorously contest these claims.
Employment Cases. In October 1994, a California jury awarded a total of
about $90 million in damages against Hughes, which included about $10 million
of actual damages and punitive damages of $40 million to each of two former
Hughes employees, Lane (race discrimination/retaliation) and Villalpando
(retaliation), based on claims of mistreatment and denials of promotions. The
trial court granted Hughes' motion to set aside the verdicts because of
insufficient evidence and ordered a new trial of the matter. On January 6,
1997, the Court of Appeals reversed the trial court's decision that had set
aside the verdicts and ordered a new trial. The Court of Appeals also
reinstated the jury verdicts, but reduced the two $40 million punitive damage
awards to $5 million and about $3 million, resulting in an aggregate judgment
of about $17 million. Hughes' petition for review by the California Supreme
Court was granted in November 1997. On March 6, 2000, the California Supreme
Court reversed the judgment of the Court of Appeals, remanding the case with
instructions to set aside the verdicts as to actual and punitive damages and
affirming the order of the trial court to proceed with a new trial. After the
closing of the Hughes Space and Communications transaction, Boeing has agreed
that Boeing will indemnify and hold Hughes harmless for any damages resulting
from this action.
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Environmental. Hughes is subject to the requirements of federal, state,
local and foreign environmental and occupational safety and health laws and
regulations. These include laws regulating air emissions, water discharge and
waste management. Hughes has an environmental management structure designed to
facilitate and support its compliance with these requirements. We cannot
assure you, however, that Hughes is at all times in complete compliance with
all such requirements. Although Hughes has made and will continue to make
capital and other expenditures to comply with environmental requirements, we
do not expect capital or other expenditures for environmental compliance to be
material in 2000 and 2001. Environmental requirements are complex, change
frequently and have become more stringent over time. Accordingly, we cannot
assure you that these requirements will not change or become more stringent in
the future in a manner that could have a material adverse effect on Hughes'
business.
Hughes is also subject to environmental laws requiring the investigation
and cleanup of environmental contamination at facilities it formerly owned or
operated or currently owns or operates or to which it sent hazardous wastes
for treatment or disposal. Hughes is aware of contamination at certain of its
sites. In addition, Hughes has been named as a potentially responsible party
at several Superfund sites. Although Hughes believes its reserve is adequate
to cover environmental investigation and cleanup, we cannot assure you that
Hughes' environmental cleanup costs and liabilities will not exceed the
current amount of its reserve.
Properties
As of December 31, 1999, Hughes had about 117 locations operating in 21
states and 55 cities in the United States and about 33 additional locations in
16 cities in about 13 countries outside the United States. At such date,
Hughes owned about 3.2 million square feet of space and leased an additional
3.4 million square feet of space.
If the sale of its satellite manufacturing business to Boeing is completed,
Hughes will have about 54 locations operating in 17 states and 43 cities in
the United States and about 29 additional locations in 12 cities in about 11
countries outside the United States. Hughes will own about 1.3 million square
feet of space and lease an additional 1.4 million square feet of space.
Employees
As of December 31, 1999, Hughes employed about 17,300 persons. If the sale
of its satellite manufacturing business to Boeing is completed, Hughes' work
force will be reduced by about 8,600 persons.
As of December 31, 1999, about 10% of Hughes' work force in the United
States was represented by unions. A substantial portion of the 10% of Hughes'
work force represented by unions consists of Hughes Space and Communications
employees. Hughes has not experienced any significant labor problems in the
past five years, and management considers its employee relations to be good.
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MANAGEMENT OF HUGHES
The principal executive officers and executives having primary
responsibility for business units of Hughes include the following:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Michael T. Smith 56 Chairman of the Board and Chief Executive Officer
Jack A. Shaw 61 Corporate Senior Executive Vice President, Enterprise Sector
Eddy W. Hartenstein 49 Corporate Senior Executive Vice President, Consumer Sector
Roxanne S. Austin 39 Corporate Senior Vice President and Chief Financial Officer
Pradman P. Kaul 53 Corporate Senior Vice President and Chairman and Chief Executive Officer,
Hughes Network Systems
Tig H. Krekel 46 Corporate Senior Vice President and President and Chief Executive Officer,
Hughes Space and Communications Company
Larry D. Hunter 50 Corporate Vice President and Chairman, DIRECTV Japan Management Inc.
Kevin N. McGrath 47 Chairman, Galaxy Latin America LLC
R. Douglas Kahn 47 President and Chief Executive Officer, PamAmSat Corporation
Marcy J. K. Tiffany 50 Corporate Vice President and General Counsel
</TABLE>
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BOARD OF DIRECTORS OF HUGHES
The Hughes board of directors is comprised of eleven members and includes
the following individuals:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael T. Smith 56 Chairman of the Board
James M. Cornelius 56 Director
Thomas E. Everhart 68 Director
J. Michael Losh 53 Director
Peter A. Lund 59 Director
Harry J. Pearce 57 Director
Eckhard Pfeiffer 58 Director
Alfred C. Sikes 60 Director
John G. Smale 72 Director
John F. Smith, Jr. 61 Director
Bernee D.L. Strom 52 Director
</TABLE>
The Hughes board of directors includes individuals who also serve as
officers of GM or Hughes or directors of GM as well as individuals who are not
officers or directors of GM.
Hughes Management Director
Set forth below is a description of the background of the individual
serving on the Hughes board of directors who also serves as an officer of
Hughes.
Michael T. Smith. Chairman and Chief Executive Officer, Hughes Electronics
Corporation; Former Vice-Chairman, Hughes Electronics Corporation; Former
Chairman, Hughes Aircraft Company; Chairman, PanAmSat Corporation; Director,
Alliant Techsystems, Inc.; Former Chairman, Aerospace Industries Association;
Charter Member, Electronics Industries Foundation Leadership Council;
Director, Los Angeles World Affairs Council; Trustee, Keck Graduate Institute
of Applied Life Sciences at the Claremont Colleges; Trustee, Providence
College.
Non GM-Affiliated Directors
Set forth below is a description of the backgrounds of the individuals
serving on the Hughes board of directors who do not also serve as an officer
of Hughes or GM or director of GM.
James M. Cornelius. Chairman, Guidant Corporation; Former Director and
Chief Financial Officer, Eli Lilly and Company; Director, Chubb Corporation,
Lilly Industries and American United Life Insurance Company; Founding Board
Member, National Bank of Indianapolis; Former Director, DowElanco, Indiana
National Bank, Indiana Bell Telephone Company and CompuServe; Active in
several Indianapolis civic organizations and the United Way of Central
Indiana; Trustee, University of Indianapolis; Treasurer, Board of Governors of
the Indianapolis Museum of Art.
Peter A. Lund. Private investor and media consultant; Former President and
Chief Executive Officer of CBS, Inc.; Former President and Chief Executive
Officer, CBS Television and Cable; Director, Dreamlife, Inc., Lycos, Inc. and
RespondTV, Inc.; Trustee, University of St. Thomas, the Central Park
Conservancy and the Motion Picture and Television Foundation.
Alfred C. Sikes. President, Hearst Interactive Media; Former Chairman,
Federal Communications Commission; Director, New York's Center for
Communication Inc., New York's Student/Sponsor Partnership, the School Choice
Scholarships Foundation, and Odyssey cable television network; Chairman, The
Student/Sponsor Partnership.
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Bernee D.L. Strom. President, InfoSpace Ventures, LLC; Former Chief
Executive Officer, Priceline.com; Former Principal and a founder of Gemstar
International Group Ltd.; Former President and Chief Executive Officer of
U.S.A. Digital Radio; Former President and Chief Executive Officer and Founder
of MBS Technologies, Inc.; Director, InfoSpace.com, Polaroid Corporation and
ImageX.com; Former Director, Walker Digital; Board of Advisors, J.L. Kellogg
Graduate School of Management of Northwestern University; Trustee, National
Public Radio Foundation.
GM-Affiliated Directors
Set forth below is a description of the backgrounds of the individuals
serving on the Hughes board of directors who also serve as an officer or
director of GM.
Thomas E. Everhart. President Emeritus and Professor of Electrical
Engineering and Applied Physics, California Institute of Technology, Pasadena,
California; Director, General Motors Corporation, Saint-Gobain Company, Reveo,
Inc., Raytheon Company and Agilent Technologies; Member of the Board of
Trustees of California Institute of Technology; Member of the Board of
Directors of Electric Power Research Institute and the Corporation for
National Research Initiatives; Senior Scientific Advisor to the W.M. Keck
Foundation; Member, National Academy of Engineering Council, Council on
Competitiveness; Former Chairman of General Motors Science Advisory Committee;
Member, Harvard College Board of Overseers.
J. Michael Losh. Executive Vice President and Chief Financial Officer,
General Motors Corporation; Director, The Quaker Oats Company and Cardinal
Health Inc.; Former Group Executive in charge of North American Vehicle Sales,
Service and Marketing, General Motors Corporation; Former General Manager of
the Oldsmobile Division, General Motors Corporation, Former General Manager of
Pontiac Division and Vice President, General Motors Corporation.
Harry J. Pearce. Vice Chairman, General Motors Corporation; Former
Executive Vice President, General Motors Corporation; Former Executive Vice
President and General Counsel, General Motors Corporation; Director, Marriott
International, Inc. and MDU Resources Group, Inc.; Member, U.S. Air Force
Academy's Board of Visitors, Northwestern University School of Law's Law
Board; Trustee, Northwestern University and Howard University; Member, The
Conference Board.
Eckhard Pfeiffer. Chairman, Intershop Communications AG/Inc. and ricardo.de
AG; Former President and Chief Executive Officer, Compaq Computer Corporation;
Director, Bell Atlantic Corporation and General Motors Corporation; Advisory
Board, Deutsche Bank; Trustee, Southern Methodist University and Executive
Board of the Cox School of Business-Southern Methodist University.
John G. Smale. Former Chairman and Chief Executive Officer, The Procter &
Gamble Company; Director, General Motors Corporation, Rand McNally and Florida
Keys Land and Sea Trust.
John F. Smith, Jr. Chairman and Chief Executive Officer, General Motors
Corporation, Former President, General Motors Corporation; Director, The
Procter & Gamble Company; Co-Chairman, The Business Roundtable; Member, The
Business Council and U.S.-Japan Business Council; Chairman, Catalyst; Member,
Chancellor's Executive Committee of the University of Massachusetts; Trustee,
Boston University; Board Member, The Nature Conservancy.
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SHARES ELIGIBLE FOR FUTURE SALE
Exchange Offer
Shares of Class H common stock issued to $1 2/3 par value stockholders
pursuant to the exchange offer will be freely transferable, except for shares
received by persons who may be deemed to be "affiliates" of GM under the
Securities Act. Affiliates generally include individuals or entities that
control, are controlled by, or are under common control with, GM. The
directors and principal executive officers of GM, as well as significant
stockholders of GM, will be affiliates. Affiliates of GM may sell their shares
of Class H common stock only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act.
Certain executive officers, directors and employees of GM and its
subsidiaries hold $1 2/3 par value common stock, including through employee
benefit plans. All holders of $1 2/3 par value common stock, including our
executive officers, directors and employees, are eligible to participate in
the exchange offer. Certain of our executive officers, directors and employees
from time to time engage in transactions involving $1 2/3 par value common
stock, including transactions occurring during the last 60 days and prior
periods, and some or all of these persons may acquire shares of Class H common
stock through their participation in the exchange offer. To the extent that
any of such persons are not affiliates or otherwise restricted, these persons
will generally be able to transfer such shares of Class H common stock without
restriction.
In connection with the exchange offer, GM and certain senior executive
officers of GM and Hughes have agreed that, without the prior written consent
of Morgan Stanley Dean Witter, they will not, during the period ending 90 days
after the expiration date, sell or otherwise dispose of any shares of Class H
common stock, subject to certain exceptions. These exceptions include, among
other things:
. the issuance of Class H common stock in exchange for $1 2/3 par value
common stock pursuant to the exchange offer;
. the issuance and contribution of Class H common stock by GM to the
employee benefit plans pursuant to the contributions;
. the issuance of Class H common stock upon the exercise of options or
warrants exercisable for or the conversion of securities convertible into
Class H common stock outstanding as of the date of this document;
. the granting of stock options, warrants and/or restricted stock awards
for Class H common stock under employee benefit plans and programs,
provided that such options, warrants and awards do not become exercisable
or vest during such lock-up period;
. other issuances or transfers of Class H common stock under employee
benefit plans and programs and dividend reinvestment plans;
. the issuance and/or transfer of Class H common stock pursuant to the
terms of any agreements in effect on the date of the initial filing of
this document;
. issuances of, or transactions involving, any other securities of GM,
including $1 2/3 par value common stock;
. the issuance of shares of Class H common stock to persons who become
employed as senior executive officers of Hughes during such lock-up
period, provided that those shares may not be sold or otherwise
transferred by such persons during such lock-up period;
. public or private mergers, acquisitions, strategic alliances, business
combinations and other similar transactions involving the issuance of any
GM securities, including Class H common stock, provided that the
recipients of such shares agree in writing not to offer or sell such
shares during such lock-up period; and
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. the issuance of shares of Class H common stock to existing Class H
stockholders for purposes of effecting the possible stock split described
at "Overview of GM Capital Stock--Recent Development Affecting GM's
Capital Structure."
Contributions to the Employee Benefit Plans
Following the contributions to the employee benefit plans, subject to
certain restrictions, the trustees of the plans will have the authority and
discretion to cause the plans to hold the shares of Class H common stock
contributed by GM or to sell all or any portion thereof from time to time as
they deem appropriate. Significant sales of Class H common stock by the
employee benefit plans could adversely affect the market price of Class H
common stock. The employee benefit plans will be subject to agreements that
will provide them with registration rights with respect to the shares of Class
H common stock they receive pursuant to the contributions, but will also
regulate the manner in which such shares may be sold or transferred. For more
information about these agreements and other aspects of the contributions, see
"The Transactions--Contributions to the Employee Benefit Plans."
America Online
In connection with Hughes' strategic alliance with AOL in June 1999, AOL
invested $1.5 billion in restricted shares of a new series of GM preference
stock, the Series H preference shares, which would automatically convert,
depending on the average closing trading price of Class H common stock during
the 20 trading days prior to the mandatory conversion date, into between
21,529,255 and 26,696,330 shares of Class H common stock on the mandatory
conversion date for the Series H preference shares, which is June 24, 2002.
AOL also currently has the right to convert these shares into 21,529,255
shares of Class H common stock, subject to adjustment. General Motors invested
the proceeds received from AOL in shares of a new Hughes preferred equity
security, the Hughes Series A preferred stock, which is designed to correspond
to the financial terms of the Series H preference shares. For more
information, see "Overview of GM Capital Stock--Preference Stock."
The following description summarizes the material terms of the stock
purchase agreement between GM and AOL relating to transfer restrictions on the
Series H preference shares as well as the material terms of the registration
rights agreement between GM and AOL. This description does not purport to be
complete and is qualified in its entirety by reference to the full text of
such agreements, each of which has been filed as an exhibit to the
registration statement of which this document is a part.
The Series H preference shares held by AOL and the underlying Class H
common stock are subject to transfer restrictions. AOL has agreed that, prior
to June 21, 2002, it will not transfer or otherwise dispose of any of the
Series H preference shares or the underlying Class H common stock, except for
transfers to certain of its affiliates or as part of a merger or similar
transaction involving AOL. This transfer restriction would lapse upon a sale
of DIRECTV or the termination of certain of the transaction documents executed
in connection with the AOL strategic alliance. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Hughes--
General" for a further discussion of this investment. In addition, AOL has
agreed that, in connection with any underwritten offerings, other than on
behalf of other stockholders, of Class H common stock or a security
convertible into or exchangeable for Class H common stock before the first
anniversary of the termination of the transfer restrictions, it would sign
lock-up agreements which do not contain more burdensome restrictions than
those agreed to by GM in connection with the offerings restricting the
transfer of its shares during the pendency of the offering and for 90 days
following the completion of each of such offerings.
GM has agreed to provide AOL certain registration rights with respect to
the shares of Class H common stock issuable upon conversion of the GM Series H
preference shares. These rights become exercisable upon the earlier to occur
of a sale of DIRECTV or the termination of certain of the transaction
documents executed in connection with the strategic alliance. Once the rights
are exercisable, AOL may demand on four occasions
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registration of their shares of Class H common stock under the Securities Act.
However, GM is not required to register any shares that can be sold publicly
without registration. General Motors has the right to delay any required
registration for up to 90 days in any 12-month period if that registration
could interfere with its business activities or plans or if it would require
disclosure of certain confidential information. In addition, GM is not
required to register any shares for 30 days prior to the anticipated
consummation of a public offering by General Motors of its securities and 90
days after the completion of the public offering where, in the good faith
judgment of the managing underwriter(s), the registration would have an
adverse effect on the offering or if registration would be prohibited by law.
PRIMESTAR
In connection with Hughes' acquisition of PRIMESTAR in April 1999, GM
issued 4,871,448 shares of restricted Class H common stock to PRIMESTAR. After
this acquisition, PRIMESTAR changed its name to Phoenixstar, Inc. These shares
were not registered under the Securities Act and may not be transferred prior
to April 28, 2000, except for limited transfers from Phoenixstar to its
stockholders and certain related parties.
Following Hughes' acquisition of PRIMESTAR, Phoenixstar granted stock
appreciation rights in respect of the shares of Class H common stock it
received in the transaction to certain holders of its outstanding debt. Each
stock appreciation right entitles the holder thereof to receive a payment from
Phoenixstar in the amount, if any, by which the fair market value per share of
Class H common stock on May 5, 2000 exceeds $47.00 per share. "Fair market
value" for purposes of this calculation is the average of the last sale price
of Class H common stock (or if no last sale is reported, the average of the
high bid and low asked prices) for each of the five trading days immediately
preceding May 5, 2000. Phoenixstar is required to pay amounts in respect of
these stock appreciation rights on May 10, 2000. According to Phoenixstar's
most recent public filings, Phoenixstar does not appear to have a source of
revenue from which to make these payments. Therefore, we believe that between
April 28, 2000, the date on which the transfer restrictions on the Class H
common stock expire, and May 9, 2000, it is likely that Phoenixstar may sell a
substantial portion of its holdings of Class H common stock in order to fund
the required payments.
The following description summarizes the material terms of the registration
rights agreement between GM and Phoenixstar and the related stock transfer
agreement. This description does not purport to be complete and is qualified
in its entirety by reference to the full text of such agreements, each of
which has been filed as an exhibit to the registration statement of which this
document is a part. Under an agreement with GM, Phoenixstar has the right to
demand on two occasions registration under the Securities Act of the shares of
Class H common stock issued to it by GM. However, General Motors is not
required to register any shares that can be sold publicly without
registration. We have the right to delay any required registration for up to
90 days in any 12-month period if that registration could materially interfere
with our business activities or plans. In addition, GM is not required to
register any shares for 30 days prior to the anticipated consummation of a
public offering by General Motors of its securities and 90 days after the
completion of the public offering where, in the good faith judgment of the
managing underwriter(s), the registration would have an adverse effect on the
offering or if registration is prohibited by law.
U.S. Satellite Broadcasting Company
In connection with Hughes' May 1999 acquisition of U.S. Satellite
Broadcasting Company, GM issued 22,632,878 shares of restricted Class H common
stock to the stockholders of U.S. Satellite Broadcasting Company. Prior to the
first anniversary of the acquisition of those shares, a substantial portion of
those shares may only be transferred in accordance with Rule 145 under the
Securities Act, which generally imposes a limitation on the amount of these
shares that may be sold in any three-month period. In addition, the holders of
these restricted shares have agreed that, in connection with any underwritten
offerings of Class H common stock prior to May 20, 2001, they will sign lock-
up agreements with provisions, including as to the lock-up period, similar to
those entered into by General Motors and/or other stockholders of General
Motors.
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OVERVIEW OF GM CAPITAL STOCK
General
General Motors is authorized to issue 2,706,000,000 shares of capital
stock, consisting of:
. 6,000,000 shares of preferred stock, without par value;
. 100,000,000 shares of preference stock, $0.10 par value, 3,925,000 shares
of which are designated as Series D 7.92% preference stock, 5,750,000
shares of which are designated as Series G 9.12% preference stock and
2,669,633 shares of which are designated as Series H 6.25% automatically
convertible preference stock; and
. 2,600,000,000 shares of GM common stock comprising two classes, which
currently include 2,000,000,000 shares of $1 2/3 par value common stock
and 600,000,000 shares of Class H common stock.
As of December 31, 1999, the following shares of capital stock of GM were
outstanding:
. 753,663 shares of Series D 7.92% preference stock, represented by about
3,014,654 depositary shares;
. 1,253,852 shares of Series G 9.12% preference stock, represented by about
5,015,410 depositary shares;
. 2,669,633 shares of Series H 6.25% automatically convertible preference
stock;
. 617,437,531 shares of $1 2/3 par value common stock; and
. 137,072,711 shares of Class H common stock.
There are currently no outstanding shares of preferred stock.
Recent Developments Affecting GM's Capital Structure
On March 6, 2000, our board of directors approved an amendment to our
certificate of incorporation to increase the number of authorized shares of
Class H common stock from 600 million to 3.6 billion. The amendment is subject
to approval by a majority vote of $1 2/3 par value stockholders and Class H
stockholders, voting together as a single class based on their respective
voting powers, and a majority vote of the Class H stockholders voting
separately as a class. GM will solicit this approval at its annual meeting to
be held on June 6, 2000. If the amendment is approved, we currently anticipate
that the GM board of directors will authorize a stock split of Class H common
stock, effected as a dividend of Class H common stock payable on outstanding
shares of Class H common stock, shortly after the annual meeting. Whether to
proceed with the stock split and, if so, the timing of the stock split and the
ratio of shares to be issued as a dividend in connection with the stock split,
remain at the discretion of our board of directors and will be determined in
light of market prices and other conditions that may prevail at the time of
determination. Further information about the proposed amendment to our
certificate of incorporation and the possible stock split is set forth in the
proxy statement being mailed to our stockholders in connection with the annual
meeting.
On March 6, 2000, our board of directors approved the redemption of all of
the outstanding shares of Series D 7.92% preference stock and the related
Series D depositary shares. The redemption of these shares will occur on May
2, 2000.
On March 13, 2000, GM and Fiat S.p.A. agreed to form a strategic industrial
alliance, creating an important partnership for the companies in two of the
world's largest automotive markets: Europe and Latin America. For more
information about this alliance, see "Business of GM--Recent Developments." In
connection with the alliance, GM will acquire about 20% of Fiat Auto in
exchange for about $2.4 billion. In addition, GM will issue 32,053,422 shares
of $1 2/3 par value common stock to Fiat in exchange for about $2.4 billion.
Based on the number of shares to be issued to Fiat and the total number of
outstanding shares of $1 2/3 par value common stock as of February 29, 2000
and giving effect to the exercise of all outstanding stock options for $1 2/3
par value common stock as of such date, Fiat would receive about 5.1% of the
outstanding $1 2/3 par value common stock as of such date. However, this
percentage will increase as a result of both the reduced number of shares of
$1 2/3 par value common stock outstanding after the exchange offer and GM's
planned $1.4 billion stock repurchase program described below. It is currently
anticipated that Fiat will be granted certain registration rights in
connection with its acquisition of $1 2/3 par value common stock. This
issuance of $1 2/3 par value common stock to Fiat is expected to be completed
in 2000.
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Also on March 13, 2000, GM announced its intention to repurchase for cash
an additional $1.4 billion of $1 2/3 par value common stock. GM currently
expects to complete this stock repurchase program by the end of 2000. At the
same time, GM announced its decision to increase the amount of Class H common
stock to be issued in this exchange offer from $8 billion to $9 billion,
assuming it is fully subscribed. Both of these actions are designed to offset,
in part, the effect of the issuance of $1 2/3 par value common stock to Fiat
in connection with the strategic alliance.
GM Preferred Stock
GM's certificate of incorporation authorizes the GM board of directors to
issue shares of preferred stock from time to time in distinctly designated
series, with each series ranking equally and identical in all respects except
as to the dividend rate and redemption price. There are currently no
outstanding shares of preferred stock and GM's board of directors has no
current intent to issue any preferred stock.
If any preferred stock were issued, it would rank senior to preference
stock and common stock with respect to payments of dividends and distributions
in liquidation. Further, no cash dividends could be paid on any class of
common stock or any series of preference stock if current assets of GM in
excess of its current liabilities were less than $75 per share of any
outstanding preferred stock.
If any shares of preferred stock were issued, holders of such shares would
not be entitled to vote except that:
. they would vote together with the holders of common stock on the
disposition of GM's assets as an entirety;
. if GM has defaulted in paying dividends on preferred stock for six
months, the holders of preferred stock, voting as a class, would be
entitled to elect one-quarter of the directors; and
. certain mortgaging or pledging of, or the placing of certain liens upon,
GM's property would require the approval of the holders of three-fourths
of any outstanding preferred stock.
Preference Stock
GM's certificate of incorporation authorizes the GM board to issue shares
of preference stock from time to time in distinctly designated series, with
the terms of each series fixed by GM's board in the resolutions providing for
the issuance of such series. GM's preference stock ranks senior to its common
stock and junior to its preferred stock, if any, with respect to payments of
dividends and distributions in liquidation.
GM currently has three series of preference stock outstanding:
. Series D 7.92% preference stock;
. Series G 9.12% preference stock; and
. Series H 6.25% automatically convertible preference stock.
The Series D and Series G preference shares are represented by Series D and
Series G depositary shares, respectively, which are listed on the NYSE.
Shares of GM's Series H 6.25% automatically convertible preference stock
were issued to AOL in June 1999 in connection with AOL's $1.5 billion
investment in and its strategic alliance with Hughes. AOL currently holds all
of the outstanding Series H preference shares. The Series H preference shares
will automatically convert into shares of Class H common stock on June 24,
2002, unless previously converted, as described further below
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at "--Conversion." In connection with its issuance of the Series H preference
shares to AOL, Hughes has issued to GM shares of its Series A preferred stock,
which is designed to correspond to the financial terms of the Series H
preference shares. For more information, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Hughes--General."
Dividends
Subject to the rights of the holders of preferred stock, if any were
outstanding, dividends will be paid on the outstanding Series D, Series G and
Series H preference shares when, as and if declared by GM's board out of GM's
assets legally available for the payment of dividends. Dividends may be
subject to restrictions contained in any future debt agreements of General
Motors and to limitations contained in future series or classes of preferred
stock or preference stock.
Holders of preference shares are entitled to dividends as follows:
. holders of Series D preference shares are entitled to receive cumulative
cash dividends, at the annual rate of 7.92% of the per share stated
value, which is equivalent to $7.92 per annum per Series D preference
share;
. holders of Series G preference shares are entitled to receive cumulative
cash dividends, at the annual rate of 9.12% of the per share stated
value, which is equivalent to $9.12 per annum per Series G preference
share; and
. holders of Series H preference shares are entitled to receive cumulative
cash dividends, at an annual rate of 6.25% of the per share stated value,
which is equivalent to $35.1172 per annum per Series H preference share.
Dividends on the Series D, Series G and Series H preference shares are
payable quarterly for each of the quarters ending March, June, September and
December of each year, payable in arrears on the first day that is not a legal
holiday of each succeeding May, August, November and February, respectively.
Each such dividend will be paid to holders of record on each record date,
which is a day not less than 10 nor more than 50 days preceding the payment
date fixed by GM's board. Dividends on the Series D, Series G and Series H
preference shares, whether or not declared, are cumulative from the respective
dates of original issue of the Series D, Series G and Series H preference
shares. The amount of dividends payable for any period shorter than a full
quarterly dividend period will be determined on the basis of a 360-day year
consisting of twelve 30-day months. Accrued but unpaid dividends do not bear
interest.
Preferential dividends accrue whether or not General Motors has earnings,
whether or not there are funds legally available for the payment of such
dividends and whether or not such dividends are declared. Dividends accumulate
to the extent they are not paid on the dividend payment date following the
calendar quarter for which they accrue. Accumulated preferential dividends do
not bear interest. Unless the full preferred dividends accumulated on all
outstanding Series D, Series G and Series H preference shares have been paid,
GM may not:
. pay dividends on any class of its common stock or other stock ranking
junior to the Series D, Series G and Series H preference shares, other
than a dividend payable in shares of any class of common stock; or
. redeem, repurchase or otherwise acquire any shares of its common stock or
other stock ranking junior to the Series D, Series G and Series H
preference shares, other than a redemption or purchase of shares of
common stock made in connection with employee incentive or benefit plans
of General Motors or its subsidiaries.
Dividends will not be declared on any series of preference stock for any
prior dividend payment period unless there shall have been declared on all
outstanding shares of preference stock ranking on a parity with such series,
in respect of all dividend payment periods of such parity stock terminating
with or before such prior dividend payment period, like proportionate
dividends determined ratably in proportion to the respective preferential
dividends accumulated to date on such series and the dividends accumulated on
all such outstanding parity preference stock.
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Conversion
The Series D and Series G preference shares are not convertible into shares
of any other class of capital stock of General Motors.
The Series H preference shares are convertible into shares of Class H
common stock. The Series H preference shares will automatically convert into
shares of Class H common stock on June 24, 2002, the mandatory conversion
date, based on a variable conversion factor linked to the Class H common stock
price at the time of conversion, unless they have been converted earlier.
Depending on the average closing trading price of Class H common stock during
the 20 trading days prior to the mandatory conversion date, the Series H
preference shares would convert into between 21,529,255 and 26,696,330 shares
of Class H common stock on the mandatory conversion date. The Series H
preference shares are also currently convertible at the option of the holder
into 21,529,255 million shares of Class H common stock.
We currently expect that, upon either mandatory or optional conversion of
the Series H preference shares, the Class H dividend base will be adjusted so
that it will be increased by the number of shares of Class H common stock
issued to the holder of the Series H preference shares pursuant to the
conversion. For more information, see "Description of Class H Common Stock--GM
Certificate of Incorporation Provisions Regarding Dividends--Class H Dividend
Base Adjustments." The Series H preference shares and the underlying Class H
common stock are subject to transfer restrictions. See "Shares Eligible for
Future Sale."
Redemption
In March 2000, GM issued notice of the redemption of all of the outstanding
Series D preference shares and the related Series D depositary shares. The
redemption of these shares will occur on May 2, 2000. GM will redeem the
Series D preference shares at a price of $100 per share, plus accrued and
unpaid dividends to and including the redemption date, for a total redemption
price of $100.72 per Series D preference share, with the depositary shares
being redeemed at a price of $25 per depositary share, plus accrued and unpaid
dividends to and including the redemption date, for a total redemption price
of $25.18 per depositary share.
On or after January 1, 2001, General Motors may, at its option, on not less
than 35 nor more than 60 days notice, redeem the Series G preference shares,
as a whole or in part, at any time or from time to time, for cash in an amount
equal to $100 per Series G preference share, as applicable, plus an amount
equal to all dividends accrued and unpaid thereon to the date fixed for
redemption. If less than all of the outstanding shares of the Series G
preference shares are to be redeemed, shares to be redeemed will be selected
by General Motors by lot or pro rata or by any other method determined by
General Motors in its sole discretion to be equitable. Holders of Series G
preference shares have no right to require redemption of such shares.
The Series H preference shares are redeemable by GM or Hughes in certain
limited circumstances generally involving changes in the U.S. law relating to
income taxation. Depending on the circumstances giving rise to the redemption,
the redemption price may be paid in cash, shares of Class H common stock,
shares of Hughes common stock or by exchange of each Series H preference share
for a share of automatically convertible preference stock of Hughes
convertible into Hughes common stock.
Liquidation Preference
In the event of the liquidation, dissolution or winding up of the business
of General Motors, whether voluntary or involuntary, the holders of Series D,
Series G and Series H preference shares would be entitled to the liquidation
preference described below, after the holders of preferred stock, if any were
outstanding, received the full preferential amounts to which they are entitled
and before any distribution to holders of common stock.
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The liquidation preferences of the preference shares are as follows:
. the holders of the Series D and Series G preference shares would be
entitled to receive for each share $100, plus an amount equal to all
dividends accrued and unpaid thereon to the date of final distribution to
such holders; and
. the holders of Series H preference shares would be entitled to receive
for each share $561.875, plus an amount equal to all dividends accrued
and unpaid thereon to the date of final distribution to such holders,
subject to the right of the holders of record of any Series D, Series G or
Series H preference share on a record date for payment of dividends thereon to
receive a dividend payable on the date of final distribution, but such holders
shall not be entitled to any further payment.
If there are insufficient assets to permit full payment to holders of the
Series D, Series G and Series H preference shares and the holders of all other
series of preference stock on parity with the Series D, Series G and Series H
preference shares as to liquidation rights, then the holders of the Series D,
Series G and Series H preference shares and such other shares shall be paid
ratably in proportion to the full distributable amounts to which holders of
all such parity shares are respectively entitled upon such dissolution,
liquidation or winding up.
Voting
The Series D, Series G and Series H preference shares do not entitle
holders thereof to voting rights, except:
. with respect to any amendment or alteration of any provision of the GM
certificate of incorporation which would adversely affect the powers,
preference or special rights of the Series D, Series G or Series H
preference shares, which requires the prior approval of the holders of at
least two-thirds of the outstanding Series D, Series G or Series H
preference shares, as the case may be;
. in the event General Motors fails to pay accumulated preferential
dividends on the Series D, Series G or Series H preference shares in full
for any six quarterly dividend payment periods, whether or not
consecutive, and all such dividends remain unpaid; and
. as required by law.
In the event of a preferential dividend default as described above, the
number of directors of General Motors will be increased by two and the holders
of the outstanding Series D, Series G or Series H preference shares, as the
case may be, voting together as a class with all other series of preference
stock ranking junior to or on a parity with such preference shares and then
entitled to vote on the election of such directors, will be entitled to elect
such two additional directors until the full dividends accumulated on all
outstanding Series D, Series G or Series H preference shares, as the case may
be, have been paid.
GM's Dual-Class Common Stock Capital Structure
GM has two classes of common stock:
. $1 2/3 par value common stock; and
.Class H common stock.
GM's certificate of incorporation restricts the power of the GM board to
declare and pay dividends on either class of common stock. The amounts which
may be declared and paid by the GM board as dividends on common stock are
allocated to each separate class of common stock and are subject to the amount
legally available for the payment of dividends by GM. For dividend purposes,
this allocation serves to preserve for each class of GM common stockholders an
interest in retained earnings that is not shared by the other class. This
restriction does not require a physical segregation of the assets of GM on the
one hand and of Hughes on the other hand. Nor does it require separate
accounts or separate dividend or liquidation preferences of GM and Hughes
assets for
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the benefit of the holders of either of the separate classes of GM common
stock. The holders of Class H common stock, like the holders of $1 2/3 par
value common stock, have liquidation rights in the equity and assets of GM.
For more information about GM's two classes of common stock, see "Description
of Class H Common Stock" and "Comparison of Rights of $1 2/3 Par Value
Stockholders and Class H Stockholders."
The existence of two classes of common stock with separate dividend rights
can give rise to potential divergences among the interests of the holders of
the two classes of GM common stock concerning various intercompany
transactions and other matters. The laws of Delaware govern the duties of the
GM board with respect to these divergences. Under Delaware law, the GM board
owes fiduciary duties to all holders of GM common stock, regardless of class,
and must act with due care and on an informed basis in the best interests of
GM and all its common stockholders, regardless of class. In this regard, the
GM board, in the discharge of its fiduciary duties, principally through its
capital stock committee, oversees the policies, programs and practices of GM
which may impact the potentially divergent interests of the two classes of GM
common stock. The capital stock committee is comprised entirely of independent
directors of GM.
The GM by-laws currently provide that the capital stock committee of the GM
board is responsible for reviewing the policies and practices of GM with
respect to matters in which the two classes of stockholders may have divergent
interests, particularly as they relate to:
. the business and financial relationships between GM and any of its units
and Hughes;
. dividends in respect of, disclosures to stockholders and the public
concerning, and transactions by GM or any of its subsidiaries in, shares
of Class H common stock; and
. any matters arising concerning these items;
all to the extent the capital stock committee may deem appropriate. The
capital stock committee may also recommend changes in policies, programs and
practices as it may deem appropriate.
The capital stock committee's principal role is not to make decisions
concerning matters referred to its attention, but rather to oversee the
process by which decisions concerning these matters are made. The capital
stock committee conducts its oversight with a view toward, among other things,
assuring a process of fair dealing between GM and Hughes as well as fair
consideration of the interests of all of GM's common stockholders in the
resolution of these matters.
GM Board Policy Statement
In connection with its determination of the terms of the Class H common
stock at the time of the Hughes restructuring transactions in December 1997,
the GM board adopted a policy statement concerning GM's dual-class common
stock structure.
This policy statement may be modified or rescinded at any time and from
time to time by the GM board. Also, notwithstanding the policy statement or
the provisions concerning recapitalization of the Class H common stock into $1
2/3 par value common stock at a 120% exchange ratio as provided under certain
circumstances in GM's certificate of incorporation, the GM board may propose
to GM's common stockholders for their approval one or more transactions on
terms different from those provided for by such provisions or by this policy
statement. GM's board has no present intention to modify or rescind this
policy statement or to propose a recapitalization of the Class H common stock.
See "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock
Capital Structure--GM Board Policies and Practices Relating to Class H Common
Stock Can Be Adopted, Changed or Rescinded Without Stockholder Approval."
The policy statement is set forth below in its entirety. Terms which are
defined in the GM board policy statement do not apply to the rest of this
document.
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GM Board Policy Statement Regarding Certain Capital Stock Matters
(A) General Policy. It is the policy of the Board of Directors of General
Motors Corporation (the "GM Board"):
(1) that all material matters as to which the holders of the two classes
of GM common stock may have potentially divergent interests shall be
resolved in a manner which the GM Board determines to be in the best
interests of General Motors Corporation and all of its common stockholders
after giving fair consideration to the potentially divergent interests and
all other relevant interests of the holders of the separate classes of GM
common stock; and
(2) that a process of fair dealing shall govern the relationship between
GM and HEC and the means by which the terms of any material transaction
between them shall be determined.
(B) Additional Matters. In relation to the foregoing policy, it is the
further policy of the GM Board that:
(1) Quarterly Dividends.
(a) In contemplation of the GM Board's duty periodically to consider
an appropriate dividend policy and practice in relation to Class H
Common Stock and its expectation that the Board of Directors of HEC (the
"HEC Board") shall, at least annually, consider and determine a
quarterly dividend policy with respect to the common stock of HEC (100%
of which is held by GM), the GM Board shall, at least annually,
determine a quarterly dividend policy with respect to the Class H Common
Stock.
(b) The quarterly dividend policy of the GM Board with respect to the
Class H Common Stock shall be to declare and pay quarterly dividends on
the Class H Common Stock in an amount equal to the product of (i) the
aggregate amount of each quarterly dividend received by GM as a
stockholder of HEC, if any, multiplied by (ii) the fraction used to
determine the Available Separate Consolidated Net Income of Hughes (as
such term is used in GM's Restated Certificate of Incorporation, as
amended) at the time such dividend was declared by HEC.
(c) GM's payment of a quarterly dividend on the Class H Common Stock
shall be made as soon as practicable after receipt of the corresponding
dividend payment from HEC.
(2) Principles Governing Dividends and Distributions Other Than
Quarterly Dividends.
(a) Except as provided in paragraph (B)(2)(b) below, in the event
that HEC directly or indirectly makes any transfer of material assets to
GM or to GM's stockholders:
(i) Transfers of HEC Assets to GM. If such transfer of assets by
HEC is to GM, the GM Board shall as soon thereafter as practicable
declare and pay a dividend or make other provision with respect to a
distribution on the Class H Common Stock so that there shall be
distributed to the holders of Class H Common Stock a portion of such
assets transferred to GM that is not less than the fraction used to
determine the Available Separate Consolidated Net Income of Hughes
at the time of such transfer to GM; provided that, if the GM Board
determines that it is not reasonably practicable or not in the best
interests of the holders of Class H Common Stock for GM to
distribute any such assets to the holders of Class H Common Stock,
GM shall distribute to such holders cash or other noncash assets
having an equivalent fair value; and
(ii) Transfers of HEC Assets to GM's Stockholders. If such
transfer of assets by HEC is to GM's stockholders, the portion of
such assets transferred to the holders of Class H Common Stock shall
be not less than the fraction used to determine the Available
Separate Consolidated Net Income of Hughes at the time of such
transfer.
(b) Exceptions to Foregoing Principles. The provisions of paragraph
(B)(2)(a) above shall not apply to any of the following asset transfers:
(i) any transfer that results in the recapitalization of Class H
Common Stock into $1 2/3 Par Value Common Stock pursuant to the
provisions of paragraph (c) of Division I of Article Fourth of GM's
Restated Certificate of Incorporation, as amended;
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(ii) any transfer that is made pursuant to the quarterly dividend
policy described in paragraph (B)(1) above;
(iii) any transfer that is made in the ordinary course of HEC's
business;
(iv) any transfer for which HEC shall have received fair
compensation as determined pursuant to this policy as described in
paragraph (A) above, provided that, where required by paragraph
(B)(3) below, stockholder consent to such transfer shall have been
received; and
(v) any transfer which shall have received the consent of the
holders of a majority of the outstanding shares of Class H Common
Stock, voting as a separate class, and $1 2/3 Par Value Common
Stock, voting as a separate class.
(3) Separate Class Votes of GM's Stockholders as a Condition to GM's
Acquisition of a Significant Portion of HEC Assets. GM shall not acquire in
one transaction or a series of related transactions a significant portion
of the business of HEC for compensation without receiving the consent of
the holders of a majority of the outstanding shares of Class H common
stock, voting as a separate class, and $1 2/3 Par Value Common Stock,
voting as a separate class. For purposes of this paragraph, "significant
portion of the business of HEC" shall mean more than 33% of the business of
HEC, based on the fair market value of the assets, both tangible and
intangible, of HEC as of the time that the proposed transaction is approved
by the GM Board.
(4) Basis for Commercial Transactions Between GM and HEC. GM and HEC
shall operate on the principle that all material commercial transactions
between them shall be based on commercially reasonable terms.
(C) Meaning of "GM" and "HEC" Within This Policy. For purposes of this
policy, "GM" shall mean General Motors Corporation and its affiliates (other
than HEC), and "HEC" shall mean Hughes Electronics Corporation, including any
person controlled by Hughes Electronics Corporation.
(D) Role of Capital Stock Committee Relating to This Policy. The Capital
Stock Committee of the GM Board shall oversee the implementation of, and shall
have authority to interpret, this policy.
(E) Delegation. In administering this policy, the GM Board may, at its
option, delegate its authority, including to the Capital Stock Committee, and
may delegate to members of management the authority to implement any matter
pursuant to this policy.
(F) Fiduciary Obligations. In making any and all determinations in
connection with this policy, either directly or by appropriate delegation of
authority, the GM Board shall act in its fiduciary capacity and pursuant to
legal guidance concerning its obligations under applicable law.
(G) GM Board May Make Future Proposals to Stockholders for Recapitalization
Transactions Which Would Be on Terms Different from Those in GM's Current
Restated Certificate of Incorporation, as Amended. Consistent with the terms
of both GM's Restated Certificate of Incorporation, as amended, and Delaware
General Corporation Law, the GM Board may, in the future, propose
recapitalization transactions to GM stockholders on terms different from those
provided for under GM's Restated Certificate of Incorporation, as amended.
(Such alternative proposals were utilized by GM's Board of Directors in
connection with the split-off of Electronic Data Systems Corporation in 1996
and the spin-off of the defense electronics business of HEC in 1997.)
(H) Interpretation, Amendments and Modifications of This Policy. This
policy may at any time and from time to time be modified, rescinded and
interpreted by the GM Board, and the GM Board may adopt additional or other
policies or make exceptions with respect to the application of this policy in
connection with particular facts and circumstances, all as the GM Board may
determine, consistent with its fiduciary duties to General Motors Corporation
and all of its common stockholders, to be in the best interests of General
Motors Corporation and all of its common stockholders, and any such action may
be taken with or without the approval of the stockholders of General Motors
Corporation.
* * * * *
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DESCRIPTION OF CLASS H COMMON STOCK
Introduction to the Class H Common Stock
We describe generally below the material terms of the Class H common stock.
In addition to this description, we urge you to refer to Article Fourth of
GM's Restated Certificate of Incorporation, as amended, which we sometimes
refer to in this document as our "certificate of incorporation," which sets
forth in full the terms of the Class H common stock. For information regarding
how you can find a copy of the full terms of the Class H common stock, see
"Where You Can Find More Information." For more information about our Class H
common stock and how it differs from our $1 2/3 par value common stock, see
"Comparison of Rights of $1 2/3 Par Value Stockholders and Class H
Stockholders."
Class H common stock is a "tracking stock" designed to provide holders with
financial returns based on the financial performance of Hughes. To further
this objective:
. GM's certificate of incorporation allocates earnings of GM attributable
to Hughes between amounts available for the payment of dividends on Class
H common stock and amounts available for the payment of dividends on the
$1 2/3 par value common stock, which also permits a corresponding
calculation of the earnings per share of GM attributable to the Class H
common stock and the $1 2/3 par value common stock; and
. the GM board adopts dividend policies and practices concerning the Class
H common stock consistent with this design objective as more fully
described below and at "Overview of GM Capital Stock."
GM is the issuer of the Class H common stock. The GM board is free at any time
to change its dividend policies and practices concerning the Class H common
stock or the $1 2/3 par value common stock. See "Risk Factors--Risk Factors
Relating to GM's Dual-Class Common Stock Capital Structure--GM Board Policies
and Practices Relating to Class H Common Stock Can Be Adopted, Changed or
Rescinded Without Stockholder Approval."
GM Certificate of Incorporation Provisions Regarding Dividends
Calculation of Amount Available for Dividends on Class H Common Stock
The financial performance of Hughes determines the earnings per share of
Class H common stock and the portion of GM's earnings out of which dividends
on the Class H common stock may be paid. In order to determine what amount is
available to pay dividends on the Class H common stock, the following steps
are taken:
. the net income of Hughes is determined for each quarterly accounting
period;
. the net income of Hughes determined for each quarter is divided into
amounts allocated to the Class H common stock and the $1 2/3 par value
common stock; and
. the amount allocated to the Class H common stock, which we sometimes
refer to in this document as the "available separate consolidated net
income of Hughes," is accumulated from quarter to quarter, together with
any surplus attributable to shares of Class H common stock issued from
time to time, and is reduced by the amount of any dividends actually paid
on the Class H common stock.
GM Board's Discretion Regarding Payment of Dividends on Class H Common Stock
After the amount available to pay dividends on the Class H common stock is
determined as provided above, the GM board may decide to pay or not pay
dividends on the Class H common stock in its sole discretion. This discretion
is subject to the following restrictions:
. The holders of GM preferred stock, if any, and GM preference stock,
including the Series D, Series G and Series H preference shares, may have
a higher priority claim on amounts that would otherwise be available to
pay dividends on the Class H common stock, to the extent that dividends
have been accumulated but not paid on GM's preferred or preference stock.
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. Under Delaware law, GM can only pay dividends to the extent that it has
surplus--the extent to which the fair market value of GM's net assets
exceeds the amount of GM's capital--or the extent of GM's net profits for
the then current and/or the preceding fiscal year.
Due to these restrictions, it is possible that, even though the net income of
Hughes is sufficient to permit the payment of a dividend on the Class H common
stock, payment of a dividend on the Class H common stock would not be
permitted because of the requirements for the payment of dividends on GM
preferred or preference stock or the Delaware law surplus restriction
described above.
Any dividends declared or paid on each class of GM common stock from time
to time will reduce the amount available for future payments of dividends on
that class. The amount available for dividends on each class will also depend
on any adjustments to GM's capital or surplus due to repurchases or issuances
of shares of that class. In addition, as provided by Delaware law, the GM
board may adjust for any reason it deems appropriate the amount of surplus,
and therefore the amount available for dividends on each class. Delaware law
also permits the board of directors to adjust in the exercise of its business
judgment the total amount legally available for the payment of dividends to
reflect a re-valuation of the corporation's assets and liabilities.
Within the constraints mentioned above, the GM board can determine, in its
sole discretion, the timing of declarations and payments, and the amounts, of
dividends on each class of GM common stock. The GM board may, in its sole
discretion, declare dividends payable exclusively to the holders of $1 2/3 par
value common stock, exclusively to the holders of Class H common stock, or to
the holders of both classes in equal or unequal amounts. The GM board may make
its decision notwithstanding the respective amounts of surplus available for
dividends to each class, the voting and liquidation rights of each class, the
amount of prior dividends declared on each class or any other factor. However,
the maximum amount declared as dividends on either class of GM common stock
cannot exceed the amount available for dividends on each class of common stock
under the GM certificate of incorporation. See "--Dividend Policy."
As of December 31, 1999, based on the stockholders' equity of GM reflected
in its consolidated balance sheet and subject to the GM board's authority to
make adjustments, the cumulative amount available for payment of dividends on
GM common stock was about $18.5 billion. Of this total amount, about $13.1
billion was available for dividends on the $1 2/3 par value common stock and
about $5.4 billion was available for dividends on the Class H common stock.
You should note that, since the completion of the Hughes restructuring
transactions in late 1997, although payment of dividends on the Class H common
stock has been permitted, the GM board has not paid cash dividends on Class H
common stock. Further, the GM board does not intend to pay dividends on Class
H common stock in the foreseeable future.
Class H Dividend Base Adjustments
Under the GM certificate of incorporation, the GM board may adjust the
denominator of the Class H fraction that determines the net income of Hughes
attributable to the Class H common stock--that is, the Class H dividend base,
from time to time as the GM board deems appropriate to reflect the following:
. subdivisions and combinations of the Class H common stock and stock
dividends payable in shares of Class H common stock to holders of Class H
common stock;
. the fair market value of contributions of cash or property by GM to
Hughes, or of cash or property of GM to or for the benefit of employees
of Hughes for employee benefit plans or arrangements of GM, Hughes or
other GM subsidiaries;
. the contribution of shares of capital stock of GM to or for the benefit
of employees of Hughes or its subsidiaries for benefit plans or
arrangements of GM, Hughes or other GM subsidiaries;
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. payments made by Hughes to GM of amounts applied to the repurchase by GM
of shares of Class H common stock, so long as the GM board has approved
the repurchase and GM applied the payment to the repurchase; and
. the repurchase by Hughes of shares of Class H common stock that are no
longer outstanding, so long as the GM board approved the repurchase.
Detailed Calculation of Amount Available for Dividends on Class H Common Stock
General
In order to help you to understand GM's Class H common stock, we provide
below a more detailed description of the method used to determine the amount
of Hughes' earnings available for the payment of dividends on the Class H
common stock--that is, the available separate consolidated net income of
Hughes. The "available separate consolidated net income of Hughes" is the net
income of Hughes, its subsidiaries and successors after December 17, 1997 on a
consolidated basis, determined in accordance with generally accepted
accounting principles, without giving effect to any adjustment which would
result from accounting for the 1985 acquisition by GM of Hughes Aircraft
Company, a predecessor of Hughes, using the purchase method of accounting,
calculated for each quarterly accounting period and multiplied by a fraction,
which we sometimes refer to in this document as the "Class H fraction."
The Class H fraction reflects the derivative or "tracking stock" interests
of each of GM's classes of common stock in the earnings of Hughes for dividend
purposes. We determine the Class H fraction in the following manner:
. The numerator of the Class H fraction is the weighted average number of
shares of Class H common stock outstanding during any applicable
accounting period.
. The denominator of the Class H fraction is the weighted average number of
shares of Class H common stock during any applicable accounting period
which, if issued and outstanding, would represent 100% of the tracking
stock interest in the earnings of Hughes. Thus, this "notional" number
represents the full tracking stock interest in Hughes. The denominator is
also referred to in the GM certificate of incorporation as the "Class H
dividend base."
. The Class H dividend base was initially established by the GM board
in connection with the 1985 acquisition of Hughes Aircraft Company
and the initial issuance of Class H common stock. The Class H
dividend base was determined by negotiation between GM and the seller
of Hughes Aircraft Company based on the value of Hughes immediately
after the acquisition and the amount of Class H common stock the
seller was to receive in the transaction.
. The Class H dividend base has since been adjusted by the GM board in
accordance with the GM certificate of incorporation to reflect
various events, including a stock split in 1988, contributions by GM
of Class H common stock to Hughes from time to time for use in
connection with employee benefit plans and Hughes' acquisitions of
PRIMESTAR/Tempo Satellite and U.S. Satellite Broadcasting Company as
described elsewhere in this document.
. The Class H dividend base is subject to future adjustment, as
described below, including upon the conversion of the Series H
preference stock into shares of Class H common stock. See "Overview
of GM Capital Stock--Preference Stock--Conversion." The Class H
dividend base will not be adjusted in connection with either the
exchange offer or the contributions to the employee benefit plans.
See "--Illustrative Calculation of the Class H Fraction Following the
Exchange Offer and the Contributions to the Employee Benefit Plans."
. All determinations of the available separate consolidated net income of
Hughes are in the discretion of the GM board and are final and binding on
all GM stockholders.
The currently outstanding shares of Class H common stock do not represent a
100% tracking stock interest in the earnings of Hughes because GM has not yet
issued the full number of shares of Class H common stock which can be issued
under GM's certificate of incorporation, as determined by the Class H dividend
base.
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For illustrative purposes, we have calculated the Class H fraction based on
the number of shares of Class H common stock outstanding as of December 31,
1999. For this purpose, we have assumed the exercise of all options for Class
H common stock that were outstanding on such date and the conversion, based on
the closing trading price of Class H common stock on such date, of GM's Series
H preference stock into Class H common stock on its mandatory conversion date
in 2002. Based on the fraction as so calculated, about 37% of Hughes' earnings
would have been allocable to the Class H common stock for purposes of
determining earnings per share and amounts available for the payment of
dividends. The remaining portion of Hughes' earnings, about 63%, would have
been allocable to the $1 2/3 par value common stock.
To the extent that GM issues more Class H common stock, including pursuant
to the exchange offer and the contributions, the percentage of the earnings of
Hughes allocated to the Class H common stock would increase and the remaining
tracking stock interest in the earnings of Hughes that would be allocated to
the $1 2/3 par value common stock would proportionately decrease. This
percentage will also be affected by any related adjustments to the Class H
dividend base. At such time, if any, as GM has issued a number of shares of
Class H common stock which causes the fraction to be equal to one, the holders
of Class H common stock would have a 100% tracking stock interest in the
earnings of Hughes and the holders of $1 2/3 par value common stock would have
no tracking stock interest in Hughes' earnings.
You may calculate the approximate earnings per share attributable to Class
H common stock by dividing the quarterly earnings allocated to Class H common
stock--that is, the available separate consolidated net income of Hughes, by
the weighted average number of these shares outstanding during the quarter.
The weighted average number of shares of Class H common stock outstanding is
also the numerator of the fraction used to determine the available separate
consolidated net income of Hughes. You may also calculate about the same
amount by dividing the quarterly earnings--that is, net income, of Hughes used
in computing the available separate consolidated net income of Hughes, by the
Class H dividend base.
Illustrative Calculation of Class H Fraction Following the Exchange Offer and
the Contributions to the Employee Benefit Plans
For illustrative purposes, based on the number of shares of Class H common
stock outstanding as of December 31, 1999, the portion of Hughes' earnings
allocable to the Class H common stock would have been about 37%, calculated as
follows:
Number of shares of
Class H common stock outstanding 174,546,279
-------------------------------- ------------- = 37%
Class H dividend base 468,312,855
For this purpose, we have assumed the exercise of all options for Class H
common stock that were outstanding on such date and the conversion, based on
the closing trading price of Class H common stock on such date, of GM's Series
H preference stock into Class H common stock on its mandatory conversion date
in 2002.
This exchange offer and the anticipated contributions to the employee
benefit plans each will affect the Class H fraction, as described below:
. The exchange offer will affect the Class H fraction as follows: the
numerator will be increased by about , the number of shares
issued in the exchange offer, assuming that the exchange offer is fully
subscribed.
. The contributions to the employee benefit plans will affect the fraction
as follows: the numerator will be increased by , the number of
shares to be contributed to the employee benefit plans as determined
based on the closing trading price of Class H common stock on ,
2000, assuming that GM completes the contributions as anticipated.
However, in both cases, the Class H dividend base will remain the same number.
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Exchange Offer. Assuming that the exchange offer is fully subscribed, the
Class H fraction calculated as of December 31, 1999 as described above would
change as illustrated below:
Number of shares of
Class H common stock outstanding 174,546,279 + = %
-------------------------------- -----------------------
Class H dividend base 468,312,855
Thus, based on these assumptions and other assumptions described in this
document, after this exchange offer, about % of Hughes' earnings would be
allocated to the Class H common stock for earnings per share and dividend
purposes. The balance, about %, would be allocated to the $1 2/3 par value
common stock.
Exchange Offer and the Contributions to the Employee Benefit Plans.
Assuming that the exchange offer is fully subscribed and that GM completes the
contributions to the employee benefit plans as anticipated, based on an
estimate of the number of shares that would be contributed as determined by
the closing trading price of Class H common stock on , 2000, the
Class H fraction calculated as of December 31, 1999 as described above would
change as illustrated below:
Number of shares of
Class H common stock outstanding 174,546,279 + + = %
-------------------------------- -----------------------------
Class H dividend base 468,312,855
Thus, based on these and other assumptions described in this document,
after this exchange offer and the anticipated contributions to the employee
benefit plans by GM, about % of Hughes' earnings would be allocated to the
Class H common stock for earnings per share and dividend purposes. The
balance, about %, would be allocated to the $1 2/3 par value common stock.
These percentages are provided for illustrative purposes only. The actual
percentages will not be known until the actual number of shares of Class H
common stock issued in the exchange offer and the contributions have been
determined. You should note that to the extent that the exchange offer is not
fully subscribed or the contributions are not made as anticipated, the Class H
fraction and other calculations described in this section will change.
Dividend Policy
GM's board of directors has adopted a policy statement which, among other
things, provides that the GM board's quarterly dividend policy regarding the
Class H common stock is to declare and pay quarterly dividends on the Class H
common stock in an amount that will equal the product of the aggregate amount
of each quarterly dividend GM receives as a stockholder of Hughes, if any,
multiplied by the fraction used to determine the available separate
consolidated net income of Hughes at the time the dividend is declared by
Hughes. The policy statement expressly provides that GM will pay the quarterly
dividend on the Class H common stock as soon as practicable after receipt of
the corresponding dividend payment from Hughes. For the text of the GM board
policy statement, see "Overview of GM Capital Stock--GM Board Policy
Statement."
Delaware law and the GM certificate of incorporation do not require the GM
board to declare dividends on any class of GM common stock. The declaration of
any dividend on either class is a matter to be acted upon by the GM board upon
the recommendation of GM management. If and to the extent the GM board chooses
to declare dividends on either or both of the classes of GM common stock,
neither Delaware law nor the GM certificate of incorporation requires any
proportionate or other fixed relationship between the amount of the dividends
declared on the different classes of common stock. The GM board reserves the
right to reconsider from time to time its policies and practices regarding
dividends on GM common stock and to increase or decrease the dividends paid on
GM common stock. The GM board may reconsider such matters on the basis of GM's
consolidated financial position, which includes liquidity and other factors,
and, with regard to Class H common stock, the earnings and consolidated
financial position of Hughes. You may find information regarding GM and
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its consolidated financial performance, including management's discussion and
analysis of financial condition and results of operations, in the documents
incorporated into this document by reference.
Since the completion of the Hughes restructuring transactions in late 1997,
GM has not paid dividends on the Class H common stock. Further, the GM board
does not currently expect to pay dividends on the Class H common stock in the
foreseeable future. Similarly, since that time, Hughes has not paid dividends
to GM and does not intend to do so in the foreseeable future. We currently
expect that the future earnings of Hughes will be retained for the development
of the business of Hughes.
Voting Rights
GM's certificate of incorporation entitles holders of Class H common stock
and $1 2/3 par value common stock to a fixed number of votes per share on all
matters submitted to GM's common stockholders for a vote. Except as described
below, holders of Class H common stock vote together as a single class with
the holders of $1 2/3 par value common stock based on their respective voting
rights described in the GM certificate of incorporation. The GM certificate of
incorporation entitles each share of Class H common stock to 0.60 vote per
share and each share of $1 2/3 par value common stock to one vote per share.
The number of votes for each share of Class H common stock and $1 2/3 par
value common stock is subject to adjustment as described below at "--
Subdivision or Combination."
Class H common stock votes separately as a class only on any amendment to
the GM certificate of incorporation which adversely affects the rights, powers
or privileges of the Class H common stock or increases in the number of
authorized shares of Class H common stock. Neither holders of Class H common
stock nor holders of $1 2/3 par value common stock vote, either as a separate
class or together, on any adjustment of the Class H dividend base or any other
determination made in the calculation of the available separate consolidated
net income of Hughes.
Liquidation Rights
In the event of the liquidation, dissolution or winding up of the business
of GM, whether voluntary or involuntary, GM's certificate of incorporation
provides that, after the holders of GM preferred stock and GM preference stock
receive their full preferential amounts, holders of Class H common stock and
holders of $1 2/3 par value common stock will receive the assets remaining for
distribution to GM's stockholders on a per share basis in proportion to their
respective per share liquidation units. Subject to adjustment as described
below at "--Subdivision or Combination," each share of Class H common stock
has liquidation units equal to its number of votes, that is, 0.60 liquidation
unit, as described above at "--Voting Rights." Similarly, each share of $1 2/3
par value common stock has one liquidation unit. Holders of the Class H common
stock have no direct rights in the equity or assets of Hughes, but rather have
rights in the equity and assets of GM, which include 100% of the stock of
Hughes.
Subdivision or Combination
If General Motors subdivides or combines the outstanding shares of the $1
2/3 par value common stock or the Class H common stock, GM will appropriately
adjust the voting and liquidation rights of shares of Class H common stock
relative to $1 2/3 par value common stock. In the event that GM issues shares
of Class H common stock as a dividend on shares of $1 2/3 par value common
stock, GM will adjust the liquidation rights of the applicable class of common
stock so that the relative aggregate liquidation rights of each stockholder
would not change as a result of the dividend.
Recapitalization and Certain Other Transactions
Under GM's certificate of incorporation, the GM board may recapitalize all
outstanding shares of Class H common stock as shares of $1 2/3 par value
common stock at any time after December 31, 2002 in the sole discretion of the
GM board or automatically, if at any time GM, in one transaction or a series
of related
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transactions, disposes of substantially all of the business of Hughes to a
person, entity or group of which GM is not a majority owner. For purposes of
the recapitalization provisions of GM's certificate of incorporation,
substantially all of the business of Hughes means at least 80% of the business
of Hughes, based on the fair market value of the assets, both tangible and
intangible, of Hughes as of the time of the proposed transaction. No automatic
recapitalization will occur on a disposition in connection with the
dissolution, liquidation and winding up of GM and the distribution of the net
assets of GM to GM's common stockholders.
In the event of any recapitalization, each holder of Class H common stock
would be entitled to receive shares of $1 2/3 par value common stock having a
market value as of the date provided in GM's certificate of incorporation
equal to 120% of the market value of the holder's Class H common stock.
Notwithstanding this provision of GM's certificate of incorporation or the
policy statement adopted by GM's board, the GM board may propose to GM's
common stockholders for their approval one or more transactions on terms
different than those provided by this provision or by the GM board policy
statement. See "Risk Factors--Risk Factors Relating to GM's Dual-Class Common
Stock Capital Structure--GM Board Policies and Practices Relating to Class H
Common Stock Can Be Adopted, Changed or Rescinded Without Stockholder
Approval" and "Overview of GM Capital Stock--GM Board Policy Statement."
GM would not issue any fractional shares of $1 2/3 par value common stock
in the recapitalization. Instead of fractional shares, a holder of Class H
common stock would receive cash equal to the product of the fraction of a
share of $1 2/3 par value common stock which the holder would otherwise
receive multiplied by the average market price per share of the $1 2/3 par
value common stock on the valuation date, determined as provided in GM's
certificate of incorporation.
The GM board policy statement provides, among other things, that, subject
to various exceptions, in the event that Hughes transfers any material assets
to GM, the GM board shall declare and pay a dividend or make a distribution to
holders of Class H common stock. In this event, these holders would receive a
portion of the assets or cash or other assets having an equivalent fair value
that is not less at the time of the transfer than the fraction used to
determine the available separate consolidated net income of Hughes. The policy
statement also provides that, subject to various exceptions, in the event that
Hughes transfers any material assets to GM's stockholders, the portion of the
assets transferred to the holders of Class H common stock will not be less at
the time of the transfer than the fraction used to determine the available
separate consolidated net income of Hughes.
The exceptions to the provisions above include an exception for any
transfer for which Hughes receives fair compensation. However, the policy
statement provides that GM will not acquire in one transaction or a series of
transactions a significant portion--that is, more than 33%, of the business of
Hughes for compensation without receiving the consent of the holders of a
majority of the outstanding shares of Class H common stock, voting as a
separate class, and $1 2/3 par value common stock, voting as a separate class.
See "Overview of GM Capital Stock--GM Board Policy Statement."
Stock Exchange Listing
Class H common stock is listed on the NYSE under the symbol "GMH."
Application has been made to list on the NYSE the shares of Class H common
stock offered pursuant to the exchange offer and such application has been
granted subject to notice of issuance.
Transfer Agent and Registrar
Fleet National Bank currently serves as the transfer agent and registrar
for the Class H common stock.
Direct Registration System
Class H common stock is registered in book-entry form through the direct
registration system. Under this system, unless a Class H stockholder requests
a stock certificate, ownership of Class H common stock is reflected in account
statements periodically distributed to Class H stockholders by Fleet, GM's
transfer agent and registrar, who holds the book-entry shares on behalf of
Class H stockholders.
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COMPARISON OF RIGHTS OF
$1 2/3 PAR VALUE STOCKHOLDERS AND CLASS H STOCKHOLDERS
If you exchange your shares of $1 2/3 par value common stock for shares of
Class H common stock, you will remain a common stockholder of General Motors,
but you will have different rights as a result of GM's dual-class common stock
structure. For more information about our dual-class common stock structure
and how it has the potential to affect each class of GM common stockholders
differently, see "Overview of GM Capital Stock--GM's Dual-Class Common Stock
Structure." The rights of holders of $1 2/3 par value common stock and holders
of Class H common stock are defined and governed by the GM certificate of
incorporation, the GM by-laws and the Delaware General Corporation Law, which
we sometimes refer to in this document as the "DGCL".
We summarize below the material differences between the rights of holders
of $1 2/3 par value common stock and holders of Class H common stock. We do
not intend for this summary to be a complete statement of the rights of
holders of shares of Class H common stock or a comprehensive comparison with
the rights of the holders of shares of $1 2/3 par value common stock, or a
complete description of the specific provisions referred to in this summary.
We do not intend that this identification of specific differences is to
indicate that other equally or more significant differences do not exist. This
summary is qualified in its entirety by reference to the DGCL, the GM
certificate of incorporation and GM by-laws, to which holders of shares of $1
2/3 par value common stock are referred. Copies of the governing corporate
instruments of GM have been filed with the SEC. For information about how to
obtain copies, see "Where You Can Find More Information."
Common Stock Dividends
Under the GM certificate of incorporation, dividends may be paid on $1 2/3
par value common stock to the extent of the assets of GM legally available for
the payment of dividends reduced by the sum of:
. an amount determined by the GM board to be the paid-in surplus
attributable to Class H common stock; plus
. the portion of the net earnings of GM attributed to the Class H common
stock in accordance with the GM certificate of incorporation.
Because Class H common stock is a "tracking stock" designed to provide
holders with financial returns based on the financial performance of Hughes,
the GM certificate of incorporation allocates earnings of GM attributable to
Hughes between amounts available for the payment of dividends on Class H
common stock and amounts available for the payment of dividends on $1 2/3 par
value common stock, in each case in accordance with their respective
derivative interests in the financial performance of Hughes. For a description
of the available dividend pool for Class H common stock, see "Description of
Class H Common Stock--GM Certificate of Incorporation Provisions Regarding
Dividends." For illustrative purposes, we have calculated the Class H fraction
based on the number of shares of Class H common stock outstanding as of
December 31, 1999. For this purpose, we have assumed the exercise of all
options on Class H common stock that were outstanding on such date and the
conversion, based on the closing trading price of Class H common stock on such
date, of GM's Series H preference stock into Class H common stock on its
mandatory conversion date in 2002. Based on the fraction as so calculated,
about 37% of Hughes' earnings would have been allocable to the Class H common
stock for purposes of determining earnings per share and amounts available for
the payment of dividends. The remaining portion of Hughes' earnings, about
63%, would have been allocable to the $1 2/3 par value common stock.
If dividends have been declared but not paid on shares of GM preferred
stock or GM preference stock, dividends may not be paid on the Class H common
stock or the $1 2/3 par value common stock until all declared but unpaid
dividends on the GM preferred and preference stock have been paid. The DGCL
and the GM certificate of incorporation do not require the GM board to declare
dividends on either class of GM common stock. See "Description of Class H
Common Stock--Dividend Policy" for a further explanation of the dividend
policies of the GM board.
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Unlike the $1 2/3 par value common stock, cash dividends are not currently
paid on the Class H common stock. Since the completion of the Hughes
restructuring transactions in late 1997, the GM board has not paid, cash
dividends on the Class H common stock. Further, the GM board does not
currently intend to pay dividends on the Class H common stock in the
foreseeable future. For more information, see "Risk Factors--Risk Factors
Relating to GM's Dual-Class Common Stock Capital Structure--We Cannot Assure
You That Cash Dividends Will Ever Be Paid on the Class H Common Stock."
Voting Rights
Each holder of $1 2/3 par value common stock is entitled to one vote per
share. Each holder of Class H common stock is entitled to 0.60 vote per share.
The holders of $1 2/3 par value common stock vote together with the holders
of Class H common stock, based on their respective voting powers, on all
matters, except that:
. holders of $1 2/3 par value common stock voting separately as a class are
entitled to approve by majority vote of the shares outstanding any
amendment to the GM certificate of incorporation which adversely affects
the rights, powers or privileges of the $1 2/3 par value common stock;
. holders of Class H common stock voting separately as a class are entitled
to approve by majority vote of the shares outstanding any amendment to
the GM certificate of incorporation which adversely affects the rights,
powers or privileges of the Class H common stock; and
. any increase in the number of authorized shares of Class H common stock
must be approved by a majority vote of the holders of both classes of
GM's common stock outstanding voting together, based on their respective
voting powers, and by a majority vote of the holders of Class H common
stock outstanding voting separately as a class.
Liquidation
Holders of $1 2/3 par value common stock and Class H common stock have
liquidation rights in the assets and equity of GM. Upon a dissolution of GM,
holders of GM preferred stock and GM preference stock have the right to
receive all amounts paid to them before holders of $1 2/3 par value common
stock and Class H common stock are entitled to receive anything. Thereafter,
holders of $1 2/3 par value common stock have a liquidation right of one unit
per share and holders of Class H common stock have a liquidation right of 0.60
unit per share in any remaining assets of GM.
Amendments to the GM Certificate of Incorporation
Under the DGCL, the affirmative vote of a majority of the outstanding
shares entitled to vote is required to amend a corporation's certificate of
incorporation. Under the DGCL, the holders of the outstanding shares of a
class shall be entitled to vote as a class upon a proposed amendment, whether
or not entitled to vote thereon by the certificate of incorporation, if the
amendment would:
. increase or decrease the aggregate number of authorized shares of such
class;
. increase or decrease the par value of the shares of such class; or
. alter or change the powers, preferences, or special rights of the shares
of such class so as to affect them adversely.
If any proposed amendment would alter or change the powers, preferences, or
special rights of one or more series of any class so as to affect them
adversely, but shall not so affect the entire class, then only the shares of
the series so affected by the amendment shall be considered a separate class
for the purposes of the provision. As described above at "--Voting Rights,"
the GM certificate of incorporation expressly provides that $1 2/3 par value
stockholders and Class H stockholders each are entitled to vote separately as
a class with respect to certain amendments to the GM certificate of
incorporation.
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Under the GM certificate of incorporation, GM reserves the right to amend,
alter, change or repeal any provision of its certificate of incorporation in
the manner prescribed by statute, and all rights conferred on stockholders in
its certificate of incorporation are granted subject to this reservation.
Subject to differences in their respective voting rights as described above at
"--Voting Rights," the rights of $1 2/3 par value stockholders and Class H
stockholders are equivalent in this regard.
Amendments to the GM By-Laws
Under the DGCL, a corporation's by-laws may be amended by the action of the
stockholders and, if the certificate of incorporation provides, the directors
may amend the by-laws as well.
GM's by-laws provide that GM's board of directors has the power to adopt,
amend or repeal the by-laws at any regular or special meeting of the
directors. The stockholders also have the power to adopt, amend or repeal the
by-laws at any annual or special meeting if they comply with the notice
provisions contained in the by-laws for stockholder business. Subject to
differences in their respective voting rights as described above at "--Voting
Rights," the rights of $1 2/3 par value stockholders and Class H stockholders
are equivalent in this regard.
Number of Directors
The DGCL provides that a corporation's board of directors shall consist of
at least one member and that the authorized number of directors may be fixed
in the corporation's certificate of incorporation or by-laws.
GM's by-laws provide that the number of directors shall be determined by
resolution of the board of directors. The total number of directors shall not
be less than twelve or more than twenty. There are currently sixteen members
of the GM board of directors. The rights of $1 2/3 par value stockholders and
Class H stockholders are equivalent in this regard.
Classified Board of Directors
Under the DGCL, the board of directors may be divided into one, two or
three classes if the certificate of incorporation, initial bylaw or bylaw
adopted by the vote of the stockholders so allows.
The GM board is unclassified. The rights of $1 2/3 par value stockholders
and Class H stockholders are equivalent in this regard.
Removal of Directors
Under the DGCL, the affirmative vote of a majority of the shares entitled
to vote for the election of directors is required to remove directors, with or
without cause. Furthermore, in the case of a classified board of directors,
stockholders may effect such removal only for cause, unless the certificate of
incorporation provides otherwise.
Subject to differences in their respective voting rights as described above
at "--Voting Rights," the rights of $1 2/3 par value stockholders and Class H
stockholders are equivalent in this regard.
Vacancies in the Board of Directors
The DGCL generally provides that all vacancies on the board of directors,
including vacancies caused by an increase in the number of authorized
directors, may be filled by a majority of the remaining directors even if they
constitute less than a quorum, unless otherwise provided in the certificate of
incorporation or by-laws.
GM's by-laws provide that 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. Subject to
differences in their respective voting rights as described above at "--Voting
Rights," the rights of $1 2/3 par value stockholders and Class H stockholders
are equivalent in this regard.
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Special Meetings of Stockholders
Under the DGCL, a special meeting of the stockholders may be called by the
board of directors or such other person as may be authorized in the
certificate of incorporation or by-laws.
Under GM's by-laws, special meetings of stockholders may be called by the
board of directors or the chairman of the board of directors at such place,
date and time and for such purpose or purposes as shall be set forth in the
notice of such meeting. The rights of $1 2/3 par value stockholders and Class
H stockholders are equivalent in this regard.
Requirements for Notice of Stockholder Director Nominations and Stockholder
Business
If a GM common stockholder wishes to bring any business before an annual or
special meeting or nominate a person for election to the board of directors,
the GM by-laws contain certain procedures that must be followed in terms of
the advance timing required for delivery of stockholder notice of such
business and the information that such notice must contain. The information
required in a stockholder notice includes general information regarding the
stockholder, a description of the proposed business, and with respect to
nominations for the board of directors, certain specified information
regarding the nominee(s).
In addition to the information required in a stockholder notice described
above, the GM by-laws require a representation that the stockholder is a
holder of GM's voting stock and intends to appear in person or by proxy at the
meeting to make the nomination or bring up the matter specified in the notice.
In terms of the timing of the stockholder notice, the GM by-laws require that
the notice must be received by the secretary of GM:
. in the case of an annual meeting, not more than 180 days and not less
than 120 days in advance of the annual meeting; and
. in the case of a special meeting, not later than fifteenth day following
the day on which notice of the meeting is first mailed to stockholders.
The rights of $1 2/3 par value stockholders and Class H stockholders are
equivalent in this regard.
Cumulative Voting in Certain Circumstances
Under the DGCL, cumulative voting of stock applies only when the
certificate of incorporation provides for cumulative voting.
The GM certificate of incorporation does not provide for cumulative voting.
The rights of $1 2/3 par value stockholders and Class H stockholders are
equivalent in this regard.
Indemnification and Limitation of Liability
Under Section 145 of the DGCL, GM is empowered to indemnify its directors
and officers in the circumstances provided under Section 145.
As authorized by Section 102(b)(7) of the DGCL, GM's certificate of
incorporation provides that a director of each company will not be personally
liable to the company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability imposed by law, as in
effect from time to time:
. for any breach of the director's duty of loyalty to the company or its
stockholders;
. for any act or omission not in good faith or which involved intentional
misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL; or
. for any transaction from which the director derived an improper personal
benefit.
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Under Article V of its by-laws, GM, subject to certain limitations, shall
indemnify and advance expenses to every director and officer in the manner and
to the full extent permitted by applicable law against any and all amounts
reasonably incurred by or on behalf of such person in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, in which such director or officer
was or is made or is threatened to be made a party or is otherwise involved by
reason of the fact that such person is or was a director or officer of the
company, or is or was serving at the request of the company as a director,
officer, employee, fiduciary or member of any other corporation, partnership,
joint venture, trust, organization or other enterprise.
GM is insured against liabilities which it may incur by reason of Article V
of its by-laws. In addition, directors and officers are insured, at GM's
expense, against some liabilities which might arise out of their employment
and not be subject to indemnification under Article V of GM's by-laws.
The rights of $1 2/3 par value stockholders and Class H stockholders are
equivalent in this regard.
Business Combinations
Generally, Section 203 of the DGCL prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the time such stockholder
became an interested stockholder unless certain conditions are satisfied. GM
is subject to Section 203 of the DGCL. Subject to differences in their
respective voting rights as described above at "--Voting Rights," the rights
of $1 2/3 par value stockholders and Class H stockholders are equivalent in
this regard.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
All $1 2/3 par value stockholders should consult their own tax advisors
concerning the tax consequences of the exchange offer in light of their
particular circumstances in the countries in which they are subject to
taxation. This summary is of a general nature only and is not intended to be,
nor should it be construed to be, legal or tax advice to any particular
investor.
We summarize below the material U.S. federal income tax consequences
relating to the exchange offer. The summary is based on the Code, the Treasury
regulations promulgated thereunder and interpretations of the Code and
Treasury regulations by the courts and the IRS, all as they exist as of the
date of this document and all of which are subject to change at any time,
possibly with retroactive effect. Any such change could alter the tax
consequences to GM or the $1 2/3 par value stockholders as described below.
See "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock
Capital Structure--Proposed Changes in the Tax Law Could Affect GM's Future
Ability to Issue Shares of Class H Common Stock."
This summary does not discuss all tax considerations that may be relevant
to $1 2/3 par value stockholders in light of their particular circumstances,
nor does it address the consequences to $1 2/3 par value stockholders subject
to special treatment under the U.S. federal income tax laws, such as tax-
exempt entities, non-resident alien individuals, foreign entities, foreign
trusts and estates and beneficiaries thereof, persons who acquire such $1 2/3
par value common stock pursuant to the exercise of employee stock options or
otherwise as compensation, insurance companies, and dealers in securities. In
addition, this summary does not address the U.S. federal income tax
consequences to $1 2/3 par value stockholders who do not hold their $1 2/3 par
value common stock as a capital asset. This summary does not address any
state, local or foreign tax consequences.
Tax Opinions and U.S. Federal Income Tax Consequences
We have conditioned our obligation to complete the exchange offer on our
receipt of an opinion of GM's outside tax counsel, Kirkland & Ellis, to the
effect that, for U.S. federal income tax purposes, the exchange of Class H
common stock for $1 2/3 par value common stock pursuant to the exchange offer
will not result in the recognition of gain or loss either by $1 2/3 par value
stockholders who participate in the exchange, except in connection with cash
received instead of fractional shares, or by GM. The exchange will have these
U.S. federal income tax consequences to $1 2/3 par value stockholders and GM
only if Class H common stock is treated as stock of GM for U.S. federal income
tax purposes. GM currently anticipates that it will also receive an opinion
from Kirkland & Ellis to this effect, the receipt of which is also a condition
to GM's obligation to complete the exchange offer. GM will not be able to rely
on the tax opinions if any factual representations made to counsel are
incorrect or untrue in any material respect or any undertakings made to
counsel are not complied with. Neither GM nor Hughes is aware of any facts or
circumstances that would cause any such representations to be incorrect or
untrue in any material respect or any such undertakings not to be complied
with. An opinion of counsel is not binding on the IRS or the courts. If the
exchange of Class H common stock for $1 2/3 par value common stock were held
to be taxable, both GM and the $1 2/3 par value stockholders exchanging $1 2/3
par value common stock in the exchange offer potentially would incur material
tax liabilities.
Based on the foregoing opinions of counsel, subject to the discussion below
relating to the receipt of cash instead of fractional shares, for U.S. federal
income tax purposes:
. no gain or loss will be recognized by, and no amount will be included in
the income of, $1 2/3 par value stockholders upon their receipt of shares
of Class H common stock in the exchange offer;
. for those $1 2/3 par value stockholders that surrender all of their
shares of $1 2/3 par value common stock in the exchange offer, the
aggregate tax basis of the shares of Class H common stock received by the
$1 2/3 par value stockholders pursuant to the exchange offer will be the
same as the aggregate tax basis of the shares of $1 2/3 par value common
stock exchanged in the exchange offer;
. for those $1 2/3 par value stockholders that surrender some, but not all,
of their $1 2/3 par value common stock in the exchange offer, the
aggregate tax basis of the shares of $1 2/3 par value common stock
retained
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by such stockholders in the exchange offer will remain unchanged, and the
aggregate tax basis of the shares of Class H common stock received by such
stockholders in the exchange offer will be the same as the aggregate tax
basis of the shares of $1 2/3 par value common stock exchanged in the
exchange offer.
. the holding period of the shares of Class H common stock received by the
GM stockholders in the exchange offer will include the holding period of
the shares of $1 2/3 par value common stock with respect to which the
shares of Class H common stock were received; and
. no gain or loss will be recognized by, and no amount will be included in
the income of, GM upon issuance of the shares of Class H common stock in
exchange for shares of $1 2/3 par value common stock in the exchange
offer.
The opinions will not specifically address tax basis issues with respect to
holders of $1 2/3 par value common stock who have blocks of $1 2/3 par value
common stock with different per share tax bases. Such holders are urged to
consult their tax advisors regarding the possible tax basis consequences to
them of the exchange offer.
Receipt of Cash Instead of Fractional Shares
Fractional shares of Class H common stock will not be distributed to $1 2/3
par value stockholders who participate in the exchange offer. All fractional
shares of Class H common stock resulting from the exchange offer will be
aggregated and sold by the exchange agent and the proceeds will be distributed
to the owners of such fractional shares. See "The Exchange Offer--No
Fractional Shares."
Cash received by a participating $1 2/3 par value stockholder instead of a
fractional share interest will be treated as having been received in exchange
for such fractional share interest, and gain or loss will generally be
recognized for U.S. federal income tax purposes. This gain or loss will be
measured by the difference between the amount of cash received and the portion
of such $1 2/3 par value stockholder's tax basis allocable to such fractional
share interest. Such gain or loss will be treated as capital gain or loss. For
taxpayers who are individuals, if their fractional share interest has a
holding period for U.S. federal income tax purposes of more than one year, any
gain will generally be subject to a stated maximum rate of 20%. In general, a
person's holding period for a fractional share interest will include the
period during which such person held the $1 2/3 par value common stock with
respect to which such fractional share interest was received.
Under the Code, as a holder of fractional share interests in Class H common
stock you may be subject, under certain circumstances, to backup withholding
at a 31% rate with respect to your fractional share interests unless you
provide proof of an applicable exemption or a correct taxpayer identification
number, and otherwise comply with applicable requirements of the backup
withholding rules. The letter of transmittal provides instructions on how to
provide us with information to prevent backup withholding. Any amounts
withheld under the backup withholding rules are not an additional tax and may
be refunded or credited against your U.S. federal income tax liability,
provided you furnish the required information to the IRS.
U.S. Federal Income Tax Consequences for Non-U.S. Persons
Any capital gain realized by a non-U.S. person on the sale of the
fractional shares of Class H common stock will be exempt from U.S. federal
income and withholding tax, provided that:
. the gain is not effectively connected with the conduct of a trade or
business in the United States by the non-U.S. person; and
. in the case of an individual, the non-U.S. person is not present in the
United States for 183 days or more in the taxable year.
U.S. information reporting requirements and backup withholding tax generally
will not apply to a payment of cash instead of a fractional share interest
effected outside the United States by a foreign office of a foreign broker.
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LEGAL MATTERS
Warren G. Andersen, Attorney, Legal Staff of General Motors Corporation,
will pass upon the validity of Class H common stock being offered pursuant to
the exchange offer. Mr. Andersen beneficially owns shares of each class of GM
common stock, including shares subject to options.
Certain legal matters with respect to the transaction will be passed upon
for GM by Kirkland & Ellis. Davis Polk & Wardwell will represent the dealer
manager. Cleary, Gottlieb, Steen & Hamilton will represent the marketing
manager for Hughes. Kirkland & Ellis has in the past represented GM and Hughes
and continues to represent GM and Hughes in connection with various matters.
Davis Polk & Wardwell acts as counsel to the Executive Compensation Committee
of the GM board of directors and has acted as counsel for GM and its
subsidiaries in various matters.
EXPERTS
The consolidated financial statements and the related financial statement
schedule of General Motors Corporation as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999, included in
the Annual Report on Form 10-K of General Motors Corporation for the year
ended December 31, 1999 and incorporated by reference in this document, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements and the related financial statement schedule of
Hughes Electronics Corporation as of December 31, 1999 and 1998 and for each
of the three years in the period ended December 31, 1999, included elsewhere
in and incorporated by reference into this document, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports which
are included and incorporated by reference herein, and have been so included
and incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of U.S. Satellite Broadcasting
Company as of December 31, 1998 and 1997, and for each of the three years in
the period ended December 31, 1998, included in the Registration Statement on
Form 10 of Hughes Electronics Corporation dated and filed with the Securities
and Exchange Commission on August 13, 1999 and incorporated by reference
herein have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance on the authority of Arthur
Andersen LLP as experts in giving their report.
The consolidated financial statements and schedules of PRIMESTAR, Inc. and
subsidiaries as of December 31, 1998 and December 31, 1997, and for each of
the years in the three-year period ended December 31, 1998, included in the
Registration Statement on Form 10 of Hughes Electronics Corporation dated and
filed with the Securities and Exchange Commission on August 13, 1999, have
been incorporated by reference in this document in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements and schedule of TCI Satellite and
subsidiaries as of December 31, 1998 and December 31, 1997, and for each of
the years in the three-year period ended December 31, 1998, included in the
Registration Statement on Form 10 of Hughes Electronics Corporation dated and
filed with the Securities and Exchange Commission on August 13, 1999, have
been incorporated by reference in this document in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements which may constitute
"forward-looking statements" within the meaning of various provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934. All
statements, other than statements of historical facts, included in this
document that address activities, events or developments that we expect or
anticipate will or may occur in the future, references to future success and
other matters are forward-looking statements including statements preceded by,
followed by or that include the words "believes," "expects," "intends" or
"anticipates," or similar expressions, including, but not limited to, the
subscriber projections discussed at "Business of Hughes" and other forward-
looking information at "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Hughes."
These statements are based on certain assumptions and analyses made in
light of our experience and perception of historical trends, current
conditions and expected future developments as well as other factors we
believe are appropriate in the circumstances. However, whether actual future
results and developments will conform with our expectations and predictions is
subject to a number of risks and uncertainties, including the risks and
uncertainties discussed in this document under the caption "Risk Factors" and
elsewhere; and other factors such as the following, many of which are beyond
our and our subsidiaries' control:
. Changes in economic conditions, currency exchange rates or political
stability in the major markets where GM procures material, components and
supplies for the production of its principal products or where its
products are produced, distributed or sold (i.e., North America, Europe,
Latin America and Asia-Pacific).
. Shortages of fuel or interruptions in transportation systems, labor
strikes, work stoppages or other interruptions to or difficulties in the
employment of labor in the major markets where GM purchases material,
components and supplies for the production of its products or where its
products are produced, distributed or sold.
. Significant changes in the competitive environment in the major markets
where GM purchases material, components and supplies for the production
of its products or where its products are produced, distributed or sold.
. Changes in the laws, regulations, policies or other activities of
governments, agencies and similar organizations where such actions may
affect the production, licensing, distribution or sale of GM's products,
the cost thereof or applicable tax rates.
. The ability of GM to achieve reductions in cost and employment levels, to
realize production efficiencies and to implement capital expenditures,
all at the levels and times planned by management.
. With respect to Hughes, additional risk factors include: economic
conditions, product demand and market acceptance, government action,
local political or economic developments in or affecting countries where
Hughes has operations, ability to obtain export licenses, competition,
ability to achieve cost reductions, technological risk, limitations on
access to distribution channels, the success and timeliness of satellite
launches, in-orbit performance of satellites, ability of customers to
obtain financing and Hughes' ability to access capital to maintain its
financial flexibility. Additionally, Hughes and PanAmSat have experienced
satellite anomalies in the past and may experience satellite anomalies in
the future that could lead to the loss or reduced capacity of such
satellites that could materially affect Hughes' operations.
Consequently, all of the forward-looking statements made in this document
are qualified by these cautionary statements and there can be no assurance
that the actual results or developments we anticipate will be realized or,
even if realized, that they will have the expected consequences to or effects
on us and our respective subsidiaries or their business or operations. The
cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that we or persons acting on our behalf may issue.
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WHERE YOU CAN FIND MORE INFORMATION
GM files annual, quarterly and current reports, proxy statements and other
information with the SEC. GM's filings include information relating to Hughes.
Beginning in 1999, Hughes began filing its own annual, quarterly and current
reports with the SEC. You may read and copy any reports, statements or other
information that the companies file at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at (800) SEC-
0330 for further information on the Public Reference Room. GM public filings
are also available to the public from commercial document retrieval services
and at the Internet World Wide Web site maintained by the SEC at
"http://www.sec.gov." Reports, proxy statements and other information filed by
GM are also available for inspection at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
GM has filed a registration statement on Form S-4 to register with the SEC
the Class H common stock offered pursuant to this exchange offer. This
document constitutes a prospectus which is part of this registration
statement. As allowed by the SEC rules, however, this prospectus does not
contain all of the information you can find in the registration statement or
the exhibits to the registration statement.
The SEC allows GM to incorporate by reference information into this
prospectus, which means that GM can disclose information to you by referring
you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information contained directly in the prospectus
or in later filed documents incorporated by reference in the prospectus. This
prospectus incorporates by reference the documents set forth below that GM and
Hughes have previously filed with the SEC. These documents contain important
information about GM, Hughes, U.S. Satellite Broadcasting Company, PRIMESTAR
and TCI Satellite Entertainment, Inc. and their respective financial
condition.
<TABLE>
<CAPTION>
GM Filings (File No. 1-143) Period
--------------------------- ------
<C> <S>
Annual Report on Form 10-K....... Year ended December 31, 1999
Current Reports on Form 8-K...... Date of report: August 2, 1999, January 13, 2000,
January 20, 2000, February 1, 2000, February 25,
2000, March 1, 2000, March 6, 2000, March 7, 2000,
March 13, 2000 and March 31, 2000
Proxy Statement.................. Date filed: April 20, 1999.
Description of the Class H common
stock set forth in Article Fourth
of GM's Restated Certificate of
Incorporation, as amended, filed
as Exhibit 3(i) to the Current
Report on Form 8-K dated June 8,
1998
<CAPTION>
Hughes Filings (File No. 0-26035) Period
--------------------------------- ------
<C> <S>
Annual Report on Form 10-K....... Year ended December 31, 1999
Current Reports on Form 8-K...... Date of report: January 13, 2000(2), January 19,
2000 and March 1, 2000
Consolidated financial
statements, including the notes
thereto, for U.S. Satellite
Broadcasting Company, PRIMESTAR,
and TCI Satellite Entertainment,
Inc. for Fiscal Year ended
December 31, 1998, filed in the
Registration Statement on Form
10, filed on August 13, 1999.
</TABLE>
132
<PAGE>
GM hereby incorporates by reference into this prospectus additional
documents that it and Hughes may file with the SEC between the date of this
prospectus and the termination of the exchange offer. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, as well as proxy statements.
You may have received some of the documents incorporated by reference, but
you can obtain any of them through GM or the SEC or the SEC's Internet site
described above. Documents incorporated by reference are available from GM
without charge, excluding all exhibits unless specifically incorporated by
reference as exhibits in this prospectus. You may obtain some of the documents
incorporated by reference in this prospectus at GM's Internet World Wide Web
site, "http://www.gm.com" and selecting "The Company" and then selecting
"Investor Information." Written and telephone requests for any of these
documents should be directed to:
Written requests for documents:
GM Fulfillment Center
MC 480-000-FC1
30200 Stephenson Hwy.
Madison Heights, MI 48071
Telephone: (313) 667-1500
Telephone requests for documents:
(313) 667-1500
Select Menu Option #2
If you request any incorporated documents from us, we will mail them to you
by first class mail, or other equally prompt means, within one business day of
receipt of your request.
133
<PAGE>
APPENDIX A
HUGHES ELECTRONICS CORPORATION
AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Index Page
----- ----
<S> <C>
AUDITED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 AND INDEPENDENT AUDITORS'
REPORT
Independent Auditors' Report........................................... A-1
Statements of Operations and Available Separate Consolidated Net Income
(Loss)................................................................ A-2
Balance Sheets......................................................... A-3
Statements of Changes in Stockholder's Equity.......................... A-4
Statements of Cash Flows............................................... A-5
Notes to Financial Statements.......................................... A-6
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
HUGHES ELECTRONICS CORPORATION
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Hughes Electronics Corporation:
We have audited the accompanying Balance Sheets of Hughes Electronics
Corporation (as more fully described in Note 1 to the financial statements) as
of December 31, 1999 and 1998 and the related Statements of Operations and
Available Separate Consolidated Net Income (Loss), Statements of Changes in
Stockholder's Equity and Statements of Cash Flows for each of the three years
in the period ended December 31, 1999. These financial statements are the
responsibility of Hughes Electronics Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Hughes Electronics Corporation at December
31, 1999 and 1998 and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1999 in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the accompanying financial statements, effective
January 1, 1998, Hughes Electronics Corporation changed its method of
accounting for costs of start-up activities by adopting American Institute of
Certified Public Accountants Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities.
/s/ Deloitte & Touche LLP
-------------------------------------
Deloitte & Touche LLP
Los Angeles, California
January 19, 2000
(March 1, 2000 as to Note 21)
A-1
<PAGE>
HUGHES ELECTRONICS CORPORATION
STATEMENTS OF OPERATIONS AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(Dollars in Millions)
<S> <C> <C> <C>
Revenues
Direct broadcast, leasing and other services... $4,550.1 $2,640.2 $1,984.7
Product sales.................................. 1,010.2 840.4 853.6
-------- -------- --------
Total Revenues................................... 5,560.3 3,480.6 2,838.3
-------- -------- --------
Operating Costs and Expenses
Broadcast programming and other costs.......... 2,075.1 1,211.4 912.3
Cost of products sold.......................... 954.6 606.6 538.4
Selling, general and administrative expenses... 2,307.9 1,320.9 1,083.8
Depreciation and amortization.................. 647.4 384.6 257.0
Amortization of GM purchase accounting
adjustments................................... 3.3 3.3 3.3
-------- -------- --------
Total Operating Costs and Expenses............... 5,988.3 3,526.8 2,794.8
-------- -------- --------
Operating Profit (Loss).......................... (428.0) (46.2) 43.5
Interest income................................ 27.0 112.3 33.0
Interest expense............................... (122.7) (17.5) (91.0)
Other, net..................................... (136.3) (151.8) 388.6
-------- -------- --------
Income (Loss) From Continuing Operations Before
Income Taxes, Minority Interests, Extraordinary
Item and Cumulative Effect of Accounting Change. (660.0) (103.2) 374.1
Income tax provision (benefit)................. (236.9) (142.3) 162.0
Minority interests in net losses of
subsidiaries.................................. 32.0 24.4 24.8
-------- -------- --------
Income (Loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change............................. (391.1) 63.5 236.9
Income from discontinued operations, net of
taxes......................................... 99.8 196.4 170.6
Gain on sale of discontinued operations, net of
taxes......................................... -- -- 62.8
-------- -------- --------
Income (Loss) before extraordinary item and
cumulative effect of accounting change........ (291.3) 259.9 470.3
Extraordinary item, net of taxes............... -- -- (20.6)
Cumulative effect of accounting change, net of
taxes......................................... -- (9.2) --
-------- -------- --------
Net Income (Loss)................................ (291.3) 250.7 449.7
Adjustments to exclude the effect of GM
purchase accounting adjustments............... 21.0 21.0 21.0
-------- -------- --------
Earnings (Loss) excluding the effect of GM
purchase accounting adjustments............... (270.3) 271.7 470.7
Preferred stock dividends...................... (50.9) -- --
-------- -------- --------
Earnings (Loss) Used for Computation of Available
Separate Consolidated Net Income (Loss)......... $ (321.2) $ 271.7 $ 470.7
======== ======== ========
Available Separate Consolidated Net Income (Loss)
Average number of shares of General Motors
Class H Common Stock outstanding (in millions)
(Numerator)................................... 124.7 105.3 101.5
Average Class H dividend base (in millions)
(Denominator)................................. 418.5 399.9 399.9
Available Separate Consolidated Net Income
(Loss)........................................ $ (95.7) $ 71.5 $ 119.4
======== ======== ========
</TABLE>
Reference should be made to the Notes to Financial Statements.
A-2
<PAGE>
HUGHES ELECTRONIC CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------
ASSETS 1999 1998
------ --------- ---------
(Dollars in
Millions)
<S> <C> <C>
Current Assets...........................................
Cash and cash equivalents.............................. $ 238.2 $ 1,342.0
Accounts and notes receivable, net of allowances of
$92.9 and $23.9....................................... 960.9 764.6
Contracts in process................................... 155.8 179.0
Inventories............................................ 236.1 286.6
Net assets of discontinued operations.................. 1,224.6 1,005.8
Deferred income taxes.................................. 254.3 209.7
Prepaid expenses and other............................. 788.1 287.5
--------- ---------
Total Current Assets................................... 3,858.0 4,075.2
Satellites, net........................................ 3,907.3 3,197.5
Property, net.......................................... 1,223.0 683.0
Net Investment in Sales-type Leases.................... 146.1 173.4
Intangible Assets, net................................. 7,406.0 3,185.9
Investments and Other Assets........................... 2,056.6 1,302.4
--------- ---------
Total Assets......................................... $18,597.0 $12,617.4
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities......................................
Accounts payable....................................... $ 1,062.2 $ 691.8
Deferred revenues...................................... 130.5 43.8
Short-term borrowings and current portion of long-term
debt.................................................. 555.4 156.1
Accrued liabilities and other.......................... 894.0 454.3
--------- ---------
Total Current Liabilities................................ 2,642.1 1,346.0
--------- ---------
Long-Term Debt........................................... 1,586.0 778.7
Other Liabilities and Deferred Credits................... 1,454.2 957.7
Deferred Income Taxes.................................... 689.1 641.1
Commitments and Contingencies............................
Minority Interests....................................... 544.3 481.7
Stockholder's Equity.....................................
Capital stock and additional paid-in capital........... 9,809.5 8,146.1
Preferred stock........................................ 1,487.5 --
Retained earnings (deficit)............................ (84.4) 257.8
--------- ---------
Subtotal Stockholder's Equity............................ 11,212.6 8,403.9
--------- ---------
Accumulated Other Comprehensive Income (Loss)..........
Minimum pension liability adjustment................. (7.3) (6.8)
Accumulated unrealized gains on securities........... 466.0 16.1
Accumulated foreign currency translation adjustments. 10.0 (1.0)
--------- ---------
Accumulated other comprehensive income................. 468.7 8.3
--------- ---------
Total Stockholder's Equity............................... 11,681.3 8,412.2
--------- ---------
Total Liabilities and Stockholder's Equity............... $18,597.0 $12,617.4
========= =========
</TABLE>
Reference should be made to the Notes to Financial Statements.
A-3
<PAGE>
HUGHES ELECTRONICS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Dollars in Millions)
<TABLE>
<CAPTION>
Capital Stock
Parent and Accumulated
Company's Additional Retained Other Total
Net Paid-in Preferred Earnings Comprehensive Stockholder's Comprehensive
Investment Capital Stock (Deficit) Income (Loss) Equity Income
---------- ------------- --------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... $2,497.0 $ (5.4) $ 2,491.6
Net contribution from
Parent Company......... 1,124.2 1,124.2
Transfer of capital from
Parent Company's net
investment............. (4,063.8) $4,063.8 --
Capital contribution
resulting from the
Hughes Transactions.... 4,259.0 4,259.0
Minimum pension
liability adjustment
resulting from the
Hughes Transactions.... (6.3) (6.3)
Unrealized gains on
securities resulting
from the Hughes
Transactions........... 21.4 21.4
Net income.............. 442.6 $ 7.1 449.7 $ 449.7
Foreign currency
translation
adjustments............ 0.6 0.6 0.6
-------
Comprehensive income.... $ 450.3
-------- -------- -------- ------- ------ --------- =======
Balance at December 31,
1997................... -- 8,322.8 -- 7.1 10.3 8,340.2
Net Income.............. 250.7 250.7 $ 250.7
Delco post-closing price
adjustment............. (199.7) (199.7)
Tax benefit from
exercise of GM Class H
common stock options... 23.0 23.0
Minimum pension
liability adjustment... (0.5) (0.5) (0.5)
Foreign currency
translation
adjustments............ 3.8 3.8 3.8
Unrealized gains on
securities:
Unrealized holding
gains................. 1.8 1.8 1.8
Less: reclassification
adjustment for gains
included in net
income................ (7.1) (7.1) (7.1)
-------
Comprehensive income.... $ 248.7
-------- -------- -------- ------- ------ --------- =======
Balance at December 31,
1998................... -- 8,146.1 -- 257.8 8.3 8,412.2
Net Loss................ (291.3) (291.3) $(291.3)
Preferred stock......... $1,487.5 1,487.5
Preferred stock
dividends.............. (50.9) (50.9)
Shares reacquired....... (11.1) (11.1)
Stock options exercised. 114.4 114.4
Shares issued in
connection with
acquisitions........... 1,506.7 1,506.7
Tax benefit from
exercise of GM Class H
common stock options... 53.4 53.4
Minimum pension
liability adjustment... (0.5) (0.5) (0.5)
Foreign currency
translation
adjustments............ 11.0 11.0 11.0
Unrealized gains on
securities............. 449.9 449.9 449.9
-------
Comprehensive income.... $ 169.1
-------- -------- -------- ------- ------ --------- =======
Balance at December 31,
1999................... $ -- $9,809.5 $1,487.5 $ (84.4) $468.7 $11,681.3
======== ======== ======== ======= ====== =========
</TABLE>
Reference should be made to the Notes to Financial Statements.
A-4
<PAGE>
HUGHES ELECTRONICS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Income (Loss) from continuing operations
before extraordinary item and cumulative
effect of accounting change................. $ (391.1) $ 63.5 $ 236.9
Adjustments to reconcile income (loss) from
continuing operations before extraordinary
item and cumulative effect of accounting
change to net cash provided by operating
activities
Depreciation and amortization.............. 650.7 387.9 260.3
Equity losses from unconsolidated
affiliates................................ 189.2 128.3 72.2
Amortization of gains on sale-leasebacks... (10.8) (36.2) (42.9)
Net gain on sale of investments and
businesses sold........................... (30.0) (13.7) (489.7)
Gross profit on sales-type leases.......... -- -- (33.6)
Net loss on discontinuation of wireless
product lines............................. 272.1 -- --
Net loss on disposal of assets............. 2.7 -- --
Deferred income taxes and other............ 271.1 99.6 220.5
Change in other operating assets and
liabilities
Accounts and notes receivable............ 35.0 (49.4) (246.2)
Contracts in process..................... 23.2 1.7 (19.5)
Inventories.............................. (38.7) 12.9 (39.9)
Prepaid expenses and other............... (494.0) (91.6) (138.0)
Collections of principal on net
investment in sales-type leases......... 22.2 40.6 22.0
Accounts payable......................... 101.4 224.0 (183.9)
Deferred revenues........................ (50.3) (34.0) (21.2)
Accrued liabilities and other............ 59.6 (19.0) 207.3
Other.................................... (232.8) (102.5) 286.3
--------- --------- ---------
Net Cash Provided by Operating Activities.. 379.5 612.1 90.6
--------- --------- ---------
Cash Flows from Investing Activities
Investment in companies, net of cash
acquired.................................... (2,443.7) (1,231.0) (1,796.8)
Investment in convertible bonds.............. (244.7) -- --
Expenditures for property.................... (506.4) (243.9) (137.4)
Increase in satellites....................... (789.4) (929.4) (633.5)
Early buy-out of satellites under sale and
leaseback................................... (245.4) (155.5) --
Proceeds from sale of discontinued
operations.................................. -- -- 155.0
Proceeds from disposal of property........... 15.8 20.0 55.1
Proceeds from sale of investments............ -- 12.4 242.0
Proceeds from insurance claims............... 272.0 398.9 --
--------- --------- ---------
Net Cash Used in Investing Activities...... (3,941.8) (2,128.5) (2,115.6)
--------- --------- ---------
Cash Flows from Financing Activities
Net increase in notes and loans payable...... 343.0 -- --
Long-term debt borrowings.................... 8,165.6 1,165.2 2,383.3
Repayment of long-term debt.................. (7,494.4) (1,024.1) (2,851.9)
Net proceeds from issuance of preferred
stock....................................... 1,485.0 -- --
Stock options exercised...................... 114.4 -- --
Purchase and retirement of GM Class H common
stock....................................... (11.1) -- --
Preferred stock dividends paid to General
Motors...................................... (25.0) -- --
Premium paid to retire debt.................. -- -- (34.4)
Contributions from Parent Company............ -- -- 1,124.2
Payment to General Motors for Delco post-
closing price adjustment.................... -- (204.7) --
Capital contribution resulting from Hughes
Transactions................................ -- -- 4,392.8
--------- --------- ---------
Net Cash Provided by (Used in) Financing
Activities................................ 2,577.5 (63.6) 5,014.0
--------- --------- ---------
Net cash provided by (used in) continuing
operations.................................. (984.8) (1,580.0) 2,989.0
Net cash provided by (used in) discontinued
operations.................................. (119.0) 138.3 (211.5)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................. (1,103.8) (1,441.7) 2,777.5
Cash and cash equivalents at beginning of the
year........................................ 1,342.0 2,783.7 6.2
--------- --------- ---------
Cash and cash equivalents at end of the year. $ 238.2 $ 1,342.0 $ 2,783.7
========= ========= =========
</TABLE>
Reference should be made to the Notes to Financial Statements.
A-5
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 1: Basis of Presentation and Description of Business
On December 17, 1997, Hughes Electronics Corporation ("Hughes Electronics")
and General Motors Corporation ("GM"), the parent of Hughes Electronics,
completed a series of transactions (the "Hughes Transactions") designed to
address strategic challenges facing the three principal businesses of Hughes
Electronics and unlock stockholder value in GM. The Hughes Transactions
included the tax-free spin-off of the defense electronics business ("Hughes
Defense") to holders of GM $1 2/3 par value and Class H common stocks, the
transfer of Delco Electronics Corporation ("Delco"), the automotive
electronics business, to GM's Delphi Automotive Systems unit and the
recapitalization of GM Class H common stock into a new tracking stock, GM
Class H common stock, that is linked to the remaining telecommunications and
space business. The Hughes Transactions were followed immediately by the
merger of Hughes Defense with Raytheon Company ("Raytheon"). For the periods
prior to the consummation of the Hughes Transactions on December 17, 1997,
Hughes Electronics, consisting of its defense electronics, automotive
electronics and telecommunications and space businesses, is hereinafter
referred to as former Hughes or Parent Company.
In connection with the recapitalization of Hughes Electronics on December
17, 1997, the telecommunications and space business of former Hughes,
consisting principally of its direct-to-home broadcast, satellite services,
satellite systems and network systems businesses, was contributed to the
recapitalized Hughes Electronics. Such telecommunications and space business,
both before and after the recapitalization, is hereinafter referred to as
Hughes. The accompanying financial statements and footnotes pertain only to
Hughes and do not include balances of former Hughes related to Hughes Defense
or Delco.
Prior to the Hughes Transactions, the Hughes businesses were effectively
operated as divisions of former Hughes. For the period prior to December 18,
1997, these financial statements include allocations of corporate expenses
from former Hughes, including research and development, general management,
human resources, financial, legal, tax, quality, communications, marketing,
international, employee benefits and other miscellaneous services. These costs
and expenses have been charged to Hughes based either on usage or using
allocation methodologies primarily based upon total revenues, certain tangible
assets and payroll expenses. Management believes the allocations were made on
a reasonable basis; however, they may not necessarily reflect the financial
position, results of operations or cash flows of Hughes on a stand-alone basis
in the future. Also, prior to December 18, 1997, interest expense in the
Statements of Operations and Available Separate Consolidated Net Income (Loss)
included an allocated share of total former Hughes' interest expense.
Revenues, operating costs and expenses, and other non-operating results for
discontinued operations are excluded from Hughes' results from continuing
operations for all periods presented herein. The financial results of these
businesses are presented in Hughes' Statements of Operations and Available
Separate Consolidated Net Income (Loss) in a single line item entitled "income
from discontinued operations, net of taxes," the related assets and
liabilities are presented in the balance sheets on a single line item entitled
"net assets of discontinued operations" and the net cash flows as "net cash
provided by (used in) discontinued operations." See further discussion in Note
17.
The accompanying financial statements include the applicable portion of
intangible assets, including goodwill, and related amortization resulting from
purchase accounting adjustments associated with GM's purchase of Hughes in
1985, with certain amounts allocated to the satellite systems manufacturing
businesses.
Hughes is a leading provider of digital entertainment, information and
communication services and satellite-based private business networks. Hughes
is the world's leading digital multi-channel entertainment service provider
with its programming distribution service known as DIRECTV(R), which was
introduced in the U.S. in 1994 and was the first high-powered, all digital,
direct-to-home ("DTH") television distribution service in North America.
DIRECTV began service in Latin America in 1996. Hughes is also the owner and
operator of the largest commercial satellite fleet in the world through its
81% owned subsidiary, PanAmSat. Hughes is also a leading provider of satellite
wireless communications ground equipment and business communications services.
A-6
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 1: Basis of Presentation and Description of Business--Continued
Its equipment and services are applied in, among other things, data, video and
audio transmission, cable and network television distribution, private
business networks, digital cellular communications and DTH satellite broadcast
distribution of television programming.
Note 2: Summary of Significant Accounting Policies
Principles of Combination and Consolidation
Prior to December 18, 1997, the financial statements present, on a combined
basis, the financial position, results of operations and cash flows of the
telecommunications and space business owned and operated by former Hughes.
Subsequent to the Hughes Transactions, the accompanying financial statements
are presented on a consolidated basis. The financial statements include the
accounts of Hughes and its domestic and foreign subsidiaries that are more
than 50% owned or controlled by Hughes, with investments in associated
companies in which Hughes owns at least 20% of the voting securities or has
significant influence accounted for under the equity method of accounting.
Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Due to the inherent
uncertainty involved in making estimates, actual results reported in future
periods may be based upon amounts which differ from those estimates.
Revenue Recognition
Revenues are generated from sales of DTH broadcast subscriptions, and the
sale of transponder capacity and related services through outright sales,
sales-type leases and operating lease contracts, and sales of communications
equipment and services.
Sales are generally recognized as products are shipped or services are
rendered. DTH subscription revenues are recognized when programming is viewed
by subscribers. Programming payments received from subscribers in advance of
viewing are recorded as deferred revenue until earned.
Satellite transponder lease contracts qualifying for capital lease
treatment (typically based on the term of the lease) are accounted for as
sales-type leases, with revenues recognized equal to the net present value of
the future minimum lease payments. Upon entering into a sales-type lease, the
cost basis of the transponder is charged to cost of products sold. The portion
of each periodic lease payment deemed to be attributable to interest income is
recognized in each respective period. Contracts for sales of transponders
typically include telemetry, tracking and control ("TT&C") service agreements.
Revenues related to TT&C service agreements are recognized as the services are
performed.
Transponder and other 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 respective lease term.
Differences between operating lease payments received and revenues recognized
are deferred and included in accounts and notes receivable or investments and
other assets.
A small percentage of revenues are derived from long-term contracts for the
sale of large wireless communications systems. Sales under long-term contracts
are recognized primarily using the percentage-of-completion (cost-to-cost)
method of accounting. Under this method, sales are recorded equivalent to
costs incurred plus a portion of the profit expected to be realized,
determined based on the ratio of costs incurred to estimated total costs at
completion. Profits expected to be realized on long-term contracts are based
on estimates of total sales value and costs at completion. These estimates are
reviewed and revised periodically throughout
A-7
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 2: Summary of Significant Accounting Policies--Continued
the lives of the contracts, and adjustments to profits resulting from such
revisions are recorded in the accounting period in which the revisions are
made. Estimated losses on contracts are recorded in the period in which they
are identified.
Hughes has from time to time entered into agreements for the sale and
leaseback of certain of its satellite transponders. However, as a result of
early buy-out transactions described in Note 4, no obligations under sale-
leaseback agreements remain at December 31, 1999. Prior to the completion of
the early buy-out transactions, the leasebacks were classified as operating
leases and, therefore, the capitalized cost and associated depreciation
related to satellite transponders sold were not included in the accompanying
financial statements. Gains resulting from the sale and leaseback transactions
were deferred and amortized over the leaseback period. Leaseback expense was
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 were deferred and included in other
liabilities and deferred credits.
Cash Flows
Cash equivalents consist of highly liquid investments purchased with
original maturities of 90 days or less.
Net cash from operating activities includes cash payments made for interest
of $174.6 million, $53.2 million and $156.8 million in 1999, 1998 and 1997,
respectively. Net cash refunds received by Hughes for prior year income taxes
amounted to $197.2 million and $59.9 million in 1999 and 1998, respectively.
Cash payments for income taxes amounted to $24.0 million in 1997.
Certain non-cash transactions occurred in connection with the consummation
of the Hughes Transactions on December 17, 1997, resulting in a contribution
of a net liability of $133.8 million.
In 1997, in a separate non-cash transaction, Hughes' subsidiary, PanAmSat
Corporation ("PanAmSat"), converted its outstanding preferred stock into debt
amounting to $438.5 million.
Contracts in Process
Contracts in process are stated at costs incurred plus estimated profit,
less amounts billed to customers and advances and progress payments applied.
Engineering, tooling, manufacturing, and applicable overhead costs, including
administrative, research and development and selling expenses, are charged to
costs and expenses when incurred. Amounts billed under retainage provisions of
contracts are not significant, and substantially all amounts are collectible
within one year. Advances offset against contract related receivables amounted
to $114.5 million and $112.0 million at December 31, 1999 and 1998,
respectively.
Inventories
Inventories are stated at the lower of cost or market principally using the
average cost method.
Major Classes of Inventories
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998
--------------------- ------ ------
<S> <C> <C>
Productive material and supplies........................... $ 59.1 $ 55.0
Work in process............................................ 67.0 118.6
Finished goods............................................. 110.0 113.0
------ ------
Total.................................................... $236.1 $286.6
====== ======
</TABLE>
A-8
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 2: Summary of Significant Accounting Policies--Continued
Property, Satellites and Depreciation
Property and satellites are carried at cost. Satellite costs include
construction costs, launch costs, launch insurance and capitalized interest.
Capitalized satellite costs represent the costs of successful satellite
launches. The proportionate cost of a satellite, net of depreciation and
insurance proceeds, is written off in the period a full or partial loss of the
satellite occurs. Depreciation is computed generally using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements
are amortized over the lesser of the life of the asset or term of the lease.
Intangible Assets
Goodwill, which represents the excess of the cost over the net tangible and
identifiable intangible assets of acquired businesses, and intangible assets
are amortized using the straight-line method over periods not exceeding 40
years.
Software Development Costs
Other assets include certain software development costs capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. Capitalized software development costs at December 31, 1999 and
1998, net of accumulated amortization of $98.7 million and $70.6 million,
respectively, totaled $70.4 million and $104.1 million. The software is
amortized using the greater of the units of revenue method or the straight-
line method over its estimated useful life, not in excess of five years.
Software program reviews are conducted to ensure that capitalized software
development costs are properly treated and costs associated with programs that
are not generating revenues are appropriately written off.
Valuation of Long-Lived Assets
Hughes periodically evaluates the carrying value of long-lived assets to be
held and used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset
is considered impaired when the anticipated undiscounted cash flow from such
asset is separately identifiable and is less than its carrying value. In that
event, a loss is recognized based on the amount by which the carrying value
exceeds the fair value of the long-lived asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair values are reduced for the
cost of disposal.
Foreign Currency
Substantially all of Hughes' foreign operations have determined the local
currency to be their functional currency. Accordingly, these foreign entities
translate assets and liabilities from their local currencies to U.S. dollars
using year-end exchange rates while income and expense accounts are translated
at the average rates in effect during the year. The resulting translation
adjustment is recorded as part of accumulated other comprehensive income
(loss), a separate component of stockholder's equity. Gains and losses
resulting from remeasurement into the functional currency of transactions
denominated in non-functional currencies are recognized in earnings. Net
foreign currency transaction gains and losses included in operations were not
material for all years presented.
Financial Instruments and Investments
Hughes maintains investments in equity securities of unaffiliated
companies. These investments are considered available-for-sale and carried at
current fair value with unrealized gains or losses, net of taxes,
A-9
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 2: Summary of Significant Accounting Policies--Continued
reported as part of accumulated other comprehensive income (loss), a separate
component of stockholder's equity. Fair value is determined by market quotes,
when available, or by management estimate.
Market values of financial instruments, other than debt and derivative
instruments, are based upon management estimates. Market values of debt and
derivative instruments are determined by quotes from financial institutions.
The carrying value of cash and cash equivalents, accounts and notes
receivable, investments and other assets, accounts payable, amounts included
in accrued liabilities and other meeting the definition of a financial
instrument and debt approximated fair value at December 31, 1999.
Hughes' derivative contracts primarily consist of foreign exchange-forward
contracts. Hughes enters into these contracts to reduce its exposure to
fluctuations in foreign exchange rates. Foreign exchange-forward contracts are
accounted for as hedges to the extent they are designated as, and are
effective as, hedges of firm foreign currency commitments. Gains and losses on
foreign exchange-forward contracts designated as hedges of firm foreign
currency commitments are recognized in income in the same period as gains and
losses on the underlying transactions are recognized.
Stock Compensation
Hughes issues stock options to employees with grant prices equal to the
fair value of the underlying security at the date of grant. No compensation
cost has been recognized for options in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees. See Note 12 for information regarding the pro forma
effect on earnings of recognizing compensation cost based on the estimated
fair value of the stock options granted, as required by SFAS No. 123,
Accounting for Stock-Based Compensation.
Compensation related to stock awards is recognized ratably over the vesting
period and, where required, periodically adjusted to reflect changes in the
stock price of the underlying security.
Product and Service Related Expenses
Advertising and research and development costs are expensed as incurred.
Advertising expenses were $115.8 million in 1999, $130.0 million in 1998 and
$74.2 million in 1997. Expenditures for research and development were $98.8
million in 1999, $92.6 million in 1998 and $81.9 million in 1997.
Market Concentrations and Credit Risk
Hughes provides services and extends credit to a number of wireless
communications equipment customers and to a large number of DTH consumers.
Management monitors its exposure to credit losses and maintains allowances for
anticipated losses.
Accounting Change
In 1998, Hughes adopted American Institute of Certified Public Accountants
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5 requires that all start-up costs previously capitalized
be written off and recognized as a cumulative effect of accounting change, net
of taxes, as of the beginning of the year of adoption. On a prospective basis,
these types of costs are required to be expensed as incurred. The unfavorable
cumulative effect of this accounting change at January 1, 1998 was $9.2
million after-tax.
A-10
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 2: Summary of Significant Accounting Policies--Concluded
New Accounting Standards
In September 1999, the Financial Accounting Standards Board ("FASB") issued
Emerging Issues Task Force Issue 99-10 ("EITF 99-10"), Percentage Used to
Determine the Amount of Equity Method Losses. EITF 99-10 addresses the
percentage of ownership that should be used to compute equity method losses
when the investment has been reduced to zero and the investor holds other
securities of the investee. EITF 99-10 requires that equity method losses
should not be recognized solely on the percentage of common stock owned;
rather, an entity-wide approach should be adopted. Under such an approach,
equity method losses must be recognized based on the ownership level that
includes other equity securities (e.g., preferred stock) and loans/advances to
the investee or based on the change in the investor's claim on the investee's
book value. Hughes adopted EITF 99-10 during the third quarter of 1999 which
resulted in Hughes recording a higher percentage of DIRECTV Japan's losses
subsequent to the effective date of September 23, 1999. The unfavorable impact
of adopting EITF 99-10 was $39.0 million after-tax.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as amended, 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. Hughes will adopt SFAS No. 133 by January 1, 2001, as required. Hughes
does not expect that the adoption of SFAS No. 133 will have a material impact
on Hughes' results of operations or financial position.
Reclassifications
Certain reclassifications have been made to the prior year balances to
conform to the 1999 presentation.
Note 3: Property and Satellites, Net
<TABLE>
<CAPTION>
Estimated
Useful
Lives
(Dollars in Millions) (years) 1999 1998
- --------------------- --------- -------- --------
<S> <C> <C> <C>
Land and improvements.............................. 7-25 $ 51.4 $ 32.5
Buildings and leasehold improvements............... 2-30 197.0 136.3
Machinery and equipment............................ 3-10 795.2 642.4
Equipment under operating lease.................... 6 333.1 --
Furniture, fixtures and office machines............ 3-13 92.3 67.7
Construction in progress........................... -- 363.4 206.6
-------- --------
Total.............................................. 1,832.4 1,085.5
Less accumulated depreciation...................... 609.4 402.5
-------- --------
Property, net...................................... $1,223.0 $ 683.0
======== ========
Satellites......................................... 12-16 $4,683.1 $3,783.2
Less accumulated depreciation...................... 775.8 585.7
-------- --------
Satellites, net.................................... $3,907.3 $3,197.5
======== ========
</TABLE>
Hughes capitalized interest of $65.1 million, $55.3 million and $64.5
million during 1999, 1998 and 1997, respectively, as part of the cost of its
satellites under construction.
A-11
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 4: Leasing Activities
Future minimum payments due from customers under sales-type leases and
related service agreements, and noncancelable satellite transponder operating
leases as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Sales-Type Leases
------------------
Minimum Service
Lease Agreement Operating
(Dollars in Millions) Payments Payments Leases
--------------------- -------- --------- ---------
<S> <C> <C> <C>
2000......................................... $ 42.0 $ 5.3 $ 702.0
2001......................................... 43.4 5.7 626.4
2002......................................... 43.4 5.7 575.0
2003......................................... 43.4 5.7 538.5
2004......................................... 39.7 5.2 503.1
Thereafter................................... 37.1 5.2 1,911.3
------ ----- --------
Total.................................... $249.0 $32.8 $4,856.3
====== ===== ========
</TABLE>
The components of the net investment in sales-type leases are as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998
--------------------- ------ ------
<S> <C> <C>
Total minimum lease payments............................... $249.0 $301.9
Less unearned interest income and allowance for doubtful
accounts.................................................. 81.1 106.0
------ ------
Total net investment in sales-type leases.................. 167.9 195.9
Less current portion....................................... 21.8 22.5
------ ------
Total.................................................. $146.1 $173.4
====== ======
</TABLE>
In 1996 and 1992, Hughes entered into sale-leaseback agreements for certain
satellite transponders with other companies, including General Motors
Acceptance Corporation ("GMAC"), a subsidiary of GM. Deferred gains from these
sale-leaseback agreements are amortized over the expected term of the
leaseback period. In 1998, PanAmSat exercised certain early buy-out options
and repurchased a portion of the leased transponders for a total payment of
$155.5 million. In 1999, PanAmSat exercised early buy-out options for the
remaining transponders for $245.4 million in cash and $124.1 million of
assumed debt. As a result of the above transactions, no deferred amounts
remain outstanding at December 31, 1999.
Note 5: Intangible Assets
At December 31, 1999 and 1998, Hughes had $6,642.3 million and $3,184.6
million, respectively, of goodwill, net of accumulated amortization. Goodwill
is amortized over 10 to 40 years. Hughes also had, net of accumulated
amortization, $763.7 million and $1.3 million of intangible assets at December
31, 1999 and 1998, respectively, which are amortized over 2 to 40 years.
Intangible assets consist mainly of FCC licenses, customer lists and dealer
networks.
Note 6: Investments
Hughes has various investments that are accounted for under the equity
method of accounting. Under the equity method of accounting, the investment is
recorded at cost and adjusted for the appropriate share of the net earnings or
losses of the investee. Investee losses are recorded up to the amount of the
investment plus advances and loans made to the investee, and financial
guarantees made on behalf of the investee. Aggregate investments in affiliated
companies, including advances and loans, accounted for under the equity method
at December 31, 1999 and 1998, amounted to $317.4 million and $57.1 million,
respectively. Of these amounts, approximately $232.1 million and $55.9 million
at December 31, 1999 and 1998, respectively, represent the investment in
A-12
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 6: Investments--Concluded
DIRECTV Japan, net of accumulated losses of $237.6 million and $102.7 million
as of December 31, 1999 and 1998, respectively. Hughes' pre-tax share of
losses of investees is disclosed in Note 13, Other Income and Expenses.
Investments in marketable equity securities stated at current fair value
and classified as available-for-sale totaled $1,025.2 million and $486.0
million at December 31, 1999 and 1998, respectively. Accumulated unrealized
holding gains, net of taxes, recorded as part of accumulated other
comprehensive income (loss), a separate component of stockholder's equity,
were $466.0 million and $16.1 million as of December 31, 1999 and 1998,
respectively.
Note 7: Accrued Liabilities and other
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998
--------------------- ------ ------
<S> <C> <C>
Payroll and other compensation................................ $157.2 $ 93.5
Contract-related provisions................................... 82.3 38.5
Provision for consumer finance and rebate programs............ 107.3 93.0
Programming contract liabilities.............................. 82.6 --
Other......................................................... 464.6 229.3
------ ------
Total..................................................... $894.0 $454.3
====== ======
</TABLE>
Included in other liabilities and deferred credits are long-term
programming contract liabilities which totaled $627.1 million at December 31,
1999.
Note 8: Short-Term Borrowings and Long-Term Debt
Short-Term Borrowings
In October 1999, Hughes issued $500.0 million ($498.9 million net of
unamortized discount) of floating rate notes in a private placement with a
group of institutional investors. The notes bear interest at a variable rate
which was 7.45% at December 31, 1999. Interest is payable quarterly and the
notes are due and payable on October 23, 2000.
Long-Term Debt
<TABLE>
<CAPTION>
Interest Rates at
(Dollars in Millions) December 31, 1999 1999 1998
--------------------- ----------------- -------- ------
<S> <C> <C> <C>
Notes payable............................. 6.00%-6.875% $ 874.1 $750.0
Revolving credit facilities............... 6.77%- 7.10% 727.9 155.9
Other debt................................ 11.69%-12.29% 40.5 28.9
------------- -------- ------
Total debt................................ 1,642.5 934.8
Less current portion...................... 56.5 156.1
-------- ------
Total long-term debt.................. $1,586.0 $778.7
======== ======
</TABLE>
Notes payable. PanAmSat issued five, seven, ten and thirty-year notes
totaling $750.0 million in January 1998. The outstanding principal balances
and interest rates for the five, seven, ten and thirty-year notes as of
December 31, 1999 were $200 million, $275 million, $150 million and $125
million, respectively. Principal on the notes is payable at maturity, while
interest is payable semi-annually.
In July 1999, in connection with the early buy-out of satellite sale-
leasebacks, PanAmSat assumed $124.1 million of variable rate notes, all of
which were outstanding at December 31, 1999. The notes mature on various dates
through January 2, 2002.
A-13
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 8: Short-Term Borrowings and Long-Term Debt--Concluded
Revolving credit facilities. Hughes has three unsecured revolving credit
facilities totaling $1.6 billion, consisting of a $750.0 million multi-year
facility, a $350.0 million 364-day facility, and a $500.0 million bridge
facility. The multi-year credit facility provides for a commitment of $750.0
million through December 5, 2002. The 364-day facility provides for a
commitment of $350.0 million through November 22, 2000. These facilities also
provide backup capacity for Hughes' commercial paper program. The bridge
facility provides for a commitment of $500.0 million through the earlier of
November 22, 2000 or the receipt of proceeds from the issuance of any debt
securities of Hughes in a public offering. $500.0 million was outstanding
under the multi-year facility at December 31, 1999. No amounts were
outstanding under the commercial paper program, 364-day, or bridge facilities
at December 31, 1999.
Each of Hughes' credit facilities contain covenants that Hughes must comply
with. The covenants require Hughes to maintain a minimum level of consolidated
net worth and not exceed certain specified ratios. At December 31, 1999,
Hughes was in compliance with all such covenants.
PanAmSat maintains a $500.0 million multi-year revolving credit facility
that provides for short-term and long-term borrowings and a $500.0 million
commercial paper program that provides for short-term borrowings. The multi-
year revolving credit facility provides for a commitment through December 24,
2002. Borrowings under the credit facility and commercial paper program are
limited to $500.0 million in the aggregate. No amounts were outstanding under
either the multi-year revolving credit facility or the commercial paper
program at December 31, 1999.
At December 31, 1999, Hughes' 75% owned subsidiary, SurFin Ltd. ("SurFin"),
had a total of $227.9 million outstanding under a $400.0 million unsecured
revolving credit facility expiring in June 2002.
Other. At December 31, 1999, Galaxy Latin America, LLC's ("GLA") 100% owned
subsidiary, Galaxy Brasil, Ltda. ("GLB"), had a total of $24.3 million
outstanding under variable rate notes payable in varying amounts at maturity
in April and May 2002.
Other long-term debt at December 31, 1999 and 1998 consisted primarily of
notes that are payable at maturity in April 2007.
As part of a debt refinancing program undertaken by PanAmSat in 1997, an
extraordinary charge of $20.6 million ($34.4 million before taxes) was
recorded that resulted from the excess of the price paid for the debt over its
carrying value, net of deferred financing costs.
Hughes has filed a shelf registration statement with the Securities and
Exchange Commission with respect to an issuance of up to $2.0 billion of debt
securities from time to time. No amounts have been issued as of December 31,
1999.
The aggregate maturities of long-term debt for the five years subsequent to
December 31, 1999 are $56.5 million in 2000, $21.2 million in 2001, $798.8
million in 2002, $200.0 million in 2003 and $566.0 million in 2005 and
thereafter.
Note 9: Income Taxes
The provision for income taxes is based on reported income from continuing
operations before income taxes, minority interests, extraordinary item and
cumulative effect of accounting change. Deferred income tax assets and
liabilities reflect the impact of temporary differences between the amounts of
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes, as measured by applying currently enacted
tax laws.
A-14
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 9: Income Taxes--Continued
Hughes and former Hughes (prior to December 18, 1997), and their domestic
subsidiaries join with General Motors in filing a consolidated U.S. federal
income tax return. The portion of the consolidated income tax liability or
receivable recorded by Hughes is generally equivalent to the amount that would
have been recorded on a separate return basis.
Prior to December 18, 1997, income tax expense was allocated to Hughes as
if Hughes filed a separate income tax return.
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
--------------------- ------- ------- ------
<S> <C> <C> <C>
Taxes currently payable (refundable):
U.S. federal...................................... $(406.5) $(201.9) $(51.9)
Foreign........................................... 30.1 15.9 9.5
State and local................................... (24.2) (36.5) 7.7
------- ------- ------
Total......................................... (400.6) (222.5) (34.7)
------- ------- ------
Deferred tax liabilities (assets):
U.S. federal...................................... 185.0 50.8 181.9
State and local................................... (21.3) 29.4 14.8
------- ------- ------
Total......................................... 163.7 80.2 196.7
------- ------- ------
Total income tax provision (benefit).............. $(236.9) $(142.3) $162.0
======= ======= ======
</TABLE>
Income (loss) from continuing operations before income taxes, minority
interests, extraordinary item and cumulative effect of accounting change
included the following components:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
--------------------- ------- ------- ------
<S> <C> <C> <C>
U.S. income (loss)................................. $(519.0) $ (10.2) $415.3
Foreign loss....................................... (141.0) (93.0) (41.2)
------- ------- ------
Total.......................................... $(660.0) $(103.2) $374.1
======= ======= ======
</TABLE>
The combined income tax provision (benefit) was different than the amount
computed using the U.S. federal statutory income tax rate for the reasons set
forth in the following table:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
--------------------- ------- ------- ------
<S> <C> <C> <C>
Expected tax (refund) at U.S. federal statutory
income tax rate.................................. $(231.0) $ (36.1) $131.0
Research and experimentation tax benefits and
resolution of tax contingencies.................. (78.9) (172.9) (35.3)
Foreign sales corporation tax benefit............. (13.6) (15.6) (13.0)
U.S. state and local income taxes................. (29.5) (4.6) 14.6
Losses of equity method investees................. 60.3 36.7 25.3
Minority interests in losses of partnership....... 19.0 19.3 17.5
Non-deductible goodwill amortization.............. 31.0 20.0 9.7
Other............................................. 5.8 10.9 12.2
------- ------- ------
Total income tax provision (benefit).......... $(236.9) $(142.3) $162.0
======= ======= ======
</TABLE>
A-15
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 9: Income Taxes--Continued
Temporary differences and carryforwards which gave rise to deferred tax
assets and liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- --------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
(Dollars in Millions) Assets Liabilities Assets Liabilities
--------------------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Accruals and advances............. $ 106.1 $143.6
Sales and leasebacks.............. -- 65.4
Customer deposits, rebates and
commissions...................... 44.1 $ 114.1 52.9
State taxes....................... 27.9 -- 38.8
Gain on PanAmSat merger........... -- 186.3 -- $191.1
Satellite launch insurance costs.. -- 136.8 -- 103.1
Depreciation and amortization..... -- 545.0 -- 437.5
Net operating loss and tax credit
carryforwards.................... 287.3 -- 77.8 --
Programming contract liabilities.. 285.0 -- -- --
Unrealized gains on securities.... -- 318.6 -- 1.2
Write-off related to wireless
product lines.................... 95.9 -- -- --
Other............................. 204.4 100.7 70.9 83.7
------- -------- ------ ------
Subtotal.......................... 1,050.7 1,401.5 449.4 816.6
Valuation allowance............... (84.0) -- (64.2) --
------- -------- ------ ------
Total deferred taxes.......... $ 966.7 $1,401.5 $385.2 $816.6
======= ======== ====== ======
</TABLE>
No income tax provision has been made for the portion of undistributed
earnings of foreign subsidiaries deemed permanently reinvested that amounted
to approximately $29.7 million and $18.5 million at December 31, 1999 and
1998, respectively. Repatriation of all accumulated earnings would have
resulted in tax liabilities of $10.4 million in 1999 and $6.4 million in 1998.
At December 31, 1999, Hughes has $84.0 million of deferred tax assets
relating to foreign operating loss carryforwards expiring in varying amounts
between 2000 and 2004. A valuation allowance was provided for all foreign
operating loss carryforwards. At December 31, 1999, a Hughes subsidiary has
$45.2 million of alternative minimum tax credits generated in separate filing
years, which can be carried forward indefinitely. At December 31, 1999,
Hughes' subsidiaries have $126.2 million of deferred tax assets relating to
federal net operating loss carryforwards which will expire in varying amounts
between 2009 and 2018. Hughes has $11.9 million of deferred tax assets
relating to state net operating loss carryforwards which will expire in
varying amounts between 2004 and 2018. Hughes also has $20 million of research
and experimentation credits which will expire in 2019.
Hughes has an agreement with Raytheon which governs Hughes' rights and
obligations with respect to U.S. federal and state income taxes for all
periods prior to the merger of Hughes Defense with Raytheon. Hughes is
responsible for any income taxes pertaining to those periods prior to the
merger, including any additional income taxes resulting from U.S. federal and
state tax audits. Hughes is entitled to any U.S. federal and state income tax
refunds relating to those years.
The U.S. federal income tax returns of former Hughes have been examined
through 1994. All years prior to 1986 are closed. Issues relating to the years
1986 through 1994 are being contested through various stages of administrative
appeal. The Internal Revenue Service ("IRS") is currently examining former
Hughes' U.S. federal tax returns for years 1995 through 1997. Management
believes that adequate provision has been made for any adjustment which might
be assessed for open years.
A-16
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 9: Income Taxes--Concluded
Hughes reached an agreement with the IRS regarding a claim for refund of
U.S. federal income taxes related to the treatment of research and
experimentation costs for the years 1983 through 1995. Hughes recorded a total
of $172.9 million of research and experimentation tax benefits during 1998, a
substantial portion of which related to the above noted agreement with the IRS
and covered prior years.
Hughes has taxes receivable from GM at December 31, 1999 and 1998,
respectively, of approximately $610.6 million and $379.3 million of which
$290.8 million and $45.1 million, respectively, are included in prepaid
expenses and other in the balance sheets.
Note 10: Retirement Programs and Other Postretirement Benefits
Substantially all of Hughes' employees participate in Hughes' contributory
and non-contributory defined benefit retirement plans. Benefits are based on
years of service and compensation earned during a specified period of time
before retirement. Additionally, an unfunded, nonqualified pension plan covers
certain employees. Hughes also maintains a program for eligible retirees to
participate in health care and life insurance benefits generally until they
reach age 65. Qualified employees who elected to participate in the Hughes
contributory defined benefit pension plans may become eligible for these
health care and life insurance benefits if they retire from Hughes between the
ages of 55 and 65.
Prior to December 18, 1997, the pension related assets and liabilities and
the postretirement benefit plans were maintained by former Hughes for its non-
automotive businesses and were not included in the Hughes balance sheet. A
portion of former Hughes' net pension expense and postretirement benefit cost
was allocated to Hughes and is included in the Statements of Operations and
Available Separate Consolidated Net Income (Loss). For 1997, the pension
expense and post retirement benefit cost components were not determined
separately for the Hughes participants. The 1997 information presented below
is based on pro rata allocations from former Hughes for each pension and
postretirement benefit component.
A-17
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 10: Retirement Programs and Other Postretirement Benefits--Continued
The components of the pension benefit obligation and the other
postretirement benefit obligation, as well as the net benefit obligation
recognized in the balance sheets, are shown below:
<TABLE>
<CAPTION>
Other
Pension Postretirement
Benefits Benefits
-------------- ----------------
(Dollars in Millions) 1999 1998 1999 1998
- --------------------- ------ ------ ------- -------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Net benefit obligation at beginning of year.. $341.8 $316.4 $ 24.7 $ 19.5
Service cost................................. 14.5 13.6 0.6 0.5
Interest cost................................ 23.9 22.5 1.5 1.2
Plan participants' contributions............. 3.0 3.0 -- --
Actuarial (gain) loss........................ (31.3) 17.1 (2.7) 5.1
Benefits paid................................ (34.2) (30.8) (1.3) (1.6)
------ ------ ------- -------
Net benefit obligation at end of year........ 317.7 341.8 22.8 24.7
------ ------ ------- -------
Change in Plan Assets
Fair value of plan assets at beginning of
year........................................ 346.6 337.0 -- --
Actual return on plan assets................. 69.6 30.3 -- --
Employer contributions....................... 3.0 4.3 (1.3) (1.6)
Plan participants' contributions............. 3.0 3.0 -- --
Benefits paid................................ (34.2) (30.8) 1.3 1.6
Transfers.................................... 2.1 2.8 -- --
------ ------ ------- -------
Fair value of plan assets at end of year..... 390.1 346.6 -- --
------ ------ ------- -------
Funded status at end of year................. 72.4 4.8 (22.8) (24.7)
Unamortized amount resulting from changes
in plan provisions........................ (0.4) 1.9 -- --
Unamortized net amount resulting from
changes in plan experience and actuarial
assumptions............................... (38.7) 26.7 (1.4) 0.7
------ ------ ------- -------
Net amount recognized at end of year......... $ 33.3 $ 33.4 $ (24.2) $ (24.0)
====== ====== ======= =======
Amounts recognized in the balance sheets
consist of:
Prepaid benefit cost....................... $ 43.0 $ 42.0
Accrued benefit cost....................... (24.6) (23.2) $ (24.2) $ (24.0)
Intangible asset........................... 2.6 3.2 -- --
Deferred tax assets........................ 5.0 4.6 -- --
Accumulated other comprehensive loss....... 7.3 6.8 -- --
------ ------ ------- -------
Net amount recognized at end of year......... $ 33.3 $ 33.4 $ (24.2) $ (24.0)
====== ====== ======= =======
</TABLE>
Included in the pension plan assets at December 31, 1999 and 1998 are GM
Class H common stock of $0.6 million and $0.4 million, GM $1 2/3 common stock
of $0.3 million and $1.3 million and GMAC bonds of $0.5 million and $0.6
million, respectively.
<TABLE>
<CAPTION>
Other
Pension Postretirement
Benefits Benefits
----------- ----------------
1999 1998 1999 1998
----- ----- ------- -------
<S> <C> <C> <C> <C>
Weighted-average assumptions as of December 31
Discount rate.................................... 7.75% 6.75% 7.50% 6.50%
Expected return on plan assets................... 9.50% 9.50% N/A N/A
Rate of compensation increase.................... 5.00% 5.00% N/A N/A
</TABLE>
A-18
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 10: Retirement Programs and Other Postretirement Benefits--Concluded
For measurement purposes, a 9.0% annual rate of increase per capita cost of
covered health care benefits was assumed for 2000. The rate was assumed to
decrease gradually 0.5% per year to 6.0% in 2006.
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
------------------- ---------------
(Dollars in Millions) 1999 1998 1997 1999 1998 1997
- -------------------- ----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Benefits earned during the year.......... $14.5 $13.6 $11.4 $0.6 $0.5 $0.5
Interest accrued on benefits earned in
prior years............................. 23.9 22.5 22.4 1.5 1.2 1.2
Expected return on assets................ (28.5) (26.3) (24.7) -- -- --
Amortization components
Asset at date of adoption.............. -- (2.7) (3.0) -- -- --
Amount resulting from changes in plan
provisions............................ 0.4 0.4 0.4 -- -- --
Net amount resulting from changes in
plan experience and
actuarial assumptions................. 4.7 2.7 2.0 -- (0.1) (0.2)
----- ----- ----- ---- ---- ----
Net periodic benefit cost................ $15.0 $10.2 $ 8.5 $2.1 $1.6 $1.5
===== ===== ===== ==== ==== ====
</TABLE>
The projected benefit obligation and accumulated benefit obligation for the
pension plans with accumulated benefit obligations in excess of plan assets
were $52.9 million and $42.4 million, respectively, as of December 31, 1999
and $49.8 million and $38.9 million, respectively, as of December 31, 1998.
The pension plans with accumulated benefit obligations in excess of plan
assets do not have any underlying assets.
A one-percentage point change in assumed health care cost trend rates would
have the following effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
(Dollars in Millions) Point Increase Point Decrease
--------------------- -------------- --------------
<S> <C> <C>
Effect on total of service and interest cost
components................................... $0.4 $(0.3)
Effect on postretirement benefit obligation... 3.2 (2.8)
</TABLE>
Hughes maintains 401(k) plans for qualified employees. A portion of
employee contributions are matched by Hughes and amounted to $12.5 million,
$10.6 million and $9.6 million in 1999, 1998 and 1997, respectively.
Hughes has disclosed certain amounts associated with estimated future
postretirement benefits other than pensions and characterized such amounts as
"other postretirement benefit obligation." Notwithstanding the recording of
such amounts and the use of these terms, Hughes does not admit or otherwise
acknowledge that such amounts or existing postretirement benefit plans of
Hughes (other than pensions) represent legally enforceable liabilities of
Hughes.
Note 11: Stockholder's Equity
In connection with the Hughes Transactions, Hughes was recapitalized on
December 17, 1997 at which time 1,000 shares of $1.00 par value common stock,
representing all of the authorized and outstanding common stock of Hughes,
were issued to GM. Prior to December 17, 1997, the equity of Hughes was
comprised of Parent Company's net investment in its telecommunications and
space business.
A-19
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 11: Stockholder's Equity--Concluded
The following represents changes in the components of accumulated other
comprehensive income (loss), net of taxes, as of December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- ---------------------
Pre- Tax Pre- Tax Pre-
tax (Credit) Net tax (Credit) Net tax Tax Net
(Dollars in Millions) Amount Expense Amount Amount Expense Amount Amount Expense Amount
- --------------------- ------ -------- ------ ------ -------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Minimum pension
liability adjustments.. $ (0.8) $ (0.3) $ (0.5) $ (0.8) $(0.3) $(0.5) -- -- --
Foreign currency
translation
adjustments............ $ 11.0 -- $ 11.0 $ 3.8 -- $ 3.8 $0.6 -- $0.6
Unrealized gains on
securities............. $767.3 $317.4 $449.9 $ 3.0 $ 1.2 $ 1.8 -- -- --
Reclassification
adjustment for gains
included in net income. -- -- -- $(11.8) $(4.7) $(7.1) -- -- --
</TABLE>
Note 12: Incentive Plans
Under the Hughes Electronics Corporation Incentive Plan ("the Plan"), as
approved by the GM Board of Directors in 1999, shares, rights or options to
acquire up to 77.6 million shares of GM Class H common stock on a cumulative
basis were available for grant through December 31, 1999.
The GM Executive Compensation Committee may grant options and other rights
to acquire shares of GM Class H common stock under the provisions of the Plan.
The option price is equal to 100% of the fair market value of GM Class H
common stock on the date the options are granted. These nonqualified options
generally vest over two to four years, expire ten years from date of grant and
are subject to earlier termination under certain conditions.
As part of the Hughes Transactions, the outstanding options of former
Hughes employees who continued as Hughes employees were converted on December
18, 1997 into options to purchase recapitalized GM Class H common stock.
Recognition of compensation expense was not required in connection with the
conversion.
Changes in the status of outstanding options were as follows:
<TABLE>
<CAPTION>
Shares Under Weighted-Average
GM Class H Common Stock Option Exercise Price
----------------------- ------------ ----------------
<S> <C> <C>
Outstanding at December 31, 1997............... 13,961,615 $29.08
Granted........................................ 4,180,525 51.02
Exercised...................................... (1,506,241) 23.22
Terminated..................................... (937,179) 31.79
---------- ------
Outstanding at December 31, 1998............... 15,698,720 $35.32
Granted........................................ 5,004,275 48.23
Exercised...................................... (3,436,057) 29.84
Terminated..................................... (1,431,582) 40.46
---------- ------
Outstanding at December 31, 1999............... 15,835,356 $39.84
========== ======
</TABLE>
A-20
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 12: Incentive Plans--Concluded
The following table summarizes information about the Plan stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- --------------------------
Weighted-
Average
Remaining
Range of Contractual Weighted- Weighted-
Exercise Number Life Average Number Average
Prices Outstanding (years) Exercise Price Exercisable Exercise Price
- -------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$9.86 to
$20.00 326,686 2.9 $15.06 326,686 $15.06
20.01 to
30.00 663,549 4.9 22.24 663,549 22.24
30.01 to
40.00 6,634,506 7.1 31.74 3,842,272 32.01
40.01 to
50.00 5,573,775 9.0 46.37 17,712 47.63
50.01 to
85.72 2,636,840 8.5 55.78 1,031,719 54.79
- -------- ---------- --- ------ --------- ------
$9.86 to
$85.72 15,835,356 7.8 $39.84 5,881,938 $33.59
======== ========== === ====== ========= ======
</TABLE>
At December 31, 1999, 43.1 million shares were available for grant under
the Plan subject to GM Executive Compensation Committee approval.
On May 5, 1997, PanAmSat adopted a stock option incentive plan with terms
similar to the Plan. As of December 31, 1999, PanAmSat had 3,455,832 options
outstanding to purchase its common stock with exercise prices ranging from
$29.00 per share to $59.75 per share. The options vest ratably over three to
four years and have a remaining life ranging from seven years to nine years.
At December 31, 1999, 439,420 options were exercisable at a weighted average
exercise price of $36.46. The PanAmSat options have been considered in the
following pro forma analysis.
The following table presents pro forma information as if Hughes recorded
compensation cost using the fair value of issued options on their grant date,
as required by SFAS No. 123, Accounting for Stock Based Compensation:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
--------------------- ------- ------ ------
<S> <C> <C> <C>
Earnings (loss) used for computation of available
separate consolidated net income (loss)
as reported....................................... $(321.2) $271.7 $470.7
pro forma......................................... (384.9) 186.7 427.2
</TABLE>
The pro forma amounts for compensation cost are not indicative of the
effects on operating results for future periods.
For stock options granted prior to the Hughes Transactions, the estimated
compensation cost was based upon an allocation from former Hughes which was
calculated using the Black-Scholes valuation model for estimation of the fair
value of its options. The following table presents the estimated weighted-
average fair value of options granted and the assumptions used for the 1999,
1998 and 1997 calculations (for 1998 and 1997, stock volatility was estimated
based upon a three-year average derived from a study of a Hughes determined
peer group):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Estimated fair value per option granted.............. $24.02 $22.78 $26.90
Average exercise price per option granted............ 48.23 51.02 31.71
Expected stock volatility............................ 38.0% 32.8% 32.5%
Risk-free interest rate.............................. 5.2% 5.6% 5.9%
Expected option life (in years)...................... 7.0 6.2 7.0
</TABLE>
A-21
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 13: Other Income and Expenses
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
--------------------- ------- ------- ------
<S> <C> <C> <C>
Equity losses from unconsolidated affiliates....... $(189.2) $(128.3) $(72.2)
Gain on PanAmSat merger............................ -- -- 489.7
Gain from sale of common stock of an affiliate..... 39.4 -- --
Other.............................................. 13.5 (23.5) (28.9)
------- ------- ------
Total other, net............................... $(136.3) $(151.8) $388.6
======= ======= ======
</TABLE>
Equity losses from unconsolidated affiliates at December 31, 1999 are
primarily comprised of losses at DIRECTV Japan, of which Hughes owns 42.2%,
Hughes Ispat Limited, of which Hughes owns 45%, Galaxy Entertainment de
Venezuela, C.A., of which Hughes owns 20% and American Mobile Satellite
Corporation ("AMSC"). During the third quarter of 1999, AMSC issued new shares
of its common stock, resulting in Hughes recording an increase in its
investment in AMSC of $50.2 million with an offsetting adjustment to other
comprehensive income (loss), a separate component of stockholder's equity. The
issuance of the new shares diluted Hughes' ownership in AMSC to 14%. Since
Hughes no longer exerted significant influence over AMSC's operations, the
accounting for the AMSC investment was converted from the equity method to the
cost basis of accounting.
Note 14: Related-Party Transactions
In the ordinary course of its operations, Hughes provides
telecommunications services and sells electronic components to, and purchases
sub-components from, related parties.
The following table summarizes significant related-party transactions:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
--------------------- ----- ----- -----
<S> <C> <C> <C>
Revenues.................................................. $46.5 $40.5 $25.0
Costs and expenses
Purchases............................................... 35.2 29.0 38.4
Allocation of corporate expenses........................ -- -- 57.9
Allocated interest...................................... -- -- 31.6
</TABLE>
Note 15: Available Separate Consolidated Net Income (Loss)
Holders of GM Class H common stock have no direct rights in the equity or
assets of Hughes, but rather have rights in the equity and assets of GM (which
includes 100% of the stock of Hughes).
Amounts available for the payment of dividends on GM Class H common stock
are based on the Available Separate Consolidated Net Income (Loss) ("ASCNI")
of Hughes. The ASCNI of Hughes is determined quarterly and is equal to the
separate consolidated net income (loss) of Hughes, excluding the effects of GM
purchase accounting adjustments arising from GM's acquisition of Hughes and
including the effects of preferred dividends paid and/or payable to GM
(earnings (loss) used for computation of ASCNI), multiplied by a fraction, the
numerator of which is equal to the weighted-average number of shares of GM
Class H common stock outstanding during the period (124.7 million, 105.3
million and 101.5 million during 1999, 1998 and 1997, respectively) and the
denominator of which is a number equal to the weighted-average number of
shares of GM Class H common stock which, if issued and outstanding, would
represent 100% of the tracking stock interest in the earnings of Hughes
(Average Class H dividend base). The Average Class H dividend base was 418.5
million during 1999 and 399.9 million during 1998 and 1997. Upon conversion of
the GM Series H preference stock into GM Class H common stock, both the
numerator and the denominator used in the computation of ASCNI will increase
by the number of shares of the GM Class H common stock issued (see further
discussion in Note 16). In addition, the denominator used in determining the
ASCNI of Hughes may be adjusted from time to time as deemed
A-22
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 15: Available Separate Consolidated Net Income (Loss)--Concluded
appropriate by the GM Board of Directors ("GM Board") to reflect subdivisions
or combinations of the GM Class H common stock, certain transfers of capital
to or from Hughes, the contribution of shares of capital stock of GM to or for
the benefit of Hughes employees and the retirement of GM Class H common stock
purchased by Hughes. The GM Board's discretion to make such adjustments is
limited by criteria set forth in GM's Restated Certificate of Incorporation.
In connection with the PRIMESTAR and USSB transactions (see further
discussion in Note 17), GM contributed to Hughes an amount of cash sufficient
to enable Hughes to purchase from GM, for fair value as determined by the GM
Board, the number of shares of GM Class H common stock delivered by Hughes. In
accordance with the GM certificate of incorporation, the Class H dividend base
was increased to reflect that number of shares. The number of shares issued as
part of the PRIMESTAR acquisition and the USSB merger have been included in
the calculation of both the numerator and denominator of the fraction
described above since the consummation dates of the transactions.
Effective January 1, 1999, shares of Class H common stock delivered by GM
in connection with the award of such shares to and the exercise of stock
options by employees of Hughes increases the numerator and denominator of the
fraction referred to above. Prior to January 1, 1999, the exercise of stock
options did not affect the GM Class H dividend base (denominator). From time
to time, in anticipation of exercises of stock options, Hughes purchases Class
H common stock on the open market. Upon purchase, these shares are retired and
therefore decrease the numerator and denominator of the fraction referred to
above.
Dividends may be paid on the GM Class H common stock only when, as, and if
declared by GM's Board of Directors in its sole discretion. Dividends may be
paid on GM Class H common stock to the extent of the amount initially
determined to be available for the payment of dividends on GM Class H common
stock, plus the portion of earnings of GM after the closing of the Hughes
Transactions attributed to GM Class H common stock. The GM Board determined
that the amount initially available for the payment of dividends on shares of
the recapitalized GM Class H common stock was the cumulative amount available
for the payment of dividends on GM Class H common stock immediately prior to
the closing of the Hughes Transactions, reduced by a pro rata portion of the
net reduction in GM's total stockholder's equity resulting from the Hughes
Transactions. As of December 31, 1999, the amount available for the payment of
dividends on GM Class H common stock was $5.4 billion. The GM Board does not
currently intend to pay cash dividends on the recapitalized GM Class H common
stock.
Note 16: Hughes Series A Preferred Stock
On June 24, 1999, as part of a strategic alliance with Hughes, America
Online ("AOL") invested $1.5 billion in shares of GM Series H 6.25%
Automatically Convertible Preference Stock ("GM Series H Preference Stock").
The GM Series H preference stock will automatically convert into GM Class H
common stock in three years based upon a variable conversion factor linked to
the GM Class H common stock price at the time of conversion, and accrues
quarterly dividends at a rate of 6.25% per year. It may be converted earlier
in certain limited circumstances. GM immediately invested the $1.5 billion
received from AOL in shares of Hughes Series A Preferred Stock designed to
correspond to the financial terms of the GM Series H preference stock.
Dividends on the Hughes Series A Preferred Stock are payable to GM quarterly
at an annual rate of 6.25%. These preferred stock dividends payable to GM will
reduce Hughes' earnings used for computation of the ASCNI of Hughes, which
will have an effect equivalent to the payment of dividends on the Series H
preference stock as if those dividends were paid by Hughes. Upon conversion of
the GM Series H preference stock into GM Class H common stock, Hughes will
redeem the Series A Preferred Stock through a cash payment to GM equal to the
fair market value of the GM Class H common stock issuable upon the conversion.
Simultaneous with GM's receipt of the cash redemption proceeds, GM will make a
capital contribution to Hughes of the same amount. In connection with this
capital contribution, the denominator of the fraction used in the computation
of the ASCNI
A-23
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 16: Hughes Series A Preferred Stock--Concluded
of Hughes will be increased by the corresponding number of shares of GM Class
H common stock issued. Accordingly, upon conversion of the GM Series H
preference stock into GM Class H common stock, both the numerator and
denominator used in the computation of ASCNI will increase by the amount of
the GM Class H common stock issued.
Note 17: Acquisitions, Investments and Divestitures
Acquisitions and Investments
In September and November of 1999, DIRECTV Japan, Hughes' 42.2% owned
affiliate, raised a total of approximately $281 million through the issuance
of bonds, convertible into common stock, to five of its major shareholders,
including $244.7 million issued to Hughes.
On July 28, 1999, GLA acquired GLB, the exclusive distributor of DIRECTV
services in Brazil, from Tevecap S.A. for approximately $114.0 million plus
the assumption of debt. In connection with the transaction, Tevecap also sold
its 10% equity interest in GLA to Hughes and The Cisneros Group of Companies,
the remaining GLA partners, which increased Hughes' ownership interest in GLA
to 77.8%. As part of the transaction, Hughes also increased its ownership
interest in SurFin from 59.1% to 75.0%. The total consideration paid in the
transactions amounted to approximately $101.1 million.
On May 20, 1999, Hughes acquired by merger all of the outstanding capital
stock of U.S. Satellite Broadcasting Company ("USSB"), a provider of premium
subscription television programming via the digital broadcasting system that
it shares with DIRECTV. The total consideration of approximately $1.6 billion
paid in July 1999, consisted of approximately $0.4 billion in cash and 22.6
million shares of Class H common stock.
On April 28, 1999, Hughes completed the acquisition of PRIMESTAR's 2.3
million subscriber medium-power direct-to-home satellite business. The
purchase price consisted of $1.1 billion in cash and 4.9 million shares of
Class H common stock, for a total purchase price of $1.3 billion. As part of
the agreement to acquire PRIMESTAR, Hughes agreed to purchase the high-power
satellite assets and related orbital frequencies of Tempo Satellite Inc., a
wholly-owned subsidiary of TCI Satellite Entertainment Inc. The purchase price
for the Tempo Satellite assets consisted of $500 million in cash. Of this
purchase price, $150 million was paid on March 10, 1999 for a satellite that
has not yet been launched and the remaining $350 million was paid on June 4,
1999 for an in-orbit satellite and 11 related satellite orbital frequencies.
Hughes agreed, in connection with its acquisition of PRIMESTAR, to exit the
medium-power business prior to May 1, 2001. Hughes formulated a detailed exit
plan during the second quarter of 1999 and immediately began to migrate the
medium-power customers to DIRECTV's high-power platform. Accordingly, Hughes
accrued exit costs of $150 million in determining the purchase price allocated
to the net assets acquired. The principal components of such exit costs
include penalties to terminate assumed contracts and costs to remove medium-
power equipment from customer premises. The timing of subscriber migration and
exit of the medium-power business is currently estimated to occur by the end
of 2000, but is subject to change pending final management determination,
which could result in an adjustment to the amount of accrued exit costs. The
amount of accrued exit costs remaining at December 31, 1999 was $123.9
million.
In February 1999, Hughes acquired an additional ownership interest in Grupo
Galaxy Mexicana, S.R.L. de C.V. ("GGM"), a Latin America local operating
company which is the exclusive distributor of DIRECTV in Mexico, from Grupo
MVS, S.R.L. de C.V. Hughes' equity ownership represents 49.0% of the voting
equity and all of the non-voting equity of GGM. In October 1998, Hughes
acquired from Grupo MVS an additional 10.0% interest in GLA, increasing
Hughes' ownership interest to 70.0%. Hughes also acquired an additional 19.8%
interest in SurFin, a company providing financing of subscriber receiver
equipment for certain local operating
A-24
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 17: Acquisitions, Investments and Divestitures--Continued
companies located in Latin America and Mexico, increasing Hughes' ownership
percentage from 39.3% to 59.1%. The aggregate purchase price for these
transactions was $197.0 million in cash.
In May 1998, Hughes purchased an additional 9.5% interest in PanAmSat for
$851.4 million in cash, increasing its ownership interest in PanAmSat to
81.0%. PanAmSat was originally acquired in May 1997, when Hughes and PanAmSat
completed the merger of their respective satellite service operations into a
new publicly-held company, which retained the name PanAmSat Corporation.
Hughes contributed its Galaxy satellite services business in exchange for a
71.5% interest in the new company. Existing PanAmSat stockholders received a
28.5% interest in the new company and $1.5 billion in cash. Such cash
consideration and other funds required to consummate the merger were funded by
new debt financing totaling $1,725.0 million borrowed from GM, which was
subsequently repaid in December 1997. The PanAmSat merger was treated as a
partial sale of the Galaxy business by Hughes and resulted in a one-time pre-
tax gain of $489.7 million ($318.3 million after-tax).
The financial information included herein reflects the acquisitions
discussed above from their respective dates of acquisition. The acquisitions
were accounted for by the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on the estimated fair values at the date of acquisition. The
excess of the purchase price over the estimated fair values of the net assets
acquired has been recorded as goodwill, resulting in goodwill additions of
$3,612.4 million and $702.9 million for the years ended December 31, 1999 and
1998, respectively.
The December 31, 1999 financial statements reflect a preliminary allocation
of the purchase price for the PRIMESTAR transaction based upon information
currently available. Adjustments relating to the tangible assets, including
equipment located on customer premises; intangible assets, including customer
lists and dealer network; and accrued liabilities for programming contracts
and leases with above-market rates are estimates pending the completion of
independent appraisals currently in process. Additionally, the adjustment to
recognize the benefit of net operating loss carryforwards of USSB represents a
preliminary estimate pending further review and analysis by Hughes management.
The foregoing appraisals, review and analysis are expected to be completed by
March 31, 2000. Accordingly, the final purchase price allocations may be
different from the amounts reflected herein.
The following selected unaudited pro forma information is being provided to
present a summary of the combined results of Hughes and USSB and PRIMESTAR for
1999 and 1998 as if the acquisitions had occurred as of the beginning of the
respective periods, giving effect to purchase accounting adjustments. The pro
forma data presents only significant transactions, is presented for
informational purposes only and may not necessarily reflect the results of
operations of Hughes had these companies operated as part of Hughes for each
of the periods presented, nor are they necessarily indicative of the results
of future operations. The pro forma information excludes the effect of non-
recurring charges.
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998
--------------------- -------- --------
<S> <C> <C>
Total Revenues........................................... $6,350.3 $5,318.6
Income (loss) before extraordinary item and cumulative
effect of accounting change............................. (297.1) 160.0
Net income (loss)........................................ (297.1) 150.8
Pro forma available separate consolidated net income
(loss).................................................. (103.1) 53.4
</TABLE>
Divestitures
On January 13, 2000, Hughes announced that it had reached an agreement to
sell its satellite systems manufacturing businesses to The Boeing Company
("Boeing") for $3.75 billion in cash. The final transaction, which is subject
to regulatory approval, is expected to close in the second or third quarter of
2000. The financial
A-25
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 17: Acquisitions, Investments and Divestitures--Concluded
results for the satellite systems manufacturing businesses are treated as
discontinued operations for all periods presented herein.
On December 15, 1997, Hughes sold substantially all of the assets and
liabilities of the Hughes Avicom business to Rockwell Collins, Inc. for cash,
which resulted in an after-tax gain of $62.8 million. Hughes Avicom is treated
as a discontinued operation for all periods prior to its disposition.
Summarized financial information for the discontinued operations follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
--------------------- -------- -------- --------
<S> <C> <C> <C>
Revenues.......................................... $1,780.4 $2,483.3 $2,392.5
Income tax provision.............................. 42.9 97.6 74.7
Net income........................................ 99.8 196.4 170.6
</TABLE>
Hughes also announced on January 13, 2000, the discontinuation of its
mobile cellular and narrowband local loop product lines at Hughes Network
Systems. As a result of this decision, Hughes recorded a fourth quarter 1999
pre-tax charge to continuing operations of $272.1 million. The charge
represents the write-off of receivables and inventories, licenses, software
and equipment with no alternative use.
Also, in December 1997, Hughes repurchased from AT&T for $161.8 million, a
2.5% equity interest in DIRECTV, ending AT&T's marketing agreement to
distribute the DIRECTV direct broadcast satellite television service and
DIRECTV(TM) receiver equipment.
Note 18: Derivative Financial Instruments and Risk Management
In the normal course of business, Hughes enters into transactions that
expose it to risks associated with foreign exchange rates. Hughes utilizes
derivative instruments in an effort to mitigate these risks. Hughes' policy is
to not enter into speculative derivative instruments for profit or execute
derivative instrument contracts for which there are no underlying exposures.
Instruments used as hedges must be effective at reducing the risk associated
with the exposure being hedged and designated as a hedge at the inception of
the contract. Accordingly, changes in market values of hedge instruments are
highly correlated with changes in market values of the underlying
transactions, both at the inception of the hedge and over the life of the
hedge contract.
Hughes primarily uses foreign exchange-forward contracts to hedge firm
commitments denominated in foreign currencies. Foreign exchange-forward
contracts are legal agreements between two parties to purchase and sell a
foreign currency, for a price specified at the contract date, with delivery
and settlement in the future. The total notional amounts of contracts afforded
hedge accounting treatment at December 31, 1999 and 1998 were not significant.
Hughes is exposed to credit risk in the event of non-performance by the
counterparties to its foreign exchange-forward contracts. While Hughes
believes this risk is remote, credit risk is managed through the periodic
monitoring and approval of financially sound counterparties.
Note 19: Segment Reporting
Hughes' segments, which are differentiated by their products and services,
include Direct-To-Home Broadcast, Satellite Services, and Network Systems.
Direct-To-Home Broadcast is engaged in acquiring, promoting, selling and/or
distributing digital entertainment programming via satellite to residential
and commercial customers. Satellite Services is engaged in the selling,
leasing and operating of satellite transponders and providing services for
cable television systems, news companies, Internet service providers and
private business networks. Network Systems is engaged in manufacturing DIRECTV
receiver equipment and providing satellite wireless communications ground
equipment and business communications services. Other includes the corporate
office and other entities.
A-26
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 19: Segment Reporting--Continued
Selected information for Hughes' operating segments are reported as
follows:
<TABLE>
<CAPTION>
Direct-
To-Home Satellite Network
(Dollars in Millions) Broadcast Services Systems Other Eliminations Total
- --------------------- --------- --------- -------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1999
External Revenues....... $3,781.7 $ 673.6 $1,091.7 $ 13.3 -- $5,560.3
Intersegment Revenues... 3.3 137.0 293.0 2.5 $(435.8) --
-------- ------- -------- ------- ------- --------
Total Revenues.......... $3,785.0 $ 810.6 $1,384.7 $ 15.8 $(435.8) $5,560.3
-------- ------- -------- ------- ------- --------
Operating Profit (Loss). $ (292.1) $ 338.3 $ (227.3) $(143.8) $(103.1) $ (428.0)
Depreciation and
Amortization........... 312.0 280.5 49.2 20.8 (11.8) 650.7
Intangibles, net........ 4,308.5 2,368.6 46.9 682.0 -- 7,406.0
Segment Assets.......... 9,056.6 5,984.7 1,167.3 2,765.9 (377.5) 18,597.0
Capital Expenditures
(1).................... 516.9 956.4 35.0 170.0 (13.0) 1,665.3
-------- ------- -------- ------- ------- --------
1998
External Revenues....... $1,813.7 $ 643.8 $1,000.6 $ 22.5 -- $3,480.6
Intersegment Revenues... 2.4 123.5 76.1 1.4 $(203.4) --
-------- ------- -------- ------- ------- --------
Total Revenues.......... $1,816.1 $ 767.3 $1,076.7 $ 23.9 $(203.4) $3,480.6
-------- ------- -------- ------- ------- --------
Operating Profit (Loss). $ (228.1) $ 318.3 $ 10.9 $(114.2) $ (33.1) $ (46.2)
Depreciation and
Amortization........... 102.3 235.0 41.7 13.9 (5.0) 387.9
Intangibles, net........ -- 2,433.5 53.6 698.8 -- 3,185.9
Segment Assets.......... 2,190.4 5,890.5 1,299.0 3,470.6 (233.1) 12,617.4
Capital Expenditures
(1).................... 230.8 921.7 40.0 3.3 133.0 1,328.8
-------- ------- -------- ------- ------- --------
1997
External Revenues....... $1,276.9 $ 537.3 $ 998.3 $ 25.8 -- $2,838.3
Intersegment Revenues... -- 92.6 13.0 2.7 $(108.3) --
-------- ------- -------- ------- ------- --------
Total Revenues.......... $1,276.9 $ 629.9 $1,011.3 $ 28.5 $(108.3) $2,838.3
-------- ------- -------- ------- ------- --------
Operating Profit (Loss). $ (254.6) $ 292.9 $ 74.1 $ (63.7) $ (5.2) $ 43.5
Depreciation and
Amortization........... 86.1 145.2 32.0 -- (3.0) 260.3
Intangibles, net........ -- 2,498.5 -- 63.6 -- 2,562.1
Segment Assets.......... 1,408.7 5,682.4 1,215.6 3,918.0 (83.2) 12,141.5
Capital Expenditures
(1).................... 105.6 625.7 43.1 0.4 (62.1) 712.7
-------- ------- -------- ------- ------- --------
</TABLE>
- --------
(1) Includes expenditures related to satellites in segments as follows: $136.0
million and $70.2 million in 1999 and 1998, respectively, for Direct-To-
Home Broadcast segment; $532.8 million, $726.3 million and $606.1 million
in 1999, 1998 and 1997, respectively, for Satellite Services segment.
Satellite Services segment also includes $369.5 million and $155.5 million
in 1999 and 1998, respectively, related to the early buy-out of satellite
sale-leasebacks.
A reconciliation of operating profit (loss) to income (loss) from
continuing operations before income taxes, minority interests, extraordinary
item and cumulative effect of accounting change, as shown in the Statement of
Operations and Available Separate Consolidated Net Income (Loss), follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1999 1998 1997
--------------------- ------- ------- ------
<S> <C> <C> <C>
Operating profit (loss)........................... $(428.0) $ (46.2) $ 43.5
Interest income................................... 27.0 112.3 33.0
Interest expense.................................. (122.7) (17.5) (91.0)
Other, net........................................ (136.3) (151.8) 388.6
------- ------- ------
Income (loss) from continuing operations before
income taxes, minority interests, extraordinary
item and cumulative effect of accounting change.. $(660.0) $(103.2) $374.1
======= ======= ======
</TABLE>
A-27
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 19: Segment Reporting--Concluded
The following table presents revenues earned from customers located in
different geographic areas. Property is grouped by its physical location. All
satellites are reported as United States assets.
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
Net Net Net
Total Property & Total Property & Total Property &
(Dollars in Millions) Revenues Satellites Revenues Satellites Revenues Satellites
- --------------------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
North America
United States......... $4,407.9 $4,891.8 $2,645.6 $3,830.6 $1,781.5 $3,178.6
Canada and Mexico..... 114.6 51.8 56.9 2.0 44.8 --
-------- -------- -------- -------- -------- --------
Total North America..... 4,522.5 4,943.6 2,702.5 3,832.6 1,826.3 3,178.6
-------- -------- -------- -------- -------- --------
Europe
United Kingdom........ 175.2 10.5 111.3 14.1 25.8 10.4
Other................. 47.6 0.2 61.2 0.3 121.7 0.1
-------- -------- -------- -------- -------- --------
Total Europe............ 222.8 10.7 172.5 14.4 147.5 10.5
-------- -------- -------- -------- -------- --------
Latin America
Brazil................ 157.7 151.1 150.9 4.6 102.1 --
Other................. 245.3 9.8 104.2 11.1 90.4 --
-------- -------- -------- -------- -------- --------
Total Latin America..... 403.0 160.9 255.1 15.7 192.5 --
-------- -------- -------- -------- -------- --------
Asia
Japan................. 103.6 0.7 67.5 0.5 21.1 0.5
India................. 85.1 12.4 79.9 14.7 41.9 12.7
China................. 27.7 1.2 63.4 1.7 154.3 1.5
Other................. 108.5 0.5 65.5 0.6 359.9 0.4
-------- -------- -------- -------- -------- --------
Total Asia.............. 324.9 14.8 276.3 17.5 577.2 15.1
-------- -------- -------- -------- -------- --------
Total Middle East....... 11.9 -- 20.0 -- 47.2 --
Total Africa............ 75.2 0.3 54.2 0.3 47.6 --
-------- -------- -------- -------- -------- --------
Total............... $5,560.3 $5,130.3 $3,480.6 $3,880.5 $2,838.3 $3,204.2
======== ======== ======== ======== ======== ========
</TABLE>
Note 20: Commitments and Contingencies
In connection with the 1997 spin-off of the defense electronics business of
Hughes' predecessor as part of the Hughes restructuring transactions and the
subsequent merger of that business with Raytheon Company, the terms of the
merger agreement provided processes for resolving disputes that might arise in
connection with post-closing financial adjustments that were also called for
by the terms of the merger agreement. These financial adjustments might
require a cash payment from Raytheon to Hughes or vice versa.
A dispute currently exists regarding the post-closing adjustments which
Hughes and Raytheon have proposed to one another and related issues regarding
the adequacy of disclosures made by Hughes to Raytheon in the period prior to
consummation of the merger. Hughes and Raytheon are proceeding with the
dispute resolution process. It is possible that the ultimate resolution of the
post-closing financial adjustment and of related disclosure issues may result
in Hughes making a payment to Raytheon that would be material to Hughes.
However, the amount of any payment that either party might be required to make
to the other cannot be determined at this time. Hughes intends to vigorously
pursue resolution of the disputes through the arbitration processes, opposing
the adjustments proposed by Raytheon, and seeking the payment from Raytheon
that Hughes has proposed.
A-28
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 20: Commitments and Contingencies--Continued
On June 3, 1999, the National Rural Telecommunications Cooperative ("NRTC")
filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc.,
which Hughes refers to together in this description as "DIRECTV", in the U.S.
District Court for the Central District of California, alleging that DIRECTV
has breached the DBS Distribution Agreement with the NRTC. The DBS
Distribution Agreement provides the NRTC with certain rights, in certain
specified portions of the United States, with respect to DIRECTV programming
delivered over 27 of the 32 frequencies at the 101(degrees) west longitude
orbital location. The NRTC claims that DIRECTV has wrongfully deprived it of
the exclusive right to distribute programming formerly provided by USSB over
the other five frequencies at 101(degrees). DIRECTV denies that the NRTC is
entitled to exclusive distribution rights to the former USSB programming
because, among other things, the NRTC's exclusive distribution rights are
limited to programming distributed over 27 of the 32 frequencies at
101(degrees). The NRTC's complaint seeks, in the alternative, the right to
distribute former USSB programming on a non-exclusive basis and the recovery
of related revenues from the date USSB was acquired by Hughes. DIRECTV
maintains that the NRTC's right under the DBS Distribution Agreement is to
market and sell the former USSB programming as its agent and the NRTC is not
entitled to the claimed revenues. DIRECTV intends to vigorously defend against
the NRTC claims. DIRECTV has also filed a counterclaim against the NRTC
seeking a declaration of the parties' rights under the DBS Distribution
Agreement.
On August 26, 1999, the NRTC filed a second lawsuit against DIRECTV
alleging that DIRECTV has breached the DBS Distribution Agreement. In this
lawsuit, the NRTC is asking the court to require DIRECTV to pay the NRTC a
proportionate share of unspecified financial benefits that DIRECTV derives
from programming providers and other third parties. DIRECTV denies that it
owes any sums to the NRTC on account of the allegations in these matters and
plans to vigorously defend itself against these claims.
Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc., the two
largest NRTC affiliates, filed an action on January 11, 2000 against DIRECTV
in the U.S. District Court in Los Angeles. The plaintiffs allege, among other
things, that DIRECTV has interfered with their contractual relationship with
the NRTC. The plaintiffs plead that their rights and damages are derivative of
the rights and claims asserted by the NRTC in its two cases against DIRECTV.
The plaintiffs also allege that DIRECTV has interfered with their contractual
relationships with manufacturers and distributors by preventing those parties
from selling receiving equipment to the plaintiffs' dealers. DIRECTV denies
that it has wrongfully interfered with any of plaintiffs' business
relationships and will vigorously defend the lawsuit. Although an amount of
loss, if any, cannot be estimated at this time, an unfavorable outcome could
be reached in the NRTC and Pegasus litigation that could be material to
Hughes' results of operations or financial position.
General Electric Capital Corporation ("GECC") and DIRECTV, Inc. entered
into a contract on July 31, 1995, in which GECC agreed to establish and manage
a private label consumer credit program for consumer purchases of hardware and
related DIRECTV programming. Under the contract, GECC also agreed to provide
certain related services to DIRECTV, including credit risk scoring, billing
and collections services. DIRECTV agreed to act as a surety for loans
complying with the terms of the contract. Hughes guaranteed DIRECTV's
performance under the contract. A complaint and counterclaim have been filed
by the parties in the U.S. District Court for the District of Connecticut
concerning GECC's performance and DIRECTV's obligation to act as a surety.
GECC claims damages from DIRECTV in excess of $140 million. DIRECTV is seeking
damages from GECC in excess of $45 million. Hughes intends to vigorously
contest GECC's allegations and pursue its own contractual rights and remedies.
Hughes does not believe that the litigation will have a material adverse
impact on its results of operations or financial position. Pretrial discovery
is completed. No specific trial date has been set, but a trial may be held in
2000.
There is a pending grand jury investigation into whether Hughes should be
accused of criminal violations of the export control laws arising out of the
participation of two of its employees on a committee formed to review the
findings of Chinese engineers regarding the failure of a Long March rocket in
China in 1996. Hughes
A-29
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 20: Commitments and Contingencies--Continued
is also subject to the authority of the State Department to impose sanctions
for non-criminal violations of the Arms Export Control Act. The possible
criminal and/or civil sanctions could include fines as well as debarment from
various export privileges and participating in government contracts. If Hughes
were to enter into a settlement of this matter prior to the closing of the
Boeing transaction that involves a debarment from sales to the U.S. government
or a material suspension of Hughes' export licenses or other material
limitation on projected business activities of the satellite systems
manufacturing businesses, Boeing would not be obligated to complete the
purchase of Hughes' satellite systems manufacturing businesses. Hughes does
not expect the grand jury investigation or State Department review to result
in a material adverse effect upon its business.
Hughes Space and Communications International, a wholly owned subsidiary of
Hughes Space and Communications Company, has certain contracts with ICO Global
Communications Operations to build the satellites and related components for a
global wireless communications system. Hughes owns approximately 2.6% of the
equity in ICO's parent company (which Hughes has agreed to sell to Boeing as
part of the sale of Hughes' satellite systems manufacturing businesses). On
August 27, 1999, the ICO parent company filed for bankruptcy protection under
Chapter 11 in U.S. Bankruptcy Court in Wilmington, Delaware. On December 3,
1999, the U.S. Bankruptcy Court in this case granted final approval of debtor-
in-possession financing in the amount of $500 million to a group led by Craig
McCaw, the Chairman of Teledesic LLC, a company establishing a global
broadband Internet-in-the-Sky satellite communications network. In October
1999, McCaw and his group also agreed to provide an additional $700 million in
financing upon the ICO parent's emergence from bankruptcy court protection, to
the extent that this financing is not provided by other investors. This exit
financing is expected to be completed in mid-2000, upon court approval and
consummation of the ICO parent company reorganization plan. There can be no
assurance when the consummation of the reorganization plan will occur or if
the ICO parent company will be successful in confirming any plan of
reorganization. If it is unable to do so the most likely outcome would be a
liquidation proceeding. In the event that a liquidation becomes probable,
Hughes would expect to record a pre-tax charge to income of up to
approximately $350 million, of which $100 million would be attributable to
continuing operations and $250 million would be attributable to discontinued
operations. A portion of the purchase price to be paid by Boeing will be
placed in escrow under certain circumstances if prior to completing this sale
to Boeing, Hughes' contracts with ICO are not assumed by ICO with bankruptcy
court approval or new similar contracts are not entered into with bankruptcy
court approval.
At December 31, 1999, minimum future commitments under noncancelable
operating leases having lease terms in excess of one year are primarily for
real property and aggregated $250.8 million, payable as follows: $102.8
million in 2000, $52.3 million in 2001, $24.2 million in 2002, $17.8 million
in 2003, $12.5 million in 2004 and $41.2 million thereafter. Certain of these
leases contain escalation clauses and renewal or purchase options. Rental
expenses under operating leases, net of sublease rental income, were $58.5
million in 1999, $82.7 million in 1998 and $89.1 million in 1997.
Hughes is contingently liable under standby letters of credit and bonds in
the amount of $222.0 million at December 31, 1999. In Hughes' past experience,
no material claims have been made against these financial instruments. In
addition, at December 31, 1999 Hughes has guaranteed up to $209.1 million of
bank debt, including $105.0 million related to American Mobile Satellite
Corporation. Of the bank debt guaranteed, $105.0 million matures in March
2003; $55.4 million matures in September 2007; the remaining $48.7 million is
due in variable amounts over the next five years.
In connection with the DTH broadcast businesses, Hughes has commitments
related to certain programming agreements which are variable based upon the
number of underlying subscribers and market penetration rates. Minimum
payments over the terms of applicable contracts are anticipated to be
approximately $1,000.0 million to $1,150 million.
A-30
<PAGE>
HUGHES ELECTRONICS CORPORATION
Note 20: Commitments and Contingencies--Concluded
As part of a marketing agreement entered into with AOL on June 21, 1999,
Hughes committed to increase its sales and marketing expenditures over the
next three years by approximately $1.5 billion relating to DirecPC/AOL-Plus,
DIRECTV, DIRECTV/AOL TV and DirecDuo.
Hughes is subject to various claims and legal actions which are pending or
may be asserted against it. The aggregate ultimate liability of Hughes under
these claims and actions was not determinable at December 31, 1999. In the
opinion of Hughes management, such liability is not expected to have a
material adverse effect on Hughes' results of operations or financial
position.
Note 21: Subsequent Events
On March 1, 2000, Hughes announced that DIRECTV Japan's operations will be
discontinued and that its subscribers would migrate to SkyPerfecTV, a company
in Japan providing direct-to-home satellite broadcasting. As a result of this
transaction, Hughes will acquire about a 6.8% interest in SkyPerfecTV, which
is expected to complete an IPO during its fiscal year ending March 31, 2001.
Hughes will be required to fund a substantial portion of the costs to be
incurred over the next six to nine months to exit the DIRECTV Japan business.
Hughes will accrue such exit costs during the first quarter of fiscal 2000.
The first quarter charge will be offset by the fair value of the SkyPerfecTV
interest received; however the amounts are not yet estimable. In addition,
Hughes will continue to record its share of DIRECTV Japan's operating losses
during fiscal 2000.
EchoStar Communications Corporation and others commenced an action in the
U.S. District Court in Colorado on February 1, 2000 against DIRECTV, Hughes
Network Systems and Thomson Consumer Electronics, Inc. seeking, among other
things, injunctive relief and unspecified damages, including treble damages,
in connection with allegations that the defendants have entered into
agreements with retailers and program providers and engaged in other conduct
that violates the antitrust laws and constitutes unfair competition. DIRECTV
believes that the complaint is without merit and intends to vigorously defend
against the allegations raised. Although an amount of loss, if any, cannot be
estimated at this time, an unfavorable outcome could be reached that could be
material to Hughes' results of operations or financial position.
A-31
<PAGE>
[PROSPECTUS COVER GATEFOLD
INSIDE BACK]
Enterprise Services
[Graphic descriptions starting at the upper right corner and moving clockwise:
. Cameraman covering a soccer game
. Circuit City store
. Mobil gas station, with closeup of a person using a pay-at-pump unit
. Wal-Mart store
. People using a home computer
. Person using the Internet]
[Overlay graphic of a globe surrounded marks reflecting various satellite
orbited positions]
The Hughes/PanAmSat
Satellite Fleet
[PANAMSAT Logo] Satellite Distribution Services
[HUGHES NETWORK SYSTEMS Logo] Broadband Services and Products
<PAGE>
Manually signed facsimile copies of the letter of transmittal will be
accepted. The letter of transmittal, certificates for shares of $1 2/3 par
value common stock and any other required documents should be sent or
delivered by each holder of $1 2/3 par value common stock or his or her
broker, dealer, commercial bank, trust company or other nominee to the
exchange agent prior to the expiration date as set forth below.
The Exchange Agent for the Exchange Offer is:
Fleet National Bank
If delivered by Mail, If delivered by Hand,
to: to: If delivered by Overnight
Courier, to:
Securities Transfer &
Fleet National Bank
Attn: Corporate Actions Reporting Services, Inc. Fleet National Bank
P.O. Box 9573 Attn: Corporate Actions
Boston, MA 02205-9573 c/o Fleet National 40 Campanelli Drive
Bank/EquiServe
100 William Street Braintree, MA 02184
Galleria
New York, NY 10038
Attn: Delivery Window
If by facsimile transmission:
(For eligible institutions only)
(781) 575-4826
Facsimile confirmation number
(781) 575-4816
You may direct any questions and requests for assistance to the information
agent or the dealer manager at their respective addresses and telephone
numbers and locations listed below. You can obtain additional copies of this
Offering Circular-Prospectus, the letter of transmittal and other exchange
offer materials from the information agent or the dealer manager listed below.
You may also contact your broker, dealer, commercial bank or trust company for
assistance concerning the exchange offer.
The Information Agent for the Exchange Offer is:
Morrow & Co., Inc.
445 Park Avenue
5th Floor
New York, New York 10022
(877) 816-5329 (Toll-Free) for calls in the United States
(212) 754-8000 (Collect) for calls outside the United States
The Dealer Manager for the Exchange Offer is:
MORGAN STANLEY DEAN WITTER
Call (212) 761-0039
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers of General Motors
Delaware General Corporation Law
Under Section 145 of the Delaware General Corporation Law, General Motors
is empowered to indemnify its directors and officers in the circumstances
therein provided. Certain portions of Section 145 are summarized below:
Section 145(a) of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason
of the fact that such person is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Section 145(c) of the Delaware General Corporation Law provides that to the
extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 145(a) and (b), or in defense of any claim,
issue or matter therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection therewith.
Section 145(d) of the Delaware General Corporation Law provides that any
indemnification under Section 145(a) and (b) (unless ordered by a court) shall
be made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Section 145(a) and (b). Such determination
shall be made (1) by a majority vote of the directors who were not parties to
such action, suit or proceeding, even though less than a quorum, or (2) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (3) by the stockholders.
Section 145(e) of the Delaware General Corporation Law provides that
expenses (including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action,
II-1
<PAGE>
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the corporation as authorized in Section 145. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the board of directors deems
appropriate.
Section 145(f) of the Delaware General Corporation Law provides that the
indemnification and advancement of expenses provided by, or granted pursuant
to, Section 145 shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.
Section 145(g) of the Delaware General Corporation Law provides that a
corporation shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's capacity as such, whether or not the corporation
would have the power to indemnify such person against such liability under
Section 145.
Restated Certificate of Incorporation, As Amended
The GM Restated Certificate of Incorporation, as amended, provides that no
director of General Motors shall be personally liable to General Motors or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
General Motors or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174, or any successor provision thereto, of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
By-Laws
Under Article V of the GM By-Laws, General Motors shall indemnify and
advance expenses to every director and officer (and to such person's heirs,
executors, administrators or other legal representatives) in the manner and to
the full extent permitted by applicable law as it presently exists, or may
hereafter be amended, against any and all amounts (including judgments, fines,
payments in settlement, attorneys' fees and other expenses) reasonably
incurred by or on behalf of such person in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, in which such director or officer was or is
made or is threatened to be made a party or is otherwise involved by reason of
the fact that such person is or was a director, officer, employee, fiduciary
or member of any other corporation, partnership, joint venture, trust,
organization or other enterprise. General Motors shall not be required to
indemnify a person in connection with such action, suit or proceeding
initiated by such person if it was not authorized by the GM Board of
Directors. General Motors shall pay the expenses of directors and officers
incurred in defending any actions or proceeding in advance of its final
disposition; provided, however, that the payment of expenses incurred by a
director or officer in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the director or officer
to repay all amounts advanced if it should be ultimately determined that the
director or officer is not entitled to be indemnified under Article V of the
GM By-Laws or otherwise. If a claim for indemnification or advancement of
expenses by an officer or director under Article V of the GM By-Laws is not
paid in full within ninety days after a written claim therefor has been
received by General Motors, the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action General
Motors shall have the burden of proving that the claimant was not entitled to
the requested indemnification or advancement of expenses under applicable law.
The rights conferred on any person by Article V of the GM By-Laws shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the GM Restated Certificate of Incorporation,
as amended, or the GM By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
II-2
<PAGE>
Insurance
General Motors is insured against liabilities which it may incur by reason
of Article V of the GM By-Laws. In addition, directors and officers are
insured, at GM's expense, against liabilities which might arise out of their
employment and not be subject to indemnification under Article V of the GM By-
Laws.
Pursuant to a resolution adopted by the GM board on December 1, 1975,
General Motors to the fullest extent permissible under law will indemnify, and
has purchased insurance on behalf of, directors or officers of General Motors,
or any of them, who incur or are threatened with personal liability, including
expense, under ERISA or any amendatory or comparable legislation or regulation
thereunder.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Dealer Manager Agreement.**
1.2 Form of Marketing Manager Agreement.***
3.1 Restated Certificate of Incorporation, as amended, filed as
Exhibit 3(i) to the Current Report on Form 8-K of General Motors
Corporation dated June 24, 1999, and Amendment to Article Fourth
of the Certificate of Incorporation--Division III--Preference
Stock, by reason of the Certificates of Designations filed with
the Secretary of State of the State of Delaware on September 14,
1987 and the Certificate of Decrease filed with the Secretary of
State of the State of Delaware on September 29, 1987 (pertaining
to the six series of Preference Stock contributed to the General
Motors pension trusts), incorporated by reference to Exhibit 19 to
the Quarterly Report on Form 10-Q of General Motors Corporation
for the quarter ended June 30, 1990 in the Form SE of General
Motors Corporation dated August 6, 1990; as further amended by the
Certificate of Designations filed with the Secretary of State of
the State of Delaware on June 28, 1991 (pertaining to Series A
Conversion Preference Stock), incorporated by reference to Exhibit
4(a) to Form S-8 Registration Statement No. 33-43744 in the Form
SE of General Motors Corporation dated November 1, 1991; as
further amended by the Certificate of Designations filed with the
Secretary of State of the State of Delaware on December 9, 1991
(pertaining to Series B 9 1/8% Preference Stock), incorporated by
reference to Exhibit 4(a) to Form S-3 Registration Statement No.
33-45216 in the Form SE of General Motors Corporation dated
January 27, 1992; as further amended by the Certificate of
Designations filed with the Secretary of State of the State of
Delaware on February 14, 1992 (pertaining to Series C Convertible
Preference Stock), incorporated by reference to Exhibit 3(a) to
the Annual Report on Form 10-K of General Motors Corporation for
the year ended December 31, 1991 in the Form SE of General Motors
Corporation dated March 20, 1992; as further amended by the
Certificate of Designations filed with the Secretary of State of
the State of Delaware July 15, 1992 (pertaining to Series D 7.92%
Preference Stock), incorporated by reference to Exhibit 3(a)(2) to
the Quarterly Report on Form 10-Q of General Motors Corporation
for the quarter ended June 30, 1992 in the Form SE of General
Motors Corporation dated August 10, 1992; and as further amended
by the Certificate of Designations filed with the Secretary of
State of the State of Delaware on December 15, 1992 (pertaining to
Series G 9.12% Preference Stock), incorporated by reference to
Exhibit 4(a) to Form S-3 Registration Statement No. 33-49309 in
the Form SE of General Motors Corporation dated January 25, 1993,
as further amended by the Certificate of Designations filed with
the Secretary of State of the State of Delaware on June 24, 1999
(pertaining to Series H 6.25% Automatically Convertible Preference
Stock), incorporated by reference to Exhibit 4(a) to Form S-8
Registration Statement No. 333-31846 in the Form SE of General
Motors Corporation dated March 6, 2000.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.2 By-Laws of General Motors Corporation, as amended, incorporated by
reference to Exhibit 3(ii) to the Current Report on Form 8-K of
General Motors Corporation dated March 2, 1998; as further
amended, incorporated by reference to Exhibit 3(ii) to the Current
Reports on Form 8-K of General Motors Corporation dated June 24,
1999, August 2, 1999 and March 6, 2000.
4.1 Specimen certificate for shares of Class H common stock.*
4.2 Form of Indenture relating to the $500,000,000 8 1/8% Debentures
Due April 15, 2016 dated as of April 1, 1986 between General
Motors Corporation and Citibank, N.A., Trustee, incorporated by
reference to Exhibit 4 to Amendment No. 1 to Form S-3 Registration
Statement No. 33-4452 and resolutions adopted by the Special
Committee on April 15, 1986, incorporated by reference to Exhibit
4(a) to the Current Report on Form 8-K of General Motors
Corporation, SEC file number 1-143, dated April 24, 1986.
4.3 Form of Indenture relating to the $700,000,000 9 5/8% Notes Due
December 1, 2000 and the $1,400,000,000 Medium-Term Note Program
dated as of November 15, 1990 between General Motors Corporation
and Citibank, N.A., Trustee, incorporated by reference to Exhibit
4(a) to Form S-3 Registration Statement No. 33-37737.
4.4 Form of Indenture relating to the $377,377,000 7.75% Debentures
Due March 15, 2036 dated as of December 7, 1995 between General
Motors Corporation and Citibank, N.A., Trustee, filed as Exhibit
4(a) to Amendment No. 1 to Form S-3 Registration Statement No. 33-
64229.
4.5 Instruments defining the rights of holders of nonregistered debt
of the Registrant have been omitted from this exhibit index
because the amount of debt authorized under any such instrument
does not exceed 10% of the total assets of the Registrant and its
subsidiaries. The Registrant agrees to furnish a copy of any such
instrument to the Commission upon request.
4.6 Amended and Restated Declaration of Trust of General Motors
Capital Trust D, incorporated by reference to Exhibit 4(c)(i) to
the Current Report on Form 8-K of General Motors Corporation dated
July 1, 1997.
4.7 Amended and Restated Declaration of Trust of General Motors
Capital Trust G, incorporated by reference to Exhibit 4(c)(ii) to
the Current Report on Form 8-K of General Motors Corporation dated
July 1, 1997.
4.8 Indenture between General Motors Corporation and Wilmington Trust
Company, incorporated by reference to Exhibit 4(d)(i) to the
Current Report on Form 8-K of General Motors Corporation dated
July 1, 1997.
4.9 First Supplemental Indenture between General Motors Corporation
and Wilmington Trust Company With Respect To The Series D Junior
Subordinated Debentures, incorporated by reference to Exhibit
4(d)(ii) to the Current Report on Form 8-K of General Motors
Corporation dated July 1, 1997.
4.10 Second Supplemental Indenture between General Motors Corporation
and Wilmington Trust Company With Respect To The Series G Junior
Subordinated Debentures, incorporated by reference to Exhibit
4(d)(iii) to the Current Report on Form 8-K of General Motors
Corporation dated July 1, 1997.
4.11 Series D Preferred Securities Guarantee Agreement, General Motors
Capital Trust D, incorporated by reference to Exhibit 4(g)(i) to
the Current Report on Form 8-K of General Motors Corporation dated
July 1, 1997.
4.12 Series G Preferred Securities Guarantee Agreement, General Motors
Capital Trust G, incorporated by reference to Exhibit 4(g)(ii) to
the Current Report on Form 8-K of General Motors Corporation dated
July 1, 1997.
5 Opinion of Warren G. Andersen, Esq.**
8 Opinion of Kirkland & Ellis.**
10.1 General Motors 1997 Annual Incentive Plan, incorporated by
reference to Exhibit B to the Proxy Statement of General Motors
Corporation dated April 16, 1997.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.2 General Motors 1997 Stock Incentive Plan, incorporated by
reference to Exhibit B to the Proxy Statement of General Motors
Corporation dated April 16, 1997.
10.3 General Motors 1997 Performance Achievement Plan, incorporated by
reference to Exhibit B to the Proxy Statement of General Motors
Corporation dated April 16, 1997.
10.4 Non-Employee Director Long-Term Stock Incentive Plan, incorporated
by reference to Exhibit A to the Proxy Statement of General Motors
Corporation, dated April 16, 1997.
21.1 Subsidiaries of GM, incorporated by reference to Exhibit 21 to the
General Motors Corporation Form 10-K for the fiscal year ended
December 31, 1999.
23.1 Consent of Deloitte & Touche LLP.**
23.2 Consent of KPMG LLP.**
23.3 Consent of KPMG LLP.**
23.4 Consent of Arthur Andersen LLP.**
23.5 Consent of Warren G. Andersen, Esq. (included in Exhibit 5).
23.6 Consent of Kirkland & Ellis (included in Exhibit 8).
24 Power of Attorney.*
99.1 Letter of Transmittal and Instructions to the Letter of
Transmittal.**
99.2 Notice of Guaranteed Delivery.**
99.3 Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
other Nominees.**
99.4 Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees.**
99.5 Guidelines for Certification of Taxpayer Identification Number of
Substitute Form W-9.*
99.6 Letter from General Motors Corporation to holders of $1 2/3 par
value common stock.**
99.7 Checklist For Participation in the Exchange Offer.**
99.8 Form of Information Agent Agreement.**
99.9 Form of Exchange Agent Agreement.**
99.10 Registration Rights Agreement, dated as of June 21, 1999, between
General Motors Corporation and America Online, Inc.*
99.11 Purchase Agreement, dated as of June 21, 1999, by and among
General Motors Corporation, Hughes Electronics Corporation and
America Online, Inc.*
99.12 Registration Rights Agreement, dated as of April 28, 1999, between
General Motors Corporation and PRIMESTAR, Inc.*
99.13 Stock Transfer Agreement, dated April 28, 1999, by and among
General Motors Corporation, PRIMESTAR, Inc., TCI Satellite
Entertainment, Inc. and Hughes Electronics Corporation.*
99.14 Form of Registration Rights Agreement, by and among General Motors
Corporation and United States Trust Company of New York, as
Trustee of the General Motors Hourly-Rate Employees Pension Plan
and as a Trustee of a dedicated account within the General Motors
Welfare Benefit Trust.**
99.15 Agreement and Plan of Merger among General Motors Corporation,
Hughes Electronics Corporation and United States Satellite
Broadcasting Company, Inc. dated December 11, 1998, incorporated
by reference to Exhibit 2(a) to the Current Report on Form 8-K of
General Motors Corporation filed December 17, 1998.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
99.16 Shareholders Agreement dated December 11, 1998 among General
Motors Corporation, Hughes Electronics Corporation, Hubbard
Broadcasting, Inc., Stanley S. Hubbard, Stanley E. Hubbard and
Robert W. Hubbard, incorporated by reference to Exhibit 2(b) to
the Current Report on Form 8-K of General Motors Corporation filed
December 17, 1998.
99.17 Asset Purchase Agreement among PRIMESTAR, Inc., PRIMESTAR Partners
L.P., PRIMESTAR MDU, Inc., the stockholders of PRIMESTAR, Inc. and
Hughes Electronics Corporation, dated as of January 22, 1999,
incorporated by reference to Exhibit 99.1 to the Current Report on
Form 8-K of General Motors Corporation filed February 2, 1999.
99.18 Asset Purchase Agreement among PRIMESTAR, Inc., PRIMESTAR Partners
L.P., Tempo Satellite, Inc., the stockholders of PRIMESTAR, Inc.
and Hughes Electronics Corporation, dated as of January 22, 1999,
incorporated by reference to Exhibit 99.2 to the Current Report on
Form 8-K of General Motors Corporation filed February 2, 1999.
99.19 Stock Purchase Agreement between The Boeing Company, Hughes
Electronics Corporation and Hughes Telecommunications and Space
Company for the purchase and sale of the outstanding capital stock
of Hughes Space and Communications Company and certain additional
outstanding capital stock, dated as of January 13, 2000,
incorporated by reference to Exhibit 2.5 to the Annual Report on
Form 10-K of Hughes Electronics Corporation for the fiscal year
ended December 31, 1999.
99.20 Indenture by and between Hughes Electronics Corporation and The
Bank of New York, as Trustee, dated October 22, 1999, incorporated
by reference to Exhibit 4.2 to the Annual Report on Form 10-K of
Hughes Electronics Corporation for the fiscal year ended
December 31, 1999.
99.21 Form of Floating Rate Note, incorporated by reference to Exhibit
4.3 to the Annual Report on Form 10-K of Hughes Electronics
Corporation for the fiscal year ended December 31, 1999.
99.22 Revolving Credit Agreement (364-day Facility), dated as of
December 5, 1997 among Hughes Network Systems, Inc. to be renamed
Hughes Electronics Corporation, the Banks named therein and Bank
of America National Trust and Savings Association as
Administrative Agent, Morgan Guaranty Trust Company of New York,
as Syndication Agent, Citicorp US, Inc. and The Chase Manhattan
Bank as Documentation Agents (the "364-day Facility"),
incorporated by reference to Exhibit 10.1 to the Registration
Statement on Form 10 of Hughes Electronics Corporation filed
August 13, 1999.
99.23 First Amendment to the 364-day Facility, dated as of December 3,
1998, incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form 10 of Hughes Electronics
Corporation filed August 13, 1999.
99.24 Revolving Credit Agreement (Multi-Year Facility), dated as of
December 5, 1997 among Hughes Network Systems, Inc. to be renamed
Hughes Electronics Corporation, the Banks named therein and Bank
of America National Trust and Savings Association as
Administrative Agent, Morgan Guaranty Trust Company of New York,
as Syndication Agent, Citicorp USA, Inc. and The Chase Manhattan
Bank as Documentation Agents (the "Multi-Year Facility"),
incorporated by reference to Exhibit 10.3 to the Registration
Statement on Form 10 of Hughes Electronics Corporation filed
August 13, 1999.
99.25 First Amendment to the Multi-Year Facility, dated as of December
15, 1998, incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form 10 of Hughes Electronics
Corporation filed August 13, 1999.
99.26 Second Amendment to the Multi-Year Facility, dated as of November
24, 1999, incorporated by reference to Exhibit 10.5 to the Annual
Report on Form 10-K of Hughes Electronics Corporation for the
fiscal year ended December 31, 1999.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
99.27 Credit Agreement, dated as of June 3, 1999 among SurFin Ltd.,
certain designated subsidiaries, the Banks named therein and
Citicorp USA, Inc. as Administrative Agent, Bank of America NT &
SA as Syndication Agent, Deutsche Bank A.G., New York and Cayman
Islands Branches, as Documentation Agent, The Chase Manhattan
Bank, the First National Bank of Chicago, Morgan Guaranty Trust
Company of New York and Westdeutsche Landesbank Girozentrale, New
York and Cayman Islands Branches, as Senior Managing Agents,
incorporated by reference to Exhibit 10.6 to the Annual Report on
Form 10-K of Hughes Electronics Corporation for the fiscal year
ended December 31, 1999.
99.28 Revolving Credit Agreement (364-day Facility), dated as of
November 24, 1999 among Hughes Electronics Corporation, the Banks
named therein and Bank of America, N.A. as Administrative Agent,
Citicorp USA, Inc. as Syndication Agent, Deutsche Bank A.G., New
York Branch, as Documentation Agent (the "Revolving Credit
Agreement--364-day Facility"), incorporated by reference to
Exhibit 10.7 to the Annual Report on Form 10-K of Hughes
Electronics Corporation for the fiscal year ended December 31,
1999.
99.29 First Amendment to Revolving Credit Agreement--364-day Facility,
dated as of December 31, 1999, incorporated by reference to
Exhibit 10.8 to the Annual Report on Form 10-K of Hughes
Electronics Corporation for the fiscal year ended December 31,
1999.
99.30 Amended and Restated Revolving Credit Agreement (Multi-Year
Facility), dated as of November 24, 1999 among Hughes Electronics
Corporation, the Banks named therein and Bank of America, N.A. as
Administrative Agent, Morgan Guaranty Trust Company of New York as
Syndication Agent, Citicorp USA, Inc. and The Chase Manhattan Bank
as Documentation Agents (the "Revolving Credit Agreement--Multi-
Year Facility"), incorporated by reference to Exhibit 10.9 to the
Annual Report on Form 10-K of Hughes Electronics Corporation for
the fiscal year ended December 31, 1999.
99.31 First Amendment to Revolving Credit Agreement--Multi-Year
Facility, dated as of December 31, 1999, incorporated by reference
to Exhibit 10.10 to the Annual Report on Form 10-K of Hughes
Electronics Corporation for the fiscal year ended December 31,
1999.
99.32 Revolving Credit Agreement (Bridge Facility), dated as of November
24, 1999 among Hughes Electronics Corporation, the Banks named
therein and Bank of America, N.A., as Administrative Agent (the
"Revolving Credit Facility--Bridge Facility"), incorporated by
reference to Exhibit 10.11 to the Annual Report on Form 10-K of
Hughes Electronics Corporation for the fiscal year ended December
31, 1999.
99.33 First Amendment to Revolving Credit Agreement--Bridge Facility,
dated as of December 31, 1999, incorporated by reference to
Exhibit 10.12 to the Annual Report on Form 10-K of Hughes
Electronics Corporation for the fiscal year ended December 31,
1999.
99.34 DBS Distribution Agreement between Hughes Communications Galaxy,
Inc. and National Rural Telecommunications Cooperative, dated
April 10, 1992 (the "DBS Agreement"), incorporated by reference to
Exhibit 10.5 to the Registration Statement on Form 10 of Hughes
Electronics Corporation filed August 13, 1999.+
99.35 Addendum I to the DBS Agreement, incorporated by reference to
Exhibit 10.6 to the Registration Statement on Form 10 of Hughes
Electronics Corporation filed August 13, 1999.
99.36 Amendment No. 1 to the DBS Agreement, dated May 11, 1992,
incorporated by reference to Exhibit 10.7 to the Registration
Statement on Form 10 of Hughes Electronics Corporation filed
August 13, 1999.
99.37 Amendment No. 2 to the DBS Agreement, dated May 26, 1992,
incorporated by reference to Exhibit 10.8 to the Registration
Statement on Form 10 of Hughes Electronics Corporation filed
August 13, 1999.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
99.38 Amendment No. 3 to the DBS Agreement, Letter of Agreement, dated
May 29, 1992, incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form 10 of Hughes Electronics
Corporation filed August 13, 1999.
99.39 Amendment No. 4 to the DBS Agreement, dated December 1, 1992,
incorporated by reference to Exhibit 10.10 to the Registration
Statement on Form 10 of Hughes Electronics Corporation filed
August 13, 1999.
99.40 Amendment No. 5 to the DBS Agreement, dated December 11, 1992,
incorporated by reference to Exhibit 10.11 to the Registration
Statement on Form 10 of Hughes Electronics Corporation filed
August 13, 1999.
99.41 Amendment No. 6 to the DBS Agreement, dated December 23, 1992,
incorporated by reference to Exhibit 10.12 to the Registration
Statement on Form 10 of Hughes Electronics Corporation filed
August 13, 1999.
99.42 Amendment No. 7 to the DBS Agreement, Letter of Agreement, dated
July 9, 1993, incorporated by reference to Exhibit 10.13 to the
Registration Statement on Form 10 of Hughes Electronics
Corporation filed August 13, 1999.
99.43 Amendment No. 8 to the DBS Agreement, Letter of Agreement, dated
February 14, 1994, incorporated by reference to Exhibit 10.14 to
the Registration Statement on Form 10 of Hughes Electronics
Corporation filed August 13, 1999.+
99.44 Amendment No. 9 to the DBS Agreement, Letter of Agreement, dated
June 22, 1994, incorporated by reference to Exhibit 10.15 to the
Registration Statement on Form 10 of Hughes Electronics
Corporation filed August 13, 1999.
99.45 Loan Agreement, dated May 15, 1997, between Hughes Network
Systems, Inc. and PanAmSat Corporation, incorporated by reference
to Exhibit 4.3 to the Current Report on Form 8-K of PanAmSat
Corporation dated June 5, 1997.
99.46 First Amendment to Loan Agreement, dated December 23, 1997,
incorporated by reference to Exhibit 4.3.2 to the Annual Report on
Form 10-K of PanAmSat Corporation for the fiscal year ended
December 31, 1997.
99.47 Subordination and Amendment Agreement, dated as of February 20,
1998, among Hughes Electronics Corporation, PanAmSat Corporation
and Citicorp USA, Inc., as administrative agent, incorporated by
reference to Exhibit 4.3.3 to the Annual Report on Form 10-K of
PanAmSat Corporation for the fiscal year ended December 31, 1997.
99.48 Subordination Agreement, dated as of January 16, 1998, between
Hughes Electronics and PanAmSat Corporation, incorporated by
reference to Exhibit 4.3.4 to the Quarterly Report on Form 10-Q of
PanAmSat Corporation for the quarter ended September 30, 1998.
99.49 Credit Agreement, dated February 20, 1998, among PanAmSat
Corporation, certain lenders and Citicorp USA, Inc., as
administrative agent, incorporated by reference to Exhibit 10.42
to the Annual Report on Form 10-K of PanAmSat Corporation for the
fiscal year ended December 31, 1997.
</TABLE>
- --------
*Filed previously.
**Filed herewith.
***To be filed by amendment.
+Confidential treatment received for certain portions of this exhibit
pursuant to Rule 406 promulgated under the Securities Act.
II-8
<PAGE>
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements
or notes thereto.
Item 22. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 20, or otherwise, the
Registrant has been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request. The undersigned Registrant hereby
further undertakes to supply by means of a post-effective amendment all
information concerning a transaction and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities
II-9
<PAGE>
Exchange Act of 1934, as amended (the "Exchange Act") (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide thereof.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Detroit, State of
Michigan, on April 10, 2000.
General Motors Corporation
/s/ Warren G. Andersen
By: _________________________________
Warren G. Andersen
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on April 10,
2000 in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
* Chairman of the Board of
____________________________________ Directors and Chief
John F. Smith, Jr. Executive Officer
* Vice Chairman of the Board
____________________________________ of Directors
Harry J. Pearce
* President, Chief Operating
____________________________________ Officer and Director
G. Richard Wagoner, Jr.
* Executive Vice President and Principal
____________________________________ Chief Financial Officer Financial
J. Michael Losh Officers
* Vice President and Treasurer
____________________________________
Eric A. Feldstein
</TABLE>
II-11
<PAGE>
<TABLE>
<S> <C> <C>
* Comptroller ) Principal
____________________________________ ) Accounting
Wallace W. Creek ) Officers
)
* Assistant Comptroller and )
____________________________________ Chief Accounting Officer )
Peter R. Bible
</TABLE>
<TABLE>
<S> <C> <C>
* Director
____________________________________
John H. Bryan
* Director
____________________________________
Thomas E. Everhart
* Director
____________________________________
Charles T. Fisher, III
* Director
____________________________________
George M.C. Fisher
* Director
____________________________________
Nobuyuki Idei
* Director
____________________________________
Karen L. Katen
* Director
____________________________________
J. Willard Marriott, Jr.
* Director
____________________________________
Eckhard Pfeiffer
* Director
____________________________________
John G. Smale
* Director
____________________________________
Louis W. Sullivan
* Director
____________________________________
Dennis Weatherstone
</TABLE>
* The undersigned, by signing his name hereto, does hereby execute this
amendment to the registration statement on behalf of the officers and
directors of the registrant listed above pursuant to the Powers of Attorney
previously filed with the Commission.
/s/ Warren G. Andersen
- -------------------------------
Warren G. Andersen,
Attorney in Fact
II-12
<PAGE>
Exhibit 1.1
DEALER MANAGER AGREEMENT
_____ ___, 2000
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
1. General. General Motors Corporation, a Delaware corporation (the
"Company"), plans to make a tender offer (such tender offer, as it may be
amended and supplemented, being the "Exchange Offer") for outstanding shares of
the Company's Common Stock, par value $1-2/3 per share (the "Shares"), in
exchange for shares of the Company's Class H Common Stock, par value $0.10 per
share (the "Exchange Shares"), having an aggregate market value of up to about
$9 billion at the time of commencement, on the terms and subject to the
conditions set forth in the Exchange Offer Materials (as defined below). It is
understood that the earnings per share and the amounts available for the payment
of dividends of the Exchange Shares are determined by the financial performance
of Hughes Electronics Corporation, a Delaware corporation and a wholly-owned
subsidiary of the Company ("Hughes").
2. Engagement as Dealer Manager. The Company hereby engages you as Dealer
Manager in connection with the Exchange Offer. As Dealer Manager, you agree, in
accordance with the Exchange Offer Materials and otherwise in accordance with
your customary practice, to perform in connection with the Exchange Offer the
services that are customarily performed by investment banking concerns in
connection with similar tender offers, including, without limitation, soliciting
the tender of Shares pursuant to the Exchange Offer and communicating generally
regarding the Exchange Offer with brokers, dealers, commercial banks and trust
companies and other persons, including the holders of Shares. You understand and
agree that neither the Board of Directors of the Company nor the Board of
Directors of Hughes is making any recommendation to holders of Shares as to
whether to accept or participate in the Exchange Offer and therefore, as Dealer
Manager, you will not be making any such recommendation. You further agree to
be regarded as the broker-dealer that is making the Exchange Offer on behalf of
the Company to holders of Shares in any state of the United States in which it
is required that such offers be made by or through a registered or licensed
broker-dealer, and you represent that you are a registered or licensed broker-
dealer in each of such states. You have been engaged to act as sole Dealer
Manager in connection with Exchange Offer and, in such capacity, you shall act
as
<PAGE>
an independent contractor with duties solely to the Company. It is understood
that Salomon Smith Barney has been appointed by Hughes as Marketing Manager for
Hughes in the Exchange Offer (the "Marketing Manager") and you agree that you
are not, and shall not be deemed to be, acting as an agent of the Company (other
than in your capacity as Dealer Manager), Hughes or the Marketing Manager in
connection with the Exchange Offer and that none of Hughes, the Marketing
Manager or the Company shall be deemed to be acting as agent for you.
3. Solicitation of Tenders. You shall have no liability (in tort, contract
or otherwise) to the Company or any other person related to the Company for any
act or omission on the part of any securities broker or dealer (other than
yourself), commercial bank or trust company that solicits tenders. In soliciting
tenders, no securities broker or dealer, commercial bank or trust company shall
be deemed to act as your agent of any other securities broker or dealer or of
any commercial bank or trust company.
4. Exchange Offer Materials.
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-4 (File No.
333-30826) under the Securities Act of 1933, as amended (the "Securities
Act"), in respect of the Exchange Shares and such registration statement
and any post-effective amendment thereto has been declared effective by the
Commission. The various parts of such registration statement, including all
exhibits thereto and including the documents incorporated by reference into
the prospectus contained in the registration statement at the time such
part of the registration statement became effective, each as amended at the
time such part of the registration became effective, are hereinafter called
the "Registration Statement"; and the final prospectus, in the form
included in the Registration Statement at the time it became effective, is
hereinafter called the "Prospectus"; any reference herein to the Prospectus
shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 15 of Form S-4 under the Securities Act,
as of the date of the Prospectus, as the case may be; and any reference to
any amendment or supplement to the Prospectus shall be deemed to refer to
and include any documents filed after the date of the Prospectus under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the
date of such amendment or supplement, as the case may be, and incorporated
by reference into the Prospectus.
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(b) The Company agrees that not later than the Commencement Date (as
defined herein) it will file with the Commission under the Exchange Act and
the rules and regulations promulgated thereunder a Statement on Schedule TO
with respect to the Exchange Offer (including the exhibits thereto and any
documents incorporated by reference therein, and as amended from time to
time, the "Schedule TO").
(c) Subject to the matters discussed in the Company's letter to
the Commission in connection with the Exchange Offer dated ,
2000, with respect to the jurisdictions set forth on Annex A (the "Foreign
Jurisdictions"), the Company either is relying on a private placement or
other similar exemption or exception under the securities laws of the
applicable Foreign Jurisdiction or has filed, or agrees that it will file,
with the applicable regulatory agencies for the Foreign Jurisdictions all
materials and information in connection with the Exchange Offer as required
to be filed by such jurisdictions and, in each case, in a manner consistent
in all material respects with the Company's letter to the Commission in
connection with the Exchange Offer dated , 2000.
(d) The Prospectus and the related letter from the Company to
brokers, securities dealers, commercial banks, trust companies and other
nominees, letter to beneficial owners of the Shares, letter of transmittal
to be used by holders tendering Shares pursuant to the Exchange Offer and
the related instructions to the letter of transmittal (together, the
"Letter of Transmittal"), notice of guaranteed delivery, and any newspaper
announcements, press releases and other offering materials and information
(including the materials and filings used in connection with paragraph (c)
above) as the Company may use or prepare, approve or authorize for use in
connection with the Exchange Offer, including the Schedule TO, each as
amended or supplemented from time to time, are herein collectively referred
to as the "Exchange Offer Materials".
(e) The Company agrees to furnish or cause to be furnished to you as
many copies as you may reasonably request upon reasonable notice to the
Company of the Exchange Offer Materials to be furnished to security
holders. The Company agrees that, a reasonable time prior to using, or
filing with the Commission or with any other governmental or regulatory
agency (each, an "Other Agency"), any of the Exchange Offer Materials, it
will furnish to you copies of such material and will give reasonable
consideration to your and your counsel's comments, if any, thereon.
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5. Exchange Offer.
(a) The Company intends to commence the Exchange Offer as soon as
practicable after the execution and delivery hereof by mailing, or causing
to be mailed on its behalf, copies of the Prospectus, the related Letter of
Transmittal and such of the other Exchange Offer Materials as may be
required or as the Company may elect to furnish to holders of record of the
Shares (the date of the commencement of such distribution being herein
called the "Commencement Date"). You understand and acknowledge that such
mailing process is currently estimated to require four full days to
complete.
(b) The Company has approved the Exchange Offer Materials and
authorizes you and any other securities dealer or any commercial bank or
trust company you authorize to use the Exchange Offer Materials in
connection with the solicitation of tenders in accordance with the terms
and conditions of the Exchange Offer as described in the Exchange Offer
Materials, and in accordance with all applicable legal requirements. Other
than as provided for herein, you shall not have any right or obligation to
cause any Exchange Offer Materials to be transmitted generally to the
holders of the Shares.
6. Withdrawal. In the event that (i) the Company uses or permits the use
of, or files with the Commission or any Other Agency, any Exchange Offer
Materials (A) that have not been timely submitted to you previously for your and
your counsel's comments or (B) that have been so submitted, and you have or your
counsel has made material comments, but the Company has unreasonably failed to
address such comments; (ii) the Company shall have breached, in any material
respect, any of its representations, warranties, agreements or covenants herein;
(iii) the Registration Statement shall not have become effective on or prior to
the Commencement Date, or, at any time during the Exchange Offer prior to the
expiration date thereof, a stop order suspending the effectiveness of the
Registration Statement shall have been issued or a proceeding for that purpose
shall have been instituted or shall be pending or threatened by the Commission,
or a requirement by the Commission that additional information be provided shall
not have been satisfied in all material respects; or there shall have been
issued, at any time during the Exchange Offer, any temporary restraining order
or injunction restraining or enjoining you from acting in your capacities as
Dealer Manager, with respect to the Exchange Offer; (iv) Deloitte & Touche,
independent public accountants to Hughes and to the Company, shall not have
furnished to you on the Commencement Date, a letter dated the date of delivery
thereof, in form and substance reasonably satisfactory to you and to Deloitte &
Touche, containing statements and information of the type customarily included
in accountants'
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"comfort letters" with respect to the financial statements and certain financial
information contained in or incorporated by reference into the Registration
Statement or the Prospectus and confirming that they are independent accountants
within the meaning of the Securities Act and the Exchange Act and the respective
applicable rules and regulations thereunder adopted by the Commission; (v) the
Exchange Shares shall not have received approval for listing on the New York
Stock Exchange, provided, that this clause (v) shall not apply if the Exchange
Shares have received approval for listing on the New York Stock Exchange subject
only to official notice of issuance; (vi) on the Commencement Date you shall not
have received a certificate of an executive officer of the Company dated as of
the date of delivery thereof, to the effect that to the best of his knowledge,
all representations and warranties of the Company contained herein are true and
correct in all material respects as though expressly made at such time and the
Company has performed in all material respects all of its obligations hereunder
theretofore required to be performed as of such date; (vii) the "lock-up"
agreements, each substantially in the form of Exhibit A hereto, between you and
the senior executive officers of each of the Company and Hughes set forth on
Exhibit A-1 relating to sales and certain other dispositions of shares of Class
H Common Stock or certain other securities, shall not have been delivered to you
and be in full force and effect on the Commencement Date; or (viii) a material
adverse change, or any development that is reasonably likely to result in a
material adverse change, has occurred in the condition of either (A) the Company
and its subsidiaries, taken as a whole, or (B) Hughes and its subsidiaries taken
as a whole, in each case, from that set forth in the Prospectus; then you shall
be entitled, upon two business days' notice to the Company, to withdraw as
Dealer Manager in connection with the Exchange Offer without any liability or
penalty to you or any other Indemnified Person (as defined in Section 15 below)
and without loss of any right to indemnification or contribution provided in
Section 15 or to the payment of all fees and expenses payable under Sections 7
and 8 below which have accrued to the date of such withdrawal.
7. Fees. Pursuant to a letter agreement dated March 24, 2000 between the
Company and you (the "Engagement Letter"), the Company has agreed, among other
things, to compensate you for your services as Dealer Manager. You and the
Company agree that $1.5 million of that compensation shall represent your fee
for serving as Dealer Manager.
8. Reimbursement of Expenses, Etc. Whether or not any Shares are acquired
pursuant to the Exchange Offer, the Company agrees (1) to reimburse all dealers
and brokers (including yourselves), commercial banks, trust companies and
nominees for their reasonable customary mailing and handling expenses incurred
in forwarding the Exchange Offer Materials to their customers, in each case upon
request made to the Company within a reasonable period of time after
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<PAGE>
the incurrence of such expenses, and (ii) to pay all other reasonable fees and
expenses incurred in connection with the Exchange Offer, including without
limitation, all expenses relating to the preparation, filing, printing, mailing
and publishing of the Exchange Offer Materials, all reasonable fees and expenses
of the Exchange Agent and the Information Agent (as each is defined in Section
9, subject to and in accordance with the Company's agreements with those
parties). The Company agrees to reimburse your expenses as provided in the
expense reimbursement provisions of the Engagement Letter. The foregoing
provisions shall not apply to matters, including expenses, covered by Section 15
hereof.
9. The Exchange Agent and Information Agent. The Company has appointed,
and authorizes you to communicate with, Fleet National Bank, in its capacity as
exchange agent (the "Exchange Agent"), in connection with the Exchange Offer and
Morrow & Co., Inc., in its capacity as information agent (the "Information
Agent"), in connection with the Exchange Offer. The Company will arrange for the
Exchange Agent to advise you daily as to the number of Shares which have been
tendered and, if applicable, thereafter withdrawn pursuant to the Exchange Offer
and, upon request, the names and addresses of the registered holders thereof.
10. Representations, Warranties and Certain Agreements of the Company. The
Company represents and warrants to you, and agrees with you, that (except that
the Company makes no representations or warranties as to you, any of your
affiliates or any persons acting on your behalf):
(a) The Company has the corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to
consummate the Exchange Offer.
(b) The Exchange Offer has been duly authorized by all necessary
corporate action by the Company.
(c) Each of this Agreement, the Engagement Letter and the Indemnity
Letter (as defined herein) has been duly authorized, executed and delivered
by the Company.
(d) (i) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to its
knowledge, threatened by the Commission; (ii) each document filed or to be
filed pursuant to the Exchange Act and incorporated by reference into the
Prospectus complied or will comply when so filed in all material respects
with the Exchange Act and the rules and regulations of the
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Commission thereunder, (iii) the Registration Statement, when it became
effective, did not contain and, as amended or supplemented, if applicable,
as of the effective date of any amendment or supplement, will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; (iv) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with all applicable requirements of the Securities Act and the
rules and regulations of the Commission thereunder; and (v) the Prospectus,
as of the date it bears, does not contain and, as amended or supplemented,
if applicable (as of the date of such amendment or supplement), will not
contain an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that no representation, warranty or agreement is made as to
information relating to you furnished in writing by you or on your behalf
specifically for inclusion in the Registration Statement or the Prospectus.
(e) The Schedule TO, as originally filed and subsequently amended,
and any amendments or supplements thereto and the information filed
pursuant to Rule 425 of the Securities Act comply, or will comply, in all
material respects with all applicable requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission
thereunder; and none of the Schedule TO or any amendment or supplement
thereto and the information filed pursuant to Rule 425 includes (as
supplemented or amended, as applicable, and as of the date of filing or use
of such information), or will include, any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that no representation, warranty
or agreement is made as to information relating to you furnished in writing
by you or on your behalf specifically for inclusion in the Schedule TO or
information filed pursuant to Rule 425.
(f) The Company will accept Shares for exchange in accordance with
and subject to the terms and conditions of the Exchange Offer; and the
Company has caused the Exchange Agent to make appropriate arrangements with
The Depository Trust Company and any other "qualified" registered
securities depository to allow for the book-entry movement of exchanged
Shares between depository participants and the Exchange Agent.
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<PAGE>
(g) No consent, approval, authorization or order of, or qualification
with, any government body or agency is required in connection with the
execution, delivery and performance of this Agreement, except such as have
been obtained or as may be required by the securities or Blue Sky laws of
the various states and the securities or other laws of applicable foreign
jurisdictions in connection with the offer and sale of the Exchange Shares,
except where the failure to obtain or make such consent, approval,
authorization, order or qualification would not materially adversely affect
the ability of the Company to execute, deliver and perform this Agreement.
(h) Except as disclosed in the Prospectus, (i) the Exchange Offer and
the execution and delivery of, and the consummation of the transactions
contemplated in, this Agreement will comply in all material respects with
all applicable requirements of law, including the Securities Act, the
Exchange Act, the various state securities or "blue sky" laws and state
"takeover" statutes (collectively, "State Statutes"), all applicable
regulations of the Commission or any other governmental or regulatory
agency and all applicable laws and regulations of all applicable foreign
jurisdictions and (ii) the commencement and consummation by the Company of
the Exchange Offer do not and will not require any consent, approval,
authorization or permit of, filing with or notification to, the Commission
or any other governmental or regulatory agency, except in each case (x)
where the failure to comply with such laws and regulations and to obtain or
make such consent, approval, authorization, or permit or other action or
filing or notification would not materially adversely affect the ability of
the Company to execute and deliver this Agreement or to consummate the
Exchange Offer in accordance with its terms or to consummate the
transactions contemplated by this Agreement or (y) for such consents,
approvals, authorizations, or permits that have been granted and filings,
notifications or any other appropriate action that have been made.
(i) The Exchange Offer and the execution and delivery of, and the
consummation of the transactions contemplated in, this Agreement do not and
will not: (i) violate any provision of the certificate of incorporation or
by-laws of the Company; (ii) result in a breach of any material agreement
or other material instrument binding upon the Company or (iii) conflict
with or violate in any material respect any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Company, except in each case for any such conflicts, contraventions,
violations, breaches or defaults which would not materially adversely
affect the ability of the Company to execute and
8
<PAGE>
deliver this Agreement or to consummate the Exchange Offer in accordance
with its terms or to consummate the transactions contemplated by this
Agreement.
(j) The Exchange Shares to be issued by the Company pursuant to the
terms of the Exchange Offer have been duly authorized and, when issued and
delivered pursuant to the terms of the Exchange Offer, will be validly
issued, fully paid and non-assessable, and the issuance of the Exchange
Shares will not be subject to any preemptive or similar rights of any
security holder of the Company.
(k) The authorized capital stock of the Company, including the Class
H common stock, conforms as to legal matters in all material respects to
the description thereof contained in the Prospectus.
11. Opinions of Counsel. The following opinions have been delivered to you
in a form reasonably satisfactory to you and your counsel:
(a) Warren G. Andersen, Esq., Legal Staff of the Company, as to the
matters set forth in Exhibit B.
(b) Kirkland & Ellis, counsel to the Company, as to the matters set
forth in Exhibit C.
(c) Jennifer A. Smolker, Esq., Assistant General Counsel of Hughes,
as to the matters set forth in Exhibit D.
(d) Cleary, Gottlieb, Steen & Hamilton, special counsel to the
Company, as to certain matters relating to the laws of specified foreign
jurisdictions.
(e) Osler, Hoskin & Harcourt, Canadian counsel to the Company, as to
certain matters relating to the securities laws of certain provinces of
Canada.
(f) Davis Polk & Wardwell, counsel to the Dealer Manager, as to the
matters agreed upon by you.
12. Covenants of the Company.
(a) Until the consummation of the Exchange Offer, the Company will
notify you, promptly after it receives notice thereof, (i) of the time when
any post-effective amendment to the Registration Statement has
9
<PAGE>
been filed or becomes effective, or any amendment or supplement to the
Prospectus or any amendment to the Schedule TO or any amended or additional
Exchange Offer Materials shall have been filed, (ii) of the receipt of any
comments from the Commission relating to the Exchange Offer, (iii) of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of the Prospectus or any of the Exchange Offer
Materials, (iv) of the suspension of the qualification of the Exchange
Shares for offering in connection with the Exchange Offer in any
jurisdiction, (v) of any request by the Commission to amend or supplement
the Registration Statement, the Prospectus, the Schedule TO or the other
Exchange Offer Materials or for additional information or (vi) of the
institution or threatening of any proceedings for any such purpose. The
Company will also inform you, promptly after it receives notice thereof
(until the consummation of the Exchange Offer), of any litigation or other
administrative proceeding with respect to the Exchange Offer.
(b) The Company will cause all amendments and supplements of the
Prospectus and the other Exchange Offer Materials filed with the Commission
to be distributed to holders of the Shares as may be required by the
Securities Act and the Exchange Act and the rules and regulations of the
Commission thereunder. During the period referred to in the second sentence
of paragraph (c) below, the Company will deliver to you, without charge,
such number of copies of the Prospectus and the other Exchange Offer
Materials (as supplemented or amended) as you may upon reasonable notice
reasonably request. Before amending or supplementing the Registration
Statement, the Prospectus, the Schedule TO or the other Exchange Offer
Materials, or approving any other material for use in connection with the
Exchange Offer, the Company will furnish you with a copy of each such
proposed amendment or supplement or other material.
(c) The Company will comply in all material respects with the
applicable requirements of the Securities Act and the Exchange Act and the
rules and regulations of the Commission thereunder in connection with the
Exchange Offer and the transactions contemplated hereby. If at any time
during the period when, in the opinion of your counsel, a Prospectus is
required to be delivered by the Securities Act or the Exchange Act and the
rules and regulations promulgated thereunder in connection with the
Exchange Offer, any event shall occur as a result of which it is necessary
to amend or supplement the Prospectus or any of the other Exchange Offer
Materials in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus or other
Exchange Offer Materials are delivered, not misleading, or if, in the
opinion of your counsel, it shall be necessary for any other reason during
10
<PAGE>
such period to amend or supplement the Registration Statement, the Schedule
TO or the Prospectus or any of the other Exchange Offer Materials in order
to comply in all material respects with applicable law, the Company will
notify you and promptly prepare and furnish to you, at the Company's
expense, and file with the Commission, if required, such amendment or
supplement to the Prospectus or other Exchange Offer Materials, as may be
necessary so that the statements in the Prospectus or the Exchange Offer
Materials, as amended or supplemented, will not, in the light of the
circumstances under which they were made when the Prospectus or the other
Exchange Offer Materials are delivered, be misleading or so that the
Registration Statement, the Prospectus, the Schedule TO or such other
Exchange Offer Materials comply in all material respects with applicable
law.
(d) The Company will endeavor to qualify the Exchange Shares for
offering and exchange under the securities or Blue Sky laws of such state
jurisdictions as you shall reasonably request; provided that the Company
will not be required to file a general consent to service of process,
qualify as a foreign corporation or as a dealer in securities or subject
itself to taxation in any such jurisdiction to the extent not otherwise
required; and provided further that the Company will pay all expenses
(including reasonable fees and disbursement of counsel) in connection
therewith.
(e) The Company will make generally available to its security holders
as soon as practicable an earnings statement complying with Section 11(a)
of the Securities Act and the rules and regulations of the Commission
thereunder (including, at the option of the Company, Rule 158 under the
Securities Act).
(f) The Company shall promptly give you notice of any change of the
expiration date of the Exchange Offer, or the occurrence of any event which
would cause the Company to withdraw, rescind, modify or amend the Exchange
Offer and of any consummation of the Exchange Offer.
(g) Assuming that no Exchange Offer Materials are forwarded to
beneficial holders located in those jurisdictions in which the Company
conducts the Exchange Offer in reliance on a private placement or other
similar exemption, the Company will comply in all material respects with
all applicable securities rules, laws and regulations of the Foreign
Jurisdictions and will conduct the Exchange Offer in a manner consistent
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in all material respects with the terms of the Company's letter to the
Commission in connection with the Exchange Offer dated , 2000.
13. Information Provided By Dealer Manager. The Company agrees and
acknowledges that the only information relating to you and furnished or to be
furnished by you or on your behalf for inclusion in the Registration Statement,
the Prospectus, the Schedule TO or any of the other Exchange Offer Materials is
the description of yourself and your relationship with the Company and Hughes to
be included therein.
14. Lock-Up Arrangements. Neither the Company nor Hughes shall, without
the prior written consent of the Dealer Manager, which consent shall not be
unreasonably withheld, during the period commencing on the date hereof and
ending 90 days after the date of the expiration of the Exchange Offer (the
"Expiration Date") or such earlier date as the Exchange Offer may be abandoned,
terminated or withdrawn, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend, file a registration statement in
respect of, or otherwise transfer or dispose of, directly or indirectly, any
shares of Class H Common Stock or any securities convertible into or exercisable
or exchangeable for Class H Common Stock, provided that this provision shall not
apply to shares of the Company's Common Stock, par value $1-2/3 per share
("$1-2/3 Par Value Common Stock") or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Class H Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Class H Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the issuance of shares of Class H
Common Stock to be exchanged for shares of $1-2/3 Par Value Common Stock
pursuant to the Exchange Offer; (B) the issuance and contribution of the shares
of Class H Common Stock by the Company to its voluntary employees' beneficiary
association trust and its U.S. pension plan for hourly-rate employees; (C) the
grant of options or warrants or restricted stock awards convertible into or
exercisable for shares of Class H Common Stock pursuant to existing employee
benefit plans, provided such options, warrants or awards are not exercisable and
such units do not vest prior to the termination of the lock-up period referred
to herein; (D) the issuance of shares of Class H Common Stock upon the exercise
of an option or warrant or the conversion of a security outstanding on the date
hereof of which the Dealer Manager has been advised in writing; (E) except as
otherwise provided in (C), the issuance or transfer of shares of Class H Common
Stock pursuant to the terms of existing employee benefit plans or dividend
reinvestment plans of the Company or any subsidiary of the Company; (F) the
issuance or transfer of shares of Class H Common Stock pursuant to the terms of
any other agreement to issue shares of Class H Common
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Stock (or any securities convertible into or exchangeable or exercisable for
shares of Class H Common Stock) in effect on the date of the original filing of
the Registration Statement; (G) the issuance of, or transactions involving, any
securities of the Company other than Class H Common Stock, including, but not
limited to, shares of $1-2/3 Par Value Common Stock; (H) the issuance of shares
of Class H Common Stock to persons who become employees of Hughes as senior
executive officers, provided such shares may not be sold or otherwise
transferred by such senior executive officers prior to the termination of the
lock-up period referred to herein; (I) any offer or sale of shares of Class H
Common Stock (or securities convertible or exchangeable for such shares) as
consideration in any merger, strategic alliance, consolidation, business
combination or other similar transaction or in any acquisition by the Company or
any subsidiary of the Company of the capital stock or a substantial portion of
the assets of any other entity in a transaction that would, in each case, not
constitute a "public offering" of such shares (or other such securities) within
the meaning of the Securities Act, provided that the recipient of such shares
(or such other securities) agrees in writing not to offer or sell such shares
prior to the termination of the lock-up period referred to herein or (J) making
any offer or sale of shares of Class H Common Stock (or securities convertible
or exchangeable for such shares) as consideration in any merger, strategic
alliance, consolidation, business combination or other similar transaction or in
any acquisition by the Company or any subsidiary of the Company of the capital
stock or a substantial portion of the assets of any other entity in a
transaction that would, in each case, constitute a "public offering" of such
shares (or other such securities) within the meaning of the Securities Act,
provided that such entity and the officers, directors and affiliates of such
entity that are the recipients of such shares (or such other securities) agree
in writing not to offer or sell such shares prior to the termination of the
lock-up period referred to herein and (K) the issuance of shares of Class H
Common Stock to existing holders of such stock for the purposes of effecting the
possible stock split referred to in the Prospectus.
15. Indemnification and Contribution; Settlement of Litigation; Release.
(a) The provisions of the letter agreement dated , 2000
between the Company and you (the "Indemnity Letter") relating to
indemnification and contribution, and to the settlement of claims and
release of the Indemnified Persons (as defined in the Indemnity Letter)
in the event of such settlement, are in full force and effect, and the
Company agrees to indemnify and hold harmless you and the other Indemnified
Persons, to contribute to amounts paid or payable by you and the other
Indemnified Persons and to comply with such settlement and release
provisions, in each case as provided in the Indemnity Letter.
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<PAGE>
(b) The Dealer Manager hereby agrees to indemnify and hold harmless
the Company and Hughes, any director, officer, agent or employee of the
Company or Hughes (the "Indemnitees") to the full extent lawful, from and
against, and that the Indemnitees shall have no liability to you or your
creditors or security holders for, any losses caused by any untrue
statement or alleged untrue statement of any material fact in the
Registration Statement, the Prospectus, the Schedule TO and information
filed pursuant to Rule 425 or omitted statement of material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that this sentence shall
only apply with respect to such statements and omissions that are made in
such documents in reliance upon and in conformity with written information
relating to you prepared by you or on your behalf and furnished by you or
your behalf for inclusion in such document.
16. Full Force and Effect. The indemnification and contribution agreements
contained in Section 15, the fee and expense reimbursement agreements contained
in Sections 7 and 8, the representations, warranties and agreements contained in
this Agreement and the waiver of the right to trial by jury contained in Section
25 shall remain operative and in full force and effect, regardless of (i) any
failure to commence, or the withdrawal, termination, expiration or consummation
of, the Exchange Offer or the termination or assignment of this Agreement, (ii)
any investigation made by or on behalf of any Indemnified Person, (iii) any
withdrawal by you pursuant the Section 6 and (iv) the completion of your
services hereunder.
17. Severability. If any term of other provision of this Agreement is
invalid, illegal or incapable of being enforced by and rule of law, or public
policy, all other provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic and legal substance of the agreements
contained herein is not affected in any manner adverse to any party.
18. Counterparts. This Agreement may be executed by the different parties
hereto in one or more separate counterparts, each of which when executed shall
be deemed an original, but all of which together shall constitute one and the
same agreement.
19. Binding Effect. This Agreement shall be binding upon and inure solely
to the benefit of each party hereto and the Indemnified Persons, and nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy.
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20. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
executed in and to be performed in that State.
21. Entire Agreement. This Agreement, the Engagement Letter and the
Indemnity Letter constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
22. Amendment. This Agreement may not be amended except in writing signed
by each party to be bound thereby.
23. Notices. All notices and other communications required or permitted to
be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered in person, by cable, telecopy, telegram or telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the parties hereto as follows (or, as to each party, at such other address as
shall be designated by such party in a written notice complying as to delivery
with the terms of this paragraph):
(a) If to you:
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Telecopy No.: (212) 761-5780
Attention of Equity Capital Markets
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy No.: (212) 450-4800
Attention of Francis J. Morison, Esq.
15
<PAGE>
(b) If to the Company:
General Motors Corporation
300 Renaissance Center
Mailcode 482-C25-C22
P.O. Box 300
Detroit, Michigan 48265-3000
Telecopy No.: (313) 665-4978
Attention of Warren G. Andersen, Esq.
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy No.: (312) 861-2200
Attention of Joseph P. Gromacki, Esq.
24. Subheadings. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
25. Waiver of Jury Trial. The provision of the Engagement Letter relating
to the waiver by you and the Company of any right to trial by jury is
incorporated herein by references as if restated herein in its entirety, and you
and the Company agree to comply with your and its respective obligations under
such provision as provided therein.
16
<PAGE>
Please indicate your willingness to act as Dealer Manager on the terms set
forth herein and your acceptance of the foregoing provisions by signing in the
space provided below for that purpose and returning to us a copy of this letter,
whereupon this letter and your acceptance shall constitute a binding agreement
among us.
Very truly yours,
GENERAL MOTORS CORPORATION
by:
---------------------------------------
Name:
Title:
Accepted to and agreed as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
by:
---------------------------------------
Name:
Title:
17
<PAGE>
ANNEX A
-------
Australia
Austria
Belgium
Brazil
Canada
Germany
Ireland
Israel
Italy
Mexico
The Netherlands
New Zealand
Norway
Singapore
Spain
Sweden
Switzerland
United Kingdom
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
____________, 2000
Morgan Stanley & Co. Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") proposes to enter into a Dealer Manager Agreement (the "Dealer Manager
Agreement") with General Motors Corporation, a Delaware corporation (the
"Company"), in connection with the Company's proposed tender offer (such tender
offer, as it may be amended and supplemented, the "Exchange Offer") for the
outstanding shares of the Company's $1-2/3 Common Stock, par value $1-2/3 per
share (the "$1-2/3 Par Value Common Stock"), in exchange for shares of the
Company's Class H Common Stock, par value $.010 per share (the "Exchange
Shares").
The undersigned hereby agrees that, without the prior written consent of
Morgan Stanley, which consent shall not be unreasonably withheld, he, she or it
will not, during the period commencing on the date hereof and ending 90 days
after the date of the expiration of the Exchange Offer (the "Expiration Date")
or such earlier date as the Exchange Offer may be abandoned, terminated or
withdrawn, (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of Class H Common Stock or any securities convertible
into or exercisable or exchangeable for Class H Common Stock, provided that this
provision (1) shall not apply to shares of the $1-2/3 Par Value Common Stock or
(2) enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the Class H Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Class H Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (a) the transfer of
shares of Class H Common Stock pursuant to the Exchange Offer; (b) transactions
relating
<PAGE>
to shares of Class H Common Stock or other securities acquired in open market
transactions after the expiration of the Exchange Offer and (c) transactions
involving any securities of the Company other than Class H Common Stock,
including, but not limited to, shares of $1-2/3 Par Value Common Stock. In
addition, the undersigned agrees that, without the prior written consent of the
Dealer Manager, it will not, during the period commencing on the date hereof and
ending 90 days after the Expiration Date or such earlier date as the Exchange
Offer may be abandoned, terminated or withdrawn, make any demand for or exercise
any right with respect to, the registration of any shares of Class H Common
Stock or any security convertible into or exercisable or exchangeable for Class
H Common Stock.
Whether or not the Exchange Offer actually occurs depends on a number of
factors, including market conditions. Any Exchange Offer will only be made
pursuant to a Dealer Manager Agreement, the terms of which are subject to
negotiation between the Company and the Dealer Manager.
Very truly yours,
(Name)
(Address)
A-2
<PAGE>
EXHIBIT A-1
-----------
Executive Officers of General Motors
- ------------------------------------
J. Michael Losh
Harry J. Pearce
John F. Smith, Jr.
G. Richard Wagoner
Ronald Zarrella
Executive Officers of Hughes
- ----------------------------
Roxanne S. Austin
Eddy Hartenstein
Jack A. Shaw
Michael T. Smith
[ ]
A-3
<PAGE>
EXHIBIT B
Opinion of Warren G. Andersen, Esq., Attorney,
Legal Staff of General Motors Corporation (the "Company")
(a) The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware, is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such qualification and
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so qualified or in good standing would not have a material adverse
effect on the financial position of the Company taken as a whole, and has the
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the Exchange Offer.
(b) The authorized capital stock of the Company, including the Class H
Common Stock, conforms as to legal matters in all material respects to the
description thereof contained under the headings "Overview of GM Capital Stock"
and "Description of Class H Common Stock."
(c) Each of this Agreement, the Engagement Letter and the Indemnity Letter
has been duly authorized, executed and delivered by the Company.
(d) The Exchange Shares to be issued by the Company pursuant to the terms
of the Exchange Offer have been duly authorized and, when issued and delivered
pursuant to the terms of the Exchange Offer, will be validly issued, fully paid
and non-assessable, and the issuance of the Exchange Shares will not be subject
to any preemptive or, to such counsel's knowledge, other similar rights under
the Delaware General Corporation Law, the Company's certificate of incorporation
or bylaws or any contractual provision of which such counsel has knowledge.
(e) The Exchange Offer has been duly authorized by all necessary corporate
action by the Company.
(f) The consummation of the Exchange Offer and the execution, delivery and
performance of this Agreement will not contravene any provision of the
certificate of incorporation or by-laws of the Company or any provisions of a
material agreement or other material instrument known to counsel and binding
upon the Company (provided that such counsel need express no opinion as to
compliance with any financial test or cross-default provision in any such
<PAGE>
agreement), or conflict with or violate in any material respect any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over the Company, except, in each case, for any such conflicts, contraventions,
violations, breaches or defaults which would not materially adversely affect the
ability of the Company to execute and deliver this Agreement or to consummate
the Exchange Offer in accordance with its terms or consummate the transactions
contemplated by this Agreement.
(g) After reasonable inquiry, such counsel does not know of any legal or
governmental proceeding or investigation pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of the properties
of the Company is subject which is required to be described in the Registration
Statement or the Prospectus and is not so described or of any contract or other
document which is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement which is
not described or filed as required.
(h) The statements: (i) in Item 20 of the Registration Statement; (ii) in
the Prospectus incorporated by reference to Item 3 of Part I of the Company's
Annual Report of Form 10-K for the year ended December 31, 1999 and (iii) in
the Prospectus under the captions "Overview of GM Capital Stock", "Description
of Class H Common Stock" and "Comparison of Rights of $1-2/3 Par Value
Stockholders and Class H Stockholders," in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings referred to
therein, in all material respects fairly present the information called for with
respect to such legal matters, documents and proceedings and fairly summarize
the matters referred to therein.
Such counsel participated in the preparation of the Registration Statement
and the Prospectus and the Schedule TO. During the course of such preparation,
such counsel examined various documents, including those listed in such
counsel's opinion, and participated in various conferences with representatives
of and counsel for each of the Company and Hughes, and with representatives of
the independent accountants for each of the Company and Hughes and
representatives of and counsel for each of the Dealer Manager and the Marketing
Manager, at which conferences the contents of the Registration Statement and the
Prospectus (and the documents incorporated therein by reference) and the
Schedule TO were reviewed and discussed. In addition, such counsel participated
in discussions with the Staff of the Commission. Except as set forth in the
opinion in paragraph (h) above, such counsel makes no representation that such
counsel has independently verified the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus.
B-2
<PAGE>
No fact came to such counsel's attention to cause him to conclude that (i)
the Registration Statement, on its effective date, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) the
Prospectus, the Schedule TO, as of their respective dates, or as of the date of
this letter, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading or (iii) as of the effective date of the Registration Statement,
either the Registration Statement or the Prospectus appeared on its face not to
be responsive in all material respects to the requirements of Form S-4, except
for, in each case, financial statements and schedules and other financial and
statistical data and information included therein or incorporated by reference
or omitted therefrom, as to which such counsel expresses no opinion.
B-3
<PAGE>
EXHIBIT C
Opinion of Kirkland & Ellis, Counsel to
General Motors Corporation (the "Company")
(a) The authorized capital stock of the Company, including the Class H
common stock, conforms as to legal matters in all material respects to the
description thereof contained under the headings "Overview of GM Capital Stock"
and "Description of Class H Common Stock."
(b) Each of this Agreement, the Engagement Letter and the Indemnity Letter
has been duly authorized, executed and delivered by the Company.
(c) The Exchange Shares to be issued by the Company pursuant to the terms
of the Exchange Offer have been duly authorized and, when issued and delivered,
pursuant to the terms of the Exchange Offer will be validly issued, fully paid
and non-assessable, and the issuance of the Exchange Shares will not be subject
to any preemptive or, to such counsel's knowledge, other similar rights under
the Delaware General Corporation Law, the Company's certificate of incorporation
or bylaws or any contractual provision of which such counsel has knowledge.
(d) The statements in the Prospectus under the captions "Overview of GM
Capital Stock", "Description of Class H Common Stock" and "Comparison of Rights
of $1-2/3 Par Value Stockholders and Class H Stockholders", in each case insofar
as such statements constitute summaries of the legal matters, documents or
proceedings referred to therein, in all material respects fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein.
(e) The discussion set forth under the caption "Material U.S. Federal
Income Tax Consequences" in the Registration Statement is based upon reasonable
interpretations of existing law and fairly summarizes the U.S. federal income
tax considerations that are likely to be material to a holder of GM Common
Stock, $1-2/3 par value per share.
The purpose of our professional engagement was not to establish factual
matters, and preparation of the Registration Statement and the Prospectus and
the Schedule TO involved many determinations of a wholly or partially nonlegal
character. We make no representation that we have independently verified the
accuracy, completeness or fairness of the Registration Statement or the
Prospectus or the Schedule TO or that the actions taken in connection with the
preparation of
<PAGE>
the Registration Statement or the Prospectus (including the actions described in
the next paragraph) or the Schedule TO were sufficient to cause the Registration
Statement or the Prospectus or the Schedule TO to be accurate, complete or fair.
We are not passing upon and do not assume any responsibility for the accuracy,
completeness or fairness of the Registration Statement or the Prospectus or the
Schedule TO except to the extent otherwise explicitly indicated in paragraph (d)
above.
We can however confirm that we have participated in conferences with
representatives of the Company and Hughes, representatives of the independent
accountants for the Company and Hughes, representatives of and counsel for the
Marketing Manager and your representatives and counsel, at which conferences the
contents of the Prospectus and the Registration Statement and related matters
were reviewed and discussed. In addition, we have participated in discussions
with the Staff of the Commission.
Based upon our participation in the conferences and discussions identified
in the preceding paragraph, our understanding of applicable law and the
experience we have gained in our practice thereunder and relying as to factual
matters to the extent deemed appropriate by us upon the representations and
statements of officers and other representatives of the Company and Hughes, we
can, however, advise you that no fact came to our attention to cause us to
conclude that (i) the Registration Statement, on its effective date, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (ii) the Prospectus and the Schedule TO, as of their respective
dates, or as of the date of this letter, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading or (iii) as of the effective date of
the Registration Statement, either the Registration Statement or the Prospectus
appeared on its face not to be responsive in all material respects to the
requirements of Form S-4, except for, in each case, financial statements and
schedules and other financial and statistical data and information included
therein or incorporated by reference or omitted therefrom, as to which we
express no opinion.
C-2
<PAGE>
EXHIBIT D
Opinion of Jennifer A. Smolker, Esq.
Assistant General Counsel of
Hughes Electronics Corporation Inc. ("Hughes")
(a) Each of Hughes, Hughes Network Systems, PanAmSat and DirecTV is a
corporation validly existing and in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, except where the failure to
be so qualified or in good standing would not have a material adverse effect on
the financial position of Hughes and its subsidiaries taken as a whole.
(b) After reasonable inquiry, such counsel does not know of any legal or
governmental proceeding or investigation pending or threatened to which Hughes
or any of its subsidiaries is a party or to which any of the properties of
Hughes is subject which is required to be described in the Registration
Statement or the Prospectus and is not so described or of any contract or other
document which is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement which is
not described or filed as required.
(c) The statements in the Prospectus under the caption "Business of
Hughes--Legal Proceedings", in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings referred to therein, in
all material respects fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the matters
referred to therein.
Such counsel participated in the preparation of the Registration Statement
and the Prospectus. During the course of such preparation, such counsel examined
various documents, including those listed in such counsel's opinion, and
participated in various conferences with representatives of and counsel for the
Company and Hughes, and representatives of the independent accountants for the
Company and Hughes, and representatives of and counsel for each of the Dealer
Manager and the Marketing Manager, at which conferences the contents of the
Registration Statement and the Prospectus (and the documents incorporated
therein by reference) were reviewed and discussed. Except as set forth in the
opinion in paragraph (c) above, such counsel makes no representation that such
<PAGE>
counsel has independently verified the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus.
No fact came to such counsel's attention to cause her to conclude that (i)
the Registration Statement, on its effective date, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) the
Prospectus, on the date it bears or as of the date of this letter, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or (iii) as of the
effective date of the Registration Statement, either the Registration Statement
or the Prospectus appeared on its face not to be responsive in all material
respects to the requirements of Form S-4, except for, in each case, financial
statements and schedules and other financial and statistical data and
information included therein or incorporated by reference or omitted therefrom,
as to which such counsel expresses no opinion.
D-2
<PAGE>
[GENERAL MOTORS LETTERHEAD]
Exhibit 5
April 10, 2000
General Motors Corporation
300 Renaissance Center
Detroit, Michigan 48265
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4 (Registration No.
333-30826) (as amended, the "Registration Statement") filed by General Motors
Corporation, a Delaware corporation (the "Corporation") under the Securities
Act of 1933, as amended, relating to the shares of the Corporation's Class H
Common Stock, par value of $0.10 per share (the "Shares"), to be offered in
exchange for the Corporation's common stock, par value of $1 2/3 per share
(the "$1 2/3 Par Value Common Stock"), I am rendering this opinion upon the
validity of the shares of Class H Common Stock. At your request, this opinion
is being furnished to you for filing as Exhibit 5 to the Registration
Statement.
In my capacity as attorney on the Legal Staff of the Corporation, I have
examined originals or copies (certified or otherwise identified to my
satisfaction) of such corporate records, agreements, documents and other
instruments, and such certificates or comparable documents of public officials
and of officers and representatives of the Corporation, and have made such
inquiries of such officers and representatives, as I have deemed relevant and
necessary as basis for the opinions hereinafter set forth.
In such examination, I have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. As to all
questions of fact material to these opinions that have not been independently
established, I have relied upon certificates or comparable documents or
officers and representatives of the Corporation.
As of the date of this opinion, the Board of Directors of the Corporation
has taken action to approve the issuance and exchange of the Shares and has
delegated to a committee of the Board of Directors (the "Committee") authority
to determine and approve certain matters regarding the issuance and exchange
of the Shares, including the determination of the maximum number of shares to
be exchanged and the exchange ratio (such determination is referred to herein
as the "Committee Action").
<PAGE>
General Motors
April 10, 2000
Page 2
Based upon and subject to the foregoing, I am of the opinion that:
1. The Corporation is a corporation validly existing and in good
standing under the laws of the State of Delaware.
2. The issuance of the Shares has been duly authorized and, when the
Registration Statement has become effective under the Securities Act of
1933, as amended (the "Act"), the Committee has taken the Committee Action
and the Shares have been issued in exchange for shares of $1 2/3 Par Value
Common Stock in accordance with the terms and conditions of the exchange
offer, the Shares will be validly issued, fully paid and nonassessable.
I express no opinion with respect to the laws of any jurisdiction other
than the General Corporation Law of the State of Delaware and the federal laws
of the United States. I do not find it necessary for the purposes of this
opinion, and accordingly, I do not purport to cover herein the application of
the securities or "Blue Sky" laws of the various states to the issuance of the
Shares.
I hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement, to the use of my name under the caption "Legal
Matters" in the Offering Circular-Prospectus forming a part of the
Registration Statement. In giving this consent, I do not admit that I am in
the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ Warren G. Andersen
Warren G. Andersen
2
<PAGE>
[KIRKLAND & ELLIS LETTERHEAD]
Exhibit 8
April 10, 2000
General Motors Corporation
300 Renaissance Center
Detroit, Michigan 48265
Attn: Anton H. Zidansek
Re: Class H Common Stock Exchange Offer
Dear Sirs:
In connection with the proposal to offer (the "Exchange Offer") to exchange
shares of General Motors Corporation ("GM") Class H Common Stock for shares of
$1 2/3 Par Value Common Stock, as described in the Registration Statement on
Form S-4 (Registration No. 333-30826) (the "Registration Statement"), you have
requested our legal opinion concerning certain United States federal income
tax consequences of the Exchange Offer.
We have examined the Registration Statement and such other documents and
such legal authorities as we have deemed relevant for purposes of expressing
the opinions contained herein.
Our opinion is based upon the applicable provisions of the Internal Revenue
Code of 1986, as amended through the date hereof (the "Code"), Treasury
regulations promulgated and proposed thereunder (the "Regulations"), current
positions of the Internal Revenue Service (the "IRS") contained in published
Revenue Rulings and Revenue Procedures and existing judicial decisions. In
rendering this opinion, we have expressly assumed that the representations
made by you and contained or described in the Registration Statement are true
and correct.
Based on the foregoing, and subject to the discussion set forth under the
caption "Material U.S. Federal Income Tax Consequences" in the Registration
Statement, our opinion as to the material U.S. federal income tax consequences
of the Exchange Offer is as follows:
The discussion set forth under the caption "Material U.S. Federal Income
Tax Consequences" in the Registration Statement is based upon reasonable
interpretations of
<PAGE>
General Motors Corporation
April 10, 2000
Page 2
existing law and fairly summarizes the U.S. federal income tax
considerations that are likely to be material to a holder of $1 2/3 Par
Value Common Stock.
The opinions set forth herein are based on relevant provisions of the Code,
the Regulations, and interpretations of the Code and the Regulations by the
courts and the IRS, all as they exist at the date of this letter. All such
provisions of the Code, Regulations, judicial decisions, and administrative
interpretations are subject to change at any time and, in some circumstances,
with retroactive effect. Any such change could affect any or all of the
conclusions set forth in this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Kirkland & Ellis
Kirkland & Ellis
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Amendment No. 2 to the
Registration Statement on Form S-4 of General Motors Corporation of our report
dated January 20, 2000 (March 7, 2000 as to Note 27) appearing in the Annual
Report on Form 10-K of General Motors Corporation for the year ended December
31, 1999.
We also consent to the inclusion and incorporation by reference in this
Amendment No. 2 to the Registration Statement on Form S-4 of General Motors
Corporation of our report dated January 19, 2000 (March 1, 2000 as to Note 21)
appearing in the Annual Report on Form 10-K of Hughes Electronics Corporation
for the year ended December 31, 1999.
We also consent to the references to us under the headings "Summary--Summary
Historical Consolidated Financial Data of GM," "Summary--Summary Historical
Financial Data of Hughes," "Selected Historical Financial Data of Hughes," and
"Experts" in this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
April 10, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors Phoenixstar, Inc. (formerly Primestar, Inc.):
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of General Motors Corporation of our report, dated April 15, 1999,
relating to the consolidated balance sheets of Primestar, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, equity (deficit) and cash flows for each of the
years in the three-year period ended December 31, 1998 and the related
consolidated financial statement schedule, included in Hughes Electronics
Corporation's Form 10 filed August 13, 1999, and to the reference to our firm
under the heading "Experts" in the Registration Statement.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
April 7, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
TCI Satellite Entertainment Inc.:
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of General Motors Corporation of our report, dated April 15, 1999,
relating to the consolidated balance sheets of TCI Satellite Entertainment
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, equity (deficit) and cash flows for
each of the years in the three-year period ended December 31, 1998 and the
related consolidated financial statement schedule, included in Hughes
Electronics Corporation's Form 10 filed August 13, 1999, and to the reference
to our firm under the heading "Experts" in the Registration Statement.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
April 7, 2000
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 22, 1999
on the financial statements of United States Satellite Broadcasting Company,
Inc. as of December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998 included in Hughes Electronics Corporation's
Form 10 filed August 13, 1999 and to all references to our Firm included in
this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
April 7, 2000
<PAGE>
Exhibit 99.1
GENERAL MOTORS VOLUNTARY EXCHANGE OFFER LETTER OF TRANSMITTAL
<TABLE>
<S> <C>
Shares of GM $1 2/3 par value common stock owned by you: (8)[BOX] Mark this box if your $1 2/3 par value common
stock certificates which you wish to tender in
(1) in certificate form: the Exchange Offer have been lost, destroyed,
mutilated or stolen. Then, complete Box A on
(2) in GM's Dividend and Cash Investment Plan or in book-entry form: the back of this Letter of Transmittal.
Please refer to Instruction VI.
(3) Total of (1) and (2) above:
(9)[BOX] Mark this box to provide special issuance or
(4) Tax ID Number: delivery instructions for the shares and/or
cash to which you may be entitled and complete
(5) If the Tax ID number listed above is incorrect, please provide pages 12 through 14, as applicable, of the
your corrected Tax ID No. here:________________________ (Please Instructions to the Letter of Transmittal.
refer to Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 and, if applicable, complete Box B Under penalties of perjury, I certify that:
on the back of this Letter of Transmittal) (i) The number shown in (4) above, or if corrected
in (5) above, is my correct Taxpayer Identifi-
(6)[BOX] Mark this box if you wish to tender all of your GM $1 2/3 par cation Number (or I am waiting for a Taxpayer
value common stock in exchange for GM Class H stock. Identification Number to be issued to me); and
Please refer to Instruction I.
(ii) I am not subject to backup withholding
(7)[BOX] Mark this box if you wish to tender some, but not all, of your either because I am exempt from backup with-
shares. Indicate the number of shares of GM $1 2/3 par value holding or I have not been notified by the
common stock you wish to tender:____________________. Internal Revenue Service ("IRS") that I am
Please refer to Instruction I and Instruction II. subject to backup withholding as a result of a
You must mark either Box (6) or (7) to participate in the Exchange Offer. failure to report all interest or dividends, or
the IRS has notified me that I am no longer
subject to backup withholding.
The IRS does not require your consent to any provision
of this document other than the certifications required
to avoid backup withholding.
You must cross out (ii) above if you have been notified
by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your
tax return. However, if after being notified by the IRS
that you were subject to backup withholding you
received another notification from the IRS that you
are no longer subject to backup withholding, do not
cross out (ii).
Required Information (Please refer to Instruction III
and, if applicable, complete Box C on the back of this
Letter of Transmittal):
_______________________________________________
Signature of Owner (Date)
_______________________________________________
Signature of Co-owner, if any (Date)
___________________________ _________________________
Daytime Telephone # Evening Telephone #
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Detach Form Before Mailing
</TABLE>
Please read the Instructions to the Letter of Transmittal
(blue pamphlet) before completing this form.
By signing above:
. I certify that I have read and understand the Instructions to the Letter of
Transmittal.
. I certify that all of the provisions set forth under "Representations,
Warranties and Agreements By Tendering Stockholders" in the Instructions to
the Letter of Transmittal are true and correct with respect to me or with
respect to the beneficial owner of the shares tendered hereby, and that, by
signing above, the tendering stockholder is making these representations and
warranties to GM and agreeing to the terms and conditions of the Exchange
Offer.
. I certify that (i) I am eligible to participate in the Exchange Offer, and
(ii) if I am tendering shares on behalf of a beneficial owner, to the best
of my knowledge, such person is eligible to participate in the Exchange
Offer.
<PAGE>
[Back of Letter of Transmittal]
- --------------------------------------------------------------------------------
Box A
LOST, DESTROYED, MUTILATED OR STOLEN $1 2/3 PAR VALUE
COMMON STOCK CERTIFICATES
By signing the front of this Letter of Transmittal I certify that I am the
lawful owner of the shares described on the front of this Letter of
Transmittal. If I have filled out the surety bond calculation below, I have
made a diligent search for the certificate(s), and I have been unable to find
it (them) or it (they) have been destroyed, mutilated or stolen. I hereby agree
(for myself, my heirs, assigns and personal representatives), in consideration
of the exchange of the shares represented by the certificate(s), to completely
indemnify, protect and hold harmless SAFECO Surety Company (the "Surety"),
EquiServe Trust Company, Fleet National Bank, General Motors and their
respective affiliates (collectively, the "Obligees") from and against all
losses, costs and damages which they may be subject to, or liable for, in
respect to the cancellation and exchange of the certificate(s). I agree that
this Letter of Transmittal is delivered to accompany Bond of Indemnity
#5926165 underwritten by SAFECO Surety Company to protect the foregoing
Obligees. I agree to surrender the certificate(s) for cancellation if I find it
(them) or it (they) are otherwise recovered at any time.
<TABLE>
<S> <C> <C>
Surety Bond Calculation: X $1.60 = $
------------------------ ------------------------------------------------ --------------------------- -----------------
(Minimum Premium of $20.00) # of Shares Lost, Destroyed, Mutilated or Stolen Insurance Premium per Share Total Premium Due
Please make your check (minimum amount of $20.00) payable to SAFECO Surety Company and enclose with this Letter of Transmittal.
We will not be able to complete your exchange without this premium.
- ------------------------------------------------------------------------------------------------------------------------------------
Box B Box C Box D
Certification of Payee Awaiting Medallion Signature Guarantee Guaranteed Delivery
Taxpayer Identification Number (Please refer to Instruction III) (Please refer to Instruction I)
(Please refer to Instruction IX)
- ------------------------------------------------------------------------------------------------------------------------------------
I certify under penalties of perjury, that a For use by eligible institutions only. If tendered shares of $1 2/3 par
Taxpayer Identification Number has not been Place Medallion Guarantee in space value common stock are being delivered
issued to me, and that I mailed or delivered an below. pursuant to a notice of guaranteed
application to receive a Taxpayer Identification delivery, provide the following
Number to the appropriate IRS Center or Social information.
Security Administration Office (or I intend to
mail or deliver an application in the near
future). I understand that if I do not provide
a Taxpayer Identification Number within 60 days,
31% of all reportable payments made to me
thereafter will be withheld until I provide a -------------------------------------
number. -------------------------------------
Name(s) of registered holder(s)
-------------------------------------- -------------------------------------
(Signature of Current Owner) (Date) Date of execution of notice of
guaranteed delivery
- ------------------------------------------------- -------------------------------------- --------------------------------------
(Signature) (Date) (Signature of Co-Owner, if any) (Date) Name of institution that
guaranteed delivery
- ------------------------------------------------------------------------------------------------------------------------------------
Box E--Designation of Broker: If your broker has been instrumental in this tender, provide the following information.
Name of your brokerage firm: ______________________________________ Your brokerage account #: _________________________________
(Please refer to Instruction VIII)
- ------------------------------------------------------------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
If you elect to participate in the Exchange Offer and your
shares of GM $1 2/3 par value common stock are held in
certificate form, you must return the stock certificate(s)
with your completed Letter of Transmittal and any other
required documents to one of the addresses below.
MAILING ADDRESSES
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Fleet National Bank Fleet National Bank Securities Transfer & Reporting
Attn: Corporate Actions Attn: Corporate Actions Services, Inc.
P.O. Box 9573 40 Campanelli Drive c/o Fleet National Bank/Equiserve
Boston, MA 02205-9573 Braintree, MA 02184 100 William Street, Galleria
New York, NY 10038
</TABLE>
Delivery of the Letter of Transmittal to an address other than as set forth
above will not constitute a valid delivery to the Exchange Agent.
If you send certificate(s) representing shares of $1 2/3 par value common
stock tendered with the Letter of Transmittal by mail, it is recommended
that you use registered mail insured for 2% of the market value ($20.00
minimum), return receipt requested.
<PAGE>
General Motors Corporation
INSTRUCTIONS
TO THE
LETTER OF TRANSMITTAL
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER
AND WITHDRAWAL RIGHTS
WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON , , 2000,
UNLESS OTHERWISE EXTENDED
- -------------------------------------------------------------------------------
Each stockholder who signs the accompanying Letter of Transmittal agrees
and acknowledges that he or she has received the Offering Circular-Prospectus
dated , 2000 (the "Offering Circular-Prospectus") of General Motors
Corporation, a Delaware corporation ("GM"), the one-page Letter of Transmittal
(on white paper) and these Instructions to the Letter of Transmittal, which
together constitute GM's offer (the "Exchange Offer") to exchange shares
of Class H common stock for each share of $1 2/3 par value common stock validly
tendered in the Exchange Offer, up to an aggregate of shares of
$1 2/3 par value common stock validly tendered and exchanged.
Capitalized terms used but not defined herein or in the Letter of
Transmittal have the meanings given to them in the Offering Circular-
Prospectus. Each stockholder who has completed, executed and delivered a
Letter of Transmittal agrees that he or she has indicated therein the action
such stockholder desires to take with respect to the Exchange Offer.
These Instructions to the Letter of Transmittal consist of three principal
parts:
(1) certain representations, warranties and agreements that tendering
stockholders will be making to GM;
(2) instructions intended to assist tendering stockholders in completing
the Letter of Transmittal and explain certain terms and conditions of
the Exchange Offer; and
(3) special issuance instructions to be issued to GM if tendering
stockholders wish to have shares of Class H common stock, $1 2/3 par
value common stock or cash instead of fractional shares either credited
to someone other than the tendering stockholder and special delivery
instructions to be issued to GM if tendering stockholders wish to have
cash instead of fractional shares sent to a different address.
You should read these Instructions to the Letter of Transmittal very
carefully before you complete the Letter of Transmittal.
- -------------------------------------------------------------------------------
DO NOT COMPLETE OR RETURN THE LETTER OF TRANSMITTAL IF YOUR SHARES ARE HELD
IN AN ACCOUNT WITH A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY,
EMPLOYEE BENEFIT PLAN SPONSORED BY GM OR OTHER NOMINEE AND ARE NOT
CERTIFICATED IN YOUR NAME. THIS LETTER OF TRANSMITTAL IS BEING SUPPLIED FOR
YOUR INFORMATION ONLY BECAUSE IT CONTAINS IMPORTANT INFORMATION REGARDING
THE EXCHANGE OFFER. THE INSTITUTION HOLDING YOUR SHARES WILL SUPPLY YOU WITH
SEPARATE INSTRUCTIONS REGARDING THE TENDER OF YOUR SHARES.
- -------------------------------------------------------------------------------
<PAGE>
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
BY TENDERING STOCKHOLDERS
The Offering Circular-Prospectus dated , 2000, of General Motors
Corporation ("GM"), the Letter of Transmittal and these Instructions to the
Letter of Transmittal together constitute GM's offer (the "Exchange Offer") to
exchange up to shares of Class H common stock for shares of $1 2/3 par
value common stock that are validly tendered by the Expiration Date (as
defined below) and not withdrawn or deemed withdrawn, at an exchange ratio of
shares of Class H common stock for each share of $1 2/3 par value
common stock tendered, upon the terms and subject to the conditions set forth
herein, in the Letter of Transmittal and in the Offering Circular-Prospectus.
See "Summary" and "The Exchange Offer" in the Offering Circular-Prospectus.
The Exchange Offer and withdrawal rights will expire at 12:00 Midnight, New
York City time, on , 2000 (the "Expiration Date"), unless extended in
accordance with applicable law and the terms of the Exchange Offer, in which
event the term "Expiration Date" shall mean the latest time and date at which
the Exchange Offer, as extended, shall expire. We sometimes refer to holders
of shares of $1 2/3 par value common stock in this Letter of Transmittal as
"stockholders."
Each stockholder who tenders his or her shares in the Exchange Offer
("you"), whether pursuant to the letter of transmittal or otherwise, makes the
following representations and warranties to GM and agrees to the following:
A. Upon the terms and subject to the conditions of the Exchange Offer, you
tender to GM the shares of $1 2/3 par value common stock described in
Item O 6 or Item O 7 of the Letter of Transmittal. Subject to, and
effective upon, the acceptance by GM for exchange of such tendered
shares of $1 2/3 par value common stock, you hereby assign and transfer
to GM, or upon its order, all right, title and interest in and to such
shares. You irrevocably constitute and appoint Fleet National Bank (the
"Exchange Agent") as your true and lawful agent and attorney-in-fact
(with full knowledge that the Exchange Agent also acts as GM's agent)
with respect to such tendered shares of $1 2/3 par value common stock,
with full power of substitution (such power of attorney being deemed to
be an irrevocable power coupled with an interest):
(1) to deliver stock certificates representing such tendered shares of
$1 2/3 par value common stock or transfer ownership of such shares
on the account books maintained by The Depository Trust Company
(the "Book-Entry Transfer Facility"), together, in any such case,
with all accompanying evidences of transfer and authenticity, to
you or upon your order, upon receipt by the Exchange Agent, as your
agent, of shares of Class H common stock, to which you are entitled
upon the acceptance by GM for exchange of such tendered shares of
$1 2/3 par value common stock;
(2) to present certificate(s) representing, or other evidence of
ownership of, such tendered shares of $1 2/3 par value common stock
for transfer on GM's stock transfer books; and
(3) to receive all benefits and otherwise exercise all rights of
beneficial ownership of such shares, all in accordance with the
terms and conditions of the Exchange Offer. If your tendered shares
of $1 2/3 par value common stock are accepted by GM for exchange,
you will be entitled to receive book-entry credit representing
shares of Class H common stock received in the exchange offer.
B. You represent and warrant to GM that you have full power and authority
to tender, assign and transfer the shares of $1 2/3 par value common
stock that you have tendered and that when such shares are accepted by
GM for exchange pursuant to the Exchange Offer, GM will acquire good,
marketable and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances, and that none of such shares of
$1 2/3 par value common stock will be subject to any adverse claim if
and when GM accepts such shares for exchange. You will, upon request,
execute and deliver any additional documents deemed by the Exchange
Agent or GM to be necessary or desirable to complete the assignment and
transfer of the shares of $1 2/3 par value common stock that you have
tendered. All authority conferred or agreed to be conferred in the
tender and these Instructions to the Letter of Transmittal and all of
your obligations thereunder and hereunder shall be binding upon your
successors,
2
<PAGE>
assigns, heirs, executors, administrators, trustees in bankruptcy and
legal representatives and shall not be affected by, and shall survive
your death or incapacity. The tender made in the exchange offer may be
withdrawn only in accordance with the procedures set forth in the
Offering Circular-Prospectus and these Instructions to the Letter of
Transmittal.
C. You understand that the maximum number of shares of $1 2/3 par value
common stock which will be accepted by GM for exchange will be that
number of shares which, when multiplied by the exchange ratio, equals
shares of Class H common stock. You also understand that if more
than such maximum number of shares of $1 2/3 par value common stock are
tendered at the exchange ratio, the Exchange Offer will be
oversubscribed, and shares of $1 2/3 par value common stock tendered at
the exchange ratio will be subject to proration in accordance with the
terms set forth in the Offering Circular-Prospectus at "The Exchange
Offer--Terms of the Exchange Offer," except for certain odd-lot tenders
as described in the Offering Circular-Prospectus under "The Exchange
Offer--Proration; Tenders for Exchange by Holders of Fewer Than 100
Shares of $1 2/3 Par Value Common Stock." You understand that, upon
acceptance by GM of the shares of $1 2/3 par value common stock that you
have tendered, you will be deemed to have accepted the shares of Class H
common stock exchanged therefor and will be deemed to have relinquished
all rights with respect to the shares of $1 2/3 par value common stock
accepted by GM for exchange.
D. You recognize that, under certain circumstances and subject to certain
conditions to the Exchange Offer (which GM may waive in its sole and
absolute discretion) set forth in the Offering Circular-Prospectus, GM
may not be required to accept for exchange any of the shares of $1 2/3
par value common stock that you have tendered (including any shares of
$1 2/3 par value common stock tendered after the Expiration Date). Your
tender may be withdrawn only in accordance with the procedures set forth
in the Offering Circular-Prospectus at "The Exchange Offer--Withdrawal
Rights" and in these Instructions to the Letter of Transmittal. Shares
of $1 2/3 par value common stock delivered to the Exchange Agent and not
accepted by GM for exchange will be credited to you and a confirmation
will be mailed to you as promptly as reasonably practicable following
expiration or termination of the Exchange Offer at the address for you
set forth on the front of the Letter of Transmittal.
E. Unless otherwise indicated in the box entitled "Special Issuance
Instructions" on page 12 of these Instructions to the Letter of
Transmittal, you hereby request that GM credit or pay, as applicable (1)
the shares of Class H common stock to which you are entitled, (2) if
applicable, the shares of $1 2/3 par value common stock not tendered by
you or any tendered shares that are not accepted by GM for exchange, and
(3) if applicable, any cash received by you instead of fractional shares
of Class H common stock, in each case in the name(s) of, or payable to,
as applicable, the registered holder(s) set forth on the front of the
Letter of Transmittal. If the box entitled "Special Issuance
Instructions" on page 12 of these Instructions to the Letter of
Transmittal is completed, you hereby request that GM credit in the name
of or pay to, as applicable, the person(s) so indicated in such box, (1)
the shares of Class H common stock to which you are entitled, (2) if
applicable, the shares of $1 2/3 par value common stock not tendered by
you or any tendered shares that are not accepted by GM for exchange, and
(3) if applicable, any cash received instead of fractional shares of
Class H common stock. You recognize that GM has no obligation pursuant
to the "Special Issuance Instructions" to transfer any shares of $1 2/3
par value common stock from the name of the registered holder(s) if GM
does not accept such shares for exchange.
F. You recognize that the confirmation of shares of Class H common stock to
which you are entitled and, if applicable, the confirmation of shares of
$1 2/3 par value common stock not tendered by you or not accepted by GM
for exchange will be sent to the address of the registered holder set
forth on the front of the Letter of Transmittal. Unless otherwise
indicated in the box entitled "Special Delivery Instructions" on page 14
of these Instructions to the Letter of Transmittal, you request that GM
mail, if applicable, the payment of cash instead of fractional shares of
Class H common stock to the address(es) of the registered holder(s) set
forth on the front of the Letter of Transmittal. If the box entitled
"Special Delivery Instructions" on page 14 of these Instructions to the
Letter of Transmittal is
3
<PAGE>
completed, you hereby request that GM mail any payment of cash instead
of fractional shares of Class H common stock to the address that you
indicate in such box.
G. You understand that any shares of $1 2/3 par value common stock
delivered by book-entry transfer that are not tendered or any shares
tendered with the Letter of Transmittal that are delivered by book-entry
transfer and are not accepted by GM for exchange, if applicable, will be
credited to the applicable account at the Book-Entry Transfer Facility.
H. By signing the Letter of Transmittal, you understand that the delivery
and surrender of the shares of $1 2/3 par value common stock that you
have tendered is not effective, and the risk of loss of the shares of $1
2/3 par value common stock (including shares of $1 2/3 par value common
stock tendered herewith) does not pass to the Exchange Agent, until
actual receipt by the Exchange Agent of the Letter of Transmittal (or a
manually signed facsimile), duly completed and signed, or an agent's
message (as defined in the Offering Circular-Prospectus at "The Exchange
Offer--Procedures for Tendering Shares of $1 2/3 Par Value Common
Stock") in connection with a book-entry transfer of shares, together
with all accompanying evidences of authority in form satisfactory to GM
and any other required documents. All questions as to the form of
documents (including notices of withdrawal) and the validity, form,
eligibility (including time of receipt) and acceptance by GM for
exchange of any tender of shares of $1 2/3 par value common stock will
be determined by GM in its sole and absolute discretion and such
determination shall be final and binding upon all tendering holders of
$1 2/3 par value common stock.
I. You understand that a tender of shares of $1 2/3 par value common stock
made pursuant to any method of delivery set forth in the Offering
Circular-Prospectus and acceptance by GM for exchange of such shares
pursuant to the procedures described in the Offering Circular-Prospectus
at "The Exchange Offer--Procedures for Tendering Shares of $1 2/3 Par
Value Common Stock" and in these Instructions to the Letter of
Transmittal will constitute a binding agreement between you and GM upon
the terms and subject to the conditions of the Exchange Offer, including
your representation that (1) you own the shares of $1 2/3 par value
common stock being tendered within the meaning of Rule 14e-4 promulgated
under the Securities Exchange Act of 1934, as amended, (2) the tender of
such shares of $1 2/3 par value common stock complies with Rule 14e-4,
and (3) you have not received the Offering Circular-Prospectus or other
materials related to the Exchange Offer in, and are not tendering your
shares of $1 2/3 par value common stock from, France or Japan. For more
information regarding matters relevant to holders in foreign
jurisdictions, we urge you to read carefully "The Exchange Offer--
Certain Matters Relating to Foreign Jurisdictions" in the Offering
Circular-Prospectus.
J. You represent and warrant to GM that, if all of the shares of $1 2/3 par
value common stock that you wish to tender in the Exchange Offer are
accepted by GM in exchange for Class H common stock, (1) you will not
beneficially own 5% or more of the total voting power or total value of
the outstanding Class H common stock after the Exchange Offer is
completed or (2) you have contacted General Motors Corporation,
Stockholder Services, Mail Code 482-C38-B71, 300 Renaissance Center,
P.O. Box 300 Detroit, MI 48265-3000 (telephone: (313) 667-1500) prior to
the Expiration Date indicating that you will beneficially own 5% or more
of the total voting power or total value of the outstanding Class H
common stock after the Exchange Offer is completed.
4
<PAGE>
INSTRUCTIONS FOR COMPLETING THE LETTER OF TRANSMITTAL
Please Read All of These Instructions (Which Form Part of the Terms and
Conditions of the Exchange Offer) Carefully Before Completing the Letter of
Transmittal
The Letter of Transmittal is to be used if:
. you are forwarding certificate(s) representing shares of $1 2/3 par value
common stock along with the Letter of Transmittal;
. you are making tenders of shares of $1 2/3 par value common stock held in
GM's Dividend and Cash Investment Plan or held on your behalf by GM's
transfer agent in book-entry form under the Direct Registration System;
. you are using guaranteed delivery procedures, according to the procedures
set forth in the Offering Circular-Prospectus at "The Exchange Offer--
Guaranteed Delivery Procedures;"or
. you are making tenders by book-entry transfer to the account maintained
by the Exchange Agent at The Depository Trust Company, unless an agent's
message is utilized.
Delivery of documents to The Depository Trust Company does not constitute
delivery to the Exchange Agent.
You must follow these Instructions to the Letter of Transmittal in
completing the Letter of Transmittal. Your broker can assist you in completing
the Letter of Transmittal. Questions and requests for assistance or for
additional copies of the Offering Circular-Prospectus, the Letter of
Transmittal, these Instructions to the Letter of Transmittal, the Notice of
Guaranteed Delivery or the Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 may also be directed to Morrow &
Co., Inc. (the "Information Agent") at (877) 816-5329 (toll free) in the
United States or at (212) 754-8000 (collect) elsewhere. See Instruction XI.
Important: The Letter of Transmittal or a manually signed facsimile copy
thereof, together with shares of $1 2/3 par value common stock and
all other required documents or a Notice of Guaranteed Delivery,
must be received by the Exchange Agent on or prior to the Expiration
Date.
Instruction I: Delivery of the Letter of Transmittal and $1 2/3 Par Value
Common Stock Certificate(s) or Book-Entry Confirmations
BY SIGNING THE LETTER OF TRANSMITTAL AND DELIVERING IT AND, IF APPLICABLE,
THE CERTIFICATE(S) FOR $1 2/3 PAR VALUE COMMON STOCK TO THE EXCHANGE AGENT
ON OR PRIOR TO THE EXPIRATION DATE, YOU WILL BE DEEMED TO HAVE TENDERED
THE SHARES OF $1 2/3 PAR VALUE COMMON STOCK INDICATED IN ITEM O 6 OR ITEM
O 7 OF THE LETTER OF TRANSMITTAL.
Who Should Complete the Letter of Transmittal
You should complete the Letter of Transmittal if:
. you are making tenders of shares of $1 2/3 par value common stock held in
GM's Dividend and Cash Investment Plan or held on your behalf by GM's
transfer agent in book-entry form under the Direct Registration System
pursuant to the procedures set forth in the Offering Circular--Prospectus
at "The Exchange Offer--Procedures for Tendering Shares of $1 2/3 Par
Value Common Stock;"
. you are tendering shares of $1 2/3 par value common stock pursuant to the
guaranteed delivery procedures set forth in the Offering Circular--
Prospectus at "The Exchange Offer--Guaranteed Delivery Procedures;" or
. you are tendering certificate(s) representing your shares of $1 2/3 par
value common stock with the Letter of Transmittal or, unless an agent's
message is utilized, if tenders are to be made pursuant to the procedures
for book-entry transfer to the account maintained by the Exchange Agent
at The Depository Trust Company set forth in the Offering Circular--
Prospectus at "The Exchange Offer--Procedures for Tendering Shares of $1
2/3 Par Value Common Stock."
The certificate(s) representing shares of $1 2/3 par value common stock
tendered with the Letter of Transmittal, or confirmation of any book-entry
transfer into the Exchange Agent's account at the Book-Entry
5
<PAGE>
Transfer Facility of shares of $1 2/3 par value common stock tendered
electronically, as well as a properly completed and duly executed copy of the
Letter of Transmittal or a manually signed facsimile copy thereof, or an
agent's message, in connection with the book-entry transfer of shares, and any
other documents required by the Letter of Transmittal or these Instructions to
the Letter of Transmittal, must be received by the Exchange Agent at one of
its addresses set forth above prior to the Expiration Date.
Delivery of the Letter of Transmittal
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL, ANY CERTIFICATE(S)
REPRESENTING SHARES OF $1 2/3 PAR VALUE COMMON STOCK TENDERED WITH THE LETTER
OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF
THE TENDERING STOCKHOLDER, BUT, EXCEPT AS OTHERWISE PROVIDED BELOW, THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE
EXCHANGE AGENT. IF CERTIFICATE(S) REPRESENTING SHARES OF $1 2/3 PAR VALUE
COMMON STOCK TENDERED WITH THE LETTER OF TRANSMITTAL ARE SENT BY MAIL, IT IS
RECOMMENDED THAT TENDERING STOCKHOLDERS USE REGISTERED MAIL INSURED FOR 2% OF
THE MARKET VALUE ($20.00 MINIMUM), RETURN RECEIPT REQUESTED, AND ALLOW
SUFFICIENT TIME TO ENSURE TIMELY RECEIPT BY THE EXPIRATION DATE.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
No Alternative, Conditional or Contingent Tenders
No alternative, conditional or contingent tenders will be accepted for
exchange in the Exchange Offer. All of you, as tendering stockholders, by
execution of the Letter of Transmittal or a manually signed facsimile thereof,
waive any right to receive any notice of the acceptance by GM of their shares
of $1 2/3 par value common stock for exchange.
Shares Held by Brokers, Dealers, Commercial Banks, Trust Companies or
Employee Benefit Plans
If your shares of $1 2/3 par value common stock are held in an account with
a broker, dealer, commercial bank, trust company, employee benefit plans
sponsored by GM (or a subsidiary) or other nominee and you wish to tender all
or part of those shares, do not complete and return the Letter of Transmittal
to the Exchange Agent. The institution holding your shares will supply you
with separate instructions regarding the tender of your shares. If you have
not received instructions regarding the tender of your shares, please contact
the institution holding your shares.
Guaranteed Delivery Procedures
If the stock certificate(s) representing your shares of $1 2/3 par value
common stock are not immediately available to you or you cannot complete the
procedure for delivery by book-entry transfer on a timely basis or you cannot
deliver your certificate(s), and all other required documents to the Exchange
Agent prior to the Expiration Date, you may tender your shares of $1 2/3 par
value common stock pursuant to the guaranteed delivery procedure set forth in
the Offering Circular-Prospectus at "The Exchange Offer--Guaranteed Delivery
Procedures."
Pursuant to the guaranteed delivery procedure:
(1) such tender must be made by or through a participant in the
Security Transfer Agents Medallion Program (an "Eligible Institution");
(2) prior to the Expiration Date, the Exchange Agent must have
received from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery substantially in the form
provided by GM; if a form other than the one provided by GM is used, it
must set forth the name and address of the holder and the number of
shares of $1 2/3 par value common stock tendered, state that the tender
is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificate(s) representing the shares of
$1 2/3 par value common stock accompanied by all other documents
required by this Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
6
<PAGE>
(3) the certificate(s) representing the shares of $1 2/3 par value
common stock tendered herewith (or a confirmation of a book-entry
transfer of such shares of $1 2/3 par value common stock into the
Exchange Agent's account at the Book-Entry Transfer Facility as
described above), together with a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile
thereof) and any required signature guarantees, or an agent's
message in connection with a book-entry transfer, and any other
documents required hereby, must be received by the Exchange Agent
within three New York Stock Exchange trading days after the date of
execution of the Notice of Guaranteed Delivery, all as provided in
the Offering Circular-Prospectus at "The Exchange Offer--Guaranteed
Delivery Procedures."
Validity, Form, Eligibility, Acceptance and Withdrawal of Tenders Determined
in GM's Sole and Absolute Discretion
All questions as to the validity, form, eligibility (including time of
receipt), acceptance by GM and withdrawal of tendered shares of $1 2/3 par
value common stock will be determined by GM in its sole and absolute
discretion. GM's determination shall be final and binding on all tendering
stockholders. GM reserves the right to reject any or all tenders of shares of
$1 2/3 par value common stock determined by it not to be in proper form or the
acceptance by GM of which may, in the opinion of GM's counsel, be unlawful. GM
also reserves the right to waive any defect or irregularity in any tender of
shares of $1 2/3 par value common stock. All tendering stockholders, by
executing of the Letter of Transmittal (or a manually signed facsimile
thereof), waive any right to receive notice of the acceptance by GM of their
shares of $1 2/3 par value common stock for exchange.
GM reserves the right to request any additional information from any
registered or beneficial owner of shares of $1 2/3 par value common stock that
GM in its sole and absolute discretion determines necessary or desirable.
None of GM, Hughes, the Exchange Agent, the Information Agent, the Dealer
Manager, the Marketing Manager or any other person shall be under any duty to
give notification of any defect or irregularity in any tender, or incur any
liability for failure to give any such notification. See "The Exchange Offer--
GM's Interpretations are Binding" in the Offering Circular-Prospectus.
Instruction II: Partial Tenders; Withdrawals
Partial Tenders
If you wish to tender less than all the shares of $1 2/3 par value common
stock represented by any certificate(s) or held in the Dividend and Cash
Investment Plan or in book-entry form, you should check Item O 7 of the
Letter of Transmittal and fill in the number of shares to be tendered in the
space provided next to Item O 7 . Shares not tendered will be credited to a
book-entry account maintained by the transfer agent for the tendering
stockholder's benefit (or the benefit of the person indicated in the "Special
Issuance Instructions" box of these Instructions to the Letter of
Transmittal). Note that a new certificate for the remainder of the shares not
tendered will not be sent to the person(s) signing the Letter of Transmittal
(nor to anyone otherwise indicated in the "Special Issuance Instructions" box
of these Instructions to the Letter of Transmittal). All shares represented by
certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated. Any stockholder whose untendered shares
are returned by book-entry credit has the right to request GM's transfer agent
to deliver to them physical stock certificates representing such shares. To
obtain a physical certificate for such shares, you should follow the
instructions that will be set forth in a statement that will be mailed to you
after the Exchange Offer.
THE ENTIRE NUMBER OF SHARES OF $1 2/3 PAR VALUE COMMON STOCK REPRESENTED BY
ANY CERTIFICATE(S) DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN
TENDERED UNLESS OTHERWISE INDICATED.
Withdrawal of Tenders
Any tendering holder of shares of $1 2/3 par value common stock may
withdraw the tender at any time prior to the Expiration Date, and may also
withdraw such tender after the expiration of 40 business days from the
7
<PAGE>
commencement of the Exchange Offer, unless theretofore accepted by GM for
exchange as provided in the Offering Circular-Prospectus.
To be effective, a written transmission notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth on the Letter
of Transmittal and must comply with the requirements set forth in the Offering
Circular-Prospectus at "The Exchange Offer--Withdrawal Rights." Withdrawals
may not be rescinded, and shares of $1 2/3 par value common stock withdrawn
will thereafter be deemed not validly tendered for purposes of the Exchange
Offer. However, withdrawn shares of $1 2/3 par value common stock may be
retendered by again by following the procedures described in the Offering
Circular-Prospectus at "The Exchange Offer--Procedures for Tendering Shares of
$1 2/3 Par Value Common Stock."
If you withdraw your tender of any shares of $1 2/3 par value common stock
from the exchange offer, the withdrawn shares of $1 2/3 par value common stock
will be returned to you by book-entry transfer. If you tendered all of the
shares of $1 2/3 par value common stock that you held in GM's Dividend and
Cash Investment Plan and you withdraw such tender, you will need to
specifically instruct GM's transfer agent if you wish to hold such withdrawn
shares in GM's Dividend and Cash Investment Plan.
Instruction III: Signatures on the Letter of Transmittal; Stock Powers and
Endorsements; Guarantee of Signatures
Signatures by Registered Holders
If the Letter of Transmittal is signed by the registered holder(s) of the
shares of $1 2/3 par value common stock tendered thereby, the signature(s) on
the front of the Letter of Transmittal must correspond exactly with the
name(s) as written on the face of the certificate(s) representing the shares
of $1 2/3 par value common stock without alteration, enlargement or any other
change whatsoever.
Joint Owners
If any of the shares of $1 2/3 par value common stock tendered by the
Letter of Transmittal are registered in the name of two or more joint owners,
all such owners must sign on the front of the Letter of Transmittal.
Tenders By Different Registered Holders
If shares of $1 2/3 par value common stock to be tendered are registered in
the names of different holders, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different registrations of certificates.
If the Letter of Transmittal is signed by the registered holder(s) of the
shares of $1 2/3 par value common stock tendered thereby, no endorsements of
certificates or separate stock powers are required, unless shares of Class H
common stock are to be issued, or any untendered shares of $1 2/3 par value
common stock or any shares of $1 2/3 par value common stock not accepted for
exchange are to be registered, in the name of a person other than the
registered holder(s). In those cases, the stock certificate(s) evidencing the
shares of $1 2/3 par value common stock tendered thereby must be endorsed or
accompanied by appropriate stock power(s), in either case, signed exactly as
the name(s) of the registered holder(s) appear(s) on such stock
certificate(s). Signatures on such stock certificate(s) and stock power(s)
must be guaranteed by an Eligible Institution.
Signatures by Persons Other than Registered Holders
If the Letter of Transmittal is signed by a person other than the
registered holder(s) of the shares of $1 2/3 par value common stock tendered
thereby, the certificate(s) representing such shares of $1 2/3 par value
common stock must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s)
appear(s) on such certificate(s), and such signatures must be guaranteed by an
Eligible Institution.
All signatures on the Letter of Transmittal must be medallion guaranteed by
an Eligible Institution unless the shares of $1 2/3 par value common stock are
tendered:
(1) by a registered holder of such shares of $1 2/3 par value common
stock (which term, for purposes of these Instructions to the Letter
of Transmittal, shall include any participant in the Book-
8
<PAGE>
Entry Transfer Facility whose name appears on a security position
listing as the owner of shares of $1 2/3 par value common stock)
who has not completed the box entitled "Special Issuance
Instructions" on page 12 of these Instructions to the Letter of
Transmittal; or
(2) for the account of an Eligible Institution.
Fiduciaries and Other Representatives
If the Letter of Transmittal or any certificates or stock powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of a corporation or others acting in a fiduciary or representative capacity,
such persons should so indicate and should set forth their full title when
signing, and proper evidence satisfactory to GM of their authority to so act
must be submitted with the Letter of Transmittal.
Instruction IV: Special Issuance and Delivery Instructions
Tendering holders should indicate in the boxes entitled "Special Issuance
Instructions" or "Special Delivery Instructions" set forth on pages 12 and 14
of these Instructions to the Letter of Transmittal, as applicable, as
described below:
(1) Indicate in "Special Issuance Instructions" the name in which
shares of Class H common stock issued in the exchange offer
and/or shares of $1 2/3 par value common stock not tendered or
accepted by GM for exchange are to be credited, or cash received
instead of fractional shares of Class H common stock is to be
made payable to, if different from the name of the person
signing the Letter of Transmittal; and
(2) Indicate in "Special Delivery Instructions" the address to which
cash received instead of fractional shares of Class H common
stock is to be sent if different from the address of the person
signing the Letter of Transmittal.
In the case of issuance of $1 2/3 par value common stock, Class H common stock
or cash instead of fractional shares of Class H common stock in a different
name, the employer identification or social security number of the person
named must also be indicated and the Substitute Form W-9 set forth on page 13
of these Instructions to the Letter of Transmittal must be completed for the
new owner.
Instruction V: Stock Transfer Taxes
GM will not be responsible for any stock transfer taxes payable on the
transfer to it of shares of $1 2/3 par value common stock pursuant to the
Exchange Offer or the transfer to tendering stockholders of shares of Class H
common stock pursuant to the Exchange Offer.
Instruction VI: Mutilated, Lost, Stolen or Destroyed Stock Certificates
If any certificate representing shares of $1 2/3 par value common stock has
been mutilated, destroyed, lost or stolen and you wish to tender all or some
of your shares of $1 2/3 par value common stock in the Exchange Offer, you
must
. complete Box A of the Letter of Transmittal to determine the surety bond
amount;
. make out a check payable to SAFECO Surety Company for the calculated
amount (which must not be less than the $20.00 minimum surety bond
amount); and
. enclose the check with the Letter of Transmittal.
Instruction VII: Odd-Lots
As described in the Offering Circular-Prospectus, if the Exchange Offer is
over-subscribed and fewer than all shares of $1 2/3 par value common stock
tendered on or prior to the Expiration Date are to be exchanged by GM, the
shares of $1 2/3 par value common stock exchanged first will consist of all
shares of $1 2/3 par value common stock validly tendered by any stockholder
who owned beneficially and of record as of , 2000 an aggregate of less
than 100 shares of $1 2/3 par value common stock and who validly tendered all
of such shares of $1 2/3 par value common stock. If the Exchange Offer is
completed, all odd-lot shares of $1 2/3 par value common stock will be
accepted by GM for exchange and will not be subject to proration (except as
provided below).
9
<PAGE>
Shares of $1 2/3 par value common stock held in a GM or GM affiliated
company savings plan are not eligible for this preferential treatment.
Stockholders whose odd-lot shares are held by a broker for their account are
requested to contact the broker directly to request this preferential
treatment.
Instruction VIII: Solicited Tenders
GM will pay a solicitation fee of $0.75 per share, up to a maximum of 1,000
shares per tendering stockholder, for each share of $1 2/3 par value common
stock validly tendered and accepted by GM for exchange pursuant to the
Exchange Offer, covered by the Letter of Transmittal which designates, in Box
E of the Letter of Transmittal entitled "Designation of Broker" as having
solicited and obtained the tender, the name of:
(1) any broker or dealer in securities which is a member of any
national securities exchange in the United States or of the
National Association of Securities Dealers, Inc.; or
(2) any bank or trust company located in the United States (each, a
"soliciting dealer"),
except that no solicitation fee shall be payable in connection with a tender
of $1 2/3 par value common stock by a stockholder (a) tendering more than
10,000 shares of $1 2/3 par value common stock or (b) tendering from a country
outside of the United States.
In addition, Soliciting Dealers are not entitled to a fee with respect to
shares of $1 2/3 par value common stock beneficially owned by such soliciting
dealer or with respect to any shares that are registered in the name of a
soliciting dealer unless such shares are held by such soliciting dealer as
nominee and are tendered for the benefit of beneficial holders identified in
the Letter of Transmittal. No such fee shall be payable to a soliciting dealer
if such Soliciting Dealer is required for any reason to transfer the amount of
such fee to a tendering stockholder (other than itself). No broker, dealer,
bank, trust company or fiduciary shall, by reason of its solicitation of
tenders in the Exchange Offer, be deemed to be the agent of GM, Hughes, the
Exchange Agent, the Information Agent, the Marketing Manager or the Dealer
Manager in connection with the Exchange Offer.
In order for a Soliciting Dealer to receive a solicitation fee with respect
to shares of $1 2/3 par value common stock tendered pursuant to a Letter of
Transmittal, the Exchange Agent must have received a properly completed and
duly executed Letter of Transmittal (including a completed Box E of the Letter
of Transmittal entitled "Designation of Broker") by three New York Stock
Exchange trading days after the Expiration Date.
The acceptance of compensation by the soliciting dealer listed in Box E of
the Letter of Transmittal entitled "Designation of Broker" will constitute a
representation by such soliciting dealer that:
(1) it has complied with the applicable requirements of the
Securities Exchange Act of 1934, as amended, and the applicable
rules and regulations thereunder, in connection with such
solicitation;
(2) it is entitled to such compensation for such solicitation under
the terms and conditions of the Offering Circular-Prospectus,
the Letter of Transmittal and these Instructions to the Letter
of Transmittal;
(3) in soliciting tenders of shares of $1 2/3 par value common
stock, it has used no soliciting materials other than those
furnished by GM; and
(4) it has complied with all instructions in the letter from GM to
brokers, securities dealers, commercial banks, trust companies
and other nominees.
Instruction IX: Important Tax Information; Substitute Form W-9
U.S. federal income tax law requires that a holder whose tendered shares of
$1 2/3 par value common stock are accepted for exchange must provide the
Exchange Agent (as payer) with his or her correct taxpayer identification
number ("TIN"), which, in the case of a holder who is an individual, is his or
her social security number and make certain certifications as to such number
in the Letter of Transmittal. If the Exchange Agent is not provided with the
correct TIN or an adequate basis for exemption, the holder may be subject to a
penalty imposed by the Internal Revenue Service ("IRS").
Exempt holders (including, among others, all corporations) are not subject
to these backup withholding and reporting requirements. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on
10
<PAGE>
Substitute Form W-9 for additional instructions. In order for a foreign
individual to qualify as an exempt person, that individual must submit a
statement, signed under penalty of perjury, attesting to that individual's
exempt status.
To prevent backup withholding, each tendering stockholder must verify his
or her TIN set forth in Item O 5 of the Letter of Transmittal (or provide a
corrected TIN in Item O 5 of the Letter of Transmittal), certifying that the
TIN provided is correct (or that such holder is awaiting a TIN) and that:
(1) the holder is exempt from backup withholding;
(2) the holder has not been notified by the IRS that he or she is
subject to backup withholding as a result of the failure to
report all interest or dividends; or
(3) the IRS has notified the holder that he or she is no longer
subject to backup withholding.
In addition, if you have completed the box entitled "Special Issuance
Instructions" on page 14 of these Instructions to the Letter of Transmittal
and are requesting that $1 2/3 par value common stock, Class H common stock or
cash instead of fractional shares of Class H common stock be issued or paid,
as applicable, in a different name than that of the tendering stockholder, the
Substitute Form W-9 on page 13 of these Instructions to the Letter of
Transmittal must be completed by the person to whom such shares and/or cash is
to be issued or paid.
In order to satisfy the Exchange Agent that a foreign individual qualifies
as an exempt recipient, such holders must submit a statement signed under
penalty of perjury attesting to such exempt status. Such statements may be
obtained from the Exchange Agent. If the certificate(s) representing shares of
$1 2/3 par value common stock are in more than one name or are not in the name
of the actual owner, consult the enclosed guidelines for information on which
TIN to report. If you do not have a TIN, consult the enclosed guidelines for
instructions of applying for a TIN and complete the Certification of Payee
Awaiting Taxpayer Identification Number in Box B of the Letter of Transmittal
in order to avoid backup withholding. Whether or not there is a check in the
box indicating that you have applied for and are awaiting receipt of your
taxpayer identification number and the Certification of Awaiting Taxpayer
Identification Number is completed, the Exchange Agent will withhold 31% of
all reportable payments made prior to the time a properly certified TIN is
provided to the Exchange Agent, and if the TIN is provided within 60 days,
such amount will be refunded. Backup withholding is not an additional tax.
Rather, the federal income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If backup
withholding results in an overpayment of taxes, a refund may be obtained from
the IRS.
Holders of shares of $1 2/3 par value common stock who acquired their
shares at different times may have different tax bases in their shares of $1
2/3 par value common stock, and should consult with their tax advisors as to
the possibility of identifying the specific shares of $1 2/3 par value common
stock surrendered in the Exchange Offer in order to establish the basis of the
shares of Class H common stock issued in exchange for shares of $1 2/3 par
value common stock surrendered.
Instruction X: Waiver of Conditions
GM reserves the absolute right to amend or waive any of the specified
conditions to the Exchange Offer in the case of any shares of $1 2/3 par value
common stock tendered.
Instruction XI: Requests for Assistance or Additional Copies
If you have questions relating to the procedure for tendering, or requests
for additional copies of the Offering Circular-Prospectus, the Letter of
Transmittal, these Instructions to the Letter of Transmittal, the Notice of
Guaranteed Delivery and the Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9, you should contact Morrow & Co.,
Inc. at the address and telephone numbers indicated below.
The Information Agent for the Exchange Offer is:
Morrow & Co., Inc.
445 Park Avenue
5th Floor
New York, NY 10022
(877) 816-5329 (Toll-Free) for calls in the United States
(212) 754-8000 (Collect) for calls outside the United States
11
<PAGE>
SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS
SPECIAL ISSUANCE INSTRUCTIONS--Complete this box and return this page and the
following page with your Letter of Transmittal ONLY if:
. you want shares of Class H common stock issued in the exchange offer
credited in the name of someone other than you;
. you want shares of $1 2/3 par value common stock that are tendered but
not accepted by GM for exchange to be credited in the name of someone
other than you; and/or
. you want cash received instead of fractional shares of Class H common
stock payable to someone other than you.
Note: If this box is completed, the signature on your Letter of Transmittal
must be guaranteed by an Eligible Institution. If this box is not properly
completed and returned with your Letter of Transmittal, shares of Class H
common stock and/or shares of $1 2/3 par value common stock will be credited
to, and/or cash will be paid to, the person(s) signing the Letter of
Transmittal.
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions III And IV)
To be completed ONLY if shares of Class H common stock and/or shares of
$1 2/3 par value common stock tendered but not accepted by GM for
exchange, if any, are to be CREDITED in the name of and/or cash received
instead of fractional shares is to be payable to someone other than the
person signing the Letter of Transmittal.
- --------------------------------------------------------------------------------
Name(s) (Please Print):
Issue: ------------------------------------
check appropriate box(es): ------------------------------------
[_] all of the following to: Address: ___________________________
[_] Class H common stock to: ------------------------------------
Zip Code
[_] $1 2/3 par value common stock to:
------------------------------------
[_] cash instead of fractional shares Social Security No. or Employer
of Class H common stock to: Identification No.
(Also Complete and return Substitute
Form W-9 on the following pages for
above listed Person(s))
- --------------------------------------------------------------------------------
12
<PAGE>
The Substitute Form W-9 below must ONLY be completed in the case of issuance
of $1 2/3 par value common stock, Class H common stock or cash instead of
fractional shares of Class H common stock in a different name. For more
information, see Instruction IV, Instruction IX and the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.
- --------------------------------------------------------------------------------
Payer's Name: Fleet National Bank
- --------------------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER AND CERTIFICATION
- --------------------------------------------------------------------------------
SUBSTITUTE PLEASE PROVIDE YOUR Social Security Number or
Form W-9 TAXPAYER IDENTIFICATION / /
Department of the NUMBER IN THE BOX AT -------------------------
Treasury RIGHT AND CERTIFY BY Employer Identification
Internal Revenue SIGNING AND DATING BELOW Number
Service
---------------------------------------------------
Payer's Request for
Taxpayer Identification
Number and Certification
for Payees exempt from Please check the box at right if you have
backup withholding. applied for and are awaiting receipt of your
(See guidelines for taxpayer identification number. [_]
certification of Taxpayer
Identification Number on
Substitute Form W-9)
- --------------------------------------------------------------------------------
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a Taxpayer Identification Number to be
issued to me) and
(2) I am not subject to backup withholding either because I am exempt from
backup withholding or I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or the IRS has notified
me that I am no longer subject to backup withholding.
You must cross out item (2) above if you have been notified by the IRS
that you are subject to backup withholding because of underreporting
interest or dividends on your tax return. However, if after being notified
by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2).
PRINT YOUR NAME: __________________________________________________________
ADDRESS: __________________________________________________________________
SIGNATURE: _________________________________ DATE: ______________________
- --------------------------------------------------------------------------------
IF YOU CHECKED THE BOX ABOVE ON THE SUBSTITUTE FORM W-9 INDICATING THAT YOU ARE
AWAITING RECEIPT OF YOUR TAXPAYER IDENTIFICATION NUMBER, YOU MUST SIGN AND DATE
THE FOLLOWING CERTIFICATION:
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
I certify under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
IRS Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number within 60 days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
SIGNATURE: __________________________________________________________________
DATE: _______________________________________________________________________
- --------------------------------------------------------------------------------
13
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS--Complete this box and return this page with your
Letter of Transmittal ONLY if you want payment of cash received instead of
fractional shares of Class H common stock to be mailed to an address other than
the one printed on the front of the Letter of Transmittal or in the box entitled
"Special Issuance Instructions."
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction IV)
To be completed ONLY if the payment of cash received instead of fractional
shares of Class H common stock is to be MAILED to an address other than that
printed on the front of the Letter of Transmittal or in the box entitled
"Special Issuance Instructions" above, as applicable.
- --------------------------------------------------------------------------------
[_] Mail cash instead of fractional Name(s) (Please Print):______________
shares of Class H common stock to:
_____________________________________
Address: ____________________________
_____________________________________
Zip Code
- --------------------------------------------------------------------------------
14
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
The Information Agent for the Exchange Offer is:
Morrow & Co., Inc.
445 Park Avenue
5th Floor
New York, NY 10022
(877) 816-5329 (Toll-Free) for calls in the United States
(212) 754-8000 (Collect) for calls outside the United States
<PAGE>
Exhibit 99.2
General Motors Corporation
NOTICE OF GUARANTEED DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
This Notice of Guaranteed Delivery or one substantially similar hereto must
be used to participate in the Exchange Offer (as defined herein) of General
Motors Corporation ("GM"), as set forth in the Offering Circular-Prospectus
dated , 2000 (the "Offering Circular-Prospectus") and the accompanying
Letter of Transmittal and the instructions thereto (collectively, the "Letter
of Transmittal"), if (1) your stock certificate(s) representing shares of $1 2/3
par value common stock are not immediately available, (2) you cannot complete
the procedure for book-entry transfer on a timely basis or (3) you cannot
deliver the certificate(s) and all other required documents to Fleet National
Bank (the "Exchange Agent") prior to the Expiration Date (as defined in the
Offering Circular-Prospectus). You may deliver this Notice of Guaranteed
Delivery by hand, telegram, facsimile transmission, overnight courier or mail to
the Exchange Agent as set forth below. See "The Exchange Offer--Guaranteed
Delivery Procedures" in the Offering Circular-Prospectus for further
information.
TO: FLEET NATIONAL BANK, EXCHANGE AGENT
If delivered by Mail, to: If delivered by Hand, to: If delivered by Overnight
Courier, to:
Fleet National Bank Securities Transfer & Fleet National Bank
Attn: Corporate Actions Reporting Services, Inc. Attn: Corporate Actions
P.O. Box 9573 c/o Fleet National Bank/EquiServe 40 Campanelli Drive
Boston, MA 02205-9573 100 William Street Braintree, MA 02184
Galleria
New York, NY 10038
Attn: Delivery Window
If by facsimile transmission:
(For eligible institutions only)
(781) 575-4826
Facsimile confirmation number
(781) 575-4816
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in Box C of the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
I hereby tender to General Motors Corporation the shares of $1 2/3 par value
common stock listed below, upon the terms of and subject to the conditions set
forth in the Offering Circular-Prospectus and the related Letter of Transmittal,
including the instructions thereto (which collectively constitute the "Exchange
Offer"), receipt of which I hereby acknowledge, pursuant to the guaranteed
delivery procedures set forth in the Offering Circular-Prospectus, as follows:
Certificate No. Number of Shares
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
The Book-Entry Transfer Facility Sign Here
Account Number (if the shares of
$1 2/3 par value common stock will be
tendered by book-entry transfer)
-------------------------------------
- ------------------------------------- -------------------------------------
Account Number Signature(s)
- ------------------------------------- -------------------------------------
Number of Shares Number and Street or P.O. Box
Dated: ______________________ , 2000 -------------------------------------
City, State, Zip Code
ODD-LOTS
This section is to be completed ONLY if shares of $1 2/3 par value common
stock are being tendered by or on behalf of a person owning beneficially and
of record an aggregate of less than 100 shares $1 2/3 par value common stock
as of , 2000.
(Check one):
[_] I am the owner beneficially and of record of less than 100 shares $1 2/3
par value common stock in the aggregate as of , 2000, all of which
are being tendered, or
[_] I am a broker, dealer, commercial bank, trust company or other nominee
who (1) is tendering, for the beneficial owners thereof, shares $1 2/3
par value common stock with respect to which I am the record owner, and
(2) believes, based upon representations made to me by each such
beneficial owner, that such owner owned beneficially and of record less
than 100 shares $1 2/3 par value common stock as of , 2000, and is
tendering all such shares.
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in the Security Transfer Agents Medallion
Program, (a) represents and guarantees that the above-named person(s) "own(s)"
the shares of $1 2/3 par value common stock tendered hereby within the meaning
of Rule 14e-4 of the Securities Exchange Act of 1934, as amended, (b) represents
and guarantees that the tender of such shares of $1 2/3 par value common stock
complies with Rule 14e-4, and (c) guarantees delivery to the Exchange Agent of
certificates representing the shares of $1 2/3 par value common stock tendered
hereby, in proper form for transfer or delivery of such shares of $1 2/3 par
value common stock pursuant to procedures for book-entry transfer, in either
case with delivery of a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof) and any other required
documents, unless an Agent's Message is utilized, all within three NYSE trading
days after the date hereof.
_____________________________________
Firm Name (Print)
_____________________________________
Authorized Signature
_____________________________________
Address
_____________________________________
City, State, Zip Code
_____________________________________
Area Code and Telephone Number
Date ____________________, 2000
DO NOT SEND CERTIFICATE(S) OR ANY OTHER REQUIRED DOCUMENTS
WITH THIS FORM. THEY SHOULD BE SENT WITH THE LETTER OF
TRANSMITTAL TO THE EXCHANGE AGENT
(UNLESS A BOOK-ENTRY TRANSFER FACILITY IS USED).
<PAGE>
Exhibit 99.3
General Motors Corporation
OFFER TO EXCHANGE SHARES OF
CLASS H COMMON STOCK
FOR EACH SHARE OF $1 2/3 PAR VALUE COMMON STOCK
UP TO AN AGGREGATE OF
SHARES OF $1 2/3 PAR VALUE COMMON STOCK
To Brokers, Securities Dealers, Commercial Banks, Trust Companies and Other
Nominees:
General Motors Corporation ("GM") is offering, upon the terms and subject
to the conditions set forth in the enclosed Offering Circular-Prospectus dated
, 2000 (the "Offering Circular-Prospectus") and the enclosed Letter
of Transmittal and the instructions thereto (collectively, the "Letter of
Transmittal" and, together with the Offering Circular-Prospectus, the
"Exchange Offer"), to exchange shares of Class H common stock for each
share of $1 2/3 par value common stock validly tendered up to an aggregate of
shares of $1 2/3 par value common stock validly tendered and
exchanged.
We are asking you to contact your clients for whom you hold shares of $1
2/3 par value common stock registered in your name or in the name of your
nominee. You will be reimbursed for customary mailing and handling expenses
incurred by you in forwarding any of the enclosed materials to your clients,
provided that you request such reimbursement from GM within a reasonable
period of time. GM will not be responsible for any stock transfer taxes
payable as a result of the transaction.
As described in the Offering Circular-Prospectus, GM is not conducting the
exchange offer in any jurisdiction where the exchange offer would not be legal
under the laws of such jurisdiction. In addition, there are certain foreign
jurisdictions where GM is relying on a private placement or other similar
exemption or exception under the applicable laws of such jurisdictions in
order to conduct the exchange offer in such jurisdictions. Accordingly, you
are hereby instructed not to forward any of the enclosed materials to any
clients for whom you hold shares of $1 2/3 par value common stock registered
in your name or the name of your nominee, if such client is located in any of
the following jurisdictions: Austria, Brazil, China, France, Ireland, Israel,
Italy, Japan, Mexico, Norway, Spain, and Sweden.
GM will pay to a Soliciting Dealer, as defined herein, a solicitation fee
of $0.75 per share, up to a maximum of 1,000 shares per tendering stockholder,
for each share of $1 2/3 par value common stock validly tendered and accepted
for exchange pursuant to the Exchange Offer if such Soliciting Dealer has
affirmatively solicited and obtained such tender, except that no solicitation
fee shall be payable in connection with a tender of shares of $1 2/3 par value
common stock by a stockholder (a) tendering more than 10,000 shares of $1 2/3
par value common stock or (b) tendering outside the United States. "Soliciting
Dealer" includes (1) any broker or dealer in securities which is a member of
any national securities exchange or of the National Association of Securities
Dealers, Inc. or (2) any bank or trust company located in the United States.
In order for a Soliciting Dealer to receive a solicitation fee with respect to
the tender of shares of $1 2/3 par value common stock, the Exchange Agent must
have received by three NYSE trading days after the expiration date a properly
completed and executed form entitled "Notice of Solicited Tenders" as
attached.
Soliciting Dealers should take care to ensure proper record-keeping to
document their entitlement to any solicitation fee. GM and the Exchange Agent
reserve the right to require additional information, if deemed by GM to be
warranted under the circumstances.
All questions as to the validity, form and eligibility (including time of
receipt) of Notices of Solicited Tenders will be determined by GM in its sole
and absolute discretion, which determination will be final and binding. None
of GM, the Exchange Agent or any other person will be under any duty to give
notification of any defects or irregularities in any Notice of Solicited
Tenders or incur any liability for failure to give such notification.
Soliciting Dealers will include any of the organizations described in
clauses (1) and (2) above even when the activities of such organizations in
connection with the Exchange Offer consist solely of forwarding to clients
material relating to the Exchange Offer, including the Offering Circular-
Prospectus and the related Letter of Transmittal, including the instructions
thereto, and validly tendering shares of $1 2/3 par value common stock as
directed by beneficial owners thereof; provided that under no circumstances
shall any fee be paid to Soliciting
<PAGE>
Dealers more than once with respect to any share of $1 2/3 par value common
stock. No Soliciting Dealer is required to make any recommendation to holders
of shares of $1 2/3 par value common stock as to whether to tender or refrain
from tendering in the Exchange Offer. No assumption is made, in making payment
to any Soliciting Dealer, that its activities in connection with the Exchange
Offer included any activities other than those described above, and for all
purposes noted in all materials relating to the Exchange Offer, the term
"solicit" shall be deemed to mean no more than processing shares of $1 2/3 par
value common stock tendered or forwarding to customers materials regarding the
Exchange Offer.
No fee shall be paid to a Soliciting Dealer with respect to shares of $1
2/3 par value common stock beneficially owned by such Soliciting Dealer or
with respect to any shares that are registered in the name of a Soliciting
Dealer unless such shares are held by such Soliciting Dealer as nominee and
are validly tendered for the benefit of a beneficial holder. No such fee shall
be payable to a Soliciting Dealer if such Soliciting Dealer is required for
any reason to transfer the amount of such fee to a tendering holder (other
than itself). No broker, dealer, bank, trust company or fiduciary shall, by
reason of its solicitation of tenders in the Exchange Offer, be deemed to be
the agent of GM, Hughes, the Exchange Agent, the Dealer Manager, the Marketing
Manager or the Information Agent in connection with the Exchange Offer.
Enclosed is a copy of each of the following documents:
1.The Offering Circular-Prospectus.
2.The Letter of Transmittal for your use and for the information of your
clients.
3.The Instructions to the Letter of Transmittal for your use and for the
information of your clients.
4.The Notice of Guaranteed Delivery.
5. A form of letter which may be sent to your clients for whose account you
hold shares of $1 2/3 par value common stock registered in your name or
the name of your nominee with space provided for obtaining the clients'
instructions with regard to the Exchange Offer.
6.Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
7.Letter from GM to $1 2/3 par value stockholders.
Your prompt action is requested. The Exchange Offer will expire at 12:00
midnight, New York City time, on , 2000, or if extended by GM, the
latest date and time to which it is extended (the "Expiration Date"). Shares
of $1 2/3 par value common stock validly tendered pursuant to the Exchange
Offer may be withdrawn, subject to the procedures described in the Offering
Circular-Prospectus, at any time prior to the Expiration Date and after
, 2000, if not theretofore accepted for exchange.
To participate in the Exchange Offer, certificates for shares of $1 2/3 par
value common stock (or evidence of a book-entry delivery into the Exchange
Agent's account at The Depository Trust Company) and a duly executed and
properly completed Letter of Transmittal or a manually signed facsimile
thereof together with any other required documents, or an agent's message in
connection with a book-entry transfer, must be delivered to the Exchange Agent
in accordance with the terms and conditions of the Exchange Offer. If holders
of shares of $1 2/3 par value common stock wish to tender their shares, but it
is impracticable for them to do so prior to the Expiration Date, a tender may
be effected by following the guaranteed delivery procedures described in the
Offering Circular-Prospectus at "The Exchange Offer--Guaranteed Delivery
Procedures."
Additional information concerning the Exchange Offer and additional copies
of the enclosed material may be obtained from Morrow & Co., Inc. (the
"Information Agent") at (877) 816-5329 (toll free) in the United States or at
(212) 754-8000 (collect) elsewhere.
<PAGE>
NOTICE OF SOLICITED TENDERS
ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO THE EXCHANGE AGENT
WITHIN THREE NYSE TRADING DAYS AFTER THE EXPIRATION DATE TO THE ADDRESS SET
FORTH ON THE BACK COVER OF THE OFFER. NOTICES MAY BE DELIVERED BY FACSIMILE TO
THE EXCHANGE AGENT AT (781) 575-4826 (CONFIRM RECEIPT BY TELEPHONE (781) 575-
4816).
Beneficial Owners Qualified for Odd-Lot Treatment
<TABLE>
<CAPTION>
Number of
DTC Number of Shares Beneficial
Participant VOI Ticket VOI Ticket Requested for Owner(s)
Number Number Total Payment Represented*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Beneficial Owners of 1,000 or less shares
<TABLE>
<CAPTION>
Number of
DTC Number of Shares Beneficial
Participant VOI Ticket VOI Ticket Requested for Owner(s)
Number Number Total Payment Represented*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Beneficial Owners of greater than 1,000 and not more than 10,000 shares
<TABLE>
<CAPTION>
Number of
DTC Number of Shares Beneficial
Participant VOI Ticket VOI Ticket Requested for Owner(s)
Number Number Total Payment Represented*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
- --------
* Use attached sheet if ticket represents more than one Beneficial Owner.
<PAGE>
Beneficial Owners of greater than 1,000 and not more than 10,000 shares
Beneficial Owner Breakdown Form
DTC Participant Number:___________________
VOI Ticket Number:________________________
VOI Ticket Total:_________________________
---------------------------------------------------------------
Number of shares requested for payment per beneficial owner
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL
---------------------------------------------------------------
The acceptance of compensation by such soliciting dealer will constitute a
representation by it that: (1) it has complied with the applicable requirements
of the Securities Exchange Act of 1934, as amended, and the applicable rules
and regulations thereunder, in connection with such solicitation; (2) it is
entitled to such compensation for such solicitation under the terms and
conditions of the Offering Circular-Prospectus; (3) in soliciting tenders of
shares of $1 2/3 par value common stock, it has used no soliciting materials
other than those furnished by GM and (4) it has complied with all instructions
from GM in this letter.
Print Firm Name _______________________ Address _______________________________
Authorized Signature __________________ City, State, Zip Code _________________
Area Code and Telephone Number ________ Attention _____________________________
<PAGE>
SOLICITATION FEE PAYMENT INSTRUCTIONS
- --------------------------------------------------------------------------------
Issue check to:
Firm _________________________________________________________________________
(Please Print)
Attention ____________________________________________________________________
Address ______________________________________________________________________
______________________________________________________________________________
(Include Zip Code)
Phone Number _________________________________________________________________
Taxpayer Identification or Social Security No. _______________________________
Applicable VOI Number _________________ Number of Shares ____________________
- --------------------------------------------------------------------------------
If solicitation fees are to be paid to another Eligible Institution(s),
please complete the following:
- --------------------------------------------------------------------------------
Issue check to:
Firm _________________________________________________________________________
(Please Print)
Attention ____________________________________________________________________
Address ______________________________________________________________________
______________________________________________________________________________
(Include Zip Code)
Phone Number _________________________________________________________________
Taxpayer Identification or Social Security No. _______________________________
Applicable VOI Number _________________ Number of Shares ____________________
- --------------------------------------------------------------------------------
*NOTE: IF ADDITIONAL PAYMENT INSTRUCTIONS, PLEASE COPY AND ATTACH.
Very truly yours,
GENERAL MOTORS CORPORATION
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF GM, HUGHES, THE EXCHANGE AGENT, THE DEALER
MANAGER, THE MARKETING MANAGER OR THE INFORMATION AGENT, OR AUTHORIZE YOU OR
ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT
TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE OFFERING
CIRCULAR-PROSPECTUS OR THE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS
THERETO.
<PAGE>
Exhibit 99.4
General Motors Corporation
OFFER TO EXCHANGE SHARES OF
CLASS H COMMON STOCK
FOR EACH SHARE OF $1 2/3 PAR VALUE COMMON STOCK
UP TO AN AGGREGATE OF
SHARES OF $1 2/3 PAR VALUE COMMON STOCK
To Our Clients:
Enclosed for your consideration is an Offering Circular-Prospectus dated
, 2000 (the "Offering Circular-Prospectus") and a form of Letter of
Transmittal and the instructions thereto (collectively, the "Letter of
Transmittal" and, together with the Offering Circular-Prospectus, the
"Exchange Offer") relating to the offer by General Motors Corporation
("General Motors" or "GM") to exchange shares of GM's Class H common stock
for each share of GM $1 2/3 par value common stock validly tendered up to an
aggregate of shares of $1 2/3 par value common stock validly tendered and
exchanged. These documents may not be used by you to tender shares of $1 2/3
par value common stock.
The material is being forwarded to you as the beneficial owner of shares of
$1 2/3 par value common stock carried by us in your account but not registered
in your name. A tender of such shares of $1 2/3 par value common stock may
only be made by us as the registered holder and pursuant to your instructions.
Therefore, holders of shares of $1 2/3 par value common stock registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
should contact such registered holder promptly if they wish to tender their
shares of $1 2/3 par value common stock in the Exchange Offer.
Accordingly, we request instructions from you as to whether you wish us to
tender any or all such shares of $1 2/3 par value common stock held by us for
your account pursuant to the terms and conditions set forth in the enclosed
Offering Circular-Prospectus and the related Letter of Transmittal, including
the instructions thereto.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender shares of $1 2/3 par value common stock in
accordance with the provisions of the Exchange Offer. The Exchange Offer will
expire at 12:00 midnight, New York City time, on , , 2000, or if
extended by GM, the latest date and time to which extended (the "Expiration
Date"). Shares of $1 2/3 par value common stock tendered pursuant to the
Exchange Offer may be withdrawn, subject to the procedures described in the
Offering Circular-Prospectus, at any time prior to the Expiration Date and
after , , 2000, if not theretofore accepted for exchange by GM.
Your attention is directed to the following:
1. The Exchange Offer is for up to an aggregate of shares of $1 2/3
par value common stock.
2. GM's obligation to accept shares of $1 2/3 par value common stock
validly tendered in the Exchange Offer is subject to certain conditions
as specified in the Offering Circular-Prospectus.
3. GM will not be responsible for any stock transfer taxes payable as a
result of the transaction.
4. If you owned beneficially as of the close of business on , 2000
an aggregate of fewer than 100 shares of $1 2/3 par value common stock
and you instruct us to tender all of those shares on your behalf, all
such shares will be accepted for exchange and will not be subject to
proration if the Exchange Offer is oversubscribed. Shares of $1 2/3 par
value common stock held in a GM or GM affiliated company savings plan
are not eligible for this preferential treatment.
If you wish to have us tender any or all of your shares of $1 2/3 par value
common stock, please so instruct us by completing, executing and returning to
us the instruction form which appears on the reverse side of this letter.
<PAGE>
INSTRUCTIONS
I acknowledge receipt of your letter and the enclosed material
referred to therein relating to the Exchange Offer of General Motors
Corporation ("GM") of Class H common stock in exchange for $1 2/3 par
value common stock. I understand, accept and agree to the terms and
conditions of the Exchange Offer.
This will instruct you to tender in the Exchange Offer the shares
of $1 2/3 par value common stock indicated below (or, if no number is
indicated below, all shares) held by you for my account, pursuant to
the terms of and conditions set forth in the Offering Circular-
Prospectus and the Letter of Transmittal, including the instructions
thereto.
Box 1 [_] Please tender all of my shares of $1 2/3 par value common
stock held by you for my account.
Box 2 [_] Please tender (number) of the shares of $1 2/3
par value common stock held by you for my account.
-----------------------------------------------------------------------
ODD-LOTS
[_]By checking this box, I represent that I owned beneficially and of
record as of , 2000, an aggregate of less than 100 shares
of $1 2/3 par value common stock and am tendering all such shares.
-----------------------------------------------------------------------
SIGNATURE
BY SIGNING BELOW, I HEREBY CERTIFY THAT I AM ELIGIBLE TO PARTICIPATE IN THIS
EXCHANGE OFFER.
Dated: ______________________________ -------------------------------------
-------------------------------------
Signature(s)
-------------------------------------
-------------------------------------
Please Print Name(s) Here
UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN THE SPACE PROVIDED, YOUR
SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL OF
YOUR SHARES OF $1 2/3 PAR VALUE COMMON STOCK.
PLEASE RETURN THIS FORM TO THE BROKERAGE FIRM MAINTAINING YOUR ACCOUNT, NOT
FLEET NATIONAL BANK, MORROW & CO., INC., MORGAN STANLEY DEAN WITTER, SALOMON
SMITH BARNEY, GENERAL MOTORS CORPORATION OR HUGHES ELECTRONICS CORPORATION.
<PAGE>
Exhibit 99.6
[GM LOGO]
, 2000
Dear $1 2/3 Par Value Stockholder,
I am pleased to announce that General Motors Corporation is commencing a
voluntary exchange offer in which you will have an opportunity to receive
shares of Class H common stock in exchange for each share of $1 2/3 par value
common stock which you validly tender in the exchange offer, up to an
aggregate of shares of $1 2/3 par value common stock. Class H common
stock is a "tracking stock" of GM designed to provide holders with financial
returns based on the financial performance of Hughes Electronics Corporation,
which is a wholly-owned subsidiary of GM. The exchange offer is an important
element of our overall plan to restructure GM's economic interest in Hughes in
order to realize some of the economic value arising from GM's ownership of
Hughes. The exchange offer will provide you with an opportunity to increase,
in a tax-efficient manner, your interest in the financial performance of
Hughes by exchanging your shares of $1 2/3 par value common stock for shares
of Class H common stock.
If more than shares of $1 2/3 par value common stock are validly
tendered for exchange in the exchange offer, we will accept shares for
exchange on a pro rata basis, except that any holder with less than 100 shares
of $1 2/3 par value common stock who validly tenders all such shares will
generally not be subject to proration. If less than shares of $1 2/3 par
value common stock are tendered in exchange for shares of Class H common stock
in the exchange offer, we may choose not to complete the exchange offer. In
such event, we may choose to reevaluate our current plan with respect to
realizing some of the economic value arising from our ownership of Hughes.
The terms and conditions of the exchange offer are contained in the
enclosed Offering Circular-Prospectus and the Letter of Transmittal and the
related instructions. We have included a "Questions and Answers" section in
the Offering Circular-Prospectus that responds to many of the commonly asked
questions about the exchange offer. We encourage you to read the enclosed
material carefully before making any decisions with respect to the exchange
offer.
Neither GM nor the board of directors of GM makes any recommendation as to
whether or not you should tender any shares of $1 2/3 par value common stock
in the exchange offer. You must make your own decision whether to tender such
shares and, if so, how many shares to tender. This exchange offer will expire,
unless extended by GM, at 12:00 midnight, New York City time, on ,
2000.
GM has retained the services of Morrow & Co., Inc. as Information Agent to
assist stockholders in connection with the exchange offer. If you have any
questions concerning the exchange offer and how to participate, or if you need
additional documents, please call Morrow at (877) 816-5329 (toll free) in the
United States or at (212) 754-8000 (collect) elsewhere.
I thank you for your continuing support of our corporation.
Sincerely,
/s/ John F. Smith, Jr.
John F. Smith, Jr.
Chairman of the Board of
Directors and
Chief Executive Officer
<PAGE>
Exhibit 99.7
CHECKLIST FOR PARTICIPATION IN THE EXCHANGE OFFER
(1) Check Contents of Package: Before proceeding, please ensure that this
package contains the following materials:
. Letter from John F. Smith, Jr., Chairman of the Board of Directors and
Chief Executive Officer of GM.
. Letter of Transmittal (printed on white paper) pre-printed with your
account number and address.
. Instructions to the Letter of Transmittal (printed on blue paper).
. Return envelope addressed to Fleet National Bank, the Exchange Agent for
the Exchange Offer.
. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (printed on white paper).
. Notice of Guaranteed Delivery (printed on yellow paper).
. Offering Circular-Prospectus dated , 2000.
(2) Review Materials Carefully Before Deciding to Participate: Please
review all enclosed materials carefully before deciding to participate in the
Exchange Offer. If your shares of $1 2/3 par value common stock are registered
in your name and you decide to participate, you must continue with
instructions #3 and #4 below. If your shares of $1 2/3 par value common stock
are held for you by a broker, dealer, bank, trust company or employee benefit
plan sponsored by GM and you decide to participate, you must contact such
person and instruct them to tender your shares of $1 2/3 par value common
stock on your behalf. (If you have so instructed or plan to instruct such
person, you do not need to proceed with instructions #3 and #4 below).
(3) Complete the Letter of Transmittal: You must do the following to
complete the Letter of Transmittal:
. Read the Instructions to the Letter of Transmittal.
. Complete Box O 6 or O 7 , as applicable, on the Letter of Transmittal.
. Sign and date the Letter of Transmittal.
. Correct the Tax Identification Number, if necessary, using the space
provided at O 5 on the Letter of Transmittal and, if applicable,
complete, sign and date Box B on the Letter of Transmittal.
. Some portions of the Letter of Transmittal should only be completed if
applicable:
. If your stock certificates have been lost, destroyed, mutilated or
stolen, you should complete Box O 8 and Box A of the Letter of
Transmittal and include a check for the applicable surety bond amount.
. If you are tendering shares of $1 2/3 par value common stock and you
are not the registered holder of those shares (and are not tendering
those shares for the account of an Eligible Institution), Box C on the
Letter of Transmittal must be completed.
. If you cannot deliver your certificate(s) to the Exchange Agent before
the Expiration Date, a broker must guarantee delivery of your shares
of $1 2/3 par value common stock and you should complete Box D of the
Letter of Transmittal. The broker must submit the separate document
entitled "Notice of Guaranteed Delivery."
. If your tender has been solicited by a broker, the name of the firm
and your brokerage account number should be identified in Box E of the
Letter of Transmittal.
(4) Special Issuance or Delivery Instructions: If you would like to
designate special issuance or delivery instructions for the shares of Class H
common stock, shares of $1 2/3 par value common stock not tendered or not
accepted by GM in the Exchange Offer or cash you may receive instead of
fractional shares of Class H common stock, please mark Box O 9 of the Letter
of Transmittal, complete the appropriate sections of pages 12 through 14 of
the Instructions to the Letter of Transmittal and return those completed
sections with your Letter of Transmittal in the envelope provided.
(5) Mail $1 2/3 Par Value Common Stock Certificates, Signed Letter of
Transmittal and any Other Documents Required by the Letter of Transmittal to
the Exchange Agent: Send the Letter of Transmittal together with your
certificate(s) representing $1 2/3 par value common stock to Fleet National
Bank, as Exchange Agent, at the addresses shown on the Letter of Transmittal.
Use of registered mail, return receipt requested, is recommended.
If you have any questions, have not received the Letter of Transmittal or
other documents pertaining to the Exchange Offer, or need other assistance in
completing the Letter of Transmittal, please contact the Information Agent:
Morrow & Co. Inc., 445 Park Avenue, 5th Floor, New York, New York 10022,
(877) 816-5329 (toll-free) for calls in the United States or (212) 754-8000
(collect) for calls outside the United States.
<PAGE>
[LETTERHEAD OF MORROW & CO., INC.]
January 3, 2000
General Motors Corporation
MC 482-C25-C22
300 Renaissance Center
Detroit, MI 48265-3000
This letter will serve as the agreement under which you will retain us to
act as Information Agent in connection with your Exchange Offer to stockholders
of General Motors Corporation's 1 2/3 common stock.
The services we will perform on your behalf will include the consultation
and preparation in connection with this transaction, the delivery of General
Motors material to brokers, banks, nominees and institutions, acting as
Information Agent in connection with your Exchange Offer, and receiving calls
from General Motors 1 2/3 common stockholders.
For the above services our fee will be $75,000.00. An advance against
disbursements of $200,000.00 is due upon the signing of this agreement.
Additional disbursements, if any, incurred by us on your behalf will be billed
periodically. Our charge for incoming telephone calls will be $3.50 per
stockholder call; such charge includes all related telephone expense.
This agreement covers the period from March 15, 2000 through May 19, 2000.
This agreement may be extended by the consent of each party at a rate of
$5,000.00 per week, or part thereof.
You agree to indemnify and hold us harmless against any loss, damage,
expense (including reasonable legal fees and expenses), liability or claim
relating to or arising out of our performance of this agreement except where we,
or our employees, fail to comply with this agreement; provided, however, that
you shall not be obliged to indemnify us or hold us harmless against any such
loss, damage, expense, liability, or claim which results from negligence, bad
faith, or willful misconduct on our part or of any of our employees.
<PAGE>
General Motors Corporation January 3, 2000
Page Two
At your election, you may assume the defense of any such action. We shall
advise you in writing of any such liability or claim promptly after receipt of
any notice of any action or claim for which we may be entitled to
indemnification hereunder.
This agreement shall be construed and enforced in accordance with the laws
of the State of New York and shall inure to the benefit of, and the obligations
created hereby shall be binding upon, the successors and assigns of the parties
hereto.
If any provision of this agreement shall be held illegal, invalid or
unenforceable by any court, this agreement shall be construed and enforced as if
that provision had not been contained herein and shall be deemed an agreement
among us to the full extent permitted by applicable law.
Please acknowledge receipt of this agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy to the undersigned,
whereupon this agreement and your acceptance of the terms and conditions herein
provided shall constitute a binding agreement among us.
Accepted Very truly yours,
General Motors Corporation MORROW & CO., INC.
By: /s/ WARREN G. ANDERSEN By: /s/ GERALD J. MUCHA
------------------------ ---------------------
Title: ASST SECRETARY & ATTORNEY Title: MANAGING DIRECTOR
--------------------------- -------------------
Date: Jan. 3, 2000
----------------------
<PAGE>
Exhibit 99.9
EXCHANGE AGENT AGREEMENT
This Exchange Agent Agreement (the "Agreement") is entered into as of
this ___ day of April, 2000, between General Motors Corporation, a company
organized and existing under the laws of the State of Delaware (the "Company"),
and Fleet National Bank, a national banking association having its principal
offices in Boston, Massachusetts (the "Bank").
WHEREAS, the Company is making an exchange offer (hereinafter referred
to, together with any amendment or extensions thereof, as the "Exchange Offer")
to exchange newly issued shares of its Class H Common Stock, par value $0.10 per
share (the "Class H Common Stock"), having an aggregate market value of up to $9
billion at the time of commencement, for outstanding shares of its Common Stock,
$1-2/3 par value per share (the "$1-2/3 Par Value Common Stock"), upon the terms
and subject to the conditions set forth in the final Offering Circular--
Prospectus, (the "Offering Circular--Prospectus") included in the Registration
Statement on Form S-4 (No. 333-30826), and in the related Letter of Transmittal
including the Instructions to the Letter of Transmittal (the "Letter of
Transmittal");
WHEREAS, the Bank is presently the Stock Transfer Agent and Registrar
for the Company's various classes of stock; and
WHEREAS, the Company desires that the Bank act as Exchange Agent in
connection with the Exchange Offer, and the Bank (hereinafter referred to from
time to time as the "Exchange Agent", the "Transfer Agent" or the "Registrar")
has indicated its willingness to do so.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and in the Exchange Offer, the parties hereto agree as follows:
1. Appointment of Exchange Agent.
The Company hereby appoints the Bank as Exchange Agent for the purpose
of exchanging certificates representing (or other evidence of ownership of)
shares of $1-2/3 Par Value Common Stock for certificates representing (or other
evidence of ownership of) shares of Class H Common Stock in accordance with the
terms and conditions of the Exchange Offer as set forth in the Offering
Circular--Prospectus and the Letter of Transmittal. The Bank hereby agrees to
serve as such, upon the terms and conditions set forth herein. In connection
with such appointment, the Company has delivered to you a copy of the Offering
Circular--Prospectus, dated April , 2000, a copy of the Letter of
Transmittal, a copy of the letter from the Company to holders of $1-2/3 Par
Value Common Stock, a copy of the checklist for participation in the Exchange
Offer, a copy of the
1
<PAGE>
Notice of Guaranteed Delivery, a copy of the letter to brokers, dealers,
commercial banks, trust companies and other nominees, a copy of the letter to
clients for use by brokers, dealers, commercial banks, trust companies and other
nominees, a copy of the guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9, and certain other documents which the Company has
elected to provide.
2. Notification and Processing.
The Exchange Agent is hereby authorized and directed, and hereby
agrees, to:
A. Provide file containing the name and address of each holder of
record of $1-2/3 Par Value Common Stock. The file for holders in certain foreign
jurisdictions, which the Company will designate for the Exchange Agent shall be
segregated from the file for all other holders. The Exchange Agent shall deliver
such files, upon the Company's demand, to such person or entity as the Company
shall designate.
B. Accept and respond to all telephone requests for information
relating to the exchange of shares pursuant to the Exchange Offer.
C. Receive and examine all certificates representing shares of $1-2/3
Par Value Common Stock (the "Tendered Shares") tendered for exchange and
accompanying Letters of Transmittal for proper execution in accordance with the
terms thereof. Such examination shall include determination that such
certificates representing Tendered Shares are in proper form for transfer on the
share registry books of the Company, verification that no stop order has been
issued against the Tendered Shares by reason of mutilation, loss, theft,
destruction or other invalidity and that the certificates representing (or other
evidence of ownership of) Tendered Shares otherwise comply with the Instructions
to the Letter of Transmittal. In the event that any Letter of Transmittal has
been improperly completed or executed, or the certificates representing (or
other evidence of ownership of) the Tendered Shares are not in proper form for
transfer (as required by the Instructions to the Letter of Transmittal), or if
some other irregularity in connection with the exchange of such Tendered Shares
exists, the Exchange Agent shall notify the stockholder of the deficiency in
order to enable the stockholder to correct such irregularity. Determination of
all questions as to the validity, form, eligibility (including timeliness of
receipt) and acceptance of the Tendered Shares exchanged or tendered shall be
determined by the Exchange Agent on behalf of the Company in the first instance,
but final decisions on all such matters shall be made by the Company in its sole
and absolute discretion. The Company reserves in the Exchange Offer the
absolute right to reject any or all exchanges of any particular Tendered Shares
not in the appropriate form or the acceptance of which would, in the opinion of
the Company's counsel, be unlawful and to waive any of the conditions of the
Exchange Offer or any defect or irregularity in the exchange of the Tendered
Shares, and the Company's interpretation of the terms and conditions of the
Exchange Offer will be final in all cases.
2
<PAGE>
D. Exchange all Tendered Shares in accordance with the terms and
conditions of the Exchange Offer, as such are set forth in the Offering
Circular--Prospectus and the Letter of Transmittal.
E. Make appropriate arrangements with The Depository Trust Company and
any other "qualified" registered securities depository to allow for the book-
entry movement of the Tendered Shares between depository participants and the
Exchange Agent.
F. An exchanging stockholder may withdraw its tender as set forth in
the Offering Circular--Prospectus and the Letter of Transmittal, in which event,
you shall as promptly as possible after notification of such withdrawal, return
such Tendered Shares in accordance with the terms and conditions of the Exchange
Offer. The Company may ask to review any Tender Share certificates, Letters of
Transmittal, notices of withdrawal or other documents relating to the Exchange
Offer. All questions as to the form and validity of notices of withdrawal,
including timeliness of receipt, shall be determined by the Company in its sole
and absolute discretion, whose determination shall be final and binding in all
cases.
G. On each business day up to and including the expiration date of the
Exchange Offer (including any extensions thereof), you shall advise by facsimile
transmission, not later than 5:00 p.m. Eastern Time, the Company and such other
persons (including, without limitation, the Dealer Manager in the Exchange
Offer) as it may direct, of the number of shares of $1-2/3 Par Value Common
Stock which have been duly delivered on such day, stating separately the number
of such shares delivered by Notices of Guaranteed Delivery, the number of such
shares about which you have questions concerning validity, the number of
Tendered Shares withdrawn and the cumulative number of such shares delivered by
facsimile transmission. You shall also inform the aforementioned persons, and
such other persons as any of them may designate, upon request of such other
information as any of them may request, including, without limitation, the names
and addresses of registered holders of exchanged shares of $1-2/3 Par Value
Common Stock.
H. Retain or return to stockholders (as applicable) those Tendered
Shares and accompanying exchange documents evidencing some deficiency (and make
reasonable attempts to inform such holders of $1-2/3 Par Value Common Stock of
the need to correct such deficiency) and return to stockholders their Tendered
Shares which are rejected by the Company due to proration of the Exchange Offer.
I. Accept exchanges signed by persons acting in a fiduciary or
representative capacity only if such capacity is shown on the Letter of
Transmittal and proper evidence of their authority so to act has been submitted
in accordance with the terms and conditions of the Exchange Offer.
J. Accept exchanges from persons alleging loss, theft or destruction
of their certificates if Box A on the Letter of Transmittal is properly
completed and the appropriate payment for the corporate bond is provided.
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<PAGE>
K. Accept exchanges for Class H Common Stock to be issued other than
in the name that appears on the certificates representing (or other evidence of
ownership) Tendered Shares, to the extent such exchanges comply with the terms
and conditions of the Exchange Offer as set forth in the Offering Circular--
Prospectus and the Letter of Transmittal.
L. In accordance with the Exchange Agent's final report, which the
Exchange Agent shall deliver to the Company no later than Eastern Time
on the day which is four NYSE trading days following the expiration (including
any extension thereof) of the Exchange Offer, shall provide to the Company the
final number of shares of $1-2/3 Par Value Common Stock to be accepted and the
final number of shares of Class H Common Stock to be distributed in the Exchange
Offer based on the exchange ratio and proration set forth in the Offering
Circular--Prospectus.
M. Issue or otherwise record, as Stock Transfer Agent and Registrar
for Company Common Stock, upon surrender of certificates representing (or other
evidence of ownership of) Tendered Shares and properly executed Letters of
Transmittal, such number of shares of Class H Common as is indicated by the
exchange ratio (taking into account proration) as set forth in the Offering
Circular--Prospectus, registered in such names as are appropriate pursuant to
properly executed Letters of Transmittal, for every Tendered Share represented
by such Certificate(s); provided that no fractional shares of Class H Common
Stock shall be issued.
N. Cancel, as Exchange Agent, all Tendered Shares accepted for
exchange.
O. Promptly deliver, in accordance with the Letter of Transmittal,
evidence of Class H Common Stock issued as provided in paragraph H above.
P. Pay such cash without earnings or interest (the "Cash Payments") to
holders of Tendered Shares accepted for exchange instead of the issuance of
fractional shares of Class H Common Stock as is provided for in the Exchange
Offer.
Q. Prepare and file with the appropriate governmental agency and
stockholder Form 1099B in connection with the Exchange Offer.
R. Comply with Internal Revenue Service regulations with respect to
due diligence in obtaining a certified Tax Identification Number for each
tendering stockholder.
S. Cooperate in all respects with the Information Agent for the
Exchange Offer, the Dealer Manager for the Exchange Offer, the financial
advisors for the Company, the Company's counsel and any other agents of the
Company in carrying out its duties.
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<PAGE>
T. Follow and act upon all instructions in connection with your duties
as Exchange Agent in connection with the Exchange Offer which may be given to
you by the Company or any other person it may authorize in writing.
3. Concerning the Exchange Agent.
The Exchange Agent:
A. shall have no duties or obligations other than those specifically
set forth herein or as may subsequently be requested of the Exchange Agent by
the Company or any other person it may authorize in connection with the Exchange
Offer;
B. may rely on and shall be held harmless by the Company in acting
upon any certificate, instrument, opinion, notice, letter, facsimile
transmission, telegram or other document, or any security delivered to it, and
reasonably believed by it to be genuine and to have been signed by the proper
party or parties;
C. may rely on and shall be held harmless in acting upon written or
oral instructions from the Company or such other persons it may authorize with
respect to any matter relating to its acting as Exchange Agent specifically
covered by this Agreement; and
D. may, at its sole expense, consult with counsel satisfactory to it
and shall be held harmless in relying on the written advice or opinion of such
counsel in respect of any action taken, suffered or omitted by it hereunder in
good faith and in accordance with such advice or opinion of such counsel.
4. Compensation of the Exchange Agent by the Company.
The Company shall pay fees for the services rendered hereunder, as set
forth in the attached Fee Schedule. The Exchange Agent shall also be entitled
to reimbursement from the Company for all reasonable and necessary expenses paid
or incurred by it in connection with the administration by the Exchange Agent of
its duties hereunder.
5. Indemnification.
The Company covenants and agrees to indemnify and to hold the Exchange
Agent harmless against any costs, expenses (including reasonable fees of its
legal counsel), losses or damages, which may be paid, incurred or suffered by or
to which it may become subject, arising from or out of, directly or indirectly,
any claims or liability resulting from its actions as Exchange Agent pursuant
hereto; provided, that such covenant and agreement does not extend to, and the
Exchange Agent shall not be indemnified or held harmless with respect to, such
costs, expenses, losses and damages incurred or suffered by the Exchange Agent
as a result of, or arising out of, its negligence, bad faith, or willful
misconduct or any of its directors, officers, employees, agents or
representatives. In no case will the
5
<PAGE>
Company be liable under this Section 5 unless, promptly after the receipt by the
Exchange Agent of notice of any demand or claim or the commencement of any
action, suit, proceeding or investigation, the Exchange Agent shall, if a claim
in respect thereof is to be made against the Company, notify the Company thereof
in writing. The Company shall be entitled to participate as its own expense in
the defense of any such claim or proceeding, and, if it so elects at any time
after receipt of such notice, it may assume the defense of any suit brought to
enforce any such claim or of any other legal action or proceeding. In the event
the Company assumes the defense of any such suit, the Company may select counsel
of its own choosing for such purpose and the company shall not be liable for the
fees and expenses of any other additional counsel thereafter retained (or who
continues thereafter to be retained) by the Exchange Agent. The Exchange Agent
shall in no case confess any claim or make any compromise in any case in which
the Company may be required to indemnify it without the Company's prior written
consent.
The Company, its subsidiaries and affiliates, and their respective
directors, officers, employees, agents and representatives, shall be indemnified
and held harmless by the Exchange Agent, from and against any and all reasonable
expenses (including reasonable counsel fees and disbursements), or costs, losses
or damages suffered, which any of them may pay, incur or suffer or to which any
of them may become subject by reason of or arising out of the negligence,
willful misconduct or bad faith of the Exchange Agent or any of its directors,
officers, employees, agents or representatives, or out of any failure by the
Exchange Agent to perform its obligations under this Agreement. The Company
shall in no case confess any claim or make any compromise in any case in which
the Exchange Agent may be required to indemnify it without the Exchange Agent's
prior written consent.
For the purposes of this Section 5, the term "expense or loss" means
any amount paid to satisfy any claim, demand, action, suit or proceeding, and
all reasonable costs and expenses, including, but not limited to, reasonable
counsel fees and disbursements, paid or incurred in investigating or defending
against any such claim, demand, action, suit, proceeding or investigation.
6. Further Assurance.
From time-to-time and after the date hereof, the Company shall deliver
or cause to be delivered to the Exchange Agent such further documents and
instruments and shall do and cause to be done such further acts as the Exchange
Agent shall reasonably request (it being understood that the Exchange Agent
shall have no obligation to make any such request) to carry out more effectively
the provisions and purposes of this Exchange Agent Agreement, to evidence
compliance herewith or to assure itself that it is protected in acting
hereunder.
7. Term.
This Agreement shall remain in effect until such time as the Exchange
Agent has completed all of its duties hereunder, or such earlier time as to
which the parties shall mutually agree.
6
<PAGE>
8. Notices.
Until further notice in writing by either party hereto to the other
party, all written reports, notices and other communications between the
Exchange Agent and the Company required or permitted hereunder shall be
delivered or mailed by first class mail, postage prepaid, addressed as follows:
If to the Company, to:
General Motors Corporation
300 Renaissance Center
Mail Code 482-C25-C22
Detroit, Michigan 48265-3000
Attention: Warren G. Andersen
If to the Exchange Agent, to:
Fleet National Bank
c/o EquiServe Limited Partnership
150 Royall Street
Canton, MA 02021
Attn: Corporate Actions Department
9. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of The State of Delaware and shall inure to the benefit of and the
obligations created hereby shall be binding upon the successors and assigns of
the parties hereto.
10. Assignment
A. Except as provided in Section 10(B) below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
B. The Exchange Agent may, without further consent on the part of the
Company, (i) subcontract for the performance hereof with EquiServe Limited
Partnership or (ii) subcontract with other subcontractors for systems,
processing, and telephone and mailing services as may be required from time to
time; provided, however, that the Exchange Agent provides the Company at least
ten business days' prior written notice thereof and shall be as fully
responsible to the Company for the acts and omissions of any subcontractor as it
is for its own acts and omissions.
C. Except as explicitly stated elsewhere in this Agreement, nothing
under this Agreement shall be construed to give any rights or benefits in this
Agreement to anyone other than the Exchange Agent and the Company and the duties
and responsibilities undertaken pursuant to this Agreement shall be for the sole
and exclusive benefit of the Exchange Agent and the Company. This Agreement
shall inure to the benefit of and be binding upon the parties and their
respective permitted successors and assigns.
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<PAGE>
11. Amendment.
Except as otherwise provided in this Agreement (including, without
limitation pursuant to Section 3T hereof), this Agreement may not be changed
orally or modified, amended or supplemented without an express written agreement
executed by each of the parties hereto.
12. Counterparts.
This Agreement may be executed in separate counterparts, each of which
when executed and delivered shall be an original, but all such counterparts
shall together constitute but one and the same instrument.
13. Third Party Beneficiaries.
This Agreement does not constitute an agreement for a partnership or
joint venture between the Exchange Agent and the Company. Neither party shall
make any commitments with third parties that are binding on the other party
without the other party's prior written consent.
15. Consequential Damages.
Neither party to this Agreement shall be liable to the other party for
any consequential, indirect, special or incidental damages under any provision
of this Agreement or for any consequential, indirect, special or incidental
damages arising out of any act or failure to act hereunder even if that party
has been advised of or has foreseen the possibility of such damages.
16. Severability.
If any provision of this Agreement shall be held invalid, unlawful, or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired.
17. Confidentiality.
The Exchange Agent and the Company agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement including the fees for services set forth in the attached schedule
shall remain confidential, and shall not be voluntarily disclosed to any other
person, except as may be required by law.
18. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
* * * * *
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers, hereunto duly authorized, as of the
day and year first above written.
FLEET NATIONAL BANK GENERAL MOTORS CORPORATION
By: ____________________________ By: ___________________________
Title: ____________________________ Title: ___________________________
Date: ____________________________ Date: ___________________________
9
<PAGE>
Exhibit 99.14
REGISTRATION RIGHTS AGREEMENT
By and Among
GENERAL MOTORS CORPORATION
and
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee of
THE GENERAL MOTORS
HOURLY-RATE
EMPLOYEES PENSION PLAN
and
as a Trustee of a dedicated account within
THE GENERAL MOTORS WELFARE BENEFIT TRUST
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
1. Contribution of Registrable Securities.............................. 2
2. Restrictions on Transfer............................................ 4
3. Demand Transfers....................................................12
4. Piggyback Registration..............................................18
5. Holdback Period.....................................................20
6. Other Registration Rights...........................................21
7. Demand, Piggyback and Shelf Registration Procedures.................24
8. Participation in Underwritten Transfers.............................27
9. Registration Expenses and Legal Counsel.............................27
10. Indemnification.....................................................27
11. Definitions.........................................................30
12. Miscellaneous.......................................................36
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
EXHIBIT A .................................... Form of Transfer Agreement
EXHIBIT B ........................................ Interest Rate Schedule
EXHIBIT C .................................. Form of Succession Agreement
</TABLE>
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Agreement is entered into on ________ __, 2000, by and among General
Motors Corporation, a Delaware corporation (sometimes referred to herein as
"Issuer"), and United States Trust Company of New York, as trustee (the "Pension
Plan Trustee") of a trust established under the General Motors Hourly-Rate
Employees Pension Plan (the "Pension Plan") for the account and on behalf of the
Pension Plan (which shall thereby be deemed a party to this Agreement) and
United States Trust Company of New York, as a trustee (the "VEBA Trustee" and,
together with the Pension Plan Trustee, the "Trustees") of a dedicated account
within the General Motors Welfare Benefit Trust, a voluntary employees'
beneficiary association trust established to fund certain hourly retiree health
care and life insurance benefits under the General Motors Health Care Program
for Hourly Employees and other applicable welfare plans (the "VEBA"), for the
account and on behalf of the VEBA (which shall thereby be deemed a party to this
Agreement). Each of the Pension Plan and the VEBA are sometimes referred to
herein as "Donee" or collectively as "Donees." The term "Donees" as used in
Sections 3 through 12 hereof shall mean the Pension Plan and the VEBA jointly
during any time period in which the VEBA continues to hold Registrable
Securities and shall mean the Pension Plan individually during any other period
in which the Pension Plan continues to hold Registrable Securities. Capitalized
terms used and not otherwise defined herein shall have the respective meanings
set forth in Section 11.
WHEREAS, Issuer intends, subject to the satisfaction of certain regulatory
and other conditions, to contribute approximately [___] million shares of Class
H Common Stock to the Pension Plan and the VEBA; and
WHEREAS, each of the Pension Plan and the VEBA is prepared to accept the
Class H Common Stock that may be contributed to it as described herein and to
hold and dispose of any such Class H Common Stock on the terms and conditions
hereinafter stated; and
WHEREAS, General Motors, the Pension Plan and the VEBA have entered into a
Transfer Agreement, dated as of the date hereof, substantially in the form of
Exhibit A attached hereto (as such agreement may be amended or modified from
time to time, the "Transfer Agreement"), pursuant to which each of the Pension
Plan and the VEBA has agreed to hold and dispose of the Class H Common Stock
owned by it on the terms and conditions stated therein; and
WHEREAS, the Trustee has been appointed by the named fiduciary of the
Pension Plan (the "Pension Plan Named Fiduciary") (as determined in accordance
with Section 402(a) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), to manage any shares of Class H Common Stock contributed to
the Pension Plan as described herein and to exercise all rights, powers and
privileges appurtenant to such shares (subject to the authority of the Pension
Plan Named Fiduciary to terminate such appointment and appoint one or more other
investment managers for any such shares); and
<PAGE>
WHEREAS, the Trustee has been appointed by the named fiduciary of the VEBA
(the "VEBA Named Fiduciary") (as determined in accordance with Section 402(a) of
ERISA), to manage any shares of Class H Common Stock contributed to the VEBA as
described herein and to exercise all rights, powers and privileges appurtenant
to such shares (subject to the authority of the VEBA Named Fiduciary to
terminate such appointment and appoint one or more other investment managers for
any such shares); and
WHEREAS, the Trustees have full power and authority to execute and deliver
this Agreement for the account and on behalf of each of the Pension Plan and the
VEBA and to so bind the Pension Plan and the VEBA;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Issuer, the Pension Plan and the
VEBA agree as follows:
1. Contribution of Registrable Securities.
--------------------------------------
(a) Issuer agrees that any contribution of Registrable Securities made by
Issuer to the Pension Plan or the VEBA (each such contribution being hereinafter
referred to as a "Contribution") shall be made only on such days as the New York
Stock Exchange, Inc. ("NYSE") shall be open for trading (a "Business Day").
(b) The Pension Plan represents that it beneficially owns [__________]
shares of Class H Common Stock as of the date hereof. The VEBA represents that
it does not beneficially own any shares of Class H Common Stock as of the date
hereof.
(c) Issuer agrees that it shall give the Pension Plan Trustee and its
valuation adviser or the VEBA Trustee and its valuation adviser, as applicable,
notice by teleconference after the close of normal trading on the NYSE but no
later than 5:00 p.m., New York time, on the Business Day prior to the Business
Day on which Issuer contemplates making a Contribution to the Pension Plan or
the VEBA, as applicable, that it contemplates making such a Contribution;
provided, however, that such notice shall be revocable by Issuer at any time in
its sole discretion prior to the conclusion of the teleconference referred to in
Section 1(d). In such teleconference, Issuer shall state the date on which
Issuer contemplates making the proposed Contribution and a range for the number
of Registrable Securities which may be contributed, and the Pension Plan Trustee
or the VEBA Trustee, as applicable, each together with its valuation adviser,
will estimate a value per share, based on the closing price on the day of notice
on the NYSE of Class H Common Stock, at various points within such range.
(d) At any time after 4:30 p.m., New York time, but in any event prior to
8:00 p.m., New York time, on the day of the proposed Contribution, Issuer will
give the Pension Plan Trustee and its valuation adviser or the VEBA Trustee and
its valuation adviser, as
2
<PAGE>
applicable, notice by teleconference of its continued interest, if any, in
making a Contribution to the Pension Plan or the VEBA, as applicable. In such
teleconference, Issuer will make one or more estimates of the specific number of
Registrable Securities which Issuer may contribute, and the Pension Plan Trustee
or the VEBA Trustee, as applicable, each together with its valuation adviser,
will state the value per share it would assign for the Contribution based on
each such estimate and based on the closing price on such date on the NYSE of
Class H Common Stock. If Issuer so decides, it shall irrevocably commit itself
in such teleconference to contribute a number of Registrable Securities equal to
one of such estimates, and, as applicable, the Pension Plan Trustee's or the
VEBA Trustee's valuation adviser shall be irrevocably committed to opine to the
applicable value per share previously stated by it in such teleconference. The
Contribution, if any, shall be effective at the end of such teleconference, and
the value per share for purposes of such Contribution shall be such stated
value. As soon as practicable after the teleconference in which a Contribution
is made, Issuer shall deliver instructions to its transfer agent to issue the
Registrable Securities so contributed (in the form described below) and to
register such Registrable Securities in the name of the Pension Plan or the
VEBA, as applicable, or their nominees, and Issuer shall confirm such
Contribution by delivering copies of such transfer instructions to the Pension
Plan Trustee or the VEBA Trustee, as applicable. As soon as practicable after
the teleconference, the Pension Plan Trustee's or the VEBA Trustee's valuation
adviser will deliver to the Pension Plan Trustee or the VEBA Trustee, as
applicable, with a copy to Issuer, its written valuation opinion, confirming the
valuation given in the teleconference.
(e) Delivery of certificates representing (or other evidence of ownership
of) the duly authorized, validly issued, fully paid and nonassessable shares of
Class H Common Stock contributed in a Contribution shall be made to the Pension
Plan or the VEBA at the offices of the Pension Plan Trustee or the VEBA Trustee,
as applicable (or such other place as may be mutually agreed upon), in such form
as shall permit, subject to the provisions of this Agreement, the Transfer of
the Registrable Securities through normal means of settlement (subject to the
proviso in the next following sentence), not later than 5:00 p.m., New York
time, on the fourth full Business Day after such Contribution. Such certificates
(or other evidence of ownership) shall be in due and proper form for delivery
under applicable corporate law and shall be accompanied by such other documents
and certificates as may be reasonably requested by the Pension Plan Trustee or
the VEBA Trustee, as applicable, to confirm that the Pension Plan or the VEBA,
upon receipt of such certificates (or other evidence of ownership), may, subject
to the provisions of this Agreement, Transfer record and beneficial ownership of
the shares of Class H Common Stock represented by such certificates (or other
evidence of ownership thereof); provided, however, that, subject to Section 1(f)
below, each certificate representing the Registrable Securities shall
conspicuously bear legends in substantially the following form, and each
uncertificated share of Registrable Securities shall have an appropriate
designation made in the book-entry records relating thereto, to the following
effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
3
<PAGE>
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAW AND, UNLESS SO REGISTERED, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A REGISTRATION
RIGHTS AGREEMENT, DATED _________ __, 2000 (THE "REGISTRATION RIGHTS
AGREEMENT"), BY AND AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND
UNITED STATES TRUST COMPANY OF NEW YORK, AS TRUSTEE OF THE PENSION TRUST (AS
DEFINED IN THE REGISTRATION RIGHTS AGREEMENT) AND UNITED STATES TRUST COMPANY
OF NEW YORK, AS A TRUSTEE OF THE VEBA (AS DEFINED IN THE REGISTRATION RIGHTS
AGREEMENT), THAT CONTAINS, AMONG OTHER THINGS, CERTAIN RESTRICTIONS ON THE
TRANSFER OF SUCH SECURITIES. A COPY OF SUCH REGISTRATION RIGHTS AGREEMENT
WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON
WRITTEN REQUEST."
(f) Issuer will instruct its transfer agent that, upon Transfer, the
legends or the book-entry designation set forth in Section 1(e) shall be removed
from the certificates representing shares of Class H Common Stock (or the book-
entry records relating to such shares) involved in any Transfer by the Pension
Plan or the VEBA if such Transfer is made in accordance with all applicable
provisions of this Agreement; provided, however, that if such Transfer is a
Negotiated Transfer (as defined below) that is not registered under the
Securities Act, the first legend shall remain on the certificates representing
such shares and a book-entry designation with respect to such shares held in
book-entry form shall remain until such time as the restrictions cease to be
applicable.
(g) Each of the Pension Plan and the VEBA, severally and not jointly,
represents and warrants that it, together with its investment managers, has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Registrable Securities.
Each of the Pension Plan and the VEBA understands and acknowledges that the
Contributions have not been and will not be registered under the Securities Act
or any state securities law and that the Registrable Securities may not be the
subject of any Transfer except as expressly permitted by this Agreement.
2. Restrictions on Transfer.
------------------------
(a) Neither the Pension Plan nor the VEBA shall make any Transfer of any
Registrable Securities other than in accordance with the terms and conditions of
this
4
<PAGE>
Agreement. Without limiting the foregoing, each of the Pension Plan and the
VEBA agree not to make any such Transfer except pursuant to any one or more
of the following transactions:
(i) a Public Transfer (as defined below);
(ii) a Negotiated Transfer (as defined below);
(iii) a Transfer described in and permitted by subsection (d), (e),
(f), (g) or (h) of this Section 2;
(iv) a Transfer described in and permitted by Section 4 or Section 6
below;
(v) from and after such time as the aggregate ownership of Registrable
Securities by both Donees has been reduced to less than 20 million shares
of Class H Common Stock, a Transfer pursuant to any provision of Rule 144
under the Securities Act or any successor rule thereto ("Rule 144");
provided that no Transfer under this clause (v) may be made to any one
Person (or group of related Persons) (whether such Person (or group of
related Persons) is buying for its own account or as a fiduciary on behalf
of one or more accounts) of more than 2% of the Class H Common Stock then
outstanding;
(vi) solely in the case of the VEBA, from and after such time as the
VEBA reduces its ownership of Registrable Securities to less than 2 million
shares of Class H Common Stock, a Transfer by the VEBA pursuant to any
provision of Rule 144; provided that no Transfer under this clause (vi) may
be made to any one Person (or group of related Persons) (whether such
Person (or group of related Persons) is buying for its own account or as a
fiduciary on behalf of one or more accounts) of more than 2% of the Class H
Common Stock then outstanding;
(vii) a Transfer to Issuer or a wholly-owned direct or indirect
subsidiary of Issuer pursuant to a self-tender offer or otherwise; and
(viii) a Transfer pursuant to a merger or consolidation in which
Issuer or a wholly-owned direct or indirect subsidiary of Issuer is a
constituent corporation.
Except as provided in Section 6(b), no Transfer described in clause (iii),
(iv), (v), (vi), (vii) or (viii) above shall be considered a Demand
Transfer (as defined below).
(b) Neither the Pension Plan nor the VEBA shall make any Transfer of
Registrable Securities pursuant to a Demand Registration Statement (as
defined below), a Shelf Registration Statement (as defined below) or a
registration statement pursuant to a Piggyback Registration (as defined
below) or a Strategic Partner Demand Registration (as defined below) other
than in accordance with the plan of distribution described therein.
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(c) Neither the Pension Plan nor the VEBA shall make any Transfer of
securities convertible into or exercisable or exchangeable for the
Registrable Securities or any other securities the value of which is
derived from the Registrable Securities without obtaining the prior written
consent of Issuer to such Transfer.
(d) Notwithstanding the provisions of this Agreement to the contrary,
the Pension Plan or the VEBA may at any time deliver to Issuer a written
notice that it proposes to make a Transfer of Registrable Securities to or
for the benefit of an employee benefit plan maintained or contributed to by
Issuer or any of its affiliates in connection with the satisfaction of
ordinary course funding obligations or investment objectives with respect
to such employee benefit plan. Each notice of a proposed Transfer pursuant
to this Section 2(d) shall be delivered a reasonable period of time before
such proposed Transfer and, in any event, not less than 30 days before such
proposed Transfer.
(e) Notwithstanding the provisions of this Agreement to the contrary,
each of the Pension Plan and the VEBA may at any time effect a Transfer by
tendering any or all of the Registrable Securities into an exchange offer,
a tender offer or a request or invitation for tenders (as such terms are
used in Sections 14(d) or 14(e) of the Exchange Act and the rules and
regulations of the Commission thereunder) (collectively, a "tender offer"))
for Class H Common Stock if (X) such Transfer is effected within the 24-
hour period immediately prior to the then scheduled expiration time for
such tender offer, and (Y) at the time the Pension Plan or the VEBA propose
to effect such Transfer:
(i) Issuer (A) does not have in effect a stockholders rights plan
or (B) has in effect a stockholders rights plan but there has been a
redemption, revocation or similar invalidation of the preferred stock
or other rights issued under such stockholders rights plan (the
"Rights"), in either case as a result of (X) action of the Board of
Directors of Issuer (or any committee thereof) in connection with such
tender offer (including as a result of a finding that such tender
offer was a "permitted offer" under the terms of such stockholders
rights plan) or (Y) a final and non-appealable order of a court of
competent jurisdiction issued in connection with such tender offer in
response to a challenge to the validity and/or effects of such
stockholders rights plan or Rights; or
(ii) Issuer (A) does not have in effect a stockholders rights
plan or (B) has in effect a stockholders rights plan but there has
been a redemption, revocation or similar invalidation of any Rights
issued thereunder, in either case other than as a result of the
matters described in clause (i) above and other than as a result of a
court order of the type described in clause (i) above that has not
become final and non-appealable, and (X) the Board of Directors of
Issuer has not recommended rejection of such tender offer pursuant to
Rule 14e-2(a) under the Exchange Act or any successor thereto ("Rule
14e-2(a)"), or (Y) at least half of the members of the Board of
Directors of Issuer who are not officers or employees of Issuer and
who are not representatives, nominees or affiliates of the bidder (as
defined in Rule 14d-l(e) under the Exchange Act or any
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successor thereto) (the "Bidder") making such tender offer
(collectively, the "Independent Directors") did not recommend
rejection of such tender offer when the Board of Directors of Issuer
determined the position of Issuer with respect to such tender offer as
contemplated by Rule 14e-2(a) or (Z) there are fewer than two members
of the Board of Directors of Issuer that are Independent Directors at
the time the Board of Directors of Issuer considers such tender offer;
or
(iii) Issuer (A) does not have in effect a stockholders rights
plan or (B) has in effect a stockholders rights plan but there has
been a redemption, revocation or similar invalidation of any Rights
issued thereunder, in either case other than as a result of the
matters described in clause (i) above and other than as a result of a
court order of the type described in clause (i) above that has not
become final and non-appealable and other than as a result of a
proposal initiated, recommended, endorsed, supported or encouraged,
directly or indirectly, publicly or privately, by the applicable Donee
(it being understood that, for purposes of this subsection (iii), a
vote by a Donee in favor of any such proposal shall constitute support
of such Donee for such proposal), and both (X) the applicable Donee,
after consultation with its legal counsel and financial advisors, has
concluded in good faith that the Minimum Tender Condition with respect
to such tender offer will likely be satisfied without giving effect to
any shares of Class H Common Stock tendered or to be tendered into
such tender offer by such Donee and (Y) after the date of the
commencement of such tender offer and prior to the 24-hour period
immediately prior to the then scheduled expiration time of such tender
offer, Issuer has not given written notice to such Donee that such
Transfer may not be made under this subsection (iii), which notice
included the good faith determination of the Board of Directors of
Issuer as to the Put Price as contemplated by Section 2(f)(iii) (or,
if given, such notice has been withdrawn in writing).
If, at any time after either Donee has made a Transfer by tendering
Registrable Securities into a tender offer pursuant to this Section 2(e),
the Bidder making such tender offer decreases the percentage or number of
shares of Class H Common Stock being solicited for purchase, decreases the
amount or changes the form of consideration offered to tendering
stockholders or otherwise makes a material change or waives a material
condition in the terms of such tender offer such that the then scheduled
expiration date of such tender offer is extended, then such Donee shall,
upon the request of Issuer, withdraw such Registrable Securities from such
tender offer as promptly as practicable, subject to the such Donee's rights
to tender Registrable Securities again as contemplated by this Agreement.
If either Donee is not permitted to make a Transfer of Registrable
Securities pursuant to Section 2(g), promptly (and in any event within one
Business Day after any public announcement with respect thereto) after the
Board of Directors of Issuer determines the position of Issuer with respect
to any tender offer as contemplated by Rule 14e-2(a), Issuer shall give
such Donee written notice of such position by the Board of Directors of
Issuer and by the Independent Directors as described in subsection (ii)
above. If there are fewer than
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two members of the Board of Directors of Issuer that are Independent
Directors at the time the Board of Directors of Issuer considers such
tender offer, such notice shall so state. If, based on such positions by
the Board of Directors of Issuer and the Independent Directors, a Transfer
to be made by tendering into such tender offer would be permitted only by
subsection (iii) of this Section 2(e) (excluding for purposes of such
determination the conditions set forth in clauses (X) and (Y) of such
subsection (iii)), Issuer shall promptly commence arranging financing so
that it will be able to pay in full all amounts due in connection with any
exercise of the Put Right (as defined below) in connection with such tender
offer and shall use all commercially reasonable efforts to obtain such
financing so as to pay all such amounts as and when due (it being
understood that the obligation of Issuer to make payment at the Put Closing
(as defined below) shall be absolute and that compliance with this sentence
shall not relieve Issuer of its obligations under this Agreement or excuse
performance hereunder).
(f) (i) If either Donee in good faith desires to effect a Transfer of
Registrable Securities by tendering into a tender offer and such Transfer
would be permitted only by subsection (iii) of Section 2(e) (assuming that
Issuer has not and will not give the notice described in such subsection
(iii) that such Transfer may not be made thereunder) then the applicable
Donee shall, no later than 96 hours prior to the then scheduled expiration
time for such tender offer, deliver to Issuer a written notice (the "Tender
Notice") of such proposed tender that specifies the number of shares of
Registrable Securities proposed to be so tendered. If, after the delivery
of such Tender Notice and prior to the then scheduled expiration time for
such tender offer, the Bidder making such tender offer amends the terms
thereof or another Bidder commences a tender offer for shares of Class H
Common Stock, then each Donee may revoke such Tender Notice by delivering
written notice thereof to Issuer at any time prior to the then scheduled
expiration time for the tender offer that was the subject of such Tender
Notice. No such revocation shall limit the Pension Plan's or the VEBA's
rights to deliver a Tender Notice with respect to any tender offer,
including any such amended tender offer or new tender offer.
(ii) If (A) either Donee has delivered, and not revoked, a Tender
Notice with respect to a tender offer, each in accordance with subsection
(i), (B) Issuer has given (and not withdrawn) the notice described in
subsection (iii) of Section 2(e) that such Transfer may not be made under
such subsection (iii), (C) the Minimum Tender Condition with respect to
such tender offer has been satisfied and shares required to satisfy such
Minimum Tender Condition have been accepted for purchase and purchased
pursuant to such tender offer and (D) effecting a Transfer of Registrable
Securities to Issuer pursuant to an exercise of the Put Right would not
violate the Transfer Agreement, then the applicable Donee shall have the
right (the "Put Right") to require Issuer to purchase up to the number of
shares of Registrable Securities specified in the Tender Notice multiplied
by, if applicable, the proration fraction applied to determine the number
of shares of Class H Common Stock purchased from each tendering
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<PAGE>
stockholder pursuant to such tender offer (the "Maximum Share Number"). The
purchase price per share at which Issuer shall be required to purchase such
Registrable Securities shall be equal to the price per share of Class H
Common Stock paid in such tender offer (or, to the extent such tender offer
price was paid in consideration other than cash, the cash equivalent of the
fair market value thereof as of the expiration time of such tender offer
determined as described below) (the "Put Price"). The applicable Donee may
exercise the Put Right, in whole or in part, by delivering to Issuer a
written notice (the "Exercise Notice") of such exercise that specifies the
number of Registrable Securities to be purchased pursuant to such exercise
(which number shall not exceed the Maximum Share Number). The delivery of
the Exercise Notice shall constitute an agreement binding upon the Pension
Plan and/or the VEBA, as applicable, to sell, and upon Issuer to purchase,
such Registrable Securities. The term of the Put Right shall commence
immediately after the Bidder making such tender offer accepts for purchase
and purchases shares of Class H Common Stock tendered pursuant to such
tender offer and shall terminate ten days after Issuer gives the applicable
Donee notice that such purchase has occurred.
(iii) If any portion of the tender offer price for any tender offer is
payable in consideration other than cash: (A) any notice given by Issuer to
the applicable Donee under subsection (iii) of Section 2(e) that a Transfer
may not be made under such subsection (iii) shall include a good faith
determination by the Board of Directors of Issuer as to the Put Price; (B)
if the Put Right has become exercisable as described in subsection (ii)
above in connection with such tender offer, within 24 hours after the
expiration time for such tender offer, Issuer shall deliver to the
applicable Donee a notice (the "Put Price Notice") confirming the (or, if
necessary, setting forth a revised) good faith determination of Issuer's
Board of Directors as to the Put Price; and (C) in the Exercise Notice, if
any, the applicable Donee shall either agree to the Put Price as set forth
in the Put Price Notice or set forth its own good faith determination as to
the Put Price. Each such determination shall separately identify the value
attributed to each component of the consideration offered in such tender
offer. If the applicable Donee does not so agree to the Put Price as set
forth in the Put Price Notice and Issuer and the applicable Donee,
negotiating in good faith, are unable to reach an agreement on the Put
Price within 15 days after delivery of an Exercise Notice, an investment
banking firm shall be selected and instructed to determine the Put Price as
contemplated herein and submit to Issuer and the applicable Donee promptly
(and in any event no later than 30 days after the delivery of the Exercise
Notice) a written report setting forth such determination. If Issuer and
the applicable Donee are unable to agree on an investment banking firm
within 15 days after delivery of an Exercise Notice, a firm shall be
selected by lot (until a firm so selected has agreed to accept the
engagement to determine the Put Price as contemplated herein) from the top
eight New York-based investment banking firms, as determined in each case
by dollar volume of equity offerings in which such firms acted as lead
underwriters, on the basis of the most recently available information,
after Issuer and the applicable Donee have each eliminated one such firm
and after the
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elimination of each such firm that represented the Bidder, Issuer, or the
applicable Donee in connection with such tender offer or, within the 365-
day period prior to the delivery of the Put Notice, otherwise performed
substantial services for the Bidder. If, as a result of the selection
process set forth in the preceding sentence, no such firm is eligible to be
so selected or no such firm accepts the engagement, Issuer and the
applicable Donee shall promptly agree on an alternative process to promptly
select an investment banking firm to determine the Put Price as
contemplated herein. In any case, the fees and expenses of such firm shall
be borne by Issuer, and the determination of such firm shall be final and
binding upon all parties; provided, that if such determination results in a
Put Price greater than the Put Price set forth by the applicable Donee in
the Exercise Notice, the Put Price determined by such firm shall be deemed
to equal the Put Price set forth in the Exercise Notice for purposes
hereof. Issuer and the applicable Donee shall cooperate and provide each
other (and any such firm) with the information (in reasonable detail) used
in making its determinations with respect to the Put Price. Issuer shall
cooperate with any investment banking firm engaged to determine the Put
Price hereunder, including providing information as reasonably requested by
such firm in connection with such determination.
(iv) The closing (the "Put Closing") of the purchase and sale of the
Registrable Securities specified in the Exercise Notice shall occur no
later than 90 days after the delivery of the Exercise Notice (or, if such
day is not a Business Day, the immediately following Business Day) (the
"Final Date"), at a time and place mutually agreeable to Issuer and the
applicable Donee. If Issuer and the applicable Donee are unable to agree on
a time and place for the Put Closing, the Put Closing shall be at 10:00
a.m. (local time) at the principal executive offices of Issuer on the Final
Date; provided, that the Issuer may specify that the Put Closing occur on
any Business Day prior to the Final Date by giving written notice to the
applicable Donee, at least two Business Days prior to the date so
specified. At the Put Closing, Issuer shall pay to the applicable Donee by
wire transfer of immediately available funds to the account designated in
writing by the applicable Donee, an amount (the "Base Purchase Price")
equal to (Y) the Put Price, multiplied by (Z) the number of shares of
Registrable Securities to be purchased, together with interest on the Base
Purchase Price at the interest rate determined as set forth in Exhibit B
attached hereto for the period from and including the fifth Business Day
after the delivery of the Exercise Notice through but excluding the day the
Base Purchase Price (and all accrued interest thereon) is paid in full
(calculated on the basis of actual days elapsed and a 365-day year). At the
Put Closing, the applicable Donee shall deliver to Issuer certificates
representing (or other evidence of ownership of) the Registrable Securities
to be sold to Issuer, together with duly executed stock powers endorsed in
blank or other instruments of transfer, and shall execute and deliver such
other certificates, agreements and instruments as Issuer may reasonably
request to effect such sale (which shall include a representation and
warranty of the applicable Donee that all Registrable Securities sold to
Issuer pursuant to the Put Right are owned of record by the applicable
Donee, free and clear of any liens, pledges, security interests,
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encumbrances, equities, claims, options or limitations of whatever nature
(other than those contemplated by this Agreement) but which shall not
include any further representations and warranties from the applicable
Donee).
(g) Notwithstanding any provisions of this Agreement to the contrary, at
any time that the Donees collectively own Registrable Securities that constitute
7.5% or less of the Class H Common Stock on a fully-diluted basis (calculated
for such purpose without giving effect to options, warrants or other rights
exercisable for the Class H Common Stock issued or issuable pursuant to any
employee stock option or other benefit plan maintained by Issuer), either Donee
may effect a Transfer by tendering any or all of the Registrable Securities into
a tender offer for Class H Common Stock.
(h) Nothing in this Agreement shall prohibit Issuer and the Pension Plan or
the VEBA from at any time agreeing to effect or effecting a Transfer of
Registrable Securities from the Pension Plan or the VEBA to Issuer or any of its
consolidated subsidiaries. If Issuer or any of its consolidated subsidiaries, to
the extent permitted by ERISA and other applicable laws and regulations, intends
to purchase Class H Common Stock on the open market for or on behalf of any
employee benefit plan maintained or contributed to by Issuer, any of its
consolidated subsidiaries or any of their predecessors or successors, it shall
make reasonable efforts to consult in good faith with the Donees with respect to
the possibility of purchasing such shares from the Donees. Any such Transfer
(and any other purchase, sale or exchange pursuant to any other provision of
this Agreement) of Class H Common Stock from the Donees to the Issuer or other
party in interest to such plans shall comply with the requirements of (S)408(e)
of ERISA (or any successor provision thereto) unless it is established to the
satisfaction of the Issuer that the purchase, sale and exchange are exempted
from the prohibited transaction restrictions of (S)406 of ERISA and (S)4975 of
the Internal Revenue Code of 1986, as amended (or any successor provisions
thereto). The Pension Plan or the VEBA, as applicable, shall further establish,
to the satisfaction of Issuer, that such proposed Transfer or any other Transfer
is in compliance with ERISA, federal and state securities laws and regulations
and other applicable laws and regulations.
(i) Prior to making any Transfer of Registrable Securities pursuant to
clause (v) or (vi) of Section 2(a), the applicable Donee shall deliver to Issuer
an opinion of counsel reasonably satisfactory to Issuer to the effect that such
Transfer may be made without registration under the Securities Act in reliance
upon Rule 144.
(j) No Transfer of Registrable Securities in violation of this Agreement
shall be made or recorded on the books of Issuer and any such Transfer shall be
void and of no effect.
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3. Demand Transfers.
(a) The Donees may from time to time deliver to Issuer a written notice
that they propose to make a Transfer of Registrable Securities either (i)
pursuant to an underwritten public offering reasonably designed to achieve a
broad public distribution of the securities being offered (a "Public Transfer")
or (ii) subject to Section 3(h), pursuant to a negotiated transaction or series
of related transactions effected on the same date and at the same price per
share with one or more transferees (each such transaction or series of related
transactions described in this clause (ii), whether registered or not, being
referred to herein collectively as a "Negotiated Transfer"). Public Transfers
and Negotiated Transfers, whether made pursuant to a Demand Registration
Statement, a Shelf Registration Statement or without a registration statement,
are referred to herein collectively as "Demand Transfers." The Registrable
Securities included by the Donees in any Demand Transfer shall be allocated
between the Registrable Securities held by the Pension Plan and those held by
the VEBA in accordance with the Donee Allocation Basis. Any Demand Transfer made
jointly by both the Pension Plan and the VEBA shall count as a single Demand
Transfer.
Until the fourth anniversary of the initial Contribution pursuant to
Section 1 hereof, the number of Public Transfers (including any Transfer
considered a Public Transfer under Section 6(b)) and Negotiated Transfers that
are registered under the Securities Act that may be effected by the Donees in
any 12-month period shall not exceed two in the aggregate. From and after the
fourth anniversary of the initial Contribution pursuant to Section 1 hereof, the
number of Public Transfers (including any Transfer considered a Public Transfer
under Section 6(b)) and Negotiated Transfers that are registered under the
Securities Act that may be effected by the Donees in any 12-month period shall
not exceed three in the aggregate; provided that two of such Transfers may be
any type of registered Demand Transfer and the third such Transfer may only be a
Negotiated Transfer of Registrable Securities having a fair market value (based
upon the closing price of the Registrable Securities quoted on the securities
exchange on which such Registrable Securities are listed on the trading day
immediately preceding the date upon which the Donees deliver their written
notice of such Negotiated Transfer to Issuer) not greater than $1 billion (it
being agreed that there is no minimum dollar amount for any Negotiated Transfer
made by Donees under this Agreement). Subject to the immediately following
paragraph, there shall be no numerical limit hereunder on the number of
Negotiated Transfers that may be effected by the Donees without registration
under the Securities Act.
From and after the first time at which an issuer other than General Motors
shall become the Issuer pursuant to the succession provisions of Section 12(a),
the Donees shall not (A) until the fourth anniversary of the initial
Contribution pursuant to Section 1 hereof, effect more than two Demand Transfers
(whether registered or unregistered and including any Transfer considered a
Public Transfer under Section 6(b)) in any 12-month period and (B) from and
after the fourth anniversary of the initial Contribution pursuant to Section 1
hereof, effect more than three Demand Transfers (whether registered or
unregistered and
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including any Transfer considered a Public Transfer under Section 6(b)) in any
12-month period; provided that two of such Transfers may be any type of Demand
Transfer and the third such Demand Transfer may only be a Negotiated Transfer of
Registrable Securities having a fair market value (based upon the closing price
of the Registrable Securities quoted on the securities exchange on which such
Registrable Securities are listed on the trading day immediately preceding the
date upon which the Donees deliver their written notice of such Negotiated
Transfer to Issuer) not greater than $1 billion (it being agreed that there is
no minimum dollar amount for any Negotiated Transfer made by Donees under this
Agreement).
Issuer shall not be required to register under the Securities Act any
Public Transfer (other than any Transfer considered a Public Transfer under
Section 6(b)) unless the Donees have requested to sell at least the lesser of
(A) 5 million shares of the Registrable Securities or (B) shares of Registrable
Securities having a fair market value (based upon the closing price of the
Registrable Securities quoted on the securities exchange on which such
Registrable Securities are listed on the trading day immediately preceding the
date upon which the Donees deliver their written notice of a Public Transfer to
Issuer) of $500 million in such registration.
For purposes of this Agreement, a registered Demand Transfer is deemed to
be effected upon the earliest of (x) the date upon which a public announcement
is made with respect to such Demand Transfer (provided that the Donees consent
to such public announcement, which consent shall not be unreasonably withheld or
delayed), (y) public selling efforts (including road shows) are commenced with
respect to such Demand Transfer and (z) with respect to a registered Demand
Transfer other than one effected pursuant to Shelf Registration Statement, the
effective date of the Demand Registration Statement or, with respect to a Demand
Transfer pursuant to a Shelf Registration Statement, the date a prospectus
supplement is filed with the Securities and Exchange Commission. Notwithstanding
the foregoing, a registered Demand Transfer shall not be deemed to have been
effected if such Demand Transfer is not consummated as a result of (i) a breach
by Issuer of its obligations hereunder, or (ii) Issuer exercising its rights
under Section 3(f) and, in either case, after the Demand Transfer would
otherwise have been deemed to have been effected pursuant to the preceding
sentence. An unregistered Demand Transfer is deemed to be effected on the date
of the consummation of such Demand Transfer.
(b) So long as the Donees own not less than 10 million shares of
Registrable Securities in the aggregate, the Donees may deliver to Issuer a
written request that Issuer prepare and file with the Commission a registration
statement on the appropriate form under the Securities Act (together with any
amendments or supplements thereto, the "Shelf Registration Statement"),
registering under the Securities Act up to the lesser of (i) 20 million shares
of Registrable Securities or (ii) the amount of Registrable Securities that, if
Transferred, would result in the Donees owning 10 million shares of Registrable
Securities in the aggregate, in either case for offering and sale by the Donees
in Public Transfers and
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Negotiated Transfers from time to time pursuant to Rule 415 under the Securities
Act or any successor thereto ("Rule 415"). Notwithstanding the foregoing, prior
to the fourth anniversary of the date of the initial Contribution pursuant to
Section 1, the Donees may not effect a registered Negotiated Transfer from the
Shelf Registration Statement. Subject to Sections 3(f) and 12(a), as promptly as
reasonably practicable after the receipt of the Donees' request for the filing
of a Shelf Registration Statement, Issuer shall file a Shelf Registration
Statement registering the number of shares of Registrable Securities so
requested.
Subject to Sections 3(f) and 12(a), at any time after Issuer has filed a
Shelf Registration Statement and until such time as the Donees have reduced
their ownership of Registrable Securities to less than 10 million shares of
Class H Common Stock in the aggregate, if fewer than 10 million shares of
Registrable Securities remain subject to the Shelf Registration Statement,
Issuer shall, if and to the extent requested by the Donees, prepare and file
with the Commission an additional Shelf Registration Statement (utilizing a
combined prospectus as provided for by Rule 429 under the Securities Act or any
successor thereto ("Rule 429")) as promptly as reasonably practicable after
receipt of such request, registering under the Securities Act up to the number
of shares of Registrable Securities equal to the lesser of (i) the difference
between 20 million and the number of such shares remaining subject to the Shelf
Registration Statement then in effect and (ii) the amount of such Registrable
Securities that, if Transferred, would result in the Donees owning 10 million
shares of Registrable Securities in the aggregate.
(c) Notwithstanding any other provision of this Agreement, if (A) within
395 days following the delivery of a written request for a Demand Transfer by
the Donees, such Demand Transfer has not been consummated, such request has not
been withdrawn or a Liquidity Event has not occurred and (i) in the case of a
Public Transfer, either Issuer has not filed the related registration statement
or there has not been a period of at least 45 consecutive days following the
date on which the Commission has completed its review, if any, of the related
Demand Registration Statement (or, if a Shelf Registration Statement is then
effective, following the date of such request) without the occurrence of a
Blackout Period, (ii) in the case of a Negotiated Transfer that is to be
registered under the Securities Act pursuant to this Agreement, either Issuer
has not filed the related registration statement or there has not been a period
of at least 20 consecutive days following the date on which the Commission has
completed its review, if any, of the related Demand Registration Statement (or,
if a Shelf Registration Statement is then effective, following the date of such
request) without the occurrence of a Blackout Period, or (iii) in the case of a
Negotiated Transfer that is not to be registered under this Agreement, there has
not been a period of at least 20 consecutive days following the date of such
request without the occurrence of a Blackout Period, then (B) the Donees may, at
the end of such 395-day period, deliver to Issuer a written request for a Demand
Transfer, and Issuer shall take all reasonable actions that are necessary to
permit the Donees to effect such Demand Transfer, including, if such Demand
Transfer is to be registered under the Securities Act pursuant to this
Agreement, and a Shelf Registration Statement is not then effective, (i)
preparing and filing a registration statement
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for the Transfer of the Registrable Securities requested to be registered in
connection with such Demand Transfer within a period of 30 days following the
delivery of such request and (ii) providing the Donees with a period of at least
45 days following the date on which the Commission has completed its review, if
any, of such registration statement, or, if such Demand Transfer is not to be
registered under the Securities Act pursuant to this Agreement or a Shelf
Registration Statement is then effective, the date of the delivery of such
request, in either case, to allow for the marketing and Transfer of such
Registrable Securities. Without limiting the generality of the foregoing, Issuer
shall, within 60 days following the date of delivery of the request by the
Donees, terminate any proposal or plan or make any public disclosure, that, in
either case, would otherwise give rise to Issuer's right of postponement
pursuant to Section 3(f). All of the Donees' rights and all of Issuer's
obligations under this Section 3(c) shall terminate from and after the time the
Donees have reduced their ownership of Registrable Securities to less than 10
million shares of Class H Common Stock in the aggregate.
(d) Each notice of a proposed Demand Transfer shall be delivered a
reasonable period of time before the proposed Transfer and, in any event, (i) in
connection with a proposed Public Transfer pursuant to a Demand Registration
Statement, not less than 30 days before the anticipated filing date of such
Demand Registration Statement if Issuer is eligible to use Form S-3 or any
successor form ("Form S-3") or 45 days before such date in the event Issuer is
not eligible to use such form, (ii) in connection with a proposed Negotiated
Transfer pursuant to a Demand Registration Statement, not less than 20 days
before the anticipated filing date of such Demand Registration Statement if
Issuer is eligible to use Form S-3 or 45 days before such date in the event
Issuer is not eligible to use such form, (iii) in connection with a proposed
Transfer pursuant to a Shelf Registration Statement, not less than 10 days
before the proposed commencement of such proposed Transfer and (iv) in
connection with a proposed Negotiated Transfer that is not to be registered
under the Securities Act pursuant to this Agreement, not less than five days
before the proposed consummation of such Negotiated Transfer. Each notice of a
proposed Demand Transfer shall specify whether such Transfer will be a Public
Transfer or a Negotiated Transfer, whether a Negotiated Transfer will be
registered or unregistered, the approximate number of Registrable Securities
proposed to be Transferred, the proposed timetable for the transaction and the
anticipated per share price range for such Transfer.
(e) Unless a Shelf Registration Statement is effective with respect to the
full amount of shares proposed to be subject to a Demand Transfer, (i) each
notice of a proposed Public Transfer shall constitute a request that Issuer
register the proposed Transfer of the Registrable Securities under the
Securities Act on the appropriate form and (ii) in connection with any notice of
a proposed Negotiated Transfer, the Donees may request that Issuer register the
proposed Transfer of the Registrable Securities; provided however, that if the
Donees do not request that Issuer register such proposed Transfer of the
Registrable Securities, the Donees shall establish, to the reasonable
satisfaction of Issuer, that such Negotiated Transfer may be made without
registration under applicable securities laws. In
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the case of each request for registration pursuant to the foregoing sentence (a
"Demand Registration"), Issuer shall file the requested registration statement
(together with any amendments or supplements thereto, a "Demand Registration
Statement") as promptly as reasonably practicable, subject to postponement as
provided in Section 3(f); provided, however, that Issuer shall not be required
to register a proposed Negotiated Transfer of the Registrable Securities if
Issuer's legal counsel advises in writing that (i) such registration would not
be permitted under applicable federal and state securities laws and regulations,
(ii) if such Transfer is not so registered, the shares Transferred in such
Transfer would not constitute "restricted securities" (as defined in Rule 144)
in the hands of the transferee in such proposed Transfer or (iii) such
registration is not required under applicable federal securities laws and Issuer
and the Donees reasonably agree that the shares Transferred in such Transfer
would constitute "restricted securities" in the hands of the transferee in such
proposed transaction regardless of registration.
(f) Subject to Section 3(c), Issuer may postpone the filing or
effectiveness of any Demand Registration Statement, the initial filing or
effectiveness of any Shelf Registration Statement or the making of any Demand
Transfer, whether registered or not, at any time if Issuer determines, in its
reasonable judgment, that (i) such action or proposed action would interfere
with any proposal or plan by Issuer or any of its affiliates to engage in any
material acquisition, merger, consolidation, tender offer, securities offering
(including any proposal or plan to register or offer Class H Common Stock
existing as of the time of the Donees' notice to Issuer of a proposed Demand
Transfer) or other material transaction or (ii) would require Issuer to make a
public disclosure of previously non-public material information and Issuer shall
promptly notify the Donees of any postponement pursuant to this Section 3(f).
Issuer agrees that it will terminate any such postponement as promptly as
reasonably practicable and will promptly notify the Donees of such termination.
In making any such determination to initiate or terminate a postponement, Issuer
shall not be required to consult with or obtain the consent of the Donees or any
investment manager therefor (including the Pension Plan Trustee and the VEBA
Trustee), and any such determination shall be Issuer's responsibility alone, and
neither the Donees nor any investment manager for the Donees (including the
Pension Plan Trustee or the VEBA Trustee) shall be responsible or have any
liability therefor. If any postponement pursuant to this paragraph is made with
respect to a Demand Transfer which would otherwise, pursuant to Section 3(a)
hereof, be deemed to be effected, such Demand Transfer shall not be deemed to
have been effected if such Demand Transfer is not consummated as a result of
Issuer's exercise of its rights under this Section 3(f).
(g) The Donees may select the lead underwriter and, subject to the
following paragraph, co-manager or co-managers to administer any Public Transfer
of Registrable Securities from a list of eligible lead underwriters (the "Lead
Underwriter List") and a list of eligible co-managers (the "Co-Manager List, and
collectively with the Lead Underwriter List, the "Lists"), prepared for such
purpose by Issuer and delivered to the Donees on the date hereof (as the Lists
may be revised by Issuer from time to time).
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Unless the Donees advise Issuer that the Public Transfer will be solely
managed by the lead underwriter selected pursuant to the preceding paragraph,
within 48 hours from Issuer's receipt from the Donees of a written request for
registration of a Public Transfer, the Issuer may deliver to the Donees in
writing its recommendation, together with a statement setting forth the bases
for such recommendation, of the second most senior underwriter in connection
with the Public Transfer, which may be any Person set forth on either of the
Lists. Issuer agrees that in connection with its right hereunder to recommend
the second most senior underwriter in any Public Transfer, Donees are not
obligated to designate a "joint lead underwriter" or an underwriter who would
serve as a "joint book runner" in connection with any Public Transfer. The
Donees shall deliver to the Issuer in writing a notice, together with a
statement setting forth the bases for their choice, indicating whether they
choose to follow Issuer's recommendation (which choice shall not be unreasonably
made). Within 48 hours of its receipt of any notice that any recommendation has
not been accepted by the Donees, Issuer may deliver to the Donees in writing a
subsequent recommendation, together with a statement setting forth the bases of
its recommendation, which may be any Person set forth on either of the Lists. In
response to any subsequent recommendation, the Donees shall deliver to the
Issuer in writing a notice, together with a statement setting forth the bases
for their choice, indicating whether they chooses to follow Issuer's
recommendation (which choice shall not be unreasonably made). In accordance with
the procedures set forth in this paragraph, Issuer may continue to make
additional recommendations of the second most senior underwriter until the
Donees choose to follow Issuer's recommendation; provided however that the
second most senior underwriter ultimately chosen shall be a Person whose name is
set forth on either of the Lists.
The Lead Underwriter List shall contain the names of no fewer than three
Persons and the Co-Manager List shall contain the name of no fewer than five
Persons, each of which shall be an internationally recognized underwriting firm
that has analyst coverage of Hughes Electronics Corporation (or any successor
corporation thereto). The Donees shall have the right to request that Issuer add
Persons to the Lists, provided that Issuer shall have no obligation to consent
to any such request. No Person may serve as lead underwriter or co-manager
unless such Person shall have agreed to use its reasonable best efforts to
effect a broad public distribution of Registrable Securities to be sold in the
Public Transfer and to use its reasonable best efforts not to sell to any one
Person (or group of related Persons)(whether such Person (or group of related
persons) is buying for its own account or as a fiduciary on behalf of one or
more accounts) Registrable Securities constituting more than 2% of the Class H
Common Stock then outstanding. The selection of counsel to such lead underwriter
and co-manager or co-managers shall be subject to the consent of Issuer, which
consent shall not be unreasonably withheld.
(h) The Donees shall not make a Negotiated Transfer to (i) any one Person
(or group of related Persons) (whether such Person (or group of related Persons)
is buying for its own account or as a fiduciary on behalf of one or more
accounts) of more than 2% of the
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Class H Common Stock then outstanding or (ii) any one Person (or group of
related Persons) if such Person (or group of related Persons) is then required
to file, or has filed, or as a result of such Negotiated Transfer will be
required to file (to the knowledge of the Donees after reasonable inquiry) a
Schedule 13D under the Exchange Act (or any successor thereto) with respect to
the Class H Common Stock. If the Registrable Securities subject to any
Negotiated Transfer are not to be registered under the Securities Act, the
Donees shall, prior to effecting such Negotiated Transfer, cause each transferee
in such Negotiated Transfer to represent and warrant to, and covenant and agree
with, the Donees and Issuer in writing that (i) such transferee is acquiring
such Registrable Securities for its own account, or for one or more accounts, as
to each of which such transferee exercises sole investment discretion, for
investment purposes only and not with a view to, or for resale in connection
with, any distribution (within the meaning of the Securities Act), and (ii) such
transferee does not constitute an underwriter (within the meaning of the
Securities Act) with respect to the acquisition of such Registrable Securities
from the Pension Plan and/or the VEBA.
(i) Issuer shall make available members of the management of Issuer and its
affiliates for reasonable assistance in the selling efforts relating to any
public offering of the Registrable Securities pursuant to a Public Transfer, to
the extent customary for public offerings (including, without limitation, to the
extent customary, senior management attendance at due diligence meetings with
underwriters and their counsel and road shows), and for such assistance as is
reasonably requested by the Donees and their counsel in the selling efforts
relating to any Negotiated Transfer.
4. Piggyback Registration.
----------------------
(a) In the event that Issuer proposes to register any shares of Class H
Common Stock for its own account or for the account of any holder or holders of
Class H Common Stock (other than a Strategic Partner) pursuant to contractual
rights of such holder or holders or otherwise, in either case under the
Securities Act in an underwritten public offering (other than on a registration
statement on Form S-4 or S-8 under the Securities Act or any successors thereto,
a registration statement for a delayed or continuous offering pursuant to Rule
415, a registration statement covering securities convertible into or
exercisable or exchangeable for Class H Common Stock, an offering of securities
solely to Issuer's existing shareholders or otherwise in connection with any
offer to exchange securities) (together with any underwritten public offering of
Class H Common Stock pursuant to Rule 415 as described in Section 4(b) below, a
"Piggyback Registration"), Issuer shall give the Donees written notice of such
proposed registration no less than 30 days before the date of filing anticipated
by Issuer in connection with such registration. Subject to Section 4(d), Issuer
shall include in such registration all Registrable Securities held by the Donees
with respect to which Issuer has received a written request for inclusion
therein within 15 days after Issuer's notice of such proposed registration.
(b) In the event that Issuer proposes to offer for its own account or for
the
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account of any holder or holders of Class H Common Stock (other than a Strategic
Partner) pursuant to contractual rights of such holder or holders or otherwise,
in either case any shares of Class H Common Stock in any underwritten public
offering pursuant to Rule 415, Issuer shall give the Donees written notice of
such proposed offering no less than 30 days before the date of commencement of
distribution anticipated by Issuer in connection with such offering. Subject to
Section 4(d), Issuer shall include in such offering all such Registrable
Securities with respect to which Issuer has received a written request for
inclusion therein within 10 days after Issuer's notice of such proposed
offering. Without limiting the generality of the foregoing, in order to so
include such Registrable Securities, Issuer shall, to the extent necessary, file
an amendment to the registration statement then in effect for the Class H Common
Stock or an additional registration statement for the Class H Common Stock that
uses a combined prospectus pursuant to Rule 429.
(c) Issuer may select the lead underwriter and co-manager or co-managers to
administer any offering of Registrable Securities pursuant to a Piggyback
Registration; provided, however, that if Donees' Registrable Securities that are
expected to be included in any such offering constitute, in Issuer's reasonable
judgment, at least 25% of the shares of Class H Common Stock expected to be
Transferred in such offering, the Donees shall have the right to appoint one co-
manager (reasonably acceptable to Issuer) for such offering, who shall
participate in such offering on the same terms as the co-managers appointed by
Issuer. In the event that Issuer gives the Donees notice of its intention to
effect an offering pursuant to a Piggyback Registration and subsequently
declines to proceed with such offering, the Donees shall have no rights in
connection with such offering; provided, however, that, subject to Section 3(f),
at the request of the Donees, Issuer shall proceed with such offering with
respect to the Registrable Securities, which offering shall be deemed to be a
Demand Transfer for all purposes hereunder. The Donees shall participate in any
offering of Registrable Securities pursuant to a Piggyback Registration in
accordance with the same plan of distribution for such Piggyback Registration as
Issuer or the holder or holders of Class H Common Stock that proposed such
Piggyback Registration, as the case may be.
(d) Until such time as the Donees reduce their ownership of Registrable
Securities to less than 2% of the then outstanding shares of Class H Common
Stock in the aggregate (the "Termination Date"), if there is a Share Limitation
in connection with any Piggyback Registration, then Issuer shall include in such
offering:
(i) first, (A) if the Piggyback Registration has been initiated by holders
of Class H Common Stock pursuant to Section 2.1 of the Primestar Registration
Rights Agreement, the "Registrable Securities" as defined in the Primestar
Registration Rights Agreement requested to be included in the Piggyback
Registration or (B) if the Piggyback Registration has been initiated by
holders of Class H Common Stock pursuant to Section 2.1 of the AOL
Registration Rights Agreement, the "Registrable Securities" as defined in the
AOL Registration Rights Agreement requested to be included in the Piggyback
Registration,
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(ii) second, the Class H Common Stock that Issuer proposes to Transfer,
(iii) third, the Qualifying Securities requested to be included by each
Qualifying Person in accordance with the General Allocation Basis,
(iv) fourth, any additional shares of Qualifying Securities requested to be
included therein by any Qualifying Persons wishing to include shares in
excess of the amount which they are entitled to include pursuant to clause
(iii) above, pro rata based on their holdings, as of the time of the
offering, relative to the holdings of all other Qualifying Persons wishing
to include additional shares of Qualifying Securities, as of the time of the
offering, until all additional shares of Qualifying Securities requested to
be included therein by any Qualifying Persons have been included in such
offering,
(v) fifth, other shares of Class H Common Stock requested to be included
therein pursuant to contractual rights of the holder or holders thereof
(including the holder or holders of Class H Common Stock that proposed such
Piggyback Registration, if any, except as otherwise provided in clause (i)
hereof), and
(vi) sixth, any other shares of Class H Common Stock;
5. Holdback Period.
---------------
(a) Each of the Pension Plan and the VEBA agrees not to make any Transfer
of Registrable Securities during any of the following periods unless the
underwriter or underwriters administering the offering otherwise agree:
(i) except as contemplated by clause (ii) or clause (iii) below, the period
commencing with the effective date of a registration statement for any
underwritten public offering of the Class H Common Stock (or any securities
convertible into or exchangeable or exercisable for the Class H Common Stock)
and ending on the 90th day after such effectiveness;
(ii) in the case of a Rule 415 registration statement, the period
commencing upon Issuer's notice of commencement of distribution in connection
with such offering and ending on the 90th day after such notice; and
(iii) in the case of a registration statement on Form S-4 (or any
successor form) in connection with a transaction involving the Issuer, upon
the date of consummation of such transaction and terminating on the 90th day
after the consummation of such transaction;
provided, that any applicable period shall terminate on such earlier date as
Issuer gives notice to the Donees that Issuer declines to proceed with any such
offering; and provided further
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that this Section 5(a) shall apply to the effectiveness of any registration
statement, commencement of distribution or consummation of transaction that has
occurred on or after January 1, 2000, including any such events that shall have
occurred prior to the date of this Agreement.
(b) Issuer agrees not to make any Transfer of any Class H Common Stock (or
any securities convertible into or exchangeable or exercisable for the Class H
Common Stock) during the period commencing with the date of any notice of a
proposed Public Transfer and terminating on the 90th day after the effectiveness
of the registration statement for such Public Transfer pursuant to the
Securities Act or, in the case of a Shelf Registration Statement, the
commencement of distribution in connection with such Public Transfer, or, in
either case, on such earlier date as the Donees give notice to Issuer that they
decline to proceed with such Public Transfer, except (i) for the issuance of
shares of Class H Common Stock upon the conversion, exercise or exchange, by the
holder thereof, of options, warrants or other securities convertible into or
exercisable or exchangeable for the Class H Common Stock pursuant to the terms
of such options, warrants or other securities (which, in the case of any
conversion, exercise or exchange which is at Issuer's option, Issuer shall not
call for conversion, exercise or exchange during such period (it being
understood that nothing herein shall limit the right of Issuer to call for
redemption any security convertible, exercisable or exchangeable for Class H
Common Stock or to issue shares of Class H Common Stock to the extent a holder
of any such security elects to convert, exercise or exchange such security in
lieu of accepting any redemption payments)), (ii) pursuant to the terms of any
other agreement to issue shares of Class H Common Stock (or any securities
convertible into or exchangeable or exercisable for the Class H Common Stock) in
effect on the date of the notice of a proposed Transfer, including any such
agreement in connection with any previously disclosed acquisition, merger,
consolidation or other business combination, and (iii) in connection with
Transfers to dividend reinvestment plans or to employee benefit plans in order
to enable any such employee benefit plan to fulfill its funding obligations in
the ordinary course, unless the underwriter or underwriters administering the
offering in connection with such Public Transfer otherwise agree.
Notwithstanding the foregoing, the provisions of this Section 5(b) shall be
subject to the provisions of Section 3(f), and if Issuer exercises its rights of
postponement pursuant to Section 3(f) with respect to any proposed Public
Transfer, the provisions of this Section 5(b) shall not apply unless and until
such time as Issuer notifies the Donees of the termination of such postponement
and the Donees notify Issuer of their intention to continue with such proposed
Public Transfer.
6. Other Registration Rights.
-------------------------
(a) Nothing herein shall restrict the authority of Issuer to grant to any
Person, including a Strategic Partner, if any, the right to obtain registration
under the Securities Act of any equity securities of Issuer, or any securities
convertible into or exchangeable or exercisable for such securities; provided,
however, that Issuer shall not grant any such right with respect to the Class H
Common Stock or securities convertible into or exchangeable or
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exercisable for the Class H Common Stock that conflicts with the rights of the
Donees under this Agreement or otherwise limits or reduces such rights. Issuer
shall cause each Strategic Partner and each other holder of Class H Common Stock
who obtains the right, after the date hereof, to propose a registration giving
rise to a Piggyback Registration, if any, to agree not to Transfer any shares of
Class H Common Stock or securities convertible into or exchangeable or
exercisable for the Class H Common Stock, for the applicable period set forth in
Section 5(a) hereof.
(b) If at any time a Strategic Partner has been designated by Issuer, the
relative rights of the Donees and any Strategic Partners shall be as follows:
(i) If at any time a Strategic Partner elects to exercise any rights for a
demand registration of shares of Class H Common Stock pursuant to an
underwritten public offering (a "Strategic Partner Demand Registration"),
Issuer shall give the Donees written notice of such proposed Strategic
Partner Demand Registration within five days of receipt of notice thereof
from the Strategic Partner.
(ii) The Donees may at any time elect to participate in any Strategic
Partner Demand Registration by giving Issuer notice thereof within 15 days of
Issuer's notice to the Donees of such Strategic Partner Demand Registration.
In such case, subject to Section 6(b)(iii), Issuer shall include in such
registration the number of Registrable Securities requested by the Donees to
be included therein (which number shall be set forth in the Donees' notice to
Issuer of their election to participate therein). The Donees' participation
in such registration shall be considered a Public Transfer and shall be
deemed to be effected as set forth in Section 3(a). The Donees shall
participate in any offering of Class H Common Stock in connection with such
registration in accordance with the same plan of distribution as the
Strategic Partner requesting registration.
(iii) Until the Termination Date, if there is a Share Limitation in
connection with any Strategic Partner Demand Registration in which the Donees
have elected to participate, Issuer shall include in such registration:
(A) first, the Qualifying Securities requested to be included by each
Qualifying Person in accordance with the General Allocation Basis,
(B) second, any additional shares of Qualifying Securities requested to be
included therein by any Qualifying Persons wishing to include shares
in excess of the amount which they are entitled to include pursuant to
clause (A) above, pro rata based on their holdings, as of the time of
the offering, relative to the holdings all other Qualifying Persons
wishing to include additional shares of Qualifying Securities, as of
the time of the offering, until all additional shares of Qualifying
Securities requested to be included therein by any Qualifying Persons
have been included in such offering,
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(C) third, other shares of Class H Common Stock requested to be included
therein by the holder or holders thereof pursuant to contractual
rights of such holder or holders, and
(D) fourth, any other shares of Class H Common Stock.
(iv) Any Strategic Partner, may at any time elect to participate in any
Public Transfer requested by the Donees by giving Issuer notice thereof
within 15 days (or, in the case of a Shelf Registration Statement, 5 days) of
the notice by the Donees to Issuer of such Public Transfer. In such case,
subject to Section 6(b)(v), Issuer may include in the registration in
connection with such Public Transfer the number of shares of Class H Common
Stock requested by any Strategic Partner to be included therein. Strategic
Partners shall participate in any offering of Class H Common Stock in
connection with such Public Transfer in accordance with the same plan of
distribution for such Public Transfer as the Donees.
(v) Until the Termination Date, if there is a Share Limitation in
connection with a Public Transfer requested by the Donees in which any
Strategic Partner has elected to participate, Issuer shall include in the
registration in connection with such Public Transfer:
(A) first, the Qualifying Securities requested to be included by each
Qualifying Person in accordance with the General Allocation Basis,
(B) second, any additional shares of Qualifying Securities requested to be
included therein by any Qualifying Persons wishing to include shares
in excess of the amount which they are entitled to include pursuant to
clause (A) above, pro rata based on their holdings, as of the time of
the offering, relative to the holdings of all other Qualifying Persons
wishing to include additional shares of Qualifying Securities, as of
the time of the offering, until all additional shares of Qualifying
Securities requested to be included therein by any Qualifying Persons
have been included in such offering,
(C) third, other shares of Class H Common Stock requested to be included
therein by the holder or holders thereof pursuant to contractual
rights of such holder or holders, and
(D) fourth, any other shares of Class H Common Stock.
(vi) Nothing herein shall obligate Issuer to grant to any Person,
including a Strategic Partner, if any, the right to obtain registration under
the Securities Act of any equity securities of Issuer, or any securities
convertible into or exercisable or exchangeable for such securities. If and
to the extent Issuer grants any such rights to any
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Person, the terms thereof shall be as set forth in the related agreement
between such Person and Issuer and may include restrictions on and
obligations of such Person greater than or in addition to those contemplated
herein, subject to Section 6(a).
(c) If, in connection with any Strategic Partner Demand Registration or
Public Transfer to which Section 6(b) is applicable, the lead underwriter
notifies Issuer and/or any other party participating in such proposed offering
that, in its opinion, due to market conditions or otherwise, the number of
shares of Class H Common Stock that may be included in the offering is greater
than or less than anticipated when the notice referred to in Section 6(b)(i) or
6(b)(iv) was given, then only those parties who have elected to participate in
such Strategic Partner Demand Registration or Public Transfer will be notified
of such increase or decrease, as applicable, and such additional shares or such
reduction in shares, as applicable, shall be allocated among such participants
as contemplated by Section 6(b)(iii) or 6(b)(v), as applicable. In no event
shall any party that had previously declined to participate, or did not have the
right to participate, in such Strategic Partner Demand Registration or Public
Transfer be entitled to receive notice of or participate therein as a result of
a revised notice of such increase or decrease, as applicable.
(d) Each of the Pension Plan and the VEBA acknowledges that, prior to the
date of this Agreement, Issuer has entered into the Primestar Registration
Rights Agreement and the AOL Registration Rights Agreement. Each of the Pension
Plan and the VEBA is familiar with the rights granted thereunder and agrees
that, notwithstanding anything to the contrary in this Agreement, the
registration rights granted to the Pension Plan and the VEBA hereunder are
subordinate to such registration rights provided under the Primestar
Registration Rights Agreement and the AOL Registration Rights Agreement. Each
of the Pension Plan and the VEBA agrees that it shall cooperate in all
reasonable respects with the Issuer in coordinating the exercise of its rights
hereunder with the rights granted under the Primestar Registration Rights
Agreement and the AOL Registration Rights Agreement.
7. Demand, Piggyback and Shelf Registration Procedures. Whenever
Registrable Securities are to be registered pursuant to this Agreement, Issuer
shall, to the extent applicable for each type of registration statement:
(a) subject to Sections 3(f) and 12(a), prepare and file with the
Commission a registration statement with respect to such Registrable Securities
and use reasonable efforts to cause such registration statement to be declared
effective as promptly after the initial filing thereof as reasonably
practicable;
(b) furnish to any investment manager acting on behalf of the Donees
with respect to the Registrable Securities and to one law firm representing each
such investment manager, copies of such registration statement, the prospectus
contained therein and any amendments or supplements thereto prior to filing such
documents with the Commission, but only to the extent such documents contain
information regarding such investment
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manager, with such documentation, and any other documentation provided by this
Agreement to be delivered to the investment manager acting on behalf of the
Donees and counsel to the Donees, to be delivered as provided in Section 12(d)
unless otherwise directed by the Pension Plan Named Fiduciary, the VEBA Named
Fiduciary or either of their delegates;
(c) subject to Sections 3(f) and 12(a), prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than nine months (or
such shorter period as may be necessary to effect the Transfer of all shares of
Registrable Securities covered by such registration statement as described
therein);
(d) furnish to the Donees and the underwriters such number of copies of
such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as the Donees and their counsel may
reasonably request in order to facilitate the disposition of the Registrable
Securities;
(e) so long as Class H Common Stock is listed on any United States
securities exchange or a quotation system, use its best efforts to cause all of
the Registrable Securities to be listed on such exchange or a quotation system;
(f) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
the Donees reasonably request and do any and all other acts and things which may
be reasonably necessary or advisable to enable the Donees to consummate the
disposition in such jurisdictions of the Registrable Securities (provided that
Issuer will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subsection, (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction);
(g) notify the Donees at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement
contains an untrue statement of a material fact or omits any material fact
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, and, at the request of the Donees, Issuer will
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus will
not contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading;
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(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the Donees or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of the Registrable Securities; and
(i) make available (and cause all the officers, directors, employees and
independent accountants of Issuer and its subsidiaries to make available), to
the extent reasonably requested by the Donees or any underwriter, attorney,
accountant or agent retained by the Donees in connection with such registration
statement, all financial and other records and pertinent corporate documents and
properties of Issuer and its subsidiaries for inspection by the Donees or any
underwriter, attorney, accountant or other agent retained by the Donees in
connection with such registration.
Each of the parties will treat all notices of proposed Transfers and
registrations, all notices pursuant to Section 7(g) and all information relating
to any Blackout Periods under Section 3(f) received from the other party with
the strictest confidence and will not disseminate such information. Subject to
Section 3(c), nothing herein shall be construed to require Issuer or any of its
affiliates to make any public disclosure of information at any time. In the
event Issuer has notified the Donees that (i) the prospectus included in a
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, (ii) the
Commission has issued or threatened to issue any stop order suspending the
effectiveness of a registration statement or has initiated proceedings for such
purpose or (iii) Issuer has received any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, then the Donees shall not deliver such prospectus to any purchaser
unless and until a supplement or amendment to such prospectus has been prepared
as set forth in Section 7(g) or until Issuer advises the Donees in writing that
the use of such prospectus may be resumed.
The Donees shall cooperate with Issuer in the preparation and filing of any
registration statement under the Securities Act pursuant to this Agreement and
provide Issuer with all information necessary to complete such preparation
within a reasonable period of time prior to the proposed filing of such
registration statement, and in the case of any Demand Registration Statement or
Shelf Registration Statement to be filed pursuant to Section 3(c), within such
period as is necessary to enable Issuer to file such registration statement
within 30 days of the Donees' request therefor.
From and after such time as the Donees reduce their ownership of the
Registrable Securities to less than 20 million shares of Class H Common Stock in
the aggregate, or the VEBA reduces its ownership to less than 2 million shares
of Class H Common Stock, Issuer shall file the reports required to be filed by
it under Section 13 of the Exchange Act or any successor thereto (or, if Issuer
is not required to file such reports, make publicly available such information
upon the request of Pension Plan or the VEBA), and take such further
26
<PAGE>
action as the Pension Plan or the VEBA may reasonably request, all to the extent
required to enable the Donees to Transfer the Registrable Securities pursuant to
Rule 144.
8. Participation in Underwritten Transfers. The Donees may not
participate in any underwritten Transfers hereunder unless they (a) agree to
sell their securities on the basis provided in any underwriting arrangements
approved by the Person or Persons entitled hereunder to approve such
arrangements and (b) complete and execute all questionnaires, powers of
attorney, indemnities, underwriting agreements, custodian agreements and other
documents required under the terms of such underwriting arrangements.
9. Registration Expenses and Legal Counsel. Issuer shall be
responsible for all federal and state filing fees (including all blue sky
registration or qualification fees), all fees and expenses of its counsel and
all independent certified public accountants, underwriters (excluding discounts
and commissions and fees and expenses of counsel to the underwriters) and other
Persons retained by Issuer and all other costs or expenses incurred by Issuer in
the performance of its obligations hereunder and the reasonable fees and
expenses of one outside law firm jointly representing the Donees and other out-
of-pocket expenses of the Donees in connection with any registration statement
under the Securities Act pursuant to this Agreement or any amendment thereto;
provided, however, that the selection of the law firm representing the Donees
shall be subject to the consent of Issuer, which consent shall not be
unreasonably withheld. Issuer shall have the right to select the financial
printer to be used in connection with any registration of Registrable Securities
under the Securities Act pursuant to this Agreement.
10. Indemnification.
---------------
(a) Issuer agrees to indemnify and hold harmless each of the Pension
Plan, the VEBA, the Pension Plan Trustee and any successor thereto, the VEBA
Trustee and any successor thereto, the investment manager or managers acting on
behalf of the Pension Plan and the VEBA with respect to the Registrable
Securities and Persons, if any, who control any of them within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act (each
an "Indemnitee"), from and against any and all costs and expenses reasonably
incurred and losses, damages and other liabilities sustained by such Indemnitee
and arising out of or caused by any untrue statement or alleged untrue statement
of a material fact contained in any registration statement described herein or
any related prospectus relating to the Registrable Securities (as amended or
supplemented if Issuer shall have furnished any amendments or supplements
thereto), or arising out of or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, except insofar as such costs, expenses, losses, damages or other
liabilities arise out of or are caused by any such untrue statement or omission
included or omitted in conformity with information furnished to Issuer in
writing by such Indemnitee or any Person acting on behalf of such Indemnitee
expressly for use therein; provided, however,
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<PAGE>
the foregoing indemnity agreement with respect to any preliminary prospectuses
shall not inure to the benefit of such Indemnitee, if the Person asserting any
claims, losses, damages or other liabilities against such Indemnitee purchased
Registrable Securities and a copy of the prospectus (as then amended or
supplemented if Issuer shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Indemnitee to such
Person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Registrable Securities to such Person, and if
the prospectus (as so amended or supplemented) would have cured the defect
giving rise to such asserted claim, loss, damage or other liability; provided,
further, that the foregoing proviso shall not apply in the case of a Piggyback
Registration if the Indemnitee is the Pension Plan, the VEBA, the Pension Plan
Trustee or the VEBA Trustee.
(b) Each of the Pension Plan and the VEBA, severally and not jointly,
agrees, to the extent permitted under applicable law, and each underwriter
selected shall agree, to indemnify and hold harmless each of Issuer, its
directors, officers, employees and agents, and each person, if any, who controls
Issuer within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, to the same extent as the foregoing indemnity from
Issuer, but only with respect to costs, expenses, losses, damages or other
liabilities arising out of or caused by an untrue statement or omission included
or omitted in conformity with information furnished in writing by or on behalf
of the Pension Plan, the VEBA or such underwriter, as the case may be, expressly
for use in any registration statement described herein or any related prospectus
relating to the Registrable Securities (as amended or supplemented if Issuer
shall have furnished or any amendments or supplements thereto). No claim
against the assets of the Pension Plan or the VEBA shall be created by this
Section 10(b), except as and to the extent permitted by applicable law.
(c) In case any claim is asserted or any proceeding (including any
governmental investigation) shall be instituted where indemnity may be sought by
an Indemnitee pursuant to any of the preceding paragraphs of this Section 10,
such Indemnitee shall promptly notify in writing the Person against whom such
indemnity may be sought (the "Indemnitor"); provided, however, that the omission
so to notify the Indemnitor shall not relieve the Indemnitor of any liability
which it may have to such Indemnitee except to the extent that the Indemnitor
was prejudiced by such failure to notify. The Indemnitor, upon request of the
Indemnitee, shall retain counsel reasonably satisfactory to the Indemnitee to
represent (subject to the following sentences of this section) the Indemnitee
and any others the Indemnitor may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnitee shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such Indemnitee
unless (i) the Indemnitor and the Indemnitee shall have mutually agreed to the
retention of such counsel, (ii) the Indemnitor fails to take reasonable steps
necessary to defend diligently any claim within ten calendar days after
receiving written notice from the Indemnitee that the Indemnitee believes the
Indemnitor has failed to take such steps, or (iii) the named parties to any such
proceeding (including any impleaded
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parties) include both the Indemnitor and the Indemnitee and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests or legal defenses between them and, in all such
cases, the Indemnitor shall only be responsible for the reasonable fees and
expenses of such counsel. It is understood that the Indemnitor shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one separate law
firm (in addition to any local counsel) for all such Indemnitees not having
actual or potential differing interests or legal defenses among them, and that
all such fees and expenses shall be reimbursed as they are incurred. In the case
of any such separate firm for the Pension Plan or the VEBA or any control Person
of the Pension Plan or the VEBA, such firm shall be designated in writing by the
Pension Plan Named Fiduciary or the VEBA Named Fiduciary. The Indemnitor shall
not be liable for any settlement of any proceeding effected without its written
consent.
(d) If the indemnification provided for in this Section 10 is unavailable
to an Indemnitee in respect of any costs, expenses, losses, damages or other
liabilities referred to herein, then the Indemnitor, in lieu of indemnifying
such Indemnitee hereunder, shall contribute to the amount paid or payable by
such Indemnitee as a result of such costs, expenses, losses, damages or other
liabilities in such proportion as is appropriate to reflect the relative fault
of the Indemnitor and the Indemnitee and Persons acting on behalf of or
controlling the Indemnitee in connection with the statements or omissions or
violations which resulted in such costs, expenses, losses, damages or other
liabilities, as well as any other relevant equitable considerations. If the
indemnification described in Section 10(a) or 10(b) is unavailable to an
Indemnitee, the relative fault of Issuer, the Pension Plan, the VEBA and Persons
acting on behalf of or controlling the Pension Plan and the VEBA shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by Issuer or by Persons acting
on behalf of the Pension Plan and the VEBA and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Indemnitor shall not be required to contribute
pursuant to this Section 10(d) if there has been a settlement of any proceeding
effected without its written consent. No claim against the assets of the
Pension Plan or the VEBA shall be created by this Section 10(d), except as and
to the extent permitted by applicable law.
(e) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding section.
Notwithstanding the provisions of this Section 10, the aggregate contribution of
the Pension Plan or the VEBA under this Section 10 will not exceed the proceeds
received by it from the Registrable Securities sold by it and neither the
Pension Plan nor the VEBA shall be required to contribute under this Section 10
in respect of any costs, expenses, losses, damages or other liabilities unless
the same arise with
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<PAGE>
reference to any information furnished to Issuer in writing by Persons acting on
behalf of the Pension Plan or the VEBA, respectively, expressly for use in any
registration statement pursuant to this Agreement or the prospectus or any
amendment or supplement thereto. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(f) The indemnification and contribution agreements contained in this
Section 10 and the representations and warranties of Issuer contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement and (ii) acceptance of and the payment by the
buyer for any Registrable Securities.
11. Definitions.
-----------
"AOL Registration Rights Agreement" means the Registration Rights
Agreement, dated June 21, 1999, by and between General Motors and America
Online, Inc., as in effect on the date of this Agreement.
"Base Purchase Price" shall have the meaning set forth in Section 2(f)(iv).
"Bidder" shall have the meaning set forth in Section 2(e)(ii).
"Blackout Period" means (i) any period of time during which a requested
Demand Transfer has been postponed pursuant to Section 3(f), which period shall
continue until notice of the termination of such postponement has been delivered
to the Donees, and (ii) any holdback period during which Transfers were not
permitted by operation of Section 5(a), unless in any offering referred to in
Section 5(a), the Donees Transferred or had the opportunity to Transfer shares
of Registrable Securities that constituted the lesser of (a) the aggregate
number of shares of Class H Common Stock that the Donees requested to be
included in such offering or (b) 10 million shares.
"Business Day" shall have the meaning set forth in Section 1(a).
"Class H Common Stock" means Class H Common Stock, par value $0.10 per
share, of General Motors and any securities issued or issuable with respect to
the Class H Common Stock in connection with any stock dividend, stock split
(forward or reverse), combination of shares, recapitalization, merger,
consolidation, redemption, exchange of securities or other reorganization or
reclassification after the date hereof. In the event of any of the foregoing
with respect to the Class H Common Stock or similar transactions affecting the
Class H Common Stock, all references herein to the designation "Class H Common
Stock" and to any specific number of shares of Class H Common Stock shall be
adjusted in accordance with Section 12(h) hereof, and shall include reference to
all securities of the same class regardless of whether any such securities were
issued or issuable with respect to the securities that
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<PAGE>
previously constituted the Class H Common Stock.
"Co-Manager List" shall have the meaning set forth in Section 3(g).
"Commission" means the United States Securities and Exchange Commission.
"Contribution" shall have the meaning set forth in Section 1(a).
"Demand Registration" shall have the meaning set forth in Section 3(e).
"Demand Registration Statement" shall have the meaning set forth in Section
3(e).
"Demand Transfers" shall have the meaning set forth in Section 3(a).
"Donee" shall have the meaning set forth in the Recitals.
"Donee Allocation Basis" means (A) at any time that an acquisition of Class
H Common Stock by the Donees has caused the 10% threshold set forth in
(S)407(a)(2) of ERISA (or any threshold set forth in any successor to such
provision) to be exceeded, 75% with respect to the VEBA (or such lesser
percentage as shall constitute all of the Registrable Securities then held by
the VEBA) and the remaining percentage with respect to the Pension Plan and (B)
at all other times, 50% with respect to the VEBA (or such lesser percentage as
shall constitute all of the Registrable Securities then held by the VEBA) and
the remaining percentage with respect to the Pension Plan. All numbers of shares
determined pursuant to the Donee Allocation Basis shall be rounded to the
nearest whole share.
"ERISA" shall have the meaning set forth in the Recitals.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Exercise Notice" shall have the meaning set forth in Section 2(f)(ii).
"Final Date" shall have the meaning set forth in Section 2(f)(iv).
"Form S-3" shall have the meaning set forth in Section 3(d).
"General Allocation Basis" means, at the time of determination, with
respect to each Qualifying Person, such Qualifying Person's pro rata share of
the Registrable Securities or shares of Class H Common Stock entitled to be
included in the proposed registration based on such Person's holdings of
Qualifying Securities as of the time of such proposed registration relative to
the holdings, as of such time, of all Qualifying Persons who have the right to
request and have requested the inclusion of all or a portion of their shares of
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Qualifying Securities in such registration, which shall be determined as
follows:
(A) the number of shares of Qualifying Securities then held by such person
at the time of the determination, divided by
(B) the total number of shares of Qualifying Securities then held by all
Qualifying Persons;
Notwithstanding the foregoing, the Registrable Securities included by the
Donees in any registration shall be allocated between the Registrable Securities
held by the Pension Plan and those held by the VEBA in accordance with the Donee
Allocation Basis.
"General Motors" means General Motors Corporation, a Delaware corporation.
"Indemnitee" shall have the meaning set forth in Section 10(a).
"Indemnitor" shall have the meaning set forth in Section 10(c).
"Independent Directors" shall have the meaning set forth in Section
2(e)(ii).
"Issuer" means, initially, General Motors, and thereafter, each successor
issuer as described in Section 12(a).
"Lead Underwriter List" shall have the meaning set forth in Section 3(g).
"Liquidity Event" means that either:
(A) the Donees have Transferred an aggregate of at least the greater of
(x) 10 million shares of Registrable Securities and (y) shares of
Registrable Securities having a fair market value (based upon the
closing price of the Registrable Securities quoted on the securities
exchange on which such Registrable Securities are listed on the
trading day immediately preceding the date of determination) of $1
billion; or
(B) the Donees have been given an opportunity to include at least the
greater of (x) 10 million shares and (y) shares of Registrable
Securities having a fair market value (based upon the closing price of
the Registrable Securities quoted on the securities exchange on which
such Registrable Securities are listed on the trading day immediately
preceding the date of determination) of $1 billion of Registrable
Securities in the aggregate in a Piggyback Registration or a Strategic
Partner Demand Registration and have declined to do so.
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<PAGE>
"Lists" shall have the meaning set forth in Section 3(g).
"Maximum Share Number" shall have the meaning set forth in Section
2(f)(ii).
"Minimum Tender Condition" means, with respect to any tender offer, that
there have been validly tendered and not withdrawn pursuant to such tender offer
a number of shares of Class H Common Stock which, when taken together with the
number of shares of Class H Common Stock that the Bidder making such tender
offer otherwise beneficially owns as of immediately after the acceptance for
purchase and purchase of such tendered shares, represent more than 50% of the
voting power of all securities of Issuer outstanding as of such expiration date
and generally entitled to vote in the election of directors.
"Negotiated Transfer" shall have the meaning set forth in Section 3(a).
"NYSE" shall have the meaning set forth in Section 1(a).
"Pension Plan" shall have the meaning set forth in the Recitals.
"Pension Plan Named Fiduciary" shall have the meaning set forth in the
Recitals.
"Pension Plan Trustee" shall have the meaning set forth in the Recitals.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization
or a governmental entity or any department, agency or political subdivision
thereof.
"Piggyback Registration" shall have the meaning set forth in Section 4(a).
"Primestar Registration Rights Agreement" means the Registration Rights
Agreement, dated April 28, 1999, by and between General Motors and Primestar,
Inc., as in effect on the date of this Agreement.
"Public Transfer" shall have the meaning set forth in Section 3(a).
"Put Closing" shall have the meaning set forth in Section 2(f)(iv).
"Put Price" shall have the meaning set forth in Section 2(f)(ii).
"Put Price Notice" shall have the meaning set forth in Section 2(f)(iii).
"Put Right" shall have the meaning set forth in Section 2(f)(ii)
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"Qualifying Person" means, with respect to any registration hereunder:
(i) any Strategic Partner, and
(ii) the Donees,
in each case, if such Person has the right to request and has requested the
inclusion of all or a portion of its shares of Qualifying Securities in such
registration and if each such Person (with the Donees being considered
collectively for this purpose) beneficially owns or has the right to acquire
Qualifying Securities in an amount equal to 2% or more of the outstanding Class
H Common Stock at the time of determination.
"Qualifying Securities" means (A) with respect to Strategic Partners,
shares of Class H Common Stock (or securities which are then immediately
convertible into or exchangeable or exercisable for Class H Common Stock) which
have been acquired by such Strategic Partner in connection with the Strategic
Partner Transactions (as defined below) and (B) with respect to the Donees, the
Registrable Securities.
"Registrable Securities" means (i) the Class H Common Stock contributed
pursuant to this Agreement from time to time, and (ii) the securities issued or
issuable with respect to the securities referred to in clause (i) in connection
with any stock dividend, stock split (forward or reverse), combination of
shares, recapitalization, merger, consolidation, redemption, exchange of
securities or other reorganization or reclassification after the date hereof. As
to any particular Registrable Securities, such securities will cease to be
Registrable Securities when they have been Transferred by the Pension Plan or
the VEBA in accordance with all applicable provisions of this Agreement.
"Rights" shall have the meaning set forth in Section 2(e)(i).
"Rule 144" shall have the meaning set forth in Section 2(a)(v).
"Rule 14e-2(a)" shall have the meaning set forth in Section 2(e)(ii).
"Rule 415" shall have the meaning set forth in Section 3(b).
"Rule 429" shall have the meaning set forth in Section 3(b).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Share Limitation" means that the lead underwriter or co-managers of any
offering in connection with a Piggyback Registration, a Demand Registration or a
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<PAGE>
Strategic Partner Demand Registration advise Issuer in writing that in their
opinion the number of Registrable Securities requested to be included in such
offering exceeds, together with other shares of Class H Common Stock to be
included therein, the number of shares of Class H Common Stock which can be sold
in such offering without adversely affecting the marketability of the offering.
"Shelf Registration Statement" shall have the meaning set forth in Section
3(b).
"Strategic Partner" means any one or more Person(s) (or group of Persons
acting in concert) who (i) beneficially owns or has committed to acquire at the
time of determination shares of Class H Common Stock (or securities convertible
into or exchangeable or exercisable for the Class H Common Stock) that
constitute not less than 2% of the Class H Common Stock then outstanding
(determined after giving effect to such commitment (and assuming that all such
shares or securities subject to such commitment are acquired) and the
conversion, exchange or exercise of all such securities subject to such
commitment) acquired in a single transaction or series of related transactions
(including, without limitation, acquisitions and business combinations) entered
into as part of a single business venture (the "Strategic Partner
Transactions"), (ii) is granted the right to demand registration under the
Securities Act of the Class H Common Stock (or securities convertible into or
exchangeable or exercisable for the Class H Common Stock) that it beneficially
owns or has committed to acquire and (iii) is designated as such by the Board of
Directors of Hughes Electronics Corporation (or any successor thereto) at any
time that the Class H Common Stock tracks the financial performance of such
entity or the Board of Directors of Issuer, which designation shall be made at
the time such Person(s) first acquired or committed to acquire shares of Class H
Common Stock (or securities convertible into or exchangeable or exercisable for
the Class H Common Stock). Issuer shall give the Donees prompt notice of any
such acquisition, commitment and designation, of the nature and proposed
timetable for any acquisitions and of the nature of any rights granted to the
Person so designated to register under the Securities Act shares of the Class H
Common Stock. If more than one Person is designated as a Strategic Partner as
described above, except as otherwise set forth in this Agreement, all rights of
the Strategic Partners with respect to one another shall be determined as such
Persons and Issuer may agree. All references herein to the shares of Class H
Common Stock beneficially owned by a Strategic Partner shall include all shares
of Class H Common Stock (or securities convertible into or exchangeable or
exercisable for the Class H Common Stock) acquired by a Strategic Partner
pursuant to the Strategic Partner Transactions and all additional shares of
Class H Common Stock (or securities convertible into or exchangeable or
exercisable for the Class H Common Stock) that a Strategic Partner has a right,
commitment or obligation to acquire pursuant to the Strategic Partner
Transactions.
"Strategic Partner Demand Registration" shall have the meaning set forth in
Section 6(b)(i).
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<PAGE>
"Tender Notice" shall have the meaning set forth in Section 2(f)(i).
"tender offer" shall have the meaning set forth in Section 2(e).
"Termination Date" shall have the meaning set forth in Section 4(d).
"Transfer" means any sale, transfer or other disposition (including any
pledge and any disposition upon the foreclosure of any pledge or any agreement
to do any of the foregoing).
"Transfer Agreement" shall have the meaning set forth in the Recitals.
"Trustees" shall have the meaning set forth in the Recitals.
"VEBA" shall have the meaning set forth in the Recitals.
"VEBA Named Fiduciary" shall have the meaning set forth in the Recitals.
"VEBA Trustee" shall have the meaning set forth in the Recitals.
12. Miscellaneous.
-------------
(a) Succession. In the event that the Registrable Securities are to be
converted or exchanged into (or become the right to receive) securities of any
issuer other than the Person who is then Issuer hereunder in connection with any
transaction to which such Issuer is a party, such Issuer shall cause the issuer
of such securities to agree, effective as of such conversion or exchange, that
all rights, obligations and restrictions of Issuer set forth in this Agreement,
except for the rights, obligations and restrictions set forth in subsections (a)
through (e) of Section 1 (which shall only be obligations of General Motors),
shall continue to apply to such securities. As of the time of such conversion
or exchange, subject to the exception set forth in the preceding sentence, such
issuer shall be bound by this Agreement and shall succeed to all rights,
restrictions and obligations of Issuer set forth in this Agreement, all
references to Issuer herein shall thereafter be deemed to be references to such
issuer, and the predecessor Issuer shall be released from all obligations under
this Agreement (except with respect to any obligations under Section 10 with
respect to any registration of securities issued by such Issuer). To evidence
the foregoing, prior to the time of such conversion or exchange, Issuer may
execute, and cause such issuer to execute, a Succession Agreement substantially
in the form of Exhibit C attached hereto. Upon request, the Donees shall
acknowledge and agree to any such Succession Agreement as set forth therein. To
the extent required and permissible under applicable law, as soon as reasonably
practicable after such conversion or exchange, such issuer shall file with the
Commission an amendment to the Shelf
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<PAGE>
Registration Statement, if any, then in effect to ensure that such Shelf
Registration shall continue to apply to such securities. In the event such
issuer is not eligible to register such securities on Form S-3, all references
to Form S-3 herein shall thereafter be deemed to be references to Form S-l or
any other available form, except that such issuer shall have no obligations
hereunder to file a Shelf Registration Statement (and shall have no obligation
with respect to any Shelf Registration Statement that is then in effect) unless
and until such time as such issuer becomes eligible to register such securities
on Form S-3 or any successor short form registration statement.
(b) Termination. All rights, restrictions and obligations of Issuer, the
Pension Plan and the VEBA, except with respect to any rights and obligations
under Section 10, shall terminate and this Agreement shall have no further force
and effect at such time as the Donees reduce their aggregate ownership of the
Registrable Securities to less than 2% of the aggregate number of shares of
Class H Common Stock then outstanding.
(c) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented except
by a writing signed by Issuer, the Pension Plan and the VEBA. Any obligation
of, or restriction applicable to, the Donees hereunder may be waived by a
writing signed by the Issuer. Any obligation of, or restriction applicable to,
the Issuer hereunder may be waived by a writing signed by the Donees.
(d) Notices. Except where notice by teleconference is specifically called
for in this Agreement, all notices and other communications provided for or
permitted hereunder shall be in writing and, except as specified herein, shall
be made by hand delivery, by registered or certified first-class mail, return
receipt requested, overnight courier or facsimile transmission:
(i) If to the Pension Plan:
United States Trust Company of New York
600 Fourteenth Street, N.W., Suite 400
Washington, DC 20005-3314
Attention: Norman P. Goldberg
Authorized Agent
Telephone: (202) 585-4175
Facsimile: (202) 783-7044
with copies to:
--------------
General Motors Investment Management Corporation
767 Fifth Avenue
New York, New York 10153
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Attention: Managing Director, North American Equities
Telephone: (212) 418-6420
Facsimile: (212) 418-3665
and
---
Jones, Day, Reavis & Pogue
2727 North Harwood Street
Dallas, Texas 75201-1515
Attention: James F. Carey
Telephone: (214) 220-3939
Facsimile: (214) 969-5100
(ii) If to the VEBA:
United States Trust Company of New York
600 Fourteenth Street, N.W., Suite 400
Washington, DC 20005-3314
Attention: Norman P. Goldberg
Authorized Agent
Telephone: (202) 585-4175
Facsimile: (202) 783-7044
with copies to:
--------------
General Motors Investment Management Corporation
767 Fifth Avenue
New York, New York 10153
Attention: Chief Investment Officer, GM Subsidiaries
Telephone: (212) 418-6318
Facsimile: (212) 418-3656
and
---
Jones, Day, Reavis & Pogue
2727 North Harwood Street
Dallas, Texas 75201-1515
Attention: James F. Carey
Telephone: (214) 220-3939
Facsimile: (214) 969-5100
(iii) If to Issuer:
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General Motors Corporation
767 Fifth Avenue
New York, New York 10153
Attention: Treasurer
Telephone: (212) 418-3500
Facsimile: (212) 418-3695
with a copy to:
--------------
General Motors Corporation
Legal Staff
300 Renaissance Center
Mailcode 482-C25-C22
Detroit, Michigan 48265-3000
Attention: Warren G. Andersen, Esq.
Telephone: (313) 665-4921
Facsimile: (313) 665-4978
All notices and communications shall be deemed to have been duly given
and received: when received telephonically, if notice by teleconference is
specifically called for by this Agreement; when delivered by hand, if hand
delivered; the fifth Business Day after being deposited in the mail, registered
or certified, return receipt requested, first class postage prepaid, or earlier
Business Day actually received, if mailed; the first Business Day after being
deposited with an overnight courier, postage prepaid, if by overnight courier;
upon oral confirmation of receipt, if by facsimile transmission. Each party
agrees promptly to confirm receipt of all notices.
Whenever notices are required to be given by Issuer, such notices may
only be given by the Treasurer of Issuer or another officer or employee of
Issuer designated by the Treasurer in advance in writing to the recipient of
such notice. Whenever notices are required to be given by any investment manager
(including the Trustee) with respect to the Registrable Securities, such notices
may only be given by an officer or employee of such investment manager
designated in advance in writing to the recipient of such notice.
(e) No Third Party Beneficiaries. This Agreement shall be for the
sole and exclusive benefit of Issuer, the Pension Plan, the VEBA, the Pension
Plan Trustee, the VEBA Trustee and any other investment manager or managers
acting on behalf of the Pension Plan and the VEBA with respect to the
Registrable Securities, and their respective successors, and directors,
trustees, officers, employees, agents and controlling Persons indemnified
hereunder. Nothing in this Agreement shall be construed to give any other
Person any legal or equitable right, remedy or claim under this Agreement.
39
<PAGE>
(f) Descriptive Headings. The headings of the sections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof.
(g) Cooperation. Each party hereto shall take such further action,
and execute such additional documents, as may be reasonably requested by any
other party hereto in order to carry out the purposes of this Agreement.
(h) Adjustments; Restatement of Agreement. In the event of any stock
dividend or distribution, stock split (forward or reverse), combination of
shares, recapitalization, merger, consolidation, redemption, exchange of
securities or other reorganization or reclassification after the date hereof
with respect to the Registrable Securities or similar transactions affecting the
Registrable Securities, all references herein to any designation of securities
and to any specific number of shares or Registrable Securities shall be
appropriately adjusted to give full effect thereto. Further, in the event of any
of the foregoing transactions, Issuer shall be entitled, without the consent of
any other party hereto, to restate this Agreement in its entirety to reflect
such adjustments, and the Donees and the Issuer hereby agree to execute any such
restatement of this Agreement.
(i) Binding Effect: Assignment. This Agreement shall be binding upon
and shall inure to the benefit of and be enforceable by each of the parties and
their successors and the directors, trustees (including, without limitation, any
successor trustee for the Pension Plan and the VEBA), officers, employees,
agents and controlling Persons of the parties. Except for an assignment to a
successor trustee or to an investment manager as stated herein, and except as
contemplated in Section 12(a), none of the rights or obligations under this
Agreement shall be assigned by the Pension Plan or the VEBA without the consent
of Issuer or by Issuer without the consent of the Pension Plan and the VEBA.
(j) Counterparts. This Agreement may be executed in counterparts, and
shall be deemed to have been duly executed and delivered by all parties when
each party has executed a counterpart hereof and delivered an original or
facsimile copy thereof to the other party. Each such counterpart hereof shall be
deemed to be an original, and all of such counterparts together shall constitute
one and the same instrument.
(k) Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the internal
laws (and not the laws of conflict) of the State of Delaware, except to the
extent that the laws of the state or jurisdiction of incorporation or
organization of the issuer of the Registrable Securities from time to time
specifically apply to questions concerning the relative rights of the issuer of
the Registrable Securities and the stockholders of such issuer in their
capacities as such.
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<PAGE>
(l) Acknowledgments. Each of the Pension Plan and the VEBA agrees
that it will obtain written acknowledgments, and provide a copy of such
acknowledgments to Issuer, from each of its investment managers with respect to
the Registrable Securities (other than the Pension Plan Trustee and the VEBA
Trustee) and from the valuation advisers of the Pension Plan Trustee and the
VEBA Trustee, confirming that such entity has received and reviewed this
Agreement and will comply with the terms of this Agreement applicable to it.
* * * *
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto, being duly authorized, have
executed and delivered this Registration Agreement on the date first above
written.
GENERAL MOTORS CORPORATION
By: ________________________________
Name: ________________________________
Title: ________________________________
GENERAL MOTORS HOURLY-RATE
EMPLOYEES PENSION PLAN
By: United States Trust Company of New York,
As Trustee
By: ________________________________
Name: ________________________________
Title: ________________________________
GENERAL MOTORS WELFARE BENEFIT TRUST
By: United States Trust Company of New York,
As Trustee
By: ________________________________
Name: ________________________________
Title: ________________________________
42
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EXHIBIT A
---------
TRANSFER AGREEMENT
This Agreement is entered into on _______ __, ____, by and among
General Motors Corporation, a Delaware corporation ("General Motors"), United
States Trust Company of New York (the "Pension Plan Trustee") as trustee of a
trust established under the General Motors Hourly-Rate Employees Pension Plan
(the "Pension Plan"), for the account and on behalf of the Pension Plan (which
shall thereby be deemed a party to this Agreement) and United States Trust
Company of New York (the "VEBA Trustee" and together with the Pension Plan
Trustee, the "Trustees") as a trustee of a dedicated account within the General
Motors Welfare Benefit Trust, a voluntary employees' beneficiary association
trust established to fund certain hourly retiree health care and life insurance
benefits under the General Motors Health Care Program for Hourly Employees and
other applicable welfare plans (the "VEBA"), for the account and on behalf of
the VEBA (which shall thereby be deemed a party to this Agreement). Each of the
Pension Plan and the VEBA are referred to herein as a "Donee" and they are
sometimes referred to collectively as "Donees." Capitalized terms used and not
otherwise defined herein shall have the respective meanings set forth in Section
5.
WHEREAS, General Motors intends, subject to the satisfaction of
certain regulatory and other conditions, to contribute approximately ___________
shares of Class H Common Stock to the Pension Plan and the VEBA, pursuant to the
terms of a Registration Rights Agreement, dated as of the date hereof (the
"Registration Rights Agreement"), by and among General Motors, the Pension Plan
and the VEBA; and
WHEREAS, General Motors wishes to preserve its ability to consummate
at a later date a tax-free reorganization (or series of reorganizations) under
the Internal Revenue Code of 1986, as amended, and the rules, regulations and
rulings thereunder (the "Code"), including, without limitation, a split-off or
spin-off pursuant to which holders of outstanding shares of General Motors' $1
2/3 par value common stock or Class H Common Stock would become holders of the
capital stock of Hughes Electronics Corporation, a Delaware corporation
("Hughes") (or a successor to or subsidiary of Hughes or any other subsidiary of
General Motors owning an interest in Hughes) (Hughes and any such subsidiary
being collectively referred to herein as "Hughes") such that Hughes is no longer
controlled by General Motors (any such transaction or series of transactions
being referred to herein as a "Spin-Off"); and
WHEREAS, each of the Donees is prepared to accept the shares of Class
H Common Stock that may be contributed to it as described in the Registration
Rights Agreement and to hold and Transfer any such shares and other shares of
Class H Common Stock owned by it on the terms and conditions stated herein; and
WHEREAS, the Pension Plan Trustee has been appointed by the named
fiduciary of the Pension Plan (the "Pension Plan Named Fiduciary") (as
determined in
<PAGE>
accordance with Section 402(a) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), to manage any shares of Class H Common Stock held
by the Pension Plan as described in the Registration Rights Agreement and this
Agreement and to exercise all rights, powers and privileges appurtenant to such
shares (subject to the authority of the Pension Plan Named Fiduciary to
terminate such appointment and appoint one or more other investment managers for
any such shares); and
WHEREAS, the VEBA Trustee has been appointed by the named fiduciary of
the VEBA (the "VEBA Named Fiduciary") (as determined in accordance with Section
402(a) of ERISA), to manage any shares of Class H Common Stock held by the VEBA
as described in the Registration Rights Agreement and this Agreement and to
exercise all rights, powers and privileges appurtenant to such shares (subject
to the authority of the VEBA Named Fiduciary to terminate such appointment and
appoint one or more other investment managers for any such shares); and
WHEREAS, the Pension Plan Trustee has full power and authority to
execute and deliver this Agreement for the account and on behalf of the Pension
Plan and to so bind the Pension Plan and the VEBA Trustee has full power and
authority to execute and deliver this Agreement for the account and on behalf of
the VEBA and to so bind the VEBA;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, General Motors, the
Pension Plan and the VEBA hereby agree as follows:
1. Restrictions on Transfer.
------------------------
(a) From and after such date as the first shares of Class H Common
Stock are contributed to the Donees pursuant to the Registration Rights
Agreement (the "Initial Contribution Date"), the Donees shall not make any
Transfer of the Transferable Securities to any Person (or group of related
Persons acting pursuant to a plan or arrangement) if such Person (or group of
related Persons acting pursuant to a plan or arrangement) is then, or as a
result of such Transfer and related transactions will become, to the knowledge
of either Donee after reasonable inquiry, a 5% Person.
(b) The restriction set forth in Section 1(a) above shall terminate
two years after the date on which a Spin-Off is effected (the "Spin-Off Date"),
unless there was an agreement, understanding, arrangement or substantial
negotiation (collectively, an "Agreement") with respect to such Transfer within
such two-year period, in which case the foregoing restriction will terminate on
the later to occur of (i) the date two years after the Spin-Off Date, and (ii)
the date which is six months after the date such Agreement is consummated or
terminated, as the case may be.
(c) From and after any such time as the Donees receive notice from
General Motors or otherwise become aware by public announcement that General
Motors intends to effect a Spin-Off (the "Spin-Off Notice Date"), the Donees
shall not make any Transfer of
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the Transferable Securities if, after giving effect to such Transfer, the number
of shares of Transferable Securities that would be owned directly by the Donees
(which shall include all shares in which either of the Donees has a beneficial
interest (whether or not registered in the name of either Donee) and which shall
not include shares owned by any Affiliate of the Donees) would constitute less
than 50% of the number of Transferable Securities owned directly by the Donees
as of the Spin-Off Notice Date. The restrictions set forth in this Section 1(c)
shall terminate (i) in the event any such Spin-Off is abandoned, on such date as
the Donees receive notice from General Motors or otherwise become aware of such
abandonment (subject to such restrictions again becoming applicable as described
in the first sentence of this Section 1(c)) or (ii) in the event any such Spin-
Off is effected, on the second anniversary of the Spin-Off Date.
(d) Section 1(a) shall not apply to any Transfer of Transferable
Securities by the Donees if such Transfer is pursuant to an underwritten public
offering reasonably designed to achieve a broad public distribution of the
securities being offered; provided, that the Donees shall have caused the lead
underwriter and any co-manager of such offering to have agreed (and the Donees
shall have delivered evidence of such agreement to General Motors promptly after
the execution thereof) to use their reasonable best efforts (i) to effect a
broad public distribution of such securities and (ii) not to make any Transfer
to any one Person (or group of related Persons acting pursuant to a plan or
arrangement) (whether such Person (or group of related Persons acting pursuant
to a plan or arrangement) is buying for its own account or as a fiduciary on
behalf of one or more accounts) if such Person (or group of related Persons
acting pursuant to a plan or arrangement) (A) is then a 5% Person, or (B) at any
time prior to the time of such Transfer, has been designated in a written list
provided by General Motors to the Donees as, to the reasonable belief of General
Motors, beneficially owning (or as a result of such Transfer and related
transactions would become the beneficial owner of) (in each case as defined in
Rule 13d-3) 5% or more of the total voting power or total value of the Class H
Common Stock then outstanding.
(e) Nothing in this Agreement shall prohibit the Donees from making
any Transfer of Transferable Securities if and to the extent such Transfer is
made pursuant to a Spin-Off or a Merger; provided that this Agreement shall
continue to apply to any Transferable Securities received by the Donees pursuant
to such Spin-Off or Merger, as the case may be, as provided in this Agreement.
(f) From and after the Initial Contribution Date, in the event that
General Motors waives the restrictions under Section 1(a) hereof so as to permit
the Donees to make a Transfer of Transferable Securities to any Person (or group
of related Persons acting pursuant to a plan or arrangement) which would
otherwise have been prohibited by Section 1(a) hereof, such Transfer shall not
be made unless prior to such Transfer such Person (and all related Persons
acting pursuant to a plan or arrangement) agrees to be bound by the provisions
of this Agreement and executes and delivers to General Motors and the applicable
Donee a transferee agreement reasonably satisfactory to General Motors and the
applicable Donee to effectuate the purposes hereof.
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<PAGE>
(g) Until all restrictions set forth in Sections 1(a) through 1(f)
have terminated pursuant to the terms set forth therein, the Donees shall not
make any Transfer of securities convertible into or exercisable or exchangeable
for the Transferable Securities or any other securities the value of which is
derived from the Transferable Securities.
(h) Until all restrictions set forth in Sections 1(a) through 1(f)
have terminated pursuant to the terms set forth therein, the Donees (or the
Trustees on behalf of the Pension Plan and the VEBA) will vote against any
proposed Merger or similar transaction for which it is entitled or permitted to
cast a vote if General Motors delivers to the Trustees, no later than three
Business Days prior to the scheduled date for the stockholders meeting at which
such Merger or similar transaction is to be voted on or the expiration date for
the consent solicitation with respect thereto, as the case may be, an opinion of
tax counsel reasonably satisfactory to the Trustees (which tax counsel may have
been and be retained, employed or consulted from time to time by General Motors)
that there is a material risk that such Merger or similar transaction would have
an adverse impact on the tax-free status of a Spin-Off.
(i) No Transfer or attempted Transfer of Transferable Securities in
violation of this Agreement shall be made or recorded on the books of General
Motors (or any other issuer of the Transferable Securities) and any such
Transfer shall be void and of no effect.
(j) Each certificate representing the shares of Class H Common Stock
(or other evidence thereof) contributed to the Donees pursuant to the
Registration Rights Agreement shall conspicuously bear a legend in substantially
the following form and each uncertificated share of Class H Common Stock shall
have an appropriate designation made in the book-entry records relating thereto
to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
TRANSFER AGREEMENT, DATED AS OF __________ ___, _____, BY AND BETWEEN
GENERAL MOTORS CORPORATION ("GENERAL MOTORS") AND THE INITIAL HOLDER
HEREOF THAT CONTAINS, AMONG OTHER THINGS, CERTAIN RESTRICTIONS ON THE
TRANSFER OF SUCH SECURITIES. A COPY OF SUCH TRANSFER AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY GENERAL MOTORS TO THE HOLDER HEREOF UPON
WRITTEN REQUEST."
The certificates representing shares of Class H Common Stock (or other evidence
thereof) held by the Donees and acquired other than pursuant to the Registration
Rights Agreement shall be promptly surrendered to General Motors in order that
General Motors' transfer agent may place such legend upon them. General Motors
(or any other issuer of the Transferable Securities) shall instruct its transfer
agent that such legend or the book-entry designation shall be removed from the
certificates representing any Transferable Securities upon the earlier of (i)
the Transfer of such shares of Transferable Securities if such Transfer is made
in accordance with all applicable provisions of this Agreement and to a Person
(or group of
4
<PAGE>
related Persons acting pursuant to a plan or arrangement) who is not required to
execute a transferee agreement under Section 1(f) and (ii) the termination of
all restrictions set forth in Sections 1(a) through 1(f) pursuant to the terms
set forth therein.
(k) Nothing herein shall be construed as a waiver or modification of
any of the restrictions on Transfer of the Registrable Securities (as defined in
the Registration Rights Agreement) set forth in the Registration Rights
Agreement, in no event shall any Transfer of the Transferable Securities be
deemed to be a permitted Transfer of the Registrable Securities under the
Registration Rights Agreement solely because such Transfer is permitted under
this Agreement and in no event shall any Transfer of the Registrable Securities
be deemed to be a permitted Transfer of the Transferable Securities under this
Agreement solely because such Transfer is permitted under the Registration
Rights Agreement.
2. Representations, Warranties and Covenants.
-----------------------------------------
(a) The Pension Plan represents that it owns __________ shares of
Class H Common Stock as of the date hereof. The VEBA represents that it owns
__________ shares of Class H Common Stock as of the date hereof.
(b) Each of the Donees agrees that from and after the date hereof it
shall not purchase or acquire, in open market transactions or otherwise, any
additional shares of Class H Common Stock or any securities convertible into or
exercisable or exchangeable for the Class H Common Stock or any other interest
in the Class H Common Stock; provided, that (i) any securities received by
either Donee as consideration for any exchange or conversion of Class H Common
Stock pursuant to the terms of a Spin-Off or a Merger, (ii) any securities
acquired by either Donee as a dividend or other distribution on the Class H
Common Stock and (iii) any shares of Class H Common Stock contributed to the
Donees pursuant to the Registration Rights Agreement, shall not violate this
Section 2(b). The foregoing covenant shall terminate following the consummation
of a Spin-Off on the second anniversary of the Spin-Off Date.
3. Cooperation and Other Covenants.
-------------------------------
(a) The Donees shall take (or refrain from taking) all such actions
as General Motors may reasonably request as necessary to ensure that General
Motors obtains and maintains a private letter ruling from the IRS or an opinion
of counsel selected by General Motors (the "Spin-Off Ruling") confirming, in
form and substance reasonably satisfactory to General Motors, that no income,
gain or loss will be recognized by General Motors, its stockholders or
Affiliates on account of a Spin-Off (except to the extent of any additional
consideration described in Section 356 of the Code). Without limiting the
generality of the foregoing, the Donees shall agree to be bound by such further
restrictions on their ability to Transfer the Transferable Securities and to
make such further representations and covenants and execute such additional
documents, in each case as General Motors may reasonably request as necessary in
connection with obtaining the Spin-Off Ruling.
5
<PAGE>
(b) If so requested by the Donees, General Motors shall waive or
modify any restriction set forth in Section 1 if and to the extent that General
Motors obtains a private letter ruling from the IRS or opinion of counsel
selected by General Motors (the "Modification Ruling") confirming, in form and
substance reasonably satisfactory to General Motors, that such proposed waiver
or modification shall not adversely affect General Motors' ability to obtain and
maintain a Spin-Off Ruling. General Motors and the Pension Plan shall cooperate
with each other (and any such tax counsel) and shall take (or refrain from
taking) such actions as either party hereto may reasonably request as necessary
to obtain any requested Modification Ruling.
(c) General Motors shall promptly notify the Donees of any intention
of General Motors to effect or abandon a Spin-Off.
(d) Until all restrictions set forth in Section 1 have terminated,
each Donee shall give General Motors written notice of any proposed Transfer of
the Transferable Securities within a reasonable period of time prior to such
proposed Transfer, and in any event no later than such date as any notice with
respect to such proposed Transfer is required to be given by such Donee pursuant
to the Registration Rights Agreement (including any notice of election to
participate in any Piggyback Registration) or, if no such date is provided for
in the Registration Rights Agreement, 10 days prior to the proposed consummation
of such Transfer. Each notice hereunder of a proposed Transfer shall set forth
the number of shares of Transferable Securities then owned by the applicable
Donee and the terms and conditions of such proposed Transfer, including, without
limitation, the approximate number of Transferable Securities proposed to be
Transferred, the proposed timetable for such Transfer, whether such Transfer is
to be made pursuant to an underwritten public offering in accordance with
Section 1(f) and, if such Transfer is to be made otherwise, the identity of any
proposed transferee and the number of shares of Class H Common Stock otherwise
then owned by such proposed transferee, all with sufficient particularity to
enable General Motors to determine whether such proposed Transfer would comply
with the provisions of this Agreement. If, in connection with any such proposed
Transfer, the applicable Donee receives from any proposed underwriter, co-
manager or transferee any certificate, representation, undertaking or other
documentation intended to establish compliance with the provisions of this
Agreement, then such Donee shall deliver to General Motors a copy thereof prior
to the consummation of such proposed Transfer. Such Donee shall give General
Motors written notice of any material change in the terms and conditions of a
proposed Transfer from those described in any previous notice thereof to General
Motors from such Donee as promptly as practicable, and in no event later than
two Business Days prior to such time as such Transfer is then proposed to be
consummated, and such Donee shall not make any proposed Transfer other than in
accordance with such terms and conditions as so described to General Motors. If
at any time prior to the consummation of any proposed Transfer, General Motors
determines, based on the advice of its legal counsel, that such proposed
Transfer would violate any of the restrictions or be inconsistent with any of
the provisions of this Agreement, then General Motors shall give notice to the
applicable Donee of such determination and, unless and until tax counsel (which
shall not be tax counsel regularly employed by General Motors or the applicable
Donee unless otherwise agreed) mutually agreeable to General Motors and the
applicable Donee (the fees and
6
<PAGE>
expenses of which shall be borne equally by General Motors and the applicable
Donee) delivers an opinion to General Motors and the applicable Donee that such
proposed Transfer would not so violate or be inconsistent with this Agreement,
such Donee shall not make such proposed Transfer. General Motors and the Donees
shall cooperate with each other (and any such tax counsel) and shall provide
each other with such information as may reasonably be requested in order to
enable any party (or such tax counsel) to make any determination with respect to
this Agreement.
(e) Each of the parties shall treat all notices of and information
relating to proposed Transfers, Spin-Offs and Mergers, including, without
limitation, all notices pursuant to Sections 3(c) and 3(d), that are received
from the other party with the strictest confidence and shall not disseminate
such information; provided, that nothing herein shall prohibit disclosure of any
such notice or information to the then issuer of the Transferable Securities.
Nothing herein shall be construed to require General Motors or any of its
Affiliates to make any public disclosure of information at any time.
4. Remedies. Each of the parties to this Agreement shall be
entitled to enforce its rights under this Agreement specifically, to recover
damages and costs (including reasonable attorneys fees) caused by any breach of
any provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that either Donee's breach of
any term or provision of this Agreement will materially and irreparably harm
General Motors, that money damages will accordingly not be an adequate remedy
for any breach of the provisions of this Agreement by the Donees and that
General Motors, in its sole discretion and in addition to any other remedies it
may have at law or in equity, may apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
5. Definitions and Interpretations.
-------------------------------
(a) Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 under the Exchange
Act (or any successor thereto).
"Business Day" means such days as the New York Stock Exchange, Inc.
shall be open for trading.
"Class H Common Stock" means Class H Common Stock, par value $0.10 per
share, of General Motors and any securities issued or issuable with respect to
the Class H Common Stock in connection with any stock dividend, stock split
(forward or reverse), combination of shares, recapitalization, merger,
consolidation, redemption, exchange of securities or other reorganization or
reclassification after the date hereof, including, without limitation, shares of
capital stock of Hughes issued or issuable with respect to the Class H Common
Stock in connection with a Spin-Off and shares of capital stock issued or
issuable with respect to such shares of capital stock of Hughes in connection
with a Merger. In the
7
<PAGE>
event of any of the foregoing with respect to the Class H Common Stock or
similar transactions affecting the Class H Common Stock, all references herein
to the designation "Class H Common Stock" and to any specific number of shares
of Class H Common Stock shall be appropriately adjusted to give effect thereto,
and shall include reference to all securities of the same class regardless of
whether any such securities were issued or issuable with respect to the
securities that previously constituted the Class H Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"5% Person" means any Person (or group of related Persons acting
pursuant to a plan or arrangement) that, directly or indirectly, beneficially
owns (as defined in Rule 13d-3) shares of Class H Common Stock or shares of any
class of capital stock of Hughes that constitute 5% or more of the total voting
power or total value of the Class H Common Stock or such class of capital stock
of Hughes, as applicable, then outstanding (computed for this purpose as if any
option, warrant, or other security that permits such Person (or group of related
Persons acting pursuant to a plan or arrangement) to acquire additional shares
of Class H Common Stock or such class of capital stock of Hughes (or any
securities convertible into or exchangeable or exercisable for the Class H
Common Stock or such class of capital stock of Hughes) had been fully converted,
exchanged or exercised); provided that no Person (or group of related Persons
acting pursuant to a plan or arrangement) shall be deemed a 5% Person for
purposes of Section 1(c) if such Person (or group of related Persons acting
pursuant to a plan or arrangement) acquired such shares directly from General
Motors.
"IRS" means the Internal Revenue Service.
"Merger" means any business combination involving two or more
corporations, or any other transaction (or series of related transactions)
involving the issuance, exchange, conversion, recapitalization or redemption of
Class H Common Stock.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
"Transfer" means any sale, transfer or other disposition (including
any pledge and any disposition upon the foreclosure of any pledge) or any
agreement to do any of the foregoing.
"Transferable Securities" means (i) the Class H Common Stock
contributed to the Donees pursuant to the Registration Rights Agreement from
time to time, and (ii) the securities issued or issuable with respect to the
securities referred to in clause (i) in connection with any stock dividend,
stock split (forward or reverse), combination of shares, recapitalization,
merger, consolidation, redemption, exchange of securities or other
reorganization or reclassification after the date hereof, including, without
limitation, shares of capital stock of Hughes issued or issuable with respect to
the Class H Common Stock in connection with a Spin-Off and shares of capital
stock issued or issuable with respect to the
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Class H Common Stock in connection with a Merger. In the event of any of
the foregoing with respect to the Transferable Securities or similar
transactions affecting the Transferable Securities, all references herein to the
designation "Transferable Securities" and to any specific number of shares of
Transferable Securities shall be appropriately adjusted to give effect thereto.
(b) Interpretations.
For purposes of this Agreement, "knowledge of either Donee after
reasonable inquiry" shall mean actual knowledge of such Donee after such
inquiry, provided that, for purposes of determining compliance of any proposed
Transfer of Transferable Securities with the provisions of this Agreement, (i)
both Donees shall be deemed to have actual knowledge of the information
contained in any Schedule 13D or 13G (or any successor thereto) filed under the
Exchange Act or any amendment thereto with respect to the Class H Common Stock
more than two Business Days prior to such proposed Transfer and (ii) if such
Transfer is made pursuant to an underwritten public offering as described in
Section 1(d), both Donees shall be deemed to have made a reasonable inquiry if
they shall have conducted a search of the filings of Schedules 13D and 13G (and
any successors thereto) under the Exchange Act and any amendments thereto within
two Business Days of such proposed Transfer.
6. Miscellaneous.
-------------
(a) Successor Issuers. In the event that, at any time after the time a
which the Class H Common Stock is converted into, exchanged for or otherwise
becomes a security of Hughes, Hughes enters into any transaction pursuant to
which the capital stock of Hughes is to be converted into, exchanged for or
otherwise become the right to receive securities of any issuer other than
Hughes, then all references herein to Hughes (including this Section 6(a)) shall
be deemed as of the time of consummation of such transaction to be references to
both Hughes and such successor issuer.
(b) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented except
by a writing signed by General Motors, the Pension Plan and the VEBA.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be made by hand delivery, by
registered or certified first-class mail, return receipt requested, overnight
courier or facsimile transmission:
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(i) If to the Pension Plan:
United States Trust Company of New York
600 Fourteenth Street, N.W., Suite 400
Washington, DC 20005-3314
Attention: Norman P. Goldberg
Authorized Agent
Telephone: (202) 585-4175
Facsimile: (202) 783-7044
with a copy to:
--------------
General Motors Investment Management Corporation
767 Fifth Avenue
New York, New York 10153
Attention: Managing Director, North American Equities
Telephone: (212) 418-6420
Facsimile: (212) 418-3665
and
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Jones, Day, Reavis & Pogue
2727 North Harwood Street
Dallas, Texas 75201-1515
Attention: James F. Carey
Telephone: (214) 220-3939
Facsimile: (214) 969-5100
(ii) If to the VEBA:
United States Trust Company of New York
600 Fourteenth Street, N.W., Suite 400
Washington, DC 20005-3314
Attention: Norman P. Goldberg, Authorized Agent
Telephone: (202) 585-4175
Facsimile: (202) 783-7044
with a copy to:
--------------
General Motors Investment Management Corporation
767 Fifth Avenue
New York, New York 10153
Attention: Chief Investment Officer, GM Subsidiaries
Telephone: (212) 418-6318
Facsimile: (212) 418-3656
and
---
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<PAGE>
Jones, Day, Reavis & Pogue
2727 North Harwood Street
Dallas, Texas 75201-1515
Attention: James F. Carey
Telephone: (214) 220-3939
Facsimile: (214) 969-5100
(iii) If to General Motors:
General Motors Corporation
767 Fifth Avenue
New York, New York 10153
Attention: Treasurer
Telephone: (212) 418-3500
Facsimile: (212) 418-3695
with copies to:
---------------
General Motors Corporation
Legal Staff
300 Renaissance Center
Mail Code 482-C25-C22
Detroit, Michigan 48265-3000
Attention: Warren G. Andersen, Esq.
Telephone: (313) 665-4921
Facsimile: (313) 665-4978
All notices and communications shall be deemed to have been duly given
and received: when delivered by hand, if hand delivered; the fifth Business Day
after being deposited in the mail, registered or certified, return receipt
requested, first class postage prepaid, or earlier Business Day actually
received, if mailed; the first Business Day after being deposited with an
overnight courier, postage prepaid, if by overnight courier; upon oral
confirmation of receipt, if by facsimile transmission. Each party agrees
promptly to confirm receipt of all notices.
Whenever notices are required to be given by General Motors, such
notices may only be given by the Treasurer of General Motors or another officer
or employee of General Motors designated by the Treasurer in advance in writing
to the recipient of such notice. Whenever notices are required to be given by
any investment manager (including the Trustees) with respect to the Transferable
Securities, such notices may only be given by an officer or employee of such
investment manager designated in advance in writing to the recipient of such
notice.
(d) No Third Party Beneficiaries. This Agreement shall be for the
sole and exclusive benefit of General Motors, the Pension Plan, the VEBA, the
Pension Plan Trustee, the VEBA Trustee and any other investment manager or
managers acting on behalf of the Pension Plan or the VEBA with respect to the
Transferable Securities, and their respective
11
<PAGE>
successors, and directors, trustees, officers, employees, agents and controlling
Persons indemnified hereunder. Nothing in this Agreement shall be construed to
give any other Person any legal or equitable right, remedy or claim under this
Agreement.
(e) Descriptive Headings. The headings of the sections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof.
(f) Cooperation. Each party hereto shall take such further action,
and execute such additional documents, as may be reasonably requested by any
other party hereto in order to carry out the purposes of this Agreement.
(g) Binding Effect; Assignment. This Agreement shall be binding upon
and shall inure to the benefit of and be enforceable by each of the parties and
their successors. Except for an assignment to a successor trustee or to an
investment manager as stated herein and except as provided in Section 1(f), none
of the rights or obligations under this Agreement shall be assigned by either
Donee without the consent of General Motors or by General Motors without the
consent of the Donees.
(h) Counterparts. This Agreement may be executed in counterparts, and
shall be deemed to have been duly executed arid delivered by all parties when
each party has executed a counterpart hereof and delivered an original or
facsimile copy thereof to the other party. Each such counterpart hereof shall be
deemed to be an original, and all of such counterparts together shall constitute
one and the same instrument.
(i) Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the internal
laws (and not the laws of conflict) of the State of Delaware, except to the
extent that the laws of the state or jurisdiction of incorporation or
organization of the issuer of the Transferable Securities from time to time
specifically govern questions concerning the relative rights of the issuer of
the Transferable Securities and the stockholders of such issuer in their
capacities as such.
(j) Acknowledgments. Each of the Donees agrees that it will (i)
obtain written acknowledgments, and provide a copy of such acknowledgments to
General Motors from each of its investment managers with respect to the
Transferable Securities (other than the Trustees), confirming that such entity
has received and reviewed this Agreement and will comply with the terms of this
Agreement applicable to it and (ii) inform each of the investment managers
working with or for the Donees in any capacity of the existence and terms of the
covenant made by the Pension Plan in Section 2(b) and instruct each such
investment manager to comply with such covenant at all times until such covenant
terminates as provided in Section 2(b).
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, being duly authorized have
executed and delivered this Transfer Agreement on the date first above written.
GENERAL MOTORS CORPORATION
By:____________________________________
Name:
Title:
GENERAL MOTORS HOURLY-RATE
EMPLOYEES PENSION PLAN
By: The United States Trust Company of
New York, As Trustee
By:__________________________________
Name:
Title:
GENERAL MOTORS WELFARE BENEFIT
TRUST
By: The United States Trust Company of
New York, As Trustee
By:__________________________________
Name:
Title:
13
<PAGE>
EXHIBIT B
---------
INTEREST RATE SCHEDULE
The interest rate referred to in Section 2(f) (iv) shall be a per
annum rate equal to the sum of (i) the rate quoted on the date of delivery of
the Exercise Notice for United States Treasury bills with a maturity of 90 days
and (ii) the amount set forth below under the column "Spread" corresponding to
the rating (the "Rating") assigned by Standard & Poor's Ratings Group ("S&P") to
the short term unsecured debt obligations of Issuer on the date of delivery of
the Exercise Notice (it being understood that, for purposes of the foregoing,
(i) the rating assigned to such debt obligations by any other rating agency
shall be disregarded, (ii) any plus attached to a rating assigned by S&P shall
be disregarded, (iii) any minus attached to a rating assigned by S&P shall be
considered a downgrade to the next lowest rating and (iv) if S&P changes its
rating system after the date hereof, the Ratings as set forth below shall be
adjusted to the comparable ratings under such new rating system).
Rating Spread (in basis points)
-------------------------------
A-1 30
A-2 60
A-3 or below 100
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<PAGE>
EXHIBIT C
---------
SUCCESSION AGREEMENT
This Agreement is entered into as of _____________, ____, by and
between ______________________, a ________ corporation ("Predecessor"), and
_______________________, a ________ corporation ("Successor"). Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
the Registration Rights Agreement, dated as of __________ __, ____ (the
"Registration Agreement") by and among General Motors Corporation, a Delaware
corporation ("General Motors"), and United States Trust Company of New York, as
trustee (the "Pension Plan Trustee") of a trust established under the General
Motors Hourly-Rate Employees Pension Plan (the "Pension Plan"), for the account
of and on behalf of the Pension Plan and United States Trust Company of New
York, as a trustee (the "VEBA Trustee") of a dedicated account within the
General Motors Welfare Benefit Trust, a voluntary employees' beneficiary
association trust established to fund certain hourly retiree health care and
life insurance benefits under the General Motors Health Care Program for Hourly
Employees and other applicable welfare plans (the "VEBA"), for the account of
and on behalf of the VEBA.
WHEREAS, Predecessor is currently the issuer of the securities
referred to as the "Registrable Securities" and "Class H Common Stock" in the
Registration Agreement and generally has the rights and the obligations of
Issuer under the Registration Agreement; and
WHEREAS, pursuant to ____________________ (the "Transaction"), shares
of Class H Common Stock shall be [converted into] [exchanged for] securities of
Successor (the "Successor Securities"), effective as of ___________ (the
"[Conversion] [Exchange] Date"); and
WHEREAS, the Registration Agreement contemplates that in the event of
a transaction such as the Transaction, Successor shall generally succeed to the
rights and obligations of Issuer under the Registration Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Predecessor and
Successor hereby agree as follows:
1. Succession.
----------
(a) Effective as of the [Conversion] [Exchange] Date, all rights,
obligations and restrictions with respect to shares of Class H Common Stock
(including Registrable Securities) set forth in the Registration Agreement shall
apply to the Successor Securities.
<PAGE>
(b) Effective as of the [Conversion] [Exchange] Date, Successor shall
be bound by the Registration Agreement and shall succeed to all rights,
restrictions and obligations of Issuer set forth in the Registration Agreement,
all references to Issuer therein shall thereafter be deemed to be references to
Successor, and Predecessor shall be released from all obligations under the
Registration Agreement.
(c) Notwithstanding subsections (a) and (b) above, (i) all rights and
obligations in Sections 1(a) through 1(e) of the Registration Agreement shall
remain rights and obligations of General Motors and (ii) Predecessor shall not
be released from any obligations under Section 10 of the Registration Agreement
with respect to any registration of securities issued by Predecessor.
2. Cooperation. Predecessor and Successor shall take such further
action, and execute such additional documents, as may be reasonably requested by
either party in order to carry out the purposes of this Agreement.
3. Counterparts. This Agreement may be executed in counterparts, and
shall be deemed to have been duly executed and delivered by all parties when
each party has executed a counterpart hereof and delivered an original or
facsimile copy thereof to the other party. Each such counterpart hereof shall be
deemed to be an original, and all such counterparts together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto, being duly authorized, have
executed and delivered this Succession Agreement on the date first above
written.
PREDECESSOR:
By:
Name:
SUCCESSOR:
By:
Name:
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<PAGE>
This Succession Agreement (including, without limitation, the release
of the Predecessor from obligations under the Registration Agreement as set
forth herein (except as provided in Section 1(c) above)), is acknowledged and
agreed to as of this ____ day of _________, ____.
GENERAL MOTORS HOURLY-RATE
EMPLOYEES PENSION PLAN
By: United States Trust Company
of New York, as Trustee
By:
Its:
GENERAL MOTORS WELFARE BENEFIT TRUST
By: United States Trust Company
of New York, as Trustee
By:
Its:
3
